Federated's Cunningham on Cyprus
Federated Investor's Debbie Cunningham writes in their latest "Month in Cash: Cyprus -- the mouse that roared," "During late March, all eyes were on the fiscal crisis bubbling over in Cyprus, despite the fact that the tiny island country off southeastern Europe represents only a small portion of the overall EU economy. The crisis seems to have been averted, if only temporarily, with a last-minute agreement that would have international creditors bailing out the troubled country -- but only in exchange for a tax on uninsured deposits over 100,000 euros in the country's second biggest bank, a move that could result in a 40% haircut for those depositors. There was some concern in the marketplace that the action might set a precedent, and depositors in other EU countries could be made to suffer if their respective governments couldn't get their fiscal houses in order. Depositors in the stronger EU countries, and in the solvent, high-quality banks within those countries (the banks Federated money funds deal with) aren't likely to be at risk. Large depositors in countries with less-than-solvent governments, such as Greece, might look at the Cypriot "solution" as a sign to get their money out of Greek banks before creditors come calling with an offer for a free haircut.... Repurchase (repo) rates were better than anticipated in March. They had been expected to run in the high single digits, but in fact held in at the 13-15 basis point range throughout much of the month. This was most likely a reflection of the issuance of cash management bills into the marketplace as tax payments went out from Washington. That might change in mid April -- individuals who file their taxes before April 15 are generally those who expect a refund, and those who file on the due date are those who owe, so the federal government should start seeing more cash coming in soon." Cunningham adds, "The confirmation hearings for Mary Jo White's nomination to head the Securities and Exchange Commission (SEC) went smoothly, and it's like to be a good development for money market funds, as it may add a fresh perspective in the ongoing regulatory debate. It's too early to tell exactly what position White might take on money funds, but given her background as the U.S. Attorney for the Southern District of New York it looks as if she would approach the issue with a thorough analysis of the facts and consider reasonable regulatory measures."
