"Scavenger Hunt for Yield"
Federated's Debbie Cunningham, CIO, Global Money Markets, released her February "Month in Cash" column, called "The Scavenger Hunt for Yield." She writes, "We look forward to normal conditions, but wouldn't mind orderly ones, too. No, I am not talking about weather. Unpredictable conditions and too frequent "storms of the century" seem here to stay. It's the normalization of interest rates to above zero that is on our, and most everyone's, minds. We as cash managers would like to see some orderliness, too. We search tirelessly for the highest yield, yet these days it can feel like a scavenger hunt. Sometimes it goes well. For instance, early in January we went out the curve for some 1-year products, both fixed- and floating-rate, that brought better returns, and we didn't have to rely on the Federal Reserve as much. Other days can be less fruitful in this land of historically low rates. The truth is, for all cash managers, the irregular movement of rates and uneven supply simply makes trading more difficult than it need be. You have good rates for a week or two, say 15 or 20 basis points, and then get zero for three or four days. It's been like this since 2011-12. But the Fed's offering of term repo has helped and will help (the last meeting of the Federal Open Market Committee included an announcement from the New York Fed of more term repo in upcoming months and at quarter-end). The $300 billion allotment for 2014's year-end definitely helped to smooth what might have been a difficult trading period." Cunningham adds, "Of course, we would love to return to a time when the Fed was not the lender of "first" resort and we could work primarily with our traditional partners. But we need rates to rise first.... [O]ur outlook still puts liftoff of the target fed funds rate somewhere around mid-year, perhaps at the August or September FOMC meeting. We feel we are on the right track at this point for tightening.... I truly think that the Fed's mantra of data dependency is as much of a factor going forward as it ever has been. Although we seem to be going nicely in the U.S., we are not isolationists. We are impacted by other issues and have to see how potent they are."
