Fidelity "New Year, Old Concerns"
Fidelity Investments posted a new brief entitled, "New Year, Old Concerns." Authors Michael Morin and Kerry Pope write, "The Federal Open Market Committee (FOMC) left rates unchanged at its January meeting.... Based on its outlook, the committee maintained its target federal funds rate range at 0.25% to 0.50%.... At the end of January, fed funds futures ... indicated a very low probability of a March hike (11%) and reflected low expectations of just one increase in 2016 (52% probability for December 2016). This is in sharp contrast to the Fed's initial forward guidance of four rate hikes in 2016. We could see the Fed lower its guidance for the amount of rate increases at its March meeting." They continue, "While industry assets under management retreated slightly in January, flows into money market funds (MMF) have been trending higher in recent months thanks in part to larger banks' efforts to cost-justify their deposits given the enhanced regulations. In addition, prime MMFs continue to represent an attractive alternative to short-dated repos and bills. Masking the positive flows into prime MMFs have been the conversions of prime MMFs into government MMFs -- nearly $200 billion in the fourth quarter of 2015. As of January 29, total MMF assets under management in the industry stood at $2,716 billion, an increase of $124 billion from June 30, 2015. Although the Fed may be on hold in the near term, demand for floating-rate bank commercial paper and certificates of deposit has remained strong. This strong demand reflects the duration-shortening attributes of floating-rate securities. In terms of specific instruments, six-month floating issues seem to be the most attractive point along the curve, even though they trade a basis point or more rich compared with fixed rate paper. During the month, reverse repurchase agreement usage averaged $105 billion. The supply of money market instruments has been ample to meet growing demand. The increase in Treasury bill issuance to make refund payments ahead of April tax receipts has resulted in near record operating cash balances at the Treasury. This additional supply has supported yields in the front end of the market." Also, FIS's Vince Tolve wrote an article, "How Is Your Cash Being Impacted by Regulatory Change? Introducing the FIS Corporate Cash Investment Report 2015." It says, "Now in its fifth year, FIS (formerly SunGard)'s Corporate Cash Investment report is an in-depth study among corporate treasury professionals that explores corporate attitudes to cash investment, investment policies and transaction execution, particularly in the context of major regulatory change in the months ahead. Having now built up five years of data, this report uniquely presents not only the 2015 findings but also identifies trends and developments over time." (See our Nov. 9 News, "Sungard Survey Shows Majority of Corps Will Stick w/Prime; Portals.)
