Dreyfus' Meehan on Tax-Exempts
Dreyfus Senior Portfolio Manager Colleen Meehan writes in her July "Tax-Exempt Money Market Commentary," "The Federal Open Market Committee continued their cautious approach to the near-term policy outlook at the June meeting. The statement cited risks associated with global growth and recent financial market volatility. The committee continues to closely monitor inflation indicators and global economic and financial developments. July 27 is the next meeting date. The Securities Industry and Financial Markets Association (SIFMA) index increased from 0.01% at the beginning of the year to a 0.40% average for the second quarter. The SIFMA index is a weekly high grade market index comprised of seven-day tax exempt variable rate demand notes produced by Municipal Market Data Group. The average year-to-date 2016 is 0.24% vs. a 0.05% average for 2015. The changing money market landscape, ahead of money market reform, continues to shift funds into shorter and highly liquid securities. The industry Weighted Average Maturity is currently 20 days with institutional funds posting a 15-day average. We continue to maintain high levels of liquidity and weighted average maturities within the industry averages." She continues, "The annual note season began in June with issuers entering the market with their one-year note financings. As expected, one-year rates have backed up as funds continue to stay short and liquid preparing for the shift in fund assets ahead of money market reform. Demand from separately managed accounts, intermediate bond funds and long-term bond funds has picked up as that sector of the market has seen continued asset inflows. We expect issuance to increase during July with a continued rise in the one-year yield on smaller, local issuers as demand for these notes is limited. Careful and well-researched credit selection remains key. Many state general obligation bonds, essential service revenue bonds issued by water, sewer and electric enterprises, certain local credits with strong financial positions and stable tax bases, and various health care and education issuers should remain stable credits. Overall, municipal credit now appears to have stabilized following years of slow improvement. This is particularly evident at the state government level, as rainy day emergency funds have been replenished to pre-recession levels, providing a cushion against future economic downturns. The degree of recovery by region, however, remains varied. Isolated credit concerns still persist, such as the State of New Jersey and the State of Illinois, as pension funding and retiree health care benefits remain challenges. The financing of large-scale infrastructure needs is also a crucial issue for all states."
