Federated Investors writes in its latest "Month in Cash," a brief entitled, "No more normal?" Money market CIO Deborah Cunningham comments, "For the Federal Reserve over the last 2 1/​2 years, business as normal has been the business of normalizing policy. It looks as if the Fed has finally shifted to tightening. In mid-​June, it raised rates to a target range of 1.​75-​2%, closer than the Fed has been in more than a decade to its comfort zone. With its summary of economic projections now indicating two more hikes in 2018 (​our house call, as well) and three in 2019, quantitative tapering (​QT) set to expand to $​40 billion per month in July and Chair Jerome Powell'​s upbeat assessment of the economy, it appears expansionary policy will soon run its course. We likely are near a bona-​fide tightening cycle.... Powell announced that starting in July, he would be holding press conferences after every Federal Open Market Committee (​FOMC) meeting instead of every other one.... As the Fed tightens, hikes will become more and more critical and Fedspeak more and more scrutinized because too many hikes might precipitate a recession. The "​plain-​spoken" Powell will need to choose his words carefully. In June, the 1-​month London interbank offered rate (​Libor) rose from 1.​98% to 2.​09%; 3-​month increased from 2.​31% to 2.​34%; and 6-​month rose from 2.​47% to 2.​50%. The bump in the short end made floating-​rate securities attractive for cash managers. The prime space saw a substantial supply of these and other short-​term instruments, such as commercial and bank paper, and even Treasuries fit because of their still attractive yields on elevated supply. We kept the weighted average maturity (​WAM) of our prime funds in a 30-​40 day range, and at the short end of that for good measure." Federated adds, "In June, institutional prime products industry-​wide continued to show only minor net asset value (​NAV) movement. This stability played a large part in investors returning cash to the sector, as the appeal of the additional 25-​30 basis points in spread over government funds with next-​to-​no concern of loss of principal. Lastly, the spread between 3-​month Libor and the Overnight Index Swap (​OIS) remained wide in the month, not due to poor bank credit but excess short-​term Treasury issuance from the Treasury Department and supply coming from Fed QT."

Your Name:
Your Email:
Recipient Email(s):

Use a comma or a semicolon to separate

Please retype symbols from the image:

Optional Message

Daily Link Archive