Western Asset Liquidity Update
Western Asset's latest "US Liquidity" update tells us, "During August, all eyes were on the Federal Reserve (Fed) looking for any hope of relief from the near-zero rates which have persisted since March of last year. Ultimately this was not forthcoming, leading to short-term rates remaining challenging for liquidity investors for yet another month. In this type of environment our strategy remains largely unchanged; keeping the weighted-average maturities (WAMs) and weighted-average lives (WALs) of our liquidity portfolios slightly higher than longer-term averages, but leaving some cushion from the upper limits in light of the possibility for higher rates later in the year. New purchases were focusing primarily on adding fixed- and floating-rate securities with maturities between one and three months. This strategy will likely persist throughout the rest of 2021 unless we see a significant increase in the prospect for higher rates." They explain, "Western Asset's Treasury Liquidity portfolios maintained a WAM around the mid-50s, while the WAL remained in a range of 108-109 days. Net yields remained just above zero at 1 basis point (bp), in line with the overall short-term Treasury bill (T-bill) market. The Fed's Reverse Repo Program (RRP) was used as the counterparty for repo transactions throughout the month. Similarly, Western Asset's Government Liquidity portfolios kept their WAMs in the mid-30s, while the WAL was also kept in a range of 107-113 days. The flat T-bill curve meant that there was little opportunity to add yield by investing n slightly longer-dated bills at this time. Net yields of the portfolios were maintained at 1 bp, in line with the overall market. A selection of large money center global banks were used as repo counterparties throughout the month." Western adds, "The WAM of our Prime Liquidity portfolios was decreased in the month from 56 to 52 days, while the WAL was also reduced from 74 to 68 days. As with prior months, liquidity in credit-related money market instruments -- such as commercial paper and certificates of deposit -- was sufficient during the month."
