Bloomberg Says MMF WAMs Short
Bloomberg posted an article entitled, "Battered Money-Market Industry Is Ready for Aggressive Fed." Written by Alexandra Harris, the piece tells us, "While the global financial system waits for the Federal Reserve to begin lifting interest rates, funds across the money-market industry are positioning their cash to take advantage of the higher yields to come. For some funds that means shortening exposure to interest-rate shifts in their portfolios. As of Feb. 14, more than 100 money markets funds had a weighted average maturity, or WAM, of 10 days or less, including some Federated Hermes funds at 1 day, according to money-market information provider Crane Data. That's up from 85 funds on Jan. 24 and 77 at the end of December." It explains, "Money-market funds have been hit hard by the central bank's easy monetary policy. When the Fed slashed its main interest-rate target to 0% to 0.25% in March 2020, the industry was forced to waive fees to preserve what little yield funds were earning on their investments, and some even shuttered after struggling to cover operating costs in the low-rate environment. Now with policy makers on the precipice of an aggressive series of rate increases, fund managers don't want to miss the window of higher rates." Bloomberg quotes Bank of America's Mark Cabana, "There's a lot of uncertainty about the Fed hiking path and as long as there is a very real risk they hike 50 basis points it makes sense that money funds remain short.... If you're a money fund, you don't want to take that risk." The piece adds, "For money funds, a 50 basis-point increase means a quicker return to more normal conditions, such as the reimposition of fees and the ability to offer more yield than bank deposits, which tend to lag money markets when it comes to adjusting to Fed rate increases.... Should the Fed's trajectory remain uncertain, or policy makers opt for the more conventional path of quarter-point hikes, money funds may continue to lean on the central bank's overnight reverse repurchase agreement facility, even pushing balances above $2 trillion, according to Cabana. Demand for the so-called RRP is around $1.64 trillion, off the all-time high of $1.91 trillion reached on Dec. 31."
