be_ixf;ym_201911 d_13; ct_300

Opportunities Arise for Liquidity Investors

August 19, 2016  | by Commonfund

Market Commentary | Operating Assets

For the last several months, significant asset flows have moved from institutional to government-only money market funds in anticipation of new regulations. On October 14, 2016 regulations will finally go into effect for non-government institutional money market funds, with the highlighted feature being the shift from a fixed $1 transaction share price to a floating NAV. These portfolios will be priced using the market-based value of the actual portfolio holdings, out to four decimals. This means that Endowments, Foundations, and other businesses that manage operating cash will no longer be able to hold funds in stable fixed $1.00 share price institutional money market accounts.

This transition to government-only money market funds has kept short-dated Treasury yields low, but has increased the costs of issuance for non-government entities such as financial institutions that were highly dependent on the demand from what had been prime non-government money market funds. The widening in the yield gap can be seen in a number of ways including the backup in six-month LIBOR (London Interbank Offered Rate) to 1.20 percent, from one percent a month ago and just 50 basis points a year ago. In contrast, six-month Treasury bill yields are currently at just 43 basis points, up only 20 basis points from a year ago.

 LIBOR-Chart-V4

A lot of cash investors are giving up an opportunity created by widening spreads in these markets. The lack of investors’ demand in commercial paper, short financial paper, and other non-government obligations has led to a 50 basis point widening in the spread between 6-month LIBOR and 6-month Treasuries during the last 12 months.

We are working with investors to take advantage of this opportunity to potentially earn more than government money market funds.  Excess liquidity cash, not needed for the next three- to six-months, may benefit by being invested a bit out the curve in short-duration instruments, which include high quality commercial paper, floating-rate notes, financial CDs and variable rate demand notes. 

 

Subscribe & Manage Your Frequency to Insights Blog

Stay up-to-date with the latest information with our Insights Blog. Topics covered included:

  • Asset allocation

  • Governance and policy

  • Industry knowledge

  • Market commentary

  • Outsourced investing

  • Risk management

  • Responsible investing

Sign up now to stay informed.

Already signed up? Change your subscription frequency here.



Fill in your details below


Notification Frequency


Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.