Insights & Ideas

Tax Exempt Money Market Commentary

by Senior Portfolio Manager Colleen Meehan

Colleen Meehan

This is Colleen Meehan with a Tax Exempt Money Market Commentary for April, 2016 

  • The U.S. Federal Reserve’s Open Market Committee indicated a more cautious approach to the near-term policy outlook at the March meeting. The statement cited risks associated with global growth and recent financial market volatility. The market is looking at the upcoming April meeting as a non-event and expecting the next increase to occur at the June 15th meeting. Federal Reserve Chair Janet Yellen has said it is appropriate to proceed cautiously in adjusting policy as the global economy presents heightened risks.
  • Investor demand, and continued decreasing supply, has kept yields on Variable Rate Demand Note’s (VRDN) at historical lows. The SIFMA index (a weekly high grade market index comprised of seven-day tax-exempt variable rate demand notes produced by Municipal Market Data Group) average for year-to-date 2016 is 0.04%. We continue to maintain high levels of liquidity and weighted average maturities within the industry averages.
  • March brought some relief to yield starved investors as the SIFMA index increased from .02 at the beginning of the month to .40 at month-end. The changing money market landscape, ahead of money market reform, continues to shift funds into shorter-term and highly liquid securities. The industry Weighted Average Maturity is currently 19 days.
  • Issuance continues to be the main driver in the short-term municipal note market keeping yields suppressed. Short-term issuance is limited, as the need for financing has diminished as tax receipts continue to remain strong and have supported better financial conditions for many municipalities. The outlook for higher interest rates, combined with money market reform, has increased the one-year note index as investors stay in highly liquid, short paper. The one year note season has remained steady as issuers assess their annual financial needs. We expect issuance to pick up the next few months and also expect the one-year index to rise, The one-year index has increased approximately 40 basis points from last year.

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Past performance is no guarantee of future performance.

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The statements and opinions expressed in this article are those of the authors as of the date of the article, are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Dreyfus, or any of its affiliates. This article does not constitute investment advice, is not predictive of future performance, and should not be construed as an offer to sell or a solicitation to buy any security or make an offer where otherwise unlawful. Dreyfus and its affiliates are not responsible for any subsequent investment advice given based on the information supplied.