A BNY MELLON COMPANY

Insights & Ideas

Taxable Money Market Commentary

by Senior Portfolio Manager Patricia Larkin

Patricia Larkin

This is Patricia Larkin with a Money Market Commentary for September, 2016. 

  • The August employment report, while somewhat weaker than consensus at 151,000, was still indicative of an economy experiencing continued modest growth. This is consistent with the current 3 quarter GDP forecasts by both the New York and Atlanta Federal Reserve ("Fed") Banks, coming in at 2.8% and 3.5%, respectively.

  • In a major speech in Jackson Hole, Wyoming, Fed Chair Janet Yellen stated that she believed that "the case for an increase in the federal funds rate has strengthened in recent months." However, she pointedly did not put a time frame on any move and stressed that the Fed remained data-dependent. There are only three meetings left in the year and the November meeting is only six days before the presidential election, making any policy change at that meeting highly unlikely.

  • The final stage of money market reform is now only one month away. LIBOR levels have moved up markedly as the market adjusts to the new supply/demand dynamic caused by the shift of institutional prime money funds to a floating rate pricing structure. In anticipation of potential shareholder redemptions, prime funds in general have increased their short-term liquidity and reduced their weighted average maturities. We would expect that trend to continue until after the October 14 implementation date for floating prices. To date, the Treasury and government markets have been able to accommodate the shift out of prime funds. However, there could be some temporary shortages in front-end Treasury supply if shareholder movements become concentrated on certain dates. The availability of the Fed’s reverse repo facility should help mitigate any potential supply disruption.

The statements expressed in this commentary are those of the author as of the date of the article and do not necessarily represent the views of Dreyfus or its affiliates. The views expressed are subject to change rapidly as economic and market conditions dictate, and the statements in the commentary should not be construed as an offer to sell or a solicitation to buy any security. The commentary is provided as a general market overview and should not be considered investment advice or predictive of future market performance. Contact Dreyfus or your advisor for more current information.

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An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Yield fluctuates and past performance is no guarantee of future performance.