Portfolio Manager Commentary

  • Tax Reform—Overseas Cash and Repatriation Implications Prior to 2018, the United States’ relatively high corporate tax rate incented many domestic companies with international operations to locate foreign subsidiaries in tax-haven countries and delay U.S. tax payments.
  • Overview, strategy, and outlook: As of December 31, 2017 In the money markets, two themes seem to persist and never go away, and last year proved no different from previous years. We were able to break out of that cycle with only 2 of our 10 commentaries this year by producing focus pieces unrelated to those issues.
  • Overview, strategy, and outlook: As of November 30, 2017 When we last met, the House was teetering on the brink of approving a tax reform package, which it passed shortly after the month began.
  • Overview, strategy, and outlook: As of October 31, 2017 October seemed like a relatively quiet month: Nothing happened to roil financial markets and, if you factored out tweets and the inevitable responses, Washington actually seemed functional, at least until the end of the month. In a surprising and largely unheralded development, Congress passed a budget resolution!
  • Overview, strategy, and outlook: As of September 30, 2017 During the eventful month of September, the market’s focus shifted from a debt-ceiling obsession to a Federal Reserve (Fed) hiking cycle rising from the ashes. Each week had its moment, beginning with a debt-ceiling deal on September 6, just two working days after the Labor Day holiday and, perhaps more importantly, Congress’ long summer break.
  • Frequently asked questions: The debt ceiling With the passage of Labor Day, Congress and the markets will be back at work, bringing the looming debt-ceiling crisis into increasing prominence.
  • Overview, strategy, and outlook: As of June 30, 2017 June was a fairly active month in money market land, with two events seemingly capturing the attention of most inhabitants. First, the Federal Open Market Committee (FOMC) met on June 14 and 15 and, in a move that surprised no one, raised the federal funds target range by 25 basis points (bps; 100 bps equal 1.00%). Federal Reserve (Fed) Chair Janet Yellen held a press conference at which she reiterated the Fed’s commitment to normalizing interest rates as economic conditions warranted. Second, the Fed released an addendum to its usual postmeeting statement that outlined the methods and timing of its program to shrink the size of its balance sheet; the unusual nature of the release—that is, a document separate from and distributed between the scheduled release of its meeting minutes—suggests that the timing of “this year” to begin reducing reinvestments may occur sooner than the end of the year.
  • Overview, strategy, and outlook: As of May 31, 2017 The main topic in the government space continues to be the Federal Reserve (Fed), including its potential interest-rate path and balance sheet changes.
  • Overview, strategy, and outlook: As of April 30, 2017 The ink was barely dry on the Federal Reserve’s (Fed’s) December 7, 2016, announcement that it would hike rates when money market participants, the impatient lot that they sometimes are, moved on to the next topic of speculation: When would the Fed begin normalizing its balance sheet?
  • Overview, strategy, and outlook: As of March 31, 2017 At the beginning of 2017, the market’s base case was for the Federal Open Market Committee (FOMC) to raise its target rate twice this year, with most participants thinking rate hikes would occur in June and December. Even as economic data continued its improving trend and inflation indicators started to tick up, market expectations were tempered by the considerable uncertainties surrounding the new administration’s impacts on growth and inflation.
  • Overview, strategy, and outlook: As of February 28, 2017 Viva Las Vegas! The Structured Finance Industry Group (SFIG) held its 2017 conference in Las Vegas from February 26 to March 1. The SFIG is an industry association with a large membership, drawing professionals from rating agencies, issuers, dealers, the investing and legal communities, and other participants in the structured finance marketplace.
  • Overview, strategy, and outlook: As of January 31, 2017 With so much going on related to the United States’ periodic peaceful transition of power and all it entails this time around—including, perhaps, a shift in the fiscal/monetary balance as well as a reboot of the country’s global economic and strategic relationships—it feels strange to report that little went on in the money markets in January.
  • Overview, strategy, and outlook: As of December 31, 2016 To no-one’s surprise, money market reform-related topics dominated discussions in our monthly commentaries over the last year, with the U.S. Federal Reserve (Fed) following a close second. About the only break investors received from those two topics were in February, in which we discussed the overall credit environment and retail trends that could affect credits in the coming year, and June, in which we discussed implications for the money markets of the U.K.’s referendum on exiting the European Union—i.e., Brexit; and even then, we couldn’t help but insert a bit of information about reform-related flows!
  • Overview, strategy, and outlook: As of November 30, 2016 With money market reform-related conversions some seven to eight weeks in our rear-view mirror, the short-term markets seem to be settling in and adjusting to their “new normal.” Following the great rotation out of prime funds and into government funds, prime funds continued to leak assets through most of November, though the pace significantly decreased, and even reversed, in the waning days of the month.
  • Overview, strategy, and outlook: As of October 31, 2016 When something as transformative as money market reform occurs, one naturally expects something will mark—or mar, depending on your outlook—the occasion. After all, this reform effort has affected virtually every aspect of the short-term investment markets. The U.S. Securities and Exchange Commission (SEC) required all institutional prime and municipal money market funds to begin transacting with shareholders at a floating net asset value (FNAV) by the fund opening on Friday, October 141. But when the opening bell figuratively rang, nothing happened. It was a day like any other day, with portfolio managers trading and shareholders purchasing and redeeming. It was…ordinary.
  • Overview, strategy, and outlook: As of September 30, 2016 With the end of the third quarter bringing us just two short weeks shy of the U.S. Securities and Exchange Commission’s money market reform implementation deadline, unsurprisingly, the elephant in the room this past month was the same as the previous month. Also not surprisingly, the prospect of reform implementation drove not only investor behavior but also portfolio manager behavior and affected the money markets in a number of ways.
  • Overview, strategy, and outlook: As of August 31 2016 With the passing of Labor Day—and, of more significance here, the Minnesota State Fair—the summer has officially come to a close. Back to school means back to the grindstone for many people. During the summer, activity in fixed-income markets traditionally drops off as traders, portfolio managers, and shareholders all find time to vacation, and this year has been no exception. But while trading in the money markets has been relatively subdued, activity in money market funds has not.
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