Bloomberg (Again) on Prime Shift
Bloomberg writes "Looming Money-Market Shift Has Big Implications for Risk Assets," which recaps recent data on money fund yields and Prime assets. They tell us, "The world's most boring investment is about to get interesting again. When the Federal Reserve makes its forecast interest-rate increase next week, it will take the benchmark above core inflation for the first time since 2008. Money market funds, the bank-deposit alternatives that invest mainly in very short-dated securities, are already enjoying their longest streak of inflows since the global financial crisis. Positive real returns on low-risk assets could shape up as a pivotal moment in the global investment cycle. A number of gauges are now illustrating their increasing attractiveness. Among them: a 3 percent-plus yield on 10-year Treasury notes that's diminishing the relative appeal of equities.... The gap between the yield on three-month Treasury bills and the S&P 500 Index has climbed to the highest since 2008, showing how short-term money is winning more friends as riskier assets are forced to work harder to lure every dollar in this age of exuberance." The article adds, "The Sept. 25-26 Fed meeting will feature a quarterly update to the central bank's dot-plot projections for growth, inflation and the policy rate, offering a fresh outlook on the prospect for further tightening into 2019. Any validation that policy makers are ready to keep going could drive up returns on assets such as six-month Treasury bills, currently yielding 2.35 percent, the most since 2007. Again, it bodes for yet further inflows to cash."
