Wells MMFs on Quarter-End, CP
Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" discusses supply, saying, "As is usually the case, issuance in the short end of the yield curve slows at month-end and at quarter-end as managers hold more cash available for potential outflows. So the timing of this hike resulted in a greater impact on fund yields from a 25 bp higher reset on overnight securities. At the same time, London Interbank Offered Rate (LIBOR) settings were also moving up. You may recall we experienced a large increase in rates before the March tightening but a very muted response to the June hike. This time around, three month LIBOR increased 8 bps in September and another 16 bps in October. Three-month fixed-rate paper is now being placed to mature after the new year as issuers are incented to get funding past year-end." The monthly continues, "During the first week of October, issuance of commercial paper written to mature in 81 or more days spiked as investors and issuers put quarter-end behind them. The first week of October averaged 12% written 81 days or longer compared with 9.80% in September. Not only do issuers want to get funded past year-end, those affected by regulatory requirements prefer maturity dates 32 days or more after year-end, which puts targeted issuance to the first week of February. A look at the pattern of commercial paper maturing after December 31 shows issuers winding up yearend financing at a faster pace than the previous two years." Wells update adds, "As we near the end of the tightening cycle, money market participants may look to extend weighted average maturities (WAMs) to lock in higher yields, but we are more than a few months away from that scenario. In the meantime, we believe breakeven yield calculations favor buying short dated fixed maturities or securities that reset frequently over longer-dated maturities and resets. Our strategy of emphasizing highly liquid portfolios, relatively short WAMs, and a position in securities that reset frequently allows us to capture future FOMC rate moves with minimal net asset value (NAV) pricing pressures and afford the flexibility to add longer-dated securities as opportunities arise."
