Latest Dreyfus PM Commentary
Dreyfus recently posted a pair of portfolio manager commentaries discussing market events in the taxable and tax exempt money fund sectors. Patricia Larkin, chief investment officer BNY Mellon CIS, in her Taxable funds perspective, opens with, "Despite the solid employment picture, the Federal Reserve ... telegraphed a major policy shift following its Jan. 30 Federal Open Market Committee meeting. After several years of consistently saying that further increases on the overnight federal funds rate were likely, the Fed decided to leave rates unchanged and to stress that it would be 'patient' in determining future policy moves. This is just one month after their projections indicated between three and four rate increases during 2019.... While they made no mention of it in their post-meeting statement, Fed officials have also indicated that their current policy of running down the balance sheet over time is also subject to review. It has become clear that it's much easier to do quantitative easing than it is to manage the unwind, which has never been done on this scale before. The Fed has recognized the increasing uncertainty surrounding the world economy.... They may eventually decide to take the punch bowl away, but for the moment, the punch will remain available at current levels." Meanwhile, Colleen Meehan, director of Tax-Exempt Money Market Fund Strategies, offers her views as well. She writes, "Assets increased in January due to the imbalance of newly-issued securities and the reinvestment of coupon payments and security maturities. Cash flooded the market looking for a parking place, which pushed floating security rates lower, as anticipated. The funds added fixed-rate securities as rates backed up in December to smooth out this period of lower variable rates." She also wrote about impacts of taxes on fund asset flows, saying, "Tax-exempt money market funds have seen an increase in assets, particularly in the retail sector, as after-tax yields are attractive. Assets were up approximately 10% in 2018. Interest in single-state funds, specifically high-tax states, has seen an increase in assets. We expect this trend to persist as rates continue to post attractive after-tax returns." She concludes, "The beginning of 2019 finds the states in generally sound credit positions following a period of robust economic and revenue growth in 2018.... As the majority of states prepares and develops fiscal 2020 budgets, there is some emerging concern over trends in personal income tax revenue.... A number of high-tax states, such as California, New Jersey and New York, have noted declines in and lower-than-projected personal income tax collections.... We will carefully monitor income tax receipts during this current tax season, as states make adjustments to the difficult process of tax revenue projections."
