More Fitch: LGIP, Offshore Updates
Fitch Ratings published, "LGIP Liquidity to be Pressured Due to Coronavirus." The brief tells us, "The economic impact of the coronavirus will test local government investment pools' (LGIPs) cash management and forecasting in the near term as higher redemptions and lower inflows pressure liquidity according to the latest LGIP dashboard from Fitch Ratings. Municipal entities will see reduced economically sensitive revenues from sales and income taxes, which will lead to smaller than expected inflows into LGIPs during the tax collection season starting in April. Additionally, certain LGIP investors such as healthcare providers are likely to have unexpected expenditures (e.g. replenishing medical equipment and supplies)." Fitch's Greg Fayvilevich comments, "Liquidity could become an issue for some LGIPs as redemption requests mount and inflows slide.... In anticipation, LGIP managers are shifting to more defensive allocations, shortening exposures and focusing investments in high credit quality issuers.... LGIP ratings could be adversely affected in the event of meaningful portfolio credit deterioration." The update explains, "The most liquid asset types in LGIP portfolios are money funds, treasuries, and reverse repurchase agreements, while commercial paper and asset backed securities have exhibited meaningfully reduced liquidity during the recent market volatility. While the Federal Reserve's Money Market Mutual Fund Liquidity Facility (MMLF) and other recent central bank measures have helped restore some liquidity to short-term markets, LGIPs are not directly eligible to participate in the MMLF." Fitch adds, "During the fourth quarter, the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index both reached new record asset levels, increasing by 8% and 18%, respectively, quarter-over-quarter. Assets for both indices stood at approximately $310 billion to close out 2019, an increase of roughly $42 billion from the prior year. Conversely, net yields for both indices fell for the third consecutive quarter as the Federal Reserve cut the federal funds target rate by another 25bps in October. Average net yields fell by a larger margin for the Fitch Liquidity LGIP Index (down 35bps to 1.72%) than for the Fitch Short-Term LGIP Index (down 20bps to 1.94%)." Fitch also published, "Liquidity Positions Improved but Credit Stress Increased." It says, "European money market funds (MMFs) of all currencies experienced inflows during the weeks ending 3 April and 9 April 2020, following a turbulent second half of March."
