Donahue Says Everybody's Got Cash
Federated Hermes President & CEO Chris Donahue spoke recently at RBC Capital Markets' Global Financials Conference and briefly discussed zero rates, fee waivers and asset flows. He comments, "In terms of what's going on with recent moves in short rates ... well, there's been a lot of noise, but overall, what you have is a lot of money and not as much supply of paper like T-bills on the short end. So therefore, you have lower overnight repo rates. Over the last couple of weeks, they've been near the bottom of one to three basis points, and the T-bills, if you go out the curve just a little bit, they're in the three to eight basis point range. They're low rates." Donahue continues, "Come the second half of the year, we're thinking this thing is all going to improve and it could improve earlier if the following occurs. For example, we figure it's about a 50/50 shot ... that the Fed will put five basis points on the reverse repo and maybe add five to the IOER. That would be a meaningful move. Part of the reason for that is to get more rate on the short side to keep the machinery well-greased and proceeding ahead. Another thing that could happen is moving the tax date from April 15th to July 15th like they did last year. This would basically diminish the amount of money that washes up on the Treasury's beach and therefore would be a better deal for them issuing more supply. And maybe they keep what's known as the SLR intact for the rest of the year. They haven't said what they're going to do." He tells RBC, "Then you have the stimulus that's coming out. Over time, we'd expect that would both add assets to our assets under management and add a couple of [basis points] down the road to the basic interest rates as well." When asked about money fund assets, he responds, "We expect the money fund assets to be up. Some of the reasons for that are you still have increasing money supply numbers.... With this stimulus, you're going to print a lot more money and that money has to float around. We saw it the last time, some of that money ends up in our funds, at least for a certain amount of time." Donahue adds, "Overall, the money funds are a ready, willing and able cash management service. And that gets a little bit into what's going on on the deposit side. If you look at it all during corona time, from March to March, the deposits are up $3 trillion, when banks don't want the money, that's about 23 percent. The money funds were up about $650 billion and that's about 18 percent. So, everybody's up because everybody's got a lot of cash. I think that will continue on. The banks are lowering their rates on deposits because they don't want them for a whole host of reasons, and the money funds, even though we are waiving, will still be a warm and loving home as a cash management service."
