Fidelity Money Market Review
Fidelity Institutional's latest "Fixed Income Monthly Commentary" explains in its "Money Market Review," that "Yields on Short-Term Credit Instruments are at or Near All-Time Lows. The front-end of the credit markets yield curve is feeling the effects of the growing money market supply and demand imbalance. The Bloomberg 3-Month Short Term Bank Yield Index fell 5 basis points over the past month to close out the month of May at 0.09%. The yield on 1-month and 3-month LIBOR finished the month of May at an all-time low. 1-month LIBOR fell 2 basis points to 0.09% and 3- month LIBOR closed the month at 0.13%, falling 5 basis points since the end of April." The piece continues, "In response to limited investment options in the front end of the curve, balances at the Fed's overnight reverse repurchase agreement facility surged to $485 billion on Thursday, May 27th; this represents the highest balance on record, surpassing the previous record of $474 billion set at the end of 2015." Fidelity explains, "Given the increase in reserves, combined with limited supply, it is possible that the Fed may make a technical adjustment to its administered rates at the June FOMC meeting, with such an adjustment possibly including both the interest rate that the Fed offers on reserve balances as well as the rate it offers via its overnight reverse repurchase (RRP) agreement facility. By doing so, the Fed would be seeking to maintain the fed funds effective rate within the corridor of their current targeted policy rate range of 0.00–0.25%." They add, "Assets in taxable money market funds increased by $80.3 billion in the month of May and are higher by $287.8 billion year-to-date. Year-to-date, through May 28th, Prime MMF assets have decreased by $48.8 billion, Government and Agency MMF assets are higher by $236.8 billion, and Treasury MMF assets have increased by $99.8 billion."
