In a rare convergence, several publications related to money market investing were posted yesterday. Capital Advisors writes in its monthly publication, “The Capital Advisor,” on “How Greek Tragedies May Affect Cash Investments,” BNY Mellon writes in its quarterly “Liquidity Directions” newsletter on “New SEC Reforms for Money Market Funds,” and SVB Financial Group writes in its “Observation Deck” publication on “Adding Value to a Portfolio.” We excerpt briefly from each below.
Capital Advisors Group writes “The European sovereign debt crisis and various responses by global financial bodies have continued to rattle the markets and have driven the 3-month LIBOR rate to more than double that of its February levels. The contagion that has spread from this event is an ever-present reminder of the interdependence of the global markets, where fiscal policy in one euro member sovereign state can have far reaching global implications. Needless to say, it’s a challenge for any Treasury investment professional to calculate or predict how a Greek budget crisis could impact the risk and return of his cash investments, but in today’s interconnected world it is important to have the tools to help identify these kinds of exposures.”
The piece continues, “Against the backdrop of the Greek debt crisis, we thought it would be interesting to focus this month’s Research Spotlight piece on the differences we’ve found in euro finance exposures from one money market fund to another. The freshly adopted revised SEC Rule 2a-7 dictates, among other things, that money market funds manage to a shorter WAM and that they maintain higher overnight and 7-day liquidity levels. However, the new SEC regulation sets no restrictions on euro or finance exposure for money market funds; a factor that we feel supports our view that regular and thorough monitoring of money market fund investments is necessary given the interconnectivity of the global financial world.”
BNY Mellon’s Liquidity DIRECT portal newsletter says, “The Securities and Exchange Commission (SEC) amended Rule 2a-7 promulgated under the Investment Company Act of 1940. The amendments are designed to increase the resilience of money market funds to economic stresses, reduce the risks of runs on funds, facilitate the orderly liquidation of a money market fund that breaks or is about to break the dollar, and improve the SEC’s oversight of money market funds. The amendments became effective on May 5, 2010, and the compliance date for most of the amendments is May 28, 2010.” `Highlights include: Daily and Weekly Liquidity, Shorter WAM, Portfolio Disclosure, Stress Testing, Second-tier Securities, and Illiquid Securities says BNY Mellon.
SVB’s Head of Portfolio Management Ninh Chung, writes, “We realize a zero-bound interest-rate environment, along with uncertainty in economic growth globally, has limited investment choices for corporate cash investors. Complicating the situation is the probability that the Federal Reserve may leave the federal funds rate at exceptionally low levels for the rest of the year. Given these challenges an investor should explore the advantages of a duration neutral strategy that encompasses liquidity needs, overall risk tolerance and aversion, and any future liabilities.”