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Four Steps to Prudently Pursue Yield

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Abstract

With the Fed on hold for an extended period, institutional cash investors need a new perspective on dealing with the prolonged low yield reality. Our four-step guide reminds investors to expect lower yields in the new environment, increase exposure only to securities supported by strong fundamentals, improve yield potential with moderate maturity extension, and be mindful of the downside risk of over-extending oneself.

Introduction

The Federal Reserve’s August 10th decision to reinvest proceeds from its mortgage-backed securities holdings sent an important signal that the near zero (0.00% to 0.25%) interest rate policy will likely linger longer than previously expected. With the futures market predicting the Fed funds rate stuck on zero through much of 201 , institutional cash investors need a new perspective on how to deal with this prolonged low yield reality.
Given these assumptions, it is possible that the moderate yield increases in money market funds and other cash portfolios in recent months will reverse course in coming weeks. Should one be content with the meager yield, if any, from these commingled vehicles? What are some of the feasible yield opportunities? Should one consider increasing portfolio risk when a double-dip recession may cause new credit concerns? We hope our four-step guide provides a helpful perspective to the institutional cash and short-duration community.
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Please click here for disclosure information: Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use & Privacy Policy.

Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

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