As we recap market developments in the first six months of 2013 and look to the future, we reflect on the following five observations from a recent liquidity conference:
- Low yield environment turning the corner;
- Corporate cash balances up, investors less worried;
- Supply still constrained, but more issuers entering the market;
- New money market fund proposal is here, but reform may be years away; and
- Portfolio strategies still defensive, but more diversified
The first half of 2013 saw developments that may alter the cash investment landscape for years to come. As we hit the midpoint of the year, we reflect on some of the key trends that are either already in place or developing. Reflections from a conference organized by money market fund data publisher Crane Data held in Baltimore from June 19th through 21st help us identify and confirm such trends. We think that 2013 is an inflection point for short-term interest rates, supply and demand dynamics, and the regulatory environment, all of which will impact investor behaviors and portfolio strategies.
Looking back at the first six months of the year, we witnessed the expiration of the FDIC guarantee on large deposits, the “fiscal cliff” and the ensuing sequesters, deposit defaults in Cyprus, chatter about the Federal Reserve’s “tapering” of asset purchases and the culmination of the SEC’s money market fund reform proposal, just to name a few.
How will these events affect our market? Where do we go from here? What are the likely responses to regulatory changes? These were the questions on the minds of some 450 conference attendees, representing money market portfolio managers and salespeople, commercial paper issuers, securitization specialists, dealers, ratings analysts, attorneys and government representatives, as well as corporate and institutional investors.
In this credit commentary’s limited space, we attempt to summarize trends we’ve observed in the following five areas: short-term rates, corporate cash balances and investor behaviors, supply dynamics, regulatory development and portfolio strategies.
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