2016 will be a year of transition on many fronts for corporate cash investors. The Federal Reserve is expected to remain accommodative in removing monetary stimulus. There will be increased clarity following money market fund reform in October. Credit markets should also manage well through moderate credit deterioration and wider spreads. The primary job for corporate cash investors is to preserve portfolio liquidity through diversified sources beyond government money market funds.
Now that the Federal Reserve finally delivered the biggest Christmas gift short-term markets could have hoped for by lifting the Fed funds target rate off of the ground, a whisper is in the wind: now what? In the days after the Fed’s December interest rate decision, markets seemed to take the news rather calmly, but it may be months before we really know how the move ultimately will impact financial markets. Therefore, 2016 could be a critical and volatile year for many of us in the treasury investment community.
Every January, we discuss a number of key trends for corporate cash investors in the upcoming New Year. Last year, we identified the start of a tightening cycle, the consequences of supply shortage, and resurging geopolitical uncertainties in 2015. This time around, we will discuss the trajectory of interest rate normalization, the implementation of money market fund reform, and credit market development as the main themes for 2016.
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