- An increase in Treasury issuance in short durations, rising fed funds rate, and corporate savings moving onshore are all helping lift key money market interest rates. As T-bill yields rise, other riskier money market interest rates also increase, like Libor, and the unsecured bank commercial paper rates.
- The tax incentive for corporate savings abroad to move back onshore has also reduced demand for short term bank paper, as those funds were large buyers in the unsecured markets, raising costs for banks to fund their balance sheets.
- “Banks still need funding and they need to entice investors,”said Jerome Schneider, head of the short duration at PIMCO. He added, “We are in a new paradigm..” “..The clear focus for the market is where will incremental demand come from to meet this supply.”
- Investors have responded, as rising yields increase returns on cash to levels we have not seen in a decade. Holdings in government-only money market funds has risen to $2.26T last month from $2.07T last year.
- ETFs: SHY, VCSH, CSJ, BIL, VGSH, SHV, SCHO, SHM, SPSB, SUB, SLQD, SMB, ISHG, SPTS, BWZ, RISE
Original article