Welcome to 2025, the Year of Heightened Uncertainty
A new year often brings uncertainty but for public funds investors the start of 2025 stands out. On top of the usual questions about financial market trends a couple of things amplify ambiguity. While all investors are subject to these forces, public sector investors are particularly vulnerable. States and localities count on Washington for about […]
A Good Year for Public Funds Investors
It’s been a good year for public funds investors. You can access indices and other current information on the Investment Dashboard here. Meanwhile, reflect on this question: Are interest rates higher or lower than a year ago? As economists are wont to say, “It depends.” Short-term yields are significantly lower. The Federal Reserve’s policy […]
Waiting for the Fed
Next week’s meeting of the Federal Open Market Committee will set the tone for the markets for the next several months. In one sense it may be a non-event: investors have coalesced around the view that the central bank will cut the main policy rate by 25 basis points to 4.25-4.50%. This would push government-oriented […]
Research Note: Commercial Paper Market Should be More Resilient After Money Fund Reforms
Commercial paper is a core holding of many state and local government investment portfolios. It provides a yield boost to separately managed portfolios and prime-based local government investment pools. The commercial paper market is a bit finicky: If you are a buyer there is little flex: you generally receive the rate posted by issuers. If […]
Uncertain Times: Liquidity May Be More Valuable Now than Ever
Investment managers often talk about the cost of excess liquidity. But liquidity may also have value. The value can be realized as ready cash to make up for unplanned shortfalls in revenue or acceleration in spending , or to take advantage of a rise in interest rates that increases earnings potential from re-investments. Liquidity management […]
Hole in the Bucket? State and Local Government Portfolio Growth Slows and May be Pressured by Rate Declines
If you are managing (or overseeing) public funds these days, you might feel as if you are tending a bucket with a hole in it. With interest rates at their highest level in decades earnings are flowing into portfolios at a strong rate. But Federal Reserve data show asset growth recently has slowed. The reason? […]
Changing Local Government Investment Pool Managers: Replace the Manager or Create a New LGIP?
This LGIP Just Changed Managers. LGIPs rarely change managers. Sure, when a manager is sold this is viewed as a change under Federal law and triggers client approval, but the sale is usually described as “new owner, same dedicated employees.” Advisory agreements are normally renewed when they expire, perhaps with the board undertaking some diligence […]
Research Note: Why Some investors May Choose an LGIP in a Declining Interest Rate Market
Cash has been king for the past three years as rising interest rates boosted LGIP and money fund returns and depressed returns on longer duration investments like short term Treasury notes. Now that the Federal Reserve has shifted its policy to reducing rates there is a view that keeping large cash balances in an LGIP […]
How Far/How Fast: The Path for Pool Yields is Lower
The Federal Reserve is on the cusp of cutting rates. That much is crystal clear. When it does—most likely starting at its meeting September 18-–the yields on LGIPs and money funds will decline as well. How far and how fast will they fall? Here is a perspective on that question: LGIP and money fund yields […]
Why [Some] Investors Seem to Ignore The likelihood of Lower Rates Ahead
The path ahead for interest rates seems clear: the Federal Reserve will soon begin to reduce its policy rate, bringing down short-term rates generally. This has been the outlook for a couple of months, with only the timing and magnitude of cuts in question. Meanwhile money market fund assets grew steadily this year and are […]