The top takeaways from April meeting:
- Patience in purchasing securities has paid off for prime liquidity portfolios. The Fed Funds futures curve is now pricing in roughly two US Federal Reserve rate cuts by the end of the year as opposed to almost seven back in January. This has presented attractive buying opportunities on the longer end of the commercial paper curve.
The Fed Funds futures curve is now pricing in roughly two US Federal Reserve rate cuts by the end of the year as can be seen in Figure 1.
Figure 1: Fed Funds futures curve
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- Ultrashort portfolios are finding value in a combination of mortgage-backed securities (MBS) and asset-backed securities (ABS) over investment grade corporates given tight credit spreads. Prime and subprime borrowers continue to perform well given strong labour markets, and consumer ABS structures are robust. Supply and demand have both been very strong so far this year in ABS with new issuance deals sometimes 10-15 times oversubscribed.
- Municipal portfolios are currently cheap compared to taxable alternatives as SIFMA rates have settled down over the past two months. We are capitalising on slighter higher rates and even though supply has been light, it is ahead of last year so far. We expect supply to pick up more in late May.
Short Term Investments Committee:
Federated Hermes Short Term Investments Committee (STCI) is a collection of investment professionals with in-depth experience investing across the 0-3-year part of the yield curve. The committee meets each month to provide insights, strategise and discuss investment opportunities.
The Committee is headed by Nicholas Tripodes, CFA and Mark Weiss, CFA. Nick is senior vice president, senior portfolio manager and head of Low Duration/Structured Products Group. He is responsible for portfolio management and administration of low duration multi-sector portfolios with concentrations in investment-grade securities, as well as management and administration of structured product allocations. Mark is vice president and senior portfolio manager. He is responsible for portfolio management and research in the fixed-income area concentrating on liquidity portfolios.
For more information on Federated Hermes’ liquidity solutions please click here.
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