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Where are the best opportunities at the short end of the curve?

Short Term Investments Committee

26 January 2024 |
Federated Hermes’ Short Term Investments Committee of portfolio managers meets on a monthly basis to provide insights, strategise, and discuss investment opportunities across the short end of the yield curve.

The top takeaways from the January meeting:

  • Government ultrashorts could benefit from spread tightening in 2024: After seeing historically wide spreads in mortgage-backed securities throughout most of 2023, we expect to see some compression this year. This could increase the potential total return of government ultrashort portfolios as holdings may increase in value as a result.

The demand for US government short-term debt soared in H2 2023 as can be seen in Figure 1.

Figure 1: US short-term debt as a % of GDP

  • Credit Asset-backed securities (ABS) out one year and beyond are attractive for microshort, ultrashort and short-term portfolios: Credit conditions remain strong, ABS deals are well structured, and due to tight investment grade corporate spreads on the short end of the yield curve, ABS is even more appealing on a relative basis.
  • We expect commercial paper supply to pick up toward the end of January and into February as issuers look to roll maturing paper placed over year-end: This could bring extension opportunities for prime liquidity portfolios.

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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