Federal Reserve Board¹
As expected, the Federal Open Market Committee (FOMC) kept the range for the federal funds rate unchanged at 0.00% to 0.25% at the conclusion of its April meeting. While the Federal Reserve (Fed) maintained its steadfast accommodative monetary policy, it noted changes to the economy, progress on vaccinations, and risks to the outlook. For the first time, the Fed commented on the vaccine rollout and strong fiscal policy that have helped “strengthen” the economy. More specifically, the Fed said, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” The Fed removed “considerable” when describing risks to the economy, saying, “the ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.” Looking ahead, Chairman Jerome Powell strongly reiterated the Federal Reserve’s forward guidance on quantitative easing policy and view on rates, as they still consider the economy a long way from the Fed’s goals.  

European Central Bank¹
At the European Central Bank’s (ECB) policy meeting on April 22, 2021, President Lagarde and the policy committee left the ECB deposit rate unchanged at -0.50%, as expected. The committee kept the size of its pandemic emergency purchase program (PEPP) and asset purchase program unchanged in April.  Similar to its March statement, the Governing Council plans to conduct purchases under its PEPP at a “significantly higher pace than during the first months of the year.” While the environment remains uncertain, the ECB views current policy as appropriate and will remain accommodative until inflation moves towards its mandate.

Bank of England¹
Although no formal policy meeting was held in April, analysts expect the Bank of England (BOE) to leave policy unchanged in May. While national lockdowns will have an impact on economic data, analysts believe it will be less adverse than originally expected. Investors will want to pay attention to the BOE’s guidance on economic activity and how the vaccine rollout are affecting the economy. 

PORTFOLIO STRATEGY

PRIME STRATEGY³
With cash remaining abundant on the short end of the curve, spreads stayed tight and LIBOR⁴ once again hit new all-time lows intra-month of 0.17288% on April 21. We maintained our strategy of adding fixed-rate investments to the portfolio, due to the liquidity and roll-down benefits of that structure. Weekly liquidity in our portfolios remain elevated, in excess of 50% throughout the month.

GOVERNMENT/TREASURY STRATEGY⁶
Yields on overnight repurchase agreements remained extremely low with SOFR⁵ printing at 1 basis point each day in April. Short maturity Treasury yields remained in the single digits across the curve, with 1-month through 1-year bill auctions stopping between zero and 0.065%. Cash inflows into money market funds continued in April, as did net Treasury bill pay-downs, both of which weighed on front-end yields. Not surprisingly, volume in the reverse repurchase (RRP) facility steadily increased to a peak of roughly $183 billion at month-end. We selectively bought Treasuries for the portfolios and invested a large portion in short-term repurchase agreements. We continued to ensure high levels of liquidity and manage the portfolios to be responsive to changes in market conditions and interest rate levels.

TAX-EXEMPT STRATEGY³
At the short end of the municipal curve, yields for variable rate demand obligations (VRDOs) were unchanged throughout the month of April. The SIFMA Index,⁷ which measures yields for weekly VRDOs, held steady at 0.06% during the month. Yields at the longer end of the municipal money market maturity range trended lower as supply remained constrained. The Bloomberg BVAL One-Year Note Index⁸ finished the month at 0.08%, down 0.02% from the prior month-end. With inventory levels remaining manageable and an influx of coupon cash, we expect rates to remain in this range, even as we approach the delayed personal income tax filing date of May 17.

¹ Source: Bloomberg.

² Weighted Average Maturity (WAM): Measures the weighted average of the maturities of the portfolio’s individual holdings, taking into account reset dates for floating rate securities.

³ The Portfolio will be required to price and transact in their shares at a floating net asset value (“NAV”) and will be permitted to impose a liquidity fee on redemptions or temporarily restrict redemptions in the event that the Portfolio’s weekly liquid assets fall below certain thresholds.

⁴ The London Interbank Offered Rate (LIBOR) is the short-term interest rate that banks charge one another and that is generally representative of the most competitive and current cash rates available.

⁵ The Secured Overnight Financing Rate (SOFR) is a benchmark rate for US dollar-denominated loans and securities based on overnight transactions in the U.S. Treasury repurchase market.

⁶ Government and Treasury Funds are Stable NAV funds.

⁷ The SIFMA Municipal Swap index is a 7-day high-grade market index comprised of tax-exempt VRDOs reset rates that are reported to the Municipal Securities Rule Making Board’s (MSRB’s) SHORT reporting system.

⁸ The Bloomberg BVAL One-Year Note Index represents tax-exempt municipal bonds that have an average rating of AAA by Moody’s and S&P.

The views and opinions expressed are those of the Portfolio Management team as of April 30, 2021 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.