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November 19, 2021

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November 19, 2021

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November 19, 2021


Federal Reserve Board1
The Federal Open Market Committee (FOMC) voted unanimously to keep the range for the federal funds rate unchanged at a range of 0.00% to 0.25% at the conclusion of its November meeting. In line with market expectations, the Federal Reserve (Fed) announced it will start to taper its bond purchases in November. The committee believes that, since last December the benchmark of “substantial further progress” toward their goals of higher inflation and full employment has been met. To start, the Fed will reduce purchases of Treasury securities by $10 billion and mortgage-backed securities by $5 billion per month. Purchases are anticipated to be reduced each month, but the committee is not on a pre-set course saying, “it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

The Fed believes economic conditions continue to “strengthen,” however, notes COVID-19 cases slowed the pace of the recovery in the third quarter. In addition to its quantitative easing and policy changes, the FOMC updated its language around inflation. The Fed now believes that inflation is “expected to be transitory.” The FOMC is optimistic that inflation pressures will abate saying, “progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation.”

European Central Bank1

At the European Central Bank’s (ECB) policy meeting on October 28, President Lagarde and the policy committee left the ECB deposit rate unchanged at -0.50%, as expected, and kept the size of the pandemic emergency purchase program (PEPP) and asset purchase program unchanged. The ECB continued to make purchases at a slower rate under the PEPP in response to elevated inflation levels, while downplaying the possibility of a rate hike in 2022. The Governing Council feels strongly that current policy is appropriate; however, if the outlook were to change the ECB “stands ready to adjust all of its instruments.”

Bank of England1

The Bank of England (BoE) Monetary Policy Committee (MPC) voted 7-2 to maintain the Bank Rate at 0.10% and voted 6-3 in favor of leaving the size of its U.K. government bond purchase program unchanged at the conclusion of its November 4 meeting. The decision to hold rates steady surprised many as the MPC was expected to be first major central bank to shift interest rates higher since the pandemic started. The press release noted that “near-term uncertainties remain, especially around the outlook,” which likely factored into the BoE’s inaction. Moving forward, the MPC says, “it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.” Market participants— many of whom believed the first rate hike would occur in November—now project it to be in December.

Display 1: Monthly Interest Rate Summary as of 10/31/21.

Source: Bloomberg.

Display 2: MSILF Weighted Average Maturities (WAM)2 Summary as of 10/31/21.

Source: iMoneyNet 




Minutes from the September FOMC meeting highlighted plans to begin reducing the Fed’s bond-buying program, which was purchasing $120 billion monthly in Treasury and mortgage securities. Projections also showed that half of the officials expected that the economy would require at least one interest rate hike by the end of 2022. Progressing through the month, market participants began pricing in a more aggressive Fed stance in 2022, with futures ending the month expecting a full rate hike by the July 2022 FOMC meeting and another in the fourth quarter of 2022. As a result of these changing market expectations for the path of monetary policy in 2022, new issue offers in the commercial paper/ certificates of deposit space in the 9- to 13-month tenors widened, with 1-year LIBOR4 beginning the month at 0.23% and ending at 0.37%. As the money market curve reprices with updated Fed expectations, we remain confident in our approach of remaining patient and waiting to deploy capital only after we feel we are being appropriately compensated for both interest rate and credit risk in the 2022 dates. Our portfolios ended the month with both WAM (weighted average maturity) and WAL (weighted average life) on the lower end of the peer group, with weekly liquidity hovering near 60%.


On October 7, the U.S. government raised the borrowing limit by $480 billion to $28.9 trillion and extended the debt ceiling date to December 3. This came after a protracted standoff in Washington and served as a very short-term solution. Yields on Treasuries maturing in December rose by several basis points right after the news was released; however, the hard debt limit date (“X date”) could be after December 3. Most market participants estimate the X date to be several weeks after December 3 given the U.S. Treasury’s ability to use extraordinary measures again and drawdown growing cash balances and incoming cash from budget line items. At this point, it is too soon to accurately predict the X date, but some estimate it to extend into early next year. While Washington could solve the debt limit issue legislatively before December, we continue to navigate the potential risks and outcomes as developments unfold. The U.S. Treasury was able to issue more bill supply after the borrowing limit increase, and we selectively bought Treasury bills for the portfolios. The large amount of cash in the front end muted most of the bill yield increases derived from the additional supply, as evidenced by the continued high volume done at the reverse repo facility this month (between $1.3 trillion and $1.4 trillion). We continued to invest a significant amount of cash in overnight repurchase agreements and to manage the portfolios to be responsive to changes in market conditions and interest rate levels.


Municipal issuers took advantage of the low rate, high-demand environment in October to come to market ahead of election week and the uncertainty and volatility that will follow. The month saw over $65 billion of volume come into the market. The SIFMA Index,6 which measures yields for weekly variable rate demand obligations (VRDOs), was little changed over the course of the month, rising just 0.01% to 0.12%. Yields at the longer end of the municipal money market maturity range were little changed during the month as well, with investors digesting a significant pickup in the pace of new debt sales in October. A lack of clarity around fiscal aid exacerbated broader market volatility during the month. In the period ahead, we will watch to see how monetary policy unfolds and determine what impact the election results may have on municipal yields. We maintain a short duration stance given stretched valuations and the potential for increased volatility in the coming months.


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 Government and Treasury Funds are Stable NAV funds.

6 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.

The views and opinions expressed are those of the Portfolio Management team of October 31, 2021 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.

The Global Liquidity team aims to effectively meet clients’ unique cash and working capital needs, offering a broad range of money market funds, ultra short bond funds and customized separate account solutions.

The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment.

Past performance is no guarantee of future results. This document represents the views of the portfolio management team. The authors’ views are subject to change without notice to the recipients of this document. It does not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management and may not be reflected in other strategies and products that the Firm offers.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Current and future portfolio holdings are subject to change. The forecasts in this piece are not necessarily those of Morgan Stanley, and may not actually come to pass.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

Please consider the investment objectives, risks, charges and expenses of the portfolios carefully before investing. The prospectus contains this and other information about the portfolios. To obtain a prospectus, download one at or call 1.800.236.0992. Please read the prospectus carefully before investing.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events.


You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds’ sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.


You could lose money by investing in the Fund. Because the share price of the Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds’ sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

The Tax-Exempt Portfolio may invest a portion of its total assets in bonds that may subject certain investors to the federal Alternative Minimum Tax (AMT). Investors should consult their tax adviser for further information on tax implications.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.



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Please be aware that liquidity instruments may be subject to certain additional risks. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In the current rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. Longer-term securities may be more sensitive to interest rate changes. In a declining interest-rate environment, the portfolio may generate less income.

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