Month in Cash: Moving out on the curve
Things are looking pretty good right now. The recovery continues to plod along, as it has for months, with the notable highlights of housing, which has been exhibiting some real strength, and employment, which also shows real promise. Hurricane Sandy, while devastating to those who suffered damage, has not had the huge overall economic impact that had been feared when we first saw the extent of the destruction. The elections don’t seem to have left much wake, either. All the major players are still in place, and the issues are the same. (The markets don’t like change, even if that change might have been good.) If we can keep on the same track, without any major disruptions, we seem to be headed—albeit slowly—in the right direction. There’s also good liquidity in the marketplace.
All this positive news might bring fears of inflation, but there’s still a lot of headwind out there. We’re taking advantage of year-end opportunities in the marketplace, and we’re seeing better pricing a bit further out the yield curve as we get past year-end, as well. As a result, we’ve decided to lengthen the weighted average maturity of our government money market funds. For quite some time, we had been targeting from 40 to 50 days, but we’ve lengthened that target to 45 to 55 days. The yield curve is shaped right now in a way that allows us to do that and retain a relatively good yield.
Keeping an eye on unlimited insurance’s fate
We’re also watching concerns about the potential expiration of the FDIC’s unlimited insurance on non-interest bearing checking accounts at the end of the year. A bill has been proposed to extend the coverage for two years, but there hasn’t been a lot of traction, or even details, on that proposal. There might be some political backing for extending the coverage only for smaller community banks below a certain size level, where there might be some more concerns. Were the extension to fail, though, we could see large inflows into money funds at the end of December and beginning of January. And if, in fact, unlimited coverage expires, and we wait until late December or early January to go further out on the yield curve, we’d be left with less in the way of opportunities.
Going forward into the New Year, it looks like we’re going to see more of the same slow growth: an improving economy; better credit metrics; continued debate and discussion about the stability of European markets; extended, prolonged discussion of regulations; and for the near future, continued low interest rates. We do see some more positive aspects as we chug along. All this steady progress has to add up, and the one thing that can cure all problems is a strong, growing economy. Of course, all this is predicated on policymakers in Washington working out a compromise on the debt ceiling and the “fiscal cliff.” Given the way we made it through Hurricane Sandy, it would be a shame if we then hit a speed bump over a man-made, and avoidable, disaster.