MONEY MARKET | June 2022

Tax-Exempt Money Market Commentary

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Colleen Meehan

Senior Portfolio Manager

The Federal Reserve raised the fed funds rate target to a range of 0.75% to 1.00% at the May 4 Federal Open Market Committee (FOMC) meeting. Minutes from the FOMC meeting state that, “Most participants judged that 50 basis points increases in the target range would likely be appropriate at the next couple of meetings, many participants judged that expediting the removal of policy accommodation would leave the committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.” Chair Powell discussed the expectations of achieving a soft landing as both household and business balance sheets are in strong financial shape, which would poise the US economy for a soft landing. The next meeting is scheduled for June 14.

The steady outflow from municipal bond mutual funds came to a halt in May as investors digested the change in Fed policy and persistent inflation concerns. June begins the cyclical period of increased coupon and maturity payments looking for tax-exempt bond placement. The summer months typically see demand outpace supply, helping to contain rates. State and local governments will finance their annual budgets in the coming months. We anticipate higher levels of new issuance as well as increased yields to reflect current market levels. We believe the current shift in the yield curve will likely drive issuers to reevaluate different funding options available in the municipal markets.

Municipal money market funds have seen assets increase as investors see higher yields due to the recent shift in Fed policy. The front end of the yield curve, securities maturing within one year, saw yields increase in tandem with taxable yields the past few weeks. The SIFMA Index (7-day high-grade market index reported to the Municipal Securities Rulemaking Board) has moved in line and averaged 0.76% for the month of May. We continue to maintain high levels of liquidity with variable rate security indexes trending higher and we continue to seek market returns for shareholders.

Our experienced credit research team will continue to review our current holdings and any purchases we make going forward. All securities purchased receive a minimal credit risk designation prior to purchase and are periodically reviewed for any changes to the credit outlook. We continue to maintain very high grade, liquid portfolios.

All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

BNY Mellon Investment Management is one of the world’s leading investment organizations encompassing BNY Mellon’s affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally. Municipal income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.

This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forwardlooking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

BNY Mellon Investment Adviser, Inc. and BNY Mellon Securities Corporation are subsidiaries of BNY Mellon. Dreyfus Cash Investment Strategies (Dreyfus) is a division of BNY Mellon Investment Adviser, Inc. © 2022 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286.