MONEY MARKET | September 2021

Tax-Exempt Money Market Commentary

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Colleen Meehan

Senior Portfolio Manager

The Federal Open Market Committee (FOMC) meeting held on July 28th continued the assumption that the Federal Reserve (Fed) is ready to begin slowing asset purchases. Officials want to see more hiring before pulling back on bond buying and will assess the appropriate timing. The past three months have seen inflation indicators move higher than expected and Chair Powell reiterated his long-term view that recent surges in inflation are likely to fade over time. The central bank held the target range for the benchmark policy rate unchanged at zero to 0.25% where it’s been since March 2020. The next meeting is scheduled for September 22, 2021.

The theme for Summer 2021 in the municipal market was the continued imbalance in supply and demand. The municipal market has had a scarcity of bonds being chased by strong inflows from coupon payments and note and bond maturities. Strong and steady asset flows into long-term bond funds, ETF’s and separately managed accounts continue. Issuance levels have not met the steady demand keeping a lid on tax-exempt rates while keeping demand strong and steady in the municipal market. The Fed’s zero rate policy, the appetite for yield and the prospect of higher tax-levels should continue to fuel demand and enable issuers to restructure debt at historic low interest rate levels. The front end of the yield curve, securities maturing one year or less, continues to be anchored by the Fed Funds 0.0% - 0.25% rate policy and strong investor demand.

Ongoing discussions regarding an infrastructure package have kept tax-exempt investors and issuers busy as the many adjustments and programs discussed could affect the level of new issuance and different types of securities used for funding. Strong state and local government tax collections and federal support have mitigated the need for short term funding limiting issuance in the front end of the curve. Stay tuned as we will continually provide updates as things move forward.

Municipal money market funds have seen assets remain relatively flat during the summer driven by the limited new issue supply. Steady flows combined with the strong liquidity characteristics of the portfolios continue to provide shareholders with market returns Strong supply/demand technicals will continue to keep short-term municipal market rates at historic lows. The current economic and political environment will prove pivotal in 2021 as fiscal stimulus and budget concerns will highlight the sector.

Our experienced credit team will continue to review our current holdings and any purchases we make going forward. All of the 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.

The SIFMA Index (the 7-day high grade market index comprised of tax-exempt Variable Rate Demand Obligations reset rates that are reported to the Municipal Securities Rulemaking board weekly) has averaged 0.05% the first half of the year. Fixed rate municipal notes continue to see strong demand with one-year notes yielding approximately 0.08%.

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 forward-looking 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 CIS) is a division of BNY Mellon Investment Adviser, Inc. © 2021 BNY Mellon Securities Corporation , distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286.

CIS-212363-2021-09-08