MONEY MARKET | September 2022

Tax-Exempt Money Market Commentary

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Colleen Meehan

Senior Portfolio Manager

As we head into another Federal Open Market Committee (FOMC) meeting on September 21, markets are anticipating another substantial Federal Funds rate increase. Chair Powell’s speech from Jackson Hole confirmed the Federal Reserve’s (Fed’s) commitment to snuff out inflation by raising rates aggressively into 2023. The federal funds rate is currently 2.25% to 2.50%.

Fed policy and persistent inflation concerns continue to drive investor flows in long-term municipal bond funds and separately managed accounts. Demand typically outpaces supply during the summer months, thereby keeping a lid on rates. Maturities and coupon payments combined with less long-term issuance suppressed rates during the summer. State and local governments have seen an increase in financing costs in line with the increase in the fed funds rate. Demand remains solid for securities in this maturity range and credit conditions remain stellar in our view. The current yield curve shift will likely prompt issuers to reevaluate different funding options available in the municipal markets.

The Securities Industry and Financial Markets Association (SIFMA) Index is a 7-day high-grade market index reported to the Municipal Securities Rulemaking Board, and it averaged 1.69% in August, up from 0.86% in July as rates stabilized. Municipal money market fund assets remained steady the past several months. Due to the imbalance of supply and demand, rates moved in the opposite direction of similar maturity taxable issues. The front end of the yield curve and securities maturing within one year have seen yields firming up due to increased demand as investors take advantage of attractive yields in this maturity range. We continue to maintain high levels of liquidity with variable rate security indexes trending higher and we will seek to market returns for shareholders.

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

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.