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Monthly Cash Review - January 2021

January was a long month. Or it seemed that way, at least. The lightness of the holiday season felt miles behind us as the month started with a run-off election in Georgia, a violent protest in Washington DC, a second impeachment and a somewhat chaotic transition of power, all while COVID infection rates were rising. The good news: as the
month grinded along, the media flow settled and it appears we may be back to the political norms of pre-2016.

Federal Reserve (Fed) officials held their January FOMC meeting and while their subsequent statement was not particularly groundbreaking, the Committee’s acknowledgment of the recent slowing in economic activity and employment due to the ongoing pandemic captured headlines. Both administered interest rates and the Fed’s Asset Purchase Program remained unchanged. Fed Chairman Powell noted that inflation may pick up in the coming months due to base effects and the potential re-emergence of consumer spending. Powell tempered these expectations by commenting that an increase of inflation would likely be transitory, and would not require the Fed to take immediate action.

Supply and demand have been the lead story in the cash markets for the month of January. The next stimulus package from Washington does not appear to be as large as was hoped. Excess liquidity in the system and the reality of a limited supply increase in Treasury bill (T-bill) debt caused those rates to grind lower by 3–5 basis points (bps) depending on the maturity. Strong demand continues to keep the T-bill curve very flat. Credit yields, including commercial paper (CP) and certificates of deposits, also turned lower over the month, declining 2–7 bps, depending on the maturity. Even as CP outstanding balances continue to grow (currently up $87 billion since end of  December 2020), the offerings are gobbled up as quickly as they are available, frustrating buyers. The outlook on money market yields is lower over the near term.