Jerome Schneider, a portfolio manager at Pimco, says the markets are continuing to migrate away from old yield assumptions and instrument preferences.
Noting that responses to a sudden dearth of liquidity and a single credit event are often met by sharp pullbacks in investor participation, Schneider said as recently as last week that investors in regulated money market funds had begun redeeming ‘en masse’.
“Prior to the resolution of the US debt ceiling debates, approximately $100bn was pulled from money markets over June and July, according to data from mutual fund trade group ICI,” he said. “But once the ceiling had been raised and default avoided, investors headed back into the pool like kids on a hot summer day.”
He advised the current environment should serve as another wake-up call to investors to continually determine their liquidity needs.
However, he added: “Our sense is that money market funds and other short-term strategies seem well positioned for the aftermath of the downgrade in light of the recent events that led up to the actions by Standard & Poor’s: surprises are not a new phenomena for these investors.”
