With a potential Fed rate rise anticipated in September, there is a large battle between investors and issuers of short-term paper. Investors who believe that there will be a rate rise want to wait to buy any short-term paper. Issuers who have the same view want to issue as much as possible and as soon as possible. Just the opposite applies for those that think the Fed is going to wait. The tilt in favor of the issuers or investors will determine the equilibrium rate before the Fed meeting.
There is also a wide difference in opinion with managers who run money funds. The WAM, weighted average maturity of assets for largest money market funds show a range between 12 and 48 days as September 7th. This dispersion tells us the uncertainty concerning whether the Fed is going to go for a lift-off. The short WAM managers are set for a rate rise while the longer WAM managers think that any action will be delayed. A greater dispersion in WAM suggests that there is more uncertainty on whether the Fed will move. This dispersions will have a real impact on future yields for these funds. All funds are not alike and a change in the rate environment is going to catch some investors by surprise. Currently the difference between the lowest and highest yield for the largest money market fund is 18 bps. This should widen in a Fed lift-off environment. All "cash" is not the same.
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