DB Advisors recently hosted a Webinar entitled, "Investing cash in a low interest rate environment," which discussed "How to improve yields conservatively." The Deutsche Bank subsidiary's Head of Portfolio Management Joe Benevevento and Head of Distribution Kevin Bannerton hosted the call.
The challenge for cash investors is that "U.S. interest rates are at historic lows," says DB, and that the "Federal Reserve's focus on alternative methods of eaasing monetary policy, including asset purchases" is contributing to "downward pressure on rates." The presentation says, "Increased demand for Agency securities has led to a drastic reduction in agency yields." Bannerton adds, "One segment that offers [more attractive] yields is Prime money market funds."
Benevento warns investors, "Pushing maturities out may not be the best option." He notes that opportunities for "incremental yield" exist in the A2/P2 market (though not for DB's money funds he notes), in FDIC-insured debt, and in sovereigns, or foreign bank debt guaranteed by governments. He adds, "There are a fair amount of investors that need to return better than the Fed funds market."
In addition, DB notes that the "Flight to quality trend is beginning to reverse," saying that "Treasury money market funds have seen a net negative cash flow due to low yields and fund closures" and that "Government and prime funds are experiencing positive inflows. (See our "Link of the Day" today too.) Finally, DB says that "Yields on prime funds continue to remain attractive" and that "Prime funds offer value -- despite the 'de-risking' of portfolios."
