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While the Money Market Mutual Fund Liquidity Facility has been up and running for two weeks as part of a suite of measures to unclog markets, some signs of tension persist. The London interbank offered rate for dollars — a benchmark for trillions of dollars of financial products — remains at elevated levels, despite some easing.
Signs of strain are also evident in the commercial paper market that’s awaiting the launch of a support program on April 14, with Friday marking the sixth straight day of zero issuance of longer-term AA financial paper. Until then, prime funds may remain concerned about redemptions and their liquidity positions due to the freeze in CP activity.
Bank of America (NYSE:BAC) Strategist Mark Cabana expects the central bank to lower the MMLF rate in coming weeks, while TD Securities strategists Priya Misra and Gennadiy Goldberg have noted issues around the rate and access to the program.
“We believe that the Fed should lower the MMLF rate to make it more attractive” and facilitate more secondary activity in commercial paper, Misra and Goldberg wrote.
What the strategists say:
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