Dissecting the dots

The Fed’s “dot plot” interest rate forecast implies one cut in the federal funds target range during 2024. We believe the FOMC could move to adjust the federal funds rate modestly lower should data evidence an easing of inflation or a significant deterioration in labor market conditions.

Egg Tray

Still time for prime

In recent months, various prime institutional money market funds have announced plans to liquidate or convert to government money market funds before new amendments to Rule 2a-7 become effective in October of 2024.

Despite operational challenges to maintaining these products after these amendments become effective, BlackRock remains committed to offering prime money market funds in the U.S. as we believe they can offer several potential benefits to a well-structured cash portfolio.

Money market funds are not a one-size-fits all solution.

We believe assessing and segmenting cash needs across strategies, including prime money market funds, can be beneficial to many cash investors.

For one thing, prime money market funds offer the potential for a yield pickup over government money market funds because they purchase a broader universe of securities than government money market funds, while still maintaining high levels of liquidity and stability.

And unlike government money market funds, prime institutional money market funds utilize a floating net asset value. As a result, factors like interest rate changes can affect a prime institutional money market fund's floating net asset value and, in turn, can potentially amount to a compelling total return depending on an investor's time horizon.

Also, prime money market funds maintain holdings across a range of issuer and security types, meaning they may offer broad diversification benefits, in addition to a potential yield differential, compared to bank deposits.

Finally, by purchasing commercial paper and other similar debt instruments, we believe prime money market funds can help support the real economy.

In our view, the primary reasons for investing in money market funds are stability, liquidity and yield.

To this end, prime institutional money market funds' floating net asset values provide a clear view into their credit quality and interest rate sensitivity.

Also, minimum daily and weekly liquidity thresholds serve as a barometer of a fund's ability to meet redemptions.

BlackRock plans to continue managing prime money market funds in adherence with the newly defined daily and weekly liquidity thresholds set by the Securities and Exchange Commission.

BlackRock seeks to continue operating within strict controls to manage risk and remains committed to prime money market funds to help offer utility and value to cash investors.

Primed for money market fund reform

Prime institutional money market funds seek strong returns through purchasing diverse securities and utilizing a floating net asset value1, while maintaining high levels of liquidity2.

Utility and value proposition

By purchasing commercial paper3, and other similar debt instruments, we believe prime institutional money market funds can help support the real economy.

High visibility

Prime money market funds floating net asset values provide a clear view into their credit quality and rate sensitivity, while minimum daily and weekly liquidity thresholds help funds meet redemptions.

What do terminal rates mean for cash management?

With expectations of central banks lowering rates this year, we see an opportunity for investors to actively manage their operational, core and strategic cash balances in an environment still rife with economic risks and uncertainty.
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