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Securities are flowing back into the marketplace.

Published November 22 2022
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Question: Has the Fed's quantitative tightening program impacted the liquidity space?
Deborah Cunningham: The quantitative program by the Fed has definitely started to add securities back into the marketplace. The liquidity team that we manage here, however, focuses on short term treasury securities, those being basically treasury bills, treasury bond, treasury notes that are less than a year in duration, and that's not where the quantitative tightening focus has been from the Federal Reserve. What they have instead focused on are longer- and medium-term treasury securities. Where that has been a little bit helpful has been in the repurchase agreement market. Repos are transactions that we use within our money market products, and when there's more collateral out there to back these repurchase agreements, like there is from the quantitative tightening perspective with longer dated treasury and agency securities, that's a little bit of a benefit, but it is not as much of a benefit as it would be if the securities that were being put back into the marketplace were on a direct ownership basis, eligible for money market funds.
Tags Liquidity . Monetary Policy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Past performance is no guarantee of future results.

Effective Duration: A measure of a security’s price sensitivity to changes in interest rates. One of the methods of calculating the risk associated with interest rate changes on securities such as bonds.

Repurchase agreements consist of a financial institution selling securities to a fund agreeing to repurchase them at a mutually agreed upon price and time.

An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although some money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.

Federated Investment Management Company