Money Market Funds Commentary
This commentary addresses the Cavanal Hill U.S. Treasury Fund and Government Securities Money Market Fund:
How did you position your portfolios during the quarter?
In late October, the Federal Reserve Open Market Committee (FOMC) lowered the federal funds target range 25 basis points (0.25%) to 1.50% - 1.75%, its third quarter-point cut in three months and then signaled that it would likely be on hold.
As it became clear that the FOMC would keep rate movements on hold, opportunities for yield enhancement in our money market funds were few. However, we extended weighted average maturities somewhat by purchasing some slightly longer-term securities in order to help lock in higher yields.**
The classic money market fund value proposition is “safety, liquidity and yield”, and our efforts were focused on maximizing value in all those areas.
Secured overnight financing rate based floating rate notes1 added value in the Government Securities Money Market Fund, as they typically yield a bit more than overnight repurchase agreements (repo). In the US Treasury Fund, a Treasury Bill-based floating-rate note boosted yield.**
Massive intervention by the Federal Reserve Board (the Fed) in the form of overnight and term repo operations prevented the sort of spike in the repo market that we observed in September. By purchasing Treasury securities, the Fed flooded the financial system with cash. At year-end, the Fed made close to $500 billion available to primary dealers, keeping a lid on year-end volatility in that important market. For the quarter, the Government Securities Money Market Fund’s Institutional share class returned 0.36%, compared with the 0.35% return of the Lipper Institutional U.S. Government Money Market Index. The U.S. Treasury Money Market Fund’s Institutional share class returned 0.36% for the period, compared with the 0.35% return of the Lipper Institutional U.S. Treasury Money Market Index.**
What is your outlook, and how are you positioning the funds?
With the federal funds futures market currently pricing in only one rate cut in 2020, which isn’t likely to happen, if at all, until mid-year or later, fund yields may not change much for some time.
We continue to closely monitor the market’s perception of future FOMC moves, and we look for opportunities to lock in longer-term rates as we feel the short-term momentum is toward lower levels. We are also open to adding additional floating-rate notes if we feel the levels are attractive.**
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, call 800-762-7085 or visit us at www.cavanalhillfunds.com.
Past performance is no guarantee of future results.
Lipper The Lipper Mutual Funds Average is an equally weighted average of the mutual funds within their respective Lipper classification, adjusted for reinvestment of capital gains distributions and income dividends. Lipper does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright 2020, All Rights Reserved.
The Secured Overnight Financing Rate (SOFR) was originally known as the broad Treasuries financing rate, the secured overnight financing rate is a measure of the cost of borrowing cash on an overnight basis in the U.S. Treasury repo markets. It is the U.S. successor to Libor.
This material must be preceded or accompanied by a current prospectus. An investor should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing or sending any money. This and other important information about the investment company can be found in the fund’s prospectus or summary prospectus. To obtain more information, call 1-800-762-7085, or visit our website at www.cavanalhillfunds. com. Please read the prospectus or summary prospectus carefully before investing.
MUTUAL FUNDS AND OTHER INVESTMENTS: NOT FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE