U.S. Money Market Monthly Commentary

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Recap

With the potential government shutdown behind us, expectations for an exit from Zero Interest Rate Policy (ZIRP) have taken center stage. Speculation on the future path of monetary policy has kept short-end market participants on their toes since the summer, with the market-implied probability of an increase in Fed Funds on or before December 16th going from 50% in late August down to 26% in mid-October following a disappointing Non-Farm Payroll report, and now approximately 75%. Many Fed speakers have communicated the high likelihood of a rate hike, and have now set a high hurdle to not move as expected. The yield curve has flattened dramatically, with rates inside of 3 years rising but maturities above 5 years remaining range-bound. While short Treasuries and Fed Fund futures have experienced high volatility in recent months, LIBOR and Commercial Paper levels have crept steadily higher, with 6-month CP now yielding ~0.60%.

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