Inside This Issue—Third Quarter 2009
Money Market Fund Industry Awaits Reform
The financial crisis has stimulated dramatic changes across many facets of the securities markets in the past year, and the money market fund industry is no exception. This once-sleepy sector of the market was rattled by previously unimaginable spread widening and liquidity strains, culminating with the Reserve Primary Fund, a $64.8 billion money market mutual fund, “breaking the buck” in the wake of the Lehman Brothers bankruptcy last fall (meaning its net asset value fell below $1 per share).
Fixed Income Sector Review
U.S. Treasuries and other government-related debt securities fared well in the third quarter as liquidity-fueled demand led to declining inflation and liquidity risk premiums across asset classes. Despite large increases in Treasury issuance, demand from retail and institutional investors proved robust as short-term borrowing rates hovered just above 0% and issuance in non-Treasury sectors remained low.
Economic Update
Following four consecutive quarters of declining economic output, real GDP is set to expand by roughly 3% on average for the final two quarters of 2009. Just about all of this growth can be traced back to various fiscal and monetary policy support programs, but under their protective cast the economy is in fact healing.
International Bond Market Update
The calendar for global bond issuance continued to be super-sized during the third quarter. New issues were received exceptionally well whether the borrowers were governments or corporations, despite fears to the contrary.
Investment Results as of 9/30/09
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