Remain Diligent As Credits Improve

The month of September was one that brought several important shifts to the economic and credit landscape and it’s no coincidence that it marked the one-year anniversary of a near global financial meltdown that was averted by unprecedented government support. Analyzing side-by-side Federal Open Market Committee statements from August 12th and September 23rd reveals language changes that hint at a pickup in economic activity underscored by greater movement in the housing sector and stabilization in consumer spending. Additionally, this change of tone in the most recent Fed statement reflected strength in retail sales and building permits.

The second event that transpired last month was the expiration of the first of many government support programs that were enacted at the peak of the crisis. The Temporary Guarantee for Money Market Funds program, which provided insurance to stabilize the money fund market, expired with little fanfare and limited fund outflows to date. This expiration transpired even while the regulatory debate on how to fix the fund industry is in full swing and without a firm date on when changes may be implemented. We feel this turn of events reflects a reduction in the perceived systemic/macro risk to money funds versus a year ago and bodes well for credit market functionality.

These are positive developments indeed for treasurers looking to re-emerge from ultra-conservative positions and begin to explore the risk/reward of this new landscape. As treasurers consider this process, we thought it timely this month to revisit the fundamentals of risk control offered by effective investment policy construction. However, while the investment policy is an important document for risk control, we expect new, more robust due diligence processes on all credit exposures. This will likely become the rule versus the exception for treasurers’ in the future.

Best Regards,

Ben Campbell
President & CEO