As U.S. short-term rates rise, fund managers see some opportunities

• With the Federal Reserve likely to accelerate the removal of its unprecedented stimulus, some short-term rates have moved higher and offered money fund managers rare opportunities to generate yield. 
• With few high-quality investments available, money funds are taking advantage of the higher yields on some assets such as commercial paper. 
• For example, the three-month commercial paper rates that financial companies use to fund short-term cash flows, have jumped to 17 basis points, from 11 basis points a month ago. The three-month Libor rate, a market benchmark that is being phased out, has increased to 20 basis points, from 13 basis points in late October, and yields on one-year Treasuries have hit one-and-a-half-year highs, even as shorter-dated yields remain relatively moribund. 
• Tighter funding conditions as banks and investors pare back risk taking for year-end has sent yields of some short-dated assets higher, though in large part the rates have increased as investors price in the likelihood that the Fed will speed up the reduction of its bond purchases and that rate hikes may begin in mid-2022.

(Source: Reuters)