From the Investment Desk

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J.P. Morgan saw significant liquidity return in the money markets in first quarter as investors sought short-term opportunities against an extremely steep yield curve.
J.P. Morgan’s investment desk remains focused on fixed rate investing out to 95 days.
Looking forward the desk expects continued improvement in the market environment.

J.P. Morgan saw significant liquidity return in the money markets in the first quarter as investors sought short-term opportunities against an extremely steep yield curve. The overnight target rate versus three month LIBOR remained above 75 basis points at quarter end. Activity steadily increased with counterparties reporting strong daily volumes.

J.P. Morgan’s investment desk remains focused on fixed rate investing out to 95 days. Floating rate investments targeted U.S. Agency issuance, FDIC guaranteed names and other government guaranteed issues with maturities out to 2 years. The preferred index remained three month LIBOR. The portfolio strategy remained focused on liquidity as the foremost concern within each individual account. The secondary market remains dislocated making it difficult to create liquidity. The desk maintained overnight liquidity in the 2 to 30 day maturity range as well. The 95 day investment strategy allowed J.P. Morgan to build liquidity following year-end by focusing purchases in the 1 month sector and then expanding purchasing to 2 and 3 month investments.

Accounts that incorporated only overnight to 30 day investments were challenged to find lending opportunities. The increased liquidity in the market kept investment levels relatively flat from overnight to 30 days. Accounts weighted toward the shortest duration investments were more dependent upon the intrinsic value of their underlying portfolios for lending opportunities. This is important because as the Treasury continues with increased issuance creating an environment where intrinsic value remains difficult to find.

Looking forward the desk expects continued improvement in the market environment. The program will see considerable maturities of pre credit crisis investments in the first quarter. These maturities will allow the continued building of liquidity while also providing the opportunity to invest in the market out to 95 days. J.P. Morgan looks forward to continued conversations around our program-wide investment strategy as well as opportunities that are available for your account specific needs.

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