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Blue Rose Capital Advisors is an independent financial advisory firm that does not engage in underwriting activities. We are registered with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) as a Municipal Advisor. Because we have not engaged in underwriting activities in our history, we generally qualify as an Independent Registered Municipal Advisor (IRMA).
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Money Market Funds vs. Laddered Portfolios Part 1: Market Expectations

By Georgina Walleshauser


Blue Rose recently has seen many issuers contemplate whether to reinvest their bond proceeds in a money-market fund or a laddered portfolio. A money-market fund offers a short-term variable rate that, in the current inverted yield curve environment, is often higher than the long-term fixed rate offered by a laddered portfolio investment.


Rather than decide between the two products by comparing the current yield of the money-market fund versus the fixed rate of the laddered portfolio, we encourage issuers to decide based on their view of the market over the duration of the investment period. An inverted yield curve implies that the market expects rates to decline in the future. If an issuer agrees with this view, it makes sense for them to consider locking in the yield on their investment with a fixed long-term rate. If they disagree and believe that rates will stay the same or increase in the future, it may make sense for them to utilize the short-term variable rate investment product.


Neither view of the market is inherently wrong, but the yield curve is generated by actual trades at numerous points on the curve on a continuous basis.  As such, the curve will always show where the market consensus is for interest rates in the future. While the curve shows where the market is predicting interest rates to go, it is not infallible and there is no guarantee that the market consensus will actually transpire. Accordingly, when a client is considering an attractive, but temporary, short-term investment return instead of a longer term fixed rate that might be comparable or even lower at the moment, we remind them to consider what the market is telling them about the path of interest rates and whether or not they agree with that view.


Since the rate on a money-market fund is only guaranteed for a short period of time, it is possible that the rate will reset lower than the overall yield offered by a long-term fixed rate that can be obtained today. It is important to understand that while it is also possible that short-term rates remain high enough for a money market fund to maintain the higher overall yield, this is not what is being implied by market expectation.





About the Author


Georgina Walleshauser, Analyst Georgina Walleshauser joined Blue Rose in April 2017. As an Analyst, she is responsible for providing analytical, research, and transactional support to senior managers serving higher education, non-profit, and government clients with debt advisory, derivatives advisory, and reinvestment services. She also prepares debt capacity modeling, credit analysis, and market analysis to support the delivery of comprehensive, strategic, and resourceful capital planning tools to our clients. Georgina can be reached at: gwalleshauser@blueroseadvisors.com