J.P.Morgan: Vanguard A'ment Shouldn’t See Sig. -ve CP/CD Funding Pressures

J.P.Morgan suggest that "Vanguard's announcement that it will convert its $125bn prime retail money fund to a government money fund should not result in any significant negative funding pressures in the CP/CD markets as over 75% of the funds' holdings are already in rates products and very little in credit.

• Over the longer-term, we suspect other smaller prime providers as well as those that are more retail focused will follow suit given pressures arising from the low rate environment and the operating costs of running retail funds relative to the risks incurred in running prime funds.
• We are overweight fixed versus floating in the front-end credit markets. Fixed corporates provide overall better value than floating given similar yields/spreads but less benchmark and liquidity risks with respect to floaters.
• Also, we don't expect 3m Libor to materially increase anytime soon such that the FRNs become more attractive relative to fixed on an all-yield basis. Our current expectation is for 3mL to head towards 20bp by end of 3Q and 25bp by end of 4Q."