Hi everyone, welcome to today's insights from Northern Trust Web and R. My name is Katie Nixon and I'm the chief investment officer for wealth management and I'm going to be your host for today's presentation. Please note that today's presentation is being recorded and you'll be provided with the details for accessing the recording at the conclusion of today's presentation. And just a reminder, if you have a question for our speakers, please submit it through the QA widget on your screen. Or you can send it to contact northern at northerntrust.com. Now before I introduce our guests, I thought I would teach us off with some upfront perspective on the current state of affairs and then clearly I'm going to cause it to our experts for some of their thoughts and then go to Q&A. So again, we welcome any and all questions that you have. But let's start out here by digging into a pretty extraordinary week, and the markets and the economy. In fact, in the world, in an attempt to make some sense out of everything, I thought we would look first and foremost. And most importantly, at the pace of the pandemic. This is a global health crisis, and there's really no clear path confidently forward without containment of this crisis. Next, I thought we would quickly talk about the economic impact of the crisis and the related policy responses, and then last how this all impacts financial markets. This week there's been significant movement on all of those fronts. So first, let's talk about the pandemic. Uncovered 19, there are now over half a million diagnosed cases. Across 202 territories around the world with the case count increasing nearly 13 percent overnight, the US was responsible for about 1/3 of the new cases and almost half of those new infections were in New York City. The US has overtaken China with the most cases worldwide, but it does appear that Italy is not far behind. The outbreak is really spreading in South and Central America as well. It's clear that we have a ways to go before we were going to see containment, but we're also seeing measures that are being put into place very rapidly around the world. Measures around containment while we focus on the bad news of the spread in the mortality. There is some good news. The countries that we've seen peaked early are seeing much higher recovery rates, and now we do have. Evidence that the containment measures, like social distancing, can work. That said, This is a process, and even in China, where the curve was very effectively flattened with draconian measures that were taken to isolate Wuhan, there has been an increase in cases caused by people traveling back to China like students, for example, coming back from Europe or from the US and in response, China will adopt strict border control measure starting this weekend. So on the virus front outside of China were still playing catch up, although we're optimistic that measures being taken will. Ultimately prove effective. To reiterate our base case, we do think we're going to see a peak in new infections in the US in the April may time frame, with an actual decline in new cases in June and July, we continue to see very good news in progress being made on the farm and biotech sides, with advancements in testing, which is absolutely critical but also progress in some antiviral treatments. Another attempt to lower their mortality rate. And finally, we continue to hear progress related to the development of a vaccine, although we know that might be many months away. The bottom line, we know that without clarity on the duration of this health crisis, it's going to be really difficult to gain confidence on either the economic outlook or the market outlook as we continue to monitor progress there. So Secondly, let slip through the economic impacts. Now we're already seeing the consequences of the virus. Now of course we knew what was coming, 'cause we had the example. The early example of China which showed to the world the sudden and deep drop in economic activity that we could expect. And we're actually starting to see this in the US. We had a jaw dropping unemployment claims number yesterday that tops 3,000,000 are. We certainly expect there should be more bad economic news to come, and it's likely that the US is in a recession along with the. Along with Europe and Japan, these are perhaps deep downturns for the second quarter. The combination of the supply talk that the shock that started in China and the demand shock that's now rolling through the world. As these containment measures are effectively shutting down major parts of the economy, the economic impact could be quite significant and unfortunately, unavoidable. Now that transitions us to talking about Paula C. UM, there's a lot of focus clearly on pool by policymakers around the world who collectively are looking at how to dull the economic pain during this. We're seeing major fiscal stimulus take whole globally with the most recent example coming out of the US with a 2.2 trillion dollar stimulus bill, which equates to roughly 10% of our GDP. This is massive, and this is targeted at offsetting the financial distress of businesses and households to provide support, without which we would see a massive and perhaps more long lived economic disruption. This bill is headed for a House vote today and will soon see there after it hitting the presidents desk. As I said, it's very targeted at providing direct support to household in the form of cash in their pockets. Greatly expanded, extended and enhanced unemployment insurance even extended to workers in the gig economy and support for small businesses in the form of forgivable loans with incentives to keep their workers employed. There's also support for industries most directly impacted for the coronavirus. Those loans do come with strings attached. However, related to restrictions on stock buybacks. Negative compensation this is the third stimulus package out of the US, but it may not be the last. On the monetary policy front, we've got central banks firing on all cylinders. Now, with another surprise announcement earlier in the week from the Fed related to providing more support to the dysfunctional fixed income markets, I don't want to say too much about that because that's most certainly the Bailiwick of our special guest today. The bottom line here though, is that policymakers are acting in a coordinated way here in the US and in the UK, and at least in an aggressive, but although not quite coordinated, way yet across the EU, the economic and market followed from the coronavirus is being taken. Very seriously. So that takes us to the last last of our parts of the framework. That's the market reaction. Let's look at the financial markets where we saw steep drawdowns across all asset classes that began in earnest in February. Is the reality of the coronavirus really started to sink in the market since then? Have been extremely valable, volatile and very susceptible to news flow. So the markets are absorbing the news as it comes fast and furious. But the last few days have been all about the various measures being taken around the world. Offset the financial and economic stress of this health care crisis. Investors have interpreted this. Whatever it takes approach by policymakers is really critical to preventing the near term consequences of this from really driving a longer term, perhaps a deeper economic downturn. So policymakers are trying to build a bridge to the recovery phase, and this is really important, and also maintaining the functioning of the financial market. Plumbing in the meantime. So monetary policy as well as fiscal policy is rightly firing on all cylinders. And markets have rallied aggressively this week in the face of equally aggressive policy action. We saw the Dow Jones actually go from a bowl to a bare back to a bull in record time. It's important for investors though, to look at history is a bit of a guide here and understand that while these kinds of moves for markets are unprecedented, the magnitude of the moves that we've seen, the patterns are pretty familiar. We look back at history, and we see similar patterns are very large drawdowns and then huge rallies occuring in many cases in a seesaw pattern. The year's biggest gains are often adjacent to the largest losses, and this is really important because there's such a temptation now to try to time the market and we always caution against this, and I think last week and this week present very compelling case that is very difficult and unpredictable. And most importantly, it can be really damaging to longer term returns. If you missed the best days, your return will suffer tremendously, and unfortunately those best days can sometimes be bookends to the worst days during times like this, the hardest thing to do is to stick to your plan. But looking back at history, it's usually the best course. We don't know if we've seen the market lows and we do remain optimistic that there will be a second half recovery in the economy and in earnings, perhaps perhaps a substantial bounce in earnings, but that's predicated on getting the virus under control in early summer, in that remains the most important metric that we're looking at. So I mentioned policy response this week, and in particular, the rolling announcements out of the Federal Reserve. An one issue that investors and art and the Fed were becoming increasingly concerned about was the short term credit markets. And specifically money markets. And echoes of 2008 we started to hear questions like is my money market safe? So on that note I am so pleased to introduce our first distinguished panelists are director of short duration, fixed income and are the head of our taxable credit research. Peter E. Who's going to help to provide some perspective on what's become a real hot button issue for our clients. So Peter Let me turn it over to you for some comments on the money market and short term short duration credit markets. Thanks Katie and good morning everyone. Katie did a really nice job. Kind of summarizing really what the backdrop is. But you know, certainly there's just been an incredible amount of attention on the money market industry. You know, really. Over the last few weeks, and I can't stress this enough, but things are incredibly fluid, and new developments seem to be happening every day. The way I've been describing his people as it just kind of feels like we're processing. Almost a months worth of data every day. So what I say today could totally change the next time we get together. But you know, kind of with Katie has already summarize the backdrop is really the same. The magnitude of the coronavirus impacts were under estimated and now sometimes it feels like you know the impacts will bring endless on a global scare scale. Excuse Maine. So again, if you think about it, all that social distancing strategies it's being applied everywhere you know it's shutting down parts of the global economy. It's creating extreme volatility in asset classes, and that's translating into illiquidity within the fixed income markets, and more specifically the money markets, which are the shortest term, high grade part of the fixed income? You know we've had that markets ease up for credit instruments. Along with all the other asset classes, we've always viewed money markets as an incredibly important part of the financial system. The money markets can be the Canary in the coal mine just because of its sheer size. The money market industry. It's roughly about. Four trillion for the money market mutual fund industry and we like to say when the money market sneeze all the other markets tend to catch a cold and with this fast pace and new information in new forecasts for a deep economic impact, we are seeing a flight to quality everywhere in that flight. To quality is started with, you know this gas it's going into safe Haven. US treasure is. And within the money market industry, it's. It's also been, uh, we're also seeing significant inflows into the industry, and roughly for the month of March. It's been a pretty eye opening. It's been almost half a trillion dollars, but within the industry we're seeing even a another shift of like the quality that is moving from prime credit funds into government funds. And just looking at the data over the last week, we've seen about 100 billion already moved from prime money market funds in the government funds. And you know, just that dynamic alone has created some illiquidity. With credit instruments, there's a lot of things that are kind of happening behind the scenes at is really making this illiquidity pronounced in the money markets. One of 'em is, you know, the dealer participation in terms of making markets has been. Weakening dramatically over this time period, one because of all the volatility that we're seeing with in risk assets, it's creating all kinds of. Var challenges for the broker dealer community to inventory assets. Just because of that volatility and so broker dealers are generally kind of stepping away, which obviously is not good for a normal functioning market and what is also making this more pronounced right now is we are approaching 1/4 end which tends to be a very sensitive. . Reporting period for broker dealers and it's a time when broker dealers want their balance sheets to be very clean and very thin. Because it is a major regulatory reporting date and so the lack of participation on the broker dealers has is really made an impact in terms of how much liquid iti we're seeing within the short-term markets we all know. That the Fed has been very aggressive and really focusing on how to get the markets to, you know, function again. Katie did a nice little summary here, but you know again, just kind of recap some of the things that are more relevant to the money market industry. You know the Fed has dramatically lowered interest rates. 150 basis points just this month alone. You know the Fed has been allowing the financial system to get more liquidity in it by having these repo facilities that not only helped the Fed control where short-term rates. Are but it also offers a little relief in a little capacity within the financial system that actually helps banks in terms of. Access reserves in the system as well as making things just a little cleaner in a little easier to navigate for financial institutions, and this really started back in September where the Fed open up these temporary facilities to banks and broker dealers. And right now the capacity for using these repose, which ultimately help thanks finance certain positions an use liquidity in a more effective way. The Fed is offered up to almost two trillion in new capacity for this financial market liquidity. In addition to that, the Fed has introduced some new liquidity facilities. This really started about two weeks ago. These are facilities that were originally introduced back in the 2008 financial crisis and some have been more effective than others. Three that I would highlight is one a commercial paper funding facility. Now this facility is designed to allow commercial paper issuers to get immediate access to funding. The issuers will be allowed to issue directly into this fed facility an it's it's a. It's a good concept in publicly acceptable because it does allow for more. Credit availability for these commercial paper issuers as well as financial institutions that ultimately want to be able to pass on that credit availability to Main Street as as the world cat heals itself. So so far, the details of that facility, even those the first one to be announced, haven't been. Really, uh, detailed out to the market place yet, but we know it's coming and that is getting a little bit of comfort for commercial paper issuers in terms of their concerns over rolling over there rolling over their commercial paper issues and having that funding available, the second facility is a primary dealer credit facility that allows dealers to get cheap funding to help market liquidity that's had some modest success. But at least the money market industry. There's one facility that has had a tremendous impact in terms of secondary liquidity and that is the money market liquidity facility that is eligible for US registered money market funds. This facility is been really critical. It has allowed money market funds to sell illiquid, high quality instrument. Into this facility and immediately get that that liquidity to potentially accommodate redemptions. Like I said, we've seen some flows out of prime funds into government funds. Then this is really helped. These prime funds facilitate those redemptions, despite the fact that prior to this market disruption, money market funds have had. Really strong liquidity profiles. The money market reforms of 2014 have mandated that all money market funds have strong liquidity starting with daily and weekly liquidity that needs to be at least 30% of the portfolio. But again this facility, the money market liquidity facility is a real game changer that has calmed the markets that has. You know, unfrozen the credit part of the the short end, and certainly is going to continue to be used as a liquidity factor going forward. You know things aren't perfect with regards to the secondary market for money market instruments, but certainly it is getting better in our expectation is as we move past quarter end here next week we should even see more. Improvements in that regard. Finally, my last comment is you know, monetary policy. Our views has been monetary policy has been linked with good fiscal policy, and Kitty has kind of outlined from the new developments there. But one thing that is important relative to the money market industry is there is a section in the stimulus Bill, Section 4015 that actually allows the US. Treasury to guarantee and backstop the money market industry now. Whether that authority is used or not yet to be seen. The money market industry has stabilized tremendously over the last week, mostly because of these fed facilities, but between the Fed facilities as well as the potential lever that the US Treasury has for guaranteeing money market funds. We have seen dramatic improvements in sentiment as well as a stabilization in terms of flows, but my last comment is the money market industry is just getting a ton of assets going into it. In fact it's the only asset class that has been net positive over the month and so one challenge is now we just have to invest thoughtfully in terms of how we position the portfolios. Position or liquid iti. But also understanding that now we are operating in a 0 interest rate environment again. So let me pass back to Katie on that. Thanks Peter, so clearly I'll say two things. Clearly it's still all about liquidity and the second thing I'll say is what a difference a week makes. I mean, my goodness, there's been so much going on, um, we know that the Fed is all in and his offer to support the fixed income markets pretty broadly. And that's been good news in your market, Peter, but it's not especially good news in the muni bond market, and that market had faced really kind of a one two punch of a lack of liquidity and then growing fears of the COVID-19 and juice. Credit stress, so with that I want to turn to our next special guest. Our head of municipal fixed income management team, McGregor and Tim you had such a high volume of client interaction already with so many. You're probably a very familiar voice on the call this morning. We would love for you to share some perspective on what's been going on in the in the municipal bond market. OK great, thanks Katie and I appreciate everybody's time today and patience and understanding and willingness to tackle these markets with us. I think all should be isn't applauded on this. It's a difficult task, but appreciate everything I've seen this far, so thank you for that. The municipal market has not been spared the volatility that you've talked about as of last weekend we had seen the worst month to date performance for the muni market in over 50 years at down 10%. I can tell you this week to media market has rallied back over 7% in one week as the strongest week rally ever. So obviously volatility is there. The big move down was related to some of the illiquidity you talked about In addition to a lot of industry industry redemptions in the mutual fund space in particular, those big fund companies were forced to sell into very illiquid markets and that drove prices way, way down some of the problems on the front end of the yield curve that peer mentioned cause short term rates to elevate. Which then caused the leverage players in the market place to have to unwind leverage at the same time they were getting redemptions, which is kind of a double whammy. We don't use that type of leverage, but we were still affected as they sold longer data municipal securities. It tended to back up the whole market. To a point where we talk about the crossover buyers starting to come in by crossover buyer, I mean someone is buying municipal bonds not because of the tax exemption simply because the yields were higher than Treasurys in a meaningful way. So we get 10 year top quality municipal bonds yielding 3 four times the amount of US Treasurys. So we saw a lot of pensions and global sovereign wealth funds and banks come in to grab up some of those yields, so that's been a big support this week. I would say in my 30 years in the business I've seen major dislocations like this five or six times. All have been different. This one is clearly different. Big difference this time is what you've been talking about and forward to hearing questions about. It is that both the Federal Reserve and the federal government are in aggressively to support the marketplace. To be honest, the municipal market has kind of cried for federal help in some of these other, you know instances which I never really thought it needed. Clearly I think it's going to need some help this time around and I'm pleased that both the Federal Reserve and the federal government have come forth with a really great start. So a lot of state and local aid money is on its way and a lot of aid money specifically for hospitals, alot of aid, money for airports, mass transit. And also for the first time ever, a facility being set up where the Fed could actually purchase municipal bonds for their balance sheet, similar to things they've done with Treasurys and mortgage backed security itself a lot there. There is no doubt in my mind that these plans will be a big help and it's important progress of many steps. I think that will be down the road. Clearly I think there is a need for municipal bonds. Yeah, they are public purpose in nature and provide essential services. They will be a big part of the future recovery here. So with that I know there's going to be some questions. Katie maybe I'll turn it back to you. Great thank you Kim Anh. Not unexpectedly we have a lot of really great questions. Uhm, I want to remind everyone. Please keep sending in the questions are we want to be able to address all the concerns that you have. And also I want to ask you there's a survey on the side of your screen and we really need your feedback on these events so that we can appropriately lineup speakers and have the right format for future events are going to continue to have these insights called a couple times a week for the foreseeable future. To keep you informed about our views and give you are up to date insight so your feedback is incredibly important. Again, we've got already gotten a number of questions, but if you do have a question for any of the speakers, please submit it through the QA widget on your screen. Or you can send it to contact more than truck contact northernnortherntrust.com. So our first question. And Peter, I'm going to direct this at you. We've gotten a number of questions about money markets, safety, and security. Very first question that we got was on the potential. With all this new policy stimulus for money markets to break the Buck. Sure. Good question. Right now it's more of a liquidity event for for the industry that quality, the credit quality of prime funds, municipal funds, and you obviously government funds. It is very, very high. Our view is, you know, as long as we can address the liquidity part of things like term, credit, instruments or term municipal securities, as long as we do have access to this fed money market liquidity facility, you know we think you know there is a really good chance that you know markets will continue to function as they were. One of the challenges that we did. Slightly see and even in that scenario we weren't anywhere close of breaking the Buck was as we had these this. These moments of illiquidity, some of the prices on those terms securities went down modestly, but again it wasn't in any degree that we thought was concerning, so the liquidity facilities certainly helps. And like I said, there is this new authority from the US Treasury that. The translator not hang your head son, and we're not, you know, even entirely sure the Treasury would use this authority to backstop money market funds, but it is out there and you know, frankly, if the Fed or the US government continues to see stress, you know. Again, you referenced this earlier, Katie. It's do whatever it takes. Type of mentality to make sure things function again. But with regards to credit quality and breaking the bucket. It's not. That's not the story right now. Computer, just a related question. There we talk about credit quality not being issued. Do you see any difference right now in the credit quality between government prime immunity in light of the fact that there are so many backstops in play, not just the Fed. But again, you mentioned this Treasury potential Treasury intervention. Well, there's certainly going to be a difference in credit quality between strategies. Each strategy has its own characteristics and considerations, and there is a risk continuum within money market strategies. Prime will always have credit instruments. I'll be it very high quality securities and considered to have the most risk considerations. Then you then yeah, municipal money funds that are obviously diversified Holdings of Muni issuers and. You know generally have other sources of liquidity as well or credit enhancement from either banks or specified pools of US treasurys. Just as an example and then use government funds are going to be the most conservative and they're going to hold US Treasurys an US government agencies, but they will have, you know, because of the credit spreads in the other strategies. If you look at where a Treasurys are and where the Fed is taken, its policy rate, we're operating again in a 0 interest rate environment, and so these are the strategies. Government strategies are the ones that are going to be challenged the most with that new dynamic. Right, well, let's pivot to Tim. We brought in obviously a number of questions on municipal bonds, you know? Muni bonds tend to be just a core strategy for many of our taxable clients in the questions. If I could put them under a category, have gotten a number of questions that really fall under the the creditworthiness um umbrella in the main issue here is have you seen any notable stress in credit yet? Do you expect to see that an are you expecting any suspension of interest or principal payments? It's a good question. We've seen some stressing credit. Obviously the Federal Reserve and the Fed announcements have helped quite a bit. We do believe high quality issuers that we tend to invest in that came into this with good financial health, will emerge with little or no longer term damage. It is true that state and local governments came into this with rainy day funds and cash reserves at their highest levels in 25 years, so that's an important point. They've been very prudent financially since the great financial crisis, so they're coming into this. With in much better shape than before, many states didn't even have rainy day funds before the financial crisis, and now some of these rainy day funds make up 10 to 15% of the entire budget. So that's a big big positive. We're going to continue to be proactive. We always have on the credit front, managing through this looking for signs of stress that might be out there. So I think will maintain good quality portfolios across the board. But always be proactive and on the lookout for stress is down the road. So Jim, Just on that note, uhm, we still maintain a real focus on credit quality, even though there are these backstops in place so our philosophy around managing muni portfolios remains constant. Despite all this volatility. And despite the intervention. Yep, very much. We always look to the underlying credit. You know, these fed backstops are nice and real and no doubt they will be help in there. I feel if needed would it reminds me of the old and bond insurance days. You know we never bought bonds based on bond insurance. We always look to the underlying credit and I think that's a good way to look at this. Make sure your credits are sound diversified. Tax base is essential. Service revenues, water, sewer, public power, things like that. Things that the market was built to do so it also. You know, remind people about the municipal market and how much a little assistance can help is just if you look at the overall size of the municipal bond market is quite small compared to the US bond market as a whole. It's less than 10% of the US bond market. It's less than 40% of just the corporate bond market, so it's smaller in size to the point where some help can definitely go along way. So Tim, I've heard of heard you say many times like a client meetings that, UM, for the most part, of course there are some notable exceptions me disabilities have made the tough decisions. Post global financial crisis. They balance their budgets. They they were much more careful about about spending then maybe some other other borrowers. And perhaps that's putting them in good Stead 22. To survive during it this economic disruption. Well, that's exactly right. You know they've the bullet many times an to this extent they will again people. I'd get the question whether states going to do if their revenues are going to drop. Well, unfortunately, the first thing they're going to do is cut some expenses. You know that's what they do, and that's what's put them in this better shape than maybe some other type of borrowers that are out there. So they'll continue to make tough decisions. You know, this time around, they'll have some federal assistance that they have not had before. Great, so let's let Peter Let me put it back to you here. Um, looking through the questions an related to your comment about 0 interest rate environment an government, money, funds and what we've seen is not just a 0 interest rate environment but actually negative rates on T-bills going out to six months. I think this morning. How is that going to impact government money funds? Right? Well, First off I'll say negative rates on a short Treasury bills or not helpful. It does make trading challenging and quite frankly, it's not viewed positively from a market market functioning perspective. And we've heard regulators or policymakers like the Fed and Treasury actually called that out as well. You know? That's also why the Fed has clearly stated at this point that we don't believe they're going to take their policy rate negative, and that's not going to be a real option, just one given the experience and effectiveness of these similar policies and at the ECB, and be OJ. Really, it feels like a failed experiment from that perspective. But that doesn't mean the market can't take. Race negative, which to your point they really have out a six month maturities and treasure bills. They are trading with negative interest rates. It does make managing government money market funds challenging. You know the more negative it codes and the more. I'll be the slope of money market yield curve is flat and the more it will have an impact on the yields of government funds. Right now you know there are other levers that a government money market funds like ourselves have in. That is access to things like the feds reverse repo facility. We are an improved counterparty for that facility and that facility actually has a floor of 0%. You know we can get pretty much as much as we want from this facility at zero percent, but overtime, you know, we do have some longer dated Treasury instruments that we bought before the Fed lowered dramatically lowered interest rates and for right now we feel pretty good about, you know, just the way the performance has been. Our government. Money market funds, you know, we've always kind of had a little bit of A. Out layer view that we thought rates would be going down dramatically, which they have, and so we positioned around that where we've been long in our durations relative to our peer group, that's for sure, and so we are in a good place at the moment in terms of not having to transact at negative interest rates. Peter, just on just to follow on quickly, very quickly on the reverse repo. I think I read this morning that there was something like 100 billion dollars that went into the reverse repo market overnight. So this is something that um counterparties are going to be using more, probably right? Yeah, that's absolutely right. It was used fairly routinely back a few years when we were operating in the 0 interest rate environment, and now that we're back there and again, it is fairly punishing to be trying to trade in and out of negative yielding short treasure builds. The nature that a lot of managers are doing is simply just going to the Fed. Be very simple facility to at least get be 0 interest rate, but again, we're tactically in the market every single day and there are opportunities where we can get a little bit better than that. But at least for the moment, all of our term purchases that we've been doing to get a long duration on our money market fund is is keeping the yield the fairly resilient, but as those mature, the reinvestment opportunities start to get limited, right? Well, let's let's. Take that duration theme an pull it forward. Tim, I'm going to shoot this question to you, um, given the environment. Given the fact that we do expect rates to stay long for the foreseeable future rates to stay low for the foreseeable future, does it make sense to extend duration in portfolios now? Well, that can be difficult question. You know 'cause all investors are so different in terms of what their interest rate risk tolerances are. I would say the yield curve is adequately sloped, so there is return an income you can get by extending on the yield curve. So we're not in a flat situation where it doesn't really make sense of an income standpoint. So yes, if there's extensions that can be done, we wanted to do that prudently. We want to use our interest rate risk in portfolios. The best we can. Often that'll mean kind of a barbeled maturity structure. Where were We want to position on the seat part of the yield curve, where the investors getting paid for that extension? Not maybe make a three to five year extension where the yield curve is totally flat as one example. So yes, there is still some slope there, but yes, we want to use that interest rate risk very prudently, and that goes for short term investors, intermediate or long-term, and the meaning yield curve is unique and dynamic, and it gives you some really nice opportunities for that. Often it is moving in direction is completely different than US. Treasurys is often not steepening or flattening all at one time and very rarely moves in Unison. So if we're flattening one to 10, we might be. Getting very steep 10 to 15 as an example, so yield curve positioning using that duration wisely. Getting paid for it all key variables right? I mean that really I think. Highlights the value of having some sort of an active approach and oversight to come to your portfolio so you can take advantage of the opportunities as they present themselves, not fall victim to the illiquidity when it rears its ugly head. Just looking down these questions, we got a number of questions related to the structure of. Of certain strategies on. There's been a lot of news related to exchange traded funds and how they have weathered this sort of market volatility relative to mutual funds. Maybe I'll start with you. Do you have any comments on sort of the different structure of the different instruments as it relates to the market volatility? I do that mean they've kind of added to it a little bit to these EPS have grown but you know mutual funds have grown so much more in aggregate size. They were much bigger player in our market place now than they were in 2008. So when. The retail system starts to generate redemptions that tends to snowball so it can have an even bigger effect on the marketplace, and some of that can create opportunities. For example, when these big fund complexes tend to sell, they tend to sell their shorter duration, higher quality assets first things like pre refunded municipal bonds which have been a nice opportunity. These are two 3 year securities that are no longer backed by the underlying municipality. There backed entirely, legally escrowed with US treasurys, so that's an example where some of the selling from the big companies can create an opportunity. They are a bigger factor. Some of the bid ask on some of the TS you mentioned can get pretty wide. During periods of volatility, an illiquidity, so I'm sure people have seen that you've seen some closed end funds out trading out there instead of your discounts that can happen as well. I'm sure people have questions about that. So very important question there, a bigger player than they were, you know, with some of the tax law changes, some of the institutional investors have kind of left our market a little bit, but the retail investor in high net worth investors have more than picked up the lack of institutional interest for sure. So Peter, I have a question here for you. 'cause you mentioned money market reform and you're upfront comments in the 30% threshold for highly liquid assets in light of what's going on right now, do you think that that is high enough? Uhm, as we certainly saw stress on on liquidity. Or do you think that the reforms have put constraints on the industry that have Hanford, their ability to manage through this tough time? Well, with this experience you know, again, just watching kind of short end of the credit markets easing up. I think the perception is more liquidity is, uh, is more desired from Natchez, portfolio managers, but also a investors that keeps evolving. And, you know, one major consideration is after the 2014 reforms, you know they introduced these new liquidity thresholds as an example, it's really 30% your portfolio needs to. Be maturing within a week normally that is viewed as a really strong liquidia profile that generally works in every market cycle, but we what we've noticed is that again, Despite that view, investors tend to focus on those percentages. An at times will preemptively move their money if those funds start to hear those percentages, or potentially go below them. You know that is, you know, problematic celebrates some of these outflows. Again, despite the fact that you know, these portfolios are very high quality. Have you know very high liquidity requirements? And frankly there are tools to quickly raise liquidity depending on the environment. This environment was just a little bit different, but of course with the access of the money market liquidity facility from the Fed. Again, you know things are. You know there is a lot of levers for funds to raise liquidity, so you know we're just reminded of this dynamic, and I do think you know it will result in just keeping more excess liquidity. Definitely right? So I'm going to actually take the last question myself, 'cause it's a question that we got from a couple of our listeners about whether Northern Trust was remaining sort of the safe and stable organization that it has been 430 years, and I want to address that really directly by saying. You know, Northern Trust has consistently been assigned the highest long-term credit rating of any comparable US banking institution. We have a very high quality securities portfolio. Over 80% of the securities is in US Treasury, government sponsored agency, and AAA rated securities. We are strong. We are well capitalized. We have ample capital and liquidity to serve our clients even during severe economic downturns and as 130 year old organization, we have certainly seen our share of of. Economic cycles, so I hope that answers and addresses that question. I want to also say we got a lot of questions and I know that we weren't able to answer all of them. So stay tuned. We're collecting the questions and then on Wednesdays were aggregating them and then publishing the answers to the most frequently asked questions. So please stay tuned an look. Be on the lookout for that, but unfortunately I'm going to have to. I'm going to call call today's called to an end. If you missed any part of today's remarks, you can access the replay beginning tomorrow, March 28th. At northerntrust.com backslash financial market updates, we're going to have a wonderful call on Monday at the 30th at 10:00 AM Central. Going to continue our discussion on the pandemic in its investment implications were going to have Brad Camden. He's the director of fixed income strategy, who's gonna facilitate a discussion on high yield, and I know this is an issue credit in general in high yield specifically has been a real issue of interest for our clients, and we're also really pleased to welcome an epidemiologist and consultant to the World Health Organization. Doctor Cavite Trivedi who will provide perspective on the evolving pandemic, the global response and any practical measures that you can all take. To protect yourselves, we really hope you're going to join us again. An I thank you very much for you think giving us your time today. _1590876204427
Title:Insights From Northern Trust
Date: Friday, March 27, 2020
Time: 10 AM CT
Duration: 45 Minutes
Tune into the Insights From Northern Trust webinar to discuss money markets and municipal bonds.