U.S. Liquidity

Western Asset believes that the Federal Reserve (Fed) will likely remain on hold with a targeted fed funds rate of 0.0% to .25% for at least the next six to nine months. In this low yield environment, conservative cash investors are trying to pick up incremental yield in one of two ways: by moving from Treasury money market funds back into prime money market funds or by utilizing separately managed accounts that allow for greater customization. The white paper below provides additional perspective. If you'd like to learn more about our liquidity capabilities at Western Asset please contact your client service executive or a member of our Liquidity Team.

Although we expect the U.S. economy to return to a positive rate of growth in the second half of 2009, the pace of growth will likely be modest relative to the severity of the recession. Over the remainder of the year and into 2010, the Fed will be contemplating an “exit strategy” that would initially lead to an unwinding of the quantitative easing steps it has taken over the past several months. An eventual shift toward a less accommodative policy via an increase in the targeted fed funds rate from the current 0.0% to .25% should follow, but only after the Fed is convinced that the economy is on a path toward a sustainable recovery. This is unlikely to occur until the latter part of 2010.

Western Asset's dedicated U.S. Liquidity Investment Team consists of nine key investment professionals who have an average of over 23 years of industry investment-related experience. The team has specialists that cover all sectors of the short-term fixed-income markets including Treasuries, agencies, corporate notes, asset-backed and tax-exempt securities. The team is further supported by Western Asset's broad market research teams.