News & Commentary

View all Commentary headlines

Money Market Fund —
Money market returns continue to remain low, but are expected to rise
3rd Quarter, 2015
"At current yield levels, money market funds remain competitive relative to U.S. Treasury bills and other short-term government securities. "
– Fischer Francis Trees & Watts, Inc.

The Harbor Money Market Fund returned 0.02% during the third quarter of 2015. As a reference, the portfolio exceeded the 0.01% return of the BofA Merrill Lynch U.S. 3-Month Treasury bill Index after fees. Short-term interest rates remained low during the quarter, anchored by a near-zero monetary policy Federal funds rate. Yields on money market instruments continue to trade within a very tight range with short-term U.S. Treasury bill yields in the single digits and corporate commercial paper around 20 basis points annualized.
Longer term rates have been more volatile, with longer-term interest rates falling, resulting in a flattening of the yield curve, as represented by the difference between the two year and ten year Treasury note yields. The increase in interest rate volatility is closely tied to market expectations for a tightening of monetary policy later this year. The challenge facing monetary policy makers is removing excess policy accommodation without derailing recovery.
Ken O’Donnell’s comments were made in an October 14, 2015, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended September 30, 2015, unless otherwise indicated. All references to year-to-date are for the period January 1, 2015 through September 30, 2015.

Interview Highlights

U.S. Growth Outlook
The U.S. economy appears to be on firm footing, with strengthening labor markets and elevated levels of consumption. Wages and consumer price pressures, however, remain subdued, suggesting that further progress is needed to reduce slack. While economists broadly expect the growth trend to continue, we believe the economy remains susceptible to destabilizing forces; specifically, the combination of declining global growth, a slowdown in China and a strong Dollar may have negative implications for the U.S. However, it’s important to recognize that current levels of monetary policy remain accommodative, and should continue to support U.S. growth in the near term.
Interest Rate Forecasts
At current yield levels, money market funds remain competitive relative to U.S. Treasury bills and other short-term government securities. Money market yields should begin to price in the risk of a policy tightening as the year progresses. We expect the money market curve to steepen in the fourth quarter as market anticipation builds ahead of an increase in the Fed funds rate. This should result in improved returns for money market funds in the coming year.
Inflation Expectations
Inflation remains the key risk to our outlook, as softening inflation data could lengthen the current stance on policy accommodation, further depressing yields in the belly of the yield curve.
Portfolio Positioning
We continue to tactically manage portfolio duration as measured in average days to maturity, and are currently maintaining duration in the 40 day range, well within the statutory limit of 60 days. From a sector prospective, we maintain the conservative strategy of investing exclusively in government and agency securities, which provide the most value on a risk-adjusted basis.

Performance data shown represents past performance, which is no guarantee of future results. Current performance may be higher or lower than the past performance data shown. Investment returns and the value of an investment will fluctuate, and an investor's shares, when sold, may be worth more or less than their original cost. You can obtain performance data current to the most recent month-end (available within seven business days after the most recent month-end) by calling 800-422-1050 or visiting

Performance figures discussed reflect that of the institutional class shares.

The views expressed herein are those of the portfolio manager at the time of the interview and may not be reflective of their current opinions or future actions.  These views are not necessarily those of the fund company and should not be construed as such.

This information should not be considered as a recommendation to purchase or sell a particular security and the holdings or sectors mentioned may change at any time and may not represent current or future investments.