The Fed and Liquidity Markets-Is This Time Different

Matt Jones: Welcome, welcome, everyone, to today's webcast titled The Fed and Liquidity Markets, is this time different? So I'm Matt Jones, I'm the Head of Liquidity Distribution at Western Asset, and today I'm very pleased to be joined by my colleagues John Bellows and Kevin Kennedy from our Portfolio Management Team. John is, just to make just by way of introductions, John is a Portfolio Manager, member of the firm's Broad Strategy and Global Investment Strategy Committees. You might recognize John as a frequent contributor to CNBC and other media outlets. And John is very focused and has particular expertise in Federal Reserve policy. So I welcome John, thank you for joining us. Kevin Kennedy is a Portfolio Manager and the Head of the Liquidity Investment Portfolio Management Team. In this capacity, Kevin has a broad range of liquidity investment strategies with short duration liquidity, investment strategies that he oversees. And we want to welcome John and Kevin to today's discussion.

Matt Jones: So welcome, everybody. So in today's discussion of particular focus, is the Federal Reserve's response to the COVID-19 economic crisis and with a particular bias towards liquidity markets. If we go back to March and April this year, I mean, the pace and scope of the Fed's policy response was pretty, pretty dramatic. And it was it was, of course, very much shaped by the events of the great financial crisis and the playbook from the  financial crisis. But there are some differences, and that's one of the big themes of today's conversation. We want to explore some of those differences. So where are we today? So today, as we come towards the end of a tremendously eventful year. We look forward to 2021. A number of vaccines are being rolled out in different parts of the world. We see optimism for the for the coming year. But at this point in time, because a tremendous amount of trust over issues, economic issues for the global economy to contemplate and to sort through and to really, really build into recovery. So, you know, notes, please, today is a discussion. So you know while we don't take questions over the air there is the ability for you to ask questions online. So at the bottom of your screen, you should be able to write a question. And I will aim to take at least a couple of questions at the end of this conversation.

Matt Jones: But just to just kick off, what we wanted to do just to get the conversation started was just to start with a pretty straightforward polling question. So the question's just going to pop up on your screen in a moment. And if you could take take a moment to answer, no wrong answers, please let us know what you think.

Matt Jones: We have some we have some expectation that we know roughly where the distribution of the assets may be, but in particular with the FOMC meeting yesterday. But be interesting to see what everybody thinks. And what I would do is just as we see the answers to the questions and just to let people know if you can't see the questions,  the people on the phone can't see the questions, as a very simple question:

Matt Jones: When do you first expect the Federal Reserve to raise rates? And in this context, we're talking about the short-term target rate effective fed funds target rate is 0 to 25. When do we first expect that hike to come? And I think first answer was 2022. Second answer's 2023. And the third option, so and so the third option is 2024+. Ok, so I'm just looking at some of the numbers actually were OK. 2023 we're actually showing 56%  think the Fed's going to move in 2023. We've got 2024,33%. The balance is 2022,so around 10% or 11%, 2022. So pretty interesting. So actually very optimistic but I guess we'll see, we'll see recovery. We'll see inflation. We'll see, the Fed on the move. So John, I wonder if I can turn to you and get your thoughts on the audience's response. And very importantly, what do you think the FOMC meeting yesterday? So, John over to you.

John Bellows: Yeah, thanks, Matt. It does seem like our audience is optimistic, with more than half expecting a hike in 2023, that's more optimistic than the FOMC. I'll just sense a bit more optimistic than myself. So I would have put myself in the 2024. You know, I think that the, as you said, Matt, the kind of topic today is what's going be different about this cycle. And as I think about what can be different in this cycle, I think there's two broad categories. One category is the Fed's goals and their ambition. And then the second category is the tools. The tools are a little bit different. So what I'd like to do is just start with the Fed's tool, with the Fed's goals and ambition and how those are different. And then maybe later in the conversation, Matt, we can come back to the tools and how those are different. So what's different about the Fed's goals? Well, I think the Fed in the way to say this, that the Fed is now more ambitious in terms of what they're trying to achieve with monetary policy than they have been previously and certainly more ambitious than they were coming out of the previous recession. What do I mean by that? Well, let's take each goal in terms of, first, the labor market. The Fed changed their language over the summer and they said that their labor market goal is now, quote, "broad based and inclusive" goal. And particularly what they're saying is they want the labor markets to be loose enough, sorry tight enough, so it's tight for even historically disadvantaged workers. So it's no longer OK just to have the average worker experience that tight labor market. They want a tight labor market for everybody, including disadvantaged groups by education, by experience and by demographics. That's a pretty big deal. That means the Fed is targeting a lower unemployment rate than they were previously. It means they want much, much tighter labor market, much looser conditions until we get there than they had previously. When we just put this in numbers. I think if you had asked the Fed in 2009 what kind of unemployment rate are you shooting for, that you would have heard like a 5 handle. And I think today, if you ask the Fed, what's your goal in terms of the labor market and the unemployment rate? I think the Fed uniformly thinks that the unemployment rate should be in the 3s, if not low 3. So there's a real increase in ambition there. I think that's important.

John Bellows: Similar story on inflation. So I think the Fed has been through a period where inflation's undershot its objective that was obviously challenging for their credibility. They struggled to get inflation up. They struggled to kind of get back on-sides. And I think they've taken that on board. And what they've said is that they are now cognizant of the fact their credibility is being questioned. They need to get inflation up and they need to get it up, not just to 2% , but above 2% and above 2% for some time. So, again, that's a more ambitious goal in terms of what they're trying to do on inflation.

John Bellows: You know, in the meeting yesterday, I think this was the theme. So you kind of listen to Jerome Powell and there was some debate about whether or not they were going to extend asset purchases back to the back of the curve. And what were they going to say about the surge in Covid? That's just kind of near-term tactics. The bigger term picture, the big picture yesterday was these more ambitious goals that I mentioned are going to be the motivation for accommodative policy for a very long time. And that was kind of very clear in everything Jerome Powell said, is that they have got you know, they're just so focused on supporting the recovery, on making progress towards these goals, and that's going to require them to buy bonds for a long time. We expect them to continue to buy purchased assets, both Treasuries and mortgages, at their current pace throughout next year into 2022. It's also going to require them to be on hold for a very long time. And I think that message was loud and clear. So it's a dovish message. It's an accommodative message. And again, I think the way to understand it is that the goals and the ambition the Fed has are stronger than they were in last time. And the Fed wants a lower unemployment rate than they were targeting coming out of their last recession. And they want a higher inflation rate. And the only way you get a lower unemployment rate, get in the 3s, and a higher inflation rate above 2% is with very accommodative policy sustained for a very long time, and I think that was kind of the primary takeaway from from the Fed yesterday. I think it's also could be the primary takeaway from the Fed for the next. We were talking about the next eight meetings next year, I think is all going to have the same tone. So let me leave it there and Matt I do want to come back to the question about how the tools are different. But I think at the moment, the most important thing is the Fed is more ambitious with their terms, their goal with regard to their goals right now. And that means accommodative policy for a very long time.

Matt Jones: Yeah, that's terrific, John. Thank you. Thank you. I think that leads nicely into the discussion with Kevin. Again, coming back to the the the focus on liquidity investing. So, I mean, it is challenging, it's a challenging environment for liquidity investors. The Fed really had to very aggressively address the economic downturn. So now the Fed's balance sheet, the reserve setting up to something like $7 trillion. For many reasons, a lot of uncertainty and also, you know, business reasons why corporate cash balances are at a record high. So, you know, what does that mean for liquidity? It means it means that there's a lot of cash out as well as cash. That cash is looking to invest. The supply of investable instruments relative to the demand is a challenge. And Kevin, in our discussions next year, 2021, there could be that could be that could be decreases in supply. So it's pretty challenging environment for you and the team. Kevin, how are you navigating those current market conditions?

Kevin Kennedy: Yeah. Thank you, Matt. With great difficulty. Don't hesitate to say that. But obviously there are multiple forces which will lead toward--rates will be a bit lower next year rather than higher. Certainly for the front end of the market, there will be a there'll be a decline in Treasury bill issuance of pretty good significance, you know, early in the year. There will be a drop in the Treasury general account in order to pay for the new-found stimulus, which is now roughly about $900 billion, we hope. And certainly there could be more going forward depending on the makeup of Congress next year. But certainly, that along with the fact that the Fed is continuing to purchase $120 billion in securities on a monthly basis leads to a technical situation in the front end of the market, which leads towards rates being a little bit lower than they were in 2020. And that will lead towards rates such as SOFR, the fed funds effective, perhaps LIBOR to a certain extent, all these rates moving a touch lower next year. And as you mentioned, also, you know, there will be a bit of a decline as far as issuance on the part of of commercial paper and CD issuers next year. So that is certainly a challenge, but there is room for optimism, certainly the Fed is in a situation where they are not comfortable with rates being consistently towards the lower end of their targeted range, which is 0 to 25 basis points. They do have tools at their disposal to make sure that we do have rates remaining above zero. I think ideally the Fed would like to see rates as far as the fed funds effective and repo rates and money market rates in general, you know, stay positive. Overnight rates at least around 5 basis points. And the tools they have at their disposal include perhaps raising the rate on reverse repo where money market funds and the GSEs and banks can invest directly with the Fed and perhaps get higher rates. So at some point, they may move that rate from 0 to 5 basis points. The Fed may also adjust IOER,  interest on excess reserves, higher right now it's at 10 basis points, and that might move to 15 basis points. They may want to keep that that type of corridor. And so the Fed will be there certainly monitoring rates if they do start to flirt with that zero lower bound and also Treasury issuance, even though bill issuance will decline. You know, bill issuance last year increased by two and a half trillion. Treasury note issuance increased by one point four trillion. So, you know, there is already a huge increase in Treasury supply that's taken place, you know, last year over the past several years prior. And this coming year, you know, they'll still will be the need for a great deal of funding. And even though the Fed is not going to focus on Treasury bills, you know, to raise those funds, they will continue to raise the Treasury notes. And probably that will more than offset the decline and bill issuance. And a continued increase in debt outstanding will lead to financing rates that will remain positive. So that is something that works towards, you know, rates staying above that zero lower bound. So between the Fed, between ongoing increases and Treasury supply and what we think, you know, just a bit of a pickup expected in the economy later next year, I think we'll see, you know, more issuance from the commercial paper side, from bank product, and eventually we'll see rates, perhaps even under some modest upward pressure at some point during the middle of next year.

Matt Jones: Well, you know, Kevin, I love the theme of optimism that we picked up from the audience as we started this. And as you say, I think it's very welcome to think about the rates on money market, especially drifting up towards the end of the year. So that's that's very encouraging.

Matt Jones: But, John, if I can come back to you, you know, the and as we were talking about, you know, the theme of this discussion, the Fed policy response, there's a lot about today's market environment that's unprecedented. There's a lot about what the Fed that has done to address the market environment that is from previous playbooks and a lot of the things that they're going to be doing differently. The Fed's going to keep watching the economy very closely. Of course, they're looking for fiscal policy to be part of the conversation and part of the rebounding economy moving forward. That made it very clear fiscal policy is extremely important. But from this point, as you were outlining the Fed's goals at the start a conversation again, what what can they do differently from here?

John Bellows: Yeah, you know, as I think about what tools are what do they do differently in 2021 than what they didn't say 2010 or the first year of the recovery of the previous recession. Two things stand out. So let me start with the 13(3) facilities that they put in place in March. I think these were at the time a big deal. They put a backstop under some markets, they outright supported other markets, everybody's familiar with the very, very significant market response in terms of opening up markets. And I think the thing that I'd like to kind of say is the Fed crossed a lot of red lines then. And Powell said it recently. In that type of environment, you know, when you don't you don't think about those red line, you just cross them and you just do what what's needed. And they did. But the observation I would make is that they've done that. You know, I think there's a real kind of expectation that that's going to be easier to do next time. And we've already seen this a little bit. So if you think about kind of the tools and the things they rolled out in March, a lot of those were just the same that they had done in the previous crisis. There were some new ones. There were some red lines that were crossed, but they were just use what they had done previously, reconstituted it and then added some new ones. And so I think there's this real kind of ratchet effect in terms of once they've introduced something, it's now now available to be reintroduced again. And so I just want to say that that's I think it's a big deal. And I think that suggests more Fed support for credit markets, for money markets. We have come to that in the second, than was there there previously because they have crossed those red lines. There is a ratchet effect in the way that these programs are rolled out the next time after having been introduced. And so I think that kind of Fed involvement in credit markets is going to be there. You know, it's worth mentioning that money, money market mutual funds got kind of a special place in this. That was one of the first parts of the market that was backstopped with the liquidity facility where the Fed was making loans to banks that had bought assets from money market funds. And it continues to be singled out. You know a lot of the 13(3) facilities are ending. Secretary Mnuchin ended the corporate facility or will end it at the end of the year. But he singled out the money market fund facility as to keep going another three months. And he said he was doing that out of an "abundance of caution." So the point here is that the Fed's involved along with Treasury and supporting these markets, money funds, maybe more than others. And I think that that support's important in the background.

John Bellows: The second tool that I think is going to be different is I think the Fed has been much more aggressive with their balance sheet. Certainly they were in the second quarter than they had first and second quarter than they have been previous. And they can continue to be very aggressive with their balance sheet. You know, they bought a tremendous amount of securities in late March. They were buying $80 billion a day of Treasuries, just a tremendous amount. And they're still buying a lot of securities. And I don't think there's any expectation that they're going to start winding down their balance sheet for a long time. Now, one of the challenges of that and Kevin was mentioning this, is that you're going to have an increase in the Fed's balance sheet, means an increase in reserves, and that tends to put downward pressure on money funds or money markets in general. And so that's likely to be ongoing. And so I think that's another thing that we just need to you just need to kind of factor in. I think expectations for the Fed's balance sheet should be continuing to increase for a while. And then it's very unclear to me that they're ever going to get it down in a meaningful way. And that's a big change. If you think back 10 years ago, there was an expectation that the Fed's balance sheet would come down. So those are the two things I'd highlight. As I said, the ambition is definitely there from the Fed. They have more ambitious goals. In terms of tools, their support for credit markets is new and noteworthy, and they're embracing the balance sheet tool to a greater degree than they had previously.

Matt Jones: That's great. Thank you, John. I'm just going to turn to Kevin, just want to check if Kevin's on a no. He did have some. Oh, great. Fantastic. Kevin was having a little bit of connectivity trouble there for a minute. So, John, that that's very helpful. Thank you.

Kevin Kennedy: Kevin, just coming back to money markets. As John was talking us through some of the various tools that the Fed has to support money markets. But one thing that you did touch on a little bit ago was talking about LIBOR. And, you know, just to just use LIBOR as kind of the entry point to a broader conversation. So LIBOR is one of those areas of market structure from the great financial crisis regulators, you know, focused on taking LIBOR out of the system, if you like. And recently, LIBOR's retirement was extended out to 2023. From our discussions, LIBOR, like money market securities become less of a conversation, less less of a part of the market. What does that mean for you? If LIBOR comes out. Is that is that meaningful for you now? But again, coming back to some of those differences from where we were back in the great financial crisis so far, so far, of course, this is now a very key reference rate in the marketplace. But as you think about sort of credit, credit and investing in securities that have that floating rate dimension--what's different now as you look forward in the future.

Kevin Kennedy: Yeah, no, sure Matt, certainly, certainly things have changed. Currently the marketplace, so we've seen a lot more in the way of SOFR-base issuance. I think you're seeing that even in longer-dated issuance at this point, as you mentioned, you know, LIBOR will not be retired till the middle of 2023. That's giving a little bit of breathing room. But I think that's primarily a situation where it's related to outstanding LIBOR-related debt and transactions that might be of a longer term. On the money market side, we are seeing a much higher percentage of SOFR floaters issued relative to LIBOR based. There are still LIBOR floaters being issued. We expect to continue to see that. But I think that investors, including ourselves, will be somewhat less willing to buy any Linebaugh floaters with the maturity of December of next year. When it's expected of regulators, I think suggest or demand certainly that there be no more LIBOR related transactions or issuance. Over the past, let's see, several months ago, actually, the GSEs stopped issuing LIBOR-based floaters. It's all SOFR. At this point there could be some other indices, prime, for instance, or bills, but no longer any LIBOR-based floaters from the GSEs. So the markets, money markets are getting used to it.There is certainly a basis swap element to it when you're trying to overlay some sort of credit component to SOFR. I think investors are getting used to that, even though that's far from finalised. What the dynamic, something that will be a dynamic credit spread, you know, for SOFR floaters going forward. But we don't see much change except as far as percentage of our floating rate positions in LIBOR. They're much less, but they're still extremely liquid. We anticipate that LIBOR-based floaters will continue to be liquid until you say the middle or the end of next year. And we're not shying away from them at this point if they do offer greater relative value. So LIBOR will be around for a while. SOFR is getting a lot more attention as the months progress, especially as we get into the middle of next year, we think, you know, certainly SOFR will have gone a long way towards representing an extremely high percentage of money market floating rate securities that are in the marketplace.

Matt Jones: That's great. Thank you, Kevin. So two questions, so we want to keep our conversation pretty, pretty crisp. So we want to bring the audience questions now. And I think, John, Kevin, if I can ask each of you, one of the recurring questions that we've had from the audience is around the Fed's use of negative interest rates as part of that policy response, I think Chair Powell was being pretty clear on what his position is. But, John, if I may start with you and then turn to Kevin. John, negative interest rates. Is that something that you foresee for the U.S. dollar?

John Bellows: It's not. So I think he's been very clear in terms of it's a tool, but at the moment it doesn't really meet the cost benefit test. You know, you can imagine situations where they're out of other ideas and they need to do something. But I think we're a long ways away from that. I think they do have other tools. The balance sheet, obviously, they can do more there. He reiterated that they could extend their purchases, they can do more purchases. There's no obvious limit there. You know, so I you know, I don't see it. Maybe maybe since we're kind of a liquidity focused podcast, I'll just mention, I think one of the reasons why the Fed has been cautious about negative interest rates relative to, say, the ECB is they recognize just how challenging it would be for the money market industry. And they've kind of highlighted that this is an important part of the financial sector plumbing here in the United States, and they really want to treat it as such. And so I think that that's that's an argument the Fed's made. I think that's right. And I just think it's pretty low on the list. And I think that's what they've said. It's not that off the list, but it's pretty low and it's not something we have in kind of a forecast in the kind of forecastable horizon.

Matt Jones: Great. Kevin, what do you think?

Kevin Kennedy: Oh, I certainly agree with John, and I'm certainly happy that the Fed is pretty strongly indicating that certainly that they don't think that negative rates would be appropriate for a number of reasons. But, you know, the factors that I mentioned earlier do work against rates going negative, especially when it comes to Treasury bills, even if the Fed maintains that 0 to 25 basis points and doesn't go officially to negative rates, there is that chance, based on what we've seen historically, that bill rates could go negative and that's far less likely given the outstanding supply know at this point. So and there's also things that the Fed can do to make sure that those rates move back up to the positive territory. So, you know, not too much of a concern on the money market front, given the technicals that we expect to be in place for a period of time. But, of course, but most importantly is the Fed has made it clear, you know, that's not something that they're comfortable doing. And the negative rates, it's an easy question to answer right now, but it's obviously understandable why, technically, practically speaking, from a money fund perspective, you have to have a game plan in place. Matt, you've been working consistently on making sure there is a Plan B in place should that happen. But the odds are pretty low, whether it be as far as Fed policy moving there and pretty low as it pertains to the technicals and the Treasury bill market given, you know, the the huge supply that's out in the marketplace.

Thank you Kevin. And as you say, you and I have talked about this for many of the audience, money market funds are clearly a focus has to be said that while the industry, I think, is very much aligned with John and Kevin and the expectation around negative rates and the Fed have been quite clear with the industry in the US has prepared and been and been engaged in preparation for negative rates for some time. And the investment companies to the ICI recently released a white paper on something called the Reverse Distribution Mechanism, which basically allows the money market fund to continue operating with a stable one dollar NAV while negative income each day actually offsets the number of shares that investor holds in their account. So it's kind of you can call a share cancellation. I think that term's being used, but it's just a way of keeping the dollar NAV stable. You've got to be prepared. And I do hope and believe that John and Kevin reflect the views of the industry and clearly the Fed. We don't expect to see negative rates in the in the US and any time in the foreseeable future. But, John, if I could if I could just ask you again, sort of coming back to the Fed and its role in the credit markets, I think we've had a couple of questions, which is sort of broadly, the same theme.

Matt Jones: The Fed, with its asset purchase program, such a huge participant in the market and the Fed extricating itself from the markets over time is going to be quite interesting. But where do active fixed-income managers find opportunities now. I mean, again, with that sort of slat to short duration. But where do you what do you find those opportunities?

John Bellows: Yeah. You know, one of the observations that we've made in our investment committees that Kevin and I are both on is, is there's a pretty optimistic outlook in terms of the combination of above-trend growth and accommodative policy. So that's the good news. The bad news is a lot of the markets already reflect this and prices are already quite high. And so spreads are tight, especially in kind of front-end corporates, for instance. And we certainly recognize that challenge. And markets are forward-looking. They've kind of gotten ahead of that. And it's a challenge. I think that said, one of the one of the kind of things to be really thoughtful about in terms of front-end corporates is they now have this kind of uniquely high Sharpe Ratio, which which follows from the following two things. First of all, there is some risk premium there, just corporate risk premium or corporate credit spreads. And so you do you do earn a little bit more by being exposed to US corporate credit. And I think the thing that's changed this year is I think they also have this kind of backstop from the Fed. And as I said, I do think that there's an expectation that even if the facilities expire in December, that those backstops have now been established and could be redeployed if needed. And what that means is that means you're going to have a little bit less volatility, both because those backstops are available, but also because investors know those backstops are available and should get a little bit less volatility in terms of those credit spreads. And so when you think about this on a Sharp Ratio perspective, you do get some incremental return there. But importantly, you get that incremental return in the context of lower volatility. And that's what creates that uniquely high Sharpe Ratio. And so I just kind of point that out. And obviously some of that's already reflected in kind of the level of spreads. But we continue to think that that's an opportunity. And especially when you kind of phrase it in terms of the Sharpe Ratio. I think it's a fairly compelling opportunity and it's an argument for maintaining exposure to a little bit of yield products in the front end of the yield curve. And whether that's in corporate credit or maybe even some structured credit, having that combination of out yielding in potential total return from from the yield together with the lower volatility, because the backstops, I think, is compelling. So I don't want to minimize the question because it's a really good one. You know, spreads are tight and that makes that makes everybody's job harder. But I do think that thinking through the Sharpe Ratio implications of what's happened suggest that there's still a case for further involvement.

Matt Jones: Yeah, absolutely, absolutely. Thank you, John and Kevin, as you kind of think about credit and of course, you know, again, this is a conversation that's focused very much on money markets, as well as the broader Fed's policy response. We have to talk about prime money market funds. I mean, if you go back to March and April, you know, the Financial Stability Board and agencies, regulators around the world are focused on sort of many of the key market issues. Prime Money market funds for a time there in March and April were a little bit in the spotlight as some of the SEC's 287 regulation introduced back in 2016, actually became part of the conversation. But again, theme of difference wasn't about credit. If there's one thing regulation did from the great financial crisis, it made the global banking system very, very strong. It was about liquidity. So if I can just ask you, prime money market funds, I mean, you have deep experience. You continue to manage prime funds. We firmly believe that there's a place for prime money market funds. But what was what are your thoughts around the future of the prime investment product moving forward?

Kevin Kennedy: Yeah, no, certainly take into account everything you've said. It's certainly true. There's, March through a lot of attention to money market funds, I think that you can make the argument certainly that there is a little bit too much attention. Certainly all markets were basically frozen. And, you know, I think money market funds had a disproportionate share of attention. But that's my personal view. But yet it's obvious that after March, money funds had to respond surely, perhaps to make sure that in deference to what the regulators might be looking towards and what they may certainly look to, to ask for prime money market funds down the road as far as new types of regulations. So we did, I think, across the pond fund space, we did what made our client base comfortable, which was increase our liquidity percentages. So in our liquidity buckets, if we might have run that close to 40% before March, certainly that became closer to 50% in our liquid bucket, which includes everything, maturity within seven days, Treasury securities and GSE paper maturity within 60 days. Also, when we were looking further out the curve, certainly we were more inclined to buy securities that were eligible for the MMLF, left the money market liquidity facility. And we think that added another layer of comfort to our client base. And certainly, as John said, those programs that are in place, that are supportive of the fixed-income markets well across the board, but also on the front of the markets, you know, that's something that also supports prime money market funds, which I think is something that makes continues to make them attractive and a very good investment option. You know, even and probably overwhelmingly, the most important thing in the marketplace today is the strength of the financial institutions that really make up the securities that we're buying into prime money market funds. And that's the case for funds. That's the case for US banks, financial institutions here in the US and overseas. They've certainly and this was certainly forced upon them by the regulators. But, you know, they're certainly have much more in the way of capital. They've certainly moved away from more risky type of leverage based enterprises. They are from a ratings perspective. I think when at the onset of the crisis, there was a view that the there would inevitably be some downgrades to some of the banks, if only because of a shift in the macro view. And to a certain extent that did happen. There have been some modest downgrades, some negative outlooks. But really the underlying strong level of these institutions, capital bases, has really offset those concerns that banks of liquid markets will continue to be liquid. The MMLF is due to expire along with a few other programs that were maintained in place by the Fed. And I think, you know, I'm not sure what John thinks, but, you know, I think they're likely to be extended, you know, probably towards the middle of next year. And once again, the Fed wants to err on the side of making sure that investors are comfortable, that there is adequate liquidity and that the Fed can do and keep in place pretty easily.

Matt Jones: Absolutely. Thanks, Kevin. And John, you referenced earlier in the conversation that you were expecting the Fed to remain very much supportive of the facilities that they have in place. But as Kevin mentioned, what is your expectation around the range of facilities that they're going to continue to provide to the market?

John Bellows: Yeah, as I said, I think the money market fund facility is kind of has been distinguished as a really important one and singled it out as something to maintain out of his words. Abundance of caution currently extended through March wouldn't surprise me if was extended another three months as well. But I think the more important takeaway is that the Fed Fed is demonstrated they do not want these markets to fail and they're going to continue to find ways to support them. And I certainly think that goes for money funds. But I think that could be said more broadly for credit markets.

Matt Jones: Well, I think I think that's a that's a great right point to finish up on. John Kerry, thank you so much. Very enjoyable and informative discussion. So our thanks to you and thank you to everyone for joining us today.

Matt Jones: I mean, the the one thing that we we have to do is wish everybody who joined Happy Holidays prosperous 2021. We thank you for making the decision to be with us today. So just as we just as we finish up a couple of things. There is a brief survey. So if you wouldn't mind, please tell us what we can do to help you make our discussions as informative as possible. So as a brief survey that you will see one way out, this this webcast will be available as recording in the in the near future. So please keep checking our website for the replay of the webcast. And just as you exit, you will come to a link that takes you to our pages on liquidity and short duration strategies at Western Asset. So, again, we thank you for joining us. And please let us know if there's anything we can do to help you. And with that, I wish everybody happy holidays and goodbye.