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Risk markets finished the final quarter of 2017 higher, capping off an impressive year of gains for stocks.
Bond yields also continued to move higher, particularly in the front end, as the yield curve flattened meaningfully. Economic data released during the quarter generally surprised to the upside and painted a picture of a strong labor market in the U.S. Three other developments in Washington helped drive market sentiment during the quarter. First, as widely expected, the Federal Open Market Committee (FOMC) raised the Federal funds target range by 25 basis points (0.25%) at their December meeting, and released their projections for an additional three rate hikes in 2018. Secondly, Congress passed a major tax overhaul, that while politically contentious was largely cheered by the markets. Finally, the U.S. Treasury increased Treasury bill issuance – an important trend we’ll continue to watch closely throughout the early part of 2018.
Money market rates also moved higher during the quarter as technical dynamics ahead of year end put upward pressure on rates in addition to the rate hike in mid-December. Concerns over the debt ceiling could reemerge in the first quarter of 2018 if Congress does not act quickly. However, we expect this issue will be a priority in a mid-term election year even with a very crowded legislative agenda. Accordingly, we’ve selectively added duration to take advantage of steepness in the money market yield curve and remain neutral to our peer group, while also maintaining a strong liquidity profile to accommodate any unexpected outflows.
An investment in the Money Market Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Funds.
Please carefully read the summary prospectus or prospectus and consider the investment objectives, risks, charges and expenses of Northern Institutional Funds before investing. Call 800-637-1380 to obtain a summary prospectus or prospectus, which contains this and other information about the Funds.
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