NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: U.S. Money Fund Reform Dashboard
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884356
U.S. Prime institutional money market funds experienced significant outflows from May 31-July 8 ahead of money market fund reform coming in October, according to a new 'U.S. Money Fund Reform Dashboard' from Fitch Ratings. Government institutional funds increased by $93 billion between May 31 and July 8, while prime institutional money market funds saw significant asset outflows, declining $79 billion in the same period. Since Oct. 27, prime institutional money funds lost $301 billion.
"We have seen massive shifts out of prime funds ahead of money market fund reform. While a large portion of this has been from prime to government fund conversions, recent fund flows are driven by investor movement as corporates and institutional investors change their cash investment strategy for reform," said Greg Fayvilevich, Senior Director, Fitch Ratings.
The new regulations will require a floating net asset value for institutional prime money market funds as well as require the funds' boards to consider imposing liquidity fees and redemption gates if weekly liquidity falls below 30%.
Of primary concern to players in the money fund universe is liquidity. Fund managers anticipate redemptions ahead of the Oct. 14 reform implementation deadline and have been building weekly liquidity buffers in excess of the key 30% regulatory threshold that could trigger liquidity fees or redemption gates. As of July 8, average weekly liquidity for prime institutional funds was 53.4%, with four funds' liquidity below 35% and no funds' liquidity falling below 30%.
An additional focal point of investors and managers alike has been yield trade off between prime and government money funds. Following the December 2015 Fed rate hike, net yields on prime institutional funds began rising steadily, increasing 16 basis points (bps) between Dec. 15, 2015 and Feb. 29, 2016 from 0.08% to 0.24%. Since the end of February, yields have stabilized, fluctuating between 0.24% and 0.26%. The spread between yields on prime institutional funds and government institutional funds widened by 9 bps over the same period.
The new 'U.S. Money Fund Reform Dashboard' will be published every two weeks as an aid to corporate treasurers and other money fund investors preparing for looming regulatory reforms. This report highlights key metrics and trends impacting money market funds in light of the impending reforms taking effect on Oct. 14. The Dashboard is available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
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