econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 18 September 2016

New SEC Rules Cause Shift In Money Market Fund Assets

from the St Louis Fed

-- this post authored by David C. Wheelock

Interest rates on various money market securities have risen noticeably in recent weeks, relative to the yields on short-term U.S. government securities. For example, the difference between the three-month Libor rate (measured in U.S. dollars) and the yield on three-month U.S. Treasury bills recently posted its high for the year.[1]

Similarly, since early July, rates on financial commercial paper have seen notable increases relative to yields on U.S. government securities. The figure below illustrates the recent increase in private interest rates relative to yields on Treasury bills through plotting three rates since Jan. 1:

  • The three-month Libor rate

  • An average rate on three-month commercial paper issued by financial institutions

  • The market yield on three-month U.S. Treasury bills

Market analysts widely attribute the recent increase in money market yield spreads to new rules issued by the Securities and Exchange Commission for institutional prime money market mutual funds that invest in private money market instruments or securities issued by municipalities.[2] The rules, which take effect in October, will require the affected funds to price their shares at floating net asset value, rather than the traditional $1 per share, and permit the funds' boards of directors to temporarily suspend withdrawals or impose withdrawal fees in the event that a fund's liquid assets fall below a certain threshold.[3]

The new rules are intended to avoid sudden large withdrawals from money funds like those seen in 2008 during the financial crisis. However, analysts suggest that the rules will also reduce the supply of short-term loans for financial institutions and other private money market borrowers, and possibly raise their market yields, as prime money market mutual funds attract less investment inflows.

Industry data indicate that, since the new rules were announced in 2014, investors have been moving funds from the prime money market funds into government-only money market funds, which invest solely in U.S. Treasuries and are not subject to the new rules.[4] The recent increases in the spreads between private money market rates, such as Libor, and the yields on Treasury bills suggest that the new rules are having a greater impact on markets as their implementation date gets closer.

Of course, the ultimate impact of the new rules on the supply and cost of short-term loans for private borrowers will become clear only when the rules are in place and investors have become accustomed to them.

Notes and References

1 Libor (the London Interbank Offered Rate) is one measure of the cost of unsecured borrowing between banks.

2 Examples of private money market instruments include commercial paper and bank certificates of deposit. Shares in institutional money market funds are held primarily by investment companies, pension plans and businesses. The new rules do not apply to retail money market funds, which are held by individual investors.

3 For more information, see "SEC Adopts Money Market Fund Reform Rules." Securities and Exchange Commission, July 23, 2014.

4 According to one report, during the 11 months ending on July 31, the assets of institutional money funds that invest in private or municipal securities declined by 35 percent while the assets of money funds that invest solely in U.S. government securities rose by 41 percent. See Stynes, Tess. "Number of U.S. Prime Money-Market Funds to Drop as Rules Change," The Wall Street Journal, Aug. 24, 2016.

Additional Resources

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Source

https://www.stlouisfed.org/on-the-economy/2016/september/new-sec-rules-cause-shift-money-market-fund-assets

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Men Without Work
Slow Economic Growth Will Be Around For A Long Time
News Blog
Early Headlines: Asia Stocks Mixed, Dollar, Oil Up, Gold Down, Article 50 Day, Westinghouse Files Ch. 11, Trump Wants $1B To Start Wall, Russian Protests, China's $8T Shaky Debt, And More
Thirty Plus Terror Suspects And Convicts Not A Rare Occurrence In UK
The Winners And Losers In Trump's Proposed Budget
God and America (Version 3)
Corning's Glass Brimming With Taxpayer Subsidies
Who Americans Consider Their Greatest Enemies
Has The IPad Become A Sideshow Act?
Terrorism In Westminster: London Had Expected Attack For Some Time And Police Reaction Was Rapid
Are Smartphones Killing Digital Cameras
What We Read Today 28 March 2017
NASA Precise Landing Technologies Tested On Vertical Testbed Rocket
March 2017 Conference Board Consumer Confidence Highest Since 2000
Richmond Fed Manufacturing Survey Again Improves In March 2017.
Investing Blog
Investing.com Technical Summary 28 March 2017
The Dollar's Coming Impact On Markets
Opinion Blog
Free Immigration Is The Moderate, Common-Sense Position
Macron May Lead But Le Pen Remains The Big Story
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
28Mar2017 Market Close: US Stocks Posted Gains, DOW Closed Up 150 Points, Crude And US Dollar Steady
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved