With SEC rule changes looming, money funds start shifting their holdings
Funds are starting to shift their holdings in the $6 trillion US money market ahead of a spate of new rules that will likely boost demand for government securities at the expense of riskier assets.
As of mid-April, about five of these funds — including the two largest — had announced plans to convert to government-only holdings or close altogether to avoid Securities and Exchange Commission measures that take effect later this year.
Starting in October, the changes mean it’ll get more expensive to withdraw money from some funds in times of financial stress.
The shift in holdings means increased demand for government-backed instruments ranging from Treasury bills and agency discount notes to repurchase agreements, while reducing demand for commercial paper and certificates of deposit.
That appetite for government debt could drive short-term rates lower, once again making a key Federal Reserve overnight facility more alluring as cash sloshes around the financial system in search of a place to invest.
“When this reshuffling occurs depends on two factors: the timing of planned conversions and how long institutional investors are willing to stay in soon-to-be converted funds,” Barclays Plc strategist Joseph Abate wrote in a note to clients on Tuesday. “So far there are only a few signs of the shift from credit to government assets or fund outflows.”
There’s about $650 billion parked at institutional prime funds, with about $605 billion concentrated in 20 entities, Barclays estimates. And eight so-called internal funds — which are only open to other money market and mutual funds within the complex — account for 60% of balances.
Barclays expects institutional prime fund balances to fall roughly 63% to 75% by October, putting
Read more on investmentnews.com
