Supply Decline Raises Challenges for Money Market Funds Says Moody’s
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Courtesy of www.cranedata.us
Moody’s Investors Service published a “Special Comment” yesterday entitled: “Money Market Funds: Decline of Eligible Assets Raises Challenges.” The publication’s “Summary Opinion” says, “Since 2007, prime money market fund (MMF) managers have seen a consistent decline in their short-dated, high-quality eligible investment universe. This follows three supply side developments: (i) a decline in product availability due to dislocations in the short-term structured securities market; (ii) reduced short-dated issuance from key sectors, namely financial institutions, due to official policy measures, regulatory developments and credit quality declines; and (iii) regional liquidity pressures that exacerbate relative supply challenges, predominantly for Euro-denominated MMFs. On the demand side, MMFs face more stringent regulatory requirements which limits investment flexibility, especially with respect to maintaining adequate liquidity in overnight and short-dated securities. Overlaying this constraint is the addition of further self-imposed limits that MMF managers maintain to mitigate against the risk of not satisfying investor liquidity demand.”
