Wednesday, October 12, 2016

"New US money-market fund regulations go into effect on Friday"

As noted last month in "There’s a $300 Billion Exodus From Money Markets Ahead":
Former Bloombergian, now Villein, Alexandra Scaggs has written about this a couple times e.g. "Dollar surge pricing will be in effect through October".
It's kind of a big deal.
We had planned some sort of 'Total Team Coverage' with Skype interviews of the worthy and wise, links and GoPro-equipped drones, along with data big and small but once again Alexandra beat us to it.

From FT Alphaville:

Procrastination as a strategy in the global reach for yield
New US money-market fund regulations go into effect on Friday, in case you happened to miss Libor’s climb and the reams of press coverage in the two years since the rules were introduced.

Because the topic has been widely covered, we thought there would be a pretty smooth transition into October. Why would someone put off making that kind of change until right before a big deadline?
Well, going by ICI data, money-market investors are either champion procrastinators or really starved for yield. (Probably both.)

Just look at what’s happened to prime funds over the past three weeks. Here are weekly net changes in the total assets of prime money-market funds (both institutional and retail):
As those funds’ net assets have dropped, three-month dollar Libor has climbed:...
Did investors delay getting their act together in case regulators changed their minds? Or did they just want every bit of that sweet commercial-paper yield, before floating NAVs finally got them to move their cash? Whatever the reason, this week could be a big one for outflows too, since UBS, BlackRock and Goldman Sachs are among the firms switching to floating NAVs.

Before we start freaking out about those charts, though, let’s take a breath.

As Cardiff wrote recently, there are many, many good reasons the new rules should exist, which were demonstrated by the textbook-worthy example of a run on money-market funds during the global financial crisis.

In case you want a refresher, here’s what will happen as a result of the new regulations:...MORE