Moody's will host a "Money Market Funds Update Teleconference" this Wednesday, Dec. 3, which will give an overview of money market funds and markets, a fund analytics update, a review of U.S. Government support programs, and an outlook for the sector. The company also recently released a paper entitled, "Money Market Investor Funding Facility and Other Federal Measures Promote Liquidity in Short-term Markets," which reviewed the various Federal Reserve and Treasury support measures taken to date. Below, we excerpt from this publication.
The Special Comment's Summary Opinion states, "Moody's believes the Money Market Investor Funding Facility (MMIFF) launched on November 21 by the Federal Reserve Bank of New York will, in concert with other recent initiatives by the U.S. Government and monetary authorities across the globe, alleviate strains on money markets by adding to secondary market liquidity and reinforcing investor confidence in short-term markets." (Note that money funds didn't use any of the new facility in its debut last week, a sign of easing stresses in the money markets. See Fed's "Factors Affecting Reserve Balances" for the weekly MMIFF totals.)
"The MMIFF provides an additional source of liquidity through a facility that will purchase eligible money market instruments from eligible money market funds. The MMIFF, together with the ABCP Money Market Mutual Fund Liquidity Facility (AMLF) established September 19, 2008 and the Commercial Paper Funding Facility (CPFF) established on October 7, 2008, adds purchase capacity for longer-term assets in the short-duration markets and reinforces the U.S. Treasury Temporary Guarantee Program for Money Market Funds (which remains in effect through April 30, 2009 unless extended). The MMIFF will provide secondary market liquidity for a money market fund's bank-related holdings, thereby improving a fund's ability to liquidate these holdings to meet sudden redemptions," says the paper.
Moody's adds, "By providing support to the money market funds, the MMIFF and the AMLF will also provide indirect assistance to banks as well as other money market fund management firms. Since the beginning of the crisis, these firms have been shoring up prime money market funds in connection with their exposure to impaired securities and, to a more limited extent, to alleviate liquidity strains."
They also note, "Assets in money market funds have reached an all time high at $3.7 trillion. Recently, the pace of redemption activity in prime money funds has slowed -- and in some cases reversed. The more stable cash flows have reduced the need for money funds to sell assets into weak markets. As a result, spreads have tightened."
Finally, Moody's says, "The cumulative effect of the Federal programs has improved market access to short-term borrowers and increased flexibility to prime money market funds in particular. While strains on the market had resulted in shortening of money market tenors on investments, weighted average maturities in prime money market funds have begun to extend, and we are seeing evidence of momentum in funds purchasing instruments over longer time horizons."
