A press release entitled, "Fitch: US MMF Shadow NAV Volatility Wanes but Challenges Remain" tell us, "U.S. money market fund (MMF) "shadow" net asset value (NAV) volatility has declined following material regulatory enhancements and relative changes in market conditions, according to a Fitch Ratings review of MMF NAVs reported over the last four years." The Fitch Ratings' 4-page Special Report, written by the Fund and Asset Manager Rating Group, is entitled, "U.S. MMF Shadow NAV Volatility Declines Post-Crisis: Future Drivers Include Macro Events, Risk Appetite, Regulation."

Fitch's release explains, "The shadow NAV offers investors an appraisal of the market value of a MMF's underlying assets on a per share basis. As long as the NAV does not deviate by more than 50 basis points, the fund's $1.00 stable share price is maintained. Under new guidelines imposed by the Securities and Exchange Commission (SEC) in May 2010, shadow NAVs for all U.S. MMFs are now publicly available, albeit it with a 60-day lag."

It explains, "MMF managers continue to exhibit heightened risk aversion as a function of ongoing Eurozone uncertainty. This, combined with limited yield pickup at the longer end of the maturity spectrum for certain MMF-eligible asset classes, has steered mangers toward safe-haven U.S. Treasurys or other high quality short-dated securities that continue to experience minimal volatility in the current market environment."

Fitch adds, "Regulatory reform imposed by the SEC in May 2010 has served to enhance the stability of all MMFs regardless of the risk appetite of individual fund managers. Minimum daily and weekly liquidity requirements for taxable funds are the clearest examples of this. Additional MMF reform, such as the introduction of subordinated capital or limitations on redemptions (gating provision), continues to be discussed. We believe additional regulatory reform could further stabilize NAVs by providing funds with the ability to absorb a small of amount of loss or limit their reliance on secondary market liquidity. That said, additional costs and potential unintended consequences require careful consideration."

Finally the release says, "While NAV volatility has abated, industry challenges remain. The potential for credit and/or market risk via exposure to global financial institutions remains. And longer-term, governments face fiscal challenges which could impact the credit quality or liquidity of their debt issues. Interest rates are expected to remain low, pressuring MMF yields and the economics for fund sponsors. Continued management fee waivers will support positive investor yields but could ultimately alter the industry landscape in terms of sponsor commitment to the product." (For Crane Data's latest "shadow" NAV statistics, see our monthly Money Fund Intelligence XLS.)

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