Bloomberg on Reforms, T-Bill Shortage
Bloomberg follows the money in its piece, "Half Trillion Dollar Exodus Magnifies Treasury Bill Shortage." They write, "One of the biggest winners in the push to make money-market funds safer for investors is turning out to be none other than the U.S. government. Rules adopted by regulators last month will require money funds that invest in riskier assets to abandon their traditional $1 share-price floor and disclose daily changes in value. For companies that use the funds like bank accounts, the prospect of prices falling below $1 may prompt them to shift their cash into the shortest-term Treasuries, creating as much as $500 billion of demand in two years, according to Bank of America Corp. Boeing Co., the world's largest maker of planes, and the state of Maryland are already looking to make the switch to avoid the possibility of any potential losses. With the $1.39 trillion U.S. bill market accounting for the smallest share of Treasuries in six decades, the extra demand may help the world's largest debtor nation contain its own funding costs as the Federal Reserve moves to raise interest rates." "Whether investors move into government institutional money-market funds or just buy securities themselves, there will be a large demand" for short-dated debt, Jim Lee, head of U.S. derivatives strategy at Royal Bank of Scotland Group Plc's commented to Bloomberg, "That will lower yields." The piece adds, "He predicts investors may shift as much as $350 billion to money-market funds that invest only in government debt." It goes on, "Peter Crane, president of money-market researcher Crane Data LLC, anticipates fund values will remain stable because the underlying assets mature so quickly and are easily replaced. The shortest-term commercial paper comes due in two days. Any exodus will be limited to about 10 percent of prime fund assets because the yield advantage over government-only funds will increase as the Fed starts raising rates, he said." In other news, The Wall Street Journal explores how financial advisors are dealing with reforms in "Advisers Weigh Impact of New Money Fund Rules." Daisy Maxey writes, "Some financial advisers are reassuring their retail clients who own money-market funds that new regulations requiring a floating share price won't affect them. But some institutional clients in money-market funds may consider moving their money into other types of money funds or other fixed-income products. With a two-year transition before the rules go into effect, advisers are now seeking more information on how the changes will be implemented." "It's way too early to clearly see what the ramifications are going to be across the board on the individual-investor level," the piece quotes Andre Pineda, an adviser with Cary Street Partners." Also, Pensions & Investments wrote "Money Market Changes Worry DC Executives." The article says, "New rules governing money market funds provide a quantum of solace but also a dose of uncertainty to defined contribution plan executives managing capital appreciation options."
