Citi Survey on MMF Reforms
Citi Research's Short Duration Strategy team released the results of its "2015 Citigroup Money Market Industry Survey" late Friday, which shows how investors view money market funds in light of the SEC reforms. The summary says, "We present the results of the recently concluded survey, which was conducted in order to gauge investor sentiment after the new 2a-7 rules. Approximately 247 investors participated in the survey, though not everyone answered all 10 questions. Please note that for some of the questions that were raised in the survey, our view may not align with the prevailing view." It continues, "More than half of the participants (51.1%) believe that investors would move assets from prime funds due to both gate/fees and the floating NAV restrictions, while about a third (34%) find gates/fees to be the antagonizing factor. 124 participants (50.2%) believe that assets worth $200-$400 billion would leave institutional prime funds, while 121 (48.9%) participants believe assets worth less than $100 billion would leave retail prime funds. The new 2a-7 rules are set to take effect in October 2016 and 40% of the participants expect the IOER to be in the range of 0.75%-1.25% during that time. 70% of the participants expect the size of the Fed's ON RRP program to increase over the next 18 months. T-bill issuance is expected to remain almost constant over the next 18 months, according to 61.7% of the participants. Over the next 18 months 59.6% of the participants expect a decrease in the issuance of short credit (commercial paper, bank CDs and time deposits). Historically, spreads between prime and government funds have averaged 10-15bp. By October 2016, 42.6% expect this spread to be in the range of 15–25bp range while 40.4% expect it to be in the range of 25–40bp. 36.2% of the participants believe that outflows from the prime funds could stop or even reverse if the spread between prime and government fund yields increases to around 25–40bp. Interestingly, one quarter of the participants do not foresee a reversal at all. For investors with VRDN holdings, around 40% would want the spread between comparable taxables and VRDNs to exceed 10bp before they would consider switching out of VRDNs into taxables."
