Moody's on 3-Yr Low WAMs
Moody's issued a report, "US Prime Money Fund WAMs at Three-Year Low Ahead of Thursday's Fed Meeting." It says, "US prime money market fund (MMF) managers move aggressively to position their funds for an increase in US short-term interest rates. Average weighted average maturities (WAM) of Moody's-rated US dollar denominated prime funds (both domestic and offshore) fell to 30 days at the end of July, their lowest level in three years. Investments in overnight assets reaches its highest level in years. At 31 July 2015, 35.8% of prime MMF assets were invested in overnight securities. The benefit of higher liquidity will be twofold: first, MMFs are better positioned to manage a pick-up in redemptions following a rate hike, since MMF yields temporarily lag market yields on direct investments. Secondly, managers will further reduce interest rate risk by reinvesting faster at the new higher short-term rates. Sharp decline in prime MMF WAMs drives improvement in Moody's MMF NAV stress scores. Reduced sensitivity to interest rate changes combined with higher liquidity levels have resulted in the strongest stress NAV scores for Moody's-rated US dollar prime funds in a year, at approximately 0.9940. Market data for the week ended 11 September shows a slight uptick in US prime MMF WAMs. Following the elevated market volatility of the last several weeks, some managers may now be expecting the Fed to remain on hold in September, waiting until later in the year to begin its tightening cycle.... While euro funds maintained the 2015 lowest level of WAM in July, sterling prime funds' WAMs were 0.7 days lower on average in July than during Q2. The most recent market data shows that in August and beginning of September, WAMs of euro- and sterling- denominated prime funds are in line with those of July." In other news, Reuters posted a story, "No Champagne for Hard-Hit U.S. Money Funds as Fed Holds Rates." It says, "There will be no champagne corks popping in the $2.7 trillion U.S. money-market fund industry. The U.S. Federal Reserve kept interest rates unchanged on Thursday, meaning investors will continue to receive next-to-nothing yields on their money funds."
