Grant's on Great Money Migration
The latest issue of Grant's Interest Rate Observer contains a segment entitled, "No yield for you," which discusses the spike in LIBOR rates and recent money fund trends. It says, "Three-month Libor continues to hover at post-crisis highs -- 88.57 basis points on Tuesday, up from 32.3 basis points one year ago. Yet prime institutional money funds, investors in Libor-like instruments, show average seven-day yields of 29 basis points.... In advance of the Oct. 14 deadline for implementing federally mandated money-fund protocols, investors pulled 1.15 trillion from the kinds of funds that hold commercial paper.... Just about all of this vast stash they redirected to U.S. government money funds. The switcheroo must stack up as one of the greatest money migrations of all time." The brief quotes our Peter Crane, "Libor rates are just starting to be reflected in money funds <b:>`_.... Money funds couldn't take advantage of rising Libor because they were causing the Libor spike -- shortening their maturities ahead of the Oct. 14 reform deadline. Now that deadline has passed and they can be relatively comfortable that all the rest of the money in prime funds isn't leaving immediately, they're beginning to extend and you've seen yields start to move out."
