OFR Blog: NAVs Barely Floating
The Treasury's Office of Financial Research posted a blog entitled, "Money Market Funds' Floating NAVs Stay in Narrow Range for Now." It says, "Money market funds for decades sold and redeemed their shares in normal times at a stable price, usually $1.00. But in the financial crisis, as the values of their investments came under pressure, one money market fund "broke the buck," triggering a flight of investors from similar funds. To reduce the risk of runs, regulators recently required shares of non-government funds for institutional investors to begin trading at a market-based (or floating) net asset value (NAV). The OFR's ongoing analysis of fund data lets us track how much those share prices vary. So far, NAVs have not shifted much. The real test, however, will come with market stress, when shocks pressure the value of such funds' assets." The piece adds, "Under the new rule, money market funds must calculate the market value of their shares out to four decimal places. For example, a fund's share price might be $1.0001, $1.0000, or $0.9999. Funds that sell only to individual investors don't have to use floating NAVs, but still must report floating NAVs to investors and regulators. Before the Securities and Exchange Commission (SEC) rule went into effect, funds could round up their NAV to a stable value -- typically an even $1. Some industry observers worry that variation in floating NAVs might raise investors' concerns and still create runs. The OFR's analysis of new fund data finds that, so far, floating NAVs have varied little from $1."
