Moody's MMF Outlook Negative
Ratings agency Moody's Investors Service published a brief entitled, "Money Market Funds – Global: Outlook changed to negative from stable because of unprecedented market volatility," which tells us, "Unprecedented market volatility and economic uncertainty amid the coronavirus pandemic is fueling a flight to safety among investors. This flight to safety has led to elevated redemptions from US prime institutional market funds and large inflows into US government and Treasury money market funds (MMFs). The liquidity and net asset values (NAVs) of rated US government MMFs and European MMFs remain resilient to these market shocks, but we are changing our outlook on the global money market fund industry to negative from stable to reflect the considerable stress on US prime funds' liquidity and NAV from coronavirus related market dislocation." They explain, "Over the last few days, the US prime institutional money market fund segment has lost more than 10% of total portfolio assets. This sharp rise in daily outflow rates has reduced funds' liquidity levels and placed downward pressure on funds' NAVs. Leading into this period of market disruption, prime funds' weekly liquidity levels had been comfortably in excess of Rule 2a-7's 30% weekly liquidity requirement; however, elevated outflows have meaningfully reduced these cushions. Despite the pressures on fund liquidity levels, US institutional prime money market fund duration and credit profiles remain solid. Funds' average weighted average maturities remain relatively short at 34 days and credit quality remains strong. Additionally, the US Treasury is reported to be considering asking Congress to temporarily suspend restrictions on its Exchange Stabilization Fund so that it can work on a potential guarantee program for the US money market mutual fund industry as part of a broader fiscal stimulus package, which should shore up investor confidence in the prime money market fund sector." Finally, Moody's comments, "The risk of funds' imposing liquidity fees or gates has risen over the last week and will remain elevated based on our expectation that stress in money markets is likely to persist. We are monitoring funds' weekly liquidity levels and mark-to-market NAVs on a daily basis to assess the relative risk of liquidity events within our prime money market fund universe. The Fed has put into effect a number of large operations in the last several days to improve liquidity and alleviate stress in the short-term market. Yesterday, the Fed reestablished the Commercial Paper Funding Facility, first established in 2008 during the global financial crisis. This version of the facility has some differences from the 2008 version, notably the terms of eligibility and pricing, which may affect utilization rates and effectiveness. Nonetheless, the facility, together with the Fed's other actions, are positive for the commercial paper market."
