Treasury: Time to rethink money market funds?
With investors already struggling to generate positive yields on most money market funds, managers are concerned that proposed legislative changes could render some funds unviable.
Money market funds (MMFs) have had a rocky ride of late, with Refinitiv Lipper data for the week to July 14 showing outflows of $18.6 billion globally.
The only places where even the smallest yields are achievable are sterling and US dollar denominated funds.
Euro-denominated funds have been in a negative-yielding environment for more than six years through a combination of European Central Bank (ECB) buying of corporate paper, the huge increase in excess liquidity at the ECB and credit spreads being at their lowest levels since the middle of 2007.
We caution cash investors about reaching for yield in such a low-rate environment
“When you add in the negative Libor level, it is very difficult to generate a positive yield in euros,” says Natalie Cross, senior client portfolio manager at Invesco.
As liquidity investors look further down the credit curve and further out in maturity, there is risk that these investments do not perform like cash during periods of volatility and present a substantial mark-to-market risk.
“We caution cash investors about reaching for yield in such a low-rate environment,” says Kim Hochfeld, global head of cash at State Street Global Advisors (SSGA).