Money Market Funds?

[steadyeddy]

Pundits are now raising alarm about MM funds as more money goes dashing into them.

Any credence to that supposition?

[habsui]

Who is raising what problem?

I thought the issue is that banks/brokerages have to pay more for deposits in MMs than in a bank account, thus lending is not as lucrative.

[Deleted]

I don't know about credence, but its clear that the internet has created such panicked buying and selling that regulatory guardrails are probably inadequate for every investment. It's way too easy to create chaos, and we all play a part by amplifying it.

[mnfish]

"The dizzying pace at which money left SVB shows how quickly bank runs can happen when social media heightens panic and online banking allows for quick transactions."

Have you watched "Eat The Rich" the Gamestock saga on Netflix?

[yogibearbull]

Yellen may have started it. Her words and timing could be better.
www.mutualfundobserver.com/discuss/discussion/60908/m-mkt-fund-vulnerabilities-yellen-3-30-23

[johnsmith]

Apr 1, 2023 2:59:29 GMT steadyeddy said:

Pundits are now raising alarm about MM funds as more money goes dashing into them.

Any credence to that supposition?

Depends on the type of MM fund.
At Vanguard the sweep account is a Federal Money Market and I don’t think it will have a problem.

Something like VUSB / MINT which are commercial Short term MM ETF funds - they may have some issues, and it will mostly reflect in a premium or discount to NAV.

Other MM Funds may have a temporary problem and they can solve it by putting up gates for redemptions, or breaking the buck which they are allowed to do now. I hardly feel that MM funds will lead to a contagion problem themselves. The reaction to gating might lead to markets for other securities being more volatile though.

[yogibearbull]

2014/16 money-market reforms created 3 types - government money-market funds (no gates/redemption fees), prime-retail m-mkt funds (possible gates/redemption fees), prime-institutional (floating NAV + possible gates/redemption fees). There are also daily liquidity requirements and that info is published on m-mkt fund web pages. More reforms are being talked about. Chances of financial accidents in government m-mkt funds are very small; the other 2 categories are small. M-mkt funds have $5.22 trillion AUM.

During the GFC, the government insured balances in m-mkt funds for 10 bps fees. So, if something does go wrong, that could come back.

fred.stlouisfed.org/graph/?g=11MaB

[steadyeddy]

Thanks for the responses. I only use Government MM funds (FDRXX/SPAXX at Fidelity and VMRXX from VG that I use at e*Trade) - so based on yogibearbull's post above I should be fine.

I also guess the Fed/Treasury will quickly come to the rescue if unforeseen events happen in the MM land.

[FD1000]

Apr 1, 2023 2:59:29 GMT steadyeddy said:

Pundits are now raising alarm about MM funds as more money goes dashing into them.

Any credence to that supposition?

Let's create another scare, why not.
(www.fitchratings.com/research/fund-asset-managers/us-debt-ceiling-uncertainty-risk-for-treasury-money-market-funds-22-02-2023)

"The U.S. government debt limit was reached on Jan. 19, 2023. However, the Treasury Department is using ‘extraordinary measures’ to avoid defaulting on obligations, such as halting contributions and investment redemptions to government pension and healthcare funds. The Congressional Budget Office has calculated the x-date will fall sometime between July and September 2023, though it cautioned that extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July.

Treasury-only MMFs have higher relative risk to a U.S. government default than prime and government MMFs that can diversify investments into other instruments. Treasury-only MMFs have very limited investment options, including Treasury securities spread across maturities or cash balances for liquidity purposes."

========

OK, let's switch...again. I'm so glade I'm a trader.

[johnsmith]

If there are no more treasuries issued - treasury market money funds could simply hold cash - or they could go out and buy treasuries at a premium in the market.

Reducing the interest rates paid.

I am not sure how the debt ceiling will affect Federal Money Markets. It seems like a stretch.

So this is more of a buying new treasury issues - problem, assuming no one else is selling them in the market. Or the demand is much higher than supply and a higher price / premium can’t clear it.

Selling is not an issue as I think the Fed can always step in and provide liquidity as they have been doing every time.