08/06/2014 - Central-Planners Herd Money Market Funds Into Government Financing
“We’re definitely worried about breaking the buck,” Verett Mims, assistant treasurer at Chicago-based Boeing, said in a telephone interview on July 30. “That’s our biggest problem, the notion of principal preservation.”
“one of the biggest winners in the push to make money-market funds safer for investors is turning out to be none other than the U.S. Government.” (no surprise to the Financial Repression Authority!!!)
Rules adopted by regulators last month will require money funds that invest in riskier assets to abandon their traditional $1 share-price floor and disclose daily changes in value. For companies that use the funds like bank accounts, the prospect of prices falling below $1 may prompt them to shift their cash into the shortest-term Treasuries, creating as much as $500 billion of demand in two years, according to Bank of America Corp.
“Whether investors move into government institutional money-market funds or just buy securities themselves, there will be a large demand” for short-dated debt, Jim Lee, head of U.S. derivatives strategy at Royal Bank of Scotland Group Plc’s capital markets unit in Stamford, Connecticut, said in a telephone interview on July 28. “That will lower yields.”
He predicts investors may shift as much as $350 billion to money-market funds that invest only in government debt.
Bank of America, which also has hated Treasurys as an asset class since mid-2013, also chimes in:
Investors using prime funds to manage their idle cash may find floating prices an unnecessary risk when differences in fund rates are so minimal, said Brian Smedley, an interest-rate strategist at Bank of America in New York. He estimates about half the $964 billion held in institutional prime funds will flow into those that only invest in government debt and yield about 0.013 percentage point less, before the new rules become fully effective in 2016.
The Fed will continue herding investors as long as it takes: first out of the money market funds, then out of bond funds, until the only possible investment product remains triple digit P/E stocks, and everyone is all the biggest market ponzi bubble of all time.
