Global Fixed Income Strategy Oct 2017

Monthly insights and updates from the Invesco Fixed Income team.

Oct 31, 2017 | Invesco Fixed Income

Change creates opportunity in US prime institutional money market funds

We believe disruption and change in the US money market fund industry has led to a renewed relative value opportunity in US prime institutional money market funds (“prime funds”). In the post-financial crisis era from 2009 to 2016, a seemingly unrelenting barrage of challenges bombarded the US money market fund industry: zero interest rate policy (ZIRP), industry consolidation, reform in 2010, reform in 2016 and a massive shift in assets out of prime into government money market funds. However, past is prologue, and two recent trends have led to attractive valuations in prime funds:

  • The US Federal Reserve’s (Fed) removal of monetary policy accommodation has led to sharply higher yields on prime funds.
  • A shift of more than US$1 trillion in assets into US government money market funds (“government funds”) and a resulting supply/demand imbalance in money market securities has led to attractive relative valuations of prime funds.

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