U.S. money market funds rated by Fitch Ratings are performing well under liquidity stress, the ratings agency reports.
A liquidity squeeze and credit developments in the global markets have brought money market funds whose objective is to protect principal and offer daily liquidity to their shareholders into the spotlight, the rating agency notes.
Investors perceive the U.S. money market funds as a safe haven for cash, according to Fitch Ratings. Indeed, the assets under management of the U.S. money market funds reached an all-time high of $2.7 trillion on Aug. 15, as reported by the Investment Company Institute. A variety of such funds investing in the U.S. Treasury and government securities benefited the most serving as “ultimate flight to quality vehicles.
Fitch says it is actively monitoring the impact of structured credit markets liquidity stress on the money market funds it rates. Overall, Fitch is comfortable that its ratings adequately address the credit, interest rate and liquidity risks associated with the U.S. money market fund portfolios.
Fitch’s U.S. money market fund rating reflects fund’s investment practices, its investment advisor’s ability to manage interest rate exposure, and liquidity position of the fund’s portfolio. Further, the rating incorporates Fitch’s opinion as to investment guidelines and practices of the fund’s advisor, resource commitment, operation controls, corporate governance, and compliance procedures. Its rating surveillance is designed to attest that the investment quality of the rated fund portfolios is maintained at all times.
Funds rated ‘AAA’ by Fitch maintain the dollar-weighted average maturity of 60 days or less and only buy securities that have remaining maturities of 397 days or less. Those funds principally invest in the highest quality instruments that present minimal credit risk to the portfolio such as high quality commercial paper, asset-backed commercial paper and other short-term debt securities, including floating- and variable-rate demand notes of U.S. and foreign corporations, municipal obligations, securities issued or guaranteed by U.S. and foreign banks and by the U.S. Treasury and government agencies, as well as repurchase agreements.
U.S. money market funds seen as safe haven during liquidity crunch
Assets under management reach US$2.7 trillion
- By: James Langton
- August 22, 2007 August 22, 2007
- 11:20