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Money Market Fund Types

Prime Funds – Primarily invest in corporate debt securities (commercial paper)

– A fund that invests generally in floating/variable rate debt and commercial paper of corporations and securities of the US government and agencies. Can be considered of any money fund that is not a Treasury or Tax-exempt fund.


Goverment Funds – Invest 99.5% of assets into government securities, cash, and repurchase agreements that are fully backed by government securities or cash.

– A Government money fund (as of the SEC’s July 24, 2014 rule release) is one that invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are “collateralized fully” (i.e., collateralized by cash or government securities). A Treasury fund is a type of government money fund that invests in US Treasury Bills, Bonds and Notes.


An interesting move by the fed has all but killed the commercial paper market via Prime Funds restrictions. They have imposed a new rule requiring these money market funds to switch to a floating Net Asset Value (NAV) and can impose certain penalties and withhold funds. See: https://www.jpmorgan.com/global/insights/new-rules

This has pushed this money into Government Funds:

Government Money Market Funds Benefit from Prime Fund Outflows Chart

Source: Investment Company Institute, Bloomberg.

The Commercial Paper market has shrunk from $2.2T in 2007 to $905B as of October 19th. This makes getting financing more expensive for banks pushing up the London InterBank Offered Rate.

How many loans are based on LIBOR? About $10 trillion worth. And then trillions more in derivatives.

So to summarize, this move has:

  • increased the cost of $10T worth of loans
  • affected many more trillions in derivatives
  • increased the cost of raising short term funds for corporations by choking demand
  • increased investment in treasuries thereby further propping up the USD

If a NIRP is introduced, investors will actually lose money by keeping investments in these funds.