Fitch: U.S. Money Funds Well-Positioned for Gradual or Sharp Interest Rate Rises

NEW YORK--()--U.S. money market funds are well-positioned to manage risks associated with rising interest rates, either a modest rise or a sharper rise accompanied by weaker economic conditions, according to Fitch Ratings.

As noted in a recent report on interest rates, Fitch's base case scenario assumes the completion of the Fed's tapering program, strengthening world economic growth over 2014-2016 and a gradual tightening of monetary policy over the next 12 months. Fitch's stress case scenario involves a sharper hike of interest rates amid weakening or stagnant economic growth, among other factors.

U.S. money funds have recently begun adjusting their portfolios in anticipation of rising interest rates, with prime funds lowering their weighted-average maturities (WAM) to an average of 42 days. Regulatory rules and Fitch's rating criteria constrain money funds' WAMs to limit exposure to interest rate risk. The current limit means that a money fund portfolio with a 60 day WAM can withstand an instantaneous 3% interest rate increase before 'breaking the buck', all else being equal.

Fitch notes that there is considerable variability among funds with regard to their current WAM positioning and portfolio strategies in a rising rate environment. Approximately 36% of money funds have WAMs between 41 and 50 days, while only 17% of funds operate with WAMs greater than 50 days.

The full report 'Money Funds Well-Positioned for Rate Shock Scenario' is available at 'www.fitchratings.com.' This is part of a series of reports by Fitch looking at interest rate sensitivities across various U.S. analytical sectors.

For more information, the report 'U.S. Monetary Policy: Implications of an Interest Rate Shock' is also available on the Fitch website.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Money Funds Well-Positioned for Rate Shock Scenario

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=784189

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Contacts

Fitch Ratings
Greg Fayvilevich, +1 212-908-9151
Director
Fund & Asset Management
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Greg Fayvilevich, +1 212-908-9151
Director
Fund & Asset Management
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com