Mitsubishi UFJ has also diversified the way it raises funds, including by acquiring foreign-currency deposits, according to Kazunobu Takahara, a spokesman in Tokyo. Sumitomo Mitsui plans to keep commercial paper as an option and aims to prioritize foreign-currency financing, said Takafumi Sasaki, a Tokyo-based spokesman.
Sandra Nunes at Toronto-based RBC and Even Westerveld at Oslo-based DNB declined to comment.
Issuers have other options as money-fund demand for commercial paper dwindles, including the market for repurchase agreements, where they borrow cash temporarily using securities as collateral, according to Joseph Abate, a money-market strategist at Barclays Plc in New York.
Banks are finding it more expensive to borrow across all maturities. Their average borrowing costs on longer-term debt are near the highest in more than two years, according to Bank of America Merrill Lynch indexes. Slowing economic growth is fostering concern that global central banks will keep interest rates low, crimping financial firms’ profits.
Swelling Holdings
With fund companies converting or closing prime offerings, the industry’s holdings of government securities have swelled. Taxable money-funds’ investments in government obligations rose to $1.47 trillion as of the end of January, from $1.18 billion in February 2015, according to Crane.
Estimates vary for the size of the next wave, when investors yank cash from prime funds. JPMorgan projects it will reach about $400 billion this year, while Barclays anticipates about $300 billion.
Peter Crane, president of the Westborough, Massachusetts-based firm that tracks the industry, expects that only about $250 billion will leave prime funds, because he predicts investors will still favor the higher rates on those products and given his expectation that net asset values of prime funds will remain stable. Institutional prime funds’ seven-day yield was 0.21 percent as of Jan. 31, compared with 0.1 percent for government funds, Crane data show.
‘High Demand’
Even at the lower amount that Crane predicts, the flow of funds may push up borrowing costs on commercial paper relative to Treasury bill rates, which have crept up from near zero after the Federal Reserve’s December liftoff.