Regulatory Trigger
This year, the adoption of new regulations is at play as well.
On Oct. 14, Securities and Exchange Commission rules take effect that may lead investors to shift into money-market funds focused on government debt, from prime funds, which typically buy commercial paper. The new regulations mandate that institutional prime funds report prices that fluctuate, rather than sticking to $1 per share. The measures also allow fund companies to use steps such as redemption fees to prevent runs in times of panic.
Amid all the changes, which have already led many money-market companies to alter their offerings, institutional investors may pull about $400 billion from prime funds, JPMorgan Chase & Co. predicted in the first quarter.
The combination of fluctuating Fed bets and purchases of bills related to regulatory changes will spur volatility, said Jerome Schneider, head of short-term portfolio management at Newport Beach, California-based Pacific Investment Management Co., which oversees $1.5 trillion.
“Until these stimuli become reconciled and resolved, we may continue to see relative repricing a normal event in this sector,” he said.