To follow up from last week’s podcast, Tom put together a quick video explaining why money market fund rates are so low. After 2008, the SEC changed some rules that dictate the type of securities allowed to be held in money market funds. Some of the key requirements set have to do with liquidity. 10% of any money market fund has to be in securities that can be liquidated in just one day. Another 30% has to be in securities that can be liquidated within a week. No holdings within a money market fund may have a maturity exceeding 397 days. These limitations have been put into place by the SEC to help ensure we don’t “break the buck” again, like in 2008. These restrictions will also keep money market fund rates low until the Fed decides to raise short term rates.
Make sure to watch the video to hear more from Tom on this topic!
If you would like additional information regarding money market funds and their rules and regulations head over here: https://www.blackrock.com/cash/literature/whitepaper/us-money-market-funds-and-rule2a7.pdf