Fitch published a press release entitled, "Fitch Launches 'MMF Compare' Interactive Money Fund Comparison Tool," as well as one entitled, "Fitch: Transition is Main Rating Challenge in EU MMF Reform." The former tells us, "Fitch Ratings has launched 'MMF Compare', a new European money market fund (MMF) interactive comparison tool to provide investor education and help promote more informed investment decision-making in the run-up to European MMF reform implementation in July 2018." We quote from the release, and also cite some comments from Fed Chair Janet Yellen, below. (Note: Thanks to the attendees, speakers and sponsors for our fifth annual European Money Fund Symposium, which concluded in Paris yesterday. Watch for the final binder and conference materials to be sent out on Friday, and mark your calendars for next year's show, Sept. 24-25, 2018, in London.)
Alastair Sewell, Head of EMEA and APAC Fund Ratings at Fitch, comments, "MMF Compare allows investors to select a particular Fitch-rated fund and benchmark its portfolio credit, market and liquidity risk attributes against its rated peer group. It covers in total about half a trillion euros equivalent assets under management across 50 Fitch-rated MMFs."
The release explains, "The portfolio metrics in 'MMF Compare' are derived from Fitch's MMF rating surveillance process. Fitch receives regular portfolio holdings data from fund administrators and managers, which it cleans, standardises and enriches in accordance with a globally consistent rating methodology. These data serve as the basis for calculating key portfolio credit, market and liquidity risk metrics that Fitch uses when rating MMFs."
It adds, "To coincide with today's launch of 'MMF Compare', Fitch has also published 'European MMF Reform -- What Investors Need to Know,' a concise summary of Fitch's views on European MMF reform, including the responses to the most commonly asked investor questions on European money market fund reform." Sewell says, "Understanding the new fund types and the likely implications of European MMF Reform will be important priorities for MMF investors."
Fitch writes, "The "prime" constant net asset value (CNAV) MMFs commonly used by corporate and public-sector treasurers will no longer exist in their current form. Instead, investors will need to choose between four different MMF types, including two new variants: the low volatility net asset value (LVNAV) MMF and the public-debt CNAV MMF. The report addresses the following nine questions: What do the MMF reforms change for investors? Will the reforms change Fitch's rating approach? How does liquidity risk factor in the reforms? How does Fitch's rating approach differ from the reforms? Are there differences in rating agency methodologies? How do reform-driven liquidity fees and redemption gates work? Will we see significant reform-driven MMF asset flows, similar to the US? How will the reforms affect competition in the industry?"
Fitch's second release tells us, "The main risk posed to ratings from European money market fund reforms comes from unexpected disruption during the transition process, Fitch Ratings says. However we expect fund managers to take steps to mitigate such risks, including strengthening liquidity during the transition. The new rules will not change our approach to rating MMFs and therefore should not directly affect ratings, unless a fund's underlying credit, market or liquidity risks increase."
In other news, Federal Reserve Chair Janet Yellen spoke yesterday on "Inflation, Uncertainty, and Monetary Policy." She discussed uncertainty over inflation and said, "How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock."
Yellen commented, "But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession."
She continued, "Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent."
Finally, Yellen added, "To conclude, standard empirical analyses support the FOMC's outlook that, with gradual adjustments in monetary policy, inflation will stabilize at around the FOMC's 2 percent objective over the next few years, accompanied by some further strengthening in labor market conditions. But the outlook is uncertain, reflecting, among other things, the inherent imprecision in our estimates of labor utilization, inflation expectations, and other factors. As a result, we will need to carefully monitor the incoming data and, as warranted, adjust our assessments of the outlook and the appropriate stance of monetary policy. But in making these adjustments, our longer-run objectives will remain unchanged--to promote maximum employment and 2 percent inflation."
