Marco Cipriani and Gabriele La Spada: The Premium for Money-Like Assets: "We estimate such premium using a quasi-natural experiment, the recent reform of the money market fund (MMF) industry...
...Prime MMFs were forced to adopt a system of gates and fees; moreover, prime MMFs catering to institutional investors were forced to float their net asset values. In contrast, government MMFs were unaffected by the new regulation.... Before the SEC reform, MMF shares were the typical example of a money‑like asset: they were callable, redeemable at par, and had very little (at least, in investors’ perception) credit risk. This applied equally to government funds, which can only invest in Treasuries, agency debt, and repos collateralized by these securities, and to prime funds, which can also invest in high-quality, privately-issued unsecured debt.... In the months before the reform went into effect, the prime-government net-yield spread widened from 7 basis points in November 2015 to 24 basis points in October 2016.... The widening spread can be interpreted as a measure of the convenience yield investors are willing to pay to keep the money-like feature of their MMF shares...
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