ABCP Market Interest Rates Surge As Funds Prep For New Money Market Rules

U.S. asset-backed commercial paper (ABCP) market interest rates have jumped in recent weeks, according to a Wall Street Journal article.

The rate on 90-day ABCP spiked to 0.97 percent last Wednesday before slipping back down to 0.91 percent on Thursday, according to the Federal Reserve. That is the highest level recorded since 2009.

90-day paper has experienced the most upward pressure due to pending money market rules that come into effect on October 14th. The rules require prime funds to implement temporary suspensions of customer redemptions in a crisis, resulting in customers moving their money out of prime funds and into funds that invest only in debt of the U.S. government and government sponsored entities, according to the article.

It is further noted that as a result, prime fund managers have been shortening the maturities of their portfolios in order to increase their ability to handle such redemptions, putting upward pressure on the yields of short-term debts with maturities that fall around or after the October 14th implementation date.

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