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Money Market Reform Could Drive Hundreds of Billions to Short-Duration Bond ETFs


The $2.6 trillion money market landscape could be shifting as the industry faces broad regulatory changes. Meanwhile, some are beginning to look toward short-duration bond exchange traded funds as a suitable alternative to money market funds.

Proposals for a floating NAV and other regulatory changes to the money markets have been previously voted down in the Securities and Exchange Commission. However, with the new chairwoman Mary Jo White, the agency expects “to have something for the commission’s consideration in the near future,” the New York Times reports.

In a conference call, BlackRock CEO Laurence Fink commented on the company’s meetings in Washington that has left him with the impression that a floating NAV idea could soon be real, reports Joe Morris for Ignites. [Money Fund Changes May Drive Interest in Short-Duration ETFs]

“I expect it’s going to be some form of floating NAV,” Fink said in the Ignites article. “We had a whole team in Washington this week; it’s a pretty dynamic situation, but I do believe now, with a chairperson being finalized, I think we’re going to see some type of announcement from the SEC shortly.”

The floating net asset value on prime money market funds would be a departure from the current stable $1 share price the funds are known for. Floating the NAV has garnered greater support after the Lehman collapse that caused a money market fund to begin trading below the $1 share price, which fueled a run on the money market before the government stepped in. [Short-Duration Bond ETFs Eye Money Fund Reform]

The industry has fervently lobbied against a floating NAV, arguing that it would cause investors to flee the funds, reports Kirsten Grind for the Wall Street Journal.

ETF observers, though, believe that bond funds could pick up where the money market leaves off. For instance, Fink expects investors will move away from prime money funds and into government funds the SEC enacts a floating NAV.

“I would say that money market reform is increasingly a matter of when and not if, and we feel like we’re well positioned to capitalize on this pending change when it becomes effective,” Bill Belden, Head of Product Development at Guggenheim Investments, said in an email. “Our Guggenheim Enhanced Short Duration Bond ETF (GSY) is an attractive alternative for strategic cash investments. GSY is not a money market fund, but it uses a low duration strategy in pursuit of its investment objective of attractive current income, consistent with preservation of capital and daily liquidity.”

Investors can take a look at short-duration bond ETFs options, including:

  • PIMCO Enhanced Short Maturity Strategy (MINT) : effective duration 0.94 years; 0.65% 30-day SEC yield
  • SPDR Barclays 1-3 Month T-Bill (BIL) : modified adjusted duration 0.12 years; -0.07% 30-day SEC yield
  • iShares Barclays Short Treasury Bond (SHV) : effective duration 0.41 years; 0.01% 30-day SEC yield
  • Guggenheim Enhanced Short Duration Bond (GSY) : average duration 0.37 years; 1.12% 30-day SEC yield

For more information on the money markets, visit our money markets category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.