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UPDATE 2-U.S. prime money funds lose over $100 bln in assets
October 5, 2016 / 8:22 PM / a year ago

UPDATE 2-U.S. prime money funds lose over $100 bln in assets

* Institutional prime assets fell most since credit crisis

* Institutional prime funds have contracted by $1 trln since Oct

* Government-only fund assets rose $87 bln in latest week (Adds historical comparisons from iMoneynet in paragraphs 2, 6)

By Richard Leong

NEW YORK, Oct 5 (Reuters) - Assets of U.S. prime money market funds for institutional investors dropped more than $100 billion in the latest week, ahead of new regulations scheduled to go into effect next week, the Money Fund Report said on Wednesday.

The asset decline among institutional prime money funds was the biggest single-week drop in eight years.

A number of institutional prime money funds have been converting to funds that own only U.S. government securities in an effort to be exempted from the new Securities and Exchange Commission rules that will be implemented on Oct. 14.

These rules, on share value and fees, are the final phase of domestic money fund reform that is intended to safeguard a sector rattled by the collapse of Lehman Brothers in September 2008 during the global credit crunch.

Assets of institutional prime funds, which can invest in riskier securities in addition to government debt, dropped $122.30 billion to $223.33 billion in the week ended Oct. 4, according to the report published by iMoneyNet.

This was the steepest one-week asset fall since the $262.96 billion decrease in the week of Sept. 23, 2008 after the Reserve Primary Fund’s share value fell below $1 or “broke the buck” shortly after Lehman’s demise, according to iMoneynet.

Institutional government-only funds took in $87.27 billion, raising their total assets to $1.506 trillion in the latest week.

Since October 2015, institutional investors and fund managers have shifted about $1 trillion of assets into government-only funds from prime funds.

Short-term corporate borrowing costs have risen with the contraction of institutional prime funds. These funds had been major buyers of commercial paper and other short-term debt from banks and other corporations, which use proceeds to fund trades or finance their payrolls and inventories.

In the latest week, overall fund assets, institutional and retail, fell by $35.19 billion to $2.623 trillion.

Taxable money market fund assets decreased by $30.11 billion to $2.494 trillion, while tax-free assets decreased by $5.09 billion to $129.32 billion.

The iMoneyNet money fund average 7-day simple yield for all taxable funds rose to 0.13 percent from 0.12 percent the previous week.

The iMoneyNet average 7-day simple yield for all tax-free and municipal money-market funds jumped to 0.32 percent from 0.27 percent a week earlier. (Reporting by Richard Leong; Editing by Richard Chang and Steve Orlofsky)

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