According to a new study by Fitch, money market funds are significantly more liquid now than they were before the 2008 crisis. As of the end of September 2012, liquid assets represented approximately 45% of money market fund assets, compared to approximately 20% of total assets at the end of 2006. Fitch's study identifies three distinct phases when money market funds increased liquidity: (1) during the U.S. financial crisis, particularly after the August 2007 stresses affecting structured investment vehicles and the asset-backed commercial paper market; (2) after the announcement and implementation of the 2010 Rule 2a-7 amendments; and (3) during mid-2011 as Eurozone market volatility started to escalate.
Fitch's sample set is based on public filings from the 10 largest U.S. prime institutional and retail money market funds. For this study, Fitch defines liquid assets as direct holdings of U.S Treasury and agency securities (regardless of maturity), and other bank and corporate exposures (including repos) with a residual maturity of one week or less.
The full report: “Money Fund Liquidity: Regulation Versus Risk Aversion” is available here (free registration required).