Money market fund inflows have sharply increased since the expiration of FDIC guarantees for checking account balances over $250,000 in December 2012, according to the Wall Street Journal. Barclays estimates that because of the changes, about $250 billion will move to money market funds from checking accounts. Managing this influx of cash can be tricky since yields on Treasuries and repos remain at record lows. According to the article, some funds are buying assets they recently viewed as too risky, including French bank debt:
French bank debt made up 6.5% of money-market fund assets in December, the highest since September 2011, according to Fitch Ratings. Money funds also are buying Treasuries and corporate debt with longer maturities, which offer a higher yield to compensate for the higher default risk.
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