For the last several months, significant asset flows have moved from institutional to government-only money market funds in anticipation of new regulations. On October 14, 2016 regulations will finally go into effect for non-government institutional money market funds, with the highlighted feature being the shift from a fixed $1 transaction share price to a floating NAV. These portfolios will be priced using the market-based value of the actual portfolio holdings, out to four decimals. This means that Endowments, Foundations, and other businesses that manage operating cash will no longer be able to hold funds in stable fixed $1.00 share price institutional money market accounts.
This transition to government-only money market funds has kept short-dated Treasury yields low, but has increased the costs of issuance for non-government entities such as financial institutions that were highly dependent on the demand from what had been prime non-government money market funds. The widening in the yield gap can be seen in a number of ways including the backup in six-month LIBOR (London Interbank Offered Rate) to 1.20 percent, from one percent a month ago and just 50 basis points a year ago. In contrast, six-month Treasury bill yields are currently at just 43 basis points, up only 20 basis points from a year ago.