From Wolf Richter at wolfstreet.com:
And the Bitter Irony?
All 11 Japanese asset managers that offer money market funds have stopped accepting new investments into them and are planning to scuttle them after returning their remaining assets to investors. This marks another big accomplishments of negative interest rates.
After years of zero-interest-rate policy, and after gobbling up every Japanese government bond that wasn’t nailed down, the Bank of Japan decided in January to go beyond what had already failed and introduced its negative-interest-rate policy.
As a result of QQE, as it calls its asset-buying program, and the new NIRP, even the 10-year JGB yield is now negative, and yields on shorter maturities are sinking deeper into the negative. Money market funds, which invest in commercial paper and government debt with maturities of less than one year, are at risk of seeing these negative yields eat into their principal.
Money market funds, unlike bank deposits, do not guarantee the principal, but due to their reliance on short-term paper with high credit ratings, they’re considered one of the safest investments, and falling below par value is considered bad form and can trigger runs on the offending fund and neighboring funds by spooked investors.
With an average yield of a record low 0.02% currently – only a hair away from going negative – money market funds are at the verge of systematically falling below par value, not just once, but deeper and deeper, given that the current monetary policy could last for years, or until something big breaks.
Fund managers could absorb the losses, but that’s no fun either. So they’re drawing the line:
The Nikkei:
Nomura Asset Management and Daiwa Asset Management intend to repay investors by August and October, respectively. Mitsubishi UFJ Kokusai Asset Management is preparing to do so in April or May. Five other companies, including Nikko Asset Management, had announced plans as of Monday to return customers’ money.
To continue reading: NIRP Kills Off All Money Market Funds in Japan
