NEW YORK, Jan 29 (Reuters) - Managers of money market mutual funds normally lengthen maturities in their portfolios when interest rates fall, but in the current round of cuts they have been doing the opposite, Peter Crane, president and publisher of Crane Data LLC, said on Tuesday.
“In this environment, because of the the asset-backed commercial paper crisis and concerns about potential redemptions, everybody has been getting shorter,” Crane said.
When managers lengthen maturities of portfolio holdings, which typically might average 30 days or 40 days, they seek to slow the process by which lower short-term rates affect yields on their funds.
Crane said that money market funds have gotten heavily into REPOs as they seek to build liquidity. But he noted that large redemptions from money market funds have not occurred.
Crane was speaking at a news briefing reviewing money market fund activity.
While the Federal Reserve has lowered term rates by 1.75 percentage points since it started cutting in September, the average yield on taxable money market funds has dropped from about 5 percent to about 4 percent.
Because market rates of interest have not fully reflected the decline in the fed funds target rate to 3.5 percent, there remains about 50 basis points of further reductions in yields in the money market pipeline, Crane said.
The Fed is expected to cut rates again at the end of a two-day policy meeting on Wednesday. Trading in interest rate futures points to a likelihood of a cut of 50 basis points.
Assets in U.S. money market mutual funds total $3.25 trillion, according to the Investment Company Institute. Assets rose above $3 trillion for the first time in 2007. (Reporting by Cal Mankowski; Editing by James Dalgleish)