December 12, 2014 / 2:05 PM / 4 years ago

Moody's slaps negative outlook on U.S. money fund sector

Dec 12 (Reuters) - Moody’s Investors Service said on Friday it downgraded its outlook on the $2.7 trillion U.S. money market industry to negative from stable as the sector is expected to face tough market conditions in 2015.

These challenges include an ongoing supply and demand imbalance, low-to-negative net yields of these funds, and elevated asset flow volatility, the rating agency said.

It warned the number of money market funds that carry Moody’s highest rating of Aaa-mf might decline next year.

“The unstable market environment will limit fund managers’ ability to offset rising risk through active management, thus making it more challenging to maintain the highest quality profiles,” Vanessa Robert, Moody’s senior credit officer said in a statement.

Amid expectations short-term interest rates would not move much higher in 2015, if at all, Moody’s said some money fund managers might amass longer-dated and riskier investments to achieve higher yields on their funds.

Those fund managers who “pursue longer tenor and lower quality investments increase their susceptibility to liquidity risk, a credit negative,” Moody’s said. (Reporting by Richard Leong; Editing by Bernadette Baum)

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