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BNY Mellon steps in to support money market fund after outflows

Section: Daily Dispatches

By Richard Henderson and Robert Armstrong
Financial Times, London
Friday, March 21, 2020

BNY Mellon stepped in to support one of its money market funds amid sharp outflows from parts of the sector this week, buying $1.2 billion of the fund's assets so it had cash to help cover redemptions.

The U.S. bank made the liquidity injection as investors withdrew $6 billion from the Dreyfus Cash Management fund in the week ending Thursday, around half of its assets, according to Crane Data.

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The fund is a "prime" money market fund that invests in short-term corporate debt, including commercial paper and certificates of deposit. Outflows from these funds have heaped pressure on short-term funding markets as concern about coronavirus has grown, sending borrowing costs higher for companies and U.S. municipalities and prompting a series of interventions from the Federal Reserve.

Investors have shifted instead to the safety of money market funds that invest only in short-term government debt, which are used as a proxy for cash.

BNY Mellon's move to take $1.2 billionn of short-term debt held by the Dreyfus fund on to its own balance sheet came after outflows dragged the fund's assets close to an important liquidity threshold. If prime money market funds' so-called weekly liquidity falls below 30 percent, they are allowed to impose restrictions on investors withdrawing funds, including added fees -- something that severely crimps the fund's attractiveness to investors.

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