Watch The MMMF Flow
On October 10th our US Rates Strategy Team highlighted that along with the sovereign reserve manager community, money-market mutual funds (MMMF) represents one of the two T-bill ‘tension points’ from which significant spill-over effects can be seen in the event of a technical default by the US. Understanding their reaction functions matters greatly for FX: while the behaviour of the sovereign community is generally better understood and there is a general expectation on their part to act cautiously and even with coordination in times of stress, the MMMF community may respond differently. Their composition, structure and fiduciary responsibilities to end-investors demand suggest a high level of unpredictability. If either 2008 or 2011 is to be repeated, volatility can be guaranteed, though the outlook for the dollar itself is more nuanced.
Read the full report: UBS