NEW YORK (Reuters) - Assets of U.S. money market funds that invest only in Treasury debt and other government-related debt surged in the latest week as fund companies have been converting some of their prime funds to government-only ones before new regulations that take effect in October, according to a private report released on Wednesday.
U.S. government-only money fund assets rose by $42 billion in the week ended Aug. 2 to $1.564 trillion, the Money Fund Report said on Wednesday.
This was the biggest weekly rise in government money fund assets since the week of June 28 when they saw $51.4 billion in inflows, it said.
In contrast, prime money funds that could invest in riskier debt, including commercial paper and certificate of deposits issued by banks, lost about $27 billion in assets from a week earlier to $970 billion, according to the report, published by iMoneyNet.
On Oct. 14, the Securities and Exchange Commission will require prime money funds used by institutional investors to float their per-share net asset value or impose redemption gates and liquidity fees on redemptions in times of market stress.
Some prime funds have changed over to government-only funds which are exempt from these SEC rules.
This move has reduced demand for bank CPs and CDs from money funds, analysts say, making it more expensive for banks to borrow in money markets.
On Wednesday, the London interbank offered rate on three-month dollars, a benchmark for more than $300 trillion of financial products around the world, reached a fresh seven-year high at 0.77760 percent.
Since October 2015, prime fund assets had fallen by about $500 billion with most of the money going into government-only money funds, according to UBS analysts.
In the latest week, overall U.S. money market fund assets increased by $12.88 billion to $2.718 trillion.
Taxable money market fund assets increased by $14.64 billion to $2.534 trillion, while tax-free assets decreased by $1.76 billion to $184.16 billion.
The average seven-day simple yield on taxable money-market funds held at 0.11 percent, while the average 7-day simple yield on tax-free and municipal money-market funds rose to 0.08 percent from 0.07 percent the previous week.