money market funds
As the Fed nears its terminal rate, bonds may reassume their traditional role as a portfolio “diversifier.”
Ever since the bottom of the stock market, if not before, individual investors and many institutional investors have been adding to their bond holdings at a much faster rate than their appreciating equity holdings. While the rush is understandable for those who suffered equity losses by selling in the decline or seeing their wealth on paper shrink, I nevertheless find any stampede a bit scary.
Support within the SEC for money market fund reform remains uncertain, and the reforms could very well be doomed if they don't win over a majority of the five commissioners. That is, unless the Financial Stability Oversight Council, a creation of the bureaucratic behemoth known as the 2010 Dodd-Frank Act, steps in. Politics may soon dominate the debate.
The $2.7 trillion U.S. money market fund industry, which greases the wheels of industry while offering institutional and individual investors a vehicle for cash management and savings, is being targeted for regulatory reforms designed to make it more transparent and less risky. But critics argue that adoption of the proposed changes may trigger unintended consequences with far-reaching effects.