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Repo Rules May Pinch Money Funds

Fed restrictions on repo collateral could mean lower yields for funds, Fitch says.

By Liz Capo McCormick, Bloomberg | Updated on March 01, 2012

U.S. prime money-market mutual funds may face lower yields and fewer investment choices in the market for borrowing and lending securities if the Federal Reserve restricts collateral options, according to Fitch Ratings.

A further reduction in short-term interest rates may make it even harder for the $2.6 trillion money-market fund industry to retain customer assets. Record low rates since late 2008 amid unprecedented central-bank monetary stimulus have put pressure on the industry, whose assets fell 31 percent in the past two years as of last month.

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