Money Markets & Short-Duration Bond ETFs

“We continue to believe that the liquidity fees and temporary redemption gates alternative does not constitute meaningful reform and that this alternative bears many similarities to the status quo,” the Fed added.

Charles Schwab believes it will cost more than anticipated to meet the necessary compliance, stress testing and daily redemption limits, according to MFWire. Specifically, Schwab estimates it will cost $10 million to support a floating NAV system, $4 million to educate and train employees, and half a million in annual costs to maintain the changes. Schwab is also fine with the redemption fee but suggests increasing the limit to $5 million instead of $1 million. [Scrutiny Over Money Fund Holdings Helps Short-Duration ETF Outlook]

Fidelity Investments also calculated that the proposed industry reform could increase borrowing costs of U.S. municipalities by $13 billion, Reuters reports. Money market funds provide low-cost financing for U.S. states and cities through short-term debt they issue to fund municipalities.

Any changes in the money markets would support the growing fixed-income ETF market, notably short-duration bond funds as a cash alternative. Some ultra-short-duration bond ETFs include:

  • PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT): 0.51% 30-day SEC yield; 0.99 year effective duration.
  • Guggenheim Enhanced Short Duration Bond (NYSEArca: GSY): 0.20 year duration; 0.93% 30-day SEC yield.
  • iShares Short Treasury Bond ETF (NYSEArca: SHV): effective duration 0.45 years; 0.01% 30-day SEC yield.
  • SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL): effective duration 0.12 years; -0.10% 30-day SEC yield.

For more information on money market reform, visit our money markets category.

Max Chen contributed to this article.