Outflows were not immediately available.
The outflows partly reflect moves by U.K. pension funds to sell assets to meet collateral calls on LDI-related derivatives positions, Moody's said. "The combination of extreme volatility in the price of short-dated government bonds and investor outflows has put downward pressure on the mark-to-market (net-asset values) of the affected" money market funds.
Under European regulation, low-volatility net asset value money market funds are those with a mark-to-market NAV vs. fund share price deviation of no more than 20 basis points. If a fund exceeds this deviation, it must be converted to a variable net asset value model of money market fund.
Moody's said deviations in the mark-to-market net asset value of low-volatility funds now range from 4 to 13 basis points.
Intervention by the Bank of England to temporarily buy long-dated gilts "brought some stability, but the scale of the initial NAV declines demonstrate the stress the U.K. bond market was under," Moody's said. The threat of forced conversions for low-volatility strategies is further adding to the money market fund industry's "anxiety," Moody's said.
The agency added that U.K. sterling-denominated money market funds remain "relatively resilient to extreme market shocks thanks to their proactive risk management," with low-volatility strategies retaining high levels of liquidity and solid credit quality. The bond-market chaos also came toward quarter-end, when money market fund liquidity is at a cyclical high and redemptions typically peak.
However, risks remain elevated and reflect Moody's view that U.K. bond-market stress is likely to persist.
