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Fed steps up to support prime money markets

  • Deborah Cunningham

    Chief Investment Officer Global Liquidity Markets

The loan facility, broader than in 2008-09, includes short-term muni securities.

The Federal Reserve (Fed) late Wednesday established the Money Market Liquidity Facility (MMLF). We support this move, as we had advocated for measures to enhance secondary market liquidity in the short-term high-quality money markets amid recent coronavirus-related disruptions. All Federated Hermes money market funds are fully operational and have liquidity in excess of regulatory requirements.

Through the MMLF , the Federal Reserve Bank of Boston will make loans available to eligible financial institutions—dealers and banks—secured by high-quality assets purchased from money market mutual funds on or after March 18, 2020. This program is very similar but even broader in nature to one also facilitated through the Boston Fed during 2008 and 2009 and effective until Feb. 1, 2010, called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), which accomplished similar secondary market liquidity.

We believe the MMLF addresses the liquidity concerns in the broader money markets and inventory capacity on the market makers’ balance sheets. The MMLF allows dealers and banks to purchase commercial paper and other high-quality short-term paper from prime money market funds and fund these assets with the Federal Reserve Bank of Boston. On Friday, this was expanded to include short-term municipal securities. The Fed has also given the banks and dealers that participate in this program regulatory capital relief.

The establishment of the facility is a move that has been recommended—and anticipated—to maintain efficient and timely functioning of the high-quality, short-term money markets that flow through directly to the prime money market funds and broader markets. We applaud the Fed’s rapid assessment, action and ingenuity.


Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Federated Investment Management Company