The Bank of Canada released an analytical note on the money market fund (MMF) sector. According to the note, within MMFs’ holdings of non-government short-term paper, commercial paper has represented an increasingly large share since the phase-out of the Canadian bankers’ acceptance (BA) market. From 2022 to 2023, MMFs allocated between 10% and 20% of their assets to BAs. However, starting in June 2023, MMFs reduced their holdings of BAs and simultaneously increased their holdings of commercial paper from around 45% to 60% of their assets.
“Overall, MMFs’ growing presence in the [Government of Canada] treasury bill and commercial paper markets suggests that liquidity in these short-term funding markets could be vulnerable to the trading activity of MMFs, particularly in scenarios where MMFs may sell these assets to meet investor withdrawals,” the Bank of Canada wrote.