We have recently completed an in-depth analysis of the new, controversial rules finalized by the SEC for open-end funds, including ETFs and excluding the MMFs already subject to new liquidity requirements. In conjunction with the old MMF rules, the new open-end fund ones create strong incentives for the asset-management sector to load up on USG and agency paper. Given the shortages of this paper, especially when short-term, added regulatory requirements will heighten artificial market pricing and contribute to the structural problem of doing anything anytime soon about the GSEs that doesn’t involve a federal guarantee.
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