RBS Changing Money-Market Funds to Accommodate Negative Yields

RBS Asset Management Ltd. joined JPMorgan Chase & Co. and Morgan Stanley in changing the structure of money-market funds so they can continue to operate even when yields fall below zero, Fitch Ratings said.

RBS’s Global Treasury Funds Plc will automatically reduce the number of shares issued by its funds when total assets decline, an action not allowed under previous rules, according to Fitch. Without the change, record-low yields on the debt the funds buy will threaten their fixed-share price and force them to shut.

RBS “added its name to the increasing number of European money market funds which have, or are in the process of, implementing changes to allow funds to maintain a stable net asset value per share in a negative yield environment,” Fitch analysts John Cahill and Alastair Sewell wrote in a report yesterday.

JPMorgan Chase & Co. said in October it was replacing two stable NAV euro money-market funds with variable share classes, which means investors may get back less than they originally invested. Morgan Stanley has announced similar structures for its money funds, Fitch said.

The RBS Asset Management funds total 9.8 billion pounds ($15.5 billion) of assets denominated in pounds, dollars and euros, said Aoife Reynolds, a London-based spokeswoman for Royal Bank of Scotland Group Plc, without providing more information.

Money-market funds buy short-term, high-grade debt securities, and are designed to offer investors an alternative to holding cash.

The average seven-day yield on funds that buy euro-denominated government securities was at zero percent for the week ended Jan. 18 while the equivalent sterling funds yielded 0.2 percent, according to research firm iMoneyNet Inc. in Westborough, Massachusetts. The average yield on euro funds eligible to purchase corporate debt was 0.03 percent.

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