The effect of the Money Market Mutual Fund Liquidity Facility (MMLF) on corporate short-term borrowing costs

Abstract

In this article, I study the effect of the Money Market Fund Liquidity Facility (MMLF) on corporate short-term borrowing costs. Although MMLF loans accept a broader range of collateral acquired from money market funds (MMFs) than Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) loans, their higher loan rates could make the intervention less effective. I find the average yield has decreased by 20–24 basis points. The yield-decreasing effects of the MMLF are stronger for securities issued by eligible non-US firms, non-asset-backed commercial paper securities that are newly accepted as collateral under the MMLF, and securities held by affiliated MMFs. However, I do not find an additional yield-decreasing effect of the MMLF on lower rated securities or nonfinancial sector securities. After the implementation of the MMLF, domestic MMFs seem to increase the weight of nonfinancial sector securities, which helps them achieve a higher return.