What causes shadow prices to fluctuate?
Four factors are primarily responsible for changes in money market funds’ per-share market values. • Changes in interest rates. Falling interest rates increase shadow prices, and rising rates reduce them. • The maturity of a fund’s portfolio. The longer the portfolio’s dollar-weighted average maturity, the greater the impact of changing interest rates on the fund’s per-share market value. • Flows of net new money into and out of funds. If a fund’s shadow price differs from $1.0000, net inflows, or investors’ purchases in excess of investors’ redemptions, will move the per-share market value toward $1.0000. Net outflows, or investors’ redemptions in excess of investors’ purchases, will increase the deviation from $1.0000. • Credit events affecting securities held in a fund’s portfolio. Downgrades and defaults decrease shadow prices.
