What financial events can cause a fund’s per-share market value to rise above $1.0050 or fall below $0.9950?
Modeling based on reasonable assumptions about fund portfolio composition and maturity demonstrates that large, sudden changes in market conditions are necessary before a fund is at risk of breaking the buck. • Short-term interest rates must rise by more than 300 basis points (3 percentage points) in one day to reduce a fund’s shadow price to $0.9950, absent any other changes in market conditions. • Investor net redemptions must reach 80 percent of a fund’s assets to reduce a fund’s per-share market value to $0.9950, absent any other changes in market conditions and given an initial per-share market value of $0.9990. • Interest rate changes and flows can have a combined effect on a fund’s shadow price. In the modeling, a 100 basis-point (1 percentage point) increase in interest rates combined with investor net redemptions of nearly 70 percent of a fund’s assets, all in one day, would be necessary to reduce a fund’s shadow price to $0.9950.
