Smith: The primary mandate of any money market fund is to seek both stability and provide current income. In a rising interest rate environment, any of these four types of money market funds—U.S. Treasury, government, municipal, and prime funds—should meet that decree. They all hold high-quality assets, are very liquid, and are subject to the same SEC regulation, Rule 2a-7, which is very prescriptive in terms of how much duration risk a fund can take on and how much liquidity must be maintained.
That said, it’s also worth considering the underlying causes of the higher interest rates we’re experiencing. Is it a deterioration of economic conditions? Changes in the labor market? From that perspective, an investor will want to understand the risks associated with a type of fund. Treasury and government funds are on the safer end of the spectrum; at the same time, investors may want to understand the risks associated with a prime fund, which can invest in a broader spectrum of money market eligible securities.