Tags: Moodys | Money | Market | Funds

Moody's: 36 Percent of Money Market Funds Almost 'Broke the Buck'

Tuesday, 10 Aug 2010 11:40 AM

At least 36 of the 100-largest U.S. prime money-market funds reportedly had to be propped up in order to survive the financial crisis, according to a report from Moody's Investors Service.

Moody's warned that mutual-fund companies might be less willing to bail out troubled money-market funds next time.

Henry Shilling, senior vice president at Moody's, asserts that, without such help, the battered money market funds would have dropped below the $1-a-share net asset value such funds usually maintain, thereby “breaking the buck,” The Wall Street Journal reports.

According to Moody’s, at least 20 firms that manage such funds in the U.S. and Europe pumped more than $12 billion combined into their funds, including capital contributions and costs of purchasing troubles securities, from August 2007 to December 2009.

The report shows how seriously the financial crisis jarred money market funds: Investors pulled more than $200 billion from prime money market funds over the two days, leading U.S. officials to create a temporary money-market guarantee to calm investors, the Journal reported.

Now, Shilling says, with rock-bottom interest rates pressuring management fees and profit margins, "there's a lot less at stake" for firms that decide not to rescue endangered money market funds.

New money market fund regulations that require such funds to invest in a smaller pool of securities in order to make the securities safer recently began going into effect.

Investors’ growing appetite for bonds is bad for those saving money in bank accounts and money market funds, The New York Times reports. The average one-year certificate of deposit now pays 1.3 percent a year.

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At least 36 of the 100-largest U.S. prime money-market funds reportedly had to be propped up in order to survive the financial crisis, according to a report from Moody's Investors Service. Moody's warned that mutual-fund companies might be less willing to bail out troubled...
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