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The Buck Is Beginning to Break

Posted by Larry Doyle on June 25th, 2009 12:31 PM |

Investors in money market funds are generally under the assumption that those funds would always maintain a $1.00 NAV (net asset value). Well, investors should lose that assumption and prepare themselves for funds beginning to ‘break the buck.’ Do not panic, but let’s review developments in this $3.8 trillion sector of the market.

When markets were seizing up last September upon the failure of Lehman Bros., the U.S. Treasury provided a temporary backstop of money market funds so they would not break the buck and cause a “run on the fund.” Here is the Treasury statement from last September: Treasury’s Temporary Guarantee for Money Market Funds.

From that site, you will see links to other Treasury announcements on this topic. One of those links is Frequently Asked Questions About Treasury’s Temporary Guarantee Program for Money Market Funds. I strongly recommend investors review these FAQs. I specifically highlight the question regarding funds’ ‘breaking the buck.’

What if another fund in an investor’s fund family breaks the buck before this program starts? Is the investor covered?

The program provides a guarantee on a fund-by-fund basis up to the amount of shares held as of the close of business on September 19, 2008. The performance of a different fund, even one in the same fund family of the investor’s fund, doesn’t affect the investor’s fund’s eligibility. Investors should contact their fund to determine if their fund participates in the program.

The temporary guarantee was extended on March 31, 2009 as highlighted by this Treasury announcement: Treasury Announces Extension of Guarantee for Money Market Funds.

Well, investors should prepare themselves for this guarantee of money market funds to end and that certain funds will begin to ‘break the buck.’ One does not need to be a savant to see this development in a recent release from SEC chair, Mary Schapiro. Here is the full SEC Statement on this topic.

Let’s address a few critically important points . . .  (more…)






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