The pressure is on for money market funds and the companies that run them due to losses from structured investment vehicles (SIVs). According to Moody’s, losses from SIVs and mortgage-backed commercial paper have put these funds in an unforeseen crunch because of the state of the market. InvestmentWires staff reports that managers of the 10 largest money funds owned around $50 million in short-term debt in SIVs, some of which have already defaulted.
These current troubles aren’t any worse off than in 1994, according to Crane Data, this just affects a small number of money funds in contrast. The good news is the larger size of the money fund market will help it absorb its losses. Joe Morris for Ignites reports that today’s money funds are being run by firms with backgrounds in stocks and bonds, and they are implementing that riskier approach.
Originally, these funds were meant to provide safety for principal, liquidity and a fair rate of return; an investment you didn’t have to worry about.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.