Tuesday, September 30, 2008

Money market funds now guaranteed

One less reason to worry. Yesterday Treasury announced that participating money market funds will now be covered under its new guarantee program. Funds can participate by paying a nominal fee of 1 or 1.5 basis points, and that guarantees that their funds will never "break the buck;" which in turn means investors can count on redeeming their shares at $1.00. This makes money market funds virtually as safe as T-bills. It's reasonable to think that almost all funds (except those that invest in only Treasury securities) will participate, if only to maintain their competitive advantage.


PMC said...

Currently, tax free municple funds are yielding 5%+. I am researching to confirm they fall under the Treasury guaranty and if they are this would be an attractive yield for tax free muni's.

Scott Grannis said...

I doubt it. But if they were it would be a great arbitrage opportunity.