Money market mutual funds are expected to all participate in the Treasury Department's temporary guaranty program, which will cover investors' assets in the funds as of the end of Sept. 19, analysts said.
The 20 largest money market mutual funds by assets have applied for insurance protection, according to Peter Crane, president and chief executive officer of Crane Data LLC. He said he expects all money market fund parent companies will have applied for insurance by the 11:59 p.m. Eastern Daylight Time deadline last night.
According to Morningstar Inc., there were 279 tax-free money market funds that held $553 billion of assets as of Sept. 22.
The insurance provides "moral and PR support" for investors, Crane said, adding that the threat of investor withdrawals is too great for funds not to apply.
Fidelity Investments and Vanguard Group Inc., two of the largest money market fund companies with 21 and 10 tax-exempt funds, respectively, announced on Monday that all of their money market funds applied for insurance, including funds that invest only in Treasury securities.
"Even though it is highly unlikely that the insurance will be needed for any of our funds, we expect the program to reassure our investors that their money market funds will continue to provide safety and liquidity for their cash investments," Fidelity said in a statement.
Treasury does not plan to provide a list of the funds that are insured and investors should contact their funds for information, department officials said.
Money market funds experienced a surge in redemptions after the Reserve Primary Fund "broke the buck" on Sept. 16, a day after Lehman Brothers Holdings Inc. filed for bankruptcy. The fund had significant exposure to Lehman's commercial paper and announced it could not pay $1.00 per share.
Money market investors began worrying that their investments, which were not insured or backed like bank and brokerage accounts. In the six days after the Reserve Primary Fund broke the buck, tax-exempt funds lost $851.5 million, according to data from iMoneynet.com. Prime retail and institutional funds shed more than $86 billion during the same period.
The Treasury announced its plan to guarantee money market funds on Sept. 19 and three days later issued a statement saying the program would cover tax-exempt funds. Tax-exempt money market funds have benefited from a flight to quality since the announcement, adding a total of $9.1 billion in assets for the week ending Oct. 8, according to iMoneynet.com. That's in contrast to prime institutional and retail funds, from which investors have withdrawn $20.4 billion of assets over the last seven days, seeking security in government funds.
The insurance appears to have stopped the outflows in prime funds by "rebuilding confidence and bringing money back into the commercial paper markets," Crane said. "For now, it has certainly stopped the bleeding."
The Treasury Department yesterday extended the federal guaranty program to include a small class of money market funds that have a net asset value greater than $1.00. Fidelity, for example, has two money market funds based in Canada with $10 NAVs. Such funds have until Oct. 10 to apply for the insurance program. All tax-exempt funds have a $1.00 NAV, sources said.
