WTF??? Money market funds sinking below $1/share? If invested in one of these funds, do you have any recourse? These funds are billed as "savings accounts", although they're not FDIC insured. If these banks have invested in risky instruments (although not considered risky at the time) do the banks have to make good on principal? Scarey stuff.
Money Market Funds Losing Money???
- Thread starter hilojack
- Start date
What in the world are you talking about. Commerical papers are holding up like rocks. For example, on May 21th, 30Day A1+/P1/F+ commerical papers were issued at 5.24%. The same papers trade at 5.31% today. Given that these guys have almost no duration, the combination of very tiny spread changes and tiny duration means that they didn't really have any effect on NAV. Commerical papers are anything but toxic. But because it's a corporate borrowing doesn't mean it's in the same world as equity tranche ABSs. (Moreover, not even all the ABSs are created alike. It's a very specific range of vintages that are getting hit).
In all likelihood (of course, I could be wrong, naturally), the person answering the phone has little access about the exact composition of those funds. Fund administrators (aka - big boobed chicks who answer the phones all day) are usual as far removed from the trading floor and the investment team as can be imagined.
Moreover, even if a paper went from 5bps LIBOR to 25bps over LIBOR, we are talking about a change in the implied annual default probability about 0.5% to 2.5%. Meanwhile, you are holding a 30-day paper that even if defaults, will recover probably somewhere in the 90-100% of its face value.
Not to say you shouldn't be vigilent about your holdings - just that it's a bit silly (not to mention intellectually lazy from a trader's perspective) to completely ignore the substance, quality, and properties of the things you are looking at.
Oh. Short-term papers have different rating scale as long term issues. S&P rates investment grade papers as: A-1+, A-1, A-2, and A-3 with A-1+ as the highest grade. So, A here doesn't mean A like a regular bond.
which fund are you talking about? or are you just blindly reading some idiot journalist's story?
in the past 30 yrs i've only heard of one mmf that ever went below $1 nav.
And to this joker: no you don't have any recourse. Any fund that's marked-to-market will necessarily incur the probability that it's NAV dips below 1. It's true even if holds nothing but treasury bills: reason - as the daily rates move change, the treasury instrument you hold will trade above and below par to account for those changes.
You are safe (short of really really bad management and outright fraud) because short term instruments will "pull-to-par" very quickly as unless it defaults, it will pay back $100 par within 30-90 days.