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Treasury Announces Program to Insure Money Market Funds


With confidence in money market funds plummeting after a major fund broke the buck earlier this week, the Feds have announced a program to insure money market funds. Here are excerpts from today's Treasury press release:
The U.S. Treasury Department today announced the establishment of a temporary guaranty program for the U.S. money market mutual fund industry. For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund - both retail and institutional - that pays a fee to participate in the program.
Concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets.

This NY Times article has more news of this announcemnt.

It's important to note that money market funds are different than money market accounts. Money market account is basically the same as a savings account which is FDIC-insured and offered by banks. Money market fund is a mutual fund holding a collection of short-term debt investments, and it is not FDIC insured.

This week investors were moving money out of money market funds to T-bills so fast that on Wednesday, the yield on the 3-month T-bill went negative for a brief time (see article). It seems likely that banks would also see increased deposits which would allow banks to cut rates. But now with money market funds being insured, the flow of money from the funds into bank accounts should go back to normal which should force banks to keep their rates up.

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Anonymous   |     |   Comment #1
I have a lot of funds in the RYPQX but it isn't a money market fund and ameritrade nor The reserve is taking care of this fund at all. I hope the NAV don't drop in half or anything. They have 84% in cash but i am not sure if that means anything. I appreciate if someone can shed some light on this

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