Up until the last week or two, it seemed like the expiration of the U.S. Treasury's Temporary Guarantee Program for Money Market Mutual Funds would expire without anyone noticing. Though investors appear to be sanguine, a number of reporters have shown interest in the topic of late. Below, we review our coverage of the launch of the program one year ago, we quote another recent news story, and we offer some additional current thoughts.
On the program launch, Crane Data wrote: "In the Nick of Time: Treasury Announces Rescue Plan for Money Funds" (Sept. 19, 2008), "Treasury Guaranty To Cover Tax-Exempts, Help Frozen Redemptions" (Sept. 22, 2008), "FAQs on Treasury's Guaranty Plan for Money Market Mutual Funds (ICI)" (Sept. 28, 2008), "Treasury Guarantee Program for Money Funds Live, Fee Is One Bps", and "Funds Flocking to Treasury's Money Market Fund Guarantee Program" (Sept. 30, 2008). These News pieces described the launch, evolution, the elements of the program, and its rapid adoption.
Our first story wrote, "In the nick of time, the U.S. Government has thrown a lifeline to the reeling money market mutual fund business. The press release, available at: http://www.treas.gov/press/releases/hp1147.htm, says, 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." The last News article linked above said, "BlackRock, Dreyfus, Evergreen, Federated, First American, Invesco AIM, Morgan Stanley, TCW, and Legg Mason's Western Asset Management have all signed up, or are in the process of signing up, for the U.S. Treasury's new money fund insurance program, which went live yesterday."
Among the recent coverage, U.S. News & World Report wrote, "Money Market Insurance Program Set to Expire", which says, "Some anniversaries just aren't meant to be celebrated. A year after the Reserve Primary Fund broke the buck and ignited industrywide panic, the federal government's profitable insurance plan for money market funds is set to come to an unceremonious end on Friday."
It quotes S&P's Peter Rizzo, "I don't think it expiring will have any material impact on the industry." The piece also says, "Beyond solid performance, though, further regulation is also a piece of the renewed confidence. Crane estimates that apart from the insurance, 80 percent of the assets that taxable money market funds buy still have some type of recently instituted federal support behind them." "Though the belt is going away, there are still plenty of suspenders," he says.
Crane Data points out that, though the $1.00 NAVs of funds will no longer be guaranteed after Friday, almost every major segment of the money market will continue to enjoy some type of government support into 2010 Taxable money funds hold over half of their assets (54.3%) in Treasuries (14.0%), Government Agency Securities (22.10%), and Repurchase Agreements (18.3%, almost all of which are now backed by Treasuries or Agencies). Commercial Paper (16.3%) and Asset-backed CP (included in CP) continue to have access to the Federal Reserve's AMLF and continue to be indirectly supported by the CPFF, which both have been extended through Feb. 1, 2010. Also, Certificates of Deposits and Eurodollar CDs (20.1% of money fund assets) continue to have access to a myriad of U.S. and European government guarantee and support programs for substantial portions of their debt.
Money funds will no doubt continue to see outflows, and funds did see a jump in redemptions Tuesday -- assets declined by $35.12 billion -- but note that this date was a quarterly tax payment date. (Today's Money Fund Intelligence Daily just came out showing that money funds declined by another $20.86 billion on Wednesday.) Like the rest of the industry, we'll be watching closely, but we expect the transition away from the guarantee to occur without too much disruption.
