Today's Wall Street Journal writes "Money Funds Again Take On Risk: Low Supply Causes More Boldness" saying, "Faced with a dearth of high-quality, short-term liquid investments in which to invest and low yields, some money funds are moving into longer-duration instruments, boosting their risk. It's a notable reversal as many money-market funds had shifted to shorter-term investments in the grip of last year's panic." The piece echoes a Crane Data News article ("Wells Fargo Talks Supply, ABCP, Support Programs in PM Commentary") and quotes Peter Crane, "The pendulum has never swung so quickly from greed to fear and back again." It adds, "Average maturities for money funds came down last fall, although perhaps not as dramatically as some would have expected, after the industry was shaken by a fund that failed to keep its dollar par value. The average weighted maturity of the 100 largest money-market funds was 47 days in August 2008, then dipped to 43 days for two months, according to Crane. By February it was back up to pre-crisis levels and, currently, the weighted average maturity of the 100 largest money-market funds is 52 days. That's the highest since April 2006, when Crane began tracking it, he said." The article also quotes Wells Fargo's David Sylvester, Goldman Sachs' Dave Fishman, and Federated's Debbie Cunningham.
Today's Wall Street Journal features "For Money Funds, Wait Till Next Year", which discusses money funds' hopes and expectations for a rate increase by the Federal Reserve. It says, "After months of subsisting on close-to-zero yields and watching assets bleed away, money-market mutual funds may have reason to hope that a little relief isn't far off."
The WSJ explains, "Many economists are predicting a Federal Reserve rate increase in 2010, and the central bank is considering how to take cash out of circulation. In addition, government support programs for the funds and the assets that they buy, put in place after the Reserve Primary Fund dipped below its $1 net asset value and sparked panic in the industry, are starting to unwind. That combination may bring slightly higher yields, which would be a welcome break for fund companies that have been waiving fees on their funds to maintain investors."
The Journal quotes our Peter Crane, president of Crane Data LLC, "These rays of hope may just be enough to give you [struggling money-market fund providers] courage.... It could make you walk a couple more miles in the desert, but you need that Fed-hike oasis to really survive."
The piece says, "Mr. Crane believes one of the most important moves the Fed could make to affect rates is to engage in reverse repurchase agreements to drain liquidity from the financial system. The Fed last month said it was testing the use of these 'reverse repos,' in which it sells securities to market participants with a commitment to buy them back at a higher price."
It continues, "In a statement Tuesday, Debbie Cunningham, chief investment officer for taxable money markets at Federated Investors, said some Federal Open Market Committee members seem to be hedging on their pledge to keep benchmark rates exceptionally low for an extended period. Ms. Cunningham said she expects the Fed 'in the near future' to begin conducting reverse repos with nontraditional market participants, possibly including money-market funds."