Tax Exempt Money Funds Sheltered From Ambac, MBIA Downgrades. Concerns have escalated in the municipal bond market over the possible downgrade of bond insurers Ambac and MBIA, which, until recently insured as much as half of all municipal debt issuance (now about 1/3 -- see article). As we noted in December, some have speculated that the $470 billion municipal money fund market, via their tender option bond and variable-rate demand note holdings, may be adversely impacted by this turmoil. Muni funds have been taking steps to extricate themselves -- "putting" back TOBs and VRDNs to dealers and seeking amendments to liquidity provisions to exclude any reliance on the insurers -- but funds appear immune from any serious fallout for several reasons. Money funds don't require a AAA rating; they merely need a "First Tier" (top short-term) rating (A-1, P-1). Contrary to rumors, funds also don't need to act following any downgrades (save a default), they just cease buying new issuance. Plus, tax-free money funds tend to be "retail" money (62%), which is much slower to react to market concerns. Finally, money funds have multiple layers of protections via high quality requirements, assuring that underlying collateral too is of the highest quality, and via ultra-short maturities and extreme diversity. (See Bloomberg's "Ambac's Insurance Unit Cut to AA From AAA by Fitch Ratings".)

Email This Article




Use a comma or a semicolon to separate

captcha image

Money Market News Archive

2024 2023 2022
March December December
February November November
January October October
September September
August August
July July
June June
May May
April April
March March
February February
January January
2021 2020 2019
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2018 2017 2016
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2015 2014 2013
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2012 2011 2010
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2009 2008 2007
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2006
December
November
October
September