​ Concerns About Municipal Money Funds Overblown Say Fund Managers. The recent downgrade of Ambac by Fitch Ratings has caused dislocations in the municipal marketplace and has brought up concerns over the possible impact on tax exempt money market funds. While some municipal issues are trading at crazy 6+% yields and a number of funds are "​tendering" or putting back bonds, the market is still liquid (​unlike the previous SIV crisis). The larger money funds have already taken protective actions or are negotiating solutions rather than panicking and dumping securities. The $​200 billion tender-​option bond market represents a major segment (​probably 15%, or $​70 billion) of the $​472 billion in tax exempt money funds holdings. Possible downgrades of bond insurers MBIA, Ambac, and, to a lesser degree, others, have raised concerns about liquidity clauses (​needed to turn long-​term bonds into money fund eligible securities) being terminated, but funds in the main will not force to sell or "​put back" because of any future downgrades. (​Contrary to some reports, money funds don'​t have to sell downgraded securities, and there have been no downgrades of short-​term ratings to date.) Funds have been aware of the threat for months, and have been renegotiating TOB contracts to remove their limited reliance on the insurers. Thus, while funds will continue reducing their exposure to insurers in case no bailout arrives, speculation of a widescale flight from the sector is incorrect. Crane Data does not expect tax exempt money market funds to be harmed or even significantly impacted by these events, and investors should have little reason for concern.

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