The near-death experience of Bear Stearns and continued stresses in the short-term funding markets have caused some to ask whether money market mutual funds will see any fallout. We don't think money funds will be impacted by events surrounding Bear, though a series of broker-dealer downgrades and defaults would be cause for concern due to the shrinking supply of quality short-term paper.

Today's USA Today writes, "Analysts say quality bond funds should stay safe", saying, "Despite the latest upheaval in the credit markets -- fed by the collapse of Bear Stearns (BSC) -- most investors have little to fear about the safety of their investments in money market funds and high-quality bond funds, analysts say."

The piece, and others, note that SIPC insurance covers brokerage accounts, and that money funds should not be impacted. It quotes BankRate's Greg McBride, "These funds will move heaven and Earth to preserve their $1 net asset value... If they break the buck, money would flow out the door to their competitors at the drop of a hat."

S&P also said yesterday, "[B]ased on the positive developments regarding Bear Stearns (pending acquisition by JPMorgan A-1+ and support by the Fed), S&P's Fund Ratings Group has determined that rolling overnight repo with Bear Stearns in S&P rated funds is consistent with our money market fund criteria and fund credit quality ratings criteria."

Bear Stearns doesn't run money market funds (though BlackRock and others run some for it), but it does offer clearing services for money market "portals", including its own Bear Stearns Corporate Cash. The company has also reportedly placed the launch of its "cash-plus" ETF, Current Yield Fund (YYY), on hold due to events.

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