MarketWatch's John Spence writes about troubles at ultra-short bond funds, particularly Schwab Yield Plus, and what this means for money-market funds. The article, "Woes At Ultra-short Bond Funds Raise Concerns Over Money Markets," says, "More news Tuesday of major outflows from an ultra-short bond fund continued to raise concerns among investors who had sought to park their cash in an investment with safe short-term returns only to find themselves caught up in the current turmoil in the credit markets."
Spence quotes Peter Crane, "The main threats to money-market funds -- such as SIVs, monoline bond insurers and the muni market -- are being digested and worked out.... It's extremely unlikely for any money-market funds to break the buck at this point, especially after the Federal Reserve rate cut." Crane tells MarketWatch, "[M]oney-market funds have more protection than ultra-short bond funds, including better asset quality, shorter durations and more diversification.... The real saving grace for money-market funds during the liquidity crisis is that investors have not blinked."
This article follows previous YieldPlus stories from Bloomberg (see our "Link of the Day") and The San Francisco Chronicle ("Higher-yield bond funds run into trouble"). See also Bloomberg's "Auction-Rate Freeze May Breed Fund Bargains: Jane Bryant Quinn".
In other ultra-short news, both Moody's (Aaa-MR1) and S&P (AAAf-S1+) rated the new Bear Stearns Current Yield ETF, which went live yesterday.
