Money market mutual funds breathed a huge sigh of relief this week as the supersized 75-basis point Federal funds rate target reduction worked its immediate magic on fund NAVs and flows. No additional bailout events or defaults surfaced, cash continues to flood into the sector, and the remaining vestiges of troubled SIV securities continue to roll off and out of fund portfolios. While there's always the chance of another assault, it appears that money market mutual funds will escape the liquidity crisis with no funds "breaking the buck".

The most recent leg of the panic flight to Treasuries subsided, with investors finally awakening to the fact that low yields would likely cause them more pain than the remote threat of losses in the prime sector. The outflows from Treasury back into "Prime" pushed Treasury and repo yields back above 1%, removing the pain of temporary partial fee waivers on the highest expense Treasury funds.

With quarter-end Monday, the pressure to show clean, no-risk, low cash level balance sheets will be removed, as the "window-dressing" that accompanies these public reporting periods passes. Fears of repo counterparties such as Bear Stearns also receded as the Fed made it clear that it stands ready to fight any attack on liquidity and confidence driven by hedge funds and speculators.

It is again too early for an autopsy, but money funds overall are thrilled to return to their everyday problems, like how to get a decent yield in their fund. Short-term cash investors too should quickly shift their attention from the remote danger of principal loss to the ridiculously low yield environment.

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