Bloomberg on Ultra-Short Bonds
Bloomberg writes "BlackRock Develops Alternatives to Money Funds: Credit Markets", which says, "BlackRock Inc. and Western Asset Management Co. are offering a new twist on traditional money-market funds as regulators are set to impose sweeping changes on the $2.58 trillion industry. BlackRock, the world's biggest money manager, and Legg Mason Inc.'s Western Asset unit have started bond funds designed to work much like money funds, with a key difference. The new "ultra-short" funds have share prices that fluctuate along with the value of their holdings, rather than a fixed net asset value, or NAV, a distinguishing feature of money funds. They also have shorter maturities than similar ultra-short bond funds that ran into trouble when credit markets froze in 2008. The firms are preparing for what could be a seismic reallocation of assets by institutional investors and corporate treasurers if regulators overhaul money funds for a second time.... The BlackRock and Western Asset funds have shorter maturities and can only invest in high-quality debt. Some short-term bond funds that were touted as higher-yielding alternatives to money funds faced severe losses in 2008 as they held debt tied to mortgages. State Street Corp.'s SSgA Yield Plus Fund fell 19 percent in the first five months of 2008 before being liquidated. Charles Schwab Corp.'s YieldPlus fund fell to $1.8 billion in assets in 2008 from a peak of $13.5 billion in 2007, after it invested more than 25 percent of fund assets in private issuer mortgage-backed securities." See also, ICI's latest "Money Market Mutual Fund Assets", which says, "Total money market mutual fund assets decreased by $1.04 billion to $2.582 trillion for the week ended Wednesday, May 15, the Investment Company Institute reported today."
