Daily Links Archives: August, 2007

"Treasurys Gain, Yields Decline". The Wall Street Journal puts a more positive spin than Bloomberg on the Federal Reserve's recent weekly commerical paper supply numbers. "The declines in commercial paper outstanding were smaller than the previous weeks. And it seems the problems aren't spilling over from the asset-backed sector to the broader market. The piece adds, "Still, while investors remain averse to anything tainted by mortgage exposure, there are large parts of the commercial-paper market that are functioning relatively smoothly."

MSNBC: "Credit crisis turns spotlight on money markets: Seemingly safe investments buy commercial paper, but Feds have your back". The article says, "While money market funds are not insured, the Securities and Exchange Commission requires their portfolios be invested only in the highest two grades of securities -- meaning that the commercial paper they own is 'prime.'"

Bloomberg Writes "Treasury Bill Yields Fall as Investors Avoid Commercial Paper" and "Commercial Paper Extends Slump on Asset-Backed Woes". The article says, "Treasury three-month bill yields fell for a third day as investors fled asset-backed commercial paper and opted for the safety of government debt."

Reuters' Linda Stern writes in today's Washington Post "Parking spaces for your cash". "[R]ecent reports that some of the bad mortgage debt might have found its way into money funds have scared off some people. Not me. I remain convinced that money market funds run by big name investment companies still offer the best combination of yield and security for parking money," she says. Also, today's IBD writes "Could Subprime Sink Money Funds?".

"U.S. money mkt fund assets set record" Says Reuters. Citing iMoneyNet's weekly Money Fund Report, Reuters says money fund assets hit yet another record in the week ended Tuesday. Inflows into tax-free and government funds more than compensated for a decline in prime money fund assets, explains the article.

"S and P Cuts British Firm's Debt Rating" Writes NY Times. Standard & Poor's reduced the ratings on structured investment vehicle (SIV) Cheyne Finance from A-1 ("First Tier") to A-2 ("Second Tier"). This will begin an "unwind" of this mortgage-related SIV. SIVs, or asset-backed medium-term notes (MTNs) represent about 4-5% of money fund holdings with mortgages perhaps representing half of this total. But "senior investors, like money funds, will be paid first and 'taken out'" says Viktoria Baklanova of Fitch. U.S. money funds should be fine, though European money funds, which invest in asset-backed securities (ABS), may face issues.

CNNMoney.com on "Debunking money market fears". Money magazine senior editor Walter Updegrave masterfully explains the recent overreaction to minor problems in money market funds. He says, "But when you consider the diversify of investments, the quality standards and the strong incentive for fund companies not to break the buck, I think it's very, very unlikely that individuals would lose money in money market funds today. (The article also mentions and links to http://www.cranedata.us.)

Mark Amberson of Russell Investment Group Discusses ABCP Market on Bloomberg TV. Russell's Director of Short-Term Investments says "Liquidity is getting better" in the asset-backed commercial paper market, though investors are keeping very short maturities. Amberson is focused on "safety first, liquidity second, and thirdly, yield."

Boston Globe writes "Fidelity makes higher-interest checking offer".The Globe says "The new Fidelity account is currently being offered to a portion of Fidelity's brokerage customers, although company officials say non-Fidelity customers are welcome to apply for it." (Also, see Crane Data's August 3 story, "Fidelity Enters FDIC-Insured 'Bankerage' and Launches 3.5% Checking").

"Bank Lending May Feel Bite Of Credit Storm". Justin Lahart's Wall Street Journal column says, "Since the Federal Reserve's discount-rate cut, investor worries about liquidity have rapidly ebbed. Banks don't seem so sanguine." It recaps the recent drop in asset-backed commercial paper issuance and corresponding move into to Treasuries.

San Francisco Chronicle writes "As woes rise, know your money fund". The article discusses recent events, the regulations governing money funds, and the history of money fund bailouts. It quotes the SEC's Bob Plaze, "Money market funds continue to be the safest type of investment. They are not risk-free."

IMMFA Attempts to Calm European Money Fund Investors with Release "Triple-A Rated Money Market Funds Remain a Valuable Component of a Treasury Manager's Liquidity Portfolio". The release says, "Despite the current turbulence in global financial markets, the Institutional Money Market Funds Association (IMMFA) is confident that the asset composition and track-record of 'treasury-style' money market funds offered by its members will continue to make them a valuable component of a treasury manager's portfolio."

"Investors Exhale, Treasurys Fall: Decline in T-Bill Prices May Indicate Market Sees Turmoil Subsiding" Says Wall Street Journal. Treasury prices continue to fall and yields rise as the flight to quality unwinds, another drop in CP issuance notwithstanding, says today's "Credit Markets". Friday's WSJ also writes "Investors in KKR Affiliate Seek Advice on Payment-Delay Plan". It says, "The investors include General Electric Co., the Florida state board of administration and money-management arms of U.S. Bancorp and Legg Mason Inc., according to other people familiar with the situation."

LA Times' "Government money fund yields tumble" says, "Fund industry analysts were heartened that small investors for the most part stayed put in general money funds despite concerns last week about the quality of some of the IOUs they held. Most analysts say that restrictions on the funds' investments make it unlikely that investors would lose money".

Reuters Says "U.S. money funds seen safe from subprime problems". "Experts are reassuring investors that U.S. money market mutual funds, which have gathered about $165 billion in new assets over an eight-week period, are safe from the subprime mortgage problems that have caused steep losses at several hedge funds," says the piece.

Vanguard issues comment, "Vanguard money markets well-positioned for market volatility". The Q&A asks, "Does it make sense for a worried investor to move from Prime Money Market to a money market fund investing in Treasuries or federal agency securities?" Portfolio Manager David Glocke responds, "Not if the move is based on fear. I understand that investors feel a need to be more conservative when the daily headlines seem so dire. However, the trade-off for investors who make that choice is likely to be a significant -- and growing -- reduction in yield."

USA Today writes "Commercial paper gets spotlight time". The article says, "Is there a crisis in commercial paper? The market for securities sold by corporations remains healthy, says Peter Crane, president of money fund tracker Crane Data."

"Why money market funds should remain a shelter from credit crisis". Federated Investors' Taxable Money Fund CIO Debbie Cunningham discusses recent events, including subprime loans, extendible notes and common misconceptions about what money funds own.

"Sentinel Faces SEC Fraud Charges" Reports Wall Street Journal. The Securities and Exchange Commission will file fraud charges against Sentinel Management Group says The Wall Street Journal. The company ran a $1.5 billion asset pool, which was mistakenly identified as a "money market fund" in news reports, was attempting to liquidate assets and declared bankruptcy Friday. The SEC undoubtedly will take issue with the firm's characterization of its "cash management" program as safe and liquid in marketing materials.

The Reserve's Bruce Bent Discusses CDOs in Money Funds on Bloomberg TV. See money pioneer Bruce Bent dismiss `Bloomberg's worry about CDOs in money funds in segment "Focus on Money Market Funds and Subprime Debt". "No because you're slicing and dicing," says The Reserve Chairman. He adds, "This thing is totally overblown."

Financial Week Writes "Money funds feeling the heat". The article is subtitled "Investors chasing yield finding nasty surprises in funds' asset-backed paper" and says, "That's because money-market funds -- as well as enhanced cash products, money markets' less regulated cousins -- invest in some of the same collateralized debt obligations and asset-backed commercial paper (ABCP) issues that have recently fallen victim to the credit crunch".

Bloomberg Says "Subprime Infects $300 Billion of Money Market Funds, Hikes Risk" claims, "Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations backed by subprime mortgage loans." The article names a number of fund groups with exposure to CDO debt, though it neglects to separate "subprime" CDO debt from the high-quality versions found in money funds (which are overcollateralized, seasoned, contain puts, and are "bomb-proof").

New York Times Says "The Fed's Sudden Action Eases a Logjam in Corporate Borrowing. The article quotes Peter Crane, "Investment managers and portfolio managers who deal with hundreds of millions of dollars are very concerned, but the average investor should not be worried.... He said there was almost 'zero chance' that a money market fund would decline significantly in value."

"Money-Market Assets Need Diversity (WSJ)". The Wall Street Journal article discusses recent turmoil, ultra-short bond funds, bank accounts, stable value funds, and checking accounts. The piece adds, "Investors can search for bank money-market and savings accounts at www.bankrate.com or www.cranedata.us."

"New Villain in Market Drama: Commercial Paper" Says Wall Street Journal. "Commercial paper, the usually humdrum market for short-term debt held by money-market funds and used by companies to finance their operations, has suddenly taken center stage in the credit crunch," says the paper. The article mentions the $90 billion drop in the Federal Reserve's weekly commercial paper asset series to $2.13 trillion.

"Money-Fund Assets Reach Record as Crisis Spreads" Writes Bloomberg. Nice recap of money fund troubles, Sentinel, record assets, and problems with ultra-short bonds. LOTD2: "Comparing and Contrasting Money Fund Portals" on GTNews by Treasury Curve's Aron Chazen.

Bloomberg TV Interviews Peter Crane on Sentinel Management. Crane discusses the differences between money funds and some more aggressively separately managed "cash" accounts. He reaffirms the safety of money funds, saying "Money market mutual funds are in no danger whatsoever".

Bloomberg.com Says "Run on Treasury Bills Spurred by Subprime Contagion". "Money funds that had been buying corporate commercial paper 'have all switched to the safe side,' said Glen Capelo, a trader at RBS Greenwich Capital" said the article. It adds, "Rates for Countrywide's overnight corporate commercial paper were quoted yesterday at 6 percent and 6.5 percent for 30 days, according to Denise Latchford, director of money funds for American Century Investments."

Wall Street Journal's "A Commercial-Paper Hit Close to KKR" The WSJ says that a "KKR real-estate affiliate sought to delay repayment of $5 billion in short-term debt held by about 15 investors, including some money-market funds ... The KKR payment extension is the latest bomb to rock the market for short-term commercial paper, where three other issuers extended repayments last week." It adds, "The repayment delay doesn't appear to pose an immediate threat to the money-market funds that hold the paper, said Peter Crane, a money-fund expert in Westborough, Mass."

"Jitters seep into money funds" says LA Times. "Wall Street's deepening worries about who owes whom in the credit markets now are touching one of investors' most trusted places to keep cash: money market mutual funds. The $2.7-trillion money fund business was thrown on the defensive Wednesday on fears that some corporate and financial-company issuers of short-term IOUs could have trouble making good on their debts," says the paper. It adds, "Many fund-industry experts quickly advised against overreaction, noting that the rules governing money funds generally require them to stick with the highest-quality securities and to limit how much they own of any one issuer's debt."

"Subprime slimes money market funds for a moment" says Chicago Tribune. Gail MarksJarvis writes, "In a sign of how panicky investors have become over the mortgage-related securities that are poisoning financial markets, an incorrect reference to a money market fund freezing investors' money today, sent the press and investors searching for ticking time bombs in funds that are considered almost as safe as a bank.... Luckily, the frenzy was unwarranted."

Morningstar Writes "Money Market Substitutes Get Hit by Subprime Woes". The Fund Spy article discusses problems with short-term and ultra-short bond funds, which have been hit by mortgage problems (while money funds remain unscathed). The "subprime mess" may "forever dispel investors of the notion" of using these as "money fund substitutes" says the piece.

Canadian finance company Coventree Inc. extended C$250M of asset backed commerical paper, after failing to roll it over, according to Bloomberg. Coventree has about $16 billion of ABCP outstanding.

Sydney (Australia) Morning Herald writes "Not really as safe as money in the bank". "Figures from the research company Morningstar show several retail cash and income funds reported losses in July, and while they weren't of the magnitude of those likely to be felt by investors directly hit by the crisis, they will still come as a shock to investors who thought they couldn't happen," says the article.

"Money market seizure prompts cash injection" writes the Financial Times. The article contains a nice concise explanation of the overnight repo (repurchase agreement) market's role in last week's mini-crisis. "This week, money market rates for eurodollar deposits and commercial paper rose well above normal levels," says the FT.

Motley Fool Asks "Is Your Money Market Fund Safe?". Nice summary of money funds in general and of this week's Wall Street Journal article about money market funds holding extendible asset-backed commercial paper.

Federal Reserve Providing Liquidity Statement. "The Federal Reserve is providing liquidity to facilitate the orderly functioning of financial markets," says a notice on http://www.federalreserve.gov. The Fed's full statement reads, "The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding."

"Treasuries Rise as Money Market Rates Soar, ECB Provides Funds" Says Bloomberg.com. Money market rates soar on news of BNP freezing several funds and the ECB providing liquidity to European banks. Bloomberg reporter Elizabeth Stanton writes, "Treasuries rose, led by short- maturity notes, after money market rates soared and the European Central Bank said it would provide unlimited funds at a below- market rate of 4 percent to avert a cash crunch."

Fitch: Liquidity Mechanisms in Traditional and Extendible ABCP Programs Working as Designed. Fitch Ratings released a statement yesterday saying that they are "comfortable that its ratings address the risks associated with extendible ABCP programs" and that these programs are designed to weather "extension events".

"Ultrashort Funds Hit Rough Patch In Latest Month". The Wall Street Journal's Daisy Maxey writes about troubles at Fidelity UltraShort Bond Fund, which has declined by 2.8% month-to-date due to some sub-prime mortgage exposure. "At this point, ultrashort funds have barely outpaced money-market funds in the 12 months through July," says the Journal.