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The Bond Buyer writes "​Tax-​Free Money Funds See a Boost". It says, "The sovereign debt crisis in Europe is coupling with the general malaise in financial markets to make life easier for tax-​free money market funds by boosting key short-​term interest rates. The higher rates have given taxable money funds a more attractive variety of paper to buy to deliver better yields to clients. Why should better yields on taxable money funds make any difference for tax-​free money funds? For much of the past year, rates on everything from commercial paper to Treasury bills were so puny that taxable funds were looking for unorthodox places to pick up extra yield. That lured many of them to tax-​exempt variable-​rate demand notes and some of the other products that are traditionally the exclusive domain of tax-​free funds. The new competition from taxable funds helped drag down short-​term tax-​exempt rates and create a drastic scarcity of paper eligible for purchase by tax-​free money funds." The piece adds, "European banks' funding troubles helped taxable money funds both indirectly -- by punching Libor higher -- and directly. According to a Crane Data estimate, money funds hold about $​400 billion in commercial paper and certificates of deposit from European institution, many of which now carry higher yields. In its monthly commentary, Crane Data said the slight improvement in yields has apparently allowed some fund families to reduce their fee waivers."

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The Associated Press writes "​Money fund investors: Prepare to stay underwhelmed" (​this version is from The Oakland Press). It says, "Money-​market mutual funds are safe places to stash cash and see it slowly but steadily grow. Except for one recent misstep, it'​s been that way for four decades. Now, the industry is playing by new rules to make amends for that one false move. It'​s all about restoring confidence in money funds' biggest selling points: the near-​certainty that investors won'​t lose money, and that they can quickly pull cash out even when markets are in turmoil. The problem is, the tighter rules are shaving a bit off money funds' historically small returns. These days, that'​s not much." The piece quotes, "Peter Crane, of the fund researcher Crane Data, is a bit more optimistic. He notes that investor withdrawals from money funds eased in May as worries about Europe'​s debt troubles led them to seek protection. Investors are also nervous about the government'​s removal of measures to lift the U.​S. economy out of recession, like the homebuyer tax credit.... That increase is lifting the returns that money funds earn, offsetting the hit to returns from the SEC rules and the more cautious investing style they require. The opposing forces are nearly canceling one another out." AP quotes Crane, "The impact is barely noticeable in this super-​compressed yield environment.... We'​re years away from measuring returns in full percentage points ... and we'​re months away from returns of a quarter of a percentage point or more."

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Sunday'​s New York Times features "​This Flight to Safety Wasn'​t Supposed to Happen", which says, "When Treasury bonds are hotter than stocks, it'​s a sign that something is very wrong with the stock market.... People with cash in money market funds are getting a much, much lower yield than that -- only 0.​07 percent annually for the largest funds, on average, according to Peter G. Crane, the president of Crane Data of Westborough, Mass. That'​s better than the 0.​05 percent average of earlier this year -- but not enough to make a difference." Crane says, "​It'​s still awfully close to zero. The amazing thing is that even at these rates, when you'​re getting virtually no return on your money at all, people are still moving cash into money market funds. It'​s sobering."

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Yesterday, mutual fund newsletter ignites featured a Q&​A entitled, "​Are Funds Spending Less on Money Fund Biz?" A reader asked, "​Are mutual funds deemphasizing their money market fund businesses?" Crane Data'​s Peter Crane responded, "Most asset managers don'​t emphasize or spend a lot of money on sales and marketing for their money funds in the first place. But of course the zero-​yield environment has made marketing money funds an even tougher sell. So marketing spending is likely down, though there are no good statistics on this. It'​s been almost 30 years since money funds were large and regular advertisers on TV and in national publications.... Overall, spending on money funds appears to be rising, though, driven primarily by costs related to the Securities and Exchange Commission'​s money market fund reforms." Crane adds, "​But the sector no doubt remains under pressure due to ultra-​low yields, asset outflows and regulatory uncertainty. While many have predicted a spate of exits and a rash of consolidation in the space, there still have been surprisingly few withdrawals from the money fund field." In other news, the American Securitization Forum announced the date (​Feb. 6-​9) and location (​Orlando World Center Marriott) for its 2011 securitization conference.

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This weekend'​s Wall Street Journal writes "​Euro Pain Hits Money Funds". It says, "The European debt crisis has rippled into one of the last redoubts of safety for U.​S. investors: money-​market funds. Money funds are thought to be low-​risk because they invest in high-​quality short-​term debt issued by governments and big corporations. But many funds are holding big slugs of European bank debt. As of March 31, nine of the top 10 corporate issuers of short-​term debt held by Moody'​s-​rated U.​S. prime money funds were big European firms. Yet that doesn'​t mean investors in money funds should rush for the exits, say analysts. Some funds are trimming their European holdings and changing the types of securities they buy in an effort to make their portfolios safer. Meanwhile, there might even be a silver lining from the crisis: improved yields." The article adds, "​So far, investors haven'​t panicked. The funds attracted inflows in the week ended May 25, according to iMoneyNet. Inflows are '​a reassuring occurrence, because they'​re not forced to sell anything,' says Peter Crane, president of Crane Data LLC, which tracks the funds. The European debt crisis may even have a silver lining: It has prompted upticks in the London interbank offered rate, or Libor. Increases in Libor, a rate that banks charge one another to borrow, help push up money-​fund yields, which lately have been close to zero. The 100 largest taxable money funds now have an average yield of 0.​07%, up from 0.​04% in January, according to Crane Data." In other news, see also, Investment News' "​Advisers make a mad dash for cash", Boston Herald'​s "​Money funds not worth owning", and Fidelity Investments' "​Seeking Higher Yields?".

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