When Primary Reserve Fund broke the buck in 2008, everyone panicked. Now we are seeing regulatory proposals such as the maintenance of a 3% reserve or floating NAV. And the conditions that caused the crisis at Primary Reserve also resulted in short-term interest rates of 25 basis points and less.
Now along come an article in Investment News about money funds, recounting what we know. It also points out that some money funds are stretching for yield (like Primary Reserve) by, for example, buying the debt of European banks.
All of this makes a very strong case for bank checking and money market accounts. Even in a checking account paying no interest, the FDIC insurance certainly has to be worth more than 4 basis points. From what I have seen, all of the major clearing firms offer some sort of government insured account for cash balances. Right now, there is not much to recommend money market funds, and it looks like there may be less in the future.
No comments:
Post a Comment