With money market fund interest rates plummeting to close to zero, investors have been fleeing the poorly performing investment vehicle, and moving toward Treasurys as a better and higher yielding safer investment.
Just recently an extraordinary $55.23 billion was withdrawn from money market funds and placed in other investing sectors.
Some of this if from the huge amount of money being pushed into the system by central banks, causing the interbank borrowing rates to plummet close to zero.
This is the reason why Treasurys have rallied some when in these types of economic circumstances they wouldn't have.
Other areas people and institutions are investing in are corporate bonds and commercial mortgage-backed securities. Money market funds should continue to lose billions until interest rates start moving up again, which is doubtful in the near term.
Showing posts with label Money Market Funds. Show all posts
Showing posts with label Money Market Funds. Show all posts
Saturday, September 19, 2009
Friday, September 18, 2009
What is Commercial Paper?
Commercial Paper
Commercial paper is a tool of debt, or otherwise known as a 'debt instrument,' whereby a solid company will issue the debt for short-term capital needs. A lot of money market mutual funds will invest in commercial paper as part of their investing strategy for safe, solid returns over the short term.
When issuing the debt, a company will have to pay the money out at a specific day they've instituted as part of the investment, normally from between two to 270 days.
The general practice of commercial paper is to be sold at a discount, and so is used by companies to aid them in managing their short-term capital flows.
Similar to a money market fund, investors will use commercial paper to put their money they're not going to use in the immediate future, as it's very safe, and it's very easy to get your money out when you want or need it.
Not only is it very safe investment because the companies issuing the commercial paper have very high credit ratings, but also because it is backed up by lines of credit from banks, making it extremely safe. The result for investors is also low yields, which the safety of commercial paper offers.
Commercial Paper
Commercial paper is a tool of debt, or otherwise known as a 'debt instrument,' whereby a solid company will issue the debt for short-term capital needs. A lot of money market mutual funds will invest in commercial paper as part of their investing strategy for safe, solid returns over the short term.
When issuing the debt, a company will have to pay the money out at a specific day they've instituted as part of the investment, normally from between two to 270 days.
The general practice of commercial paper is to be sold at a discount, and so is used by companies to aid them in managing their short-term capital flows.
Similar to a money market fund, investors will use commercial paper to put their money they're not going to use in the immediate future, as it's very safe, and it's very easy to get your money out when you want or need it.
Not only is it very safe investment because the companies issuing the commercial paper have very high credit ratings, but also because it is backed up by lines of credit from banks, making it extremely safe. The result for investors is also low yields, which the safety of commercial paper offers.
Commercial Paper
What is a Money Market Fund?
Money Market Fund
A money market fund is a mutual fund that invests in short-term debt like Treasury bills, CDS, repurchase agreements and commercial paper, among other things.
While they are normally considered among the safest places to put your money, there are exceptions, like when Lehman Brothers collapsed a year ago and the net asset value of the money market funds they held fell below $1 (called breaking-the-buck), causing people to lose some of their initial investment. While that is a rare occasion, it has happened before in the past.
For the most part a money market fund is not FDIC insured, but there is the option of having it privately insured.
Another nice feature of a money market fund is their liquidity, whereby you can access your capital very quickly if you need to.
Because of the safety factor usually connected to money market funds, you will receive a much smaller return on your capital, and is normally used as a place to park cash when it's not being invested, or a place to put your money in case of economic emergencies where you can get at it quickly.
Money Market Fund
A money market fund is a mutual fund that invests in short-term debt like Treasury bills, CDS, repurchase agreements and commercial paper, among other things.
While they are normally considered among the safest places to put your money, there are exceptions, like when Lehman Brothers collapsed a year ago and the net asset value of the money market funds they held fell below $1 (called breaking-the-buck), causing people to lose some of their initial investment. While that is a rare occasion, it has happened before in the past.
For the most part a money market fund is not FDIC insured, but there is the option of having it privately insured.
Another nice feature of a money market fund is their liquidity, whereby you can access your capital very quickly if you need to.
Because of the safety factor usually connected to money market funds, you will receive a much smaller return on your capital, and is normally used as a place to park cash when it's not being invested, or a place to put your money in case of economic emergencies where you can get at it quickly.
Money Market Fund
Money Market Fund Guarantee Program Now Over
Money Market Funds
In response to the collapse of Lehman Brothers last year, and the resultant fall of the net asset value of money market funds below $1, which is called breaking-the-buck, the Treasury Department put into place a temporary Money Market Fund Guarantee Program to help stabilize the money market funds in the country. Today that guarantee program will expire as planned.
The Money Market Fund Guarantee Program was put into place as investors in the money market mutual funds rushed to remove their capital from the funds, after the unusual experience of losing money on them. The temporary guarantee calmed things down, once it was understood their money wouldn't lose any of its value.
A money market fund is a mutual fund which invests primarily in short-term, high yielding US government bonds, commercial paper, and other short-term debt instruments. Very rarely has the net asset value of money market mutual funds fallen below $1, but it has happened, and while they aren't backed by the FDIC, overall they've been considered a very safe investment since they were instituted in 1970.
Money Market Funds
In response to the collapse of Lehman Brothers last year, and the resultant fall of the net asset value of money market funds below $1, which is called breaking-the-buck, the Treasury Department put into place a temporary Money Market Fund Guarantee Program to help stabilize the money market funds in the country. Today that guarantee program will expire as planned.
The Money Market Fund Guarantee Program was put into place as investors in the money market mutual funds rushed to remove their capital from the funds, after the unusual experience of losing money on them. The temporary guarantee calmed things down, once it was understood their money wouldn't lose any of its value.
A money market fund is a mutual fund which invests primarily in short-term, high yielding US government bonds, commercial paper, and other short-term debt instruments. Very rarely has the net asset value of money market mutual funds fallen below $1, but it has happened, and while they aren't backed by the FDIC, overall they've been considered a very safe investment since they were instituted in 1970.
Money Market Funds
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