Mutual Fund Companies Bail out their Money Market Funds

Major companies like Bank of America Corp, Legg Mason, Inc., SunTrust Banks Inc., and Citigroup Inc. are reported to have been forced to invest funds into their own money market funds to prop up the net asset value at a stable $1 after incurring losses in a complex financial instrument called SIVs or Structured Investment Vehicles. Money fund managers have used SIVs to boost their yield, while other managers like those at Vanguard and Janus Capital Group have stated that their mutual fund company have not used SIVs in their money market funds.

Mutual fund companies have been put to the test before. Notably, episodes in 1994 with money market derivatives and in 1997 with delinquencies with municipal bonds and commercial paper held by money market funds, both prompted the parent companies of the funds to jump in and infuse liquidity to ensure a constant net asset value of $1. This strong track record of investors being shielded from losses and continued government regulation make money funds a reliable investment tool for cash.

Current money fund yields here.