Money Market Funds Bolstered

The $3,400bn money market funds which have been one of the latest targets of the credit crunch have been bolstered by two aggressive steps by the US government.

Up to $50bn of losses would be guaranteed by the US Treasury at least temporarily. “For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund — both retail and institutional — that pays a fee to participate in the program,” the Treasury said in a statement.

Separately the Federal Reserve, would expand its emergency lending program to help commercial banks finance the purchase of asset-backed securities from the funds.

A massive $170bn has been withdrawn in the last week. A number of funds have "broken the buck" or fallen below the standard net asset value of $! a share.

“This action should enhance market confidence and alleviate investors’ concerns about the ability for money market mutual funds to absorb a loss,” the Treasury statement said. “Investors in money market mutual funds with a net asset value that falls below $1 would be notified that their fund triggered the insurance program.”M