Money Market Funds Scramble To Avoid "Breaking the Buck" - WSJ

Money market mutual funds that hold positions in SIVs are taking steps to prevent their NAVs from "breaking the buck," or heading south of $1 per share, according to Tuesday's Wall Street Journal. The credit crunch has placed SIVs under intense pressure, and their values have fallen sharply as they scramble to dump assets. Last month, S&P downgraded the SIV Cheyne Finance LLC to default status after it entered receivership. Though exposure to that fund is not expected to trigger significant losses at mutual funds, S&P stoked the funds' concerns by stating that exposure to SIVs like Cheyne could affect their ratings. Money manager SEI Investments, faced with the threat of downgrades on its $6.1 billion SEI Daily Income Trust Prime Obligation Fund and $1.4 billion SEI Daily Income Trust Money Market Fund, said it will guarantee some of the funds' SIV holdings. STI Classic Funds approached the SEC with a plan to allow its parent, SunTrust Bank, to provide "an irrevocable standby letter of credit" to protect two of its funds that had invested in notes issued by Cheyne. The SEC told both STI and SEI that it will not intervene to prevent their actions. Some firms, including Credit Suisse, have announced adjustments to the valuations of SIV-related commercial paper held by their funds. "2007 is beginning to rival 1994's derivative crisis as the most dangerous event" in fund history, according to industry publication Money Fund Intelligence. Approximately 5% of money-market mutual-fund assets have SIV exposure.

Sources: Wall Street Journal
Commentary: Big Bank Stocks and the MLEC • 10 Notes on Our Funky Federal Reserve • ETFs vs Index Mutual Funds
Stocks to watch: SEIC, CS, STI, BAC, STT. ETFs: KBE, KCE, RKH

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