Substitutes (Not Money Markets) Halting Redemptions

by: Barry Ritholtz

Via the always astute Doug Kass, we must point you to this simply unbelievable document from Sentinel Management Group. That's right, some Money Markets Substitutes -- safe as cash, totally liquid -- are halting redemptions.

Note: there is a big difference between Money Market Funds, and "enhanced" Money Market Funds -- namely, whether or not they are FDIC guaranteed to $100k  (This one is not insured).

Once again, we see what the reach for yield has wrought . . .

sentinel letter

Here's the Morningstar and Bloomberg update:

So much for money market substitutes. There have been a number of articles over the years about using short- or ultrashort-term bonds as money market substitutes. Yields on money market funds are typically low so it's understandable that you might want to boost income by moving to ultrashort- or short-term bond funds, which sometimes have a higher yield.

However, the subprime mess may forever dispel investors of that notion. Ultrashort is supposed to be the most conservative, low-risk bond fund around, yet a number of funds are in the red for the trailing four months and even the year. Consider that ultrashort has been about the worst place to be for the past four weeks. Through Friday, the average ultrashort fund is down 0.36%, versus gains of 0.37% for short-term bond funds, 0.37% for intermediate, and 0.16% for long bond funds. Only high-yield, emerging markets, and bank-loan funds have fared worse. 
-'Money Market Substitutes' Get Hit by Subprime Woes


"Sentinel Management Group Inc., the Illinois-based firm that manages $1.6
billion for clients, said it asked regulators for permission to freeze
withdrawals because credit-market turmoil made it impossible to trade.

The firm, based in Northbrook, contacted the Commodity Futures Trading
Commission for approval to halt redemptions ``until we can honor them in an
orderly fashion,'' according to an Aug. 13 letter to clients.

The CFTC had not granted permission as of this morning, said an assistant to
Eric Bloom, Sentinel's president and chief executive officer, who declined to be
identified. Bloom didn't return calls for comment.

The firm said it was a victim of panic among investors caused by the
collapse of the subprime-mortgage market."
-Sentinel Management Group Seeks to Halt Redemptions

Sentinel Management Group Seeks to Halt Redemptions
Jenny Strasburg and Matthew Leising
Bloomberg, Aug. 14, 2007

'Money Market Substitutes' Get Hit by Subprime Woes
Russel Kinnel
Morningstar, 08-13-07