Money funds 'posted zero returns on Thursday'

22 September 2008

The recent volatility in the financial system has taken its toll on the money markets, new figures from Lipper have shown.

According to the fund tracker, around four in ten money market funds had returns of zero for Thursday, as investors digested the implications of Lehman Brothers' bankruptcy and Merrill Lynch's $50 billion merger with Bank of America.

Confidence was further knocked by the Reserve Primary Fund - a flagship money fund - announcing that its asset value stood at below $1 a share.

Known as "breaking the buck", this is a near-unique position for such low-risk funds to be in - and last occurred 14 years ago.

However, Lipper's reading was taken prior to the announcement of the US government's $700 billion "bad bank" rescue fund, which sent markets soaring the following day.

Included in the package of reforms, since submitted to congress, was $400 billion of insurance for money market funds.

Speaking to CNBC about the new figures Jeff Tjornehoj, senior research analyst at Lipper, commented: "This is unprecedented in recent history."

Money market funds retain around $3.4 trillion in assets.

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