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WASHINGTON - THE US Treasury said on Monday it was extending a temporary guarantee programme for money market funds until April 30, 'to support ongoing stability in this market'.
The programme was announced in September, using a Depression-era precedent to stem a run on deposits that could further destabilise the battered financial sector. The treasury secretary may further extend the programme to Sept 18 although no such decision has yet been made, according to a Treasury statement.
According to the financial industry, US financial firms hold some US$3.4 trillion (S$5.1 trillion) in money market funds, which are generally considered safe investments although they have not previously been federally guaranteed. An insurance fee for participating investment firms funds the guarantee.
Money market funds, mutual funds required by law to invest in low-risk securities, pay dividends that generally reflect short-term interest rates.
Unlike bank deposits, the investments are considered 'shares' and are usually held steady at the price of one dollar.
But if financial firms reduce the price to reflect losses - a phenomenon known as 'breaking the buck' - they could set off a stampede of withdrawals that would crush investment firms. -- AFP
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