MarketWatch: Money market breaks the buck, freezes redemptions

[marmar]

Money market breaks the buck, freezes redemptions
Reserve Primary Fund stung by Lehman collapse, investor withdrawals
By Sam Mamudi & Jonathan Burton, MarketWatch


NEW YORK (MarketWatch) -- One of the original and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."

Primary Fund , managed by New York-based money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero.

As of 4 p.m., Eastern, the value of the fund's share was 97 cents. The Reserve said that redemption requests received before 3 p.m. will be paid out at $1 a share. The company said Primary Fund will continue to accept new money.

While Primary Fund's Lehman holding was small compared to the fund's overall size, the fact that it froze redemptions reflects a surge in redemption requests by investors.

The size and speed of the withdrawals was stunning. At 3 p.m. on Tuesday, Primary Fund's assets stood at $23 billion, a $40 billion hit from the $62.6 billion in the fund on Friday, a spokeswoman for The Reserve told MarketWatch late Tuesday.

"Effective today and until further notice, the proceeds of redemptions from The Primary Fund will not be transmitted to the redeeming investor for a period of up to seven calendar days after the redemption," The Reserve said in a prepared statement.

Retail account holders affected

Reserve Primary has both institutional and retail accounts. "This appears to be the first case where a retail investor will lose money in a money market fund." said Peter Crane, president of market research firm Crane Data in Westborough, Mass., though he called the situation "an anomaly." ...........(more)

The complete piece is at: http://www.marketwatch.com/news/story/money-market-fund-breaks-buck/story.aspx?guid=%7B56A2CEE5%2D5A53%2D4A27%2DA4BA%2D585CFBE173A4%7D

[Junkdrawer]

1. This morning I moved my son's money market college savings to Treasuries....

This was before I read your story.

I told the broker "I don't care about the rate, get me out of money markets for the next six months".