One of the US big funds Putnam announced suddenly on 18 September 2008 that due to high redemption pressure of its fund by its clients, it has decided to close one of its 12 billion worth of monetary fund.
The monetary market is mostly used for short term financing and is normally regarded as stable earnings and with low risks. Buying in funds investing in such market has been regarded as a good replacement for savings. But because of the current US financial market turmoil, investors confidence are shaken and starts to liquidate their assets for cash.
On 17 September 2008, one large scale retail monetary fund RPF faced big redemption of its funds and cause the value of its fund unit to decline heavily to below 1 USD per unit. This means that investors will make a loss. But Putnam says that the per unit value of the fund that it decided to close is still above 1 USD and does not have the problem of asset quality reduction. However, considering the tight shortage of funds in the market and the high redemption by its clients, the fund after voting of the fund trustees decided to close the fund and return the funds to investors as soon as possible. It is reported that the fund is mostly sold to retirement fund management companies and other institutional investors.
Insiders say that such situation for monetary funds of about 3.4 trillion USD scale is unprecedented.
According to data from monitoring agency iMoneyNet, on 17 September 2008, investors withdrew about 89 billion USD from the US monetary market. In the 5 trading days before that, the total pull out of funds reached about 80 billion USD. In the week of 10 September 2008, the monetary market shrunk by about 5%, the reduction was the largest from recorded data by iMoneyNet since 1975.
Latest Updates
19 September 2008
- Treasury, Fed move to bolster money market funds
19 Sept. WASHINGTON (AP) -- The Treasury Department and the Federal Reserve announced separate actions Friday designed to bolster the nation's $2 trillion of assets in money market fund assets, which had come under threat from one of the worst financial crises in decades.
The Treasury said it will tap into a Depression-era fund to provide guarantees for the money market mutual funds. The Fed said it will expand its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank's move should help the funds to meet demands for redemptions.
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