* Possible end of a guarantee program seen spurring move
* Yield on tax-free funds edge up in the latest week
By Richard Leong
NEW YORK, Dec 5 U.S. money market fund assets
rose to the highest level since March as some investors prepared
for the possible expiration of a government guarantee program on
large business checking accounts held at banks, according to a
report released on Wednesday.
Money market fund assets increased for a third consecutive
week, growing $26.27 billion to $2.620 trillion in the week
ended Dec. 4, the Money Fund Report said.
On Dec. 31 the Federal Deposit Insurance Corp was set to
terminate its "Transaction Account Guarantee" or TAG. The
program insures bank deposits of more than $250,000, the amount
the FDIC normally covers, in checking accounts that do not pay
TAG was created back in September 2008 during the height of
the global financial crisis and was intended to help stabilize
the banking system as traders were scared about the collapse of
Lehman Brothers which roiled financial markets. TAG was meant to
reassure depositors that their money was safe and to ensure that
businesses and local governments had access to cash.
TAG was originally scheduled to end in December 2009, but it
was extended for another three years.
This program has pitted checking accounts used by companies
and government agencies against money market funds due to TAG's
explicit federal guarantee, analysts said.
Given the low interest rate environment, many businesses and
government agencies have preferred the safety of bank accounts
over money funds, analysts said.
Without the guarantee, big checking accounts and money
market funds will likely be perceived as similar in terms of
safety. Moreover, large investors will likely seek to diversify
their cash away from bank checking accounts if the guarantee
expires, analysts said.
There has been some effort in Washington to extend TAG
again, but it is unclear whether that will succeed, they said.
In light of this uncertainty, some large holders might be
pulling cash from their checking accounts and socking it away
in money funds.
"It could be anticipation of the FDIC insurance lapsing at
year-end. Perhaps it was time for them to put some cash back
into money market funds," said Jim Lee, head of short-term
markets and futures strategy at RBS Securities in Stamford,
Taxable money market fund assets rose by $25.52 billion to
$2.347 trillion. Institutional taxable fund assets rose $15.54
billion, while retail taxable assets added $10.8 billion,
according to the report, published by iMoneyNet. Tax-free assets
were up by $757.5 million to $272.80 billion.
Yields on taxable money market funds were unchanged from the
previous week at 0.02 percent, while yields on tax-free funds
edged up to 0.02 percent from 0.01 percent the prior week,
according to the report.