Money markets: Should you be worried?

by Gerri Willis

All the worries about European banks have some folks wondering whether they should be worried about their money market funds. After all, prime money market funds have half their assets in debt related to European banks, which have been under assault. The banking sector led Paris' CAC-40 to close down yesterday 5.45 percent.

But Peter Crane, chief executive of Crane Data, which tracks money market funds, says those fears are overblown. While these funds do have a large exposure to French banks, he says ratings on the short-term debt of these banks remains high. The very nature of the investment means that holdings turn over quickly leaving less exposure to risky notes.

Crane says over the last few months funds have been whittling away at their exposure to these banks. And, more will be known about what the funds hold in their monthly report with the Investment Company Institute later this week.

However, he adds that what really matters to these funds' health is the amount of new money coming in the door. And, on that score, the funds are doing very well. Investors are putting $50 billion into money market funds on a weekly basis as they seek safe havens in a volatile market. And, that, of course is bringing yields down. Crane reports average yields today of 0.03 percent. At that rate, you can double your money every 1,700 years. Clearly, sitting on the sidelines has it costs.