Some companies may not be able to repay commercial paper loans, also known as short-term IOUs, and that could hurt money market funds, which often put a great deal of money into such debt, the Los Angeles Times reports.
However, industry experts said that because money market funds are required to invest in high-quality loans, there was no need for immediate panic. Further, even if a holding in a money market fund should turn bad, it’s likely that the asset management firm would make investors whole, said Russ Kinnel, director of mutual fund research at Morningstar.
Nonetheless, the subprime credit crisis is definitely hurting the financial markets. Short-term Treasury interest rates have fallen as investors have flocked to these investors with the guarantee of payback. On Tuesday alone, the rate on three-month Treasury bills fell to 4.07% from 4.63%.
“There are so many unknowns, people are going for the highest-quality assets you can get,” said Scott Gewirtz, head of Treasury bond trading at Lehman Brothers.