The Reserve announced Tuesday that its Primary Fund broke the buck, with shares worth only 97 cents on the dollar, due to $785 million worth of Lehman Brothers blue-chip commercial paper and medium-term notes that had fallen to zero value as of 4 p.m.
As a result, the firm said, it would not transmit redeeming proceeds of more than $10,000 for up to seven calendar days. The fund, the oldest money market fund in the U.S., will continue to accept purchase orders, however.
It is the first money market mutual fund in 14 years to lose value, the only other one being Community Bankers Mutual Funds U.S. Government Money Market Fund, a small regional fund that fell to 96 cents per net asset value in 1994. So far this year, money market fund investment advisors have spent more than $10 billion to prop up money market funds, to maintain investors faith in the products, considered as safe as federally insured bank accounts.
Money Market fund researcher Peter Crane, of Crane Data called the event uncharted territory and said he was stunned.
The Investment Company Institute issued a statement reminding investors that although money market funds are not guaranteed, it is extremely rare for them to fall below $1 a share. Money market funds, the ICI said, offer security, liquidity and diversification under stringent and effective regulation. The fundamental structure of money market funds remains sound.