Today's Wall Street Journal features "For Money Funds, Wait Till Next Year", which discusses money funds' hopes and expectations for a rate increase by the Federal Reserve. It says, "After months of subsisting on close-to-zero yields and watching assets bleed away, money-market mutual funds may have reason to hope that a little relief isn't far off."

The WSJ explains, "Many economists are predicting a Federal Reserve rate increase in 2010, and the central bank is considering how to take cash out of circulation. In addition, government support programs for the funds and the assets that they buy, put in place after the Reserve Primary Fund dipped below its $1 net asset value and sparked panic in the industry, are starting to unwind. That combination may bring slightly higher yields, which would be a welcome break for fund companies that have been waiving fees on their funds to maintain investors."

The Journal quotes our Peter Crane, president of Crane Data LLC, "These rays of hope may just be enough to give you [struggling money-market fund providers] courage.... It could make you walk a couple more miles in the desert, but you need that Fed-hike oasis to really survive."

The piece says, "Mr. Crane believes one of the most important moves the Fed could make to affect rates is to engage in reverse repurchase agreements to drain liquidity from the financial system. The Fed last month said it was testing the use of these 'reverse repos,' in which it sells securities to market participants with a commitment to buy them back at a higher price."

It continues, "In a statement Tuesday, Debbie Cunningham, chief investment officer for taxable money markets at Federated Investors, said some Federal Open Market Committee members seem to be hedging on their pledge to keep benchmark rates exceptionally low for an extended period. Ms. Cunningham said she expects the Fed 'in the near future' to begin conducting reverse repos with nontraditional market participants, possibly including money-market funds."

See also Crane Data's Monday News piece, "Money Fund Managers Prepare for Easing of Ultra-Low Yield Pressures".

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