Turmoil in the subprime mortgage market spread again yesterday ”” this time to a type of short-term security held by money market mutual funds. These funds have become the investment of choice for many people seeking a safe haven.
Standard & Poor’s, the ratings agency, warned yesterday that it might downgrade several issuers of commercial paper, a short-term I.O.U. by companies that promise to repay loans typically within a few weeks to a year.
In these cases, S.& P. said, the commercial paper was backed by residential mortgages….
Investors have flocked to money market funds as they try to avoid volatile stocks and the seized-up bond market. Last week, more than $36 billion moved into money market funds, the largest shift since December 2005. In all, some $2.6 trillion is in money market funds, according to AMG Data Services.
Such funds are sold to investors as the equivalent of cash, and their $1-a-share net asset value is considered inviolate. But if the funds experienced big losses, the value of the assets could be vulnerable.