Credit Tremors Crop Up in Cash Funds
by Shefali Anand and Ann Davis
Date: August 15, 2007
Turmoil in the credit markets is spreading to one of the most conservative kinds of investments, causing a small money-management firm to freeze its clients' assets.
That move sent tremors through stocks as well as commodities, until now one of the few markets relatively untouched by recent worries.
Yesterday, Sentinel Management Group Inc. -- citing "panic" conditions in the market -- prevented its clients from withdrawing money from their cash accounts. Sentinel manages money for hedge funds and commodities traders in what are loosely akin to money-market accounts: short-term investment vehicles that are supposed to behave something like a bank account...
It is the latest sign that the bond-market turmoil is hurting even investments considered among the most conservative places to temporarily park cash.
Buyers for some debt instruments -- particularly in asset-backed securities and some subprime securities -- have dried up in recent weeks. A general lack of liquidity such as this in global markets is what prompted central banks in the U.S. and elsewhere in recent days to open up emergency lending windows to help investors that suddenly found themselves squeezed by a shortage of cash.
The illiquidity is also hurting a handful of institutional funds and mutual funds that are marketed as "enhanced" money-market products, or funds that are slightly riskier than regular money-market funds and aim for higher yields.
For instance, State Street Global Advisors' Limited Duration Bond Fund, a $2.8 billion fund catering to institutional investors, fell 11% for the month of July...
The liquidity problems affecting Sentinel have also caused pain at some mutual funds as well as funds that cater to institutional investors...
The above information has been redacted from the article as it originally appeared on WSJ.com on August 15, 2007.
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