Mid-Day Recap: Treasury Ends Guarantee on Money Market Funds

The main headline this morning doesn’t come from the markets, which are mixed on light trading, but from the Treasury, which closed its guarantee on money market mutual funds as scheduled.

The government guarantee was implemented one year ago this week when turmoil swooped through global markets after Lehman Brothers failed to find a buyer and collapsed. In the aftermath, one of the largest money market mutual funds “broke the buck,” meaning its net asset value below par value, increasing panic as even the most secure investments were vulnerable.

The Treasury responded quickly by guaranteeing the short-term market funds for 12 months.

With broad gains in equity markets, improving economic data, and increased stabilization in the financial world, the guarantee can now be lifted.

“As the risk of catastrophic failure of the financial system has receded, the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well,” said Treasury Secretary Timothy Geithner in a statement.

This is the Treasury’s first major step in unwinding policy following its massive intervention to help contain the impact of the worst financial crisis in seven decades.

The announcement has been expected for weeks, so markets were pretty indifferent to the news. As of 12:20, markets have not found a direction, though all three indexes are modestly positive and approaching the 11-month highs seen earlier in the week.

The S&P 500 is up 0.04% to 1,066, pushing the weekly gain to 2.21%. The Dow is doing better with a 0.30% gain to 9,813, and the Nasdaq is edging up 0.03% to 2,127.