Fidelity, Vanguard join money-fund insurance plan

Fidelity Investments have joined the U.S. Treasury's emergency insurance program for money-market mutual funds, pushing the participation rate to more than 95 percent of assets managed by the industry.

Fidelity, the largest U.S. manager of money-market funds; Vanguard Group and T. Rowe Price disclosed their decisions to sign up for the program this past week in separate statements. Fidelity managed $425.7 billion of money-market funds as of Aug. 31.

The insurance protects investors against losses on money deposited with participating funds as of Sept. 19.

To join the program, funds must pay the Treasury an upfront premium, typically 0.01 percent of their Sept. 19 assets.

"The fact that everyone did it makes a stronger case for the safety of the asset class as a whole," said Peter Crane, president of Crane Data, a money-fund research firm in Westborough, Mass.

Investors put $3.28 billion into money-market funds Oct. 6, the fourth straight day of net deposits, according to data compiled by IMoneyNet.

Assets rose to $3.36 trillion, the highest since Sept. 16, when Reserve Primary Fund became the first money-market fund in 14 years to fall below $1 a share.

The Reserve's decline, resulting from losses on debt issued by bankrupt Lehman Brothers Holdings, triggered a run on money funds that slowed after the Treasury announced its emergency measure on Sept. 19.

Investors continued to shift cash from money-market funds that can buy short-term corporate debt, known as prime funds, into those restricted to government debt.

They pulled $13.1 billion from prime funds Oct. 6 and added $22.6 billion into government funds, according to IMoneyNet.

Money-market funds are the biggest buyers of commercial paper, debt that usually matures in less than 270 days.

Funds reduced their holdings of the highest-rated commercial paper $200.3 billion, or 29 percent, in the final two weeks of September, according to IMoneyNet, cutting off a vital source of short-term funding for companies, banks and public institutions.

The Federal Reserve said Tuesday it will create a special fund to purchase U.S. commercial paper.