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Money-market funds rose 33% as Fed lowered borrowing costs

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Bloomberg News / January 6, 2008

Total assets of US money-market mutual funds rose 32.9 percent last year, the fastest annual growth since at least 1975, as investors sought higher returns after the Federal Reserve lowered overnight borrowing costs.

The assets increased as investors sought safety after losses linked to subprime mortgages spread, according to Connie Bugbee, managing editor of Money Fund Report in Westborough. Money-market funds, regulated by the Securities and Exchange Commission, are considered among the safest assets.

Investors added a net $764 billion to money-market funds in 2007, pushing total assets above $3 trillion for the first time.

Assets declined $17 billion to $3.088 trillion in the week ended Wednesday, according to the report. The record $3.115 trillion was set on Dec. 11.

The Fed lowered the target rate for overnight loans between banks 1 percentage point last year to 4.25 percent, pushing returns on overnight investments lower quicker than on money-market funds.

The seven-day yield on taxable money-market funds was 3.99 percent. Two-year Treasury notes yielded 2.88 percent.

Taxable funds fell $10.52 billion this week to $2.618 trillion.

Money-market fund managers are required to keep their assets in debt that matures in 13 months or less, with a weighted average maturity of 90 days or less.

The securities they hold must have top short-term corporate debt ratings.

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