Now that money market funds have been wrapped in a government guarantee, can they break free? Daisy Maxey looks at the issue in the WSJ Fund Track, noting that "some fund now appear to be preparing to wean investors from the program" that the Feds rushed into place after The Reserve's Primary Fund imploded last September.

iMoneyNet's Connie Bugbee tells Maxey that fund firms are dropping the new guaranty from their Treasury funds and often other money funds that invest primarily in government debt. One issue is the lack of yield in the current environment and the relative expense of providing the backing. The program only covers shares purchased prior to September 19, 2009, which also has the effect of diminishing its value as time passes.

Vanguard dropped the coverage for three funds -- Admiral Treasury Money Market, Treasury Money Market and Federal Money Market -- at the end of April, though it retained it for its Primary Money Market Fund.

BlackRock dropped the coverage for its money funds that invest primarily in Treasuries, but kept its other money funds in the guaranty program.

JPMorgan Funds' George Gatch points to improvements in the credit markets as one reason why the bank's funds did not renew the coverage for its government or government repo funds at the end of April. Gatch did have the municipal money-market funds stick with the program.

Meanwhile, T. Rowe Price and Fidelity kept all of their money funds in the program.

Crane Data's Peter Crane tells the paper that three quarters of money funds, and nearly all prime money funds, are sticking in the program. Earlier, about 95 percent of funds bought the guaranty, he noted.

Typical yields are down to 35 basis points and any expense is proving to be a large drag on performance and a competitive hindrance.

Whether to keep or drop the guaranty coverage is one strategic decision that does come with an expiration date. The guaranty program is set to expire next September 18, though it has already been extended twice. 

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