Breaking The Buck


DEFINITION of 'Breaking The Buck'

When the net asset value (NAV) of a money market fund falls below $1. Breaking the buck can happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund has used leverage to create capital risk in otherwise risk-free instruments.

BREAKING DOWN 'Breaking The Buck'

The NAV of a money market fund normally stays constant at $1 because investment products usually do not produce capital gains or losses. As such, the principal in a money market fund usually remains constant, making risk exposure non-existent compared to stocks, bonds and non-money market mutual funds.

The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 94 cents because of large losses in derivatives.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  4. Money Market Yield

    The interest rate earned by investing in securities with high ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
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