You bring up a good point. Many of the portfolio managers for these funds use derivative strategies to limit risk. Through the use of credit default swaps, in theory, should protect a debt instrument from losing value. I do not believe that they’ve been fully tested in a real panic situation though. As for money funds, the risk is far less than just an average bond fund because of the extremly short duration and maturity time frame usually up to 60 days. Also, money managers are acknowledging the fact of a possible MBS meltdown and should be watching this market very closely. This is one of those things (MBS market) that we haven’t really seen before. Maybe the “Plunge Protection Team” will do their manipulation if things got real ugly!
