US money market funds are stockpiling cash in case Congress fails to raise the debt ceiling, distorting the short-term market for US government debt and raising borrowing costs for banks and other financial institutions.
The funds will continue to hold US Treasuries in the event of a downgrade or default but they are building up liquidity and shunning certain securities due to fears that a failure to raise the debt ceiling could trigger client redemptions.
Government-only money market funds have boosted the amount of cash available to meet redemptions within one week to 68 per cent of assets, from 48 per cent at the end of March, according to Barclays Capital. “We’ve built up liquidity with a rather meaningful amount of maturities prior to the debt ceiling”, said Robert Brown, head of Fidelity’s money market business.