The industry could face one of its biggest tests since the financial crisis forced the government to provide emergency support to the industry. The funds would have to find ways to pay back their investors, either with cash they have on hand or by selling assets. Treasury expects to exhaust all of its remaining borrowing capacity by October 17.īut if the United States fails to raise its debt limit and repay maturing debt, panicky investors may look to raise cash, in part by withdrawing from money market funds. So far, investors have not been rushing to yank their money from the funds, as many still expect that Republicans will come to an agreement with Democrats over the nation’s borrowing limit and avert a default. The funds, including those run by PIMCO, Federated Investors Inc and the largest money fund sponsor – Fidelity Investments – are shying away from government debt that matures in the next few months and keeping more cash on hand to help them withstand any delays in the U.S. (Reuters) – The $2.66 trillion money market industry is preparing for the worst as lawmakers in Washington battle over the U.S. debt because of the uncertainty starting to creep into the market: Irwin also cites this report from Reuters that money managers, the people how manage money market and other funds for example, may be starting to avoid short-term U.S. Irwin provides this chart for the T-Bills that will be maturing on October 31st: On Tuesday the rate so far has been almost double that, as high as 0.297 percent. It was at 0.16 percent at Monday’s close. Nothing, in other words.īut since then, the possibility that the Treasury might have trouble paying or might not be able to pay its bills over the next few weeks has grown - and the interest rate has skyrocketed. 30, eight days ago, the interest rate on Treasury bills maturing Oct. Both of those are near zero right now, which is why on Sept. Normally, the interest rate the government pays on bills is around the same as the short-term interest rates in other money markets (for example, the interest rates banks charge each other for overnight cash, or the interest rate that the Federal Reserve targets). They also form the backbone of trillions of dollars in transactions: Major corporations and banks use them as a place to park short-term cash they are held by money market mutual funds and they serve as collateral for millions of transactions in markets around the world. They enable Uncle Sam to manage cash flow much the way a homeowner might use a credit card. government, bills issued for 30, 60 or 90 days. The Standard & Poor’s 500 index, for example, is only about 1 percent below its close eight days ago, when the government shutdown began.īut in the less widely followed - but in many ways more important - market for Treasury bills, things are starting to get scary. Over at The Washington Post, Neil Irwin thinks he sees signs that Wall Street may be waking up the what could be a new reality:Ī lot of the market indicators of how much the financial world is worrying about a debt default have been quite calm over the last week. Perhaps then, everyone in Washington will finally start taking this seriously. The longer the shutdown lasts and the closer we get to the debt ceiling deadline (according to CNN’s handy dandy countdown clock we’re just over 200 hours away from that event), the less likely those self-assurances are likely to sound, and the more likely it is that we’ll see Wall Street start to react negatively.
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For the most part, financial analysts say that this is largely because professional investors believe that they’ve been through this before and that, in the end, Congress and the President always end up coming up with some kind of deal in the end.
So far at least, the response of investors on Wall Street to the ongoing government shutdown, and the impending breach of America’s debt ceiling, has been rather muted.
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