U.S.-based money market funds have $43 billion outflow: Lipper

Fri Oct 18, 2013 4:30am EDT
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By Sam Forgione

NEW YORK (Reuters) - U.S.-based money market fund assets recorded their largest one-week decline since August 2011 as investors pulled $43 billion out of fear over a possible U.S. government default, data from Thomson Reuters' Lipper service showed on Thursday.

The outflows from money market funds, which invest in short-term securities such as short-dated U.S. Treasury bills, came ahead of a crucial deadline to raise the nation's $16.7 trillion debt ceiling.

Without a debt ceiling increase, the government would have faced a default on its IOUs, including some of those very same short-term Treasuries held in those money funds, which traders feared would wreak havoc on the global economy.

Late Wednesday, the U.S. Congress passed a deal to prevent the United States from defaulting and end the government shutdown.

It's possible next week some of that money pulled from money market funds will return now that the crisis has passed, but some lasting damage may have been done to investor confidence.

Worries about a default led large money fund operators such as Fidelity, JPMorgan, BlackRock and Pimco to shed their holdings of Treasury bill issues that mature in late October to mid-November. Those bills are most vulnerable if the government were to delay its debt payments.

Yields on one-month Treasury bills jumped to a five-year high of 0.38 percent the day before the debt deal was reached. The political brinkmanship led Fitch Ratings to place the United States' 'AAA' credit rating on watch negative. As yields rise, prices fall.

The outflows marked a big reversal from inflows of $40.7 billion into the typically low-risk funds in the month of September, according to Lipper data also released Thursday.   Continued...

Traders walk the floor of the New York Stock Exchange at the market open in New York, October 14, 2013. REUTERS/Carlo Allegri