Money Funds Most at Risk of Redemptions on U.S. Credit Default, Fitch Says
Money market funds with about $1.3 trillion of U.S. government-related assets would be more at risk from redemptions than a default by the Treasury Department, according to Fitch Ratings.
Funds wouldn’t be forced to sell defaulted U.S. securities unless the sales were needed to meet investor payments, the rating company said in a report by New York-based analysts Roger Merritt, Nathan Flanders and Viktoria Baklanova.
“The mark-to-market impact is not as concerning to us as the scenario where there’s significant redemption activity, which forces funds to sell into a less-than-liquid market,” Merritt said in a telephone interview.
Fitch expects that President Barack Obama and Republicans in Congress will resolve the dispute about raising the $14.3 trillion debt ceiling before the Aug. 2 deadline at which point Treasury Secretary Timothy Geithner has said the U.S. will exhaust capacity to borrow.
While the U.S. would be likely able to roll over its maturing bill issues early in the month, how long that will be possible “is still a little bit of an unknown,” Merritt said. Coupon interest payments due Aug. 15 presents a more difficult problem for the Treasury, and if at that point “we’re still at a political impasse, they won’t be able to roll it over,” Merritt said.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
Rate this Page