Money market funds stockpile cash on US default fears

Money market funds in the US are building up liquidity as fears of a downgrade or default on the nation's debt intensify ahead of debt ceiling vote.

Although the funds still hold US Treasuries, they are stockpiling cash, distorting the short-term market for government debt and raising borrowing costs for financial institutions, reports the FT.

Barclays Capital said cash has been increased from 48% at the end of March to 68% of assets, to meet redemptions.

Fidelity's head of money market business, Robert Brown, told the FT the group has built up liquidity with a "meaningful" amount of maturities.

Decisions on where to invest cash have also been delayed while money market funds are also avoiding one-month Treasury notes which mature on 4 August and 11 August which are deemed to be the "most vulnerable" to a change in rating or default.

Republicans wanting to raise the $14trn debt limit have faced fierce opposition from Democrats. The FT report said Republican leaders were planning to bring their plan to raise the debt ceiling up for a delayed vote tomorrow, but there was uncertainty over the bill's ability to pass the lower chamber of Congress due to the discord with Democrats.

The Democrats have proposed their own version of an increase in US borrowing, which could develop into a compromise with the Republican plan.
A decisions is on the debt limit is due by 2 August.