Bank deposits and government-only money-market funds “have become a hot potato that no one seems to be willing to hold,” according to one portfolio manager.
Investors pulled $60 billion out of money-market mutual funds invested exclusively in T-bills and short-dated Treasurys over a one-week period this month amid rising fears over the U.S. debt ceiling. Data released last week by the Investment Company Institute in Washington shows assets held by government-only money-market funds dropped to $4.332 trillion as of April 19 from $4.392 trillion on April 12.
Interestingly, the outflow almost matched the $76 billion weekly decline in bank deposits reported by the Federal Reserve between April 5-12 — underscoring the continuing nervousness of investors. Last Wednesday, House Republicans unveiled a plan that would cut government spending in exchange for a higher limit on government borrowing. By contrast, the White House and congressional Democrats have called for an increase in the ceiling without conditions.
On Monday, Treasury yields were mostly lower in afternoon trading, with the exception of the 2-month T-bill rate, which jumped 7 basis points to 4.94% as investors sold off the underlying maturity. All three major U.S. stock indexes DJIA SPX COMP were lower as a cautious tone enveloped markets.
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