Tuesday, October 22, 2013

Investors jump back into money funds after US debt deal: JPMorgan

NEW YORK: Investors poured cash back into U.S. money market funds the day after Washington reached an agreement to raise the federal debt ceiling temporarily and avert a default, J.P. Morgan Securities analysts said on Monday.


Prior to Wednesday's debt deal, money funds, which are seen as alternative to bank accounts, had heavy redemptions as investors fretted over a possible U.S. default on the interest rates on Treasury bills and its impact on the rest of the short-term credit market.

Interest rates on one-month Treasury bills briefly rose above 0.70 percent last week before President Barack Obama and top Republican lawmakers reached a deal to increase the federal borrowing cap and to end the first partial government shutdown in 17 years.

More than $26 billion returned to money funds on Thursday, the day after the deal to raise the statutory debt limit to $16.7 trillion, J.P.Morgan analysts said.

Based on data from iMoneynet, they estimated the one-day rise in money fund assets was nearly 40 percent of all the cash investors pulled from money funds in the days leading up to the debt deal.

Roughly $8 billion of the money made its way to money funds that invest only in short-term Treasury debt, while about $9 billion returned to those that fund government and agency securities.

The rest of the inflows went into prime funds that can invest in commercial paper and corporate debt, they said.

The White House and lawmakers have agreed to work on a long-term budget deal before the next debt ceiling deadline of Feb. 15. "We suspect by early this week (money fund) balances would be fully recovered to pre-debt ceiling levels," the J.P. Morgan analysts wrote in their report.

indiatimes.com

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