12 key points to consider on the debt ceiling and the markets
What impact could there be on money market funds if the danger of default grows?
The implications of a technical default are complicated for money market mutual funds, but the institute doesn’t expect them to be forced to liquidate their Treasury holdings in case of a technical default.
Money market funds could experience increasing risks of outflows as investors’ worries increase, but the institute said most of them are well prepared to deal with redemptions. MMFs with access to the Federal Reserve’s liquidity facility can invest in overnight repos and could liquidate positions in order to meet redemption needs. Treasury MMFs that don’t have access to invest in repurchase agreements may need to hold more cash with their custodian or avoid bills that mature near the X-date.