How safe are Treasury money mkt funds if Congress doesn't raise the debt ceiling?

Investment Analysis Clubs Macro Economic Trends and Risks
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According to the prospectus of the Fidelity® Treasury Money Market Fund, the fund normally invests at least 80% of its assets in U.S. Treasury securities and repurchase agreements for those securities. The Adviser normally invests at least 99.5% of the fund’s total assets in cash, U.S. Treasury securities and/or repurchase agreements for those securities. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund will not impose a fee upon the sale of your shares, nor temporarily suspend your ability to sell shares if the fund’s weekly liquid assets fall below 30% of its total assets because of market conditions or other factors.

Fidelity ranks this fund among its safest investment products.

Although the size of the fund isn’t readily available, it’s safe to assume that it’s in the billions, probably high billions. Any sudden “run” on the assets and/ or if the fund threatened to “break the buck” would surely attract the attention of the Federal Reserve.

I’m not the only one concerned about the impact on Treasury-holding money market funds if Congress fails to raise the debt ceiling.

As money-market funds rake in cash, analysts see debt-ceiling risks (msn.com)

As money-market funds rake in cash, analysts see debt-ceiling risks

Story by Eleanor Laise, MarketWatch • Mar 9, 2023

As investors pour cash into money-market funds, analysts are warning that the Congressional standoff over raising the federal government’s debt limit will put pressure on these traditional safe haven holdings.

Money-market funds focused on U.S. Treasury securities, generally considered the safest of money funds, “could face increased volatility in the Treasury market and heightened investor redemptions as the debt ceiling deadline approaches,” Fitch Ratings said in a late February report. If investors stampede out of money-market funds as that deadline nears, the funds’ managers may be forced to sell Treasury holdings in a volatile market, putting them at greater risk of “breaking the buck,” or falling below the steady $1 share price money funds typically aim to maintain, analysts say. …

Money-market funds generally invest in very short-term, high-quality debt securities. Treasury-only money funds invest virtually all of their assets in U.S. Treasury securities, but other types of money funds may invest in government agency securities, commercial paper, tax-exempt municipal debt and other holdings. In a debt-ceiling crisis, it’s the Treasury-only funds that can’t invest in anything else that would be most impacted… [end quote]

The macroeconomic impact of a government default resulting from failure to raise the debt ceiling would be dire. Q&A: Everything You Should Know About the Debt Ceiling | Committee for a Responsible Federal Budget (crfb.org)

But right now, I’m wondering if I should transfer cash from the Treasury money market fund into a more diversified money market fund. Or move some to bank savings accounts where it would be FDIC insured?

Wendy

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Vanguard offers an FDIC insured savings account over 4%, and I have been slowly moving money from the MM to the savings account.

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I think there is zero risk that this fund will “break the buck” and remain below a buck for any length of time. Not only that, but there is a good chance of slightly higher yield through the period of uncertainty … until Congress gets their act together.

I’m still buying 4-week treasuries (I stopped for a few weeks when the yields were too low), and 8-week treasuries, and 13-week, and 17-week, and 26-week. Nearly every week now. The reason I buy them is because their yields are higher than the treasury money market fund, so I may as well do so.

[ADDENDUM 5/11/23: This week, because I expected fewer people (fear of “default”) to bid on the 4-week bill, which could lead to higher yield, I doubled the size of my usual weekly order. Sure enough, I got lucky, and the email I received earlier today from the US Treasury with the auction results shows that the yield ended up at a whopping 5.723%.]

I also bought some CDs recently. Today, for example there were 4 CDs yielding 5.15% (about 9 month duration) so I bought some of them. Interestingly enough, one of them “ran out” in the 3 minutes between my search and my order entry. Since all CDs are essentially equal, I simply sort by yield and scan the top of the list for ones I want.

Now, just by the nature of how brokerage accounts work, every time I buy a T-bill or a CD, the balance in my Treasury Money Market fund goes down. But each week as older T-bills mature, that fund get refilled. I like to keep a good amount of cash in that fund in case I happen to see some good stock purchase opportunities (I don’t like using margin if it can be avoided). That is especially true while people are panicking, if this “default” issue scares enough people, and stocks take a dive, I’m pretty sure I’ll see some opportunities over the next few weeks. But as someone said on the radio earlier (while I was in the car), panic usually happens when there’s no playbook, but we’ve already seen how to handle debt limit issues, so there may not be any panic. I don’t know if it was CNBC or Bloomberg, but probably one of them because that’s what I usually listen to while in the car.

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Are you sure fdic insurance would survive a default?

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No, I’m not. And is why I have not been moving money with gusto. Also why I’m not selling stocks and such as well. Honestly, if the US defaults, I have no idea where money will be “safe”. It’s kinda like nuclear war. If we default, my IRA might be the last of my worries, at least for some time.

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All I can see, it will be a mess.

Just what I want.

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As posted previously on this board, I have looked at the MMF from Fidelity, saw that they are based on Treasury Repurchase Agreements (which I do not understand) and I have moved a majority of our investments into CDs that are spread across multiple banks. We are just about 95% FDIC covered for all of our cash right now. Account ownership is such that we have accounts in single, joint and trust ownership as well.

'38Packard

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The debt ceiling, an opinion poll Yahoo News is saying lift the ceiling 40% do not lift the ceiling 35%…the numbers were reversed a few months ago according to the article. Some 25 to 33% have no opinion.

The solution is to grow our domestic economy. By that I totally mean manufacturing in the US/Mexico.

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Emphasis mine. When did Mexico become the 51st State?

'38Packard
:rofl:

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How many factories can we fit down in Mexico for that low value added production?

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