Money-market funds could become much bigger players in the roughly $24 trillion Treasury market in the aftermath of a U.S. debt-ceiling resolution, according to investors and analysts.
While investors have been pouring hundreds of billions of dollars into money- market investment strategies this year, only a small portion has been invested in the Treasury-bill market, or U.S. government debt that matures in four weeks to as much as a year. But with Congress expected to vote this week on a debt-ceiling deal agreement reached over the weekend, dimming the threat of a catastrophic default, investors have begun bracing for a flood of Treasury bill issuance to refill government coffers.“Most funds have been avoiding June bill issuance” where maturities were at risk of getting caught up in the debt-ceiling battle, said Eric Souza, a senior portfolio manager at Capital Advisors Group.
The Goldman team, however, has reservations about the role money-market funds will play when the expected deluge of Treasury issuance is expected this summer, even though they acknowledged their footprint increased to 45% in May 2020 as emergency pandemic aid was unleashed.