As the nation reaches the Aug. 2 deadline to raise the debt ceiling, Fidelity Investments is telling investors not to panic-sell out of stock and bond funds, and to have confidence in money market funds, which have been safeguarded and have complied with stricter holding rules for the past year.
“It is understandable that investors are anxious about policymakers’ ability to reach agreement on the debt ceiling,” says Joanna Bewick, portfolio manager of four Fidelity funds, including the Fidelity Strategic Income Fund. “It’s important to remember that event risk is endemic to the capital markets. Now, more than ever, investors must not let the uncertainty of short-term events lead them to make rash portfolio decisions. Trying to time market gyrations is difficult and often costly. History has shown that near-term market declines, although unnerving at the time, are often followed by rebounds.”
And Tim Huyck, portfolio manager for Fidelity’s money market portfolios, says that Fidelity believes the government will ultimately raise the debt ceiling. Just in case, Fidelity has been preparing contingency plans, including stress testing its money market funds. “I believe Fidelity’s money market funds, including our Treasury money market funds, are appropriately positioned for a potential severe disruption in the markets.”
Huyck adds: "Overall, we believe money market mutual funds are more resilient than ever before. Since the changes to money market regulations were implemented over a year ago, these funds have greater liquidity, frequently far in excess of the 10% daily and 30% weekly liquidity requirements, and also maintain shorter weighted average maturities. Money market funds are also much more transparent, prominently disclosing holdings on a monthly basis."
Should the government fails to raise the debt ceiling, money market funds acrosss the industry have been selling asset-backed securities and Treasuries, and moving into cash and overnight securities. This is limiting the pool of cash available to companies, banks and individuals.
Investors have also been redeeming shares of money market funds, cashing out $62 billion in the past two weeks, according to the Investment Company Institute.