Money-market mutual funds can cope with a short-term default in U.S. Treasuries as long as it doesn't trigger the kind of investor run that followed the collapse of Lehman Brothers Holdings Inc. in 2008, according to Fitch Ratings.
The funds have reduced their holdings of Treasuries that would be most immediately affected by the failure of the U.S. to extend its borrowing capacity, and have high levels of short-term liquidity, the ratings company said today in a report and in an interview. Fund managers wouldn't be forced to sell Treasuries in the event of a default and would be free to continue buying non-defaulted Treasuries, said Roger Merritt, managing director of fund and asset management at Fitch.
"Mark-to-market declines on U.S. government exposures are probably manageable assuming any default is short-lived and absent significant redemption activity," according to the report, which Merritt wrote with two colleagues.
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