Investors poured cash back into U.S. money market funds the day after Washington reached an agreement to raise the federal debt ceiling temporarily and avert a default, private data showed.
Prior to Wednesday's debt deal, money funds, which are seen as alternatives to bank accounts, had heavy redemptions as investors fretted over a possible U.S. default on the interest rates on Treasury bills and its impact on the rest of the short-term credit market.
Interest rates on one-month Treasury bills briefly rose above 0.70 percent last week before President Barack Obama and top Republican lawmakers reached a deal to increase the federal borrowing cap and to end the first partial government shutdown in 17 years.
More than $30 billion returned to money funds last Thursday and Friday, the two days after the deal to raise the statutory debt limit to $16.7 trillion, data firm iMoneynet said.
The increase brought the industry's total assets to $2.618 trillion as of Oct. 18, it said.
This partial return of investors to money funds reversed an $71.79 billion drop from Oct. 1-16, which dropped the industry's asset level to $2.588 trillion.
Based on data from iMoneynet, J.P. Morgan estimated the bulk of two-day inflows to money funds occurred last Thursday at about $26 billion.
In the wake of the debt ceiling deal, investors put $17.49 billion into money funds that invest only in government securities last Thursday and Friday after they pulled $53.90 billion, or 5.9 percent, from Oct. 1-16, iMoneynet said.
Government money funds geared to large or institutional clients "had witnessed the most severe asset drops during uncertainties surrounding the federal government's ability to continue to borrow money," Mike Krasner, managing editor at iMoneynet, said in a statement.
Assets of government institutional funds sank by $54.75 billion or 7.6 percent beginning Oct. 1, but picked up $17.96 billion or 2.7 percent between Oct. 16 and Oct. 18.
The White House and lawmakers have agreed to work on a long-term budget deal before the next debt ceiling deadline of Feb. 15.
"We suspect by early this week (money fund) balances would be fully recovered to pre-debt ceiling levels," the J.P. Morgan analysts wrote in their report.
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