U.S. money funds recoup assets after U.S. debt deal

Reuters

* U.S. money fund assets jumped $30 bln in twodays-iMoneynet

* Assets to return to pre-debt fight level thisweek-JPMorgan

NEW YORK, Oct 21 (Reuters) - Investors poured cash back intoU.S. money market funds the day after Washington reached anagreement to raise the federal debt ceiling temporarily andavert a default, private data released on Monday showed.

Prior to Wednesday's debt deal, money funds, which are seenas alternative to bank accounts, had heavy redemptions asinvestors fretted over a possible U.S. default on the interestrates on Treasury bills and its impact on the rest of theshort-term credit market.

Interest rates on one-month Treasury bills briefly roseabove 0.70 percent last week before President Barack Obama andtop Republican lawmakers reached a deal to increase the federalborrowing cap and to end the first partial government shutdownin 17 years.

More than $30 billion returned to money funds last Thursdayand Friday, the two days after the deal to raise the statutorydebt limit to $16.7 trillion, data firm iMoneynet said.

The increase brought the industry's total assets to $2.618trillion 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'sasset level to $2.588 trillion.

Based on data from iMoneynet, J.P. Morgan estimated the bulkof two-day inflows to money funds occurred last Thursday atabout $26 billion.

In the wake of the debt ceiling deal, investors put $17.49billion into money funds that invest only in governmentsecurities last Thursday and Friday after they pulled $53.90billion, or 5.9 percent, from Oct. 1-16, iMoneynet said.

Government money funds geared to large or institutionalclients "had witnessed the most severe asset drops duringuncertainties surrounding the federal government's ability tocontinue to borrow money," Mike Krasner, managing editor atiMoneynet said in a statement.

Assets of government institutional funds sank by $54.75billion or 7.6 percent beginning Oct. 1, but picked up $17.96billion or 2.7 percent between Oct. 16 and Oct. 18.

The White House and lawmakers have agreed to work on along-term budget deal before the next debt ceiling deadline ofFeb. 15.

"We suspect by early this week (money fund) balances wouldbe fully recovered to pre-debt ceiling levels," the J.P. Morgananalysts wrote in their report.

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