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Debt ceiling fight pushes money market funds to brink
And people sneer that gold doesn't pay interest, though it does when, like anything else, it is leased. To try to avoid negative interest rates, maybe some brokerage house should start a money-market fund that holds gold instead of government currencies -- if, of course, the government would allow any brokerage house to demonstrate gold's enduring utility as money.
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By Kate Duguid
Financial Times, London
Wednesday, September 1, 2021
The supply of the safest U.S. government bonds has been cut this month after federal spending limits were reinstated, driving prices higher and reigniting problems for the money market fund industry -- which has already been bailed out by the Federal Reserve once this year.
Treasury bills -- US bonds that mature in a year or less -- were already scant this year after the U.S. lengthened the average duration of its new debt issues. Supply then took another hit after Congress failed to pass legislation in July that would have allowed the Treasury department to issue new debt -- known as raising the debt ceiling.
... Dispatch continues below ...
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Analysts estimate issuance of new Treasury bills has been cut by roughly $900 billion so far this year. That limited supply has driven prices higher and yields -- the premium investors are paid to hold the debt -- down to levels just above zero. When some yields turned negative in May, the Fed intervened to put a floor under those rates.
But the worsening supply crunch is drastic enough that rates are heading back towards zero despite the Fed’s support. "The Fed facility in its capacity now is helpful, but we’re starting to see it running out of gas," said Tom Simons, money market economist at Jefferies. ...
... For the remainder of the report:
https://www.ft.com/content/1e4cbb80-14b3-415c-876b-6629a4da2b51
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