Bloomberg writes "Money Funds' Risk Rises Over Debt Cap Debate". The article says, "The impasse in Washington over raising the federal debt ceiling has exposed U.S. money-market mutual fund clients to increased danger, according to Moody's Investors Service." Moody's statement says, "Direct risks include the potential for a missed interest or principal payment on government bonds for a short period of time, as well as incremental weakening of the overall credit quality of money-market fund portfolios that have U.S. government exposure." The Bloomberg piece continues, "Money-market funds rated Aaa by Moody's are 'largely resilient to the direct impacts' of a downgrade of the U.S. rating to Aa1, the company said. A debt downgrade to Aa2 or worse 'could negatively impact the ratings of a large number of funds,' according to Moody's.... `Vanguard Group Inc. hasn't made any major changes because of the debt-ceiling debate, said David Glocke, who oversees about $163 billion in money-fund assets at the Valley Forge, Pennsylvania-based firm." It quotes Glocke, "We've been adding to Treasury holdings because, as concerns over Europe have evolved, we've reallocated out of Europe and into other sectors of the market." Bloomberg adds, "Glocke said that while he didn't believe a downgrade would significantly affect the pricing of Treasuries, the U.S. government's failure to repay bondholders or make interest payments would be disruptive."
