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Money Market Funds Prepare for Redemption Onslaught

NEW YORK (TheStreet) — Money market funds investing in U.S. Treasuries have been drastically reducing maturities in recent days, amid fear that the prospect of a government default may lead to a wave of redemptions.

Government money markets have increased the percentage of their holdings with a maturity of seven days or less to 58%, according to data compiled by iMoneyNet. That’s up from 52% at the end of May and 44% at the beginning of the year. The latest figures reflect June 30 investment portfolios, meaning that figure is likely even higher today as the debt crises in Europe and the U.S. have climaxed.

Chief Economist at the Investment Company Institute, Brian Reid, says funds are readying themselves for the possibility of a steep increase in cash outflows. “This is just prudent management on behalf of money-fund managers. We don’t know what the consequences of debt ceiling not being raised will be,” he told TheStreet earlier today. “Funds want to position themselves to be in liquid position in case of increased redemptions or some sort of market disruption,” he added.

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