CORRECTED-UPDATE 1-U.S. money fund assets post biggest drop in nearly a year-iMoneynet
(Removes Federated Investors in 5th graph. Firm says it holds Treasuries in the coming weeks.)
* Money fund assets have biggest drop since superstorm Sandy
* Offshore money fund assets also post sharp decline in week
By Richard Leong
NEW YORK, Oct 16 (Reuters) - U.S. money market fund assets recorded their largest one-week decline in nearly a year as investors redeemed shares on fears over a possible U.S. government default, a report released on Wednesday showed.
Total money fund assets fell $44.77 billion to $2.606 trillion in the week ended Oct. 15, according to the Money Fund Report, which is published by iMoneynet.
"The asset decline was reported as lawmakers continue to debate about raising the debt ceiling," Mike Krasner, managing editor at iMoneynet, said in a statement.
The U.S. government is expected to exhaust its statutory $16.7 trillion borrowing limit on Thursday. Without a debt ceiling increase, it might default on its IOUs in the coming days, which traders fear would wreak havoc on the global economy.
Worries about a default led large money fund operators such as Fidelity, JPMorgan, BlackRock and PIMCO to shed their holdings of Treasury bill issues that mature in late-October to mid-November. Those bills are most vulnerable if the government were to delay its debt payments.
Interest rates on those T-bills jumped as high as 0.71 percent early Wednesday, which was the highest level in five years during the depth of the global financial crisis. T-bill rates subsided later Wednesday after the U.S. Senate reached a last-minute deal to temporarily raise the debt ceiling and fully fund the government, which has been in partial shutdown for two weeks.
The U.S. House of Representatives still has to approve the deal.
BIGGEST DROP SINCE SANDY
Money funds, which are seen as alternatives to bank accounts, recorded their biggest weekly outflows since the week of Oct. 30, 2012, when assets fell $51.13 billion stemming partly from a hoarding of cash ahead of superstorm Sandy, which crippled the U.S. Northeast.
Nearly a year later, large investors reduced their holdings of money funds, especially those that focus on Treasuries and repurchase agreements, which are backed by U.S. government debt.
Government institutional fund assets fell $30.30 billion in the latest week, iMoneynet said.
More than two years ago, money fund assets plunged during the first debt ceiling fight between President Barack Obama and Republican lawmakers. They fell by $103.21 billion in the week ended Aug. 2, 2011.
Overseas investors worried about a U.S. default also pulled cash out dollar-denominated money market funds in the latest week.
Offshore dollar money fund assets fell $20.93 billion for their biggest single-week drop since July 2011, to $360.1 billion in the week ended Oct. 11, according to iMoneynet. (Reporting by Richard Leong; Editing by Dan Grebler)