Debt Ceiling Standoff’s Impact on Money Market Funds

Money market mutual funds have become more attractive with higher interest rates from the Federal Reserve. However, the debt ceiling debate raises concerns about increased risk. These funds invest in short-term, low-risk debt such as Treasury bills, making them suitable for short-term goals. Yields follow the fed funds rate, with the largest funds paying nearly 5% or more as of May 9. Although inflows surged to a record $5.685 trillion in May, some investors worry about a possible default and the impact on government-backed assets, including money market funds.

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