Fidelity Investments has sold all of its short-term T-bills and is buying longer-term T-bonds. Pimco, the largest bond fund, is selling its bonds and buying T-bills.
Fidelity thinks there could be a short-term crisis in the federal government. Bill Gross does not think so. He manages Pimco. He thinks the odds are against a default. Fidelity also thinks the government will not default, but it took prudent measures. So far, Fidelity has been right. T-bill rates have risen in the last month from 0.01% to o.05%. It was 0.1% as recently as September 20. It was at 0.02% as recently as October 1.
Fidelity manages $430 billion in money market mutual funds. That is a lot of money.
T-Bond rates have not risen. So, Fidelity locked in higher rates, which is to Fidelity’s advantage.
The heaviest selling was in one-months T-bills. The market was at 0.26% on October 9, the highest since 2008. It was zero on September 19.
Overnight rates in the so-called repo market used by banks to fund lending have gone from 0.04% on October 1 to 0.13% today.
The markets for short-term debt are indicating a slight concern regarding a default. But given the very low rates in 90-day T-bills, even at 0.05%, this fear is not great. Fidelity is hedging its portfolio by moving completely out of T-bills, but the firm does not think anything major is looming. It just wanted to avoid any short-term problems. It has.
I do not think a default is likely. Neither do most investors. But they have indicated that the deadlock in Washington is going to last through the month and maybe into November.