While one after another money market fund quietly announces they are liquidating "cash equivalent" Bill holdings, be they the mid/late October vintage or, now that a can kicking negotiation is in process, the Bills in close proximity to the Thanksgiving day 6 week extension period, over buck breaking concerns that the debt ceiling extension may be snagged due to political manoeuvering, someone was once again ahead of the curve. That someone are the 20 Primary Dealers, which as the NY Fed reports, sold out of the bulk of their Bill holdings in the last two weeks of September in the process taking their Bill holdings to the lowest in all of 2013. The last time Dealers sold off near-term Treasurys with such gusto: July 13 of 2011, just before the last debt ceiling extension fiasco, when Bill holdings dropped to a net negative ($10) billion position.
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So if indeed the debt ceiling can kicking is set to become a periodic, 6-week exercise, will Dealers simply shun Bills going forward as an asset class due to "political" risk? And if so, what happens to Money Market funds, whose investment choices unlike those of the Dealers, are far more limited? If the answer is yes, then the already pronounced scarcity of "high quality collateral" is set to be slashed even more as an entire subset of Bills becomes increasingly "risky."
Source: NY Fed [4] [4]