Money market funds dumped during debt drama Fears of the US missing a payment on its debt sparked the largest weekly move out of money market funds in more than two years as investors pulled $70bn from the most liquid of short-term capital markets. Fund flows data from Bank of America Merrill Lynch show the level of withdrawals in the five-day period through Wednesday, just before a deal was struck in the US Congress, reached the same levels as were seen in the previous stand-off over the country's debt limit back in August 2011. Money market funds invest in short-term securities such as commercial paper or US T-bills and typically act as a low-risk market that provides investors with a relatively safe place to park cash while earning a small return. But with the yield on the one-month T-bill reaching five-year highs on Wednesday, investors backed away from the funds. Michael Hartnett, chief investment strategist at BofA, said: "As we got closer to the debt ceiling deadline, there was increasing volatility in the T-bill market. And as was the case in August 2011, some fear set in that these funds were not as safe. There was a precautionary reduction in the assets in the money market funds. "I don't think any permanent damage was done and I think you'll see a rebound," he added. The bank's data also showed that investors poured $17bn into stocks over the period with nearly $10.6bn going into the US market. The S&P 500 hit a new record high on Thursday at 1,733. Meanwhile, global bond funds saw outflows of $3bn. In addition to acting as an ultraconservative place for investors to park their cash, money market funds are also a vital component of the $4.5tn "repo market," where financial institutions pawn their assets in exchange for short-term loans. Money market funds such as those run by Fidelity Investments and JPMorgan Chase had been reducing their holdings of short-term Treasuries ahead of a potential technical default by the US. Bankers described repo lenders backing away from accepting T-bills as collateral as the debt ceiling drama neared its peak. "One possibility is that bond dealers or banks refused to accept short-dated Treasury bills as collateral against repo agreements," said Thierry Wizman, global interest rates and currencies strategist at Macquarie. So these products lost usefulness in counterparty portfolios and they were sold in favour of longer dated ones that would accepted.