As money market funds hold approximately $1.3 trillion in U.S. Treasuries, nearly half of their total $2.7 trillion in assets, investors would probably be spooked in the event of a default by the U.S. government and rush to the exits to redeem their shares. That is the dire warning from Fitch Ratings.

“A default of the U.S. government or a material disruption of the repo markets, however remote, could have negative liquidity ramifications” for money funds, Fitch said. “At the very least, declines in the value and liquidity of U.S. Treasury and Agency collateral would result in increased margin ‘haircuts’ and margin calls, pressuring the overall availability and liquidity of the repo market.”

The run on money market funds could occur even though the Securities and Exchange Commission requires them to hold more short-term, liquid securities, Fitch said.