The huge but poorly understood repurchase-loan market is the oil that greases the banking system, and a US default or even a downgrade would affect liquidity, but no one knows to what extent.
The prospect of a US downgrade or even a default is beginning to put pressure on money-market funds and raising the spectre of a liquidity crunch.
There is still a week until the deadline for raising America's debt ceiling, and hedge fund managers are not panicking yet. But some are contemplating the implications of political deadlock.
A last-minute agreement on the US debt ceiling will be reached, says Jeffrey Morrison of MFS Investment Management, who sees emerging-market rate tightening as a greater concern.
The US won't default but there may be trading opportunities created around the possibility of Congress initially vetoing a raise in America’s debt level, says Evan Bayh, former US Democratic senator for Indiana.