Portfolio managers at Fidelity Investments have been selling off their government debt holdings over the last couple of weeks, said Nancy Prior, president of Fidelity's Money Market Group. While Fidelity expects the debt ceiling issue to be resolved, the Boston-based asset manager said it is taking steps to protect investors.

The nation's largest manager of money market mutual funds said Wednesday that it no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit.

"We expect Congress will take the steps necessary to avoid default, but in our position as money market managers we have to take precautionary measures," Prior said.

Prior said that Fidelity no longer holds any U.S. debt that comes due in late October or early November, the window considered by many investors to be the most exposed if the government runs out of money and defaults on its obligations.

Fidelity, which manages $430 billion in money market mutual funds, has taken similar actions in the past. The most recent instance was in the summer of 2011, when the U.S. government came close to a default and Standard & Poor's downgraded the nation's credit rating, Prior said.

She said Fidelity has been restructuring its portfolio to focus on securities that mature later this year or in early 2014. She said Fidelity has also moved a significant portion of its portfolio to cash.

Money market funds are a significant part of the U.S. financial system, considered by investors as a safe place to put their money in the short-term. Individuals and institutional investors have roughly $2.685 trillion invested in money market funds, according to data from the Investment Company Institute.

Money market funds are typically ultra-safe places to park money. They invest primarily in short-term debt that can be easily bought and sold, such as U.S. Treasurys or commercial paper, short-term debt issued by large companies to fund their day-to-day expenses. In a money market fund, investors expect to get back every dollar they invest.

(Read more: No, people won't buy bonds on a default: BlackRock)

Fidelity's actions underscore what traders have noticed the last week. Investors have dumped U.S. government debt that comes due this month, with the heaviest selling in one-month Treasury bills. The yield on the one-month T-bill jumped to 0.3 percent Tuesday, its highest level since the 2008 financial crisis. The yield was nearly zero at the beginning of the month.

Money market mutual fund managers don't want to be caught holding U.S. government debt that comes due around the time the government hits the debt ceiling. They fear that the government could be unable to pay back bond holders, said Gabriel Mann at the Royal Bank of Scotland Group.

"Investors are buying protection," Mann said.

A spokesman for Fidelity said it is unclear whether Fidelity holds any short-term U.S. government debt in any of its other mutual funds. Fidelity's actions apply only to Fidelity's money market portfolio.

—By The Associated Press