Uncertainty Over US Interest Rate Cut Timing... MMF Hits Record $6 Trillion

Preference for Safe-Haven Assets

As the timing of the U.S. interest rate cut becomes uncertain, a large amount of standby funds continue to accumulate in money market funds (MMFs). On the 14th (local time), Bloomberg reported that about $13.1 billion flowed into U.S. MMFs over the week ending on the 13th, pushing total assets to a record high of $6.1108 trillion.

Cash inflows into MMFs have increased for three consecutive weeks. MMFs are characterized by portfolios centered on safe assets such as short-term government bonds, aiming to achieve returns. They gain popularity in a high-interest-rate era when the appeal of investing in risky assets like stocks declines. MMFs are also called standby assets for the stock market because they provide stable returns while allowing easy redemption.

With the U.S. Federal Reserve (Fed) hinting at a pivot in monetary policy within the year, the market’s expectations for the timing of rate cuts have been pushed back, leading investors to put cash into MMFs. The investment market previously expected as early as March this year for the Fed to start cutting rates, but now some forecasts suggest the cut may only come in July. This is because the February Consumer Price Index (CPI) and Producer Price Index (PPI), key indicators closely watched by the Fed, rose 3.2% and 1.6% year-on-year, respectively, exceeding market expectations.

By MMF sector, government MMF assets increased by $34.3 billion over the week to $4.97 trillion, while prime MMF assets shrank by $3.33 billion to $1.1016 trillion. The investment composition of government MMFs consists of Treasury bonds, repurchase agreements, and agency bonds, making them considered the safest among MMFs. On the other hand, prime MMFs, which mainly invest in commercial paper, carry relatively higher investment risks compared to government MMFs.

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