US MMF Market Attracts Funds... Total Assets Reach Record High of 8500 Trillion Won

Fed Indicates Caution on Easing Policy
Reflecting Expectations of Prolonged High Interest Rates
$51.2 Billion Inflows in One Week

The total assets of U.S. money market funds (MMFs), which have continued a record-breaking inflow rally, have reached an all-time high. This is interpreted as reflecting expectations that short-term interest rates will remain elevated, as Federal Reserve (Fed) officials have indicated they will not rush to ease monetary policy.

According to data released on the 3rd (local time) by the Investment Company Institute (ICI), the U.S. MMF market attracted $51.2 billion (approximately 71 trillion won) in the past week, the largest amount in three months. As a result, total assets swelled to $6.15 trillion (approximately 8500 trillion won), surpassing the previous all-time high of $6.12 trillion set last month.

[Image source=Reuters Yonhap News]

By bond type, government fund MMF assets, which primarily invest in U.S. Treasury bills (TB), spot foreign exchange, and repurchase agreements (RP), increased by $44.5 billion to $4.97 trillion, accounting for the majority of total MMF assets. Prime MMF assets, which invest in higher-risk assets such as commercial paper (CP), rose by $4.5 billion to $1.05 trillion.

MMFs are ultra-short-term financial products that invest in short-term government bonds, CP, and certificates of deposit (CD) issued by the government. When interest rates rise, bond prices fall, so investing in MMFs allows investors to seek both trading gains and high interest income. Investors have focused on the MMF market, anticipating a prolonged period of high interest rates based on the Fed’s signals that it will not hasten an accommodative monetary policy. On the 12th of last month, when the previous record for total assets was set, the market also recorded eight consecutive weeks of fund inflows.

Experts expect that as long as the Fed maintains the current benchmark interest rate (5.25?5.5%), inflows into the MMF market will continue. John Canavan, a bond analyst at Oxford Economics, said, “The rise in the MMF market was predictable,” adding, “MMF yields will remain attractive until it becomes clear that the Fed is ready to cut rates.”

Fed Chair Jerome Powell stated at the European Central Bank (ECB) annual forum on the 2nd, “We have made significant progress in bringing inflation down to target, which suggests we are on a disinflationary path,” but added, “Before embarking on accommodative policy, we want greater confidence that inflation is sustainably moving toward the 2% target.”

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