US MMFs Attracting Money... Total Assets Reach Record High Amid High Interest Rates

by Kwon Haeyoung

Published 05 Aug.2023 08:00(KST)

MMF Total Assets Reach a Record High of $5.52 Trillion

US MMFs Attracting Money... Total Assets Reach Record High Amid High Interest Rates

Due to the Federal Reserve's (Fed) aggressive tightening, with interest rates exceeding 5%, investment funds are flowing into money market funds (MMFs), which are considered standby funds.

On the 5th, Bloomberg News reported, citing the Investment Company Institute (ICI), that $29 billion (approximately 37.7 trillion KRW) of new funds flowed into MMFs during the week ending on the 2nd. As a result, the total assets of MMFs increased to a record high of $5.52 trillion (approximately 7,170 trillion KRW).

The Fed raised the U.S. benchmark interest rate to 5.25-5.5% through 11 rate hikes since March last year to curb soaring inflation, leading to a massive inflow of funds into MMFs. MMFs primarily invest in ultra-short-term government bonds, allowing interest rate changes to be quickly reflected, thereby providing investors with higher interest benefits faster than banks.

Specifically, during the week ending on the 2nd, government fund MMFs saw an inflow of $22.7 billion (approximately 29.5 trillion KRW). Government fund MMFs mainly invest in government bonds and repurchase agreements. Prime MMFs, which invest in relatively higher-risk assets such as commercial paper (CP), attracted $3.52 billion (approximately 4.6 trillion KRW).

Bloomberg News stated, "As the Fed enters the most aggressive tightening cycle in decades and interest rates reach 5%, MMF assets have reached an all-time high," adding, "MMFs are drawing cash away from banks and short-term investments."