In the week ending on the 2nd, there was a inflow of approximately $51.2 billion into the US fund market, the largest inflow in three months. Some analysts pointed out that as long as the Federal Reserve continues to hold steady, funds will continue to flow into currency funds.
The assets of the money market funds have risen to a new record because the decision makers of the Federal Reserve continue to send signals that they are not eager to relax monetary policy and it is expected that short-term interest rates will continue to remain high.
According to data from the Investment Company Institute, as of the week ending July 2, about $51.2 billion flowed into US money market funds, the largest inflow in three months. This also increased the total size of US money market funds to $6.15 trillion, exceeding the historical high set three weeks ago.
Among them, the assets of government funds (mainly invested in securities such as treasury bills, repurchase agreements, and institutional debt) increased by $44.5 billion to $4.97 trillion. The assets of institutional funds (mainly invested in high-risk assets such as commercial paper) increased by $4.5 billion to $1.05 trillion.
Since the Federal Reserve entered the interest rate hike cycle in 2022, the high interest rates have attracted retail investors to flock to money market funds.
On Tuesday of this week, Federal Reserve Chairman Powell said that the latest economic data shows that inflation is returning to a downward trajectory, but the Federal Open Market Committee (FOMC) needs more evidence before cutting interest rates. In the minutes of the June FOMC meeting released on Wednesday, it also emphasized Powell's remarks: it is not advisable to relax monetary policy before more information proves that inflation is moving towards the 2% target.
Some analysts pointed out that as long as the Federal Reserve continues to stand still, funds will continue to flow into money market funds.
John Canavan, fixed income analyst at Oxford Economics said,
"Money market fund yields will remain attractive until there is clarification on the Federal Reserve's rate cut news."
Although there is currently a large amount of funds flowing into money market funds, some institutional investors are also starting to withdraw from major money market funds because the US Securities and Exchange Commission will introduce new regulations by the end of this year to strengthen the liquidity and stability of money market funds, including increasing liquidity requirements and limiting redemption sizes. Some investors are adjusting their investment allocation before the new regulations take effect.
Editor/Emily