According to the China Fortune app, despite the Fed opening a rate cut cycle last week with a 50 basis point cut, money market funds are still reluctant to buy longer-term US Treasury bonds.

When the Fed initiates a rate cut cycle, fund managers often further buy short-term US bonds to lock in higher yields. However, the US bond yield curve remains inverted, meaning that the yield on short-term US bonds is higher than that of long-term US bonds, which hinders the flow of funds into long-term US bonds.

For money market funds, this is a challenging environment. The money market has long anticipated the Fed's rate cuts, but not as quickly as currently reflected in the broader market. JPMorgan strategist Teresa Ho stated in a client report: "How the easing cycle will unfold and the inverted yield curve are still uncertain."

Data shows that the spread between one-month and one-year Treasuries is negative about 82 basis points, and the spread between three-month and two-year Treasuries is negative 106 basis points. These inversions have led to a shortening of the average weighted maturity of fund assets. Teresa Ho said: "These curves are still severely inverted, challenging the willingness of liquidity investors to extend duration."

According to JPMorgan data, government funds, as major buyers of Treasuries, increased their holdings of 31-60 day Treasury bonds by $226 billion in August, while reducing their holdings of Treasury bonds with maturities over 60 days by $53 billion. At the same time, high-quality funds more inclined to invest in higher-risk assets such as commercial paper raised the allocation of floating rate notes from 15% at the beginning of the year to 20% at the end of last month. He pointed out that in the current interest rate environment, floating bonds often receive better protection while ensuring higher yields.

Deborah Cunningham, Chief Investment Officer of Global Liquidity Markets at Federated Hermes, said: "Short-term notes don't look attractive, making it harder to extend average weighted maturity." "It's like closing your eyes and picking the one you like the least."

The increasing uncertainty of the interest rate cut has made it more difficult for money market funds to buy longer-term US Treasury bonds. Last week, the interest rate path forecast released concurrently with the Federal Reserve's monetary policy decision showed that policymakers expected to cut rates by 50 basis points by the end of this year. However, the money market currently expects the Federal Reserve to cut rates by approximately 73 basis points for the remaining time this year.

In addition, both Teresa Ho and Deborah Cunningham believe that the assets under management of money market funds will continue to rise this year. On the one hand, during such periods, institutions and corporate treasurers tend to outsource cash management to generate income rather than deal with it themselves. On the other hand, the return on these investment tools remains higher than bank deposits.

Teresa Ho stated, "Given the continued inversion of the front-end yield curve and the yield advantage of money market funds over other cash alternatives, we expect the asset management scale of money market funds to continue to rise by the end of the year."