Investors Rush To Money Market Funds Before Fed Rate Cut

Investors funneled $37 billion into money market funds (MMFs) in the week leading up to Wednesday, Bank of America (BofA) said, as they anticipated the US Federal Reserve cutting interest rates in September, Harry Robertson reported for Reuters.

Many fund managers expect rate cuts to lower MMF returns, prompting a shift of cash into stocks and bonds.

This influx put MMFs on track for their biggest three-week cumulative inflow since January, totaling $145 billion, according to BofA, which cited data from financial provider EPFR.

Investors also allocated $20.4 billion to stocks, $15.1 billion to bonds, and $1.1 billion to gold, as per BofA’s weekly market flow report.

Many fund managers expect rate cuts to lower MMF returns, prompting a shift of cash into stocks and bonds.

However, large investors often flock to MMFs before a Fed rate cut because these funds typically offer higher returns for longer than short-term Treasury bills. “Rate cuts are not likely to spark equity buying from the $6.2 trillion money market fund sector,” BofA strategists led by Jared Woodard wrote.

“History shows the first Fed cut precedes more cash inflows in a ‘soft’ landing, with bonds likely emerging as the winner if there’s a ‘hard’ landing.”