US money market funds have reached a new milestone, surpassing $7 trillion in assets under management for the first time, Bloomberg reports.
This surge, fueled by attractive yields, defies expectations that the industry’s popularity would wane following recent Federal Reserve interest rate cuts.
According to Crane Data, a leading money market and mutual fund information firm, assets rose by approximately $91 billion in the week ending Wednesday, setting a new record. This marks the culmination of months of consecutive record-breaking inflows, countering concerns about the industry’s future in a shifting interest rate environment.
The Fed’s decision to cut its benchmark interest rate by a half-point in September and a quarter-point this month has done little to deter investors. Money market funds continue to offer superior yields compared to other options, particularly bank deposits, prompting continued inflows.
However, the extent of future rate cuts remains uncertain. The robust US economy and inflationary pressures, coupled with the incoming administration’s policies, have raised questions about the necessity of further easing.
The relative sluggishness of money market funds in passing on lower rates to investors further contributes to their appeal. Corporations and institutions, in particular, are increasingly outsourcing cash management to capitalize on higher yields rather than managing it internally.
Crane Data’s figures, encompassing the entire money market industry, show over $700 billion in inflows so far this year. Data from the Investment Company Institute (ICI), which excludes firms’ internal money funds and is released weekly, reported $6.59 trillion in assets as of November 6.
