Cash parked in US institutional money market accounts amounted to a record high of almost $3.5 tn in the week to July 26, despite the stock market uptick.
As the Federal Reserve resumed hiking federal funds rate to curb inflation, cash accounts with short-term rates above 5% look more appealing to investors. According to Crane Data, yields at the largest money market funds now average more than 5 % and are rising fast.
Money-market funds have started to extend the weighted-average maturity of their assets, or WAMs. Until recently, they had been cautious about allocating their record amount of assets too far out of the curve.
“There’s a tremendous amount of money on the sidelines,” Rob Sharps, chief executive of the $1.4tn manager T Rowe Price, said in an interview with Financial Times. The US-based asset manager was hit with $20bn in net outflows over the last quarter and said it does not expect to generate cash inflows again until 2025.
“You’re getting yields on money market funds that you haven’t had in 15 years,” Sharps said. “There are a lot of people who are calling for a meaningful slowdown or a recession in the economy, which creates bumpier conditions for credit and equities.” “We’re probably experiencing the worst of it right now,” he added. “Investors are waiting for the Fed to get out of the way.”
A $1.4tn fund manager Franklin that specializes in fixed income has started to see their clients shift from cash into higher-yielding products, but the progress is likely to be hindered by additional rate increases. According to Financial Times, the manager received a modest $200mn in net inflows in the three months to June, mostly into alternatives strategies such as real estate or secondary markets and so-called “multi-asset’‘ combinations of fixed income, equities, and alternatives. The inflows were offset by $7.3bn in net “cash management” outflows.
As reported by Bloomberg, in a breakdown for the week to July 26, government funds, which invest primarily in securities like Treasury bills, repurchase agreements, and agency debt, saw assets rise to $4.52 trillion, a $26.9 billion increase. Prime funds, which tend to invest in higher-risk assets, such as commercial paper, saw assets jump to $854 billion, which indicates a $3.46 billion increase.