High yields have led to U.S. money-market funds securing another all-time high of $8 trillion after surpassing $7 trillion in March. Investors have plowed $848 billion into the funds year-to-date, according to Crane Data.
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That comes ahead of the December 9-10 Federal Open Market Committee (FOMC) meeting, where the Fed is widely expected to cut rates by 25 bps.
“We expect inflows to gradually moderate as rates gradually decline, but historically, yields above 2% should continue to draw inflows into money funds,” said TD Securities head of U.S. interest rate strategy Gennadiy Goldberg.
High Yields and Low Risk Keep Money-Market Funds in Demand
Money-market funds have gained popularity in recent years because they generally offer higher yields than bank savings accounts. They’re also viewed as a safer bet than equities because they’re usually invested in short-term, low-risk assets, like Treasury bills and municipal notes.
Retail portfolio allocation to money-market funds stands between 15% and 20% and is roughly in line with the historical average, according to JPMorgan head of U.S. short-rate strategy Teresa Ho. Despite the potential for rate cuts, Ho expects money-market assets to continue rising next year.
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