Investor dash to cash continues ahead of Fed rate cut, BofA says

Investment (THE)

06/09/2024 09:54

By Harry  Robertson
       LONDON, Sept 6 (Reuters) - Investors poured $61 billion
into cash-like money market funds in the week to Wednesday, as
they braced for the Federal Reserve to cut interest rates for
the first time in four years, Bank of America said on Friday.
    
    WHY IT’S IMPORTANT 
    Many investment fund managers have hoped rate cuts will
lower the returns on money-market funds (MMFs) and send a
torrent of cash into stocks and bonds.
    But, somewhat counter-intuitively, big investors tend to
move into MMF as the range of short-term fixed income assets
they hold typically offer higher returns for longer than
short-term Treasury bills, whose yields are highly sensitive to
Fed rates.
    
    BY THE NUMBERS
    Investors put $60.8 billion into cash funds in the week to
Wednesday, adding to the largest five-week inflow into cash
since December 2023 at $231 billion, BofA said in its weekly
Flow Show report, citing EPFR data.
    They put $9.5 billion into bonds, although U.S. Treasuries
suffered the largest outflow since January, at $1.9 billion.
Investors put $3 billion into stock funds and $600 million into
gold.
    
    CONTEXT
    U.S. economic data has suggested the labour market is
cooling, with job openings falling and payroll growth slowing,
putting the Fed on track to cut rates at its meeting on Sept.
18.
    U.S. interest rates are currently in a 5.25% to 5.5% range,
leaving yields on money market funds at their highest since
before the financial crisis in 2008.
    A touch over $6.3 trillion currently sits in U.S. money
market funds, up from $3.6 trillion at the start of the
pandemic, Investment Company Institute data shows  aUSFAMTA .
   
    WHAT’S NEXT
    Investors will be scrutinising U.S. economic data,
particularly Friday's August employment report, for clues about
whether the Fed will cut 25 or 50 basis points this month. Bad
economic news could lead to a rush into safe-haven government
bonds.
    
    GRAPHIC    
    

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 (Reporting by Harry Robertson; Editing by Amanda Cooper,
William Maclean)
 ((harry.robertson@thomsonreuters.com))