Concerns Over Economic Recession Persist, Hesitation in Stock Investment
Criticism That Interest Rate Cuts Are Reflected Slower Than Banks
The US money market fund (MMF) market showed resilience despite interest rate cuts, attracting a record amount of funds.
According to data released on the 3rd (local time) by the Investment Company Institute (ICI), approximately $38.7 billion flowed into the US MMF market during the week ending on the 2nd, bringing total assets to an all-time high of $6.46 trillion (about 8,600 trillion KRW). By bond type, government fund MMF assets, which mainly invest in US Treasury Bills (TB), spot foreign exchange, and repurchase agreements (RP), increased by $42.5 billion to $5.29 trillion, accounting for the majority of total MMF assets. Prime MMF assets, which invest in high-risk assets such as commercial paper (CP), decreased by $5.7 billion to $1.045 trillion.
MMFs are ultra-short-term financial products that invest in short-term government bonds, CP, and certificates of deposit (CD) issued by the government. They have attracted investors' attention with higher yields than bank deposits during high-interest-rate periods, offering not only interest income but also potential capital gains. However, enthusiasm has not cooled despite the interest rate cuts. The MMF market attracted $321 billion in the third quarter alone, about five times more than the previous quarter. This is the largest quarterly inflow since March last year, when demand for safe assets expanded due to bankruptcies such as Silicon Valley Bank.
Theodora Lee, an analyst at Joseph Finimize, said, "Even though MMF yields, which peaked at 5.2% last December, have fallen to around 4.9%, investors are pouring money in," adding, "It appears that those wary of a potential recession are maintaining a safe investment strategy." She explained that despite the Federal Reserve's interest rate cuts last month causing MMF yields to decline, investors who have not completely shaken off recession concerns are hesitant to move into the stock market.
However, some argue that a decline in MMF demand is only a matter of time. Bloomberg emphasized, "MMFs tend to take longer to reflect changes in benchmark interest rates compared to commercial banks," noting, "Banks move quickly by lowering deposit rates even before the Fed cuts rates, but MMFs do not." It added, "During this period, institutional investors and corporate treasurers tend to outsource cash management by investing in MMFs rather than managing assets directly."
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