Gush of cash into money market funds tipped to continue in 2024

financialpost.com:

Money market fund managers see no end in sight to the record inflows they have garnered in 2023, as cash continues to pour in from investors hoping to take advantage of the highest yields available in years.

Almost US$1.19 trillion has flooded into U.S. money market funds since Jan. 1, 2023, according to flow tracker EPFR Inc., fuelled by the United States Federal Reserve’s aggressive campaign of interest rate increases. That is a far cry from negligible inflows in 2022 and well above the average full-year net inflow figure of US$179 billion for 2012-2022. The comparable figure for 2021 was US$429 billion.

Money funds typically hold short-term assets including government debt, whose yields have rapidly climbed as the central bank has turned the screws on monetary policy.

More than US$257 billion poured in between Oct. 31 and Nov. 30 alone, according to the latest available data, the biggest monthly inflow since U.S. banking ructions in March sparked a flight from ordinary deposit accounts. Those inflows have persisted even as markets are pricing in bets that the Fed will not raise interest rates again this cycle, and will cut borrowing costs as soon as the spring.

Money market fund assets hit an all-time high of US$5.8 trillion on Nov. 29, as investors continue to harbour doubts about long-dated debt.

Now, major fund houses including Goldman Sachs Group Inc. and Federated Hermes Inc. are predicting the torrent will carry through to 2024, fuelled by institutional investors trying to lock in returns as interest rates stabilize, and before the Fed starts to cut.

“I’m not looking at a big spring back” from money market funds, said Chris Donahue, chief executive of US$715-billion-in-assets Federated Hermes. “It’s more likely