Investors rush to money market funds ahead of Fed rate cut, BofA says Reuters

By Harry Robertson

LONDON (Reuters) – Investors poured $37 billion into cash-like money market funds (MMFs) in the week to Wednesday, Bank of America said on Friday, as they prepared for the U.S. Federal Reserve to cut interest rates in September.

It put MMFs on track for the biggest three-week cumulative inflow since January at $145 billion, BofA said, citing figures from financial data provider EPFR.

Investors are pouring $20.4 billion into stocks, $15.1 billion into bonds and $1.1 billion into gold, BofA said in its weekly round of inflows and outflows from global markets.

Many fund managers hope that interest rate cuts will lower MMF yields and cause a cash pile into stocks and bonds.

However, big investors are flocking to money market funds before the Fed cuts interest rates, as the range of short-term fixed income securities in the funds means they tend to offer higher returns for longer than Treasury bills. short term treasury.

“A rate cut is not a likely spark for buying stocks in the $6.2 trillion money market fund (sector),” BofA strategists led by Jared Woodard wrote.

“History shows that the first Fed tapering precedes more cash inflows in a ‘soft’ landing and obligate the likely winner if it’s ‘hard.’

Recent economic data has broadly pointed to a gradual economic slowdown, or “soft landing,” as opposed to a more dramatic “hard” alternative.

BofA and EPFR data showed investment-grade bonds drew a 43rd straight week of inflows to $8.1 billion.

Emerging market stocks received $4.7 billion in a 12th straight week of inflows, the longest streak since February 2024.