"Cash is King" Resurges, U.S. Money Market Assets Hit Historic Highs

According to the financial news app Zhitong Finance, last week's global risk asset sell-off led investors to cash out, further driving funds into high-quality assets, resulting in a record high for the US money market fund assets. Data from the Investment Company Institute shows that as of the week ending August 14, approximately $28.4 billion flowed into US money market funds. Total assets rose to a historical high of $6.22 trillion, surpassing the previous record of $6.19 trillion set the week before.

Since the Federal Reserve began one of its most aggressive tightening cycles in decades in 2022, retail investors have been pouring into money market funds. Despite expectations of the Fed soon starting to cut rates, fund inflows have continued so far.

In addition, a global fund manager survey report released by a US bank on Tuesday showed that institutional investors have increased their cash asset allocations in August to reduce long positions in stocks, as global economic growth expectations hit an eight-month low and US recession expectations rise.

According to the survey, 31% of respondents said they increased their stock holdings in August, significantly lower than the 51% in July, with their average cash asset allocation now at 4.3% of managed assets, up from 4.1% a month ago.

The resilience of the US economy has led traders to lower their expectations for significant rate cuts by the Fed this year, with expectations of less than 30 basis points next month. Traders expect the Fed to cut a total of 92 basis points for the remainder of 2024, lower than the previous expectation of over 100 basis points.

Even after the Fed starts lowering borrowing costs, money market funds can still attract cash, as institutions and corporate treasurers tend to outsource cash management for yield rather than tackling the issue themselves.

As of August 14, government funds (mainly invested in securities such as treasury bills, repurchase agreements, and institutional debt) saw asset growth of $30.3 billion, reaching $5.04 trillion.

Institutional prime funds, which tend to invest in higher-risk assets like commercial paper, saw a decrease of $1.04 billion in assets to $1.05 trillion. On the institutional side, funds left high-quality money market funds, indicating investors are adjusting allocations ahead of the latest set of regulations from the Securities and Exchange Commission (SEC) expected to take effect later this year.

Money market funds invest in short-term, highly liquid financial instruments such as short-term government bonds, commercial paper, and bank deposits. Due to the high liquidity, extremely low risk, and price stability of these funds, they meet investors' needs for immediate redemption and are often seen as cash equivalents that can be quickly liquidated. Money market funds are a common choice for investors seeking a safe haven during market volatility and are suitable for short-term cash management needs