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Money market funds draw their biggest weekly inflow since April 2020
Savers moved cash into money market funds at the fastest weekly pace since April 2020. A bond sell-off and inflation worries pushed buyers toward short-term government debt.
Quick Read
- Global money market funds took in their largest weekly inflow since April 2020, and U.S. money fund assets reached a record, according to data cited by The Kobeissi Letter.
- A sell-off in government bonds and inflation worries pushed buyers toward short-term Treasury bills and the funds that hold them.
- Short-term Treasury ETFs such as SGOV and BIL also drew buying, though their prices can move and their returns differ from money market mutual funds.
- The September inflation report and the Fed's Oct. 28 rate decision could shift what cash accounts pay.
What happened to money market funds?
Global money market funds took in their largest weekly inflow since April 2020 in the week ended Oct. 7, according to data cited by The Kobeissi Letter. Total assets in U.S. money market funds rose to a record.
Why it matters: Bond funds also took in money, including funds that buy Treasurys. Treasury funds have now logged a long run of weekly inflows, the same data show.
Money market funds hold short-term debt such as Treasury bills, which are government IOUs that mature within a year. They are a common place for savers to park cash.
Why are savers moving into cash?
The flows came during a sharp sell-off in government bonds, reports said. Rising yields and lasting inflation worries pushed buyers toward safer assets. A yield is the yearly interest a bond pays, measured against its price. When bond prices fall, yields rise.
The 10-year Treasury yield briefly reached its highest level in many years on Oct. 7, reports said. Inflation fears and concern about government borrowing weighed on bonds. Yields then eased after strong demand at a Treasury auction.
On Tuesday, the 10-year yield fell 3 basis points to 5.21%. The 30-year yield fell 4 basis points to 5.56%. The 3-month Treasury bill yield edged up 1 basis point to 4.26%.
Which funds are drawing the money?
Short-term Treasury ETFs have drawn steady buying, according to ETFIQ data. An ETF, or exchange-traded fund, is a fund that trades like a single stock. The iShares 0-3 Month Treasury Bond ETF (NYSE: SGOV) holds very short-term Treasury bills. The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) offers similar exposure.
These ETFs trade on an exchange, so their market prices can move, reports note. Their returns also do not match those of money market mutual funds.
Some buyers are looking at longer bonds instead. The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) rose 0.4% to $78.37 on Tuesday as long-term yields fell. Funds holding long bonds tend to swing more when rates change.
What comes next?
What’s next: The September consumer price index, the monthly inflation report, is due at 8:30 a.m. ET on Oct. 14. Producer prices and retail sales for September follow on Oct. 15. The Fed announces its next rate decision at 2 p.m. ET on Oct. 28. Each report could shape expectations for short-term rates, which money market yields tend to follow.
For readers
What it could mean for you: This story matters most to savers with money in money market funds, high-yield savings accounts or short-term CDs. What those accounts pay tends to follow Treasury bill rates, which move with expectations for the Fed's benchmark rate. The yields on these accounts could rise or fall in the weeks that follow if the inflation report or the Fed decision on Oct. 28 shifts rate expectations.
Questions and answers
Why are money market funds getting so much cash?
Reports tie the inflows to a sharp sell-off in government bonds, rising yields and persistent inflation worries. Those pressures pushed buyers toward safer, short-term assets such as Treasury bills.
Is a Treasury bill ETF the same as a money market fund?
No. Treasury bill ETFs such as SGOV and BIL trade on an exchange, so their market prices can move during the day. Their returns also do not match those of money market mutual funds, the reports note.
Did Treasury yields rise or fall on Tuesday?
The 10-year Treasury yield fell 3 basis points to 5.21%. The 3-month Treasury bill yield edged up 1 basis point to 4.26%.
The numbers
| iShares 20+ Year Treasury Bond ETF (TLT) price | $78.37 |
|---|---|
| iShares 20+ Year Treasury Bond ETF (TLT) change | +0.41% |
| S&P 500 change | −0.02% |
| 10-year Treasury yield | 5.21% |
Tuesday’s close
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Not investment advice.