US money market funds currently have more than 7 dollars, which according to some analysts and alternative cryptocurrencies (Altcoins).
A monetary market fund is a type of investment fund which invests in high -quality short -term debt instruments, such as cash bills, deposit certificates and commercial paper.
The total assets of the Monetary Market Fund increased from $ 52.37 billion to $ 7.26 billions of dollars for the closed week on September 3, according to Investment Company Institute (HERE). The market funds in retail markets increased $ 18.90 billion to $ 2.96 billion dollars, and institutional funds increased by $ 33.47 billion to $ 4.29. Here reports the assets of the monetary market fund to the Federal Reserve every week.
The money market funds have inflated in recent years, initially pulling money because of their Haven call during the crisis induced by the coronavirus at the beginning of 2020 and later during the Hiking Cycle of the Fed rates, which pushed the yields and attracted investors.
The entries remained robust at the end of last year, while the Fed dropped the rates from 5.25% to 4.25%. However, other rate reductions could encourage investors to move a large part of their cash in other assets, including cryptocurrencies, according to David Duong, institutional research manager in Coinbase.
“There are more than 7 billions of dollars inside the funds of the monetary market, and all this is money in retail. As these rate drops are starting to come, all of this retail treasury flow will really enter other asset classes such as actions, the crypto and others,” Duong told Coindesk in an interview.
The American central bank is expected to reduce its target rate by at least 25 base points upon meeting next week, according to the Fedwatch tool of the CME. Some market players provide for a reduction of 50 BPS.
Traditional market observers are also excited about the cash flow battery in the money market. In an interview with Boutique Family Office & Private Wealth Management, the Cresset chief investment strategist, Jack Abblin, said that rate reductions could redirect the flow of the money market to stocks and cryptocurrencies.
“There are just over 7 billions of dollars in monetary market funds which give approximately 4.5%. If this yield is overturned to 4.25%or 4%, this could further encourage money in equity,” said Ablin.
Rotation depends on the wider economic environment
Although the cash flow battery in the monetary market should soon go into risky assets, this rotation is not guaranteed.
The extent to which investors redeploy the funds depends on the wider economic environment. Thus, if drops in rate occur in the context of the economic slowdown or increased economic uncertainty, many investors may prefer to continue to hold money market funds.
These funds offer relatively stable yields and immediate cash access, making it an attractive option when trust in growth and financial markets decreases. Thus, despite the lower yield yields of rate drops, investors can remain cautious, by maintaining considerable sales in the money market funds.
According to Pseudonymous observing endgame macro, record money market investment is in fact a sign of imminent economic pain.
“We only see accumulations like this when investors want a return, but do not want to take a risk of duration or equity. This occurred after the Bust Dot Com, again after the GFC, and in 2020-20121, when the rates were struck down and the money waited on the sidelines,” said endgamous macro on X.
The observer added that, as the rates decrease, the money is first allocated to the Treasury tickets, then to more risky assets.
The risk of duration refers to the sensitivity of fixed income investments (Bond’s) price to variations in interest rates. In the context of the money market funds, which invest in short -term debt instruments with deadlines generally lower than one year, the risk of duration is relatively low compared to longer -term obligations.
By end of game macro, rotation depends on the size of the drop in imminent rate.
“The biggest question is not only if the Fed cuts, it is how. A cautious movement of 25 base points allows the money funds to bleed gradually, while a cut of 50 BPS could accelerate the change, pushing money in cash first, then the risk assets because the advantage of yield disappears. With 7.4 billions of dollars pending, the scale of the rotation counts as much as the direction,” he noted.
