MarketWatch: Cash Won't Flee MMFs
MarketWatch writes "Cash won't flee money-market funds if the Fed gets its soft landing." The piece tells us, "The Federal Reserve's slow approach to cutting interest rates could keep cash on the sidelines long after the central bank starts to unwind its most aggressive hiking cycle in four decades. Conventional wisdom says investors shouldn't wait for the Fed to start lowering rates to move out of cash into longer-duration bonds with some of the most attractive yields in roughly 15 years, largely because when cuts start, they can come quickly. But it's hard to argue against investors wanting to stay put, earning roughly 5% in money-market funds and other cashlike investments, especially when the timing and magnitude of potential rate cuts has been a moving target." It explains, "Since it began hiking rates two years ago, one of the Fed's biggest tests came with the collapse of Silicon Valley Bank a year ago. Assets in money-market funds swelled by about $1 trillion as deposits fled the banking system for higher yields elsewhere. Inflows into money funds continued, hitting a record $6.5 trillion in February, according to the U.S. Securities and Exchange Commission. While bank deposits now appear to have stabilized, the outlook for interest rates hasn't. Wall Street's initial estimate of up to seven rate cuts in 2024 has been dialed back to three, two or possibly none." They quote John Tobin, CIO of Dreyfus, "What the market has been predicting and what the Fed has been delivering have been very different things. It wasn't that long ago ... that traders were pricing in a roughly 80% chance of a March rate cut. `That wasn't our base case at all. We thought June was the right time and still believe that today. It's almost a coin toss if June is or isn't in play.... I think this easing cycle remains a tailwind for us."
