Fidelity: Volatility Tailwind for MMFs
Fidelity Investments' Money Markets Group published "Outlook for 2019: Growth Slows as Volatility Creates a Tailwind for Money Markets." It explains, "Market volatility should continue to provide a tailwind to money markets as 'safe haven' investors look to beneļ¬t from positive real returns." Says Fidelity, "U.S. taxable money market funds (MMFs) have benefited from rising interest rates and the recent heightened volatility in the equity and credit markets. Not surprisingly, inflows into both prime and government money market mutual funds were strong during 2018. Taxable MMFs had net inflows of $182 billion at the end of 2018, far outpacing the average $77 billion in net inflows over the previous five years." Fidelity continues, "Moreover, nine interest rate hikes in the current tightening cycle have resulted in positive real (inflation-adjusted) yields for money market funds -- versus negative returns on many bond and stock portfolios in 2018. For example, the average 7-day yield on prime money market funds and government mutual funds climbed from near zero in 2015 to 2.33% and 2.10%, respectively, by the end of 2018. Prime and government funds now deliver far greater yields than those of bank-administered accounts. We would expect to see continued growth in money market funds and ultrashort bond funds from clients transitioning from lower-yielding bank deposits or reallocating from higher-risk investments." Other takeaways spotlighted that "The U.S. economy remains healthy despite signs of slowing growth as the tightening cycle enters a new phase, with the path of interest rates less clear in 2019" and "Increased Treasury bill supply has impacted market rates." Fidelity maintains that its MMFs are "well-positioned." It adds, "A temporary shutdown does not affect the U.S. government's payments on U.S. Treasury securities or other U.S. government debt securities, which are held in Fidelity mutual funds, including Fidelity money market funds. As one of the largest asset management companies in the industry, Fidelity has the scale and experience to navigate the cyclical rhythms of the markets in an effort to provide stability that our customers are seeking from their investment firms."
