In anticipation of a September interest rate reduction by the US Federal Reserve, investors poured $37 billion into cash-like money market funds (MMFs) in the week leading up to Wednesday, according to a report released by Bank of America on Friday.
According to data from financial data provider EPFR, it put MMFs on course for their largest three-week cumulative inflow since January at $145 billion, according to BofA.
BofA’s weekly summary of flows into and out of global markets showed investors allocated $20.4 billion to equities, $15.1 billion to bonds, and $1.1 billion to gold.
Many fund managers believe that by lowering interest rates, MMF returns would decline and there will be a cash rush into bonds and equities.
Laptops 1000However, large investors usually rush to money market funds before the Fed lowering interest rates, since the funds’ assortment of short-term fixed-income instruments tends to provide longer-term returns than short-term Treasury bills.
BofA strategists led by Jared Woodard stated, “Rate cuts not a likely spark for equity buying from the $6.2 trillion money market fund (sector).
“History shows the first Fed cut precedes more cash inflows in a ‘soft’ landing, and bonds the likely winner if ‘hard’.”
Relative to a more abrupt ‘hard’ alternative, recent economic indicators generally indicate a gradual economic downturn, or ‘soft landing’.
According to data from BofA and EPFR, investment-grade bonds saw inflows of $8.1 billion for the 43rd consecutive week.
For the 12th week inflows into emerging market equities were $4.7 billion, the most since February 2024.
