U.S. money market funds show no signs of slowing down

As the U.S. economy continues to demonstrate its strength, money market funds show no signs of slowing down. For the fifth consecutive week, these funds have received inflows, driven by an increasingly robust labor market and anticipation of a Federal Reserve rate hike in May.

Investors are also opting for money market funds over traditional bank deposits due to the uptick in short-term interest rates.

Money Market Funds vs. Bank Deposits: A Growing Preference

According to data from Refinitiv Lipper, money market funds in the U.S. attracted a net inflow of $20.51 billion during the week ending April 12th.

Although this figure represents the smallest weekly net purchase since March 8th, it indicates a continued preference for money market funds over bank deposits.

This trend can be attributed to the rally in short-term interest rates, with some measures even indicating a positive real interest rate.

The yield on the 3-month U.S. Treasury bill, a popular investment choice for money market funds, reached a near 16-year high of 5.175% on Thursday. As interest rates rise, investors are increasingly drawn to these funds in search of higher returns.

Equity and Bond Funds: A Mixed Picture

While money market funds continue to experience inflows, equity funds witnessed a decline in outflows to a three-week low of $1.09 billion. U.S. small-cap equity funds saw inflows of $490.3 million, breaking a three-week outflow streak.

However, large- and mid-cap funds reported withdrawals of $919 million and $276 million, respectively.

Sector-wise, investors funneled $951 million and $661 million into U.S. communication services and financial sector funds, respectively. In contrast, healthcare funds experienced a selloff of $658 million.

U.S. bond funds, on the other hand, recorded $1.7 billion in inflows, a significant drop from the previous week’s net buying of $8.97 billion.

U.S. government bond funds brought in $2.44 billion, marking the smallest amount in eight weeks. Meanwhile, loan participation and U.S. short and intermediate investment-grade funds saw outflows of $542 million and $264 million, respectively.

A Resilient Future for Money Market Funds

The sustained interest in U.S. money market funds, despite the fluctuating landscape of equity and bond funds, underscores their resilience in the face of shifting economic conditions.

As investors continue to seek higher returns in a rising interest rate environment, money market funds are poised to maintain their appeal for the foreseeable future.

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