The allure of money market funds

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Cash is still king, It has held the throne since 2020. Investors have poured $126 billion into money-market funds since the US Federal Reserve cut interest rates 50bps, driving their total assets to a record $6.76 trillion.

Money-market funds still offer an attractive yield of 4.9 percent, though that's down from their peak of 5.2 percent last December. Despite the Fed's recent 50 basis point rate cut, these yields still remain higher than what traditional bank accounts offer.

For some investors, keeping cash in defensive assets like money-market funds feels like a safer option, especially in times of market volatility.

Historically, institutional investors have increased their money-market holdings when the Fed cuts rates, with assets typically peaking about nine months after the first rate reduction. However, analysts expect demand for these funds to start declining when yields fall to around 3 percent.

Source: Eeagli

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