Why is capital leaving money market funds as rates rise?
FHI•Money market fund assets fell $45.45 billion to $7.89 trillion in the week ended September 30, despite rising rates. Deborah Cunningham says fund yields can take three to four weeks to catch up as securities mature and are reinvested.
1. Yields adjust gradually
Money market fund assets decreased by $45.45 billion to $7.89 trillion for the week ended September 30. Deborah Cunningham says rising rates do not immediately lift fund yields because portfolios hold securities with staggered maturities; it can take roughly three to four weeks for a rate increase to work through to yields.
2. Cash has more options
Cunningham says investors can also hold liquidity in Treasury bills, direct repo and overnight deposits. Each offers different considerations, including bank exposure, operational requirements and managing maturities and reinvestment. Higher and more variable rates make the relative value of short-term instruments change quickly.
