Money Market Funds Just Drew $166 Billion: What Spooked Investors?

In one week, investors moved $166.4 billion into money market funds, Bank of America data shows. Not since the Covid crash of April 2020 has so much money hurried into cash this fast.

The scare did not start in stocks, but in the bond market, long treated as the safest market in the world.

How the Bond Market Pushed Investors Into Cash

When the US government borrows, it sells bonds. The interest rate on those bonds is called the yield.

When yields rise, older bonds lose value. Nobody wants a bond paying 4% when new ones pay more.

This week, the 10-year Treasury yield hit 5.36%, its highest in about 24 years. The 30-year yield touched 5.70%.

Forbes linked the climb to oil-fueled inflation, a Fed rate hike in September, and a $1.9 trillion federal deficit.

So investors ran to money market funds. These funds lend cash for weeks at a time, mostly to the US government. Their share price stays near $1, so holders earn interest without watching their savings shrink.

Wall Street Splits on Whether Cash Is the Smart Bet

Bank of America strategist Michael Hartnett says the money will not move until the Fed cuts rates.

“No rate cuts, no cash cuts,” said Michael Harnett, Chief Strategist at Bank of America.

Traders see no chance of cuts at the Fed’s October meeting.

Not everyone is hiding. Jim Bianco, bearish on bonds for six years, has turned bullish on bonds. He argues 5% yields now match the economy’s growth.

Stock investors have their own warning. Ray Dalio says rising yields are eroding the stock cushion that has protected equities.

Crypto felt the chill too. Crypto funds lost $600 million that week, while gold drew $2 billion.

Money market assets now sit near $8 trillion, up from $5 trillion in 2023, Bank of America says. Under Hartnett’s rule, that pile stays put until the Fed blinks.

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