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

Money Market Funds Surge $166 Billion Amid Bond Market Volatility

The Bond Market's Impact on Investors

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

Why Investors Flocked to Cash

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

The Role of 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.

Market Reaction

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.

Contrarian Views

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.

Impact on Other Markets

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

Global Response

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.