Predicting all wrong! The trend of $7 trillion US dollars in funds caused Wall Street to be caught off guard.

This year was supposed to be a year of large-scale outflow in the currency market. It was noted that Wall Street analysts had previously predicted that Fed rate cuts, along with the subsequent rise in stock and bond markets, would lead investors to withdraw cash on a large scale from money market funds. However, their predictions were completely wrong! Despite the rate cuts and stock market surge, companies and households continued to pour cash into money market funds, resulting in the total assets held in these accounts exceeding $7 trillion for the first time this week. These funds are used to purchase U.S. Treasury securities and other short-term instruments, and investors have become accustomed to benchmark interest rates of over 5%, which highlights the attractiveness of benchmark interest rates of over 5% to investors. Even with rates now down to 4.5%, money market funds still provide stable, almost risk-free income, which not only supports the financial condition of many households but also to some extent offsets the damage caused by rate hikes in other areas of the economy. With more and more signs indicating that the Fed may not further lower benchmark interest rates, many Wall Street analysts now predict that Americans will not soon lose their love for cash. Laurie Brignac, Chief Investment Officer and Global Liquidity Head at Invesco, said, "I can't imagine what would make institutional or retail investors withdraw from money market funds. People tend to think that when the Fed lowers rates, funds will flow out in abundance." This is not only because money market rates are still close to peak levels, but also because the fact that they remain consistent (and usually higher) with the rates of most alternative currencies continues to attract investors. Currently, the yield on three-month U.S. Treasury bonds is around 4.52%, about 0.07 percentage points higher than the yield on ten-year U.S. Treasury bonds. The yield on the Fed's overnight reverse repurchase agreement instrument (where money funds typically deposit their cash) is currently 4.55%. In addition, banks quickly passed on the impact of the Fed's recent rate cuts to consumers, making the money market a more attractive place for them to park their cash. Goldman Sachs' consumer bank Marcus followed the Fed's lead by lowering the rate on its high-yield savings account to 4.1%, while competitor Ally Bank currently offers a rate of 4%. According to Crane Data, a money market and mutual fund information company, within the week ending Wednesday, these moves helped money funds attract around $91 billion in funds, bringing total assets to $7.01 trillion. As of November 13th, the seven-day yield on Crane Data's Crane 100 money market fund index, tracking the top 100 funds, was 4.51%. Gennadiy Goldberg, Head of U.S. Rate Strategy at TD Securities, said that money market rates "remain attractive despite rate cuts, as there is considerable uncertainty regarding future economic trends and the yield curve remains relatively flat." "Yields must drop significantly for funding inflows to slow. Historically, yields need to drop to 2% or lower to slow the inflow into money market funds or lead to direct outflows." This contrasted sharply with predictions from companies such as BlackRock Financial Management, which stated in December of last year that significant assets from money market funds would shift to equities, credit, or even further along the bond curve. Apollo Global Management has also indicated in recent months that Fed rate cuts and a steepening rate curve may prompt households to move cash elsewhere. While this scenario has not yet occurred, most market observers now say they expect demand for money market funds to decline by 2025. JPMorgan has said that historically, the industry tends to experience outflows about six months after the Fed begins a rate-cutting cycle. Furthermore, with the new administration taking a relatively mild anti-monopoly stance, Trump's recent election victory earlier this month could stimulate a boom in merger and acquisition activity, prompting more companies to deploy the cash they have long held onto. Teresa Ho, Head of U.S. Short-Term Rate Strategy at JPMorgan, said, "I don't think we're at a turning point, but we're at a stage where $7 trillion may be approaching a peak. Looking ahead to next year, it's hard to see a repeat of the situation in 2024." However, Ho said that some of the drivers of money market fund asset growth are unlikely to change. On one hand, companies have significantly more cash on hand compared to before the pandemic. In addition, as rates fall, corporate treasurers tend to outsource cash management to generate returns rather than handle it themselves, helping to cushion any outflows. According to Crane data tracking the entire money market industry, institutional investors accounted for about half of the $700 billion inflow into money funds this year. The Investment Company Institute's data shows that inflows so far this year total $702 billion, with total assets reaching a record $6.67 trillion as of the week ending November 13. This data is published weekly and does not include companies' own internal money funds. Brignac of Invesco said, "Retail investors have been accustomed to zero returns for decades, so any return above that level looks like a good deal." However, "funds will still flow in," she added.