Cash has been king for the past couple of years. Money market funds ballooned as investors clipped easy yields with minimal risk while the Fed tightened.
That trade is starting to unwind. Rate cuts are compressing yields fast, and the income advantage that pulled trillions into these funds is fading.
Now, investors are actively searching for securities to replace or increase yields without dramatically increasing risk.
Additionally, money market funds have been marginal buyers of short-term Treasuries, effectively funneling liquidity from the Fed’s reverse repo facility into T-bills as the Treasury leaned hard on short-term issuance.
A world where money market funds stop growing, or start shrinking, isn’t just about investors reallocating cash.
