Source: Bloomberg
Author: Lisa Abramowicz
The scale ofThe scale of the currency market fund has reached $ 6.2 trillion in the past five years, but there is a mystery hidden at the market.
How many of these funds are stable, and how many preparations are ready to evacuate immediately after the Fed started to cut interest rates. No one can say clearly.
Bob Michele, the investment portfolio manager of JPMorgan Asset Management, believes that as investors realize that they can no longer earn 5%of the income by cash, these funds will flood into other fixed income funds.
Michele said: "I look at those funds still stored in cash and think of talking to customers every day. Everyone is thinking about trying to enter the bond market.Buying is incredible "" "
He said that once the Fed started to cut interest rates more actively and the return on the currency market began to decline, the funds will flow in, "the yield may drop to 3%or even lower."
There are not a few people who feel that currency market funds are flooding, but investors are willing to transfer to other assets to other assets and what securities will have different views.
Wells Fargo strategist Tracie McMillion Agree with interest cutting will cause some funds to flow out of the currency market funds, but it is believed that funds will flow more to stocks and medium -term bonds instead of the longest -term bonds.
"We believe that some funds will re -flow into the market, not only flowing to fixed income, but also to stocks and other assets," she said."If the Fed's interest rate next year is consistent with our expected level, then we think that some cash will remain in cash."
Her team predicts that in 2025, the 10 -year Treasury bond yield will be closer to 4%instead of 3%, and it can still provide considerable income.
But she said that some funds flowing into the currency market fund are consumers who transfer zero -income deposits into funds that can obtain benefits, and may continue to maintain this state of cash.
McMillion and Michele both predict that while the Federal Reserve cuts interest rates, the economic situation will remain good, which is beneficial to risk assets.But Neil Dutta of Renaissance Macro Research said investors underestimate the risk of worsening the economy.
"There is an increasing risk of people who are more and more worried about the Federal Reserve's movement," Dutta said."At present, the risk of economic downward may be slightly higher than the degree of market embodiment."