As interest rates rise in the United States, money market funds have been quicker to adjust than bank accounts, which gives companies an incentive to bring their money into these funds in search of higher returns.
Companies have amassed record levels of cash during the pandemic and put large sums into bank accounts, which often generate little or no return.
Low interest rates meant there was little reason to shift that capital to money market funds, a form of mutual fund that invests in short-term debt securities, including US Treasury bills and commercial paper.
That, however, is changing as the Federal Reserve aggressively raises interest rates to contain high inflation.
The central bank is due on Wednesday (27) to raise interest rates for the fourth time this year, by 75 basis points, taking the fed funds to the range between 2.25% and 2.50%.
Amid the Fed’s rate hike campaign, returns on money funds doubled in June to an average of 1.23% and rose further to a weekly average of 1.36% through Monday, according to Crane. Data, which monitors this market.
Banks, however, have been slow to raise returns as they have large sums and are not looking to attract others.
Assets in money market funds have been rising in recent weeks, following a pullback seen earlier this year.
As of Monday, there were $5.018 trillion in these funds, up $30 billion from the end of June, according to Crane Data.
Source: CNN Brasil
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