In any case, money market funds are safer than bond or stock mutual funds or exchange-traded funds. All are intended to avoid fluctuations in value, though they have come under strain before and could well do so again. government securities, and all are required to hold only high-quality debt instruments.
#MONEYMONEY RATE SERIES#
Since then, they have been subjected to tighter regulatory scrutiny and to a series of reforms. Now I would add money market funds to that list, with some qualifications.īe aware that, yields aside, money market funds ran into some safety problems in the last two financial crises. In the past, I noted that several options - like bank accounts and Treasury bills - seemed reasonable. Fund companies granted expense waivers - effectively, subsidies - to keep the funds in business.Īs a practical matter, in the current unsettled markets, many people need good places to keep their short-term cash. Negative rates didn’t happen in the United States. That meant, theoretically, that the funds could have resorted to paying negative yields to make money, which would have resulted in fund investors paying for the privilege of parking their cash in a money market fund. Money market mutual funds receive that rate for funds held by the Fed overnight, so it functions as a rough floor on yields.Īt the moment, short-term Treasury bills, with yields in the 0.85 to 1.05 percent range, provide a practical ceiling, especially for funds that hold government securities.Īs I wrote when interest rates fell to nearly zero in 2020, the operating expenses of money market funds exceeded the income they brought in. That rate stands at 0.80 percent but was close to the zero bound for months. Traders are betting that the federal funds rate will go above 3 percent in 2023.īut the Fed has been raising other interest rates as well, including one with a dismal name: the reverse repurchase agreement, a.k.a. In July, that is expected to happen again, with more increases to come. What will get most of the attention on Thursday is that the Fed will raise the benchmark federal funds rate, probably by 0.5 percentage points, to a range of 1.25 to 1.50 percent.
In other words, the longer you keep your spare cash in a money market fund, the less purchasing power you will have. To the contrary, it indicates that your real rate of return, adjusted for inflation, is deeply negative. That’s not good for your personal wealth, to say the least. The latest Consumer Price Index numbers released on Friday showed inflation running at an 8.6 percent annual rate in May, creating an enormous gap between inflation and money market yields. “But that’s still not much, especially when you factor in inflation.” “Yields are moving in the right direction,” Mr. Crane, the president of Crane Data of Westborough, Mass., which monitors money market funds. The yield on the average big money market fund is still only about 0.6 percent, said Peter G. This isn’t a return to the early 1980s, when money market rates soared above 15 percent, along with the rate of inflation. “And they will be rising fairly rapidly.”ĭon’t get too excited just yet. “You can expect money market rates to keep rising for a while,” said Doug Spratley, who heads the cash management team at T.
0 kommentar(er)
