By Vishwanath Tirupattur, Morgan Stanley global head of Quantitative Research
Curb Your Enthusiasm
At $6.56 trillion, assets under management (AUM) in US money market funds (MMFs) hit another record high last week. Inflows to MMFs have continued even as market pricing of policy easing has moved higher – today, the market-implied probability of a 25bp rate cut in September sits a shade above 95%. A popular view in the financial media is that AUM in MMFs represents money on the sidelines waiting to be allocated to risk assets, especially equities. The underlying thesis is that the current level of policy rates and the consequent high money market yields have resulted in accumulation of AUM in MMFs and, when policy easing gets under way and money market yields decline, this will be allocated toward risk assets, especially equities. Paying homage to the recently departed TV show, we caution that this expectation needs to be tempered.
