Barron's: Too Late to Get Out of MMFs
Barron's tells us it's, "Time to Get Out of Money-Market Funds? Why It May Already Be Too Late." They write, "The 'cash is trash' talk is back. What's different is that money-market rates were near zero when that phrase was last heard. But it's being reprised now that the Federal Reserve has begun bringing down its key policy interest rate from over 5%, the highest in over a decade and a half. With the Fed projecting further rate reductions to around 3.4% by the end of 2025, from the current target range of 4.75% to 5%, and financial-futures market pricing in even steeper cuts, the clarion call of financial advisors is to get out of money-market funds, certificates of deposit, and Treasury bills before it's too late." But the piece explains, "Well, it may be already too late. The bond market has already priced in anticipation of sharp Fed rate reductions -- perhaps too much so. A five-year Treasury note yield of 3.77%, well below the 4.60% from the Fidelity Government Money Market fund, effectively prices in rate cuts reflected in the federal-funds futures market." Barron's adds, "All of which suggests that the advice to flee cash equivalents may be ill-timed, either because bond yields have already fallen ahead of Fed rate cuts or because yields may rebound from here.... The public is also sitting on nearly $6.5 trillion in money-market fund assets, a record, despite anticipating lower rates ahead.... While money-market funds will see their returns reduced by Fed rate cuts, closed-end funds should benefit. Unlike more familiar mutual funds and ETFs, CEFs issue a set number of shares, which trade on exchanges, above or (more often) below their net asset values. Most CEFs also utilize leverage—they borrow, frequently at costs linked to short-term market rates. Fed rate cuts should trim their financing costs while boosting the value of their investment portfolios."
