CNBC on Big MMF, Bond Outflows
CNBC writes "Investors pull billions of dollars from bond and money market funds at fastest pace in years," echoing the WSJ article earlier this week. (See our Feb. 23 LOTD, "WSJ Writes on Fund Flows.") The article states, "Investors are pulling money out of bond and money market funds at the fastest pace in years, as inflation and the specter of rising interest rates threaten returns in the short term. The outflow has been starkest for money market funds, which are cash-like funds with a low level of risk. Investors shifted $148 billion out of money market mutual funds and exchange-traded funds between Jan. 1 and Feb. 16, according to Morningstar Direct data." CNBC continues, "Taxable and municipal bond funds also saw a monthly outflow in January for the first time since March 2020, which occurred during the U.S. recession fueled by the Covid-19 pandemic, according to Morningstar. Prior to the pandemic, investors hadn't taken money out of these bond funds during any month dating back to 2018. Investors have withdrawn $9.8 billion from taxable bond funds and $3.4 billion out of municipal bond funds from Jan. 1 to Feb. 16, according to Morningstar.... Money market funds are conservative, and generally invest in cash, short-term U.S. government bonds and other safe securities. High levels of inflation are eating into the relatively low returns offered by such funds. The consumer price index increased 7.5% in January from a year earlier, the fastest rate since February 1982. The exodus from money market funds in January also was the largest on record to start a calendar year, according to Refinitiv Lipper data, which dates to 1992. Outflows this month are on pace to set a new record for February." It adds, "The Federal Reserve is expected to raise interest rates starting in March to cool down the economy and rein in inflation. However, bond prices move in the opposite direction of interest rates -- meaning investors in bond funds will likely lose money as the central bank raises rates."
