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U.S. Investors Flee to Money Market Funds Amid Ukraine Crisis

edited March 3 in Other Investing
“U.S. investors purchased money market funds and withdrew cash from higher risk equity funds in the week to Feb. 23, as a rush for safety dominated markets in the run up to Russia's invasion of Ukraine. U.S. money market funds accumulated capital worth a net $5.98 billion in their first weekly inflows since Jan 26 …

“U.S. bond funds lost $3.66 billion in a seventh consecutive week of net selling, but the net selling was 92% lower than the previous week.”


Article - Data ending 2/23

Comments

  • A form of timing the market or having to much at risk ? Only (YOU) can answer that question ? I didn't read the link , just my $.02 !
    Trying to stay calm, Derf
  • edited March 3
    Thanks for the thoughts @Derf

    I was mostly concerned with the bond fund outflows. Actually, they slowed a bit in the last reporting week compared to early in the year. One can only speculate; but ISTM all the talk by Fed officials about hiking the overnight lending rate at the next meeting has had a lot to do with the flight out of bond funds. Less demand = higher rates (short end) = falling prices / NAVs = potentially more investor flight. DODIX fell .88% yesterday - a loss one might expect over a period of several months and very rare for a single day for that fund.

    In contrast, longer dated bonds, like the U.S. 10-year Treasury, have not experienced the same degree of rate increase, leading to a flattening of the yield curve. Just this week the 10-year Treasury fell briefly below 1.70% - actually about where it stood a year earlier.

    Is it market timing? I don’t know. But when money gushes into money market funds yielding next to nothing - regardless of the source - I think it’s at least intriguing - perhaps a sign of investor fear as to what the “next shoe to drop” might be - whether at the Federal Reserve, in the equity markets or over the war in Ukraine.

    Old Thread - Fed Open Mouth Committee / The pronouncements became so frequent from so many different representatives / spokespersons that I gave up adding them. But they were mostly projecting a .25 or .50% hike in March. Some predicted 5 or more interest rate hikes beyond that this year. More recently, Chairman Powell has signified that there will be a .25% rate hike later this month.
  • edited March 3
    A form of timing the market or having to much at risk ?
    I would call it reallocation of one's portfolio instead. Powell's testimony early this week confirmed a 0.25% rate hike in mid-March. With over 6% inflation rate, money market funds stand to loss 6% in your buying power. In the near term, money market is okay for liquidity purpose. However, there are better vehicles for inflation protection as laid out by our MFO contributor, Devesh Shah's article below. They include REITs. short term-duration TIPS and iBond.
    https://mutualfundobserver.com/2022/02/thoughts-on-inflation-protection/#more-16373

    Personally, I moved the bulk of my core bond funds in fall last year to STIP, bank loan, short term investment grade bonds and stable value.
  • Hi @hank et al
    You noted cash flows relative to bonds in your post, with a date reference of Feb. 23. Feb. 23 is a good beginning point for bonds, related to the Madman's attack of Ukraine.
    I don't attempt to grab data about cash flows, as there is likely a delay of what data we can obtain to be of value. However, pricing in real time provides for me; what I choose to know about a market direction. The broad listing of bond types etf's below provides the information I could/would use related to cash flows.....being increasing price = cash flow in; decreasing price = cash flow out. Yes, there may be interventions with policy changes or purchases by our Fed/Treasury that may have impact upon pricing. One may place the tickers into whatever tool you may use to "watch" changes throughout the day. The exception is the BAGIX mutual fund. Y'all may find some value in this list.

    --- AGG = (widely used bond benchmark, mixed holdings)
    --- MINT = (PIMCO Enhanced short maturity, AAA-BBB rated)
    --- SHY = (UST 1-3 yr bills)
    --- IEI = (UST 3-7 yr notes/bonds)
    --- IEF = (UST 7-10 yr bonds)
    --- TIP = (UST Tips, 3-10 yrs duration, some 20+ yr duration)
    --- STPZ = (UST, short duration TIPs bonds, PIMCO)
    --- LTPZ = (UST, long duration TIPs bonds, PIMCO)
    --- TLT = (20+ Yr UST Bond
    --- EDV = (UST Vanguard extended duration bonds)
    --- ZROZ = (UST., AAA, long duration zero coupon bonds, PIMCO)
    --- BAGIX = (active managed, plain vanilla, high quality bond fund)
    ***Other, for reference, not AAA rated:
    --- HYG = (high yield bonds, proxy ETF)
    --- LQD = (corp. bonds, various quality)


    Remain curious,
    Catch
  • Agree. Cash flow data is a backward indicator that tends to be a bit late. Tough spot for bond investors this year with the possibility of 4-7 rate hikes. Then again moving to equity poses a complete set of risk on capital loss.
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