Investors Move to Money Market Funds: 2005
Posted By John Schroy On 12th March 2006 @ 12:56 In Corporate Bonds, Fund Shares, Individual Investors, Foreign Investors, Fund Managers | Comments Disabled
For the first year since 2001, investors moved back into money market mutual funds in 2005, with net sales of $127 billion. (See: Federal Reserve flow of funds [1] account F206.)
The largest flows into money market funds came from U.S. households ($47.7 billion) and funding corporations ($58.4 billion).
The return of investors to money market funds was clearly the result of the Federal Reserve policy of increasing short-term interest rates, combined with the flattening of the yield curve due to buying pressure on longer-term fixed income securities resulting from the trade deficit.
Investment by funding corporations picked up in the last quarter of 2005 to an annual rate of $168.6 billion. Much of the money of funding corporations is connected to cash collateral held on short-sales of securities.
Presumably, collateral put up by speculators against long-bonds (gambling that long-bond prices would fall) was being channeled through funding corporations into money market funds, thereby helping to keep short-term rates down.
(See: “[2] Just What Are Funding Corporations?“)
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URL to article: http://capital-flow-analysis.com/capital-flow-watch/investors-move-to-money-market-funds-2005.html
URLs in this post:
[1] account F206: http://capital-flow-analysis.info/flow-of-funds/F206.htm
[2] Just What Are Funding Corporations?: http://capital-flow-analysis.info/capital-flow-watch/archives/69
[3] bond prices: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=bond-prices
[4] fixed income securities: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=fixed-income-securities
[5] households: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=households
[6] individual investors: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=individual-investors
[7] money market funds: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=money-market-funds
[8] trade deficit: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=trade-deficit
[9] yield curve: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=yield-curve
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