Despite expectations that the Federal Reserve will cut interest rates next week, Americans continue to be keen on cash. However, experts warn there are a few moves they should make if they want to lock in attractive yields. Assets in money market funds hit $6.3 trillion in the week ended Wednesday, another record high, according to the Investment Company Institute. These funds attract inflows because of their attractive payouts. The seven-day annualized return for the 100 largest taxable money funds on the Crane 100 list is currently 5.08%. Bank of America predicts these inflows will continue even after the Federal Reserve begins cutting interest rates. According to CME Group’s FedWatch tool, the central bank is scheduled to hold a meeting on September 17-18, and more than 70% of traders expect the federal funds rate to be cut by 25 percentage points. The remaining traders believe it will be 50 basis points. “Unless interest rates fall below 2%, a Fed rate cut is unlikely to free up MMF cash,” Bank of America strategist Mark Cabana wrote in a note last week. “A Fed rate cut is unlikely to free up MMF cash. A rate cut by the Fed should Inflows are slowing, but outflows are unlikely unless rates are cut significantly more than market expectations, he said. History shows that when investors do move out of money market funds, they turn to fixed income rather than stocks as the Fed cuts rates. , institutional investors will also continue to move into money market funds because any cash they have in direct money market investments (such as Treasury bills) will be hit by interest rate cuts faster than money market funds, Peter Crane explained. Crane said, “Money fund yields follow the direction of the Fed, so within a month of any action by the Fed, money fund yields should fall by 25 basis points.” He assumes that the central bank will cut interest rates. 25 basis points. Take action Experts have been warning investors against holding too much cash. Instead, you should know how much money you might need in an emergency, as well as the liquidity you’ll need for future opportunities or purchases, says Ted Jenkin, certified financial planner and founder of oXYGen Financial. In this case, you can leave your money in a liquid asset like the money market or a high-yield savings account. For cash that can be locked up for longer, he said, consider certificates of deposit, but act sooner rather than later. “If you want to get the maximum return on your cash over the next 12 months, it’s best to lock in a 9-month or 12-month term deposit rate,” said Jenkin, a member of CNBC’s Financial Advisory Board. “CD rates have fallen, with American Express and Bread Financial both lowering their 12-month rates last week,” according to BTIG. The firm believes banks are pushing customers to use savings accounts, where interest rates are not locked in. Bread Financial still tops the list with an annual yield of 4.9%. Once you’ve set aside appropriate cash needs, consider moving the excess into fixed income, Jenkin says. “Now is a good time to extend bond maturities,” Jenkin said. He extends maturities to five and 10 years and likes investment-grade corporate bonds. UBS’s Leslie Falconio thinks so too, calling the 4.5- to 5-year portion of the curve the “sweet spot.” “Our investment-grade corporate issuance hit a record high in the first week of the month, but investor demand remains,” she said. Falconio, head of taxable fixed income strategy at UBS Americas chief investment office, added , these assets are experiencing large inflows of capital, and investors can obtain good returns through high-quality assets. She also likes agency mortgage-backed securities, a high-quality, liquid sector. These products are debt obligations issued by institutions such as Fannie Mae, Freddie Mac and Ginnie Mae, whose cash flows are tied to interest and payments on a pool of mortgages. They are considered lower credit risks because they are backed by the U.S. government. “We don’t think defaults or high-yield issues are going to be a problem, we just think they’re too tight,” Falconio said. Jenkin said another place investors are looking at is preferred stocks, which when interest rates fall, Stocks tend to perform well. These securities are a hybrid product—they trade on an exchange like stocks, but have a par value and pay income like bonds. “This is the forgotten asset class,” he said. “Now is a good time to own them as they will continue to pay a solid yield and appreciate in price.”
Money market funds hit another record high, but experts warn it’s time to get out of cash. where do they see opportunities | Real Time Headlines
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