Cash Havens With $4.8 Trillion Fret Unthinkable Negative Returns

[TexasTowelie]

Money-market mutual funds, the ultimate havens for investors looking to preserve capital, once again are trying to maneuver in a zero interest-rate environment. The problem this time? They’re sitting on twice as much cash.

Assets in money-market funds have soared to a record $4.77 trillion amid a flight to safety by investors this year. More than three-quarters of that is parked in Treasury-only and other government funds perceived to be the least risky, Investment Company Institute data show, in part because of regulatory reforms in 2016 that triggered an exodus from prime funds.

Giants of the industry like Vanguard Group and Fidelity Investments already have done what’s known as “soft closes,” or shutting down some funds to new investors. Speculation is swirling that management fees may be waived eventually by some companies in the industry. And managers are getting creative with their investments. It’s all an effort to preserve some sort of positive return for clients, a task that may get more difficult as traders start to bet on a negative Federal Reserve benchmark rate.

“Within a Treasury money fund, in particular, you get squeezed into a pretty small box in terms of what your opportunity set is,” said Joe Lynagh, head of cash management at T. Rowe Price, which manages $55 billion of money market funds, about $25 billion of which is in client-facing government funds.

Read more: https://www.bloomberg.com/news/articles/2020-05-08/cash-havens-with-4-8-trillion-fret-unthinkable-negative-returns

[roamer65]

1. Just like Japan, most of our government debt will get monetized.

The Bank of Japan has bought up very sizable portions of the JGB market. The idea is to prevent capital from hiding in government bonds and force it out into commercial ones and equities.

Negative interest rates will mean the Fed loses money. But since they create it, that doesn’t matter.