Shrinking money market yields are leading investors to move money towards government backed Treasurys and bonds. The Wall Street Journal reports that the 30-year Treasury bond saw the most action in the recent rally, even as the U.S. Treasury prepares to shut off the FDIC-like guarantee program for money funds on Friday.

"Given the prospect of slow growth in coming years," Ford O'Neil, a senior portfolio manager at Fidelity Investments, told the WSJ, "long-term investors need to revise their game plan and should allocate more money to bonds and increase savings overall."

"Now people can't rely on their housing and stock portfolios for saving every year," O'Neil continued. "You have to go back to the old fashioned way -- actually taking money out of paychecks and into banks or mutual funds."

In a follow-up WSJ article, Tony Crescenzi, a Pimco portfolio manager, add that "many investors will feel compelled to shift to longer maturities. The yield grab is also apparent in other segments of the bond market, with investors continuing to flock to corporate bonds, and other so-called spread products."

The flows from money markets to Treasurys were influenced by the ultralow interest rates in money markets and opulent amount of cash in the system, a third WSJ article suggests.

"Mutual funds keep getting inflows and they need to invest," commented James Caron, head of global interest rate strategy at Morgan Stanley. "All the yield is at the back end of the Treasury curve. That plus a low inflation outlook is keeping the curve in a flattener."

So industry insiders may not be surprised that the WSJ also reported that, according to the ICI, money market fund assets fell $62.6 billion in the week ended Wednesday to $3.482 trillion, their second biggest drop this year. 

Edited by: Daniel Tovrov


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE