Money market funds are adopting a more defensive stance by shortening the average maturity of their portfolios as uncertainty over the U.S.
Federal Reserve's interest rate path persists, according to the latest industry data reviewed by Reuters.The weighted average maturity (WAM) of the Crane Money Fund Average, a broad gauge of the industry, declined to 38 days in the week ended July 10 from 42 days a month earlier.
Similarly, the Crane 100 Money Fund Index, which tracks funds managing the majority of industry assets, saw its WAM fall to 40 days in July from 44 days in June.According to Reuters, the shift towards shorter maturities reflects uncertainty over the Fed's policy outlook.
While softer-than-expected U.S. inflation has strengthened expectations for rate cuts or an extended pause, uncertainty remains over the future direction of monetary policy and the balance of views within the Federal Open Market Committee.Money market fund managers generally reduce portfolio maturities when they anticipate the possibility of higher interest rates.
Holding shorter-dated securities allows funds to reinvest more quickly at potentially higher yields if borrowing costs increase, while longer-dated Treasury bills could leave investors locked into lower returns.The cautious positioning comes even as money market funds continue to attract strong inflows.
