Global Money Market Funds Draw Huge Inflows on Caution Over Potential Tariffs

The global money market funds have witnessed a significant surge in inflows, driven by investor caution over potential tariff increases and the upcoming change in the U.S. administration. According to LSEG Lipper data, investors channelled $158.73 billion into global money market funds in the week through Jan. 8, 2025, marking the second largest weekly net purchase since April 2020.

U.S. President-elect Donald Trump's pledges to impose a 10% tariff on all global imports to the U.S. and a 25% tariff on imports from Canada and Mexico on his first day in office have spurred concerns among investors. This uncertainty has led them to seek the safety of money market funds, which offer low-risk, short-term investment options.

The defensive tone enveloping the market, coupled with the allure of higher short rates, has made money market funds increasingly appealing to conservative investors. As interest rates decline and market conditions stabilize, some liquidity from these funds is expected to flow back into traditional fixed-income investments.

Investors are also being cautious ahead of a critical jobs report that could reshape expectations for Federal Reserve rate cuts. This uncertainty has prompted investors to park their money in low-risk assets like money market funds.

The pandemic-induced panic has also contributed to the swelling of assets in both tax-exempt and taxable money market funds. Prior to the COVID-19 pandemic, the total in money market funds was between $2 trillion and $3 trillion. The sudden surge following the initial market shock has created an unprecedented environment for investment liquidity.

The inversion of the yield curve, with money market rates sitting approximately 50 basis points inverted between money market rates and 10-year yields, has also contributed to the appeal of money market funds. Even though returns on long-term bonds are less attractive, the investments in money market funds are increasingly favored.



The inflows into money market funds have had a notable impact on the broader financial market, particularly equity and bond funds. Global equity funds secured inflows for a third successive week, reaching a net $11.36 billion. European equity funds received a net inflow of $8.7 billion, the largest in three weeks, while Asian funds saw a net inflow of $5.6 billion. U.S. funds, however, experienced a net outflow of $5.05 billion, likely due to investor concerns about potential tariff increases and the upcoming U.S. election.

Sectoral equity funds witnessed the first weekly net purchase in five weeks, with investors pumping $1.13 billion into the technology sector and $413 million into the communication services sector. This indicates that investors are still bullish on these sectors despite the uncertainty.

Global bond funds saw significant activity, receiving $19.5 billion, the second inflow in the past four weeks. Government bond funds alone attracted $1.94 billion, their second influx in six weeks. Loan participation funds gathered $2.24 billion, suggesting that investors are interested in these funds despite the uncertainty.

The inflows into money market funds, equity funds, and bond funds indicate that investors are adopting a defensive posture, seeking safety and stability in the face of uncertainty. However, the inflows also suggest that investors are still interested in equity investments, particularly in European and Asian markets, and in specific sectors like technology and communication services. The inflows into bond funds, particularly government bonds, indicate that investors are seeking the safety and stability of these investments.

In conclusion, the global money market funds have drawn huge inflows on caution over potential tariffs, driven by investor concerns over the upcoming change in the U.S. administration and the uncertainty surrounding a critical jobs report. These inflows have had a notable impact on the broader financial market, with investors adopting a defensive posture while still expressing interest in equity and bond investments. As the market continues to evolve, investors will need to remain vigilant and adapt their strategies accordingly.