Whiplashed by surging bond yields and volatile stocks, more money managers are seeking refuge in the safety of cash-like assets.
The top two U.S.-listed exchange-traded funds that invest in Treasury bills drew a combined $1.5 billion in the week ended Friday, the fifth-largest allocation on record.
Investors, fretting about rising U.S. long-dated real yields and febrile market sentiment, are keeping their powder dry. An iShares fund that invests in Treasuries with one- to three-year maturities received $1.2 billion last week, its heaviest inflow in more than four years.
For good reason: The midterm elections and the Federal Reserve meeting also raise the prospect of elevated price swings across assets.
"The increasing allocation of funds to the U.S. money market suggests that conviction about the U.S. asset outlook is falling — a typical sign late in the financial cycle, and a sign that volatility is likely to begin rising soon," Morgan Stanley strategists led by Hans Redeker wrote in a recent note.
Lured by positive returns on securities largely bereft of duration risk, ultra-short passive vehicles listed in the U.S. have drawn $26.2 billion so far this year, growing their assets under management by 46%, according to data compiled by Bloomberg.
The flows underscore how tighter liquidity is curbing investors' enthusiasm for venturing into riskier stocks and emerging-market credits.
"Money market instruments are more easily liquidated and repatriated than long-term assets, suggesting that foreign holdings in money markets are more sensitive to market conditions," the Morgan Stanley strategists conclude.