ROI-What’s really driving flows into the $13.5 trillion money market pool?: Deborah Cunningham

Money market fund assets hit a record $13.5 trillion in the first quarter. ​This upward trend began over four years ago, at a point in the ‌rate ​cycle that historically heralded outflows from the asset class. So, what is driving these continued inflows and how does this shape how investors view this ever-growing pool of liquid capital? MMFs that invest in short-term, high-quality debt — like Treasury bills — have enjoyed extraordinary growth since mid-2022. While estimates vary, U.S. MMF assets have surged approximately 58% to 65% since December 2022. Global holdings in this asset ‌class have also now climbed to a whopping 15% of worldwide regulated open-end fund assets.

From March 2022 to July 2023, MMFs were primarily riding the wave of the aggressive Federal Reserve rate-hiking cycle. The U.S. central bank sought to curb post-pandemic inflation by lifting the fed funds rate to its highest levels in decades, which made the short end of the yield curve particularly attractive. These inflows were largely driven by retail investors. Capital poured into MMFs from savers seeking yields above those offered by standard bank deposits.

Conventional wisdom based ‌on the aftermath of the 2018 to 2019 hiking cycle – when MMFs experienced significant withdrawals — suggested those post-pandemic flows would reverse once central banks pivoted to cutting rates. However, that has not materialised. While the Fed has cut rates since 2024, industry-wide MMF ‌assets have kept growing.

This initially reflected the structure of these funds. Money market portfolios typically operate a "laddered" strategy — investing in securities of different maturities. This means yields on these portfolios typically decline more slowly than market rates. Over the past two years, however, the massive inflows have instead reflected a shift in both investment strategy and capital sources.

SECURITY AND AI From mid-2023 onward, flows were increasingly driven by institutions seeking a haven from potential volatility in equity markets and longer-term fixed income markets. During a period of heightened macroeconomic and geopolitical uncertainty – marked by trade wars and actual wars — institutional investors were reminded of the enduring value of ⁠security, liquidity and operational ​certainty.

In short, yield is no longer the sole or even the ⁠primary rationale for holding cash in these vehicles. MMFs have instead become a strategic defensive sleeve within cash portfolios. Moreover, inflows now reflect a mix of retail and institutional cash, with a notable new contributor: corporate cash from the unprecedented cycle of AI-related capital raising.

The scale of that fundraising since the beginning ⁠of 2025 has been astonishing. Technology giants including Amazon , Alphabet, Meta, Microsoft and Oracle issued more than $121 billion in new debt during 2025 alone. That was more than four times the average annual issuance of the preceding five years. This wave of capital raising has continued into 2026, with SpaceX, ​Alphabet and SK Hynix together raising nearly $200 billion from equity markets.

Much of that capital is not immediately deployed. As companies prepare to direct proceeds into vast capital-expenditure programmes — such as building data centres, securing chip supply and expanding ⁠compute capacity — they are sitting on record piles of cash in the interim. As AI investment accelerates, the companies at the centre of that spending will likely need to raise even more capital — through both debt and equity markets — to fund the next wave of infrastructure build-out. Each new raise creates another tranche of cash awaiting ⁠deployment, ​and money market funds are well positioned to capture at least part of that liquidity in the interim.

What began as a yield play in 2022 has matured into something more structural: a reflection of how investors, and increasingly corporates, are choosing to manage cash in an environment defined by uncertainty, opportunity and unprecedented capital formation. This matters for market watchers more broadly. Why? Because if the current cycle were just a rate-driven anomaly, then MMFs could be viewed primarily as a pool of capital waiting to ⁠be deployed into other asset classes once rates fall.

If MMFs are instead seen as strategic allocations, which act more as safe havens, with a significant portion of the capital earmarked for infrastructure projects, then these funds should not be viewed primarily ⁠as “cash on the sidelines.” When dealing with a $13.5 trillion global pool — including almost $8 ⁠trillion in the U.S. — that distinction truly matters.

(The opinions expressed here are those of Deborah Cunningham, chief investment officer of Global Liquidity Markets at Federated Hermes. This column is for educational purposes only and should not be construed as investment advice.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn, and X.

And listen ‌to the Morning Bid daily podcast on ‌Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week. (Writing ​by Deborah Cunningham; Editing by Anna Szymanski and Marguerita Choy)