As inflation and rising interest rates pose a threat to short-term returns, investors are pulling cash out of money market and bond funds at a rapid pace.

Money market funds are cash-like funds that have low risk and saw the largest outflow.

Morningstar Direct data shows that investors moved $148 billion from money market mutual funds to exchange-traded funds in the period Jan. 1-February 16.

Morningstar reports that they pulled in $134 billion for January. This was the highest monthly exodus of any category in over a decade.

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For the first time since March 2020 investors also took money from both municipal and taxable bond funds. during the U.S. recessionAccording to Morningstar, this was fueled by the Covid-19 epidemic.

Investors had not taken any money from these bond funds in the months prior to 2018 and before that, there was no pandemic.

Morningstar reports that investors have taken out $9.8 trillion from taxable bonds funds, and $3.4 billion from municipal bonds funds between January 1st and February 16th.

Money-market funds tend to be conservative and invest in short-term U.S. Treasury bonds, cash, or other secure securities. These funds offer relatively low returns due to high inflation. From a year ago, the Consumer Price Index rose 7.5% in January. fastest rateSeit Februar 1982

To cool the economy down and reduce inflation, the Federal Reserve will likely raise interest rates in March. However, bond prices move opposite interest rates — meaning investors in bond funds will likely lose money as the central bank raises rates.

Morningstar researchers Adam Sabban, Ryan Jackson and Ryan Jackson spoke out about bond outflows in their recent research note.

(Investors may expect bond yields to increase over time when the Fed raises the benchmark interest rate. The shorter-dated bonds are due to mature soon and the fund managers will be able buy new bonds at higher yields.

The U.S. stock fund market has been a subject of investor skepticism. Morningstar reports that they drew $20 billion in net U.S. equity fund withdrawals in January. This follows an average of $12.5 billion per month for 2021. Jan. saw $26.6 billion in international stock fund investments.