There’s a not-so-obvious, but fundamental reason why the U.S. Federal Reserve probably won’t cut interest rates to below 0%.

It’s that investors would drain cash-like funds -- which hold almost $5 trillion and underpin liquidity in the financial system -- and deposit it with banks, where rates would likely be higher, according to UBS Group AG.

The last mass exodus was in March, when dollar hoarding reached its peak and investors pulled $140 billion from prime money market funds, sparking a liquidity crisis globally. The spread of three-month dollar Libor over overnight swaps -- a measure of funding stress -- jumped by about 120 basis points.

The dollar-liquidity squeeze could be much worse if rates fall below 0%, Michael Cloherty, UBS head of U.S. rates strategy said in a note. It would raise the cost of money, and that, in turn, would make buying U.S. Treasuries more expensive, which would ultimately lead to higher bonds yields.

“So the argument that the Fed has to go negative to reduce the costs of elevated deficits doesn’t seem to hold water,” said Cloherty.

Fed Chair Jerome Powell on Wednesday pushed back on the prospects of negative rates in the near term. And given all the work the Fed has done to ease the stress in funding markets, including opening swap-lines with foreign central banks and discount window measures, it’s unlikely the Fed will advocate a move that could strain liquidity, Cloherty said.

This article was provided by Bloomberg News.