Cash flows into US money market funds as investors flee banking turmoil

Investors have been pouring money into U.S. money market funds over the past week amid concerns over the safety of some bank deposits following the collapse of two major lenders.

The funds had more than $120 billion. in net inflows in the week to Wednesday, according to data from the Investment Company Institute, the biggest weekly net inflow since June 2020. The bulk of that flowed into money market funds backed by government securities, according to ICI.

The cash moved into money market funds — a type of mutual fund that invests in cash and safe securities — during a week that was unsettled by the collapse of Silicon Valley Bank and Signature Bank. On Sunday, federal regulators stepped in to protect all depositors from losses at the two lenders.

“Investors flocked to US sovereign money market funds in the past week, apparently looking for an alternative to some banks,” said Sean Collins, ICI’s chief economist. The amount of cash in money market funds was little changed in the previous week.

Tuesday marked the biggest day of inflows into money market funds, according to Goldman Sachs and EPFR, a data provider.

While interest rates on bank deposits have risen at some banks, significantly higher returns are now available on low-risk assets such as money market funds after the Federal Reserve raised interest rates to their highest level in 15 years.

“In the case of Silicon Valley Bank and Signature Bank, depositors were made whole, but that was after a weekend of a lot of anxiety, especially for Silicon Valley depositors,” said Pranay Subedi, credit analyst who covers the US banking sector. for T Rowe Price.

“A lot of depositors might look at these money market funds and say, ‘hey, I can do that.’ [get] additional interest and not having to worry about any of these kinds of banking risks,” said Subedi.

This week’s rise has been particularly notable since March 15 is a day when many US companies pay taxes and typically move cash out of the money markets.

“It was corporate tax day and that typically leads to outflows, but it was an inflow day,” said Deborah Cunningham, head of investment for global liquidity markets at Federated Hermes.

Inflows from retail investors into money market funds have been “large and accelerating” over the past week, Goldman Sachs wrote in a note Thursday.

“Clients have decided that their $20,000 in cash is not going to live in a bank and offer 60 basis points when they can move to a money market account and get 300 basis points,” said Rich Repetto, an analyst at Piper Sandler.

More than 250 billion USD has flowed into US money market funds since the start of this year, putting the vehicles on course for their highest quarterly inflows since the second quarter of 2020, at the start of the coronavirus pandemic, according to EPFR data.

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