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

Investors have channeled cash into US money market funds over the past week amid concerns over the safety of some bank deposits following the collapse of two major lenders.

Funds saw net inflows of more than $120 billion in the week ended Wednesday, the largest weekly net inflow since June 2020 IKI, according to data from the Investment Company Institute.

The cash flowed into money market funds — a type of mutual fund that invests in cash and safe-haven securities — during a week rattled by the collapses of Silicon Valley Bank and Signature Bank. Federal regulators stepped in on Sunday to protect all depositors from losses at the two lenders.

“Investors have flocked to US government money market funds over the past week, apparently seeking an alternative to some banks,” said Sean Collins, ICI’s chief economist. The amount of cash in money market funds has hardly changed in the previous week.

Tuesday was the day with the largest 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 yields are now available on low-risk assets like money market funds after the US Federal Reserve hiked interest rates to a 15-year high.

“In the cases of Silicon Valley Bank and Signature Bank, depositors recovered, but it was after a weekend of fear, particularly for Silicon Valley depositors,” said Pranay Subedi, credit analyst for the US banking sector for T Rowe Price.

Column chart of 2-day flow ($bn) showing increase in cash in US money market funds

“A lot of depositors look at these money market funds and say, ‘Hey, I can do that [get] additional interest and don’t have to worry about these kinds of banking risks,” Subedi said.

This week’s surge was particularly notable given that March 15 is a day when many US companies pay taxes and typically withdraw cash from money markets.

“It was corporate tax day, which normally leads to outflows, but it was an inflow day,” said Deborah Cunningham, chief investment officer 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 said in a statement on Thursday.

“Customers have decided that their $20,000 in cash won’t stay in one bank and offer 60 basis points if they switch to a money market account and get 300 basis points,” said Rich Repetto, an analyst at Piper Sandler.

Since the beginning of this year, more than 250 billion Cash flows into US money market funds as investors flee banking turmoil

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