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Cash pours into US money market funds as investors flee bank turmoil

Investors have funnelled cash to US money market funds over the past week amid concerns over the safety of some bank deposits after the collapse of two large lenders.

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

The cash moved into money market funds — a type of mutual fund that invests in cash and safe securities — during a week 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 government 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 were 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 increased at some banks, significantly higher returns are now available on low-risk assets such as money market funds after the Federal Reserve lifted rates to their highest level in 15 years.

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

Column chart of 2-day flow ($bn) showing Cash surges into US money market funds

“A lot of depositors may be looking at those money market funds and saying, ‘hey, I can [get] additional interest and not have to worry about any of these sort of bank risks’,” Subedi said.

This week’s surge has been particularly notable, given that March 15 is a day when many US corporations pay tax, and typically move cash out of money markets.

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

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

“Clients have decided their $20,000 in cash isn’t 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 $250bn has poured 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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