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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.

Source : FT