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

Traders have funnelled money to US cash market funds over the previous week amid issues over the protection of some financial institution deposits after the collapse of two massive lenders.

The funds had greater than $120bn of internet inflows within the week to Wednesday, in accordance knowledge from the Funding Firm Institute, the most important internet weekly influx since June 2020. The majority of them poured into cash market funds backed by authorities securities, based on the ICI.

The money moved into cash market funds — a kind of mutual fund that invests in money and secure securities — throughout every week unsettled by the collapse of Silicon Valley Financial institution and Signature Financial institution. On Sunday federal regulators stepped in to guard all depositors from losses on the two lenders.

“Traders flocked to US authorities cash market funds prior to now week, apparently in search of an alternative choice to some banks,” mentioned Sean Collins, ICI’s chief economist. The amount of money in cash market funds have been little-changed within the earlier week.

Tuesday marked the most important day of inflows into cash market funds, based on Goldman Sachs and EPFR, a knowledge supplier.

Whereas rates of interest on financial institution deposits have elevated at some banks, considerably larger returns are actually out there on low-risk property akin to cash market funds after the Federal Reserve lifted charges to their highest degree in 15 years.

“Within the case of Silicon Valley Financial institution and Signature Financial institution, the depositors have been made complete, however it was after a weekend of a whole lot of angst, particularly for the Silicon Valley depositors,” mentioned Pranay Subedi, credit score analysis analyst protecting the US banking sector for T Rowe Worth.

“A whole lot of depositors could also be taking a look at these cash market funds and saying, ‘hey, I can [get] extra curiosity and never have to fret about any of those form of financial institution dangers’,” Subedi mentioned.

This week’s surge has been significantly notable, provided that March 15 is a day when many US firms pay tax, and usually transfer money out of cash markets.

“It was company tax day and usually that results in outflows, however it was an influx day,” mentioned Deborah Cunningham, chief funding officer of worldwide liquidity markets at Federated Hermes.

Inflows by retail traders into cash market funds have been “massive and accelerating” over the previous week, Goldman Sachs wrote in a be aware on Thursday.

“Purchasers have determined their $20,000 in money isn’t going to stay in a financial institution and supply 60 foundation factors once they can transfer to a money-market account and get 300 foundation factors,” mentioned Wealthy Repetto, an analyst at Piper Sandler.

Greater than $250bn has poured into US cash market funds because the begin of this yr, placing the automobiles on track for his or her highest quarterly inflows because the second quarter of 2020, firstly of the coronavirus pandemic, based on EPFR knowledge.