As investors withdraw deposits from banks, money market funds grow by $286bn

Goldman Sachs and JPMorgan Chase were the largest winners of investors who poured cash into US money markets funds in the last two weeks. This was after the collapse of two US regional banks and the rescue agreement for Credit Suisse raised concerns regarding the safety of bank deposits.

According to EPFR data provider, more than $286 billion has already flooded into money market funds in March. This makes it the largest month of inflows since the Covid-19 crisis.

Goldman’s US money fund has taken in almost $52bn. This is a 13 percent increase since March 9, when Silicon Valley Bank took over. According to iMontyNet data, Fidelity received almost $46bn in JPMorgan funds and Fidelity had nearly $37bn inflows as of Friday morning.

Money market funds usually hold low-risk assets, which are easy to sell and buy. This includes short-dated US government bonds. These vehicles offer the highest yields in years due to the rise in interest rates. The US Federal Reserve has raised them to 15-year highs in an effort to reduce inflation. The net inflows to the US in February and January were less than in February, which set the stage for the strongest quarter since the three-year anniversary of the coronavirus pandemic.

Inflows have increased in recent weeks, especially from large depositors seeking safe havens. Although the US government agreed to guarantee all deposits at SVB, Signature Bank that failed on the same weekend, it has not provided any guarantees for those over $250,000 at other institutions.

Ashish Shah, Chief Investment Officer for Public Investing at Goldman Sachs Asset Management said that there are shifts in money market funds being made by all segments of investors. Given the market volatility, investors need to ask themselves if their cash risk profile matches my overall risk profile. Are they sufficiently diversified?

According to Bank of America research, the surge in flows this month has helped to push total assets in money funds up to $5.1tn on Wednesday.The Investment Company Institute data showsthat money is moving specifically to funds that hold US government bonds, which are the most secure. The so-called prime funds which hold corporate paper and bank debt have seen small outflows. Funds associated with the biggest investment houses and blue-chip Wall Street banks have seen the greatest inflows.

Federal Reserve data on Friday showed that bank deposits fell from $17.6tn and $17.5tn in the week to March 15. Deposits at small banks dropped from $5.6tn down to $5.4tn.

President of the Minneapolis Fed Neel Kashkari said Sunday that the US was closer to recession due to the stress in the banking sector.

Kashkari stated that “it definitely brings us closer,” on CBS’s Face the Nation. “What is not clear for us is how many of these banking stress are leading to widespread credit crunch.”

Vanguard’s global head for fixed-income Sara Devereux said that money market funds saw remarkable flows over the past weeks. The largest flows were into government money market funds. This is partly due to a flight towards quality following the bank closing scare, but also because yields in money markets are very attractive at the moment.

Her group received almost $12bn in inflows, ranking it sixth after the top three and Charles Schwab as well as Federated Hermes.

The ICI data shows that the majority of flows come from institutional investors, but retail clients are also shifting into money funds.

Andrzej skiba, chief of BlueBay US fixed-income at RBC Global Asset Management said that “When there is tremor in the markets with high levels of uncertainty about major economic sectors and around the world, not only in the US,” the first instinct is to move towards safety.

Skiba said: “Given their yields, money market funds offer both a good yield and a lot safety for investors.

He stated that a large portion of the inflows are being invested by the Federal Home Loan Bank in record issuances — this is in response to huge liquidity demand from its member banks, who want to reassure depositors regarding their stability.

Skiba stated that there is generally strong demand for money markets due to the high yields available and, in part, because of the substantial liquidity funds provide to institutional and retail investors, even in volatile markets.

The trend is less prominent for international money market funds. These funds are typically smaller than they were originally. According to iMoneyNet, BlackRock’s international funds received $16bn international inflows from March 9 and GSAM received $6bn.