Money market funds swell by over $286bn as investors pull deposits from banks

Goldman Sachs, JPMorgan Chase and Fidelity are the biggest winners from investors pouring cash into US money market funds over the past two weeks, as the collapse of two regional US banks and the rescue deal for Credit Suisse raised concerns about the safety of bank deposits.

More than $286bn has flooded into money market funds so far in March, making it the biggest month of inflows since the depths of the Covid-19 crisis, according to data provider EPFR.

Goldman’s US money funds have taken in nearly $52bn, a 13 per cent increase, since March 9, the day before Silicon Valley Bank was taken over by US authorities. JPMorgan’s funds received nearly $46bn and Fidelity recorded inflows of almost $37bn, according to iMoneyNet data as of Friday morning.

Money market funds typically hold very low-risk assets that are easy to buy and sell, including short-dated US government debt. The yields available on these vehicles are now the best in years as they rise with interest rates, which have been lifted to 15-year highs by the US Federal Reserve in its quest to curb inflation. There were smaller net inflows in January and February, setting the stage for the strongest quarter for US money funds since the outbreak of the coronavirus pandemic three years ago.

The pace of inflows has accelerated in the past fortnight, particularly from large depositors looking for safe havens. While US officials agreed to backstop all of the deposits at SVB and Signature Bank, which failed the same weekend, they have not guaranteed those above $250,000 at other institutions.

“We are seeing shifts into money market funds by every segment of investor,” said Ashish Shah, chief investment officer for public investing at Goldman Sachs Asset Management. “Given the volatility we are seeing in the market, every investor has to ask themselves: does my cash risk profile match [my overall risk profile], and am I sufficiently diversified among the choices?”

The surge in flows this month helped push overall assets in money funds to a record $5.1tn on Wednesday, according to research from Bank of America.

Data from the Investment Company Institute shows the money is flowing specifically into funds that hold US government debt, which are considered the safest destinations. So-called prime funds, which hold bank debt and corporate paper, have had small outflows. The biggest inflows have gone to funds associated with blue-chip Wall Street banks and the largest investment houses.

Federal Reserve data released on Friday showed bank deposits declined in the week through March 15, from $17.6tn to $17.5tn, and deposits at small banks declined from $5.6tn to $5.4tn.

Neel Kashkari, president of the Minneapolis Fed, on Sunday said the stresses in the banking sector brought the US closer to a recession.

“It definitely brings us closer,” Kashkari said on CBS’s Face the Nation. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch.“

Sara Devereux, global head of Vanguard’s fixed-income group, said: “Money market funds have seen remarkable flows in recent weeks, with the largest flows into government money market funds. Part of that is because of a flight to quality after the scare with bank closures, but it’s also because yields for money markets are currently very attractive.”

Her group had almost $12bn of inflows, placing it sixth behind the top three and Charles Schwab and Federated Hermes.

The ICI data shows the bulk of the flows are coming from institutional investors but retail clients are also moving into money funds.

Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, said: “When you have tremors in the markets with a high degree of uncertainty about major parts of the economy and across the world, not just in the US, the first impulse is to go towards safety.”

Skiba added: “Given the yields on offer, money market funds offer not just a good yield, but also a lot of safety for investors.”

He said much of the inflows are being invested in record issuance from the Federal Home Loan Bank — it is responding to massive demand for liquidity from its member banks who are trying to reassure depositors about their stability.

“We generally see strong demand for money markets, in part due to robust yields on offer, while in part reflecting substantial amount of liquidity the funds provide to both institutional and retail investors alike, even in (or especially amid) volatile markets,” Skiba said.

International money market funds, which are smaller to begin with, are seeing a less pronounced trend. But BlackRock’s international funds have received $16bn in international inflows since March 9, and GSAM received $6bn, according to iMoneyNet.

Additional reporting by Felicia Schwartz in Washington

This article has been amended after publication to update the total amount of money market fund inflows so far in March

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