Investors are flocking to United States money market funds, with over $286 billion flowing into them in March so far, according to data from Emerging Portfolio Fund Research (EPFR). Among the top beneficiaries of the surge are Goldman Sachs, JPMorgan Chase and Fidelity, with Goldman Sachs receiving $52 billion, JPMorgan’s funds attracting almost $46 billion, and Fidelity seeing inflows of nearly $37 billion.
Money market funds are a favourite choice for investors in tumultuous times since they frequently offer high liquidity and minimal risk. As the U.S. Federal Reserve keeps raising interest rates to combat inflation, these funds are currently providing their best yields in years.
The banking crisis and fears surrounding the health of the financial system are driving this trend, as banks in the US and Europe face liquidity constraints amid monetary policy tightening. Money market funds are offering high liquidity and low risk, making them an attractive option for investors during uncertain times.
“Currently, these funds are offering their best yields in years as the U.S. Federal Reserve keeps raising interest rates to curb inflation,” said an industry expert.
The volume of inflows is the biggest for a month since the emergence of the Covid-19 outbreaks. In the seven days to March 22, the total money market fund assets increased by $117.42 billion to $5.13 trillion, according to a report from the Investment Company Institute.
However, uncertainty still looms over regional banks, with credit default swaps soaring for firms such as Charles Schwab and Capital One. This has led to concerns about the banking sector’s health, and investors are seeking safer investment options.
The trend is likely to continue as long as the banking crisis persists. According to a market analyst, “The current inflows into money market funds are a reflection of the nervousness in the markets, and this trend is expected to continue as investors seek safety in the midst of the crisis.”
The situation is also affecting banks worldwide, with Deutsche Bank shares dropping due to an increase in the cost of insuring against its potential default risk. Its five-year credit default swaps climbed 19 basis points from the previous day, closing at 222 bps, according to S&P Global Market Intelligence data.
The overall outlook for the banking sector remains uncertain, and investors are likely to continue seeking out safer options such as money market funds until the situation stabilizes.