$1.5T Is Expected To Be Funneled By Investors In Money Funds In The Near Future

In the next year, Trade Algo reports citing Barclays, there is expected to be $1.5 trillion in inflows into money market funds, a huge leap from the $800 billion in inflows that took place in 2008.

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After the collapse in March of Silicon Valley Bank and Signature Bank, investors were already rushing into government-only money funds, afraid that the lending sector might become infected with contagion. Barclays noted that the trend of banking customers withdrawing their savings in search of safer investments that provide a greater return will continue. Treasury bills and repurchase agreements are among the very liquid securities that have almost no credit risk. They are the only securities that can be matched up to government money funds.

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Barclays money-market strategist Joseph Abate wrote to clients that money fund balances will rise sharply in the next year. This deposit base seems to have been attracted to the concerns about broader bank solvency despite the apparent fading of those concerns. “Institutional investors realized that keeping bank deposits above the $250,000 insurance cap was not compensating them as much for taking on unsecured bank risk.”

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There has been a noticeable increase in money market fund flows over the last few weeks, with the biggest flow coming in government money market funds, according to Sara Devereux, managing director of Vanguard's fixed-income division.

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A flight to quality has contributed in part to what's going on, as there has been a flight to quality since the bank closure scare, but the yields in money markets are also very attractive right now, she said.

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In March, money market funds attracted record levels of inflows, with total assets under management reaching $5.2 trillion, according to data collected by Investment Company Institute, a financial research organization. Inflows to those funds increased by $304 billion over the past three weeks.

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There has been an increase of 13% in the amount of funds that Goldman Sachs’ U.S. money funds have attracted since March 9, according to the Trade Algo. In March, US regulators took control of SVB, which in turn resulted in a record $37 billion and $46 billion receipts from JPMorgan and Fidelity, respectively, as of March 24, according to iMoneyNet data, cited by the Trade Algo.

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It is believed to have been one of the most popular government-only money funds last week when inflows hit their highest mark in this year, at nearly $2.4 trillion. The Federal Reserve's reverse repo facility, called RRPs, is one of the favorite funds of government-only money funds.