Yield-hungry investors push US money market assets to record $5.4tn

Low-risk money autos absorbed tens of billions of inflows throughout a season of financial institution turmoil

US cash market fund property have swelled to a document excessive this week, as the very best yields obtainable in years and the early Might collapse of First Republic Financial institution saved buyers piling into the low-risk autos.

Complete internet property in cash market funds, which put money into high-quality, short-dated debt, reached virtually $5.4tn as of Wednesday, in keeping with information from the Funding Firm Institute. The determine is up from lower than $5.3tn in late April and $4.8tn at first of the yr.

Buyers have rushed into cash market funds this yr because of the more and more excessive yields on provide, notably in authorities autos, fuelled by the Federal Reserve’s most aggressive marketing campaign of rate of interest rises in a long time.

A lot of the property reported by ICI sit in government-focused autos, which maintain Treasury payments which might be deemed to be very low threat.

Based on EPFR, one other information supplier, cash market funds have to date absorbed roughly $146bn in Might, placing the month on monitor to have had the second-highest inflows since April 2020, when panicked buyers flooded in.

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In March, cash market funds acquired an enormous $370bn because the regional Silicon Valley Financial institution and Signature Financial institution collapsed, elevating questions in regards to the well being of the broader sector.

For Shelly Antoniewicz, senior economist on the ICI, speedy inflows into cash market funds early this month have been probably associated to the demise of California-based First Republic, which had $93.5bn of deposits earlier than it was shut down and largely bought to JPMorgan Chase at the start of Might.

The flood of money into cash market funds has continued whilst stress on the banking system has eased and a spotlight has turned to the prospects of a US authorities default if lawmakers in Washington fail to succeed in a deal to lift the nation’s debt ceiling. The costs of payments maturing across the time that the US is anticipated to expire of money have plummeted, sending yields above 7 per cent.

The starring position of cash market funds in markets this yr might proceed even after any deal to lift the federal borrowing restrict. After a possible decision, the Treasury division is anticipated to should borrow huge quantities of money with the intention to replenish its coffers — roughly $750bn in Treasury payments within the 4 months after a deal, in keeping with JPMorgan estimates.

A wave of issuance like that will suck up liquidity in markets, probably growing strains on banks and lifting funding prices. However, cash market funds, with excessive volumes of money to deploy, might step in.

“To the extent that the Treasury has a flood of provide that’s coming to market, it will likely be acquired with open arms,” mentioned Deborah Cunningham, chief funding officer of world liquidity markets at Federated Hermes.