Investor dash for cash pumps U.S. money market funds to record high – BofA

FILE PHOTO: People are seen on Wall Street outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS/Brendan McDermid//File Photo

LONDON (Reuters) -Assets invested in U.S. money market funds have reached a new all-time high of $4.9 trillion this year, as soaring short-term interest rates have sent investors rushing into cash, BofA Global Research said on Friday.

Money market funds invest in highly liquid near-term instruments such as cash and short term debt securities.

So far this year, investors have put $192 billion into cash, adding $18.1 billion in the week to Wednesday, BofA said. They invested $68.1 billion in cash a week earlier, more than at any time since the depths of the pandemic in 2020.

Market expectations for further rate hikes from the U.S. Federal Reserve, which have sent U.S. yields higher, have also made money market funds more attractive. The yield on six-month U.S. Treasury bills reached 5.34% on Tuesday, its highest since 2006.

Elsewhere, there were weekly inflows to bond funds of $8.2 billion, and outflows from equities of $500 million and from gold of $4 million, according to the report.

Japan equity funds saw largest outflow ($3.0bn) since April 2018, according to BofA, a reversal given Japanese stocks have been in favour with foreign investors in recent weeks.

BofA also warned that the rapid increase in global interest rates, and market pricing for further hikes have generated what they call “crashy vibes of March”.

“(There are) so many potential catalysts for a systemic deleveraging event that sparks policy panic/end of Fed tightening; … and investors must be ready at that moment to deploy cash in new leadership assets which outperform in era of higher inflation,” they said.

These “vibes” could worsen unless there is a soft U.S February payrolls later on Friday, BofA said.

The most recent sign of stress in financial markets was sharp tumbles in bank stocks around the world on Thursday and Friday, after Silicon Valley Bank, which lends to the U.S. tech sector, including to start-ups, was forced to raise capital to shore up its balance sheet.


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