In the last two weeks, many investors have rotated their portfolio investments due to the banking crisis and injected billions of dollars into money market funds in the United States.
Investors are withdrawing their deposits from banks!
The banking crisis has caused many investors to make changes to their portfolio investments in the last two weeks. According to Emerging Portfolio Fund Research (EPFR) data reported by the Financial Times, over $286 billion was invested in money market (government bonds, bank bills and commercial paper) funds in the United States in March.
Goldman Sachs, JPMorgan Chase and Fidelity were the biggest gainers among investors who injected cash into US money market funds over the past two weeks, according to the figures. The Financial Times reports that Goldman Sachs' money funds received $52 billion, a growth of 13%, while about $46 billion flowed into JPMorgan's funds and about $37 billion entered Fidelity. The volume of entries is the largest in a month since the outbreak of Covid-19 outbreaks.
A money market fund generally offers high liquidity and low risk, making them a popular option for investors in uncertain times. Currently, these funds are offering their best returns in years as the US Federal Reserve continues to raise interest rates to curb inflation.
In the seven days through March 22, total money market fund assets increased by $117.42 billion to $5.13 trillion, according to a report from the Investment Company Institute. Among taxable money market funds, sovereign funds increased by $131.84 billion, while primary funds decreased by $10.83 billion. Tax-exempt money market funds shrank by $3.61 billion.
Banks in the USA and Europe decided to tighten monetary policy, causing them to experience liquidity shortages. This led to large investments in money market funds due to fears in the financial system.
On March 24, Deutsche Bank shares fell due to an increase in the cost of insurance against the risk of potential default (failure to repay investment or debt). According to Reuters, citing S&P Global Market Intelligence data, the German bank's five-year credit default swaps, known as CDS, or insurance premium, closed at 222 bp, up 19 basis points (bp) from the previous day.
Uncertainty still hangs over regional banks in the US, with financial services firms Charles Schwab and Capital One's default insurance premium rising last week, with the latter's credit default swaps rising more than 80% to 103 basis points as of March 20.
What is the Money Market?
The money market is a financial market that provides liquidity by investing in short-term debt instruments. These debt instruments generally consist of government bonds, bank bills and commercial paper, and their maturities are generally less than one year. Money market funds, on the other hand, are investment instruments that invest in these short-term debt instruments and offer investors a low-risk and low-return investment option.
