We continue to see a flurry of articles on money market funds and the flight from uninsured bank deposits. The Financial Times published, "Cash pours into US money market funds as investors flee bank turmoil," which states, "Investors have funneled cash to US money market funds over the past week amid concerns over the safety of some bank deposits after the collapse of two large lenders. The funds had more than $120bn of net inflows in the week to Wednesday, according data from the Investment Company Institute, the largest net weekly inflow since June 2020. The bulk of them poured into money market funds backed by government securities, according to the ICI. The cash moved into money market funds -- a type of mutual fund that invests in cash and safe securities -- during a week unsettled by the collapse of Silicon Valley Bank and Signature Bank. On Sunday federal regulators stepped in to protect all depositors from losses at the two lenders." (Note: Crane Data showed money fund assets continuing their big asset gains on Thursday, rising another $37.3 billion to a record $5.425 trillion. Month-to-date, they've jumped by $172.5 billion. Reminder: We're still taking registrations for next week's Bond Fund Symposium, March 23-24, in Boston.)
The FT states, "Tuesday marked the biggest day of inflows into money market funds, according to Goldman Sachs and EPFR, a data provider. While interest rates on bank deposits have increased at some banks, significantly higher returns are now available on low-risk assets such as money market funds after the Federal Reserve lifted rates to their highest level in 15 years."
They add, "This week's surge has been particularly notable, given that March 15 is a day when many US corporations pay tax, and typically move cash out of money markets. 'It was corporate tax day and typically that leads to outflows, but it was an inflow day,' said Deborah Cunningham, chief investment officer of global liquidity markets at Federated Hermes. Inflows by retail investors into money market funds have been 'large and accelerating' over the past week, Goldman Sachs wrote in a note on Thursday." (See too: Fox Business's "`Big week for money market funds amidst financial turmoil.")
Also, Bloomberg says, "Executives Yank Money From Banks as Some Deposits Look Riskier." The piece explains, "With Credit Suisse Group AG having wobbled this week and a handful of regional US banks collapsing, company executives are getting more concerned about where they can safely keep their cash. Some of them are yanking money from their banks and depositing it at other lenders, moving it to money market funds, or buying Treasury bills directly, according to corporate treasurers and advisers. The rapid moves are leaving certain banks with quick drops in deposits while helping to pull borrowing rates lower on short-term government debt, adding to turmoil in financial markets."
It continues, "Money market funds, which invest in short-term debt securities including Treasuries and commercial paper, have seen $97.1 billion of inflows since Friday and $108.21 billion in the past seven days, according to Crane Data, which tracks these funds, bringing total balances to $5.38 trillion -- the highest level in their five-decade history, according to Crane. Recent inflows into money market funds in part came from companies, said Peter Crane, president of Crane Data. 'It's most likely corporates diversifying away from uninsured deposits, given the seizure of SVB on Friday,' he said, adding that this trend will likely continue as companies seek to reduce their exposure to banks and generate higher yield on their cash investments."
Bloomberg also writes, "At $3.62 trillion, U.S. corporate cash levels at the end of December were $329 billion lower than the peak recorded in December 2021, according to Carfang Group, which analyzed Fed data published last week. Still, corporate cash holdings climbed $109 billion in the fourth quarter compared with the previous quarter." (See also Bloomberg's piece last week, "SVB Clients in Limbo After Seeking Refuge in Money-Market Funds.")
Reuters posted, "US banking system sound but not all deposits guaranteed, Yellen says." It tells us, "The U.S. banking system remains sound and Americans can feel confident that their deposits are safe, Treasury Secretary Janet Yellen said on Thursday, but she denied that emergency actions after two large bank failures mean that a blanket government guarantee now existed for all deposits. In her first public remarks since the weekend's emergency measures with other regulators to ensure no depositors at Silicon Valley Bank and Signature Bank suffered losses from those lenders' collapse, Yellen was pressed during a hearing before the U.S. Senate Finance Committee if that meant all uninsured deposits were now guaranteed."
The article continues, " "A bank only gets that treatment," she told U.S. Republican Senator James Lankford, if supermajorities of the boards of the Federal Reserve, the Federal Deposit Insurance Corp and "I, in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences." Her comment was the first explicit indication of regulators' views about the limits of the weekend's extraordinary guarantee that ensured that tens of billions in uninsured deposits at Silicon Valley and Signature were not lost."
It adds, "But it was clear that the FDIC insurance limit of $250,000 per depositor remained in place and that any future failure would need to pose risks similar to those seen at Silicon Valley and Signature. In their cases, Yellen said, 'the chances of contagion that other banks might be regarded as unsound and suffer runs, seemed extremely high, and the consequences would be very serious.' More than $9.2 trillion of U.S. bank deposits were uninsured at the end of last year, accounting for more than 40% of all deposits, according to U.S. central bank data. Those uninsured deposits are not distributed evenly across the country, FDIC data shows."
Finally, Federated Hermes' update, "Next steps: The Fed's response to the collapse of SVB puts pressure on the Treasury and the FOMC decision next week," states, "While the aftershocks may still claim more banks, though it seems unlikely, it is important to know that strict SEC regulations require money market funds to only invest in the highest quality issuers, which is why Federated Hermes’ money market, stable net asset value, microshort, ultrashort and fixed-income funds, as well as Treasury pools, do not have exposure to Silicon Valley Bank (SVB), Signature Bank or Silvergate. These regulations also require money market funds to be transparent to investors, so those same investors can monitor daily and weekly liquidity levels, specific issuer holdings, maturities of holdings and other elements. Treasury pools also are transparent, following the status quo requirements of their individual states."
They write, "Trading has been volatile, with most liquidity products industry-wide in risk-off mode, meaning sticking with purchases of very short-term securities, primarily those maturing overnight. Few were buying floating-rate paper or 3-, 6-, 12-month Treasuries. Prior to next week’s FOMC meeting, it will not be surprising to see excess liquidity given the expectation of higher rates. However, based on industry asset flows yesterday and so far today, investors seem to be acting like nothing happened: some are purchasing, some redeeming but overall no unusual outflows."
