The flood of cash pouring into US money market funds is unlikely to stop soon, analysts and investors say, and has the potential to exacerbate strains in the banking system.
The returns offered by money market funds, vehicles that invest largely in safe assets such as short-term government debt, have soared far above the interest rates banks pay to depositors, as the Federal Reserve rapidly raised borrowing costs over the past year. Despite the yawning gap, it took the banking crisis sparked by the collapse of Silicon Valley Bank to spark the recent stampede: money market funds have drawn in more than $340bn since the beginning of March.
“People that were making half a per cent in bank accounts were ignoring the 4 per cent they could make in money market funds,” said Doug Spratley, head of US money market trading at T Rowe Price. “And now they just got a big swift kick in the pants.”