Investors Seen Pouring $1.5 Trillion More Into the Safest Money Funds, Barclays Says

(Bloomberg) -- The wave of cash plowing into the safest of money-market mutual funds has only just begun with as much as another $1.5 trillion set to enter over the next year, according to Barclays Plc..Coffers of government-only money funds, which invest just in securities with virtually no credit risk such as Treasury bills and repurchase agreements, have already ballooned since fears of a banking-sector crisis erupted last month. A continued exodus from banks and rotation out of prime funds, which can buy more risky debt, will only further fuel that trend as investors search for higher yields and greater safety, Barclays says. .“We expect money fund balances to increase sharply in the next year,” Barclays money-market strategist Joseph Abate wrote in a note to clients. “While it seems that the concerns about broader bank solvency are fading, they appear to have caught the attention of this deposit base. Institutional investors have noticed that they were not getting as much compensation for taking on unsecured bank risk by keeping bank deposits above the $250,000 insurance cap.” .The amount of money parked at all money-market funds climbed to a fresh record last month as banking concerns unsettled global markets and attractive rates lured investors. Their cash pile jumped by roughly $304 billion in three weeks, bringing total assets to $5.2 trillion as of March 29, according to data from the Investment Company Institute. A fresh update from ICI will come out on Thursday..Besides the exit from banks amid fears of further runs in the wake of the demise of Silicon Valley Bank and two other regional banks, investors have pulled cash from deposit accounts as increases in those rates have trailed yields for money funds, which have better adjusted to the Federal Reserve’s most aggressive hiking cycle since the Volcker era. New York Fed researchers quantified that rate disparity and its effect on money flows this week in a blog post. .Cash Exodus Shows Just How Much Quicker Funds Adapt to Fed Hikes.One potential destination favored by government-only funds is the Fed’s reverse repo facility. But whether fresh cash mostly finds its way to so-called RRPs will depend on the supply of attractive alternatives. Money parked in RRPs last week jumped to its highest so far this year at $2.375 trillion, though has edged lower since..Projections for money-fund inflows signal “heavy future inflows into the Fed’s RRP,” Abate wrote. “But just how much goes into the Fed’s program depends on the availability of alternatives like bills and private sector repo, as well the willingness of fund managers to extend their portfolio weighted average maturities.” Yet the path for RRP balances is uncertain and swings in usage could create other issues, he said..“On-and-off swings in the use of the Fed’s RRP during QT caused by exogenous factors – like the supply of alternative assets and the effect of prime fund reform – could echo through overnight interest rates,” Abate said. “In turn, these rates could temporarily swing up and down, ‘self-correcting’ the reserves scarcity created by the RRP.”.More stories like this are available on bloomberg.com.©2023 Bloomberg L.P.

Investors Seen Pouring $1.5 Trillion More Into the Safest Money Funds, Barclays Says

The wave of cash plowing into the safest of money-market mutual funds has only just begun with as much as another $1.5 trillion set to enter over the next year, according to Barclays Plc.

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