NEW YORK, May 24 (Reuters) – Assets in U.S. money market funds reached a new record of $5.8 trillion this week as yield-seeking investors continued to turn to short-term bonds. There was a large outflow from the fund.
Money market mutual funds, the main source of short-term capital for businesses and municipalities, have enjoyed net inflows of $614.8 billion so far this year, of which 480 as of Monday, according to Crane Data. $100 million was net inflows over the past week.
The influx could push the country into a catastrophic default as the White House and Republican lawmakers fail to reach a compromise to raise the $31.4 trillion debt ceiling before the June 1 deadline. It was done despite growing concerns.
Money market funds are considered a safe haven, but have experienced crashes during past crises, leaving government officials and rating agencies vulnerable to rapid redemptions in times of stress. warned that it could happen.
In 2008, the bankruptcy of Lehman Brothers caused money market fund hoarding, and in March 2020, the suspension of economic activity due to the novel coronavirus infection (COVID-19) put money market funds under severe stress. was hit by Both episodes prompted the government to backtrack on the sector and reassess its regulations.
And in the week leading up to the 2011 debt ceiling deal that caused Standard & Poor’s to downgrade the U.S. credit rating for the first time, investors said: withdrew $66 billion Money market funds held about $2.6 trillion at the time, according to the Investment Company Institute.Investors keep most of their cash bank deposit.
But this time, there are some key differences that make the sector come to life. That includes higher interest rates, with today’s money market funds offering yields as high as 5% for him, compared to bank products that typically yield less than 1%. Recent bank failures have also encouraged investors to move cash out of bank accounts and into money funds, said Peter Crane, president of Crane Data.
“In 2011 money funds were just weak, but now wealth is at record levels,” he said. “The tide was ebb then, but now the money flow is rising or high and it will take a lot more time to reverse it.”
Money market funds that invest in U.S. Treasuries (money funds invest in short-term, high-quality, liquid bonds such as Treasuries, agency and corporate bonds) will also mature in June, Crane said. It is said that it is avoiding exposure to Treasury Bills that will be held.
“It’s the kind of kryptonite that people stay away from,” he says.
Reported by John McCrank in New York, edited by Michelle Price and Matthew Lewis
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