Following the collapse of Silvergate Capital, the investors have rerouted their substantial assets to the money markets. In the last two weeks, investors have flooded the leading investment banks such as Goldman Sachs, Fidelity, and JPMorgan Chase in pursuit of a safe haven.
A recent report from the Emerging Portfolio Fund Research (EPFR) revealed that investors had injected more than $286 billion into the money market industry. A subsequent report from the Goldman Sach team dated March 9 indicates that the company leaped $52 billion in revenue after witnessing a 13% increase from the previous month.
JP Morgan and the Massacheutss financial provider replicated the Goldman Sach move after generating $46B and $37 billion, respectively.
Advantages of Money Market
The positive outcome in the money market sector continues to attract more investors. Per the EPFR findings, the risk associated with money market funds is relatively low compared to other assets.
The suitability of the money market enables investors to trade their assets more effortlessly due to high liquidity. Meanwhile, the money markets offer the investor the highest yield following the healthy appetite of the Fed to increase interest rates to address the inflation concern.
The after-effect of the Covid-19 pandemic has adversely affected the performance of the money markets. However, the ailing money market industry has regained strength in recent months due to increased deposits.
A report from the Investment company institute (ICI) reveals that the money market funds surged by $117.42 billion to reach $5.13 trillion. Correspondingly the taxable money market fund increased by $131.84 billion, while the non-taxable assets dipped by $3.61 billion in March.
The ICI team observed that the prime funds assets dropped by $10.83 billion.
Why are Investors Shifting to Money Market Funds?
An official report from Goldman Sach chief investment officer Ashish Shah was delighted to announce that the money markets sector has welcomed a larger number of investors, particularly from digital firms. Shah stated that investors are more worried about the volatile market and risk associated with digital assets.
He restated that current liquidity constraints in the banking sector trigger massive inflows in the money market. Recently, Deutsche Bank shares plummeted due to the high cost of issuance. The bank stated that Deutsche credit default swaps increased by 19 basic points (bps) to soar to 22 (bps).
In March, other US financial providers, including Charles Schwab and Capital one, witnessed an 80% increase in credit default swaps. Elsewhere, a manager from BlueBay group, Andrzej Skiba, stated that the high demand in the money market industry was prompted by the profitable deals available.
Skiba noted that high liquidity and security on assets attracted more investors from the institutional and retail sectors.
