"Rising Interest in Cash and Safe Havens: Investors Seek Alternatives Amid Banking Concerns"

 

According to Bank of America's latest figures released

on Friday, investors have moved $538 billion into cash

funds over the past eight weeks, withdrawing their

money from bank deposits following the collapse of

Silicon Valley Bank. BofA's analysts said the catalyst

for the big move into cash had been $500 billion in

outflows from commercial bank deposits over the

past five weeks. This has caused concern about the

safety of U.S. bank deposits, leading investors to seek

out alternatives such as money market funds (MMFs).

Money market funds are seen as effectively

equivalent to cash because they invest in highly liquid

short-term debt products. Central bank interest hikes

have pushed up the yields on short-dated debt and

MMFs, making them more attractive to investors. This

has created a nice yield environment, according to

Stephen Brewer, head of liquidity sales at Pictet Asset

Management. Additionally, investors have also put

huge sums of money into government bonds, partly

due to their safety and partly because they think

central banks will not be able to raise interest rates

as high as previously expected.

BofA said that $65 billion has flowed into Treasury

funds this year, making it the best start to a year ever

recorded. The bank also said that $2.3 billion flowed

into bonds in the week to Wednesday, marking a third

straight week of inflows. However, there are signs

that investor confidence is returning, as $3.9 billion

flowed into stocks in the same week, and $500

million went into gold funds.

Although the collapse of Silicon Valley Bank and

Signature Bank sent shockwaves through markets in

mid-March, many investors now believe that the

banking problems have been contained. Despite this,

the large move into cash funds continues, with

investors seeking diversification, capital

preservation, and liquidity benefits.