Investors are looking for safe investments and attractive yields, leading to the massive inflow of funds into money market funds. According to a report by Bank of America, record levels of investments have been made into money market funds since Mar. 10. Investors have put $18 billion into them on average a day, resulting in over $1.25 trillion worth of retail assets stored in the funds. The funds invest in government and investment-grade corporate bonds that are of low risk and have extremely short terms. Those stored in the U.S. money market funds have posted an annualized seven-day return of 4.61 % as of Apr. 4.
Money market funds have the added advantages of liquidity, especially compared to other savings accounts. Funds can often be converted to cash between five to seven days, according to a leading fund provider, Fidelity. The funds also have restrictions on the number of illiquid assets they can hold to prevent losses.
The recent surge in the influx of money market funds corresponds with the failure of Silicon Valley Bank and a forced rescue of Credit Suisse. This is considered because banks do not offer enough in the way of interest on savings accounts, resulting in low interest rates in the euro zone, United Kingdom, Canada and the United States, despite the several rate hikes made by the European Central Bank.
Despite the higher yields, there are still risks associated with money market funds. The return offered is subject to market conditions and can be lower than expected which is why money market funds are not recommended for long term investments. Additionally, the funds are not covered by a government insurance scheme like those for banks, resulting in the absence of an assurance for investment safety.
Bank of America is an American multinational investment bank and financial services company. It is headquartered in Charlotte, North Carolina and is the second largest bank in the US with assets of over $2.3 trillion. Founded in 1998 by BankAmerica, it provides corporate and, retail investors and individuals, as well as government and institutional clients, a range of investment banking, asset management and other financial services, ranging from credit cards and home loans to retirement services and wealth management.
The report referenced in this article is from Bank of America and it was led by Michael Hartnett, Chief Investment Strategist. Hartnett has more than 20 years of experience in the banking industry and holds a degree in economics from the University of California, Berkeley. He has been with Bank of America since 2009 and has held the position of Chief Investment Strategist since 2014, where he is responsible for providing comprehensive investment advice to the bank’s corporate and institutional clients.