'Fund with 2000 Trillion Won Inflow'... US Investors Focus on Government MMF

Barclays "2,000 Trillion Inflow Expected by Next Year"

Amid the aftermath of the bankruptcy of Silicon Valley Bank (SVB) in the United States, investment funds are flocking to short-term safe assets known as 'Money Market Funds (MMFs),' with projections indicating that approximately 2,000 trillion won will flow additionally into the safer 'government MMFs' by next year.

According to Bloomberg on the 7th, Barclays, a major British bank, expects more than $1.5 trillion (about 1,980 trillion won) to flow into these MMFs by next year.

MMFs primarily invest in short-term financial products such as Certificates of Deposit (CDs) or short-term government bonds. They are considered virtually no different from cash or deposits. Among these, government MMFs invest only in products with almost no credit risk, such as government bonds and repurchase agreements (RPs).

As the banking crisis spreads, MMFs are gaining popularity, and Barclays predicts that funds will flow particularly into the safer government MMFs. This is due to increased demand for safe investment destinations following the SVB bankruptcy and the rise in MMF yields caused by interest rate hikes by the U.S. Federal Reserve (Fed). With the banking crisis increasing recession risks, more investors have judged stock market investments to be risky.

Joseph Abate, Barclays' money market strategist, said, "We expect MMF balances to surge next year," adding, "Concerns about banks' solvency seem to be fading, but interest in these deposit-based (government MMF) products is growing." He explained, "Institutional investors have realized that they cannot receive much reward even if they take the risk of keeping bank deposits above the $250,000 (about 330 million won) deposit insurance limit."

Since the Federal Deposit Insurance Corporation (FDIC) limits deposit protection to a maximum of $250,000 per depositor, demand for safe investment destinations inevitably increases. Earlier, U.S. Treasury Secretary Janet Yellen also stated that she would not consider 'comprehensive insurance' that protects all deposits.

[Image source=Reuters Yonhap News]

The market is already accelerating a 'money move' from deposits and stocks to MMFs. According to the Investment Company Institute (ICI), $304 billion (about 400 trillion won) flowed into MMFs over the past three weeks, increasing total assets to $5.2 trillion as of the 29th of last month.

Barclays expects that the preferred asset for government MMFs will be reverse repurchase agreements (RRP). Just last week, $2.375 trillion (about 6,860 trillion won) flowed into RRPs, marking the highest level this year. RRPs are ultra-short-term transactions where financial institutions deposit cash with the Fed for one day and receive government bonds in return. Established as a tightening tool by authorities, the more funds are locked in RRPs, the more market liquidity decreases.

This content was produced with the assistance of AI translation services.