/ world today news/ The record inflow into funds on the money market, registered since the beginning of March, turned into an equally powerful outflow this week. Bank fears have been replaced by the risk of a US technical default, which the market by no means considers zero.
Since the early days of the banking crisis, money market funds in the US have registered a colossal net inflow of money – it was to them that a significant part of the funds withdrawn from American banks came. In just 5 weeks, according to Refinitiv Lipper, funds received $346 billion.
At first, the weekly inflow exceeded 100 billion dollars, but then it began to gradually decrease, although it remained significant – tens of billions.
Although the authorities have not been able to completely allay fears about the state of the banks, anxiety has subsided. But even the complete peace of mind of depositors cannot negate the fact that money market funds bring more deposits.
This week, however, the situation turned almost 180 degrees. A BofA Global Research report published yesterday, citing EPFR data, said outflows from money market funds in the week ended April 19 totaled $65.3 billion.
Reuters, citing Refinitiv Lipper, said that in the United States this period took $71.66 billion, and globally – $89.35 billion.
Now, money market funds don’t seem like a safe enough haven. They are known to invest in the shortest bonds, allowing them to get higher and higher current yields during rising interest rates without worrying about price drops. But the debate over raising the U.S. national debt ceiling amid complicated relations between Democrats and Republicans has changed that situation.
The Treasury bills that are in the portfolios of such funds do not look as reliable as they were until recently. It is widely believed that the United States will not go bankrupt, as it has previously raised the national debt ceiling numerous times following arguments in Congress.
But, firstly, for serious market consequences it is enough to simply argue longer, and secondly, there is always a first time for everything.
In 2011, when lingering anxiety about raising the cap first prompted Standard & Poor’s to downgrade the U.S., the turmoil in markets was severe.
The other day, Goldman Sachs strategists reminded the public that the S&P 500 fell 15% during the 2011 crisis, and stocks of companies whose sales volume was particularly dependent on federal spending fell 25%.
JPMorgan strategists also warned clients this week about the “non-trivial risk” of a technical default on Treasuries.
Other analysts are talking about it too, so the investor reaction is understandable: the outlook for Treasuries in the coming months is unclear – so why risk it again?
US Treasury Secretary Janet Yellen said back in January that the government could only pay its bills until early June without raising the debt limit. Some analysts predicted it would run out of cash and credit in the third or fourth quarter.
However, lower than expected tax collections may shift these dates. Goldman Sachs has estimated that if tax revenue in April falls 35% or more year-on-year, the deadline will be early June. But if they fall less than 30%, then late July is more likely. JPMorgan expects the US Treasury to exhaust available resources by mid-August.
“Given that the Treasury was once thought to have enough funding to see it through August or even September … the focus has now shifted to June or even late May,” analysts at BMO Capital Markets is quoted by Reuters.
But in any case, signs of stress should appear in the T-bill market 2-3 months before “hour X”. The reason is the same money market funds.
The volumes of their investments are colossal, and the purchased securities are short-term. And in the current uncertainty, it is very difficult for them to build a portfolio in such a way that they avoid risks and do not violate the investment statement.
But they’ll just have to make some attempts. And something on the market is already visible. So this week, the yield on three-month Treasury bills hit a new 22-year high.
“Treasuries tell us that money market funds and others are avoiding accounts that could be affected by the government shutdown,” Steve Sosnick, chief strategist at Interactive Brokers, told Reuters.
Translation: SM
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