Money-market funds rake in $300 billion in just three weeks as banks face deposit 'bleed-out'

• A record $304 billion has flowed into money-market funds in just three weeks as the banking turmoil spurs deposit withdrawals.
• "The flows have gone from a hemorrhage to a bleed out," Wall Street analyst Jim Bianco said in a tweet, referring to a slowdown in such flows this week.

The wall of money migrating into US money-market funds has risen to $304 billion in just three weeks, as depositors spooked by the banking turmoil look elsewhere to park their savings.

That boosted the total assets managed by such funds to a fresh record of $5.2 trillion as of March 29, according to data published by the Investment Company Institute. In one week alone, investors channeled about $66 billion into the investment plans.

The flows accelerated following the collapse of Silicon Valley Bank and Signature Bank in early March, signaling depositors worried about the safety of their savings were pulling money out of banks and parking it elsewhere.

Elevated money-market yields, thanks to the Federal Reserve's interest-rate increases over the past year, have also fueled these flows. Among money market funds offering the highest yields as of Friday March 24 are UFB Direct, CFG Community Bank and Sallie Mae.

Meanwhile, one-year US Treasury yields have surged almost 12-fold since the end of 2021 to around 4.66% currently.

"We think that depositors have just awoken to their ability to earn more yield in a money market fund with potentially less risk. After all, and unlike banks, money funds' assets are very short, so they are subject to far less interest rate risk in a Fed tightening cycle," Barclays strategist Joseph Abate said, per Bloomberg.

The flows into money-market funds, while still substantial, moderated in the most recent week in focus to $66 billion from almost $120 billion in the prior period.

"The flows have gone from a hemorrhage to a bleed out. Bleed out is still not good," Wall Street analyst Jim Bianco said in a Thursday tweet.

"Money is leaving the banks and will every day/week as long as banks are not offering a deposit rate competitive with market rates. Banks are losing visibility on their deposit base. This will lead to a pullback in lending (aka credit crunch)," he added.

Per Bloomberg, inflows into government funds, which invest in Treasury bills and repurchase agreements, surged to $4.33 trillion in the week to March 29.

At the same time, outflows from bank deposits have increased to $17.5 trillion through March 15, and have reached $5.4 trillion at smaller banks.