The writer is a former investment banker and author of ‘Power Failure: The Rise and Fall of an American Icon’In the last 10 years, both retail and institutional investors have swarmed into US money-market mutual funds, supposedly a safe place to park money in the short term while figuring out what else to do with it. At the moment, some $5.6tn of cash sits in these funds, according to the Investment Company Institute, up from $2.6tn a decade ago.
Is this something to worry about, or just a reflection of the human instinct to creep up the risk scale in exchange for a higher yield? According to Crane Data, the top-yielding money-market funds are these days offering investors an annual return of around 5 per cent.
Investors have noticed. According to The Kobeissi Letter, since the Federal Reserve started raising interest rates in March 2022, some $862bn in bank deposits has been withdrawn and invested elsewhere, including in money-market funds, some 12 times more than was withdrawn from big banks in the aftermath of the 2008 financial crisis. Considering that JPMorgan Chase, the biggest US bank, pays depositors on their checking accounts 0.01 percentage points of interest annually, the collective decision appear to make sense.