When rates were at rock-bottom levels, keeping money in cash was seen as a drag on portfolio returns. But now, even Wall Street luminaries like Bridgewater Associates founder Ray Dalio — who once encouraged investors to keep their money in stocks and bonds by declaring that “cash is trash” — have changed their tune.
Assets held by money-market mutual funds swelled to a record high $5.4 trillion last week as inflows hit the fastest pace since the start of the COVID-19 pandemic following the collapse of Silicon Valley Bank.
What started as a trickle of inflows last March after the Federal Reserve delivered its first interest-rate hike since 2018 has surged into a flood, with more than $460 billion flowing into money funds since mid-March 2022 as the Fed has hiked its policy rate by nearly 5 percentage points, according to Crane. Nearly half of that sum — $228 billion — has arrived since the start of 2023, and the rapid inflows seen during the two weeks through Friday has coincided with a flight of deposits from regional lenders, exacerbating a trend of shrinking bank deposits that started in 2022.
But Crane said investors are also responding to the perceived safety of money-market funds, which invest in short-dated bonds that are easier to hold to maturity.
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