Bank crisis, the risk of flight is very high: what's happening
The stress on the banking system is moving investors who are now switching their portfolio positions. New trends have emerged in recent weeks. What is going on? Investor preferences now go to government debt, for example through money market funds, while bank debt is being sold. This is what emerges from the photograph taken on the US market, the largest in the world.
Money market funds typically hold assets that are low-risk and easy to buy and sell, including short-term US government debt. Yields on these instruments are the best in years and are rising in tandem with interest rates, which have been pushed to 15-year highs by the Federal Reserve in an effort to contain inflation. The data is from the Investment Company Institute and shows that money is flowing specifically to funds holding US government debt, considered the safest destinations. So-called "prime" funds, which hold bank debt and corporate securities, have seen small outflows. The big US financial giants are gaining: the largest inflows went to funds associated with Wall Street's "blue-chip" banks and major investment houses.
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In contrast, bank deposits declined in the week to March 15, from $17.6 billion to $17.5 billion, with deposits at small banks dropping from $5.6 billion to $5.4 billion. What are the new routes? Specifically, US investors have moved more than 286 billion dollars to money market funds, alternative to bank deposits, since the beginning of March. This is the highest figure since the crisis triggered by the Covid pandemic three years ago. The numbers, underlines the Financial Times which published them, certify the lack of confidence of savers and investors in the solidity of the institutions called to keep their savings after the bankruptcies of Svb and Signature Bank. Goldman Sachs' US money market funds have raised nearly $52 billion, up 13%, since March 9, the day before Silicon Valley Bank was bailed out by US authorities. JPMorgan's received nearly $46 billion, and Fidelity's received nearly $37 billion in inflows.
Svb and Credit Suisse, there is no contagion risk but it is better to focus less on banks
Gianluigi De Marchi
The trend is also seen to continue on the impetus of the inflation trend: «Despite the various uncertainties for the period, our forecasts of a drop in US inflation remain unchanged: in fact, we believe that core consumer price inflation (core CPI ) will drop to 3.4% by the end of the year. Price pressures are likely to ease if central banks continue to reduce monetary stimulus and supply chain bottlenecks continue to ease. The labor market will also play a key role. Here we are already seeing signs of a peak in wage inflation, a determining factor for pressure on prices – writes the Strategy Unit of Pictet Asset Management in a note today -. That's why we continue to have a constructive view on US Treasuries."