In the wake of the SVB/SBNY/FRBK failures, investors have been hoarding cash at a record pace given mounting concerns about the financial stability of regional/community banks and the pursuit of higher yielding, short term investments away from traditional bank deposits. Indeed, money market mutual fund assets have soared since the early March failures of SVB/SBNY, with balances accumulating at the fastest pace since the darkest days of the pandemic during 2020, to an all-time high of $5.39 trillion as of May 24th. While the inverted yield curve and highest, short-term interest rates since 2007 have surely contributed to this historic run-up, mounting headwinds, including withering consumer confidence and rock-bottom business sentiment, have also driven investors into safe-haven assets as economic expectations weaken. Typically, this type of liquidity build has been a leading indicator of ‘risk-off’ sentiment, where riskier assets like equities and high-yield corporate debt tend to underperform with investors favoring more conservative alternatives.
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