Investors Flock to Cash ETFs as Stress Over Economy Mounts

BIL, SGOV, short duration T-bill funds pull in $1.53 billion over past few days.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Investors, rethinking the direction of the Federal Reserve’s monetary policy in light of a spate of spectacular bank failures, are flocking to the safety of cash alternatives.  

The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) took in $988.7 million between March 9 and 14, which was among the biggest inflow into any ETF over that period, according to etf.com data. The iShares 0-3 Month Treasury Bond ETF (SGOV) picked up $541.5 million.  

The inflows come as anxiety in the banking sector and rising fears of an economic downturn led to the largest one-day rally in short-term U.S. government bonds since 1987. Worries of widespread bank runs jumped on Sunday as Signature Bank became the third financial institution to close in March, following Silicon Valley Bank and Silvergate Bank.  

The yield on the two-year Treasury bill plummeted to 4.03% on Monday, after topping 5% the week prior. That’s the policy-sensitive note’s sharpest one- and three-day decline in nearly four decades. Prices rise as yields fall.  

The rally may reflect a reconsideration of the Fed’s path ahead as more experts believe the bank sector’s stress will cause the central bank to pause its cycle of hiking rates.  

On Sunday, Goldman Sachs analysts stated in a note to clients that they no longer expect the Fed to raise rates next week as a result of SVB’s and Signature’s closures. That’s a departure from its previous prediction of a 25 basis point increase.  

Meanwhile, fed funds futures, a measure used by traders to predict future rate hikes, indicated a 76% chance of the Fed moving ahead with a quarter of a percent hike, with a 24% chance of no movement, according to data from CME Group.  

“The Fed’s overly hawkish policy has created a financial panic,” Jay Hatfield, CEO at New York-based wealth management firm Infrastructure Capital Advisors, wrote in emailed comments to etf.com. He also said that the “hawkish” hiking cycle prior to the great financial crisis of 2008 “caused, or at least significantly exacerbated, the financial crisis.”  

He called for a rate cut to stabilize markets. 

“The Fed needs to do a significant emergency rate cut to improve the profitability of banks and improve their economic capital positions,” Hatfield said.  

 
Contact Shubham Saharanat[email protected]            

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.