© Reuters.
Investing.com – Bank of America (NYSE:) analysts confirmed that a new bubble has formed due to the recent banking sector crisis that has caused the collapse of 3 regional banks in the United States so far. The bank advised investors to sell shares instead of buying them after the latest price hike.
“Money market funds are the ‘hot new asset’ right now,” analysts said in a note issued on Friday.
They noted that assets under management of cash funds now exceed $5.1 trillion, an increase of more than $300 billion over the past four weeks.
Analysts monitored the largest weekly shift to liquidity since March 2020, the largest ever inflow over a period of 6 weeks, and the largest weekly outflow of investment-grade bonds since October 2022.
The bank stressed: “Markets stop being afraid when central banks start to panic, and that historically, there has been a surge in borrowing through the Fed’s emergency discount window with the stock market dropping significantly.” The report revealed that the last rise in money market fund assets was twice in 2008 and 2020, when the Federal Reserve cut interest rates.
The bank’s analysts stated: “There is a difference this time, which is that inflation is a reality and that labor markets in the major industrial countries are still exceptionally strong.”
They added, “When banks borrow from the Fed in an emergency, they tighten lending standards, which in turn leads to fewer loans, and that leads to less optimism for small businesses, which ultimately breaks the job market.”
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Fears permeate the markets
The global banking sector has been shaken since the sudden collapse of two US regional banks this month. Policymakers emphasized that the turmoil differed from the global financial crisis 15 years ago, saying banks are better capitalized and funds are more readily available.
But fears quickly spread, and UBS rushed to take over Credit Suisse on Sunday after the ailing Swiss bank lost investor confidence.
According to two people familiar with the matter, the Swiss authorities and UBS are racing to complete the takeover within a month in an effort to retain Credit Suisse customers and employees.
Separate sources told Reuters that UBS had pledged to pay additional incentives to Credit Suisse wealth management staff in Asia to stem an exodus of skilled staff.
Bloomberg News reported that Credit Suisse and UBS are among the banks under scrutiny in a US Justice Department investigation into whether financial professionals helped wealthy Russians evade sanctions.
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