Money market funds shaken by interest rate shock: Yields dropped, exit accelerated.

Recent fluctuations in domestic financial markets have led to significant outflows from money market funds. In the past 10 days alone, a net outflow of 440 billion TL has been recorded from these funds, prompting investors to seek alternative products. As of March 18, the total size of money market funds, which stood at 1.44 trillion TL, experienced a sharp decline of 40%. This drop was primarily driven by a 650 billion TL outflow from money market funds, alongside a 49 billion TL outflow from debt instruments, while free funds attracted 236 billion TL and currency funds recorded a net inflow of 58 billion TL.

The regulatory changes and interest rate effects have altered risk perceptions. Money market funds, typically considered low-risk and capital-protected products, faced challenges after a regulation mandated at least 10% of their portfolios to consist of debt instruments. Coupled with recent interest rate hikes, this led to short-term losses for these funds. The volatility in markets and the depreciation of the Turkish lira prompted investors to close positions and shift towards foreign currency products. Data from TEFAS indicates that 214,485 investors completely exited money market funds in just 10 days, bringing the total investor count down to 3.6 million.