Nearly $50 billion in new cash flooded into money market funds during the week to May 24, data released late Thursday showed.
The reinvigorated influx was in part attributable to debt ceiling-related risk aversion, but the same dynamics that’ve pushed overall money fund assets to record high after record high are still in play.
Setting aside assurances from US officials that the banking system is sound, 5% to invest in (ostensibly) riskless government obligations looks pretty good compared to the paltry yield on offer for bank savings products.
The joke (assuming you can still find humor in asinine Beltway charades) is that government obligations are only as good as the obligor, and given Kevin McCarthy’s tenuous grip on the House gavel, there’s a very real sense in which investing in US government paper is now tantamount to entrusting your savings to the GOP’s far-right flank.
Fortunately, RRP is a repo with Jerome Powell, and that’s where a very large portion of money market assets end up. Of course, if you’re a besieged regional lender struggling to hang onto deposits, RRP is something of a bête noire, notwithstanding the Fed’s contention that the facility is “not an important factor driving outflows of deposits.”
The latest weekly haul — actually $46.67 billion on ICI’s data — represented a marked re-acceleration in the pace of inflows, which had abated to “just” $13.5 billion the prior week. The vast majority ($41.25 billon) was institutional government.
Total assets now stand at $5.4 trillion. Since mid-October, US money funds have seen more than $800 billion of inflows. Over the same period, deposit outflows were $650 billion.
Meanwhile, borrowing from the Fed’s newly-created Bank Term Funding Program hit yet another all-time high above $90 billion, even as discount window lending receded.
At this point, discount window usage has completely normalized, but remember: Analysts expected banks to migrate to the BTFP.
Usage between the two facilities actually moved up slightly thanks to the increase on the BTFP side, and while lower, total Fed support (including the “other credit extensions” line item) is still very, very elevated.
“BTFP usage has risen steadily as rates remain elevated, with banks continuing to suffer from AFS and HTM losses and financing them with expensive front-end borrowing,” TD’s Gennadiy Goldberg said, reading from last week’s script (because that’s really all one can do at this point).
“We believe ongoing strength in RRP usage following the debt ceiling suspension and Treasury rebuilding the TGA could push reserves below their minimum point this fall, potentially leading to reserve scarcity,” he added.
