An uneventful update on money market fund flows found total assets slipping from record highs reached last week.
Overall, money funds saw a little over $1 billion in redemptions in the week to August 23, according to the latest figures released on Thursday evening in the US.
The minuscule outflow is notable only for the extent to which it gives me an excuse to editorialize further around a remarkable year for money funds. From a flows perspective, 2023 is already a record. Globally, some $925 billion found its way into cash funds through mid-August, eclipsing 2020’s full-year haul. ICI’s data shows YTD inflows for US funds of more than $830 billion.
Total assets in US money funds reached $5.57 trillion last week. This week’s net outflow came courtesy of redemptions from institutional investors both in government and prime funds. Retail investor inflows were $9.5 billion.
You know the story. Treasury and the Fed would ideally like to see money market funds rotate out of the RRP facility in favor of T-bills, which Treasury is issuing like there’s no tomorrow.
That went according to plan initially, with RRP usage falling by ~$600 billion from the beginning of June (when the debt ceiling standoff was resolved) through late July. But RRP balances drifted higher over the past month, notwithstanding a big drop on Thursday linked to bill settlements and GSE cash exiting.
“While we expect falling RRP balances to re-distribute cash toward bank reserves this fall, its recent flattening could make funding markets messy,” Barclays’ Joseph Abate said, suggesting the Fed would have to halt QT early if RRP declines don’t resume after Labor Day, mitigating reserve drain.
For now, though, Treasury continues to find plenty of buyers for the bill deluge amid a wall of cash at the front-end. Dealer bill holdings rose in the week to August 16, but are still less than half the record hit in early July.
Meanwhile, usage of the Fed’s Bank Term Funding Program (the emergency backstop set up in the wake of SVB’s failure) hit yet another new record in the week to Wednesday.
Borrowing from the facility crept up to $107.386 billion. Discount window usage rose as well.
I suppose this goes without saying, but the BTFP is here to stay. Get used to that acronym. It’s part of the system now. For better or worse.
