Another week, another new record for money market fund assets.
Money funds took in $29.12 billion in the six-day “week” leading up to Thanksgiving in the US, the latest ICI release showed.
It was the fifth consecutive weekly inflow. Total AUM now sits at $5.763 trillion.
Government and prime funds each saw inflows from both institutional and retail investors.
The same familiar narrative applies. Rates on money funds are very attractive and although bonds have the potential to offer equity-like returns in 2024, ongoing volatility at the long-end of the Treasury curve is likely prompting some investors to favor the stability of cash.
Indeed, “long cash” continues to be the flows story of the 2020s. The figure below, from this week’s truncated edition of BofA’s popular “Flow Show” series, illustrates the point, and rather poignantly.
$1.2 trillion flowed into cash funds in 2023, more than Treasurys ($186 billion), high grade credit ($145 billion) and global equities ($143 billion) combined.
Ostensibly, that’s “dry powder” (“sideline cash”) that can be deployed into assets once various coasts are clear.
In the meantime, though, the allure of “sleep-well-at-night” cash yielding the most in decades is a veritable magnet.
As a reminder, recent estimates suggest US money funds are throwing off more than $20 billion in interest every month.
That income has likely supported spending across the world’s largest economy, in yet another example of how higher rates have (counterintuitively) become a liability in the Fed’s inflation fight.
How is this consistent with the previous article that highlights another massive move into U.S. equities? Where is the money coming from?
Well, I mean, if I buy stocks and you put money into a money market fund, that’s an inflow to stocks and an inflow to money funds. It’s not a closed system.
Would that mean money is coming from M1 then?
I’m thinking most of that was moved from bank deposits, plus income flow being parked in MMF? As opposed to shifted from some other “asset class”.
I don’t think all of that as “dry powder” for markets, as much of it was probably sitting in bank deposit accounts not associated with brokerage accounts. But some of it probably is. Just 25% would be a good deal of dry powder.