Money market fund assets ballooned by another $61.7 billion over the latest reporting period, data released late Thursday in the US showed.
It was the second consecutive outsized weekly haul and the seventh straight overall.
Since shedding $98 billion during tax-related redemptions in mid-October (the largest single-week outflow since Lehman), money fund assets have grown by more than $290 billion. That, during a stretch when virtually all other assets performed exceptionally well.
As usual, the lion’s share of the inflow was attributable to institutional government, but retail accounted for $13.8 billion in government fund inflows and another $5.3 billion to prime products.
After this week, total money fund AUM stands at almost $5.9 trillion.
Ad nauseam: The MMF-RRP-T-bill nexus remains topical. RRP transformation absorbed a good portion of bill issuance since June, and that, in turn, limited reserve drain. In fact, reserves have drifted higher despite the deluge of Treasury supply and QT running in the background. Some argue that’s one of the key reasons for the equity market’s resilience.
RRP balances fell as low as $768.54 billion on December 1, before rising for three straight days through Wednesday. There was $825.7 billion parked in the facility on Thursday. This probably isn’t the best week to a get a “clean” read on things given the hangover from the SOFR spike.
For now, the consensus is that the SOFR drama was just a hiccup, and that the runway for RRP is still significant. That, in turn, means the Fed will likely be able to keep QT going at least through mid-year and probably into the second half of 2024. Whenever usage of the facility falls away entirely, the liquidity backdrop will become more onerous, and that could make for a more challenging environment for risk assets all else equal. (All else is never equal, of course.)
It’s worth noting in the context of the fleeting SOFR fireworks that someone started kicking the tires on the standing repo facility the other day. The safety valve was tapped for a little over $203 million on December 5. It quickly dropped back to basically nothing the following day.
Meanwhile, borrowing from the Fed’s Bank Term Funding Program (the backstop set up in SVB’s wake) jumped sharply this week to $121.7 billion.
The WoW increase was the largest since April 5. Discount window usage fell below $2 billion, but the uptick in BTFP was large enough to see on a chart (above).
Total borrowing from the backstops as of December 6 was $123.7 billion.
I spent 1970 to 1973 at Chemical Bank with my ABD PhD in statistical intl poli sci in the bowels of Chemical Bank trying to figure out what the blank was going on in the bank’s monetary cashflows. We American banks got consistently raped by the non-US banks. It was the U.S. regs that did it and it was Bretton Woods plus Vietnam that were the proximate causes. The arb was quite simple but disastrous for the U.S. banks. Nixon saved the country back then but looking at all the crap (that is a technical term) regulates us now, since 2008, it is just like 1970.
The SOFR could be going crazy in the next 2 months like it did in the fall of 2019, but something bigger will probably break before then . The RRP and the BTFP (a stupid bandaid) are allowing the liquidity squeeze implied by the post-June STIRS increase to be finessed. However, how low can the RRP number go? – certainly not to zero. Maybe we are there now and that is why there was a twitch in the SOFR. As reserves get tighter we could find the regulatory boundaries that exist within the massive assets – remembering that all dollars are not U.S. dollars. It is very different now, but in 1970 that tripped us up. No matter what RRP is on its way out.