Money market funds saw their first outflow in two months in the week to December 13, data released late Thursday in the US showed.
The $11.6 billion net redemption was notable more for snapping a seven-week run of inflows than it was for anything else. The sum is a relative pittance — a drop in the bucket at the tail-end of a monumental year for MMF flows.
Money fund assets still look poised to reach $6 trillion soon enough, even if expectations for Fed cuts (and/or risk asset FOMO) chip away at demand. For the year, inflows exceed $1.1 trillion.
The outflow over the latest reporting period was due entirely to institutional government, where redemptions were $12 billion.
It’s natural to ask if we’re seeing the beginning of the end for the inflow frenzy. As short-term yields come down, the MMF magnet will lose some of its attraction, but if funds extend their WAM they may be able to lock in high enough rates to keep the money coming in for a while longer yet.
Of course, if risk assets keep running, some of the “sideline” cash could get deployed into equities (or bonds, for that matter). I talked at some length about that in “The $6 Trillion Question For 2024.”
Posing what he called a “pure hypothetical” in a December 13 note, Nomura’s Charlie McElligott asked, “What happens if we see cash which has been parked in MMF for the better part of 1 year+, begin to turn tail and chase equities upside during January and February?”
The figure above gives you some bigger-picture context for recent inflows (it uses EPFR’s data to capture global money fund flows).
“The flipside [is that] this portfolio rebalance channel reallocation [could] ultimately show up in the plumbing, where all of that ‘cash lubricant’ provided by money market funds’ perpetual inflows kept operations running smoothly,” McElligott went on.
The suggestion (and, again, this is spelled out in detail in the linked article above) is that if money market AUM becomes a source a funds for an early-year risk asset rally, it could have potentially adverse consequences elsewhere.
