Money market funds closed out a historic year on a strong note.
After two consecutive weekly outflows, MMFs took in $16.4 billion in the week to December 27, data released late Thursday in the US showed.
The influx completely negated the prior week’s redemptions and pushed total assets back near record highs reached earlier in December.
Total AUM now stands at $5.886 trillion. The record, hit during the week to December 6, was $5.897 trillion. Inflows over the latest weekly reporting period were concentrated in government funds, and split evenly there between retail and institutional.
2023 will be remembered for some $1.3 trillion in global money fund inflows. US funds took in $1.15 trillion for the year.
As the familiar figure below makes clear, the regional banking drama in March prompted an acceleration of flows to MMFs, which continued mostly unabated for the remainder of the year.
The fate of trillions parked on the proverbial sidelines is a pressing question as 2024 dawns. I went over a few possible answers earlier this month. Some believe the wall of money in MMFs can be a source of funds for a continuation of the two-month risk asset melt-up. Others argue that if past is precedent, it’ll be a year after the first Fed cut before MMF outflows materialize in earnest.
There’s also a fair bit of consternation about prospective knock-on effects from any MMF exodus that does materialize. Suffice to say swollen MMF balances were a source of systemic stability in 2023, as MMF rotation out of the Fed’s RRP facility and into T-bills helped absorb Treasury’s supply deluge, thereby mitigating liquidity drain while QT ran harmlessly in the background. RRP is expected to drain completely by mid-2024, at which point reserves will recede and the Fed may need to consider ending balance sheet runoff.
In any case, those are 2024’s discussions. For now, it’s enough to note that a record year for MMF inflows ended fittingly: With more inflows.
I moved my money out of stocks and bonds, and into 8-week T-bills, about a year ago and have never regretted it. I probably could have made more if I has moved my money back into stocks and bonds these past six-weeks, but the peace of mind has been most satisfying. I am making over 5%, deposited every other month directly into my checking account, with few worries. I really don’t expect that to change for at least three-months or so.