Money market funds notched another inflow, pushing total assets to a new record high above $6 trillion, an update released late Thursday in the US showed.
The $16.7 billion haul came on the heels of a chunky $41.7 billion influx the prior week.
Recall that money funds saw net redemptions for two consecutive weekly reporting periods in mid-January, prompting scattered speculation about the potential onset of sustained outflows. Suffice to say such speculation was premature.
MMF AUM now stands at $6.018 trillion. YTD, money funds have taken in a net $131.46 billion.
For once, the latest week’s inflow wasn’t attributable to institutional government, which actually saw redemptions. Instead, prime funds accounted for the lion’s share, at $12.39 billion.
I’d like to tell you (or maybe I should say it’d be more interesting for me, as an editor, if I could tell you) that something about this narrative has changed from last week, or from the week before that and so on. But it hasn’t. It’s the same story.
General audiences and casual market observers are curious as to when MMFs will see meaningful outflows and, more to the point, where the money will go. Posed as a question: Will this mountainous pile of sideline cash eventually serve as a source of funds for stock- and bond-buying? Fed officials, dealers and Treasury are curious as to whether MMFs will remain attractive (i.e., continue to see inflows) as rates come down and, relatedly, whether MMFs will continue to buy T-bills, the supply of which should ease in the months ahead. Short-end strategists are curious as to whether shifting dynamics for MMFs in 2024 will influence funding markets and so on.
That’s the long and the short of it. Everyone has questions, no one has answers. Much like the macro and pretty much everything else to do with markets and monetary policy.
RRP balances are chopping around between $500 billion and $600 billion. The consensus is that the Fed probably needs to taper QT (i.e., reduce the pace of balance sheet runoff) before RRP usage dips much below $250 billion. A quarter-trillion in excess liquidity is a decent cushion that should give the Fed some runway just in case they’ve underestimated what counts as ample/adequate/comfortable reserves (again).
It’d be unwise in my view (and in the view of folks better versed in this than I am), for the Fed to let RRP balances fall away entirely before mapping out and publicizing a definitive timetable for tapering and ending QT.
Meanwhile, Bank Term Funding Program usage was flat last week. The Fed killed the arb in January. Now nobody’s interested. Given renewed turmoil in the regional bank space, I do wonder if the Fed will ultimately regret pre-announcing the end of new loans through the facility on its one-year anniversary in March.
Once the Fed stipulated that the facility rate won’t be below the rate on reserves, BTFP ceased to be a “free money machine,” as The Economist called it. It’s not obvious what was gained from going further by preemptively declaring the window closed from March, unless the point was to drive banks with funding needs to that other window — the discount window, which the Fed desperately wants to de-stigmatize. Discount window borrowing fell in the week to Wednesday to $2.334 billion.
