This week’s money market fund flows update was mostly uneventful, although it was notable for showing a second week of slippage.
Recall that US MMF AUM hit consecutive record highs above $6 trillion earlier this month, in what appeared to be a re-acceleration after two outflows, one of which wasn’t entirely trivial. Now, we’ve seen another two weeks of small-scale redemptions.
Of course, the narrative hasn’t changed. There’s scant evidence that meaningful, sustained outflows loom. Indeed, despite having shed assets in four of the last six weeks, that period saw a net inflow of $33.24 billion.
This week’s outflow was a trifling $5.33 billion. AUM still sits above the $6 trillion mark. Once again, outflows were concentrated in government funds. Prime products saw inflows thanks to $4.55 billion of retail buying.
YTD, MMF AUM is up $122.37 billion. More than half of that (almost $80 billion) was in the week to January 3.
Over the last two weeks, Fed officials (backed by the incoming macro data) made a point of suggesting rate cuts in 2024 will be sparing and cautious, not generous and free-wheeling. Traders are now generally on board.
In a pretty solid piece published on February 19, Bloomberg’s Alex Harris said there may be “plenty of life left in cash” as an asset class. “The more time it takes the [Fed] to begin lowering its benchmark, the longer cash held in money-market funds should be able to earn 4%, 5% or more, keeping investors from looking further afield,” Harris wrote.
As 2024 dawned, one of the big questions was where the mountain of cash parked on the proverbial sidelines would end up once it “inevitably” exited money funds. So far, there’s been no exodus and it’s beginning to look like there won’t be one. Not that it matters for stocks, which are doing just fine melting up on their own, no extra source of funds needed, thank you very much.
Since the beginning of 2023, around $1.274 trillion has flowed into US money funds.
Although some observers still expect a rotation from cash to other assets, others argue there’s scope for large corporate cash balances to find their way into MMFs in 2024. Bloomberg’s Harris quoted Peter Crane, who knows a thing or two about the industry. Peter promised he’ll “eat his hat” if MMF AUM falls this year. Don’t forget he said that, just in case we have to hold him to it.
Meanwhile, RRP balances are still loitering between $500 billion and $600 billion, after briefly dipping below the half-trillion mark for the first time since June of 2021 last week. The January FOMC minutes reiterated that an in-depth discussion around tapering the pace of balance sheet runoff will commence at next month’s policy gathering. Regular readers know my opinion on that: I think they’re a bit behind the curve (see here for more).
Finally, rounding out the usual weekly updates, Bank Term Funding Program lending was obviously flat again with the arb dead, and discount window usage over the week was essentially unchanged.
