US money market funds saw their second-largest inflow of 2024 in the week to February 28, an update released late Thursday in the US showed.
The near $50 billion haul came on the heels of two consecutive small weekly outflows.
Suffice to say the peak wasn’t in for MMF AUM. With this week’s big influx, total assets hit a new record at $6.058 trillion.
The institutional government category accounted for the lion’s share, at $43.7 billion. The YTD inflow now stands at $172.23 billion. At the current rate, 2024 would be another $1 trillion+ year for money fund inflows.
Although one can still make the case that the allure of equities which never sell off could eventually entice some cash off the sidelines, it’s fair to suggest that only a portion of MMF AUM would find its way into stocks and bonds even if there was an exodus. In other words: Some of this cash needs to remain cash, and some argue there’s ample scope for MMFs to see more inflows from corporates.
Over the past few weeks, market pricing for Fed cuts was trimmed aggressively and officials emphasized repeatedly that rate cuts aren’t imminent. The longer rates stay high, the longer MMF yields stay attractive.
RRP balances remain stable at around half a trillion. Deutsche Bank this week suggested that hedge funds might be dialing back the basis trade. Declining RV positions could “keep RRP usage higher than otherwise, reducing the urgency for the Fed to modify its QT strategies,” the bank offered. RRP usage was $502 billion on Thursday.
If the Fed wants to insure against a funding crunch, they probably want to have the ball rolling on the QT taper with an end date in mind when RRP recedes to ~$250 billion.
As the figure above shows, this is a rare occasion when things went almost exactly according to plan. RRP transformation absorbed the post-debt ceiling deal T-bill deluge, helping to facilitate a painless QT. Reserves actually rose. You have to think the Fed’s luck will run out eventually. For the umpteenth time: Nobody knows where LCLoR actually is. RRP serves as a kind of insurance against the deleterious consequences of accidentally crossing the threshold.
Meanwhile, BTFP borrowing was virtually unchanged on the week (the Fed killed the arb, blah, blah, blah) and discount window usage was the lowest since early December.
