Money market funds raked in another $18.65 billion in the week to March 6, an update released late Thursday in the US showed.
The sizable influx came on the heels of a near $50 billion haul the prior week.
For the year, US money funds have taken in more than $190 billion on net in just 10 weeks.
Government funds were responsible for all of this week’s inflow and then some. Institutional government inflows were $13.8 billion and retail $7.8 billion. Prime products saw a net $3.6 billion outflow on $10 billion in institutional redemptions against $6.5 billion in retail inflows.
Total MMF AUM is now $6.08 trillion, another record.
It’s possible that rekindled easing bets in part attributable to Jerome Powell’s rather explicit nod to the likelihood of rate cuts in the near- to medium-term could curb appetite for money funds at the margins. Inflows over the last two weeks generally coincided with fading wagers for the amount of policy easing in 2024. Powell’s remarks on Capitol Hill plainly suggested the plan’s still to cut rates at least three times this year. To be sure, market pricing for 2024 cuts never dipped below 75bps, but there was some speculation around a much longer stay at terminal, and that might’ve bolstered MMF inflows.
Either way, it’s fair to say talk of a mass exodus from money funds was premature. AUM swelled further despite a relentless rally in equities, suggesting the opportunity cost of cash, punitive though it may be in a stock melt-up, isn’t sufficient to compel investors to abandon 5%, completely risk-free, in droves.
RRP balances slipped to the lowest since May of 2021 this week, and stood at $436 billion on Thursday.
Conceptually, that’s the liquidity buffer that stands between QT and reserve drain. When it’s depleted, QT will begin to bite.
I continue to believe the Fed’s one (or even two) meeting(s) late on this, which is to say they should’ve had the discussion around QT taper parameters in January and stood ready to get the ball rolling at this month’s meeting. Instead, it looks like they’re going to have the discussion this month, announce the parameters in May, and then start the taper in June.
As BNY Mellon’s John Velis wrote this week, summarizing a panel discussion that included Lorie Logan and Chris Waller, “Two common threads were the role of RRP in warehousing liquidity, and that the fuzzy line between abundant bank reserves (now) and merely ample reserves is impossible to know in advance; it must be arrived at more or less by inference.” “Inference” is a bit euphemistic. When it comes to reserve “lines” (between abundant and ample, between ample and sufficient and between sufficient and scarce) you know them when you step over them. By then it’s too late.
“The transition from abundant to ample reserves is likely to be felt in funding markets if and when reserves — at least for a subset of institutions — decline sufficiently,” Velis went on, adding that “the risk here is that some banks will see reserves decline below their lowest comfortable levels before others” and/or that “reserves fall too much too quickly in aggregate, leading to funding stresses across money markets.”
Fed officials keep suggesting, tacitly and otherwise, that they have enough runway. I believe them. Sort of. But I’m not sure what the math is that tells them $500 billion can’t easily be $50 billion long before the June FOMC meeting.
Meanwhile, Bank Term Funding Program balances were basically unchanged on the week (new loans under the facility end this month) and discount window usage was the lowest since July of 2022.
