Another week, another sizable inflow to money market funds. And another new AUM record.
Money funds took in $31.33 billion in the week to March 13, the latest update from ICI, released after the bell in the US on Thursday, showed.
The lion’s share was attributable to institutional government flows, which were nearly $31 billion on the week. Prime funds saw $3.33 billion in redemptions on net.
Total AUM now stands at $6.11 trillion, a mountainous sum. YTD, US money funds have taken in $222 billion, with nearly $100 billion of that coming in just the past three weeks.
It’s still very early, but there’s not much in the way of evidence to suggest an exodus is in the offing. If buoyant equity prices aren’t enough to coax whatever share of that money is coaxable (so to speak) off the sidelines, I’m not sure what is assuming rates stay at least a semblance of high.
The incoming macro data continues to argue for a longer stay at terminal for the Fed. That, in turn, should ensure the riskless yield on offer in government money funds stays elevated for the foreseeable future. Some still believe MMFs could see a wave of inflows from corporate cash in 2024.
Inflows since January of last year are nearly $1.4 trillion.
Notably, RRP balances rose back above $500 billion mid-week for the first time since late February. Part of that was probably the absence of bill settlements. Facility usage dropped to $483 billion on Thursday.
The rate’s still 5.30% (obviously), so as long as the front end’s awash in money, the attendant downward pressure on rates for alternatives will make RRP a decent option for anyone with access. The longer the facility takes to drain, the more runway the Fed has for QT.
With tax season upon us and the Fed poised to unveil QT parameters at some point over the next two meetings (by June at least), this discussion should be pretty lively in the context of reserves, which remain abundant thanks in part to the RRP liquidity buffer.
Some argue that dynamic (i.e., reserves kept “artificially” high by the RRP offset amid the bill issuance tsunami) is part and parcel of risk assets’ alleged obliviousness in the face of policy settings that should otherwise be expected to weigh on valuations and sentiment.
Meanwhile, Bank Term Funding Program loans rose $3.5 billion in the lead up to the facility’s official wind down this week.
The figure above is annotated to show the controversial recent history of the program. When the facility rate dropped meaningfully below IORB in early December, banks could effectively mint money by tapping BTFP and parking the funds at the Fed. Jerome Powell killed the arb earlier this year amid a spate of bad press.
What happens to facility loans is an open question. Banks could replace them (or not), it’s just a matter of where they’ll be rolled. The discount window still has a stigma, and officials from across the government are pushing for a revamp of the FHLB system such that it gravitates back towards its mandate and away from the “lender of next-to-last resort” role that many argue is an undesirable example of mission creep.
Discount window usage in the week to March 13 was the lowest since July of 2022.
