Money market funds hemorrhaged cash in the week to March 20, according to the latest flows update.
The $61.9 billion exodus negated the entirety of the prior two weeks’ inflows and counted as the largest one-week withdrawal since mid-October, when tax-related redemptions resulted in the single-biggest en masse departure since Lehman.
It’d be a mistake to read too much (or anything) into this week’s update. Anomalous one-week money fund outflows are best left alone — ignored, even — and there was a business tax deadline on March 15.
Not surprisingly, the entirety of the redemptions were from the institutional government category, where a $70.6 billion outflow overwhelmed $8.5 billion of retail inflows across government and prime products. The latter also saw a small inflow from the institutional side.
Total AUM dropped to $6.05 trillion after notching new records for three consecutive weeks. These flows could be erratic during tax season.
As far as I’m aware, the overarching narrative for money funds hasn’t changed. The new dot plot tipped the same three Fed cuts in 2024, but the 2025, 2026 and long run medians all shifted higher. The Fed plainly wants to dial it back this year, but barring a total macro meltdown that forces rapid, deep rate cuts, cash will remain a viable asset class, and many observers believe money fund AUM will be higher by year-end, not lower.
RRP balances are still bumping around between $400 and $500 billion. The Fed started the discussion around tapering the pace of balance sheet runoff this week, but Jerome Powell offered very little in the way of details during the press conference, saying only that the QT taper would begin “fairly soon.” RRP’s the liquidity cushion. As long as it’s above, say, $250 billion, there’s arguably no urgency. Arguably.
Notably, outstanding Bank Term Funding Program balances dropped by $17 billion in the first week after the Fed stopped making new loans through the facility. Usage rose meaningfully during the prior week in what I called a last-gasp.
BTFP, you’re reminded, became a lightning rod for controversy late last year, when the cost of accessing facility loans fell below the rate the Fed pays on reserves, creating a free money arb for banks.
Discount window usage jumped $847 million over the week, the most since last May.
