Money market funds snapped a “streak” of redemptions in the week to April 3. Emphatically. They snapped it emphatically.
The scare quotes are there to denote that it’s a stretch to call two weeks a “streak.” (Get it? Stretch. Streak. This is too easy by now.) But any outflow from MMFs is notable given pressing questions about the fate of some $6 trillion parked on the proverbial sidelines.
Regular readers will recall that I cautioned against reading anything into recent outflows. There was a business tax deadline in mid-March and it’s anyway a mistake to over-interpret one week’s MMF flows. The $70.5 billion that poured into money funds over the latest weekly reporting period (overlapping quarter-end) erased the prior two weeks’ redemptions with a couple of billion to spare.
Inflows were concentrated in government funds, which raked in nearly $63 billion ($43.87 billion institutional and $18.95 billion retail).
The incoming Fedspeak raised questions about the likelihood of a June rate cut, and market pricing for total easing in 2024 recently indicated fewer than the three cuts tipped by the March dot plot. Generally speaking, the longer rates stay high, the longer cash (i.e., money funds) will stay competitive as an asset class.
I don’t want to spend too much time on MMF flows this week given the proximity of tax day for individuals, which’ll probably distort the data over the next two weeks. Those interested in a longer discussion around the prospects for MMF cash to eventually rotate into equities are encouraged to peruse “Cash For Stocks.” This week’s inflow pushed total AUM to a new record at $6.11 trillion.
Meanwhile, RRP balances are bumping around near the low-end of the recent range between $400 billion and $550 billion. It’s the same story there: Conceptually, that’s the Fed’s excess liquidity buffer and as long as it’s above, say, $250 billion, there’s no urgency to slow the pace of balance sheet runoff.
As ever, I do wonder about the risk-reward of holding off on the QT taper for as long as possible given that at most, we’re talking about another three or four months. Waiting too long risks accidentally breaching LCLoR for no real gain.
If the Fed’s concerned about getting the balance sheet down to some specific level, the better, safer option is to run QT at a slower pace for longer instead of clinging to the current pace for the sake of it only to accidentally push the banking sector over some invisible threshold and then be forced to cease QT abruptly and altogether.
Finally, a quick check on the mothballed Bank Term Funding Program shows balances are now $37 billion off the highs. The facility stopped making new loans on its one-year anniversary. Discount window usage slipped back to $5.45 billion after rising the most since May in the prior week.
