When will money market funds start to drain?

I’m a little weary of that question by now. It’s topical, yes. The Fed’ll probably be three or four cuts into an easing cycle by this time next year, which means the relative attractiveness of cash as an asset class should be diminished. That’s assuming, of course, there’s not some manner of meltdown that sends everyone scurrying (back) to the sidelines.

And yes, you can make the case that a portion of the several trillions currently biding time (lucratively, I might add, at 5%) could be a source of funds for an extension of the equity rally.

But how many times are we going to have this discussion before we’re compelled to at least acknowledge the repetitiveness of the exercise?

That’s a rhetorical question. The answer’s over and over (and over) again, ad nauseam. Because that’s what strategy notes and financial journalism are: Paraphrased versions of previous notes and journalism repackaged, resent and resold for a new week. If we were all required to say something new and novel (which is to say something worth saying) each and every time we opened our mouths (or uncapped our digital pens), we’d be a quiet bunch.

Anyway, BofA’s Michael Hartnett recycled some familiar color on the history of MMF flows around rate-cycle turning points in the latest edition of his popular weekly “Flow Show” series.

The figure above shows MMF inflows tend to crescendo into the first cut, before decelerating thereafter and eventually turning negative.

“[Over the] past five Fed rate-cutting cycles, inflows to MMFs rose in anticipation of the first cut, then slowed meaningfully once the Fed started cutting rates,” Hartnett wrote.

Globally, money funds took in nearly $82 billion over the latest weekly reporting period, which overlapped quarter-end. That was the largest influx on EPFR’s data in three months. ICI tallied a $70.5 billion inflow to US money funds in the week to April 3.

Inflows to money funds are on track for another $1 trillion+ year. At the current rate, MMFs would take in $1.2 trillion in 2024, the second-most ever (behind last year).

Industry watchers generally contend that money fund AUM will almost surely be higher by year-end than it is today, which is to say on net, outflows aren’t expected to materialize anytime soon.

Equity strategists, though, anticipate some eventual rotation from cash to stocks, being equity strategists and all.

Hartnett dusted off the table shown above for his latest. It’ll be familiar to some readers. It’s basically an effort to put some numbers to the first chart highlighted above.

Again: Money funds tend to see large inflows into the first cut, then a much slower pace thereafter.

As for outflows, Hartnett reiterated that they “historically start 12 months into a rate-cutting cycle.”