With tax season out of the way (I forked over a Hublot Sang Bleu-size chunk this year because unlike America’s centimillionaires and the billionaire class, I actually pay my fair share), it’s time to start tracking weekly money market fund flows again.
Money fund AUM tends to be volatile around tax time, as corporates and individuals withdraw cash to pay their America club dues. Much as I despise my fellow members on some days, it’s still the best club around in a lot of very important respects. I have to remind myself not to forget that.
MMFs took in $31.14 billion in the week to May 8, ICI data released late Thursday in the US showed.
Institutional government accounted for the lion’s share ($18.84 billion). Retail flows to prime products chipped in nearly $5 billion.
After three straight weekly inflows, money funds have now recouped around 45% of the redemptions seen over the two-week period ending on April 17 (i.e., the two weeks leading up to tax day).
Total AUM stood at $6.03 trillion as of mid-week. The all-time high was $6.11 trillion on April 3.
There’s still no sign of meaningful, sustained outflows. Fed cuts have been delayed, which means yields will remain elevated for longer, and MMFs are still annualizing a huge 2024 haul. Most observers expect total AUM to swell further.
New regulations set to kick in later this year will likely drive more demand for government funds as institutional prime balances shrink. All else equal, that’ll put downward pressure on yields for government paper, thereby increasing the attractiveness of the Fed’s overnight parking garage assuming Jerome Powell isn’t forced into a series of meaningful rate cuts.
Note that RRP drain essentially stopped in March, with usage oscillating in a relatively narrow range. Balances were $458.55 billion on Thursday.
“T-bill supply has dwindled since the end of March [and] this marginal scarcity has made it harder for money market funds to deploy cash,” BNY Mellon’s John Velis said, discussing the factors contributing to stable RRP usage.
“In addition, the T-bill curve is flat as a proverbial pancake near 5.37%, just a hair over the RRP award,” Velis went on, adding that in light of rampant “uncertainty about the path for the Fed funds rate into the autumn along with the paltry supply of [short-term paper] and lowish returns, it doesn’t seem as if MMFs are interested in hoovering up many more bills.”
RRP stability’s good news for the Fed, at least to the extent it means they’re now very likely to make it to the QT taper (next month) with no funding market stress.
