US money market funds saw inflows for a fourth consecutive week, pushing total assets further above $6 trillion and nearer all-time highs reached just prior to a tax-related exodus last month.
$16.36 billion flowed into MMFs in the week to May 15, an ICI update released late Thursday in the US showed.
Money funds have now recouped more than $80 billion of the $143 billion in redemptions seen in the two weeks leading up to tax day in the US.
Institutional government accounted for most of the influx ($14.82 billion). Tax-exempt funds saw nearly $3 billion of outflows.
Total AUM now stands at $6.05 trillion. The high was $6.11 trillion on April 3.
Fed officials, wrong-footed by a succession of warm CPI prints during the first three months of the year, have circled the wagons: It’s likely to take longer for the Committee to achieve the level of confidence they need to cut rates. That means cash will remain a viable asset class for the balance of 2024. At least.
There are caveats. Recent data, including this week’s inflation update, suggests the US economy may be cooling. Market pricing now shows a one in four chance of a rate cut in July and a very high probability of a cut by September. Two quarter-point cuts are fully priced for this year. At the same time, cash yields look paltry compared to the returns on offer in equities, which hit new records this week in the wake of the CPI release.
Still, 5% riskless is a helluva proposition. And most observers expect money fund AUM to be higher at year-end than it is today. With this week’s inflow, US MMFs have taken in a net $162 billion in 2024. That counts a $112 billion outflow during tax week which’ll be fully recouped, probably in short order.
Since the beginning of 2023, money funds have seen more than $1.31 trillion of inflows. You do the math: That’s $1.31 trillion in additional AUM all generating 5% (or thereabouts) in interest income.
As discussed here last week, 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.
RRP balances were $410 billion on Thursday. That’s more than enough of a liquidity buffer to get the Fed smoothy into the QT taper.
