Money market funds took in more than $17 billion in the week to May 22, pushing total AUM nearer still to the record high reached early last month.
This week’s haul counted as the fifth straight. MMFs have taken in more than $97 billion since tax week in the US.
Tax-related redemptions briefly knocked total assets below $6 trillion as corporates and individuals tapped reserves to pay Uncle Sam. Money funds have seen unabated inflows since a $112 billion exodus midway through last month.
Institutional government flows accounted for $7.55 billion of this week’s inflow, with the balance split evenly between retail and institutional prime products.
The rhetoric from Fed officials shifted markedly in this month, as the Committee fought to reclaim the narrative after a succession of CPI overshoots stoked concerns that Q4’s dovish policy pivot might’ve contributed to a rekindled inflation impulse. The May FOMC minutes were demonstrably hawkish.
The longer rates stay elevated, the longer “cash” remains a viable asset. (Ironically, the interest income from MMFs may be supporting consumption and thereby working at cross purposes with the inflation fight, a possibility the Fed hasn’t yet addressed.)
YTD, US money funds have seen $179.24 billion of inflows, inclusive of the mass exodus during the two weeks leading up to tax day. Most observers expect total AUM to keep climbing for the remainder of the year. As of May 22, assets stood at $6.07 trillion. The record was $6.11 trillion on April 3.
Meanwhile, RRP usage was the highest in nearly a month as of mid-week, at almost $500 billion. Balances retreated to $467 billion as of Thursday. Funding market stress is now unlikely with the QT taper set to begin and RRP nowhere near drained.
“MMF usage of RRP broadly stabilized around $450 billion, give or take, as negative net bill supply has impacted funds’ asset allocation,” BNY Mellon’s John Velis said. “Furthermore, Fed uncertainty on rates (when and will it cut?) has made extending weighted average maturities for MMFs less attractive.”
