US money market funds saw their first outflows since tax week, an update released after the bell on Thursday showed.
The $22.32 billion exodus came on the heels of a $28 billion haul the prior week, when total AUM reached a new high at $6.12 trillion, eclipsing the peak from early April.
The net redemption in the truncated week to June 18 snapped an eight-week run of inflows.
The entirety of the outflow was down to institutional money, including $28 billion in redemptions from government funds. Retail products saw $8.5 billion of inflows across government and prime products.
Total AUM now stands at $6.098 trillion, the fourth highest ever. Talk of a “cash bubble” is pervasive, although I’ve never been convinced that’s the best way to describe the situation.
For whatever it’s worth, fund managers (whose average cash levels were the lowest in three years this month) see US equities as “the biggest beneficiary” of reallocated MMF AUM, according to BofA’s monthly poll.
As the figure shows, nearly a third of respondents said US stocks, a quarter said bonds and so on.
The outflow from money funds came during a holiday-shortened week and amid data which suggested US inflation’s cooling again, potentially re-opening the door to a September Fed cut. Some traders are back to wagering on a move at the July FOMC meeting.
Meanwhile, RRP balances dipped all the way to $333 billion earlier this week, before rebounding to $389 billion as of Thursday. We’re into the QT taper now, and it seems as though the Fed successfully avoided a repeat of the September 2019 funding market theatrics.
“After a massive and rapid drain, RRP shrinkage has slowed,” BNY Mellon’s John Velis wrote this week. “On some days usage has been below $400 billion [but] outside of seasonal blips, we see RRP shrinkage running into the headwinds of paltry T-bill supply and uncertainty about when the rate-cut cycle begins.”
