Has the great “cash out” commenced?

No, probably not. But US money market funds did just see their largest weekly outflow since June, data released late Thursday showed.

The $22 billion exodus came on the heels of a massive $161 billion combined inflow over the prior two weeks.

Consider this: Since early August, when a spate of lackluster US macro data and turmoil out of Tokyo prompted a fleeting risk-asset selloff, MMFs have a seen a net $535 billion of inflows, an astounding haul over such a short period, particularly considering the Fed cut rates 75bps during that stretch.

Institutional cash always dominates the swings, and this week was no different: The institutional categories saw $32 billion of redemptions, partially offset by $7 billion of retail inflows across government and prime products.

There’s a vociferous debate about if and when some of the $6.7 trillion parked on the proverbial sidelines (where it’s still earning a very handsome, riskless return, by the way) will find its way into other assets, and what those assets might be.

The figure above shows the cumulative inflow to money funds since early 2023 — so, it captures the inflow escalation witnessed in and around the SVB debacle. That influx is now almost $2 trillion.

“Where will the $2 trillion added to money market accounts go now that the Fed is cutting?” Torsten Slok wondered, in a note published earlier this week. “The most likely scenario is that money will leave money market accounts and flow into higher-yielding assets such as credit, including investment grade private credit,” he went on.

Of course, some suspect that cash — or a meaningful portion of it anyway — will find its way into stocks.