It’s been a helluva year for money market funds.
With just just seven business days left on the calendar, US MMFs have seen $865 billion of inflows for 2024, not quite the $1.15 trillion tsunami witnessed in 2023, but an impressive haul all the same.
That YTD figure includes an outflow during the week to December 18. ICI data released late Thursday showed $19.61 billion of redemptions in the reporting period leading into the December FOMC meeting.
As the figure reminds you, outflows were few, far between and with the exception of tax date-related redemptions, small this year. The outflow over the latest week was entirely attributable to the institutional government category.
Total AUM in US MMFs stands at $6.75 trillion. It’s worth noting that the shallower rate-cut path tipped this week by the new Fed dot plot could conceivably make that wall of cash “stickier” to the extent rates do in fact stay higher for longer.
Part and parcel of many an equity melt-up extension narrative is the notion that at least some of that sideline cash will succumb to “FOMU” — “Fear Of Materially Underperforming” — or “FOCUS” — “Fear Of Cash Underperforming Stocks.”
In 2024, both MMFs and equities saw enormous inflows, as illustrated above.
Additionally, we shouldn’t forget that not all of (indeed, not most of) the $6.75 trillion in MMF AUM is “available,” so to speak, for risk asset-buying. On the retail side, a lot of it’s savings substitution (post-SVB), and with allowances for the fact that the corporate bid is the single-largest source of demand for US equities — and notwithstanding the fact that corporates aren’t always the best judge of when their own stock’s a good value — it’s fair to ask whether institutional cash is really going to be deployed aggressively into equities trading on some of the highest multiples ever witnessed.
Meanwhile, RRP usage slipped to its lowest levels since early 2021 this week.
Facility take up was just $111 billion on Monday and $112 billion on Thursday.
The Fed this week cut the offering rate by 30bps (i.e., 5bps more than the funds rate) in a bid to channel liquidity to short-end funding markets, where it might be scarce into the calendar turn.
As BNY Mellon’s John Velis pointed out for the second time in as many weeks, the Fed may be able to coax MMFs into short-term funding markets to help smooth things out at year-end, when dealer balance sheet constraints are likely to manifest in flare ups, but “with RRP balances now so low, it’s unlikely that moving cash out of RRP will increase liquidity significantly.”
