The Investment Company Institute published its latest weekly "Money Market Fund Assets" report Wednesday (a day early due to the Thanksgiving Day Holiday), which shows MMF assets rising for the fifth week in a row and hitting yet another new record level. ICI's asset series rose $29.1 billion to $5.763 trillion and have risen $155.5 billion the past 5 weeks (after a drop of $98.8 billion the week ended 10/18). Assets are up by $1.028 trillion, or 21.7%, year-to-date in 2023, with Institutional MMFs up $462 billion, or 15.1% and Retail MMFs up $566 billion, or 33.8%. Over the past 52 weeks, money funds have risen a massive $1.122 trillion, or 24.2%, with Retail MMFs rising by $633 billion (39.3%) and Inst MMFs rising by $489 billion (16.1%). (Note: Please join us for our upcoming Money Fund University in Jersey City, Dec. 18-19. We'll also be hosting our Crane Data Holiday Party alongside MFU, so feel free to drop by the Westin Jersey City on Monday, Dec. 18 from 5:00-7:30pm.)
The weekly release says, "Total money market fund assets increased by $29.12 billion to $5.76 trillion for the six-day period ended Tuesday, November 21, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $22.34 billion and prime funds increased by $5.99 billion. Tax-exempt money market funds increased by $796 million." ICI's stats show Institutional MMFs rising $16.3 billion and Retail MMFs rising $12.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.702 trillion (81.6% of all money funds), while Total Prime MMFs were $938.0 billion (16.3%). Tax Exempt MMFs totaled $123.3 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $12.83 billion to $2.24 trillion. Among retail funds, government money market fund assets increased by $7.90 billion to $1.46 trillion, prime money market fund assets increased by $4.01 billion to $671.58 billion, and tax-exempt fund assets increased by $925 million to $112.13 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.1% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $16.29 billion to $3.52 trillion. Among institutional funds, government money market fund assets increased by $14.43 billion to $3.24 trillion, prime money market fund assets increased by $1.98 billion to $266.37 billion, and tax-exempt fund assets decreased by $129 million to $11.16 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets rose $114.8 billion in the first 21 days of November to a record $6.156 trillion. Assets fell by $31.9 billion in October after rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
In other news, State Street Global Advisors' recent update, "Monthly Cash Review," tells us, "As 'higher for longer' starts to bite the economy, we are keeping a close eye on the Fed's Reverse Repo Program (RRP), which is the best example of excess liquidity. The US Federal Reserve (Fed) must 'drain' this liquidity in order to keep market rates in line with its policy rate range. The Fed has skipped. This outcome was expected -- real yields and term premiums have done much of the work for the Fed (although it cautioned that it was too soon to tell if this was having an impact on economic growth and inflation)."
It explains, "Higher long-term interest rates are biting the economy, and the Fed is either being patient or risking a hard landing. Yes, the strength of growth (the gross domestic product [GDP] growth) and the consumer is worrisome, but if the Fed were just focused on the economic data, it might have hiked in September and November. The previous 525 bp of hikes allow the Fed to pause on further hikes, with the hope that nothing breaks under the current strain of higher funding costs --like an 8% mortgage rate."
SSGA comments, "Quantitative tightening (QT) has been in the works since June 2022. The size of the Fed's System Open Market Account (SOMA) peaked in May 2022 at USD 8.4 trn. On average, about USD 18 bn of assets roll off each week. Fed's SOMA now stands at USD 7.2 trn. As 'higher for longer' starts to bite the economy, we are keeping a close eye on a few metrics: the Fed's RRP, US T-Bill supply and bank reserves held at the Fed."
The piece continues, "The decline in the Fed's RRP has been dramatic: Since 1 June, RRP balances have dropped by USD 1.1 trn. The new supply of US Treasury Bills (T-Bills) has absorbed this cash. The relative value between T-Bills and RRP has been positive and so money market funds (MMFs) have been moving money out of RRP and into T-Bills. This has had very little impact on reserves at the Fed. Recall during the previous tightening cycle (2015–2018) there was much discussion on what the lowest level of reserves would be before strains started to emerge."
It states, "Meanwhile, government and prime MMFs have been extending their durations. At the beginning of this year, the scars from 2022 were still fresh and durations were around 7–14 days (WAM). As 2023 rolled on, the urge to extend grew as the Fed hinted at a pause in their rate hike cycle. The extension we have seen throughout 2023 has been gradual, with MMF managers still exercising a good deal of caution."
State Street adds, "As market participants and the Fed become more confident it has reached a sufficiently restrictive policy rate, average WAMs have moved higher. Patience will be the hardest part of managing the next few quarters. The Fed has moved policy rates to be sufficiently restrictive. The excess liquidity in the system and the lingering fiscal and monetary stimulus will take some time to work through the economy. How long it takes is everyone's guess."
