ICI's latest weekly "Money Market Fund Assets" report shows MMF assets were flat, down a mere $1.4 billion to $5.960 trillion, after their first decrease of the New Year last week. They rose $10.0 billion two weeks ago and $78.6 billion the week before that. The latest weekly dip keeps assets just below their record $5.975 trillion set on 1/10/24. Assets are up by $73 billion, or 1.5%, year-to-date in 2024, with Institutional MMFs up $24 billion, or 0.8% and Retail MMFs up $49 billion, or 2.9%. Over the past 52 weeks, money funds have risen a massive $1.140 trillion, or 23.7%, with Retail MMFs rising by $593 billion (34.0%) and Inst MMFs rising by $547 billion (17.8%).
The weekly release says, "Total money market fund assets decreased by $1.39 billion to $5.96 trillion for the week ended Wednesday, January 24, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $5.03 billion and prime funds increased by $8.10 billion. Tax-exempt money market funds decreased by $4.46 billion." ICI's stats show Institutional MMFs falling $6.4 billion and Retail MMFs rising $5.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.857 trillion (81.5% of all money funds), while Total Prime MMFs were $978.3 billion (16.6%). Tax Exempt MMFs totaled $116.3 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $5.03 billion to $2.34 trillion. Among retail funds, government money market fund assets increased by $3.93 billion to $1.52 trillion, prime money market fund assets increased by $4.63 billion to $711.41 billion, and tax-exempt fund assets decreased by $3.53 billion to $105.83 billion." Retail assets account for over a third of total assets, or 39.2%, and Government Retail assets make up 65.1% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $6.42 billion to $3.62 trillion. Among institutional funds, government money market fund assets decreased by $8.96 billion to $3.34 trillion, prime money market fund assets increased by $3.47 billion to $274.97 billion, and tax-exempt fund assets decreased by $931 million to $10.42 billion." Institutional assets accounted for 60.8% 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 have risen by $56.4 billion in the first 24 days of January to $6.357 trillion, slightly off their record $6.372 trillion level set on 1/23/24. Assets rose $32.7 billion in December, jumped $226.4 billion in November but fell by $31.9 billion in October. They rose $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.
J.P. Morgan's latest "Mid-Week US Short Duration Update" is entitled, "MMF AUMs: We're not going anywhere." They tell us, "YTD, taxable MMF balances have increased by $75bn, a stark contrast to prior years where we typically saw seasonal outflows immediately following the turn that continued into 1H.... And while it's only been three weeks into the year, the rise in MMF AUMs is also challenging the view among some market participants that the $6tn of cash that's currently sitting in MMFs will rotate into alternative assets such as fixed income and/or equities."
The piece explains, "For context, in 2023, MMF AUMs rose by over $1.1tn (or 22%), one of the largest increases seen in the past decade, surpassing even the growth observed during the pandemic. The regional banking crisis in March, alongside an inverted yield curve that has cash yielding above 5%, in addition to market volatility, all contributed to the impressive rise in MMF balances last year."
It comments, "We continue to think MMF AUMs will remain elevated in 2024 and do not expect there to be meaningful net outflows.... Despite the current outlook for interest rates and the expected shift into longer duration fixed income, we do not think those flows will be funded from substantial drawdowns in cash. Indeed, a look at historical MMF AUM flows going back to 1995, spanning over three easing cycles, shows that MMFs continued to see inflows even when the Fed began to cut rates."
JPM says, "This makes sense, as MMF yields tend to lag yields of direct cash alternatives such as T-bills when the Fed starts to cut rates, thus attracting flows from other liquidity alternatives. We also took a look at MMF flows versus changes in the shape of the curve. As Figure 3 shows, flows into MMFs tend to continue even as the curve begins to disinvert/steepen; it's not until the curve more or less stablizes that outflows begin to take place."
They write, "Perhaps most importantly, we believe a substantial majority of the cash that sits in MMFs is core liquidity among institutional and retail investors. In essence, they use MMFs for cash management/liquidity purposes rather than an investment asset class as part of one's overall investment portfolio. Accordingly, this should limit the amount of cash pivoting into riskier asset classes. Nor do we think the cash will pivot into bank deposits, even as banks have raised their deposit betas. Relative to bank deposits, MMFs are still far more attractive from a yield perspective. Furthermore, banks still do not want non-operational institutional deposits on their balance sheets."
The update adds, "We think the amount of core cash in MMFs is around $5.5tn, which leaves about $500bn susceptible to flight risk, particularly from retail investors. And while retail investors are more sensitive to cash reallocations, the outlook for interest rates does not suggest a large shift into fixed income this year. Indeed, even if the Fed is expected to cut rates, the yield spread between cash and bonds is expected to remain negative for the better part of 2024, suggesting little incentive to immediately extend out the curve."
Finally, JPM concludes, "Overall, while there could be some rotation from cash to out the curve, we suspect net outflows will be limited. With the expectation that the Fed is going to stay higher for longer and with MMFs yielding above 5% for same day liquidity, MMFs remain compelling both as a liquidity product and as an investment asset class. MMF AUMs are likely flat with a slight bias lower this year. At the sector level, most of the cash will likely remain in government MMFs versus prime MMFs. If anything, MMF reform should continue to bias government MMF AUMs higher."
