The Investment Company Institute published its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for January 2024 on Wednesday. ICI's monthly Trends shows money fund totals jumping $82.4 billion in January to a record $6.002 trillion (after a jump in December and November, a decrease in October and increases in September, August, July, June, May and April). Prior to this, the March 2023 jump (a $371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Bond fund assets surged $34.5 billion to $4.779 trillion and bond ETF assets broke the $1.5 trillion level for the first time ever. (Note: Register and make hotel reservations soon for our Bond Fund Symposium, which is March 25-26 in Philadelphia. We hope to see you in Philly next month!)
MMFs have increased by $1.194 trillion, or 24.8%, over the past 12 months (according to ICI's Trends through 1/31). Money funds' January asset increase follows an increase of $34.9 billion in December, $213.9 billion in November, a decrease of $13.6 billion in October and gains of $74.1 billion in September, $123.9 billion in August $31.4 billion in July, $30.6 billion in June, $172.7 billion in May, $8.4 billion in April, $371.0 billion in March, $60.0 billion in February and $31.5 billion in January. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.516 trillion as of 1/31, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased $140.83 billion, or 0.6 percent, to $25.66 trillion in January, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $32.34 billion in January, compared with an outflow of $8.38 billion in December.... Money market funds had an inflow of $61.61 billion in January, compared with an inflow of $23.40 billion in December. In January funds offered primarily to institutions had an inflow of $30.81 billion and funds offered primarily to individuals had an inflow of $30.79 billion."
The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower last month. Taxable MMFs increased by $87.0 billion in January to $5.883 trillion. Tax-Exempt MMFs decreased $4.5 billion to $119.1 billion. Taxable MMF assets increased year-over-year by $1.188 trillion (25.3%), and Tax-Exempt funds rose by $6.6 billion over the past year (5.9%). Bond fund assets increased by $34.5 billion (after increasing $135.5 billion in December) to $4.779 trillion; they've increased by $140.7 billion (3.0%) over the past year.
Money funds represent 23.4% of all mutual fund assets (up 0.2% from the previous month), while bond funds account for 18.6%, according to ICI. The total number of money market funds was 274, down 1 from the prior month and down from 281 a year ago. Taxable money funds numbered 229 funds, and tax-exempt money funds numbered 45 funds.
ICI's "Month-End Portfolio Holdings" confirms a jump in Treasuries and CDs last month. Repurchase Agreements remained the largest composition segment in January having decreased $147.2 billion, or -5.9%, to $2.369 trillion, or 40.3% of holdings. Repo holdings have decreased $284.0 billion, or -10.7%, over the past year. (See our Feb. 12 News, "February MF Portfolio Holdings Show Plunge in Repo, Jump in Treasury.")
Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $85.0 billion, or 4.0%, to $2.224 trillion, or 37.8% of holdings. Treasury securities have increased by $1.232 billion, or 124.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $50.5 billion, or 7.7%, to $703.7 billion, or 12.0% of holdings. Agency holdings have increased by $143.7 billion, or 25.7%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $77.3 billion, or 29.0%, to $343.7 billion (5.8% of assets). CDs held by money funds rose by $99.7 billion, or 40.9%, over 12 months. Commercial Paper remained in fifth place, up $19.6 billion, or 8.5%, to $250.3 billion (4.3% of assets). CP increased $48.3 billion, or 23.9%, over one year. Other holdings increased to $22.9 billion (0.4% of assets), while Notes (including Corporate and Bank) increased to $6.8 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 65.226 million, while the Number of Funds was unchanged at 229. Over the past 12 months, the number of accounts rose by 6.218 million and the number of funds decreased by 3. The Average Maturity of Portfolios was 37 days, unchanged from December. Over the past 12 months, WAMs of Taxable money have increased by 23.
In other news, The Wall Street Journal writes that, "Treasury Markets Are Losing Their Shock Absorber." They explain, "Participation is dwindling in a Federal Reserve program that has helped the U.S. government limit its borrowing costs, a development that many investors say presages higher interest rates and larger swings in the $26 trillion Treasury market. The overnight reverse repurchase facility, known on Wall Street as reverse repo, enables large financial firms such as money-market funds to briefly swap extra cash for high-quality securities on the central bank's balance sheet and pocket some interest. The Fed program has been used heavily in recent years, at one point hitting $2.5 trillion of daily balances, but that number has shrunk steadily and recently fell below $500 billion."
They explain, "Though obscure, reverse repo has long been at the center of the operation of the financial system and the U.S. economy. A committee that advises the Treasury suggested last fall that the heap of money-market fund cash sitting at the Fed could finance a flood of short-term bill issuance -- an unusual shift that in recent months has enabled the government to keep long-term interest rates relatively low despite the quickening drumbeat of U.S. debt issuance."
The Journal piece oddly adds, "While the central bank has been trying to tighten banking conditions to help cool the economy and therefore inflation, money-market funds have pulled cash out of reverse repo and back into the economy, counteracting that tightening. Officials are eager to avoid reserves becoming substantially scarcer, which would increase the risk of snafus in the multitrillion-dollar cash markets that can cascade into the broader financial system. Lehman Brothers' collapse in 2008, the Fed's attempt at quantitative tightening in 2019 and the onset of Covid-19 are all top of mind. The Fed is expected to slow the pace of quantitative tightening this year so it can watch for potential strains. [But] not everyone thinks a smaller reverse repo cash pile is much of an issue."
