Money fund assets fell $20.45 billion in the latest week, to $3.455 trillion. Over the past three weeks, assets have dropped by $75.2 billion. The Investment Company Institute's weekly data series shows retail assets dropping sharply, an unusual occurrence. Individuals withdrew $13.45 billion, to $1.208 trillion, while institutional investors withdrew $7.01 billion to $2.248 trillion.

Over the past 4 weeks, money fund assets have declined by about $57 billion. ICI also released their monthly asset totals for May 2008 yesterday, which showed money fund totals gaining $52 billion. Year-to-date, money fund assets have increased by $300.5 billion, or 9.6%. Over 52 weeks, money fund assets have grown by $909 billion, or 35.8%.

Outflows were likely caused by retail investors moving back into stocks, allocating cash for vacation spending, and normal month-end outflows. Retail funds also were depressed due to a large block of brokerage cash moving from a money fund into a bank sweep program. Institutional funds normally see outflows at month-end, and particularly at quarter-end. Tightness in repo and LIBOR rates, and quarter-end window dressing, also likely drew cash from institutional money funds.

Though we expect inflows to return in early July, which usually sees strong asset growth, money funds may also finally be succumbing to investors' aversion to low rates. Among other possible explanations for the recent outflows: expectations of higher rates could be starting a shift away from funds and into direct securities, and consumers may be drawing down their reserves in order to maintain their spending.

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