The Investment Company Institute's latest monthly "Trends in Mutual Fund Investing: May 2011" shows total assets of bond mutual funds rising to $2.749 trillion while money fund assets remained flat at $2.727 trillion in May, making this, we believe, the first time that total bond fund assets have ever surpassed money fund assets. ICI's monthly report says, "The combined assets of the nation's mutual funds decreased by $70.7 billion, or 0.6 percent, to $12.403 trillion in May, 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 now represent 22.2% of assets vs. money funds' 22.0%.

ICI's monthly statistics explain, "Bond funds had an inflow of $19.56 billion in May, compared with an inflow of $13.15 billion in April. Taxable bond funds had an inflow of $19.59 billion in May, vs. an inflow of $16.87 billion in April. Municipal bond funds had an outflow of $30 million in May, compared with an outflow of $3.72 billion in April. Money market funds had an outflow of $2.74 billion in May, compared with an outflow of $3.20 billion in April. Funds offered primarily to institutions had an outflow of $6.05 billion. Funds offered primarily to individuals had an inflow of $3.30 billion." Year-to-date, bond funds have increased by $140.7 billion, or 5.4%, while money fund assets have decreased by $76.9 billion (through 5/31/11), or -2.7%.

ICI's weekly money fund statistics will likely show modest outflows again this week, which would mark the third week in a row of declines. Crane Data's Money Fund Intelligence Daily shows money fund assets declining by $16.3 billion in the week through Wednesday with Prime Institutional funds falling by a noticeable $36.7 billion. While outflows due to likely overblown concerns about European bank exposure were undoubtedly at work, quarter-end seasonal declines were also no doubt a factor. The outflows from Prime Institutional funds have persisted for three weeks, according to ICI's data.

Crane's Daily series shows a slighth increase in assets (up $2.0 billion) yesterday, following three straight days of outflows. It's worth noting though that these decreases remain quite small and manageable, and that the outflows from Prime Institutional funds have decreased every day since Friday, their biggest daily decline. (Prime Institutional assets lost a mere $1.6 billion yesterday, following daily declines of $6.6 billion, $9.9 billion, and $13.9 billion the prior three days.) Finally, Wednesday's news of the Federal Reserve extending its dollar swap arrangements with the European Central Bank (see "Link of the Day") and the Greek vote for austerity should help allay concerns about the possibility of significant outflows developing.

ICI also reported its privately-distributed "Month-End Portfolio Holdings of Taxable Money Market Funds," which shows that Repurchase Agreements showed the only sizeable increase among money fund composition segments in May. Repo holdings rose by $53.1 billion to $490.7 billion (up to 20.3% from 18.1%), while Certificates of Deposit, including Eurodollar CDs fell by $11.6 billion to $598.2 billion (24.7%). CDs remained the largest segment, however, while Commercial Paper remained the third largest sector with $392.6 billion, or 16.2% of assets. U.S. Government Agency Securities accounted for $345.6 billion, or 14.3%, and U.S. Treasury Bills and Securities accounted for $337.9 billion, or 14.0%.

Note that Crane Data's monthly Money Fund Intelligence XLS, which also tracks Portfolio Composition, will be out on July 8 with data as of June 30, and our Money Fund Portfolio Holdings with June 30 data will be out on July 15. Many will be watching these numbers closely to see whether money market funds dramatically reduced their holdings of French banks following recent headline scares over Greece and Europe. We would expect money funds to have reduced their exposures, but not to have abandoned the largest of the French banks.

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