As we mentioned Friday, our latest Money Fund Intelligence newsletter discusses the rebound in money fund assets over the past 6 months, which has continued into December, and the breaking of the $2.7 trillion level. Our lead December article, "Money Fund Assets Retake $2.7 Trillion; Flat Again in '13," says, "Money market mutual fund assets will be up slightly, but basically flat, for the second year in a row in 2013. However, these minor gains (up $24B YTD and up $10B in 2012) were the result of big declines in the first half of the year, followed by strong growth in the second half. This is a similar pattern to what we saw in 2012. But it's unclear whether this is a change in seasonality or is due to special factors."
MFI explains, "Money fund assets rose by $24 billion in the latest week, according to ICI's numbers, retaking the $2.7 trillion level for the first time since the first week of 2013. Assets have only poked up above $2.7 trillion for the first couple of weeks in January in both 2013 and in 2012. They had first broken above this level in the summer of 2007 and remained above it until mid-2011." (See the annual asset level chart on page 2 of MFI, and assets over the past 2 years on page 1.)
The piece continues, "In both 2012 and 2013, we saw declines in the first five months of the year. This year we've seen consistent asset growth since June 30, whereas in 2012 the rebound was concentrated in the last two months of the year. While the latter was likely driven by shifting dividends and income to avoid tax increases and the expiration of the TAG (unlimited FDIC insurance) program, the reason's behind this year's comeback are less clear."
Finally, MFI explains, "Losses in bond funds around mid‐year and continued outflows from bond funds could be the big factor. ICI shows over $150 billion in outflows from these funds since June 30. Since the start of 2011, bond funds had taken in over $550 billion. This could be just a taste of things to come once the Fed's "taper" begins and once markets begin anticipating an eventual hike in short‐term rates. Thus, while the strong headwinds of zero rates and pending regulatory changes loom, money funds once again may find themselves with reasons to celebrate at year‐end 2013. Happy Holidays, and hang in there!"
Month-to-date in December, Crane Data's MFI Daily shows that money fund assets increased by $19.8 billion last week (through Friday, 12/6). Watch for more coverage of MFI in coming days, and watch for our "Market Share" and Money Fund Portfolio Holdings to be released later Tuesday.
