The total amount of money that's moved out of Prime and Tax Exempt MMFs combined hit $900 billion this week, as the "Big Shift" of assets into Government money funds accelerated ahead of approaching money market reforms. ICI's latest "Money Market Fund Assets" report shows MMFs overall increasing $10.7 billion in the latest week, after dropping sharply two straight weeks. Prime funds fell by over $60 billion for the second week in a row; they've declined in 16 out of the past 17 weeks (-$496.8B) and have averaged outflows of $29.0 billion a week since June 1 and $52.1 billion since Sept. 1. Since Oct. 29, 2015, Prime assets have fallen by a massive $789.3 billion, or 54.1%, and Tax Exempt funds have declined by another $107.5 billion, or 43.9%. Combined these two sectors have fallen by $896.8 billion (52.6%) since this giant migration started, and we expect the total shift to break $1.0 trillion ahead of the Oct. 14 MMF Reform "live" deadline.
Government funds (including Treasury funds) gained $76.4 billion in the past week. They've increased by $849.8 billion since last October (up 83.8%) and by $642.5 billion, or 52.6%, YTD. (YTD in 2016, Prime MMFs are down by $614.7 billion, or 47.9%.) Over the past 6 weeks, Prime MMFs have fallen by $274.0 billion and they've fallen by $400.9 billion over the past 13 weeks. Govt MMFs have risen $234.6 billion over 6 weeks and $431.5 billion over 13 weeks.
ICI's latest release says, "Total money market fund assets increased by $10.72 billion to $2.67 trillion for the week ended Wednesday, September 21, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $76.40 billion and prime funds decreased by $60.18 billion. Tax-exempt money market funds decreased by $5.51 billion."
It continues, "Assets of retail money market funds increased by $1.24 billion to $930.89 billion. Among retail funds, government money market fund assets increased by $10.00 billion to $527.06 billion, prime money market fund assets decreased by $7.26 billion to $292.84 billion, and tax-exempt fund assets decreased by $1.49 billion to $111.00 billion."
The update adds, "Assets of institutional money market funds increased by $9.48 billion to $1.74 trillion. Among institutional funds, government money market fund assets increased by $66.41 billion to $1.34 trillion, prime money market fund assets decreased by $52.91 billion to $376.25 billion, and tax-exempt fund assets decreased by $4.02 billion to $26.48 billion." Government assets, including Institutional and Retail (and Treasury and Government) stand at $1.863 trillion, while Prime assets fell below $700 billon and are now at $669.1 billion.
ICI adds, "Notes: In anticipation of the Securities and Exchange Commission's (SEC) new money market fund regulations, many advisers are changing their prime money market funds into government money market funds. As a result, there have been, and will continue to be, large shifts in assets from prime funds to government funds before the October 2016 deadline."
A blog post entitled, "OFR Monitor Shows Accelerating Shift to Government Money Market Funds," explains, "Assets of U.S. prime money market funds have decreased by more than $700 billion since the beginning of the year, while assets of government money market funds have increased by about the same amount, according to the OFR's monthly U.S. Money Market Fund Monitor (MMF Monitor). This trend accelerated in August."
It explains, "The OFR's Viktoria Baklanova and Daniel Stemp, lead researchers on the MMF Monitor, attribute the shift to the Oct. 14, 2016, deadline for implementing Securities and Exchange Commission (SEC) reforms. The reforms are intended to make prime money market funds less vulnerable to runs by investors. They also are intended to limit the potential stress on the financial system if a run occurs."
The update adds, "Ahead of the reforms, some investors are moving their assets from prime funds to government funds. Some fund managers are also converting prime funds to government funds. Baklanova and Stemp also note that the sharp decline in the assets of prime money market funds is having ripple effects. For example, demand has declined for commercial paper and banks' certificates of deposit (CDs) -- traditionally common investments for prime funds. In turn, the lower demand for commercial paper and CDs has increased banks' expenses in raising short-term funds in the interbank market. As a result, the benchmark three-month London Interbank Offered Rate (LIBOR) has risen significantly (about 20 basis points) since early July."
In other news, Dan Wiener of the Independent Adviser for Vanguard Investors distributed a brief entitled, "Tax-Exempt Money Fund Yields Ahead of Taxables." It says, "The municipal money market has caught up (and then some.) On Monday Vanguard Tax-Exempt Money Market's yield went ahead of Vanguard Prime Money Market's yield and as of last night the yield is now 2 basis points higher, at 0.57% versus 0.55% for the taxable fund."
He asks, "Why do I care? Well, if you're a high tax-bracket investor who’s been looking at the taxable money funds with envy, well now's your chance to gloat. That 0.57% tax-exempt yield is roughly equivalent to a 0.86% taxable yield. Is 0.86% better than 0.55%? You better believe it, and this is clearly one you can take to the bank." Note: Our latest Money Fund Intelligence Daily shows the Crane Tax Exempt Index yielding (7-day net annualized) 0.24% vs. 0.23% for our Crane 100 Money Fund Index, an average of the 100 largest taxable money market funds.
