The Wall Street Journal writes, "Cash Creeps Back Into an Unloved Corner of the Money Markets," which discusses the return of cash into Prime money market funds. The article says, "Money has started to flow back into short-term funds that investors raced to get out of last fall. U.S. prime money market funds, which invest in short-term corporate IOUs, had $611.5 billion in assets at the end of May, up 12% from the end of last year, according to the latest data from the Office of Financial Research and the Securities and Exchange Commission. That's a significant turnabout after the assets in such funds more than halved over the course of 2016."

It explains, "U.S. money market funds had to adopt new post-crisis regulations last October, meant to safe-guard them after a prominent money-market fund "broke the buck" during the financial crisis and set off panic across the markets. The new rules set barriers to pulling money from prime funds during times of market upheaval, reducing the draw for some investors who need to be able to jump in and out of them."

The Journal tells us, "The retail and institutional money in prime funds is well below the more than $1.5 trillion that used to sit in them before investors pulled money in anticipation of the new rules. But the uptick suggests investors, lured by yields that in some cases top 1%, have renewed interest in such funds."

The piece quotes our Peter Crane, "president and publisher of Crane Data, which tracks money market funds," "They are about to get a tailwind." The piece explains, "He noted that investors usually pull out of money funds in the first half of each year and gain it back in the second half, potentially accelerating inflows to prime funds in the final six months of the year." (Year-to-date, money funds are down by $103 billion, or -3.8% in 2017, according to ICI's weekly data series.)

The WSJ piece continues, "Investors who pulled money from prime funds last year often put it into government money market funds, which invest in short-term government debt and typically do not have to adhere to the new rules. But the assets in government funds has ticked down 2.1% this year through May to $2.2 trillion, the data show. Those assets are still up by more than half from a year ago, but the recent flows suggest investors are done indiscriminately moving money from prime funds into government funds en masse."

The update contains two charts. One is entitled, "Money Moseys Back," and subtitled, "After massive outflows last year ahead of new regulations, investors are putting some money back into prime money market funds." It shows the steep decline and gradual rebound in Prime assets year-to-date. The shows the inverse with Government fund assets spiking in 2016, and declining slightly in 2017.

It says, "Despite the new rules, 55% of market professionals and investors indicated they are interested in increasing their exposure to funds with floating NAVs, particularly with the higher yields offered in that corner of the money market, according to a Bank of New York Mellon Corp. survey. By some measures, prime funds now offer 0.29 percentage more in yield that government funds."

The Journal adds, "Once that spread reaches 0.35 percentage point, 38% of respondents said they would consider allocating more money to prime funds. And once it hits 0.45 percentage point, another 28% said they’d consider moving more money into the space." (See our July 7 News, "Dreyfus MF Symposium Survey Says Prime Inflows Should Accelerate," for more on Dreyfus' recent survey.)

Finally, they quote Tracy Hopkins, chief operating officer of BNY Mellon cash investment strategies, "As investors become accustomed to the new rules following money market reform, we are already seeing a gradual reallocation of institutional cash back from government to prime, a trend we don't see reversing anytime soon."

Our July Money Fund Intelligence, which was sent to subscribers yesterday, commented in the brief, "Slow, Steady Prime Asset Rebound Continues," "Both ICI's latest weekly 'Money Market Fund Assets' report and Crane Data's monthly MFI XLS show the Prime recovery continues. (ICI shows Prime up $2.2 billion to $415.5 billion, the 9th increase in 11 weeks. MFI shows Prime up $8.2B in June to $598B.)

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