Money fund assets fell hard this week after rising for five straight weeks, but Prime MMFs rose for the 11th week straight, we learned from the Investment Company Institute's" latest report. Government money funds fell sharply into month-end. Meanwhile, Prime MMFs rose for the 17th week in the past 19 (up $45.5, or 11.5%). (Last week they showed their biggest inflows of 2017.) They've now increased by $64.4 billion, or 17.1%, year-to-date. We review the latest asset flows below, and we also look at a recent newsletter from Public Trust Advisors, which manages a number of LGIPs, or local government investment pools.

ICI writes, "Total money market fund assets decreased by $19.73 billion to $2.72 trillion for the week ended Wednesday, August 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $19.70 billion and prime funds increased by $1.04 billion. Tax-exempt money market funds decreased by $1.07 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.145 trillion (79.0% of all money funds), while Total Prime MMFs stand at $442.0 billion (16.3%). Tax Exempt MMFs total $128.7 billion, or 4.7%.

They explain, "Assets of retail money market funds decreased by $1.18 billion to $968.23 billion. Among retail funds, government money market fund assets decreased by $738 million to $586.94 billion, prime money market fund assets increased by $620 million to $258.58 billion, and tax-exempt fund assets decreased by $1.06 billion to $122.71 billion." Retail assets account for over a third of total assets, or 35.6%, and Government Retail assets make up 60.6% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $18.55 billion to $1.75 trillion. Among institutional funds, government money market fund assets decreased by $18.96 billion to $1.56 trillion, prime money market fund assets increased by $423 million to $183.38 billion, and tax-exempt fund assets decreased by $8 million to $5.96 billion." Institutional assets account for 64.4% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

It explains, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." Note: Crane Data also publishes a daily money fund assets series via our Money Fund Intelligence Daily product, and a monthly asset series via our MFI XLS.

In other news, we stumbled across a newsletter for the New York Cooperative Liquid Asset Securities System (NYCLASS) entitled, "The Investor." It explains, "This month's NYCLASS newsletter features a Q&A interview by Emmie Madison, Content Writer for Public Trust Advisors, LLC (Public Trust), with Portfolio Managers Neil Waud and Randy Palomba. Public Trust is the Investment Advior/Administrator for NYCLASS. We discussed their experience, the economic landscape, and managing local government funds."

The article asks, "How long have you been with Public Trust, and overall how long have you been managing portfolios?" Waud answers, "I have been with Public Trust since the very beginning, and I have been investing cash since 2000." Palomba adds, "I'm also fortunate enough to have been with Public Trust since inception, and I've been investing cash in the public sector for over 30 years now."

It continues, "Q: What is your overall strategy on investing on behalf of governmental entities? Neil: The safety of public funds is always the primary objective when developing our investment strategy. An emphasis on high quality securities, diversification, and the minimization of volatility helps ensure our clients' portfolios maintain an appropriate balance of safety and liquidity throughout market cycles. Randy: Safety! Safety of principal and liquidity of funds. These are taxpayer dollars we are investing. It is extremely important to ensure these funds are invested safely and in compliance with governing legislation as well as the clients' investment policies."

The piece asks, "Do you have anything you want NYCLASS Participants to know about how their investments are being managed?" Waud responds, "Prudent investment management mandates a thorough credit analysis of the counterparties we lend to and strict adherence to our clients' liquidity needs. Having met these requirements, we then focus on maximizing investment returns. While we work in a competitive landscape, at the end of the day we need to be mindful of the old axiom: "it is the return of your principal not the return on your principal that matters most to our Participants."

The Investor continues, "Q: We've seen some changes in the market this past year. What is your take on the current market? Neil: Since the November election, we have seen a shift in market sentiment. The initial optimism of deregulation, tax reform, and fiscal stimulus in Washington driving growth and inflation metrics higher has given way to the reality of a polarized political process that will take some time to unravel. For the past eight years, the U.S. economy has experienced relatively steady but unspectacular growth. While sufficient enough to tighten the labor market to pre-crisis levels, the growth has not translated into rising inflation. While the stock market continues to press towards new highs, inflation will likely need to rise for interest rates to push higher."

It adds, "Randy: I'm happy to see the Federal Reserve begin to raise interest rates. I'm not convinced that the Fed will be as aggressive as its dot plot suggests. I've been doing this long enough to see interest rates go from double digits in the 1980s to practically zero for most of the last ten years. I hope we can see interest rates at levels that make sense for the earnings to once again become a budget item for local governments. The earnings on excess cash can be important to providing additional resources for governmental entities ultimately benefitting the taxpayers."

Finally, the newsletter asks, "So, what are your expectations for the next Federal Open Market Committee (FOMC) meeting in September?" Waud comments, "The July FOMC meeting didn't really tip its hand regarding another rate hike this year simply noting that inflation was still below its 2% target rate. However, the post-meeting statement did say the normalization of its balance sheet will begin "relatively" soon. I agree with most, interpreting this to mean that the Fed's longer-term holdings will be addressed at the September meeting. `As far as the next rate hike is concerned, inflation will likely need to rise for this to occur this year. If it happens at all, the December meeting makes the most sense at this point."

Palomba adds, "I believe the FOMC will announce the start of the balance sheet normalization process. I also think that it will keep the Fed funds target rate unchanged until we see some indication that inflation is heading back toward 2%. The FOMC has accomplished one objective by raising rates from the nearly zero level we experienced for several years. I'm not convinced the U.S. economy is ready for a two year Treasury yielding 5%. However, I know that finance managers and savers would welcome that investment return."

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