Wells Fargo Money Market Funds published its latest "Portfolio Manager Commentary" late last week, which comments on the seasonal nature of money market fund assets. They explain, "The end of April seems to serve as an inflexion point of sorts for the money markets. Experience has shown that it represents a turning point at which seasonal outflows from money market funds stop, or at least stabilize, followed by a gradual buildup in assets in the second half of the year, accelerating into year-end. The first four months of 2018 seemed to be holding to this pattern; total money market assets fell from $2,935 billion to $2,877 billion, a decrease of 1.97%. This number seems to be quite smaller than previous years. A closer examination reveals that the size of the decline is being partially masked by an inflow to prime money market funds. Those funds declined by 2% through the end of March, falling $18 billion, before gaining $19 billion in assets during April. Following implementation of money market reform in October 2016, most transactional deposits shifted to government money market funds. This would suggest that outflows in government funds should exceed those of prime funds, and they do. Government funds fell from $1,558 billion at the end of 2017 to $1486 billion at the end of April, a decline of 4.62%. This number also seems to be a little low in contrast to previous years. Between January 31st and March 7th, institutional government funds experienced inflows of $47 billion, and it would appear that some of that money has stuck around." The piece continues, "The origin of funds is a mystery, though two sources are distinct possibilities. Some of it could be from the equity markets, which sold off over 10% in the two weeks that ended February 8th and then continued to trade in volatile ranges for the rest of the quarter. During February and the first week of March, nearly $24 billion flowed out of domestic equities. Some of it could also be held in cash for anticipated tax payments or for capital expenditures anticipated over the near term, such as dividend payments and share repurchases. If these deposits are temporary, it is likely that their outflows later this year will have an offsetting effect on any seasonal inflows, smoothing out asset spikes in the short end." Wells adds, "As measured by Crane Data, prime institutional assets were up $14 billion in the month of April. Commercial paper outstandings were also up but just back to the amount outstanding at the end of February. Contributing to the light issuance was quarter-end for Canadian banks and fiscal year-end for Australian banks this month. With an increase in demand not matched by an increase in supply, the money market sector experienced a contradiction on yields even as LIBOR itself continued to climb, albeit at a slower pace."

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