The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets jumped in the first full week of July, after inching lower at quarter-end. Money fund assets broke back into the black on a year-to-date basis. They're now up $13 billion, or 0.4%, YTD, and `they've increased by $224 billion, or 8.5%, over 52 weeks. We expect assets to grow strongly in coming months, as July and August are seasonally the 4th and 3rd strongest months of inflows. (December and November are the strongest.) We review ICI's latest asset totals below, and we also quote from Wells Fargo Funds' latest monthly update.

ICI writes, "Total money market fund assets increased by $28.85 billion to $2.85 trillion for the eight-day period ended Wednesday, July 11, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $18.94 billion and prime funds increased by $9.93 billion. Tax-exempt money market funds decreased by $17 million." Total Government MMF assets, which include Treasury funds too, stand at $2.227 trillion (78.1% of all money funds), while Total Prime MMFs stand at $485.8 billion (17.0%). Tax Exempt MMFs total $138.3 billion, or 4.8%.

They explain, "Assets of retail money market funds increased by $4.96 billion to $1.04 trillion. Among retail funds, government money market fund assets increased by $2.11 billion to $631.37 billion, prime money market fund assets increased by $2.73 billion to $277.30 billion, and tax-exempt fund assets increased by $124 million to $129.32 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 60.8% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $23.89 billion to $1.81 trillion. Among institutional funds, government money market fund assets increased by $16.83 billion to $1.60 trillion, prime money market fund assets increased by $7.21 billion to $208.53 billion, and tax-exempt fund assets decreased by $141 million to $8.94 billion." Institutional assets account for 63.6% of all MMF assets, with Government Inst assets making up 88.0% of all Institutional MMFs.

In related news, Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" tells us, "After spending eight years with near-zero yields, money market funds are garnering attention as a real asset class again: Cash is NOT trash! The bear flattening of the U.S. Treasury curve and sputtering performance of equities have brought favorable attention back to the short end of the yield curve."

It says, "To place this in context, large-cap equities, as represented by the S&P 500 Index, have returned only 2.65% in the first half of the year; during the same time, high-grade corporate bonds, as represented by the Bloomberg Barclays U.S. Corporate Bond Index, have turned negative, returning -3.27%. In contrast, prime institutional funds look relatively attractive, having returned 1.54% on average through May 28, according to iMoneyNet."

Wells continues, "As a result, the rise in short rates has brought not only attention but perhaps also nontraditional money market investors (those that typically invest in longer-term debt or equities) into the short end of the market. According to Crane Data, institutional prime money market assets rose almost $600 million in June, and total commercial paper outstandings not seasonally adjusted were up $5.5 billion through June 28. Those two figures might lead one to conclude that rates on investments needed to increase in order to attract buyers."

Their latest update also explains, "Against a backdrop of favorable economic conditions and an FOMC that is anticipating removing accommodation for the foreseeable future, we continue to favor maintaining our funds' weighted average maturities shorter than the industry average and maintaining a high degree of interest rate sensitivity. These shorter profiles also may afford us the flexibility to add longer-dated product as opportunities arise. While rates in general continue to drift higher, we believe our investment strategy of emphasizing highly liquid portfolios, relatively short weighted average maturities, and a position in securities that reset frequently should allow us to capture future FOMC rate moves with minimal net asset value pricing pressures."

On Muni MMFs, Wells' James Randazzo comments, "The municipal money market space continued to exhibit roller-coaster-like rate action this month, as usually dependable seasonal cash flows ran counter to expectations for the second month in a row. Whereas municipal money market fund assets grew by a surprising $6.2 billion during the month of May (an astonishingly large inflow for a typically quiet month), June saw equally unexpected outflows of roughly $2.8 billion. This unforeseen reversal in trend caused demand for overnight and weekly variable-rate demand notes and tender option bonds to evaporate, leading dealers to rapidly ratchet rates higher in order to entice nontraditional buyers in the short end of the curve."

He adds, "The FOMC rate hike on June 13 provided additional impetus for the tax-exempt market to play catch-up after May's unexpected drop in rates left tax-exempt to taxable ratios at their lowest level of 2018. The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index would ultimately rise from 1.05% (59% of one-week LIBOR) on June 6 to 1.51% (76% of one-week LIBOR) on June 27."

Wells Fargo Securities' Vanessa McMichael also commented on the SIFMA index yesterday. She wrote in her "Daily Short Stuff, "The weekly SIFMA index dropped 18 basis points week-over-week, resetting yesterday at 1.01 percent. It is not unusual to see the index begin to subside going into July as the overall fixed income market generally gets a little "summertime" sluggish. Supply was muted last week, much like the investment grade corporate bond market that we wrote about earlier this week."

She tells us, "SIFMA is a compilation of seven-day investment grade variable rate demand notes with specific characteristics (e.g. weekly reset, not subject to AMT, $10MM or more outstanding, pay interest monthly). This week's new published SIFMA level has brought the four-week moving average to 1.30 percent, an eight basis point drop from the prior four-week moving average at 1.38 percent. We have seen some fairly wide fluctuations in this index year-to-date with SIFMA hitting its YTD low of 98 basis points the beginning of February to climbing to 1.81 percent mid-April, its YTD high."

Finally, she adds, "On the overall issuance front, according to data from Thomson Reuters, VRD issuance is lower YTD versus 2017 with $14,615MM issued YTD versus $19.080MM during the same timeframe in 2017. The largest regional decline over this period is from West coast issuers which have issued 56 percent less than 2017."

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