Wells on Flows, Negative Rates
Wells Fargo Funds' latest "Overview, strategy, and outlook," tells us, "Money market fund assets continued their upward flight in April, albeit at a slightly more shallow trajectory than in March. With more than $450 billion flowing into the money markets, money fund assets reached an all-time high on April 30 of $5.04 trillion, growing by over 27% since March 1. As was the case last month, government and Treasury money market funds were the primary beneficiaries of these cash flows, amassing $363 billion in April on the heels of March's $790 billion. Total growth in that sector in just the past two months has been slightly under $1.2 trillion, an increase of more than 42%. With lower market volatility and stabilizing net asset values (NAVs), prime and muni funds proved attractive to some investors. The prime sector, which contracted by $160 billion, or 14.6%, in March, experienced four consecutive weeks of positive cash flow through the end of April. With over $82 billion flowing back into the sector, total prime fund attrition since the beginning of March has been cut by more than half to -7.08%, or $78 billion. And muni funds, which shrank 4.2% in March, saw inflows of almost $6 billion, virtually reversing the prior month's outflows. As a result of all these flows, investment activity this month, which usually experiences net outflows due to tax season, was atypically robust." On the U.S. Government sector, the piece adds, "The bottom line is that rates are back at zero. The zero-interest-rate policy (ZIRP) that dominated the past decade is back, and it's hard to see it ending anytime soon. On the one hand, the economic pain is likely just beginning, and the nearly complete lack of visibility on the public health and economic paths forward will have the Fed solely focused on its role as rescuer. Tomorrow's important issues, like the country's unprecedented indebtedness and the unwind of the Fed's rescue efforts, including higher rates, can wait. On the other hand, the Fed has consistently declined to show any affection for negative interest rates, so lower rates seem just as unlikely. In the money markets, then, we're left with small meandering movements in rates within the Fed's target range, somewhere around zero, driven by changes in supply and demand and regulatory and official actions."
