The Investment Company Institute's latest "Money Market Fund Assets" report shows assets rebounding sharply in the latest week, after one flat week and 3 weeks of steep declines. Year-to-date, MMFs are down by $99 billion, or -2.1%, with Institutional MMFs down $113 billion, or 3.5% and Retail MMFs up $14 billion, or 1.0%. Over the past 52 weeks, money fund assets have increased by $243 billion, or 5.6%, with Retail MMFs falling by $25 billion (-1.7%) and Inst MMFs rising by $269 billion (9.4%). (Note: We hope you join us for our upcoming Bond Fund Symposium conference in Newport Beach, Calif., March 28-29. Click here for the agenda and click here to register.)
ICI's weekly release says, "Total money market fund assets increased by $51.75 billion to $4.61 trillion for the week ended Wednesday, March 2, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $50.76 billion and prime funds increased by $1.10 billion. Tax-exempt money market funds decreased by $106 million." ICI's stats show Institutional MMFs increasing $45.7 billion and Retail MMFs increasing $6.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.092 trillion (88.8% of all money funds), while Total Prime MMFs were $429.1 billion (9.3%). Tax Exempt MMFs totaled $85.3 billion (1.9%).
ICI explains, "Assets of retail money market funds increased by $6.02 billion to $1.48 trillion. Among retail funds, government money market fund assets increased by $7.58 billion to $1.21 trillion, prime money market fund assets decreased by $1.40 billion to $198.73 billion, and tax-exempt fund assets decreased by $163 million to $75.75 billion." Retail assets account for just under a third of total assets, or 32.2%, and Government Retail assets make up 81.5% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $45.73 billion to $3.12 trillion. Among institutional funds, government money market fund assets increased by $43.18 billion to $2.88 trillion, prime money market fund assets increased by $2.50 billion to $230.37 billion, and tax-exempt fund assets increased by $57 million to $9.51 billion." Institutional assets accounted for 67.8% of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
In other news, the Federal Reserve Bank of New York's Lori Logan gave a speech recently on "Federal Reserve Asset Purchases: The Pandemic Response and Considerations Ahead," which discussed March 2020, the RRP and money markets in general. She says, "The onset of the pandemic resulted in an unprecedented 'dash for cash' as heightened uncertainty in the outlook and shifts to a remote trading posture prompted extreme price volatility, sudden portfolio de-risking, and strains in market functioning. In this environment, even the most liquid securities, like Treasuries, were being sold broadly and in large quantities, overwhelming the market's intermediation capacity."
Logan explains, "As the Committee reduces the balance sheet, staff will carefully monitor developments in money markets to understand changes in reserve conditions and inform the Committee's assessment of the appropriate path for the balance sheet in the longer run. Importantly, the prior experience with balance sheet reduction offers a useful guide to money market conditions that reflect ample reserves. The FOMC is committed to maintaining sufficient reserves to ensure that administered rates -- the interest on reserve balances (IORB) and overnight reverse repo facility (ON RRP) rates -- exercise control over the federal funds rate. However, should pressures in overnight markets unexpectedly emerge, the new Standing Repo Facility (SRF) that the Committee established last year is also available, providing an important backstop to support effective policy implementation and smooth market functioning."
She tells us, "Even as the current environment is characterized by higher levels of liquidity than in 2015, I am confident that administered rates will again be effective at lifting the federal funds rate when the Committee increases the target range. Administered rates create strong incentives in overnight markets, and the ON RRP provides a broad range of money market investors an alternative investment to support the federal funds rate and other overnight rates. My sense is that the current setting of administered rates relative to the target range has been working well and that it could continue to support effective policy implementation following any increase in the target range in coming months, although adjustments could be warranted over time."
Logan comments, "With the high levels of liquidity in money markets, take-up at the ON RRP facility could increase as rates rise. Flows between bank reserves and ON RRP balances depend, in part, on relative levels of interest rates on bank deposits versus other money market investments, such as money market mutual funds (money funds). Some banks may use rising rates as an opportunity to reduce reserve holdings by shedding deposits. If, when the FOMC increases the target range, banks raise deposit rates by less than money funds increase net yields to investors, funds could flow from banks into money funds, which could in turn increase take-up at the ON RRP."
She adds, "That said, while many expected an increase in the ON RRP in 2015, this did not come to pass, and it could be that ON RRP balances remain relatively steady following liftoff or even decline. Regardless of what happens following liftoff, over time, as the Committee reduces the size of the balance sheet, I expect usage in the ON RRP to decline."
Finally, Fitch Ratings posted, "U.S. Money Market Funds: February 2022," which explains, "Total taxable money market fund (MMF) assets decreased by $139 billion from Dec. 31, 2021 to Jan. 31, 2022, according to iMoneyNet data. Government MMFs lost $138 billion in assets during this period, and prime MMF assets decreased by $1 billion, continuing a gradual decline."
It continues, "Taxable MMFs decreased exposure to repos while increasing exposure to U.S. Treasuries for the first time since March 2021. Repo holdings decreased by $278 billion, while Treasury holdings increased by $39 billion, from Dec. 31, 2021 to Jan. 31, 2022, according to Crane Data. Repo remains the largest portfolio segment, followed by Treasury."
Fitch also says, "As of Jan. 31, 2022, institutional government and prime MMF net yields were 0.02% and 0.03%, respectively, per iMoneyNet, unchanged from the end of December. MMF managers expect to reduce fee waivers and realize increased revenue from the anticipated fed funds rate hikes.... Following SEC proposals in December to increase the weekly liquid asset (WLA) requirement from 30% to 50%, MMFs have begun increasing their holdings of WLAs. For institutional prime funds, the average level of WLAs increased 4% to 65% from Nov. 30, 2021 to Jan. 31, 2022."
