Money fund assets fell in the latest week, most likely on tax-related outflows, after hitting records in the previous 5 weeks and in 9 out of the last 11 weeks. The Investment Company Institute's latest "Money Market Fund Assets" report shows money fund totals falling $68.6 billion to $5.21 trillion, but they've risen by $315.0 billion, or 6.4%, since March 8 and $388.4 billion, or 7.9%, since Feb. 22. The failure of Silicon Valley Bank raised concerns over uninsured bank deposits, and both large and small investors stepped up their asset shifts into money funds. Over the past 52 weeks, money fund assets have risen $740 billion, or 16.6%, with Retail MMFs rising by $485 billion (34.4%) and Inst MMFs rising by $256 billion (8.4%). ICI shows assets up by $474 billion, or 10.0%, year-to-date in 2023, with Institutional MMFs up $258 billion, or 8.4% and Retail MMFs up $216 billion, or 12.9%.
The weekly release says, "Total money market fund assets decreased by $68.64 billion to $5.21 trillion for the week ended Wednesday, April 19, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $60.42 billion and prime funds decreased by $2.00 billion. Tax-exempt money market funds decreased by $6.23 billion." ICI's stats show Institutional MMFs falling $58.9 billion and Retail MMFs falling $9.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.332 trillion (83.2% of all money funds), while Total Prime MMFs were $766.6 billion (14.7%). Tax Exempt MMFs totaled $110.2 billion (2.1%).
ICI explains, "Assets of retail money market funds decreased by $9.72 billion to $1.89 trillion. Among retail funds, government money market fund assets decreased by $2.98 billion to $1.28 trillion, prime money market fund assets decreased by $1.22 billion to $510.06 billion, and tax-exempt fund assets decreased by $5.52 billion to $99.25 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.8% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $58.92 billion to $3.31 trillion. Among institutional funds, government money market fund assets decreased by $57.44 billion to $3.05 trillion, prime money market fund assets decreased by $779 million to $256.55 billion, and tax-exempt fund assets decreased by $702 million to $10.90 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 91.9% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have declined every day over the past week after hitting a record $5.667 trillion last Wednesday (4/12). Our asset collection shows MMFs down by $7.5 billion on Wednesday, 4/19, and down by $44.8 billion over the past week. Assets are still up, though barely, by $12.2 billon month-to-date in April. (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.)
Also, Citi Research in a new "Short Duration Strategy update, asks, "Will money funds continue to expand their footprint?" They write, "Money funds' assets under management (AUM) have grown at a record clip this year and have breached a high-water mark of $5.2 trillion. As we discuss, there are numerous reasons for this growth in assets -- e.g., better yield offerings, recent concerns about uninsured bank deposits, large banks unwilling to take on more deposits etc. But will money fund assets continue to grow at this rapid pace, or can we expect plateauing or even a slight slump in AUM? While tax season may not make a dent in money funds' AUM this year (though this has been true in the past mainly for tax-exempt money funds), we discuss other factors that could impact asset growth negatively."
The piece explains, "The reasons for the surge in money fund assets are well documented but let's do a quick recap. Higher policy rates and an inverted yield curve have enabled money funds to offer far more attractive rates: Money fund rates have surged higher with policy rates though deposit rates [and] those offered by large banks have not moved up. As a result, money funds have continued to attract assets, at the expense of banks, at a record pace.... MMF assets have risen by $353.4 billion, or 7.2% since March 8 as the failure of regional banks has raised concerns over uninsured bank deposits, which has led large investors to shift assets into money funds (though they're now being joined by some big retail inflows)."
They discuss "Recent concerns about uninsured deposits," stating, "The recent liquidity crisis in the banking sector has impacted public perception of the non-GSIB designated regional banks, and this has led to deposits leaving smaller and regional banks. However, deposits leaving smaller banks do not show up with large banks commensurately and money funds have gained these assets at the expense of large banks."
Citi says, "Retail investors (households and non-profits) have built up enormous amounts of cash on their balance sheets since the end of 2019 (before the pandemic).... [C]heckable deposits and currency holdings are up by a staggering 312% ($3.8 trillion) since end-2019. That makes for a large amount of dry powder that can be put to use at a moment's notice. So far, the growth in money fund assets has primarily come from increases in institutional money fund asset holdings (up 11.5% since March 8, 2023) while increases in retail money fund holdings have been more subdued (up 4.2% since March 8, 2023). But, if retail investors decide to move even a small portion of their cash into money funds, it could lead to an explosive surge in inflows."
They state, "Money market fund assets are definitely much less vulnerable since 2008 and have experienced an investor run only once since September 2008 (in March 2020). In both 2008 and 2020, institutional prime MMFs experienced more severe runs than retail prime funds. Still, this is not to say that MMF assets can't fall from their current highs, and we can think of a few factors that could cause it though we would be the first to admit that we lack conviction." These include "Fed policy change that lowers the RRP rate" and "The looming debt ceiling crisis could reduce the appeal of money fund products."
Finally, on latter, they write, "The debt ceiling debate could trip the surge of inflows witnessed by money funds this year, particularly government money funds. While we definitely do not expect the US to default on its obligations, a prolonged stand-off in Washington over raising the debt limit could create frictions in the short-term sector, potentially leading to some losses for money funds. Thus, investors, now confronted by the political stand-off over the US debt ceiling that threatens to potentially disrupt their investment portfolios, could choose to look for alternatives including mutual funds with longer dated debt holdings."
