The website "Markets Insider writes, "Here's why the $5 trillion piled up in money market funds might not flow back into the stock market." The piece explains, "Inflows into money market funds have soared over the past year as investors take advantage of high cash yields above 4%, and they might not flow back into the stock market for a long time. According to Ned Davis Research, money market funds over the past 13 weeks saw the fastest pace of asset inflows since July 2020. The surge was in part driven by the regional banking crisis that saw the downfall of Silicon Valley Bank and First Republic Bank." (Note: Register ASAP for our Money Fund Symposium, which takes place June 21-23, 2023 in Atlanta, Ga. See you in 3 weeks!)
The article continues, "When cash floods money market funds, 'from a sentiment standpoint, it is a vote of extreme pessimism toward risk-on assets by investors. From a flows perspective, the assets represent potential buying power when investors become less risk averse," Ned Davis Research said in a Wednesday note. But this time could be different, according to NDR. That's because there's a big difference between investors stashing cash due to an uncertain macro environment and investors stashing cash to take advantage of interest rates above 4%."
They quote NDR, "Investors selling stocks to buy money market funds, which can logically be reversed once the coast is clear, is one thing. People moving funds from banks getting less than 0.5% to money market funds offering several percent higher is another."
They add, "And even if the cash in money market funds eventually does flow back into the stock market, it might not have as big of an impact that some investors think, according to NDR. Money market assets represent just 13% of the US stock market capitalization, compared to 46.9% in February 2009 and 24.0% in February 2003 -- two periods when the stock market went on to stage multi-year rallies. '$5.3 trillion does not buy what it used to,' NDR says."
In other news, MarketWatch writes, "Money-market funds own only 15% of the Treasury bill market, but that could change dramatically once Congress passes a debt ceiling deal." It tells us, "Money-market funds haven't been huge players in the U.S. Treasury bill market lately, but that could change in the aftermath of a U.S. debt-ceiling resolution, according to investors and analysts. Goldman Sachs strategists recently pegged money-market holdings as only about 15% of the Treasury bill market, a fraction of what foreigners and other investors currently own."
The piece comments, "Rather than snap up Treasury bills at some of the highest yields in years, money-market funds instead have been parking cash overnight at the Federal Reserve's reverse repo facility, currently earning 5.05%, a level that's kept daily usage of the program above $2 trillion for the past year. But with Congress expected to vote this week on a debt-ceiling deal agreement reached over the weekend, dimming the threat of a catastrophic default, investors have begun bracing for a flood of Treasury bill issuance to refill government coffers."
It adds, "BofA Global analysts see potential for $1 trillion in Treasury issuance in short order once the debt-ceiling deal is written into law, while Goldman strategists forecast up to $700 billion of bill issuance over roughly two months, once the $31.4 trillion borrowing limit is increased."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 26) includes Holdings information from 66 money funds (down 21 from a week ago), which totals $2.515 trillion (down from $3.252 trillion) of the $5.788 trillion in total money fund assets (or 43.5%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.458 trillion (down from $1.895 trillion a week ago), or 58.0%; Treasuries totaling $630.3 billion (down from $741.4 billion one week ago), or 25.1%, and Government Agency securities totaling $237.3 billion (down from $330.2 billion), or 9.4%. Commercial Paper (CP) totaled $57.1 billion (down from a week ago at $96.8 billion), or 2.3%. Certificates of Deposit (CDs) totaled $48.7 billion (down from $70.5 billion a week ago), or 1.9%. The Other category accounted for $62.7 billion or 2.5%, while VRDNs accounted for $21.2 billion, or 0.8%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $850.6 billion (33.8%), the US Treasury with $630.3 billion (25.1% of total holdings), Federal Home Loan Bank with $182.6B (7.3%), Fixed Income Clearing Corp with $169.4B (6.7%), JP Morgan with $50.0B (2.0%), Federal Farm Credit Bank with $47.5B (1.9%), Citi with $41.0B (1.6%), Barclays PLC with $39.7B (1.6%), RBC with $31.0B (1.2%) and Goldman Sachs with $30.0B (1.2%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($270.8B), JPMorgan US Govt MM ($267.4B), Morgan Stanley Inst Liq Govt ($158.9B), BlackRock Lq FedFund ($145.8B), JPMorgan 100% US Treas MMkt ($132.2B), Dreyfus Govt Cash Mgmt ($116.6B), BlackRock Lq Treas Tr ($99.6B), Allspring Govt MM ($99.2B), BlackRock Lq T-Fund ($99.0B) and State Street Inst US Govt ($89.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
