With interest rates skyrocketing, you’d think that money market fund assets would be surging as everyone would want to move their cash into higher yielding accounts. But it’s not happening. Maybe investors, households, and businesses are using that cash to pay off debt, instead of looking for higher yielding places to hold cash. It’s called deleveraging.
Some interesting data here. Not as much growth as you’d think. Retail funds only up $85 billion since December per FRED data, and the OFR shows a persistent decline in government MMFs over the same time frame. This includes institutional MMFs, which are twice the size of retail funds.
ICI has granular weekly and monthly data. It shows Retail funds up only $40 billion since March, when short term rates began to rise sharply. All of the gain was in non government MMFs. Government MMFs declined.
Another OFR data set shows how the Treasury’s T-bill paydowns forced the MMFs out of their T-bill holdings. That money went straight into the Fed’s RRP fund for MMFs.
MMFs are really a sideshow to the main event, the Primary Dealers. That’s what I focus on in my research. They’re the house. They run the markets, normally on behalf of the Fed. But the narcissists at the Fed no longer have any use for their strawmen dealers. So the Fed has abandoned them to the whims of their institutional customers.
The Bond Rally That Fooled The Majority And Didn’t Help Dealers
