Bank of America Merrill Lynch analyst Hans Mikkelsen has drilled down into recent outflows from money market funds (a topic which had attracted its fair share of conspiratorial theorising).
According to Mikkelsen’s, investors withdrew $20bn from money market funds on Friday, the last day of coverage under the government’s guarantee program for MMFs. On Friday, the last day of coverage under the Guarantee Program for Money Market Funds, we finally saw flows out of money market funds that can be directly associated with expiration of the program, as investors withdrew $20 billion. The majority of that amount, $13 billion, was withdrawn from retail prime funds — i.e. the type of fund that invests in short term corporate debt. Recall that it was the event of the Reserve Fund, a prime fund, breaking the buck that started the run on money market funds last September, creating a need for a guarantee program to stem the outflows.
But, he notes, $20bn is but a fraction of the amount actually invested in MMFs:
However considering that at least $750 billion remains in retail prime funds, and nearly $3.5 trillion in total money market fund assets, the outflows were de minimis. That attests to the extent of recovery in the short term markets, both fundamentally as well as the result of government programs that remain in place and support money market fund portfolio holdings.
Moreover, some of the withdrawals ahead of the expiration of the guarantee could be attributed to institutions cashing out to meet coroporate tax payments, he argued:
In contrast, withdrawals on Friday – the last day of the program – were primarily by individual investors:
Finally, Mikkelsen says, September is traditionally a weak month for fund flows:
Related links:
Sympathy for the money market funds – FT Alphaville
Buck-ling money market funds – FT Alphaville