The June issue of our flagship Money Fund Intelligence, which was published this morning, features an article that examines institutional money fund asset growth during periods of rising rates, falling rates and flat rates. Crane Data found that since 1990 institutional money fund assets have averaged growth of 1.4% a month, and that during months including an increase in the Fed funds target rate the growth slowed to almost zero (0.1%).
Fed cuts are of course good for assets since funds lag the direct money market. As rates fall, money funds fall slower than repo and commercial paper, so institutional and securities lending money comes pouring into funds. However, as rates rise, much of this "hot" money seeks the temporarily higher yields of direct money market instruments.
Nonetheless, Crane Data does not expect outflows from money funds in a coming rising rate scenario due to a number of factors. Among these are the fact that many of the competitors for money fund cash are now gone or critically wounded. While the torrid 40% asset growth of the past year can't possibly continue forever, we still expect money fund assets to see strong inflows even during a rising rate scenario.
The June issue of MFI also contains an interview with money fund veteran Karen Dunn Kelley of Invesco AIM, an article entitled "Better Money Market Benchmarks: Money Fund Indexes," and of course our regular extensive news, performance listings and rankings tables. Contact Pete for a sample issue.
