Tax-Frees Start New Year by Topping $500B With $8.23 Billion of Inflows

Tax-free money market funds rang in 2009 with inflows of $8.23 billion, the highest single-week gain since the massive fourth-quarter outflows spurred by the national economic crisis. As a result, the funds reached $500.05 billion in total assets for the week ending Jan. 5, according to the Money Fund Report, a service of iMoneyNet.com.

By comparison, the assets of tax-free money funds rose $1.25 billion to $491.81 billion for the week ending Dec. 29. That was up from the week ending Dec. 22 when they decreased by $1.41 billion to $490.57 billion.

The average seven-day yield for the 514 tax-free and municipal funds in the report fell 16 basis points to 0.71% for the week ending Jan. 5, while the average maturity decreased by one day to 28 days. Last week, the yield for tax-free money funds jumped to 0.87%, up from 0.72% for the week ending Dec. 22 and 0.58% for the week ending Dec. 15.

In the taxable arena, 1,236 money market funds gained inflows of $37.74 billion to reach a record-setting $3.305 trillion for the week ending Jan. 6, surpassing the prior all-time high of $3.268 trillion, which was set the previous week when the funds saw inflows $22.20 billion. The assets of taxable money funds have been on the rise for the past two weeks. In the week before Christmas, the funds took in $39.13 billion of inflows and achieved then-record assets of $3.245 trillion.

This week, the average seven-day yield for the taxable funds fell six basis points to 0.70% from 0.76% as of Jan. 6. Meanwhile, taxable yields dropped four basis points to 0.76% from 0.80% for the week ending Dec. 30, and six basis points to 0.80% from 0.86% for the week ending Dec. 23.

Overall, for the week ending Jan. 6, the assets of all money market funds combined rose to a record-high of $3.805 trillion after amassing $45.97 billion of inflows, according to the latest Money Fund report. This activity beat the previous record of $3.75 trillion which was posted on Dec. 30.

The assets have been increasing over the last two weeks due to inflows of $23.44 billion, which caused the assets to rise to $3.759 trillion for the week ending Dec. 30. That activity was on the heels of inflows of $37.73 billion, which caused assets to rise to $3.736 trillion for the week ending Dec. 23.

Elsewhere in the short-term market, the yields on variable-rate demand obligations have declined over the past week. Daily general-market VRDOs yielded 0.63% as of yesterday, compared with 1.37% on Dec. 31, while the weekly VRDOs followed suit, dropping to a 1.01% yield as of yesterday versus 1.39% on Dec. 31, according to Municipal Market Data. Meanwhile, the Securities Industry and Financial Markets Association's weekly swap index dropped to 0.90% last Wednesday after rising to 1.25% on Dec. 24 and 1.08% on Dec. 17.

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