For the second week in a row, tax-exempt money market funds saw outflows - albeit slightly less than last week - as they closed the books on October and digested a 50 basis point interest rate cut by the Federal Open Market Committee.
During the week ending Nov. 3, the assets of the 534 funds in the Money Fund Report declined by $914 million, ending the week with total assets of $494.99 billion, compared with last week when they lost $1.96 billion and ended with $495.91 billion. The report is a service of iMoneyNet.com of Westborough, Mass.
Prior to the last two weeks of moderate outflows, tax-exempt funds had been building cash over the past month, culminating with inflows of $7 billion and total assets of $497.86 billion for the week ending Oct. 20.
"There were outflows, but they were minor, mainly caused by the arrival of month-end, which generally produces outflows," said a New York short-term trading manager.
The average seven-day yield for all tax-exempt and municipal money market funds declined to 1.42% from 1.81%, which was down from 2.54% and 3.36% in the two prior weeks, and a recent high of 5.02% at the end of September. The average maturity remained unchanged at 29 days.
Besides the drop in tax-exempt money fund yields, other short-term market indicators continued to decline in the last week, namely the Securities Industry and Financial Markets Association weekly swap index, which fell to 1.82% last Wednesday, according to Municipal Market Data.
That was down from 2.28% the previous week, and down from 3.45%, 4.82%, and 5.74% in the three prior weeks after soaring to 7.96% on Sept. 24, according to MMD.
Yields on daily general market variable-rate demand obligations fell to 1.16% as of yesterday, down from 1.36% last Thursday, according to MMD. The yield on weekly VRDOs, meanwhile, fell to 1.88% yesterday compared with 2.44% last Thursday.
"Overall, there is a strong tone to the market with where levels are," said the trading manager. "There's a lot more confidence in certain bank letter-of-credit names."
The 1,286 taxable funds in the Money Fund Report took in $42.92 billion - substantially more than the $6.37 billion that was added in the previous week and more than double the $19.45 billion the funds added two week ago. As a result, the taxable funds ended the week of Nov. 4 with $3.023 trillion in total assets, compared with $2.980 trillion last week and $2.97 trillion two weeks ago.
The combined assets of the 1,820 money market funds in the report surged to $3.519 trillion, following inflows of $42.0 billion for the period. That activity followed last week's FOMC decision to cut the target federal funds rate by 50 basis points to 1.00%, when all funds took in just $4.41 billion to end the week with $3.476 trillion in total assets, according to the report.
