Tax-free money market funds reported losses for the week ending Jan. 21 after posting record assets under management for the first two weeks of 2008.

Outflows totaled $590.7 million, making for $482.31 billion of assets under management, according to the Money Fund Report. The report monitors 551 funds.

Average seven-day yields in the same time period were 2.53%, down five basis points from the week that ended Jan. 14 and down 35 basis points from the week that ended Dec. 31.

The average maturity is 30 days, up one day from the prior week.

This outflow comes after two consecutive weeks of record gains, which combined saw almost $15 billion of inflows into these investments.

It should be noted that this time period does not include the Federal Open Market Committee’s surprise decrease of the federal funds rate by 75 basis points to 3.50% on Jan. 22. With this decrease, it is likely that municipal money market funds will see inflows when this move is taken into account, the report said.

One reason for outflows last week is likely the decrease in yield levels on the short end of the yield curve. The Bond Buyer’s one-year note index fell 49 basis points from Jan. 14 to Jan. 22, to 2.08% from 2.57%. This is the lowest level for the index since Dec. 29, 2004, when it was also 2.08%. It was also the fourth-largest one-week decline on record for the index, which began in 1989.

This week’s data continues a volatile end of the fourth quarter and start of the first quarter for 2008. Prior to the most recent outflow, the funds saw 10 consecutive weeks of inflows, with each week setting a new record for assets in the middle of the fourth quarter of 2007.

Taxable funds had inflows of $43.27 billion, putting total net assets at $2.725 trillion. The combined total is $3.208 trillion of assets under management.


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