OFR Monitor Shows U.S. Money Market Fund Asset Growth and Increased Exposure to Centrally Cleared Repo.

Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury.

U.S. money market funds (MMFs) experienced cash inflows in Q3 2024, pushing their assets to $6.9 trillion by quarter-end, according to the OFR U.S. Money Market Fund Monitor data. Attractive yields on money market instruments spurred these inflows. The average yield on MMFs was about 270% higher than the average national rate on a three-month bank certificate of deposit and 30% higher than the return on a short-term U.S. Treasury bond.

Asset Growth Driven by Flows into Government Funds

MMF assets increased by $367 billion, or 5.6%, through the Q3 quarter-end. Government funds attracted more than 80% of the new cash, while retail prime funds saw outflows of $36 billion or 3% (see Figure 1). Institutional investors were responsible for about three-quarters of the inflows into government funds, and about one-third of these flows were attributable to liquidations or conversions of mostly institutional prime fund assets to government-only holdings ahead of new Securities and Exchange Commission (SEC) rules that took effect in October. The rules require that institutional prime funds impose mandatory redemption fees in certain circumstances.¹

MMF Holdings of Treasuries and Private Market Repo Increased

The large inflows into government MMFs supported MMFs’ demand for short-term Treasuries, government agencies, and repurchase agreements (repos) collateralized by these securities (see Figure 2). MMFs eligible to participate in the Federal Reserve Overnight Reverse Repurchase Agreement Program (ON RRP) redirected some investments to U.S. Treasury bills. This increased the funds’ total holdings of U.S. Treasuries to $2.7 trillion, 38% of total MMF assets. It also modestly extended their portfolio duration and locked in prevailing interest rates ahead of any potential additional Federal Reserve rate cuts.

MMFs continued to allocate cash to private repos, raising their exposure to private repo by 13% to almost $2.3 trillion at the end of Q3 (see Figure 3). Nearly all of this change was attributable to centrally cleared repos with the Fixed Income Clearing Corporation (FICC). With this growth, more than a third of MMFs’ repo exposure is to FICC.

Although most MMFs held a small share of assets in FICC-sponsored repo, the average fund’s exposure was 16%, and a few funds held as much as 40% of their assets in such repos (see Figure 4). SEC rules permit MMFs to look through to the underlying collateral for diversification purposes if the repo transaction meets certain conditions.² MMFs may, however, still be subject to credit-rating agency limits on counterparty exposures. Many of the funds with more than 25% allocated to FICC are not subject to guidelines from a rating agency review.

The increased use of FICC-sponsored repos instead of other private repos reduces an MMF’s direct exposure to any particular counterparty because FICC replaces the original dealer as counterparty to the MMF. However, the MMF retains indirect exposure to its sponsoring dealer, as it guarantees the performance of its sponsored members and generally contributes margin and clearing fund requirements to FICC on behalf of sponsored members. FICC uses those contributions to meet its funding needs in the event of a member default.

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