Muni money funds show signs of life

Tax-exempt money fund assets have grown almost $7 billion so far this year

Feb 12, 2018 @ 3:53 pm

By Bloomberg News

If 2017 was the year the municipal money market funds stopped bleeding assets, 2018 is the year they've started growing again.

Tax-exempt money market fund assets have increased by almost $7 billion since the beginning of the year, seven times as much as all last year, according to Investment Company Institute data.

"With rates rising there's just been a better bid for floating-rate products," said Matt Fabian, a partner at Municipal Market Analytics. "It's a reasonable place for investors to park cash."

Yields on municipal securities that reset weekly rose to 1.71% at the end of December, the highest since October 2008, after the Federal Reserve raised interest rates for the third time in 2017. Since then, yields have dropped to 0.98%, a sign of customer demand, Mr. Fabian said.

Tax-exempt money market funds are growing again after tepid growth in 2017 and the hemorrhaging of more than $100 billion in the first 10 months of 2016, a reaction to Securities and Exchange Commission rules aimed at reducing the risk of runs on the pools.

The rules required municipal money market funds to adopt floating net-asset values and imposed liquidity fees and redemption suspensions under certain conditions.

"You had the double whammy of zero yields and regulatory changes," said Peter Crane, president of Westborough, Mass.-based Crane Data

Municipal money market fund assets have grown to $138.1 billion as of Feb. 7 from $131.2 billion on Dec. 27, ICI said.

(More: Tax bill SALT reduction could raise demand for munis)

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