Bank Stocks Soar Despite Record High Usage Of Fed Bailout Facility, MM Funds See First Outflow In 7 Weeks

After surging to new record highs, money-market funds saw outflows last week – the first outflow in seven weeks – of $11.5BN…

Source: Bloomberg

Institutional funds were responsible for the outflows (-$14.5BN) while Retail funds continued their string of inflows (+2.9BN) since April…

Source: Bloomberg

In a breakdown for the week to Dec. 13, government funds – which invest primarily in securities like Treasury bills, repurchase agreements and agency debt – saw assets fall to $4.8 trillion, an $11.4 billion decline. Prime funds, which tend to invest in higher-risk assets such as commercial paper, meanwhile, saw assets climb to $948 billion, a $1.4 billion increase.

That may change, according to Jeffrey Rosenberg, a portfolio manager at BlackRock Financial Management:

“This is a turning point and you do start to see money move out of money markets, into riskier assets, into term rates to lock in higher rates,” he said in a Bloomberg Television interview.

“As cash rates start to come down, you’re penalized in 2024 for holding cash because the rates and the prospect of the rates is to go lower.”

Goldman thought the same, making us wonder if this divergence is about to fill…

Source: Bloomberg

The exodus from The Fed’s reverse repo facility accelerated this week with a $54BN decline just today, back below $800BN, lowest since July 2021…

Source: Bloomberg

The Fed’s balance sheet expanded last week by $2.2BN. The first weekly expansion since August 9th and biggest weekly increase since June 7th…

Source: Bloomberg

Usage of The Fed’s BTFP bank bailout facility increased once again, by $2.1BN to $124BN (a new record high)…

Source: Bloomberg

But, none of that matters to investors who BTFD – sending Regional bank shares back up near pre-SVB levels!!!

Source: Bloomberg

Finally, equity market caps continue to soar after recoupling with bank reserves at The Fed (as the latter also expands once again thanks to the RRP drawdowns)…

Source: Bloomberg

Of course, with The Fed’s massive pivot yesterday, sending yields plummeting, regional bank balance sheets may be rescued… for now. Until the next wave of inflation hits…