Money market funds had net inflows of $4.41 billion in the week ended Tuesday, according to iMoneyNet's Money Fund Report, as retail investors pulled $14.37 billion from taxable money funds.
Individual investors took cash out of taxable money market funds with both government- and nongovernment-focused securities. But institutional investors put $20.32 billion into taxable funds during the week, nearly all of it in portfolios whose holdings include Treasurys and agency bonds.
As lending rates eased last week, notably the London interbank offered rate, rates on short-term money market funds rose. For example, the seven-day yield for institutional government funds jumped to 0.95%, from 0.83%, though the 30-day yield kept falling, to 0.91% from 0.94%, as investors continued flocking to safe havens.
Retail investors also pulled $2.43 billion from tax-free money funds, while institutions added $469.1 million. Yields on seven-day funds tumbled nearly three-quarters of a percentage point for the second straight week, and 30-day yields tumbled similarly after changing little the week before.
Money fund yields have fallen significantly as the Federal Open Market Committee has continued cutting rates — Wednesday's one-half percentage point reduction left the federal funds rate at 1%.
This reduction hurts money funds' profitability, especially the government funds.
But this is not the first time these portfolios have had to contend with a very low fed funds rate; the rate was at 1% five years ago, too.