Anticipation of the Federal Reserve's interest rate hike dampened investors' appetite for money market mutual funds in the preceding week, Investment Company Institute figures suggest.
The Fed said Feb. 1 that it was raising short-term rates by 50 basis points. Assets of money market mutual funds were $643.8 billion on that day, off $10 billion or 1.5% from a record high the previous week.
While institutional money market mutual funds saw their first outflow in 1995, retail money market funds declined for the second time this year.
Total assets of the nation's 677 retail money market funds fell to $454.59 billion, a 1.7% drop, in the week. Retail funds had dropped $1.03 billion the previous week, following an inflow of more than $13 billion in the first three weeks of the year.
Assets of tax-exempt retail funds shrank to $94.72 billion, down $915.2 million. But the decline was offset slightly by an increase in taxable retail funds. They held $359.86 billion last week, up $133.1 million.
Money market assets for institutional investors took the biggest loss in the week, falling 4.4% to $189.22 billion.
The Fed posted its 500-basis-point increase in short term rates last Wednesday, the day the Investment Company Institute took its money market survey.
That was the sign for investors to look for higher yields elsewhere, said a spokesman for the Washington-based trade group. Walter Frank, chief economist for Money Fund Report, a newsletter that also tracks money market assets, agreed that the Fed's action contributed to the loss in fund assets.
Mr. Frank, whose Ashland, Mass.-based company takes a survey each Tuesday, predicted further outflows in this week.