Assets of money market mutual funds declined last week for the third week in a row. For the week ending Feb. 10 they totaled $185.7 billion, down $1.1 billion from the previous week. Since Jan. 27 they have fallen by $2.3 billion.
The last time total assets dropped more than three weeks running was in May of 1981, when a four-week decrease totaled $697.4 million. In each case the decline was registered within a week to 10 days after Treasury bill rates climbed past the seven-day average yield of money market funds.
(Money market funds also hold commercial paper and other types of investments in their portfolios, so the correlation with interest rates on new government securities and certificates pegged to them is at best approximate.)
As usual, institutions led the way. Since they are more sensitive to market rates and handle larger sums than individuals, they can and do move their funds more rapidly into higher yielding investments.
In the recent three-week period ended Feb. 10, for example, only the second week showed a decline in general purpose funds, those geared to individual investors.
The start of the most recent decline was perceived in the week ended Jan. 27, although December was a borderline month. Net sales amounted to just $121.2 million then, compared with $12 billion in November.
Between Dec. 23 and Feb. 11, the average yield, according to Donoghue's Money Fund Report of Holliston, Mass., fell from 12 percent to 11.8 percent before creeping back to 12.9 percent.
In virtually the same span (Dec. 21 to Feb. 8) the auction rate on six-month Treasury bills rose from 11.5 percent to 13.8 percent.
The effective current yield on $10,000 minimum six-month money market certificates issued by banks and savings and loans rose from 12.3 to 14.8 percent. So money market fund holders sold.
Back last May, when institutions pulled more money out for four weeks in a row than they put in, individuals continued to invest. During that month the average money market fund yield increased from 14.1 percent to 15.56 percent.
At the same time, the effective rate on money market certificates sold by banks and savings and loans increased from 14.5 percent to 16 percent.
The difference of about 50 basis points (one-half of one percentage point) did not seem to influence individuals to quit the convenience and liquidity of the money market funds for certificates of deposit.
A study by the Federal Reserve of the yields on money market funds compared to those on money market certificates shows that declines in money market fund assets occurred at times when the spread, or difference between the yields, was at least 150 basis points.
The last time individuals withdrew from money market funds in a sustained fashion was between August and December of 1980. Money market certificate sales increased commensurately. At that time depository institutions were paying about 2 percentage points more than money market funds.
The average maturity of the funds' portfolios is 32 days. This means the yields their investors get lag behind market rates by approximately this amount of time.
On the other hand, money market certificate rates change within a day or two after Treasury auctions. So long as short-term interest rates continue to rise and the spread between money market funds and money market certificates remains constant (currently 12.9 percent versus 14.5 percent), the funds' net assets will probably continue to decline, according to analysts.