The cash parked at money-market funds dropped, led by a drop in institutional cash parked in vehicles that invest in government debt.

With markets close to fully pricing in another quarter-point interest-rate increase at this month’s Federal Reserve meeting, short-term rates above 5% continue to lure investors to the very front-end of the curve and may be opting to buy securities directly instead of parking cash in money-market funds. 

The latest drop in assets comes as the US Securities and Exchange Commission approved another round of rules designed to prevent the kind of outflows that occurred in March 2020 when the onset of the pandemic roiled markets.

About $20.4 billion left into US money-market funds in the week to July 12, according to data from the Investment Company Institute. Total assets fell to $5.45 trillion from an all-time high $5.47 trillion in the week to July 5.

The week before, about $43.7 billion in net new money flowed into the funds.

Money-market funds have started to extend the weighted average maturity of their assets, or WAMs. Until recently, they had been apprehensive about allocating their record amount of assets too far out the curve in the event of being unable to immediately take advantage of central bank rate hikes.

In a breakdown for the week to July 12, government funds, which invest primarily in securities like Treasury bills, repurchase agreements and agency debt saw assets fall to $4.94 trillion, a $29.6 billion decrease. Prime funds, which tend to invest in higher-risk assets such as commercial paper, saw assets jump to $842 billion, a $10.2 billion increase. 

This article was provided by Bloomberg News.