Since the Federal Reserve raised interest rates on December 16, money market fund yields have doubled, rising from 0.06% to 0.12% over the past 2 weeks. (This is based on our Crane 100 Money Fund Index, the average of the 100 largest taxable money funds.) Yields increased slightly ahead of the Fed meeting, and fund increases have been tempered by unwinding fee waivers and market rates that haven't risen anywhere near 25 bps. As expected, the biggest jumps have been among the Prime Institutional funds, while the smallest have been among Treasury Retail MMFs. (Spreads between Prime Inst and Govt Inst funds have returned to their historical average of 10 bps.) We also write below about another money market fund family has opted to convert from Prime to Government -- Voya -- which was originally reported by ignites. Finally, we report that Federated and Wells Fargo have joined the list of managers renaming "Institutional" share classes to something more Retail-friendly.
As expected, the Fed's decision to raise interest rates has had an immediate impact on MMF yields, though it has been somewhat muted to date. On November 30, the 7-Day Yield (simple, net, annualized) for our Crane Money Fund Average (all taxable money funds, currently 817) was 0.03%, while Crane 100 (100 largest taxable funds) was 0.05%. On December 28, almost two weeks after the Fed move, the Crane MFA was up a modest 2 basis points to 0.05%, but the Crane 100 had jumped 7 basis points to 0.12%. (These yields set record lows of 0.01% and 0.02%, respectively, from July 2013 through Oct. 2014.)
The increases are more pronounced when you look at our Crane Prime Institutional Money Fund Index. On Nov. 30 it had an average 7-Day Yield of 0.07%, but it had climbed to 0.16% as of Dec. 27. The Crane Govt Inst Index went from 0.02% on Nov. 30 to 0.06% on Dec. 27. The spread now between the Prime Inst and Govt Inst Index is 10 basis points, which is about what it has been historically. Here's a look at how the other Crane MF Indexes have moved from Nov. 30 to Dec. 27: Crane Inst (0.04% to 0.09%), Crane Retail (0.01% to 0.02%), Treas Inst (0.01% to 0.04%), Govt Inst (0.02% to 0.06%), Treas Retail (0.01% to 0.01%), Govt Retail (0.01% to 0.02%), Prime Retail (0.01% to 0.03%), and the Crane Tax-Exempt MF Index (0.01% to 0.01%).
The top performing Institutional money funds are now yielding well over 0.30% while the highest-yielding Retail MMFs are well over 0.20%. This compares to yields of under 0.20% for Inst MMFs and under 0.10% for the best Retail MMFs. As of Dec. 27, Morgan Stanley Inst Liq MMP Inst yielded 0.36%, Deutsche Daily Assets Fund Cap yielded 0.35%, BlackRock Cash Inst MMF Inst yielded 0.34%, Wells Fargo Cash Inv Select yielded 0.33%, and Fidelity Instit MM: MM Port Inst yielded 0.33%. Among Retail funds, PNC Money Market Fund A yields 0.30% (this fund's yield includes an accounting adjustment), Vanguard Prime MMF yields 0.25%, Schwab Value Adv MF Ultra yields 0.24%, Fidelity Money Market Fund Premium yields 0.24%, and Schwab Value Adv MF Premier yields 0.21%.
While they have plateaued for the moment, money fund yields should continue to inch higher as the remainder of their portfolios turn over to the new, higher rate levels. (Funds have average Weighted Average Maturities, or WAMs, of 34 days, so on average the hike should be fully reflected around Jan. 21.) We don't expect the full 25 bps to show, however, as reduced fee waivers are no doubt taking a large share of any increases. We won't know, however, until we get expense info for December 31 how much this "waiver unwinding" represents. (Watch for the January issue of our Money Fund Intelligence and MFI XLS late next week for more details and data.)
We learned from a Dec. 24 ignites story, "Prime-to-Government Money Fund Conversions to Climb," that Voya (formerly ING) will convert its money funds from Prime to Government. The article says, "Three Voya prime money funds will become government funds: the $984 million Liquid Assets Portfolio; the $551 Money Market Portfolio; and the $225 Money Market Fund. Assets are as of Nov. 30. The change for all three funds takes effect May 1. According to the SEC filing, the Voya MMP will change to the Voya Government MMP. Further, the Voya Money Market Fund will be known as the Voya Government Money Market Fund, according to another SEC filing. Finally, the Voya Liquid Assets Portfolio will be called the Voya Government Liquid Assets Portfolio, states the 3rd filing. None of these funds will impose fees and gates.
The Ignites article, by Beagan Wilcox Volz, recaps other recent Prime to "Govie" changes by John Hancock, Cavanal Hill, Prudential, SunAmerica, Thrivent, and TIAA-CREF, which we'd originally reported in our Dec. 22 News, "More Funds Jump on Prime to Govt Conversion Bandwagon; Mergers. Including the Voya conversions, we now count about $264 billion in Prime to Govt fund conversions, with about $173 billion, or 65%, already converted. (Note: On Jan. 4, 2016, another $18.1 billion will convert to Government. These BlackRock fund conversions include the BBIF Money Fund, BIF Money Fund, FFI Institutional, FFI Premier, and FFI Select, Ready Assets, and Retirement Reserves.)
The Ignites pieces explains, "The fund firms that recently disclosed conversions don't have as many "moving parts" in their money fund lineups as larger ones, and this gave them more time to make decisions regarding product changes related to the SEC's reforms, says Peter Crane, CEO of Crane Data. In addition, most of the funds that are being converted exist mainly as a convenience for clients, who use them as they move between products within a manager's broader lineup, rather than as a strategic part of their portfolios, he says."
"Where convenience is king, the move to a government fund is a no-brainer," Crane told ignites, adding that government funds are also cheaper to manage than prime funds." The article continues, "Tightening Treasury supply may have factored into some firms' considerations of converting prime funds to government products. But when the Federal Reserve hiked interest rates on December 16, it also lifted the daily limit on its reverse repurchase program from about $300 billion to about $2 trillion, alleviating worries about supply, notes Crane."
In other news, GSAM filed to launch a new Goldman Sachs Tax Exempt Money Market Fund. We first reported on this launch in our Dec. 21 News, "Goldman Sachs AM Details More MMF Changes, Portal Enhancements." Goldman said in its press release, "GSAM has filed an initial registration statement for the Goldman Sachs Financial Square Tax-Exempt Money Market Fund, which plans to operate as an "institutional money market fund" (as defined by amended Rule 2a-7) by the regulatory deadline of October 14, 2016. The Fund is projected to be launched on or around March 31, 2016. At least 80 percent of the Fund's net assets will be invested in municipal obligations of U.S. states, territories, and possessions. The Fund will comply with floating NAV and liquidity fees and redemption gates requirements by the regulatory deadline of October 14, 2016."
There is also news from both Federated and Wells Fargo related to renaming Institutional shares. Federated informed us that the Institutional Shares (IS) for the following funds will be changed to "Wealth Shares (WS)" as of Dec. 31, 2015: Federated Prime Cash Obligations, Tax-Free Obligations, Municipal Obligations, California Municipal Cash Trust (MCT), Florida MCT, Michigan MCT, Minnesota MCT, New Jersey MCT, New York MCT, Ohio MCT, Pennsylvania MCT, and Virginia MCT.
Finally, Wells Fargo also filed to change its "Institutional" class to "Premier" class on several money funds. The filing explains, "On April 1, 2016, all references to the Institutional Class of Wells Fargo Advantage California Municipal Money Market Fund, Wells Fargo Advantage Municipal Money Market Fund and Wells Fargo Advantage National Tax-Free Money Market Fund in the prospectus, summary prospectuses and Statement of Additional Information are replaced with Premier Class."
