The Wall Street Journal's "Heard on the Street" columns discusses brokerage sweeps vs. money market funds in "Cash Is No Longer King, but It's Hardly Trash. That's Trouble for Brokers." It tells us, "Since the Federal Reserve began raising interest rates in 2022, brokerages have seen a key revenue source come under big pressure: What they can earn on customers' uninvested cash. When rates were super low, brokers could earn a good margin by sweeping that money into banks, either for fees from partners or as an ultra-low-cost deposit in their own banks to then deploy for a higher yield." (Note: Please join us for our "basic training" conference, Money Fund University, which will take place Dec. 19-20 in Providence, R.I. Click here to register or for more information.)
The piece explains, "But as rates rose, investors started seeing that cash not as trash, but as a serious asset that could generate a return. So instead of letting it sit, people moved more of their cash to higher-yielding savings accounts, or out of bank accounts and into money-market funds."
It tells us, "Now, as the Fed starts to cut rates, that flow appears to be slowing or reversing course. Charles Schwab reported that transactional sweep cash had a net inflow of $17 billion in the month of September. At Morgan Stanley third-quarter brokerage sweep deposits were still down $12 billion from a year prior, but were up $2 billion from the second quarter. Bank of America Chief Executive Brian Moynihan told analysts that its wealth management deposits have 'basically been flat' for the past several weeks."
The article says, "But while the huge outrush of cash might be finished, it isn’t yet clear that investors are ready to give up their yield-seeking altogether. Some of this stabilization also followed moves by brokers to improve their pricing on sweeps and other wealth deposits. Brokers’ net interest margin, or the difference in what they earn on customers’ cash versus what they pay for it, should be closely watched in the quarters ahead."
They quote Stifel Chief Executive Ronald Kruszewski from "the firm's third-quarter results call," "I don't think we're going back to a zero-rate environment. So, I wouldn't be baking in something that says that we're going to drive [net interest margin] because people are going to go back into sweep. Sweep will always be there for transactional cash, but savings cash is the new normal."
Finally, the WSJ adds, "But the bottom line is the days of being able to play with vast pools of cash paying little might not return for a while. If they ever do."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Oct. 25) includes Holdings information from 73 money funds (up 19 from a week ago), or $3.786 trillion (up from $3.254 trillion) of the $6.833 trillion in total money fund assets (or 55.4%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Oct. 10 News, "October Money Fund Portfolio Holdings: Repo Surges, Reclaims Top Spot.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.709 trillion (up from $1.544 trillion a week ago), or 45.1%; Repurchase Agreements (Repo) totaling $1.369 trillion (up from $1.153 trillion a week ago), or 36.2%, and Government Agency securities totaling $348.5 billion (up from $277.9 billion), or 9.2%. Commercial Paper (CP) totaled $139.9 billion (up from a week ago at $97.1 billion), or 3.7%. Certificates of Deposit (CDs) totaled $79.5 billion (up from $54.4 billion a week ago), or 2.1%. The Other category accounted for $92.7 billion or 2.4%, while VRDNs accounted for $47.4 billion, or 1.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.709 trillion (45.1% of total holdings), Fixed Income Clearing Corp with $432.0B (11.4%), the Federal Home Loan Bank with $242.0 billion (6.4%), BNP Paribas with $100.7B (2.7%), JP Morgan with $94.4B (2.5%), Citi with $90.4B (2.4%), Federal Farm Credit Bank with $80.1B (2.1%), RBC with $66.9B (1.8%), the Federal Reserve Bank of New York with $51.6B (1.4%) and Goldman Sachs with $50.9B (1.3%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($274.0B), Goldman Sachs FS Govt ($249.0B), Fidelity Inv MM: Govt Port ($223.4B), JPMorgan 100% US Treas MMkt ($220.3B), State Street Inst US Govt ($173.1B), BlackRock Lq FedFund ($167.9B), Federated Hermes Govt ObI ($167.4B), Morgan Stanley Inst Liq Govt ($139.9B), Fidelity Inv MM: MM Port ($137.9B) and BlackRock Lq Treas Tr ($128.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
