Money fund yields (7-day, annualized, simple, net) were up 1 bp at 4.19% on average during the week ended Friday, Jan. 31 (as measured by our Crane 100 Money Fund Index), after going unchanged the week prior and falling 1 bp two weeks prior. Fund yields have digested almost all of the Federal Reserve's 25 basis point cut from December 18, though they may inch down a basis point or 2 lower in coming days. They've declined by 87 bps since the Fed first cut its Fed funds target rate by 50 bps percent on Sept. 18, and they've declined by 44 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.28% on average on 12/31/24, 4.45% on 11/30/24, 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 3/31 and 5.20% on 12/31/23.
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 679), shows a 7-day yield of 4.09%, unchanged in the week through Friday. Prime Inst money fund yields were up 1 bp at 4.30% in the latest week. Government Inst MFs were up 1 bp at 4.20%. Treasury Inst MFs were unchanged at 4.13%. Treasury Retail MFs currently yield 3.92%, Government Retail MFs yield 3.90%, and Prime Retail MFs yield 4.10%, Tax-exempt MF 7-day yields were up 1 bps at 2.19%.
Assets of money market funds rose by $25.8 billion last week to $7.227 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of January, MMF assets have jumped by $52.8 billion, after increasing by $110.9 billion in December, $200.5 billion in November, $97.5 billion in October and $149.8 billion in September. Weighted average maturities were unchanged at 38 days for the Crane MFA and down 1 day at 38 days the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (1/31), 115 money funds (out of 791 total) yield under 3.0% with $138.5 billion in assets, or 1.9%; 180 funds yield between 3.00% and 3.99% ($413.6 billion, or 5.7%), 496 funds yield between 4.0% and 4.99% ($6.675 trillion, or 92.4%) and following the recent rate cut there continue to be zero funds yielding 5.0% or more.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.41%, after rising 1 bp two weeks prior. The latest Brokerage Sweep Intelligence, with data as of Jan. 31, shows no changes over the past week. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
In other news, J.P. Morgan features a "Bank CP/CD funding update" in their latest "Short-Term Market Outlook & Strategy." They write, "There was plenty of cash to deploy into the money markets to start the year, as reflected in bank FRN spreads where 6-month and 1-year maturities narrowed by an average of 5bp and 6bp MTD to 21bp and 30bp, respectively. This dynamic follows a similar seasonal pattern that we tend to see at the start of each year, persisting through February albeit to a lesser degree.... It also follows the tightening that began late last year such that 6m and 1y spreads have declined by 5bp and 9bp, respectively, from their local peaks.... This sharp tightening, particularly in the longer-end, has now resulted in a relatively flat 6m/1y FRN curve of 8-9bp, the narrowest the curve has been since early 2023."
The piece says, "To be sure, the demand was met with supply. Liquidity investors absorbed nearly $50bn in net bank CP/CD supply so far this month, slightly above the January average of $42bn and above the monthly average of $11bn. Japanese banks have been the primary contributors to this increase, adding $20bn compared to just $3bn in 2024. Meanwhile, French banks have boosted their supply by $11bn, and Swedish banks by $10bn."
It continues, "However, as we make our way into 1Q, net bank CP/CD supply tends to decline. Based on data from 2018 to 2024 (ex 2020), net supply decreases by an average of $27bn in February and nearly $10bn in March.... If this trend continues, spreads are likely to maintain a slight tightening bias in the near term."
Discussing "Equity markets and MMF flows," JPM says, "The recent sharp US equity market sell-off has prompted some questions about its potential impact on MMF flows, particularly if the downturn is sustained over an extended period. Broadly speaking, cash from equity sales could find its way into MMFs as retail investors convert their equity holdings into cash, which can then be swept into MMFs or bank deposits."
They comment, "[H]ere is a greater tendency for inflows than outflows into MMFs during equity market sell-offs. However, we find that it usually takes a significant equity market correction (e.g., >10% in a given week) to see meaningful flows into MMFs. On average, during an equity market correction of 10% or more in a given week, inflows into retail MMFs reach nearly $20bn, while smaller declines in the equity markets have resulted in comparatively smaller inflows."
JPM adds, "We also took a look at the correlation between GC/EFFR spreads with changes in the S&P 500 index, and not surprisingly, there is not a strong correlation. Taken together, we're not anticipating the recent equity market sell-off to have any meaningful impact on MMF flows or spreads in the money markets."
Finally, they state, "Instead, flows into retail MMFs will continue to be driven by the interest rate environment. Indeed, with MMF yields hovering around 5% for the better part of last year while bank deposits continue to yield significantly lower, retail MMFs grew by $435bn, accounting for over 50% of the total growth in taxable MMFs.... With a Fed that has signaled its intent to remain on hold at current levels, this dynamic should continue."
