Money fund yields (7-day, annualized, simple, net) increased by 2 bps to 3.93% on average during the week ended Friday, October 17 (as measured by our Crane 100 Money Fund Index), after falling 3 bps the week prior. Fund yields should continue to inch lower in the coming weeks as they finish digesting the Fed's Sept. 17 25 bps cut, and they should move lower again if, as expected, the Fed cuts again on October 29. They've declined by 113 bps since the Fed first cut in the Fed funds target rate by 50 bps on Sept. 18, 2024, and they've declined by 70 bps since the Fed cut rates by 1/4 point on 11/7/24. Yields were 3.94% on 9/30, 4.11% on 8/31, 4.12% on 7/31, 4.13% on 6/30, 4.10% on 5/31, 4.13% on 4/30/25, 4.14% on 3/31/25 and 4.28% on average on 12/31/24. MMFs averaged 4.75% on 9/30/24, 5.10% on 6/28/24, 5.14% on 3/31/24 and 5.20% on 12/31/23.
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 676), shows a 7-day yield of 3.82%, up 1 bp in the week through Friday. Prime Inst money fund yields were up 3 bps at 4.06% in the latest week. Government Inst MFs were up 2 bps at 3.94%. Treasury Inst MFs were unchanged at 3.85%. Treasury Retail MFs currently yield 3.62%, Government Retail MFs yield 3.65% and Prime Retail MFs yield 3.84%, Tax-exempt MF 7-day yields were down 20 bps to 2.11%.
Assets of money market funds fell by $16.6 billion last week to $7.742 trillion, according to Crane Data's Money Fund Intelligence Daily. MMF assets hit a record high of $7.773 trillion on October 9. Month-to-date in October (through 10/17), MMF assets have increased $34.3 billion, after increasing by $105.2 trillion in September, $132.0 billion in August, $63.7 billion in July, $6.7 billion in June, $100.9 billion in May, decreasing $24.4 billion in April, increasing by $2.8 billion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, and $97.5 billion last October. Weighted average maturities were at 41 days for the Crane MFA and 42 days the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (10/17), 116 money funds (out of 787 total) yield under 3.0% with $147.3 billion in assets, or 1.9%; 484 funds yield between 3.00% and 3.99% ($3.374 trillion, or 43.6%), 187 funds yield between 4.0% and 4.99% ($4.221 trillion, or 54.5%) 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 0.36%, after falling 3 bps two weeks prior. The latest Brokerage Sweep Intelligence, with data as of October 17, 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, Payden & Rygel's Kerry Rapanot comments on Low Duration Strategies in a new press release. The Summary explains, "As the Federal Reserve cuts rates, yields on money market funds are declining. For investors seeking safety, liquidity, and enhanced income, low duration bond strategies are a compelling solution, according to Payden & Rygel's Kerry Rapanot."
She comments, "Currently, $7.7 trillion is sitting in money market funds -- an increase of $1 trillion since last year and $3 trillion since the start of the pandemic. The increased balance in money market funds has sparked speculation of a 'wall of cash' ready to deploy into equities. However, we historically see that cash does not move out of money market funds until well after the Federal Reserve starts cutting rates, so we believe this cash balance is on the stickier side. Investors able to move their cash slightly further out the curve can benefit from enhanced return potential as yields decline."
Rapanot continues, "As the Federal Reserve cuts rates, yields on money market funds are falling. Low duration bond strategies offer investors the potential to earn more than money market funds or bank deposits. Given the current inverted yield curve, low duration portfolios may have a lower portfolio yield than money market funds. However, this dynamic will change over time, as the yield curve disinverts. Despite lower current yields, the return potential of a low duration strategy is greater than a money market fund, since low duration diversifies investments across the fixed income universe and benefits from yield curve management."
She says, "Liquidity in our low duration strategy is similar to that of a money market fund as a result of the strategy holding treasuries and high-quality, top of the capital stack credit. Low duration typically invests in bonds with maturities up to five years, allowing investors to lock in longer-term yields and benefit from price appreciation as interest rates fall. Additionally, they diversify investments across the fixed income universe, from treasuries to corporate and structured bond credit, generating greater returns while maintaining liquidity."
Rapanot concludes, "While low duration strategies offer higher return potential than money market funds, they come with greater price volatility due to owning longer maturities and the inclusion of credit. However, the investments remain short-term enough to limit risk, especially as bonds quickly approach maturity and their prices pull to par, helping to stabilize returns. By its nature, a low duration portfolio should be liquid, but not every individual holding needs to be available to function as liquidity. Through active management, portfolios can maintain liquidity and participate in total return opportunities."
