Some of the lowest-yielding Treasury money market mutual funds have been forced to waive some fees at the margin to keep their yields positive over the past month. As the market prepares for another potential rate reduction in the benchmark Federal funds target rate, the rest of the money fund universe is preparing for the possibility of a protracted stay at ultra-low rate levels, ala 2003-2004. However, the rebound in Treasury yields and the far-above-Fed-funds levels in Prime money funds make any serious loss of revenues or any threat of negative yields remote for now. (Our Crane 100 is currently at 2.19% vs. a Fed funds target of 1.5%.)
According to our Money Fund Intelligence Daily, Treasury fund yields continued rising over the past week. They also rose yesterday. Our Crane Treasury Institutional Money Fund Index rose 0.08% yesterday to 0.71% (7-day yield), while the Crane Treasury Individual MF Index rose 0.05% to 0.44% (7-day). On Oct. 17 and 20 our daily Inst Treas Index dropped as low as 0.41% while the Indiv Treas Index touched 0.27%. Though the Treasury yields likely won't follow the Fed lower, the threat of near-zero yields and partial fee waivers remains here.
Our latest monthly Money Fund Intelligence listed 14 Treasury funds, out of 106 Treasury Institutional funds and 105 Treasury Individual (retail) funds, yielding 0.05% or lower, normally a sign of partial fee waivers in place. These included (along with assets and 7-day yields as of Sept. 30): American Perform US Treas Adm ($858, 0.01%); Neuberger Berman ILF Treas Prem ($251, 0.01%); Neuberger Berman ILF Treas Serv ($13, 0.01%); State Street Inst Treasury Plus Inv ($495, 0.03%); Goldman Sachs ILA Trs Obl CM ($220, 0.04%); JPMorgan US Trs Plus MM B ($1, 0.04%); JPMorgan US Trs Plus MM C ($131, 0.04%); JPMorgan US Trs Plus MM Res ($2,200, 0.04%); Evergreen Treasury MMF S ($599, 0.05%); Daily Income Treas ST ($175, 0.05%); Dreyfus General Treasury Prime B ($1,541, 0.05%); Dreyfus Tr&Ag Cash Mgmt Select ($38, 0.05%); Goldman Sachs ILA Trs Obl Ser ($368, 0.05%); and, Highmark 100% USTr MMF Swp ($177, 0.05%).
Among $1 billion-plus funds (tracked by our MFI Daily), just five have yields under 0.20% currently (among 94 Treasury funds). They are (along with assets and 7-day yields as of Oct. 27): Dreyfus General Treasury Prime B ($2,021, 0.05%); Federated Treasury Cash Ser ($2,216, 0.07%); Columbia Treasury Reserves Daily ($2,035, 0.13%); JPMorgan US Trs Plus MM Res ($2,340, 0.14%); and, Fidelity Treasury Daily Mon ($4,340, 0.16%).
Money funds will be watching the possibility of negative yields closely, of course, and many have filed prospectus amendments recently to expand their flexibility to voluntarily reimburse or waive fees. (See Strategic Insight's latest Simfund Filing weekly for more; they cite Hartford Money Market, Fidelity Prime, Tax-Exempt and Advisor as some that have amended.) But as we saw in 2003-2004, the vast majority of money fund assets have expense ratios that are under 1%, so a Fed funds target of 1% -- and gross money market yields of 1% -- are not a serious threat to money fund revenues.
