Money fund yields again surged higher following the Fed's 9th quarter-point rate hike a week ago (12/19), bringing our broader all taxable Crane Money Fund Average above the 2.0% level for the first time since May 2008. The Crane Money Fund Average, a simple average of all taxable money market funds (655) tracked by Crane Data, rose 7 basis points over the past week to 2.01% as of Tuesday, Dec. 24. Our more concentrated Crane 100 Money Fund Index, which tracks the 100 largest taxable MMFs, broke over 2.0% in late October (w/the Fed's last hike); it rose 8 basis points over the past week (through 12/24) to 2.17%. Yields for the Crane Money Fund Average have increased from 1.69% on 9/30/18, from 0.92% on Dec. 31, 2017 and from 0.26% on Dec. 31, 2016. We briefly discuss recent yields, and we also review the latest European money market fund manager to announce their regulatory conversion plans, BNP Paribas, below. (See our Dec. 20 News, "Fed Hikes Ninth Time to Range of 2.25-2.5 Percent; MMF Yields Moving.")
Money market fund yields, brokerage sweep and bank deposit yields should all continue higher over the next several weeks. Yields on the Crane 100 have moved up from 1.88% at the start of October, up from 1.12% at the start of 2018, up from 0.43% at the start of 2017, and up from 0.06% at the start of 2016. Prime Institutional MFs now (as of 12/24/18) yield 2.18% on average, while Government Inst MFs yield 2.09%, a spread of a mere 9 basis points. (Treasury Inst MFs yield 2.05%.) Prime Retail MFs yield 2.08% vs. 1.77% for Govt Retail MFs (a much more generous spread of 31 bps). Tax Exempt MFs average a 7-day yield of 1.23% currently. (See our Money Fund Intelligence Daily for the latest yields and averages.)
The top-yielding money funds currently are beginning to pay annualized rates of 2.50% and higher. Internal (not available to outside investors) fund Fidelity Money Market Central Fund (FID03) is yielding 2.59%, while DWS ESG Liquidity Cap (ESIXX) yields 2.55%. Northern Instit Prime Oblig Svc (NPCXX) is yielding 2.54% as of Tuesday (12/24), while Goldman Sachs FS MM Inst (FSMXX) is yielding 2.50%. Dreyfus Cash Mgmt Institutional (DICXX) yields 2.49%, and Federated Inst Prime Obligs IS (POIXX) yields 2.48%. Retail funds Fidelity Inv MM: MM Port Inst (FNSXX) and Vanguard Prime MMF Adm (VMRXX) both yield 2.46%.
Crane Data's latest Brokerage Sweep Intelligence shows a couple of brokerages increasing the rates they pay on parked cash in FDIC insured accounts. Fidelity raised rates on balances of $1 to under $100K to 0.37%, and they increased rates on balances of $100K and higher to 0.79%. UBS also bumped rates higher across the board. Our Crane Brokerage Sweep Index for accounts of $100K now averages 0.29%, up from 0.27% the previous week. (Let us know if you'd like to see a copy of our most recent Brokerage Sweep Intelligence report.)
In other news, BNP Paribas is the latest money fund manager to announce lineup changes in preparation for pending European Money Fund Reforms. A Notice to Shareholders for the Luxembourg-domiciled BNP Paribas Insticash fund family, says, "Following the Extraordinary General Meeting held on 19 December 2018 announcing the changes made in the Articles of Association of the Company, we hereby inform you of the changes which will be incorporated in the next version of the Prospectus of the Company dated January 2019 and which will be effective on 14 January 2019."
They explain, "The Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds, which will enter into force on 21 January 2019, introduces a new segmentation of European money market funds ('MMF') which can be either Public Debt Constant Net Asset Value (Public Debt CNAV), Low Volatility Net Asset Value (LVNAV) or Variable Net Asset Value (VNAV) MMFs. Such different types of MMFs are subject to i) different investment guidelines that could lead to a difference in yields as well as ii) different operational set-ups that could, in some cases, be more adapted to your needs."
BNP continues, "Each sub-fund of the Company will invest in eligible money market instruments, deposits with credit institutions, financial derivative instruments (such as interest rate swaps, hereinafter 'IRS'), repurchase agreements and reverse repurchase agreements, units or shares of other MMF as detailed in the Prospectus, in the limit and as permitted by the Regulation. As a consequence, the Prospectus is amended in order to implement the Regulation at the Company's level (I), while the sub-funds currently existing within the Company will be either renamed or will transfer a part of their assets into newly created sub-funds to comply with the Regulation (II)."
Regarding the fund "BNP Paribas InstiCash Money 3M EUR," they write, "This sub-fund will be renamed 'BNP Paribas InstiCash EUR 3M Standard VNAV' and its investment objective and policy will be adapted as follows in order to comply with the Regulation.... To achieve the best possible return in EUR in line with prevailing money market rates, over a 3-month period while aiming to preserve capital consistent with such rates and to maintain a high degree of liquidity and diversification; the 3-month period corresponds to the recommended investment horizon of the sub-fund.... The sub-fund is a standard variable net asset value money market fund as defined by Regulation 2017/1131."
The notice also comments on the, "Splitting of 'BNP Paribas InstiCash EUR, BNP Paribas InstiCash GBP and BNP Paribas InstiCash USD.'" It tell us, "In order to comply with the Regulation, the Board of Directors decides, in accordance with the provisions of Article 32 of the Articles of Association of the Company and the Chapter 8 of the Luxembourg Law of 17 December 2010 concerning UCI (the Law), to split the Splitting Sub-funds with (i) the merger of the Merging Shares into the Receiving Sub-funds and (ii) to maintain the Non-Merging Shares into the Splitting Sub-funds which are renamed and transformed."
It adds, "The Split will be effective on Monday 14 January 2019.... The splitting of assets described in the table above has been decided in order to ensure a smooth transition to the new regulatory framework and to offer the well-diversified existing shareholders the flexibility to opt for the solution that best meet their needs. As a result of these operations, Stable NAV shares with daily distribution will remain in the existing sub-funds which are transformed and renamed as LVNAV sub-funds, whereas all other shares will be transferred in the newly created Short Term VNAV sub-funds."
Note: European money market funds are not available to U.S. investors. But let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks these funds.
