Last week, Investment News featured the article, "Fintechs find new focus helping clients with cash management." Subtitled, "Robo-advisers, lenders and stock trading apps are all launching high-yield savings accounts," it explains that, "Cash management is suddenly one of the hottest trends in financial technology." (See our May 9 News, "ICM Launches CMAs.") The IN piece says, "Since Wealthfront launched Federal Deposit Insurance Corp.-insured high-yield savings accounts in February, the digital adviser said clients have deposited more than $1 billion, generating $2.5 million in interest. With that success, Wealthfront is increasing interest rates on the cash accounts to 2.29%." We quote from the article below, and we also excerpt from Wells Fargo and Fidelity's latest money fund commentary, below.
It tells us, "Wealthfront is hardly the only fintech interested in providing banking, or at least bank-like services. Betterment launched Smart Saver in August, a program that sweeps extra cash in a client's checking or savings account into a portfolio of low-risk bonds, projecting a 2.18% yield after management fees."
Investment News adds, "Robinhood also attempted a checking and savings feature in December that promised 3% returns, but shelved the product following industry backlash and regulatory scrutiny. The stock trading app is now reportedly seeking a bank charter. Social Finance Inc., M1 Finance and Acorns all also have brought to market their own cash management features."
For more of our recent coverage of fin-tech's and cash, see the following Crane Data News and Link of the Day stories: "Wealthfront Cash Brings in $1 Billion" (4/29/19), "Wealthfront Cash Targets Deposits" (2/20/19), "MarketWatch Has More on Robinhood" (1/3/19), "SIPC Concerns About Robinhood" (12/17/18) and "Robinhood Stealing Millennial's Cash" (12/14/18).
In other news, Wells Fargo Money Market Funds writes in its newly redesigned monthly "Overview, strategy, and outlook," "In spite of stubbornly flat yields, money market fund assets behaved atypically. With tax day falling on April 15, the month is usually one for heavy outflows across all money market fund assets, and industry-wide assets under management typically bottom out at this time of year. True to form, tax-related outflows of about $24 billion hit retail prime and government funds and tax-exempt money funds. On the other hand, institutional prime and government funds experienced inflows of about $20 billion in April, with roughly 75% going into prime funds. So far this year, industry assets are at a near year-to-date high of $3.2 trillion, driven largely by $80 billion in renewed interest in prime money market funds."
They also comment, "Although T-bill yields barely budged from the supply fluctuations, the repo market reacted to the supply by doing what the repo market often does, which is the exact opposite of what you might expect. In this case, repo rates in April were consistently higher than they were for most of the first quarter despite the contraction in T-bill supply.... [T]he repo market is noisy, with periodic spikes on reporting dates, Treasury settlement dates, and sometimes just because. Looking through the noise, though, the chart shows that repo yields, which often traded below 2.40% throughout the first quarter, never traded below that level in April. It's quite possible that the flip side of the tax-seasonality coin."
On the Municipal sector, Wells writes, "Yields in the short end of the municipal money market space spiked during April as tax season ushered in approximately $4.5 billion in outflows from municipal money market funds. The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index rose rapidly from 1.50% (62% of 1-week LIBOR) to 2.30% (95% of 1-week LIBOR), a level not seen since the beginning of the financial crisis in 2008."
They continue, "While the tax-time spike in rates is not unusual for the municipal money market, the abruptness and magnitude of the move caught many participants off guard. The SIFMA Index had remained compressed throughout the first quarter of the year as demand from municipal bond funds remained exceptionally high based on record inflows into those funds. This incremental demand had easily made up for lagging demand from municipal money market funds and had led many to believe that this year’s tax season bounce would be muted."
Wells adds, "Instead, rates on overnight and weekly variable-rate demand notes (VRDNs) and tender option bonds (TOBs) skyrocketed as dealers were forced to quickly recalibrate offering levels to entice new buyers as demand evaporated in the second half of the month. The municipal yield curve rapidly inverted as rates on overnight and weekly paper exceeded the levels on 15-year high-grade paper. Further out on the short-term curve, yields on high-grade commercial paper and notes in the one-month to three-month space rose in sympathy with VRDNs and TOBs. However, levels in this area of the curve rose much less dramatically than SIFMA, increasing roughly 15 bps to 25 bps."
Finally, Fidelity Investments' latest "Money Markets" commentary says, "Volatility remains a tailwind for money market funds. Money market funds (MMFs) have seen strong flows as rising interest rates and equity volatility have drawn in more investors. Assets under management in taxable MMFs rose to nearly $2.9 trillion as of the end of March, including $153.7 billion in the fourth quarter of 2018. Asset growth was driven largely by strong inflows into prime mutual funds. Prime funds delivered a net yield that was 22 basis points higher than government funds as of the end of March."
They add, "Another positive sign for the industry has been dramatic growth in Fixed Income Clearing Corporation (FICC) sponsored repurchase agreements. The FICC is a registered clearinghouse that allows banks and broker dealers to fund their government securities more efficiently. Year over year, year-end growth in FICC sponsored repo increased by $104 billion in 2018, and the number could get much larger as the U.S. Treasury seeks financing of $1 trillion over each of the next two years to cover the rising U.S. deficit. The program's evolution and growth will help foster improved conditions in the repo market, an important high-quality liquid asset for the MMF industry."
