Money market fund yields, which fell below the 1.0% level in mid-March and below the 0.5% level in late March, continued inching lower in the latest week. Our flagship Crane 100 Money Fund Index was down 3 basis points over the past week (through Friday, May 15) to 0.19%. The Crane 100 is down from 1.46% at the start of the year and down 2.04% from the beginning of 2019 (2.23%). While some funds have already hit the zero floor, most money funds continue to show some yield and are stubbornly resisting zero yields. According to our Money Fund Intelligence Daily, as of Friday, 5/15, 360 funds (out of 852 total) yielded 0.00% or 0.01% with total assets of $922.6 billion, or 18.0% of total assets. There were 143 funds yielding between 0.02% and 0.10%, totaling $927.0B, or 18.0% of assets; 200 funds yielded between 0.11% and 0.25% with $1.972 trillion, or 38.4% of assets; 100 funds yielded between 0.26% and 0.50% with $887.8 billion in assets, or 17.3% ; 44 funds yielded between 0.51% and 0.99% with $427.4 billion in assets or 8.3%; no funds yielded over 1.00%.

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.15%, down 3 basis points in the week through Friday, 5/15. The Crane Money Fund Average is down 32 bps from 0.47% at the beginning of April. Prime Inst MFs were down 7 bps to 0.35% in the latest week and Government Inst MFs fell by 2 bps to 0.12%. Treasury Inst MFs dropped by 1 bps to 0.09%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.03% (down 1 basis point for the week), and Prime Retail MFs yield 0.27% (down 5 bps for the week), Tax-exempt MF 7-day yields dropped by 1 bps to 0.07%.

As we've mentioned in previous weeks, our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients, has already hit the floor at 0.01%. It's down 27 bps from the end of 2018 (0.28%). The latest Brokerage Sweep Intelligence, with data as of May 15, shows no changes with the exception of Merrill Lynch dropping it's highest tier a basis point to 0.01%. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last seven weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).

In other news, J.P. Morgan writes in its latest "Short-Term Fixed Income" update that the "[M]arket structure is quite different today than the prior ZIRP period. Most notably, prime MMFs are materially smaller in size, with balances roughly 40% of what they were in 2013-2015. Furthermore, there continues to be a sense of caution among the cash lending community. This is best evidenced in the record amount of T-bills that prime MMFs currently hold (22% of their portfolio) as they're allocating their inflows into rates versus credit. Anecdotal conversations with fund managers also point to more discretion in their purchases given the uncertain economic outlook, potential downgrades, and the possibility of more outflows come the July tax date -- all of which limits how much money they want to spend out the curve."

On April MMF holdings, they write, "As investors and corporations continued to accumulate cash to weather the COVID19 storm, taxable MMF inflows continued last month, with $384bn entering the fund complex.... Government funds saw inflows of $336bn while prime funds received a net inflow of $48bn.... Dealer repo increased $87bn month over month, while exposure to FICC sponsored repo decreased $43bn to $221bn in April.... RRP usage fell $283bn to a mere $2bn last month as MMFs found better yields than RRP's 0% thanks to a surge in bill issuance."

JPM continues, "T-bills now represent a larger fraction of both government and prime funds' portfolios. In both instances, the percentage allocated to T-bills has increased to record levels.... with purchases focused mainly on the shorter end of the bills curve.... Significant inflows into government funds prompted the increased exposure. The flows into prime funds (+$117bn) in April seemed to have found their way into Treasuries instead of credit."

They add, "On the benchmark reform front, MMFs have continued to add SOFR exposure through their purchase of Agency FRNs. We estimate that at month-end these funds held $337bn of SOFR FRNs versus $226bn of non-SOFR floaters.... In April, prime funds continued to de-risk, turning away from credit products and pivoting into Treasuries.... Bank CP/CD/TD exposures decreased $2bn.... In an attempt to grab onto yield where and while available, WAMs and WALs are up across the fund complex. Month over month, overall prime MMF WAMs increased 10 days to 39 days and WALs decreased 4 days to 62 days. Govt MMF WAMs increased 2 days to 37 days and WALs increased 2 days to 93 days, while Treasury WAMs increased 5 days to 44 days and WALs increased 3 days to 92 days."

Wells Fargo Securities' Garret Sloan also writes about the "Government Money Market Fund Portfolio Shift: Massive move into Treasuries and Fannie SOFR Floaters." He explains, "Crane Data released its monthly money market fund holdings data earlier this week and there have been some seismic shifts over the past month. Government Fund (ex-Treasury funds) assets rose from $2.40 trillion to $2.69 trillion, but the biggest shift has been in composition. Government/Agency funds' single largest exposure shifted from the Federal Home Loan Bank to the US Treasury, a historic increase month-over-month. Other notable shifts included the decline of RRP usage, likely the result of the increase in non-negative-yielding T-bills, the reshuffling of exposures amongst the remaining GSEs, and the decline in FICC repo usage."

Wells continues, "In the GSE space, the standout from a supply standpoint was Fannie Mae, which lifted its relative counterparty position in government funds from 8th to 4th, and increased total issuance into government funds by $33 billion. The Federal Home Loan Banks, meanwhile, reduced exposure in the funds by an equally surprising $17 billion. The remaining two large GSE issuers were relatively steady in terms of position and holdings. Farm Credit rose by $1.7 billion, and Freddie Mac declined by $3.1 billion."

The brief asks, "So what are we to make of the shift between Fannie Mae and the Home Loan Banks funding needs? The dynamic for Fannie Mae (and Freddie Mac) may relate to its need to advance P&I payments on mortgages in forbearance, which could eventually weigh on the GSEs' liquidity profile. We suspect that Fannie Mae has been building its funding base for just such a possibility.... Possibly to reduce rollover risk, most of Fannie Mae's issuance in April was in long-dated SOFR-floaters, raising more than $35 billion, almost all of which was placed in the 2a-7 fund universe."

Wells writes, "As money funds grow their holdings of long-dated SOFR floaters, extending their WALs, it may become more difficult for GSEs to attract longer-dated floaters. This trend, along with the rally in SOFR, could put widening pressure on SOFR spreads as issuers compete with attractive alternatives in the T-bill market."

Finally, they add, "On the FHLB side, the decrease in outstanding short-term debt is surprising given the growth of money market fund assets, and the agency's historic place in the holdings hierarchy. However, with banks currently sitting on unprecedented amounts of liquidity, the need for FHLB advances has diminished significantly, and with the decline in those advances, we have seen a commensurate decline in the FHLB's funding needs. To the extent that banks maintain their highly liquid balance sheet profiles, we suspect that FHLB may be light on issuance for some time to come."

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