Ignites Writes on MMF Fee Waivers
On Friday, an ignites article entitled, "Down to Zero: 48% of Money Funds Likely Waiving Fees" tells us, "As money market funds digest the Federal Reserve's two March interest rate cuts, their yields are steadily dropping, data shows. Nearly half of U.S. money funds had zero- or 1-basis-point yields as of May 29, representing 26% of assets in the products, according to Crane Data. Meanwhile, the yields on another 20% of money fund assets were between 2 and 10 bps. A big swath of assets -- 35% -- were yielding between 11 bps and 25 bps. The remainder notched yields between 26 and 100 bps." The piece continues, "Funds with zero- or 1-bp yields are likely to be waiving a portion of their fees to maintain zero or positive yields for investors, says Peter Crane, CEO of Crane Data. 'The important question is how much you're waiving,' Crane says. 'And that we don't know.... It's likely the fee waivers aren't really biting [profits] just yet'.... During the prolonged period of near-zero interest rates from 2008 to 2015, waivers resulted in fees being essentially cut in half from 0.30% to 0.15%, and funds will likely see a similar impact during the current low-rate environment, Crane says. But if rates remain where they are for long, some firms may take other steps. 'Certain types of funds may not want to stay in business at those levels,' he says." The article adds, "The markets have calmed since the tumult of March, when the government intervened to restore liquidity. But some now fear that money fund yields could dip below zero. This scenario is most likely for Treasury and government money funds because they hold large amounts of low-yielding securities. Negative yields are unlikely to be the result of monetary policy, several investment commentaries say. Although President Donald Trump has voiced support for negative interest rates, Federal Reserve chair Jerome Powell has said that the central bank is not considering taking rates below zero.... Market dynamics would be more likely than Fed policy to push money fund yields into negative territory, money fund executives say.... Some Treasury funds have taken measures to avoid buying negative-yielding debt. Fidelity, American Beacon and Gabelli, for example, have each since March closed Treasury funds to new investors. Negative money fund yields seem less likely to become a reality right now because of Treasury's huge issuance of bonds, which has driven down prices and pushed yields up. However, the market mayhem in March and general uncertainty about how the pandemic will play out have pushed shops to prepare for negative rates." (See also our Crane Data News from Friday, "June MFI: MMF Fee Waivers; Invesco's Laurie Brignac; NY Fed Blogs" and our June MFI issue.)
