A new Wall Street Journal article, "Money Funds Waive Charges to Keep Yields From Falling Below Zero," contains a Crane Data graph of money fund yields over the past 15 years. It tells us, "Many investment firms are waiving their charges on money funds to keep the yields that investors earn from dropping below zero. Money-management giant BlackRock Inc. is waiving costs typically borne by customers for certain money-market funds to prop up investor yields, said people familiar with the matter. Fidelity Investments, Federated Hermes Inc. and J.P. Morgan Asset Management are also ceding some fees to stave off negative yields. The moves are the latest sign of how a roughly $5 trillion piece of the financial system is bracing for new pressure as interest rates plummet. Fee waivers will hit the revenues of firms that shoulder the costs."
The piece explains, "Today, the income offered by those [money market] funds is evaporating as rates plummet. The Federal Reserve cut its short-term benchmark rate to between zero and 0.25% to calm markets in March and pledged to keep rates near zero for the near future. Three-month Treasury yields were 0.0928% as of Aug. 21, from 1.546% at the end of last year. As U.S. money funds are forced to invest new cash into lower-yielding securities, their own yields are plunging."
The Journal's Dawn Lim writes, "Seven-day net yields for the average money fund slid to 0.05% in July from 1.31% at the end of 2019, according to research firm Crane Data. The average money fund is yielding a wisp today compared with the 2.11% seven-day yields at their prior high in April last year."
She tells us, "Among large players, Fidelity is waiving fees on most of its money funds. BlackRock had warned Wall Street analysts this year it might have to waive fees as soon as August or September to prop up money-fund yields. For now, any costs shifted from money-fund investors to avoid negative yields are being absorbed by distributors and not the firm, a person familiar with the matter said."
The WSJ continues, "Moody's Investors Service said that the cost of the average U.S. money fund fell 12% between February and June to about 21 cents for every $10,000 invested. As investors poured into safe-haven assets during an economic slump, a rise in money-fund assets offset the effect of lower fee rates and added to revenues. Moody's analysts expect the industry to give up some of those gains later in the year as yields shrink."
It quotes, "Deborah Cunningham, Federated Hermes' chief investment officer for global liquidity markets, said falling yields could squeeze smaller players. This would drive more concentration of an industry where the largest already dominate. The top 25 money-fund players control more than 90% of assets in the U.S. Last year, Federated Hermes absorbed assets of money funds of another Pittsburgh institution, PNC Capital Advisors. Ms. Cunningham thinks the firm could do more such deals. 'The opportunity is likely to present itself,' she said."
The Journal story adds, "Asset managers will stave off losses as long as investors keep piling into cash funds, or if more lucrative products offset falling revenues from their money funds. The Fed's moves to keep interest rates near zero created fee pressures, but the Fed also rescued the industry from the brink earlier this year."
Finally, they write, "Today, about two-thirds of U.S. money funds are waiving costs for investors to keep yields from going below zero, according to Crane Data's estimate. Funds focused on the lowest-yielding government securities and those with high distribution fees have been first in line to see fees waived, investment professionals say."
In related news, money market fund yields continue to bottom out just above zero, as our flagship Crane 100 fell one basis point in the last week at 0.05%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over two-thirds of all money funds and over a third of MMF assets are now sitting on the zero yield floor, though some continue to show some yield.
According to our Money Fund Intelligence Daily, as of Friday, 8/21, 569 funds (out of 854 total) yield 0.00% or 0.01% with assets of $1.849 trillion, or 37.7% of the total. There are 195 funds yielding between 0.02% and 0.10%, totaling $2.248 trillion, or 45.9% of assets; 84 funds yielded between 0.11% and 0.25% with $717.8 billion, or 14.6% of assets; 6 funds yielded between 0.26% and 0.50% with $88.3 billion in assets, or 1.8%. No funds yield over funds yield over 0.50%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 675), shows a 7-day yield of 0.04%, unchanged in the week through Friday, 8/21. The Crane Money Fund Average is down 43 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.08% in the latest week and Government Inst MFs were flat at 0.03%. Treasury Inst MFs were down a basis point at 0.02%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.05% (unchanged), Tax-exempt MF 7-day yields were also flat at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)
Our Crane Brokerage Sweep Index, which hit the zero floor four and a half months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of August 21, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have 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 18 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).
