It's been almost 3 weeks since the Federal Reserve raised its Federal funds rate off of the zero floor, and money market fund yields continue to inch higher after a big jump the first week. While they've yet to reflect the full 25 basis point increase (and may not entirely due to fee waivers being reduced), yields have risen noticeably since March 1. Our flagship Crane 100 Money Fund Index started March 2022 at 0.02% (where is had been pinned for 2 years), rose to 0.04% ahead of the March 17 hike, jumped to 0.13% the week following the hike, then rose 3 more basis points to 0.16% over the past week. Brokerage sweep rates have barely moved though. Our latest Brokerage Sweep Intelligence shows the vast majority of brokerages still paying 0.01% yields (on FDIC insured deposits). But one brokerage did raise its sweep rates this week. We review the latest money fund and brokerage sweep yields below.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/1), 320 funds (out of 821 total) yielded 0.00% or 0.01% with total assets of $1,254.5 trillion, or 25.2% of total assets. (This compares to 593 funds with $2.623 trillion a month ago.) There were 57 funds yielding between 0.02% and 0.04%, totaling $91.3B, or 1.8% of assets; 141 funds yielded between 0.05% and 0.14% with $735.7 billion, or 14.8% of assets; 170 funds yielded between 0.15% and 0.24% with $1,966.4 trillion in assets, or 39.5%; 133 funds yielded 0.25% or higher with $929.4 billion in assets or 18.7%; no funds yielded over 0.50% (yet).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.10%, up 1 basis point in the week through Friday. The Crane Money Fund Average is up 8 bps from 0.02% at the beginning of March. Prime Inst MFs were up 1 bp to 0.19% in the latest week, and up 15 bps over the course of March. Government Inst MFs rose by 1 bp to 0.12%, they are up 10 bps MTD. Treasury Inst MFs rose by 2 bps to 0.11%, and were up 10 bps in March. Treasury Retail MFs currently yield 0.03%, (unchanged for the week, and up 2 bps in March), Government Retail MFs yield 0.03% (unchanged for the week, and up 2 bps in March), and Prime Retail MFs yield 0.10% (up 1 bps for the week, and up 8 bps for March), Tax-exempt MF 7-day yields rose by 2 bps to 0.15%, they were up 13 bps in March.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), remains flat at 0.01%, where it has been for 2 years straight. It had been at 0.12% at the end of 2019 and at 0.28% at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of April 1, shows just one rate changes over the past week.
Among brokerage rates, RW Baird increased its sweep rates to 0.02% for the $100K level (and lower). All of the other major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo. (For more see our March 18 News, "Massachusetts' Galvin Warns Brokerages on Sweeps; MF Assets Fall Again.")
In other news, the New York Times writes more about Fidelity's Ned Johnson, in "How One Man Helped Create a Nation of Investors." The "Dealbook Newsletter" piece says, "Among the trailblazers who made finance more accessible to the masses starting in the 1970s -- John Bogle of Vanguard with his index fund, Charles Schwab with his discount brokerage and Louis Rukeyser with his weekly interrogation of one Wall Street sage or another -- Edward C. Johnson III, the longtime leader of Fidelity Investments, was the least well known yet arguably the most important. The others were all public figures, but Mr. Johnson, who died last week at the age of 91, was a Boston patrician with a patrician's aversion to the spotlight."
They explain, "Mr. Johnson, widely known as Ned, was 42 when he took over Fidelity, a small mutual fund company his father had run for three decades. The year was 1972: The market was in the doldrums, inflation was on the rise and Fidelity's assets were in decline. Like other financial executives, Johnson realized that a new investment vehicle recently approved by the Securities and Exchange Commission might offer a way to attract more money. This vehicle was called a money market fund; by investing in ultrasafe bonds, it could generate returns that matched real-world interest rates. At a time when bank interest was regulated -- fixed by law at 5.25 percent -- these higher-yielding funds were sold as an alternative to savings accounts."
The Times explains, "They were not, however, consumer friendly. While it was easy to move money in and out of a bank account, it often took weeks to redeem money market fund shares, requiring onerous paperwork. That was a turnoff to people who were used to having easy access to their money."
The article continues, "As his obituaries have all noted, Mr. Johnson threw that business model overboard by allowing Fidelity customers to write checks against the company's money market fund. In one stroke, he made it as easy to take money out of a fund as to put money in. His thinking was that people would be more willing to entrust their money to Fidelity if they knew they could easily withdraw it. He would treat investors like consumers."
It adds, "If you're as old as I am, you'll remember what happened next. Inflation surged and interest rates followed. The average 30-year mortgage rate peaked at close to 17 percent by 1981. Tens of millions of Americans, seeing their savings eroded by inflation, made the leap from a bank account to a money market fund. This was the first step in their transition from savers to investors."
The piece tells us, "By the fall of 1982, the Federal Reserve chair Paul Volcker had brought the inflation rate down sharply, triggering a powerful bull market. Mr. Johnson was ready for the moment. Fidelity had long before cut its ties with brokers, giving the company a direct relationship with customers. As their money market fund returns diminished, they looked for other vehicles that could provide the yields they had become accustomed to. What Mr. Johnson could offer them was Fidelity's Magellan fund -- or, more specifically, the genius of its manager, Peter Lynch, whom he had installed five years earlier. It's hard to overstate how important Mr. Lynch was in bringing the middle class to the stock market."
For more, see our March 30 Link of the Day, "Zweig on Ned Johnson & MMFs," our March 25 Link of the Day, "Fidelity's Ned Johnson Passes," Bloomberg's obituary and The WSJ's obituary.
