Money market fund yields continue to climb higher following a surge earlier in May in reaction to the 50-basis-point Fed move on May 4. The 7-Day Yield Average for our flagship Crane 100 Money Fund Index rose to 0.55% in the week ended Friday, 5/20. The average had been 0.52% the prior week, up from 0.21% on April 29, up from 0.15% on March 31 and up from 0.02% on February 28 (where it had been for almost 2 years prior). Brokerage sweep rates also continued to inch higher over the past week. Our latest Brokerage Sweep Intelligence shows most brokerages now paying an average of 0.04% or higher (on FDIC insured deposits), up from 0.01% a month ago (and in reaction to several brokerages raising rates last week). We review the latest money fund and brokerage sweep yields below.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.44%, up 3 basis points in the week through Friday. The Crane Money Fund Average is up 29 bps from 0.15% at the beginning of May. Prime Inst MFs were up 2 bps to 0.62% in the latest week, and up 38 bps over the course of May. Government Inst MFs rose by 2 bps to 0.51%, they are up 34 bps MTD. Treasury Inst MFs rose by 3 bps to 0.46%, up 27 bps in May. Treasury Retail MFs currently yield 0.25%, (up 3 bps for the week, and up 19 bps in May), Government Retail MFs yield 0.23% (up 1 bp for the week, and up 19 bps in May), and Prime Retail MFs yield 0.45% (up 2 bps for the week, and up 31 bps for May), Tax-exempt MF 7-day yields rose by 5 bps to 0.41%, they were up 27 bps in May.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), inched higher to 0.04%. This follows increases over the past 2 weeks and follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of May 20, shows no changes over the previous week but several increases the previous week).
Last week's Brokerage Sweep Intelligence reported that Fidelity hiked its FCash brokerage account rate to 0.25% across all tiers. (Rates on its default sweep Cash Management Account also rose to 0.25%.) We also showed that Raymond James increased rates from 0.01% to 0.02% for balances under $25K, to 0.03% for balances under $100K, to 0.05% for balances under $500K and to 0.08% for balances $500K to $2.5 million. Also, RW Baird increased its sweep rates from 0.03% to 0.10% for the week ended May 13. Seven of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: Ameriprise, E*Trade, Merrill Lynch, Morgan Stanley, Schwab, TD Ameritrade, and UBS. (Wells moved its rates to 0.02% two weeks ago.)
According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/20), just 84 funds (out of 821 total) still yield 0.00% or 0.01% with assets of $68.8 billion, or 1.4% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 35 funds yielding between 0.02% and 0.09%, totaling $54.9B, or 1.1% of assets; 43 funds yielded between 0.10% and 0.19% with $27.9 billion, or 0.6% of assets; 281 funds yielded between 0.20% and 0.49% with $1.399 trillion in assets, or 28.3%; 347 funds yielded between 0.50% and 0.79% with $3.085 trillion in assets, or 62.4%; and just 30 funds yielded 0.80% or higher with $312.3 billion in assets or 6.3%; two funds yielded over 0.90%.
On Friday, mutual fund news source ignites reported on the news in, "Brokerages Bump Up Sweep Account Rates." They explain, "Several brokerages in recent weeks have hiked the rates they pay on brokerage sweep accounts, including Fidelity, Raymond James, R.W. Baird and Wells Fargo, Crane Data reports. The other major brokerages examined have kept their rate at 0.01% for most clients, the data provider notes. Those firms include Merrill Lynch, Morgan Stanley and Schwab."
The article tells us, "Two Federal Reserve interest rate hikes since March, as well as the prospect of future increases, likely led the brokerages to push up the rates, given that competing sweep products -- namely money market funds -- are now offering richer returns, said Peter Crane, Crane Data's chief executive."
It quotes Crane, "It's unclear if this is just a friendly rate tweak or trying to get ahead of customers who may move their money to take advantage of higher returns.... Brokerage clients may be complaining [about sweep rates] or starting to move."
The ignites piece comments, "Two Fidelity money market funds that are also used for uninvested cash currently offer higher yields than the sweep account options. The $251 billion Fidelity Government Money Market Fund had a seven-day yield of 0.34% as of Thursday, the firm's website shows. The $34.3 billion Treasury Money Market Fund offered a seven-day yield of 0.32% as of the same date."
It adds, "Fidelity automatically directs investors' cash into the highest-yielding core option available at account opening for retail brokerage and retirement accounts, the spokesperson said. 'This is unlike many other companies that don't provide choice for their customers' cash and simply put the money in low-yielding and affiliated bank sweep products,' she wrote in an email. 'As rates rise, we will continue to evaluate market conditions and aim to return greater value to clients.'"
Finally, ignites writes, "Brokerages will probably increase the rates they offer on sweep accounts as interest rates climb, Crane predicted. 'Brokerages probably won't be able to let the spread between sweep deposits and money funds get too large,' Crane said. 'They'll risk a cash exodus.' ... 'Money market fund yields may reach 2% by the end of the year,' Crane said. 'We're not at the point where money funds are hot, but it's certainly headed that way,' he added."
