Money market fund yields have increased by 50 basis points since the Federal Reserve's 75-basis-point rate hike on June 15 and 61 bps since May 31, and they continue to grind higher. Our flagship Crane 100 Money Fund Index 7-Day Yield Average rose by 4 basis points to 1.19% in the week ended Friday, 7/1 (it hit 1.20% yesterday), after rising 27 basis points last week and 23 basis points on June 16 and 17. Two weeks ago, yields broke above 1.0% for the first time since February 2020. The average has more than doubled from 0.58% on May 31, and is up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where it had been for almost 2 years prior). Brokerage sweep rates also moved higher again over the past week as RW Baird, Ameriprise Financial Services and Wells Fargo moved rates higher. Our latest Brokerage Sweep Intelligence shows most brokerages now paying an average of 0.15% or higher (on FDIC insured deposits), up from 0.04% a month ago. 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 671), shows a 7-day yield of 1.05%, up 5 basis points in the week through Friday. The Crane Money Fund Average is up 58 bps from 0.47% at the beginning of June. Prime Inst MFs were up 5 bps to 1.28% in the latest week, and up 64 bps since the start of June (now double from the month prior). Government Inst MFs rose by 4 bps to 1.12%, they are up 58 bps since the start of June. Treasury Inst MFs rose by 5 bps to 1.06%, up 56 bps since the beginning of June. Treasury Retail MFs currently yield 0.82%, (up 6 bps for the week, and up 52 bps since June), Government Retail MFs yield 0.81% (up 4 bp for the week, and up 55 bps since June started), and Prime Retail MFs yield 1.10% (up 7 bps for the week, and up 62 bps from beginning of June), Tax-exempt MF 7-day yields fell by 2 bps to 0.54%, they were up 14 bps since the start of June.

Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched higher to 0.15%. This follows increases over the past several weeks but also 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 July 1, shows numerous changes over the previous week.

Our latest Brokerage Sweep Intelligence reports that RW Baird hiked its Insured Deposit Sweep Program to 0.34% for balances under $250K, to 0.39% for balances between $250K and $1 million, to 0.51% for balances between $1 million and $2 million and to 0.68% for balances of $5 million and more.

We also show that Ameriprise Financial Services increased rates to 0.05% for balances under $100K, to 0.06% for balances between $100K and $1 million, to 0.07% for balances between $1 million and $5 million and to 0.08% for balances of $5 million and more. Also, Wells Fargo increased its sweep rates from 0.02% to 0.12% balances under $1 million, and to 0.15% for balances of $1 million to $10 million for the week ended July 1. Just four of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, and UBS.

According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/1), just 19 funds (out of 818 total) still yield 0.00% or 0.01% with assets of $8.5 billion, or 0.2% 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 82 funds yielding between 0.02% and 0.49%, totaling $67.8B, or 1.4% of assets; 296 funds yield between 0.50% and 0.99% with $893.1 trillion in assets, or 17.9%; 194 funds yield between 1.00% and 1.24% with $1.237 trillion in assets or 24.8%; 205 funds yielded between 1.25% and 1.49% with $2.490 trillion or 50.0%; and 22 funds yielded over 1.50% ($284.9 billion, or 5.7%).

In related news, American Banker published the piece, "Pressure from commercial depositors is arriving faster than expected." They state, "With interest rates rising quickly, banks are starting to face pressure from business clients to pay more on their deposits. The landscape for commercial deposits has been changing rapidly since the Federal Reserve hiked rates at its most aggressive pace since 1994, according to bank consultants. The shift raises the risk that banks' funding costs could rise in the coming months, eroding their profits. For much of the pandemic, companies have parked their spare cash at the bank, since low interest rates meant that other safe options typically didn't offer much yield. Recently, that flood of deposits has made banks comfortable with some of the cash heading out the door."

The piece tells us, "But the outflows also mean that banks may need to start playing defense sooner -- by paying companies more for their deposits rather than see them exit for better-paying options." They quote Curinos' Peter Serene, "You're starting to see material outflows at some banks. You're seeing rate competition come back to the market a little bit sooner than we would have expected."

It adds, "Deposit pricing pressures are still far from widespread.... [T]he average interest rate on commercial customers' demand deposits jumped to 26 basis points in May, up from 16 basis points a month earlier, according to Curinos. The average rate remains below its pre-pandemic level of 88 basis points. Meanwhile, the rebates that banks pay on commercial clients' non-interest-bearing deposits have stayed flat, though a Curinos survey found that about 90% of bank liquidity managers expect them to increase this year."

Finally, Financial Advisor IQ writes "LPL Using 'Free Credits' as Main Cash Overflow Vehicle." It says, "LPL Financial will shift to so-called free credits as its primary cash overflow vehicle to help insulate the firm from the impact of fluctuating bank deposit demand. 'Currently, when we have more cash than third-party banks are willing to take, we utilize money market overflow contracts for excess capacity,' LPL says in a Q1 2022 Investor Presentation.... 'By instead implementing sweep deposit overflow to a brokerage cash account (commonly known as 'free credits') and investing the cash in short-term [U.S.] Treasuries, we are able to generate economics superior to money market funds, which are capped at ~45 bps [basis points], in most rate environments,' LPL adds."

They continue, "The use of free credits is new to LPL 'but a very common capability in the industry,' chief financial officer Matt Audette said Tuesday at a Morgan Stanley [conference].... 'The key is it's on our balance sheet, so we're not dependent on third-party banks to have space on their balance sheet for that. Our focus is in U.S. Treasuries, very short-term U.S. Treasuries, 90 days or less, little to no credit risk, little to no duration risk and therefore little to no capital required to do so,' he said."

The article concludes, "LPL may make changes to its cash sweep programs, according to an LPL disclosure on March 31. Specifically, the firm may use free credit balances 'in the ordinary course of its business subject to the requirements of Rule 15c3-3,' the disclosure states. Doing so 'generally generates revenue for LPL in the forms of interest and income,' which the firm 'retains as additional compensation for its services to its clients,' according to the disclosure."

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