The August issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "MMF Yields Approach 2% on 2nd Fed 75; Assets $5 Trillion," which discusses the jump in yields and rise in assets in July; "CastleOak's Jones on Minority Dealers, Portals, D&I Shares," our most recent "profile"; and, "SEC's Birdthistle Speaks on MMFs, Pending Reforms," which quotes from a recent speech from the Director of the Division of Investment Management. We also sent out our MFI XLS spreadsheet Friday morning, and we've updated our database with 7/31/22 data. Our August Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Aug. 9, and our August Bond Fund Intelligence is scheduled to go out on Friday, Aug. 12. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.)
MFI's "Yields Approach 2%" article says, "Money fund yields surged higher again in July as the Federal Reserve hiked rates by 75 bps for the second time in 2 months. Our Crane 100 Money Fund Index (7-Day Yield) jumped by 44 basis points to 1.62% in July, and it's risen by 24 more bps already in August (through 8/3) to 1.86%. Average yields are now more than triple their level of 0.58% on May 31; they're up from 0.15% on March 31 and up from 0.02% on February 28 (where they'd been for 2 years prior)."
It continues, "The top-yielding money funds were poised just under 2.0% on 7/31, but they've since smashed through this level and are now above 2.25%. Yields continue to digest the Fed's 7/27 big hike, so the average money fund yield should break over 2.0% and the top-yielding funds should approach 2.5% in coming weeks. Money fund yields could even be as high as 3.0% or even 4.0% by year-end."
Our "CastleOak" piece explains, "This month MFI interviews David R. Jones, President & CEO of CastleOak Securities, a minority-owned dealer and one of the first firms to offer both an online money market trading portal and a D&I share class in the money fund space. We discuss the latest in diversity, corporate investing and cash. Our Q&A follows."
MFI says, "Give us some history. Jones comments, "I founded the firm back in 2006, and we've grown CastleOak to be one of the largest diverse investment banks on Wall Street. We've got six offices around the country and are headquartered in New York. We've grown the firm from four individuals ... and now we've got over 55 employees. We focus on the capital markets for our clients, and that includes primary issuance, both in debt and equity, and also the secondary trading that goes along with that. On the fixed income side, back in 2010 when I brought Dan Davis and his team on, that's when we got into the Treasury, Agency and Money Market space. We've got a very strong presence on the secondary side in the front end of the curve."
Our "Birdthistle" piece states, "U.S. Securities & Exchange Commission Division of Investment Management Director William Birdthistle recently gave a talk entitled, 'Remarks at PLI: Investment Management 2022,' where he spent some time discussing money funds. He comments, 'The final topic I would like to touch on today is `money market funds. These funds, together with a few others, have at times been called 'shadow banks.' Today, the more common, slightly less pejorative term is 'non-bank financial institution.' As a proud member of the SEC's Division of Investment Management, I tend to view the $128 trillion in regulatory assets under management subject to our oversight as a substantial universe in its own right.... But I understand that things might seem otherwise to advocates for the non-fund community."
Birdthistle explains, "Money market funds enjoyed their rise to prominence, of course, largely following the adoption of Regulation Q. Regulation Q imposed ceilings on interest rates that could be paid on bank deposits, which proved to be a competitive liability during the period of high inflation in the late 1970s and early 1980s. Instruments such as money market funds that could offer market interest rates (which peaked above 12% in 1981) prospered at the expense of bank accounts capped at the Regulation Q ceiling (which remained below 6% at the time). That moment served as the spark of life for an instrument that has since grown to hold approximately $5 trillion in assets."
MFI also includes the News brief, "Fed Hikes 75 Bps Again to 2.25-2.50%." It tells readers, "The Federal Reserve Board again hiked short-term interest rates by 75 basis points, raising its Fed funds target rate to a range of 2.25-2.50%."
Another News brief, "ICI President Eric Pan," explains, "ICI President Eric Pan posts, 'Fact-checking Statements on Money Market Fund Reform,' which briefly revisits pending SEC Money Fund Reforms and is partially in response to a recent speech by the SEC's William Birdthistle."
A third News brief, "The FT on "'`The return of cash': money market fund sector perks up on rising rates." They write, "Rising interest rates are turning the $4.6tn money market fund sector from a drag on profits into a source of earnings in a rare piece of good news for asset managers whose fees have been hit hard by falling equity and debt markets."
A sidebar, "Schwab on Cash Sorting," states, "Charles Schwab recently hosted a '2022 Summer Business Update,' which mentioned cash in a number of places. CFO Peter Crawford comments, 'Our performance was obviously helped by higher interest rates across the curve, which boosted our net interest margin and BDA [bank deposit account] yield and eliminated money fund fee waivers by the end of the quarter <b:>`_.... [T]he elimination of money fund fee waivers and organic inflows offset the impact of the market decline.'"
Another sidebar, "Fidelity Merging State MMFs," explains, "Fidelity Investments filed to liquidate and reorganize most of their State Municipal money market funds, merging its AZ, CT, MI, OH, and PA Muni MMFs into Fidelity Municipal Money Market Fund, and consolidating their CA, MA, NJ and NY State Muni fund offerings. While there haven't been many other moves in 2022, there has been a steady stream of exits in the Tax-Exempt space over the past decade. Over the past 5 years, the number of Muni MMFs has dropped from 245 to 150 <b:>`_, while the number of State funds has fallen from 116 to 53. Since June 2008, assets in `Muni MMFs have steadily declined from $490.6 billion to $111.4 billion (as of 6/30/22). Fidelity currently manages 33 Tax-Exempt MMFs with $28.0 billion; after the mergers go through, this will be reduced to 20 MFs."
Our August MFI XLS, with July 31 data, shows total assets increased $26.0 billion to $5.014 trillion, after increasing $31.9 billion in June, but decreasing $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion in March, decreased $34.6 billion in February and decreased $128.1 billion in January. Assets increased $104.6 billion in December, $49.7 billion in November and $20.5 billion October. Our broad Crane Money Fund Average 7-Day Yield was up 46 bps to 1.43%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 44 bps to 1.62% in July.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 1.82% and 1.89%, respectively. Charged Expenses averaged 0.40% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 7/31/22.) The average WAM (weighted average maturity) for the Crane MFA was a record low 22 days (down 1 day from previous month) while the Crane 100 WAM decreased 1 day to 23 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
