The average money market fund yield is about to hit 2% and the highest-yielding MMFs are poised to hit 2.5%, so it's no surprise that their meteoric rise is beginning to attract attention. Mutual fund news source ignites published the piece, "Top-Yielding Money Funds Crack 2%" yesterday, which states, "More than 200 money market funds surpassed 2% yields in early August -- and many are approaching 2.5%, Crane Data reports. Those represented about $1.9 trillion in assets of Aug. 5, or nearly 40% of the $5 trillion in money funds, according to the data provider. The $983 million State Street ESG Liquid Reserves Fund yielded 2.34% as of Friday, the highest rate among all U.S. money funds, Crane Data's website shows. At least three other products, two sponsored by Allspring and one by Morgan Stanley, also boasted yields that had likewise climbed above 2.30% as of last week." (See our August 9 Link of the Day, "Crane 100 MF Index Approaches 2.0%," and our August 2 News, "Money Fund Yields Jump Over 1.5%; Top Hits 2.0%.")
The ignites article continues, "The average money fund seven-day yield was 1.89% as of Aug. 7, according to Crane Data. But with the Federal Reserve's late July 75-basis-point rate hike -- its second of that magnitude in as many months -- average yields will also soon cross the 2% threshold. The federal funds target range is now between 2.25% and 2.50%. The last time money funds yielded as much was in 2019, after the Fed made a series of 25-bp increases in 2018."
It explains, "With additional rate hikes expected this year ... a growing amount of cash is moving to money funds, flow data shows. Money funds pulled in nearly $50 billion in net inflows in June and July, after the industry bounced from inflows to outflows in prior months, Crane Data shows. 'Certainly, the tide has turned there, but it's just going to take a while for ... that money to move,' said Peter Crane, the data provider's president and chief executive."
They quote BlackRock's Larry Fink from a recent call, "The yield curve will inform performance for actively managed fixed-income funds.... You are going to see money run into that [2% yields].... [Y]ou are paid to keep your money in the short end." The piece adds, "It's not just money funds' higher yields that attract assets, Crane said, but also their yields relative to the rates paid by banks and brokerages on sweep accounts."
Ignites also writes, "While money fund yields follow short-term interest rates, deposit and sweep account rates are set by the institutions that run them. Money funds 'trace' the Federal Reserve's rate increases, making deposit products a 'poor alternative, Debbie Cunningham, Federated Hermes' ... wrote last month. 'It is amazing how little that most bank rates have adjusted upward with the Fed action.' The average rate on sweep accounts at the largest brokerages has inched from 0.01% at year-end 2021 to 0.16% as of July 31, Crane Data reports."
They add, "Fee waivers on Federated Hermes' money funds are now 'de minimis,' CFO Tom Donahue said [recently].... The firm's second-quarter money fund fee waivers shrank to $9.5 million, down from $117 million a year earlier, filings show. At BNY Mellon, second-quarter fee waivers took a $66 million bite out of fee revenues, down from $252 million in the year-ago period. The flows into money funds have picked up only in recent months, but some predict that the industry will add as much at $600 billion to $1 trillion to the products' coffers, Crane said. 'A $100 billion [increase in assets] is a layup,' Crane said, 'because that's what the funds themselves will generate [in returns].'"
In related news, Dan Wiener, Editor of "The Independent Adviser for Vanguard Investors," just distributed a brief entitled, "Cash Phoenix Rises Again." He says, "You can say one thing for the Federal Reserve's battle against inflation; it's sure done wonders for money market yields. Over the past week shareholders in two of Vanguard's money funds, Cash Reserves Federal Money Market and Federal Money Market have seen their 7-day yields rise above 2%. The jump in yields has taken just a bit more than four months as these two 2-percenters both sported yields of just 0.01% in mid-March. Those yields began rising just days before the Fed's first rate hike of this cycle, a 0.25% increase on March 16. Since then ... it's been off to the races for both the Fed and money market yields."
The Adviser continues, "All of this comes as Vanguard is winding down the fee waivers put in place to keep pandemic-induced yields above zero. Vanguard began waiving fees in the latter half of 2020 and as of its most recent filing, the semi-annual report for its two state-tax-free money funds for the period ending in May, fee waivers were still in effect over the preceding six months. I would expect they are over now with the final bill clocking in at about $192.7 million. The last time Vanguard waived fees on its money market funds following the Great Financial Crisis, waivers totaled about $123.0 million. Let's just say that Vanguard executives and Vanguard shareholders should both be cheering the Fed's latest moves."
According to Crane Data's Money Fund Intelligence Daily with data as of August 9, the highest yielding funds (ranked by 7-day yield) include: Fidelity Money Market Central Fund (FID03, $1.6B, 2.48%), BlackRock Cash Inst MMF SL (BRC01, $71.8B, 2.40%), Allspring Heritage Select (WFJXX, $3.8B, 2.38%), State Street ESG Liquid Reserve Prem (ELRXX, $961M, 2.35%), UBS Select ESG Prime Preferred Fund (SSPXX, $1.8B, 2.35%), Fidelity Cash Central Fund (FID01, $50.1B, 2.34%), Fidelity Sec Lending Cash Central Fund (FID05, $36.1B, 2.34%), Morgan Stanley Inst Liq Prime Inst (MPFXX, $14.0B, 2.34%), Allspring Heritage I (SHIXX, $625M, 2.32%), Morgan Stanley Inst Liq ESG MMP CastleOak (OAKXX, n/a, 2.32%), Morgan Stanley Inst Liq ESG MMP Inst (MPUXX, $3.3B, 2.32%), Dreyfus Cash Mgmt Preferred (DCEXX, $3.0B, 2.31%), DWS ESG Liquidity Cap (ESIXX, $69M, 2.31%), DWS ESG Liquidity Inst (ESGXX, $305M, 2.31%), State Street ESG Liq Reserve Opp (OPEXX, $1M, 2.31%) and UBS Select ESG Prime Institutional Fund (SGIXX, $377M, 2.31%).
Our Crane 100 Money Fund Index is currently yielding 1.92%, while our Crane Prime Institutional Money Fund Index is yielding 2.07% on average. Note that we exclude "internal" or "private" money funds and repeated share classes in our website rankings above.
