Money fund yields inched higher yet again last week -- the Crane 100 Money Fund Index (7-Day Yield) rose 3 more basis points to 3.60% in the week ended Friday, 12/2. Yields rose by 3 basis points the previous week and are up from 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should jump again and approach 4.0% by year end, if, as expected, the Fed hikes rates again (probably by 50 bps) on Dec. 14. The top-yielding money market funds have broken above 4.0% and should move towards 4.5% in coming weeks (see our "Highest-Yielding Money Funds" table above). Brokerage Sweep rates also moved higher as Fidelity increased its FDIC insured sweep rate to 1.94% from 1.57%, which lifted our Brokerage Sweep Intelligence average up from 0.40% to 0.43%.
Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 678), shows a 7-day yield of 3.48%, up 4 bps in the week through Friday. Prime Inst MFs were up 2 bps to 3.74% in the latest week. Government Inst MFs rose by 4 bps to 3.47%. Treasury Inst MFs up 5 bps for the week at 3.50%. Treasury Retail MFs currently yield 3.30%, Government Retail MFs yield 3.25%, and Prime Retail MFs yield 3.58%, Tax-exempt MF 7-day yields were down at 1.47%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/2), just 140 funds (out of 817 total) still yield between below 2.0%, with assets of $118.8 billion, or 2.3% of total assets; 57 funds yielded between 2.00% and 2.99% with $54.6 billion, or 1.1%; 620 funds yield 3.00% or more ($4.968 trillion, or 96.6%), and 14 funds have now officially broken over the 4.0% yield barrier.
Brokerage sweep rates saw just one change over the past week, but it was a biggie. Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (almost all of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), was up 3 bps this past week at 0.43% and is up from 0.34% at the start of November. The latest Brokerage Sweep Intelligence, with data as of Dec. 2, shows that Fidelity increased rates to 1.94% for all balances between $1 and over $5 million. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
In other news, the Office of Financial Research (OFR) published a brief entitled, "OFR's Pilot Provides Unique Window Into the Non-centrally Cleared Bilateral Repo Market." It explains, "The repurchase agreement (repo) market is a foundational component of the U.S. financial system, providing trillions of dollars of daily funding and facilitating liquidity for U.S. Treasuries and other securities. The repo market allows participants to borrow cash against securities pledged as collateral, with an obligation to repurchase those securities in the future."
The OFR writes, "The U.S. repo market can be divided into four major segments, depending on two factors: One, whether the trades are settled bilaterally or through a triparty custodian, and two, whether the trades are centrally cleared or non-centrally cleared. The largest of the four segments, with an estimated market size exceeding $2 trillion outstanding, is the non-centrally cleared bilateral repo (NCCBR). This is the only segment of the market that contains neither a central counterparty nor a triparty custodian."
They continue, "Despite the increase in market transparency provided by the OFR's Centrally Cleared Repo Data Collection and the Federal Reserve's collection of non-centrally cleared triparty repo, the NCCBR segment remains opaque to regulators. Even the traders who conduct business in this market have little direct visibility into the competitive landscape. Given the size and importance of this market, regulators have expressed concern over this lack of transparency."
OFR tells us, "As a starting point to provide regulators with more information on the market, the OFR secured the voluntary participation of nine dealers for a pilot data collection. These dealers include primary dealers and nonprimary dealers, bank affiliated and nonbank affiliated dealers, and both purely domestic dealers and dealers that are affiliates of foreign institutions."
They add, "[O]ur pilot captured $373 billion in repo and $536 billion in reverse repo by pilot participants, which is higher than participants' total volumes outstanding in cleared repo segments, both for their repo and reverse repo exposures. While the total size of the non-centrally cleared repo market is unknown, assuming it is roughly $2 trillion would mean that these pilot participants make up roughly 50% of total non-centrally cleared bilateral repo."
Finally, Federated Hermes' Deborah Cunningham wrote recently in her monthly update, "Just the facts: FOMC voters must stick to the data to make their next decision on rates." She explains, "For a word so central to many fields, it's fascinating that we can't decide if 'data' should be a singular or plural noun. The vernacular has veered to the former, kicking 'datum' to the curb. Many analysts, economists and scientists prefer using the grammatically correct latter configuration."
She comments, "Of course, the Federal Reserve is always dependent on what the data show/shows. But gut feelings and abstract theories play a role. That shouldn't be the case for the Federal Open Market Committee's (FOMC) mid-December meeting. The markets are likely to interpret a downshift to a half-percentage-point hike as a change in monetary policy as investors are looking for any indication this tightening cycle will end. If the FOMC makes that move only to return to a three-quarter point hike in January, it risks losing credibility. That it cannot afford."
Cunningham also says, "A brief word about the impact on the money markets from the downfall of the FTX crypto exchange: none. The short-term securities in which we invest traded steadily after the news broke, with no spread widening. Traditionally, an exchange is where the collateral resides that backs something. FTX's collateral, whatever it was, has allegedly declined by many billions. But it doesn't appear to have flowed into the secondary market in any material amount."
She adds, "Across the money markets in November, prime funds ruled the roost again, led by a high influx of assets into retail prime products. Government fund flows were flat, and tax-free funds pulled back. The latter reflected the downward pressure on SIFMA caused by low issuance as municipalities still are flush with stimulus cash. We continued to position our portfolios short overall to capture rate hikes, maintaining Weighted Average Maturities (WAMs) in a 25-35 day range for our government money market funds and between 15-25 days for our prime and tax-free money funds."
