Money fund yields broke the 4.0% level on average Wednesday as our Crane 100 Money Fund Index rose 5 basis points to 4.01%. The top-yielding money funds are now over 4.5%, and yields continue to climb higher as they digest the remainder of the Federal Reserve's December 14 50 basis point hike, its 7th hike of 2022. Money fund yields are now at their highest level since December of 2007. (The highest yield recorded in our Crane 100 since Crane Data started in 2006 is 5.01% as of 8/31/07.) We expect yields to keep inching higher in coming days, and they should move up again following any Fed hikes in 2023. Watch for more yield details in our weekly recap on Tuesday. (Note: Merry Christmas and Happy Holidays from Crane Data! Thanks for reading in 2022, and best wishes for 2023!)
ICI's latest weekly "Money Market Fund Assets" report shows that money fund assets fell this week after hitting their highest level since June 2020 last week. They remain just below their record level of $4.789 trillion (set on May 20, 2020). Money funds have risen in 6 of the past 8 weeks, rising by $128.5 billion since October 26. Over the past 52 weeks, money fund assets are up by $47 billion, or 1.0%, with Retail MMFs rising by $197 billion (13.4%) and Inst MMFs falling by $150 billion (-4.7%). ICI shows assets flat, up by $8 billion or 0.2%, year-to-date, with Institutional MMFs down $182 billion, or -5.6% and Retail MMFs up $190 billion, or 12.9%.
The weekly release says, "Total money market fund assets decreased by $28.18 billion to $4.71 trillion for the week ended Wednesday, December 21, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $40.85 billion and prime funds increased by $10.22 billion. Tax-exempt money market funds increased by $2.45 billion." ICI's stats show Institutional MMFs falling $44.2 billion and Retail MMFs increasing $16.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.995 trillion (83.9% of all money funds), while Total Prime MMFs were $652.0 billion (13.8%). Tax Exempt MMFs totaled $105.6 billion (2.2%).
ICI explains, "Assets of retail money market funds increased by $16.03 billion to $1.66 trillion. Among retail funds, government money market fund assets increased by $4.54 billion to $1.16 trillion, prime money market fund assets increased by $9.87 billion to $404.53 billion, and tax-exempt fund assets increased by $1.62 billion to $94.89 billion." Retail assets account for over a third of total assets, or 35.2%, and Government Retail assets make up 70.0% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $44.21 billion to $3.05 trillion. Among institutional funds, government money market fund assets decreased by $45.38 billion to $2.80 trillion, prime money market fund assets increased by $352 million to $247.51 billion, and tax-exempt fund assets increased by $826 million to $10.66 billion." Institutional assets accounted for 64.8% of all MMF assets, with Government Institutional assets making up 91.5% of all Institutional MMF totals.
In November, MMF assets increased by $47.7 billion to $5.113 trillion, and they've increased by $22.2 billion month-to-date in December (through 12/21) according to Crane Data, which tracks a broader universe of funds than ICI. Crane Data's Prime asset totals, which broke the $1.0 trillion level early in November, increased $28.7 billion last month to $1.024 trillion (and another $29.8 billion MTD in December). Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
In other news, a press release entitled, "Global MMF 2023 Sector Outlook Is Deteriorating," tells us, "Fitch Ratings' 2023 sector outlook for global money market funds (MMFs) is deteriorating, reflecting Fitch's expectations for deterioration in some key banking sector outlooks, continued market volatility and potential considerable flow and asset under management (AUM) dynamics. Evolving global regulation will be key, but should have sufficient lead time for market participants to react accordingly."
It explains, "Fitch anticipates a worsening in the credit environment in 2023 amid a challenging macroeconomic backdrop, and, as a result, expects deteriorating credit outlooks in 2023 for securities and sectors MMFs invest in. The deteriorating outlook on some banking sectors indicates Fitch's significant uncertainty about the credit quality of this segment, which will have a knock-on effect on money funds as portfolios are concentrated in this sector."
The release says, "Central bank policy rate tightening in the US and Europe is likely to slow in 2023 and reach terminal rates. Fund managers reduced weighted average portfolio maturities (WAMs) to position for rising rates. We expect this to reverse as monetary tightening slows and expect fund managers to extend the duration of maturities, which would increase market risk sensitivity."
It states, "High inflation and interest rates, coupled with global recessionary pressures, contribute to mixed expectations for 2023 MMF flow direction and may lead to heightened flow volatility in funds. Continued market volatility driven by the downturn could lead to sizeable outflows in a stressed market, but, alternatively, investor flight-to-safety may attract inflows for the MMF sector overall."
Finally, the release adds, "Fitch expects European AUM in ESG MMFs to continue to grow and for US AUM to remain stable in 2023. We expect increased reputational and regulatory risks in 2023 as higher ESG activity, beyond just MMFs, continue to attract regulatory attention."
