AARP tells us "How to Earn More Interest on Your Savings in a new article. They state, "Interest rates on savings -- whether for cash stashed in money market mutual funds, bank money market accounts or certificates of deposit (CDs) -- are hitting levels last seen in the early 2000s. 'I'm just thrilled with all this,' says Peter Crane, publisher of Money Fund Intelligence. It's especially welcome news for retirees in need of low-risk income to help make ends meet and others seeking a safe place to set aside funds for an emergency. But not every financial institution is offering high interest rates, even to longtime customers. And even if you invest in money market mutual funds, whose yields float with the short-term market, you have to shop around for the best deal."
The piece continues, "Thank -- or blame -- the Fed. In an effort to squash inflation, the Federal Reserve has hiked its target for short-term interest rates eight times since 2021. Its key fed funds rate is now 4.5 percent to 4.75 percent and expected to go higher after the Fed's Open Market Committee meeting later in March. Typically, savings rates follow the fed funds rate, and you'll find plenty of CD offers for 4 percent or more."
It comments, "Some major banks, however, aren’t sharing the love, at least not with all their products. One reason: Banks set their own rates according to how much they need money from deposits, which they lend out at a higher rate. Many of the larger banks are flush with cash and in no hurry to lure more at higher interest rates."
AARP says, "Because interest rates are expected to keep rising, you might not want to lock in current rates with a CD, particularly in a long-term one.... Instead, consider putting your money in a high-yielding bank money market account or a money market mutual fund operated by a brokerage or mutual fund company, where you can find yields of 4 percent or more. A bank money market account's rates are set by the bank, which may be more or less than current short-term rates, depending on the bank's need for funds."
They tell us, "A money market fund, however, invests in short-term investments, such as Treasury bills, and gives you the current market rates less a management fee, which averages about 0.3 percent, according to Crane. The current average money market fund yield is 4.39 percent. Crane data expects the average yield to rise as high as 5 percent after the next Fed rate hike. Money market funds are not federally insured like most bank deposits, but they have a good track record of safety."
AARP also writes, "Monitoring CD rollovers and moving money between banks can be a chore, which is a strong argument for money market funds, Crane says. 'The funds are charging 0.3 percent and doing all that for you -- and giving you check writing and a debit card,' he says."
They add, "Higher rates are welcome news for savers. 'Back in the 1990s and early 2000s, 5 percent was the norm, and that seemed like the psychologically magic number,' Crane says. 'You could live off 5 percent.' And while inflation will erode the value of any interest-bearing account, it does so for any investment. True, 6.4 percent inflation will do big damage to a CD yielding 5 percent. It does even worse to a stock mutual fund that's losing 15 percent. 'It hits the other 85 percent you have left,' Crane says."
In other news, Wells Fargo wrote in a recent "Daily Short Stuff" a brief entitled, "SIFMA: What goes up, must come down." Author Vanessa Hubbard McMichael explains, "The SIFMA Municipal Swap index, otherwise referred to as SIFMA, is a barometer for VRDNs in the tax-exempt market. It is a 7-day index made up of tax-exempt variable rate demand obligations within a prescribed set of parameters (for example, individual securities must have a weekly reset option, not be subject to AMT, and have the highest short-term ratings, to name a few)."
She states, "Outside of seasonal periods in the calendar year, SIFMA is usually not a particularly active discussion topic amongst fixed income investors. But recently we have highlighted the surge in the weekly SIFMA index to current cycle highs, which has been fueled not by Fed policy, but by dynamics with the flow of cash. Over the past two weeks, however, the index has reversed course and quickly retreated. This week, SIFMA richened 62 basis points versus last week's reset, falling to 2.80%."
Wells continues, "The week prior, this index has declined by 56 basis points, resulting in two consecutive weeks whereby it fell and an aggregated decline of 118 basis points. Over this same period, retail tax-exempt money market funds have experienced sizable inflows, with assets growing by over $5.0 billion each week. Moreover, this week, March 1 reflected a heavier period for both maturities and coupon payments. Both dynamics have aided in the retracement of the recent surge in the weekly SIFMA index."
They add, "Still, despite the quick surge in the SIFMA rate throughout February, its value did not reach 100% of any of the typical reference rates used (versus 1-Month LIBOR or overnight SOFR). The SIFMA/LIBOR and SIFMA/SOFR ratios reached 86% and 87% mid-February, respectively. During the March/April seasonal calendar period (reflecting flows in the market associated with U.S. tax season), it is common for the SIFMA index to reach or climb above 100%. Looking back at data from April 2018 through this week, there was only one year during which the SIFMA/SOFR ratio did not touch or climb above 100%."
Our Crane Tax Exempt Index currently yields 2.73% (as of 3/2/23), down 51 bps over the past week. The Tax-Exempt Index was at 2.89% on Feb. 28, 1.40% on Jan. 31, 3.15% on Dec. 30, 2022, and 1.48% on Nov. 30, 2022. Assets in Tax-Exempt MMFs totaled $121.5 billion on 3/2, $118.8B on Feb. 28, $119.4B on Jan. 31, $117.2B on Dec. 30, 2022 and $115.3B on Nov. 30, 2022, according to our Money Fund Intelligence Daily.
