Money fund yields were slightly higher last week as they began digesting the Fed's March 22nd 25 basis point rate hike; yields should surge higher this week as the Fed move works its way through funds' 7-day yields. Our Crane 100 Money Fund Index (7-Day Yield) was up 7 bps at 4.49% in the week ended Friday, 3/24. Yields are up from 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. The top-yielding money market funds continue to rise towards 5% with one fund officially passing the 5% mark. (Note: Thanks again to those who attended our Bond Fund Symposium last week (3/23-24) in Boston! Attendees and subscribers may access the conference binder, Powerpoints and recordings via our "Bond Fund Symposium 2023 Download Center.")
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 687), shows a 7-day yield of 4.38%, up 7 bps in the week through Friday. Prime Inst MFs were up 8 bps at 4.59% in the latest week. Government Inst MFs rose by 8 bps to 4.46%. Treasury Inst MFs up 5 bps for the week at 4.40%. Treasury Retail MFs currently yield 4.16%, Government Retail MFs yield 4.16%, and Prime Retail MFs yield 4.42%, Tax-exempt MF 7-day yields were up at 3.13%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (3/24), zero money funds (out of 823 total) yield under 2.0%; just 49 funds yield between 2.00% and 2.99% with $16.4 billion, or 0.3%; 152 funds yield between 3.00% and 3.99% ($156.8 billion, or 2.8%), and 622 funds yield 4.0% or more ($5.349 trillion, or 96.9%). One fund has now officially surpassed the 5.0% mark (though it's private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow later this week.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was up 1 bp at 0.55% after remaining unchanged the week prior. The latest Brokerage Sweep Intelligence, with data as of March 24, shows that there was one change over the past week. Fidelity increased rates to 2.47% for all balances between $1k 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 Boston Globe writes that, "Fidelity's money market funds are killing it." Columnist Larry Edelman explains, "Investors have a crush on money market mutual funds -- and that must be warming the heart of Fidelity Investments, the biggest player in the $5.5 trillion industry. In the past six months, investors big and small poured more than $500 billion into money market funds, according to industry-tracker Crane Data. The overwhelming majority of that cash went into a type of money fund that holds very safe short-term government debt and related securities, the Westborough firm's data show."
He comments, "Individual investors cozied up to the government money market funds starting last year as the Federal Reserve's aggressive interest rate increases pushed their yields higher, said Crane Data chief executive officer Peter Crane. Retail government money market funds returned an annualized 4.2 percent last week, up from a measly 0.2 percent before the central bank started boosting rates, he said. But institutional investors were shocked into action on March 10 by the twin failures of Silicon Valley Bank and Signature Bank. Over the next nine days, businesses, investment firms, and other organizations put $228 billion into institutional government money market funds, more than they had all year before the bank blowups."
The Globe piece continues, "Fidelity, the Boston-based financial services giant, has been the biggest beneficiary of investors' renewed affection for money funds, which are structured much like stock or bond mutual funds and function like interest-paying bank accounts with one big exception: they aren't insured by the Federal Deposit Insurance Corp. Customers have added $153 billion to its money market funds since September, bringing its total money fund assets to $1.1 trillion, more than double that of its nearest rival, BlackRock."
It tells us, "As retail investors chase yields, the move into money market funds by big investors is driven largely by fear. Bank accounts are insured up to $250,000 by the FDIC, but many institutions have much more than that stashed in banks. When Silicon Valley Bank went under, streaming company Roku had $487 million, or 26 percent, of its $1.9 billion in cash in the bank. While government money market funds aren't insured, their holdings are considered super-safe: cash, US Treasuries and related debt and securities issued or guaranteed by the US government or its agencies."
The Globe adds, "According to the Fed, commercial bank deposits have fallen by $418 billion since September to $17.9 trillion as of March 15. About half of all bank deposits are uninsured.... Let's note two important differences from 2008: Reserve Primary was a prime fund, meaning that it was allowed to hold corporate debt, which is more risky than government securities. And in response to Reserve Primary's breaking the buck -- its net assets value fell to 97 cents on losses from Lehman's commercial paper -- regulators imposed new rules on money funds, including an increase in the amount of cash and easily sellable assets they must keep on their books. In other words, that was then, this is now. And no one knows that better than Fidelity.
Finally, Barron's mentions money market funds again in "It's Time to Hedge Your Bets. How to Find the Right Mix of Cash and Bonds <i:https://www.barrons.com/articles/cash-bond-mix-portfolio-income-investing-4d9c5538>." They state, "The bond market has been very volatile lately, and cash has become an increasingly attractive option for income investors.... 'It just so happens that right now, the lowest-risk, most-liquid part of [fixed income] happens to be the highest-yielding, which is cash,' says Gary Zimmerman, CEO of MaxMyInterest."
They write, "The Crane 100 Money Fund Index's yield is at 4.42%. That's expected to go higher, owing to the Federal Reserve's 25-basis-point increase of short-term rates on Wednesday. (A basis point is 1/100th of a percentage point.) Peter Crane, president of Crane Data, which tracks money-market funds, says, 'Uninsured deposits are the most likely culprit' for the big inflows into these funds lately. Over the first 20 days of March, the funds' assets grew by $193 billion, to a record of $5.4 trillion, he adds." (See also, "Charles Schwab Stock Got Hit in the Bank Mess. Be Careful.")
