MarketWatch on 'Super Surge' in MMFs
MarketWatch writes that, "The 'super surge' of money market funds is on with yields over 4.6% luring savers. Here's what you need to know." Author Eleanor Laise tells us, "Last month's bank failures, combined with a healthy yield advantage over bank deposit accounts, has prompted a 'super surge' of assets into money market mutual funds, according to research firm Crane Data. Money market funds, which invest in very short-term, high-quality debt, in March enjoyed their third-best month of inflows ever, according to Crane, as investors spooked by the banking turmoil poured about $345 billion into these funds. While the 25 largest U.S. commercial banks saw deposits climb $18 billion in March, smaller banks' deposits dropped $212 billion, according to Federal Reserve data. The 100 largest taxable money funds tracked by Crane yield more than 4.6% on average, while the average rate on savings accounts nationwide is 0.37%, according to DepositAccounts.com, a unit of LendingTree. The flood of cash into money market funds, which now have a record of more than $5.6 trillion in assets, is a major break from the typical pattern at this time of year, when investors tend to pull cash from money funds to make tax payments. Traditionally, 'March and April are the two weakest months of the year' for money funds, said Peter Crane, president of Crane Data. 'This is far from normal.'" The article explains, "For savers looking to reap the rewards of the Federal Reserve’s recent interest-rate increases, money market funds have some clear advantages. A recent report from the Federal Reserve Bank of New York illustrates the point. Since March of last year, money fund yields have climbed 4.13 percentage points, or 97% of the increase in the effective federal-funds rate over that period, while the average rate on banks' three-month certificates of deposit offered to retail customers climbed just 0.32 percentage point, or 8% of the effective federal-funds rate increase, the New York Fed found. Money market funds also offer daily liquidity, allowing savers easy access to their cash." The piece adds, "While money market fund yields generally follow the Fed, tax-exempt money market funds march to a different drummer. Yields on these funds, which hold short-term municipal securities, tend to fluctuate with an index of floating-rate muni instruments and are generally more volatile than taxable money market fund yields.... The Congressional standoff over raising the federal government's debt limit, meanwhile, has raised concerns about money market funds focused on U.S. Treasury securities."
