Money fund yields moved higher over the past week as they continue to digest the Federal Reserve's latest 25 basis point rate increase (5/2). Our Crane 100 Money Fund Index (7-Day Yield) was up 13 bps to 4.84% in the week ended Friday, 5/12. Yields are up from 4.64% on April 30, 4.61% on March 31, 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. A number of the top-yielding money market funds now yield above the 5.0% level, and more should move above this level in coming days as they digest the remainder of the latest Fed hike. (Note: Register soon for our Money Fund Symposium show, which will take place June 21-23, 2023 in Atlanta, Ga!)

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.71%, up 12 bps in the week through Friday. Prime Inst MFs were up 13 bps at 4.94% in the latest week. Government Inst MFs rose by 11 bps to 4.83%. Treasury Inst MFs up 9 bps for the week at 4.64%. Treasury Retail MFs currently yield 4.42%, Government Retail MFs yield 4.52%, and Prime Retail MFs yield 4.78%, Tax-exempt MF 7-day yields were down 32 bps at 2.78%.

According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/12), just one money fund (out of 819 total) yields under 2.0%; 101 funds yield between 2.00% and 2.99% with $71.9 billion, or 1.3%; 50 funds yield between 3.00% and 3.99% ($73.9 billion, or 1.3%), 548 funds yield between 4.0% and 4.99% ($3.731 trillion, or 64.9%) and 119 funds now yield 5.0% or more ($1.872 trillion, or 32.6%). Over the past week, 88 funds have now officially surpassed the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow in coming weeks.

Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was up 3 bps to 0.59% after staying unchanged for the past 3 weeks. The latest Brokerage Sweep Intelligence, with data as of May 12, shows that there were three changes over the past week. Ameriprise Financial Services increased rates to 0.30% for all balances between $1K and $999K, to 0.50% for balances between $100K and $249K, to 0.65% for balances between $250K and $499K, to 0.85% for balances between $500K and $999K, to 1.88% for balances between $1 million and $4.9 million, and to 2.18% for all balances over $5 million.

Fidelity increased rates to 2.57% for all balances between $1k and over $5 million. And lastly, RW Baird increased rates to 1.92% for all balances between $1K and $999K, to 2.98% for balances between $1 million and $1.9 million, and to 3.85% for all balances of $5 million or more. 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, Fitch Ratings recently posted the release, "Market Turmoil Boosts Flow Volatility of Bank Deposits, Money Fund Assets." They write, "While recent bank failures, rising rates and a weakening economy have created considerable headwinds for U.S. banks, asset quality, regulatory capital, funding and liquidity levels should allow them to withstand near-term challenges, Fitch Ratings says. U.S. money market funds (MMFs), have benefitted from corresponding inflows, although the looming Treasury debt ceiling and the impacts of bank-sector stresses on underlying fund investments are headwinds for Treasury/Government and prime MMFs, respectively. Nevertheless, the potential impacts for MMFs are viewed as within ratings expectations."

Fitch explains, "For U.S. banks, funding and liquidity remain key focuses, as do the second-order effects on profitability, credit, and capital. Further rating actions, if any, are likely to be institution-specific and not broad-based. We expect weaker U.S. bank financial performance in 2023, in line with our U.S. banks' sector outlook revision to 'Deteriorating' from 'Neutral' in November 2022. In December 2022, the global MMF 2023 outlook was revised to 'Deteriorating' driven in part by the bank sector outlook, as well as regulatory headwinds facing MMFs."

They comment, "MMFs, along with several large U.S. banks, have benefitted from outflows from banks experiencing heightened deposit attrition. However, the long-term 'stickiness' of those monies remains unclear. Deposit outflows for the most acutely affected banks have stabilized since late March. Deposits at U.S. commercial banks year-to-date through April 26 are down 3%, or $494 billion, to $16 trillion, with outflows led by small banks."

Fitch says, "Challenges faced by banks include elevated uninsured depositor sensitivity, deposit mix shifts between interest- and non-interest-bearing deposits and toward higher-cost wholesale funding, higher deposit betas, tightening underwriting standards' impact on loan growth and credit losses, and the regulatory response to recent events. As anticipated, rising rates and lagging deposit betas accelerated the migration of non-interest-bearing deposits into MMFs and other higher-yielding options such as short-duration bond funds, interest-bearing deposits and CDs."

They adds, "Potential liquidity and redemption risks are heightened for Treasury-only MMFs in light of the U.S. debt ceiling, particularly around the 'X-date.' As we have previously stated, we believe the debt limit will be raised or suspended to avoid a default. A default by the U.S. Treasury could pose liquidity and headline risks and ratings pressure for U.S. Treasury-only MMFs but would not necessarily result in downgrades, with considerations including the size of any exposure to impacted securities and alternative sources of fund liquidity. Government MMFs are exposed to similar risk, but to a lesser degree given the ability to diversify away from direct U.S. Treasury obligations. As the X-date approaches, the importance of portfolio and liquidity management becomes paramount, though hard to manage around the moving target."

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