Forbes recently published, "The Great Yield Chase: Why A Trillion Has Fled Traditional Bank Accounts," which is subtitled, "Rising interest rates and a trio of regional bank failures have turbocharged the movement of cash into higher yielding alternatives -- particularly money market mutual funds. Here's how to bump up your own yield." The piece says, "The movement of funds out of traditional bank accounts started slowly at first in the spring of 2022, after the Federal Reserve belatedly began its battle against pandemic-era inflation by raising interest rates. It accelerated dramatically this past March, when Silicon Valley Bank became the first of three large regional banks to fail this year. In all, over the past 13 months, a staggering $1 trillion in deposits has left the commercial banking system."
It continues, "No, despite the lightning speed bank run that toppled SVB, depositors haven't been panicking en masse. They aren't pulling money out of the banking system to stuff into their mattresses -- U.S. commercial banks still hold $17.15 trillion in deposits. Instead, bank customers have awakened to the fact that without much extra effort or risk, they can be earning 3% or 4% or even 5% in interest a year on cash they have left sitting in traditional bank checking and savings accounts earning little or nothing.... Margaret Wright [of] Truist Wealth in Atlanta [comments], 'We've all been so yield starved.... All of a sudden you see these percentages and people are excited.'"
Forbes explains, "All but 0.25% of that 5% percentage point increase came before the failure of Silicon Valley Bank this past March 10th. Yet the riveting drama -- complete with a Twitter fed bank run -- focused public attention on the reality that money can be moved quickly and easily, and that bank deposits that exceed the $250,000 guaranteed by the Federal Deposit Insurance Corp. aren't necessarily risk free."
They summarize, "The big winner from that wake up call? Money market mutual funds. During six weeks after the SVB failure, Moody's reports, commercial bank deposits decreased $399 billion, while money market fund assets increased $342 billion. 'You really saw dramatic change after the bank failures started and people, both retail and institutional, turned smartly back to money market fund products,' Neal Epstein, a senior credit officer at Moody's, says. 'It's a combination of safety and yield.'"
The piece adds, "According to the FDIC, as of mid-April, banks were paying an average annual interest rate of 0.06% on interest checking (many checking accounts don't pay interest at all); 0.39% on traditional savings accounts; and 0.57% on money market savings accounts. By contrast, the 100 largest money market mutual funds now pay an average of 4.83% according to Crane Data."
Forbes also recently wrote, "What A Debt Ceiling Crisis Could Mean For Money Market Funds," which asks, "Are your money market funds about to get steamrolled if Congress fumbles the debt ceiling and the U.S. Treasury defaults on its debt? In the bleakest scenario, some money market mutual funds could 'break the buck.' That's when a fund's price per share -- or its so-called net asset value (NAV) -- slides below $1. If that came to pass, panicked shareholders might yank out their money, forcing the funds to unload depressed assets at a loss."
In related news, J.P. Morgan Securities' new "Mid-Week US Short Duration Update" contains a "T-bill holders update." They write, "The primary holders of T-bills continue to evolve. MMFs significantly reduced their T-bill holdings during the first three months of 2023, comprising just 11% of the market at March-end, significantly below their year-end level of 16%.... Since the onset of the banking turmoil, depositors migrated nearly $400bn to MMFs during March, with government funds devoting a larger portion of that cash towards repo (including RRP) and agency debt."
The brief continues, "Interestingly, T-bill outstandings increased by 10%, or $371bn, during 1Q23, with the largest buyers possibly being corporates, SMAs and other similar accounts. Indeed, as of March-end, we estimate buyers that do not have access to the Fed's balance sheet held a staggering 70% of T-bills, while those that do have access only held 30% of total outstandings."
It states, "The Fed's ON RRP clearly continues to be utilized by MMFs, as evident in the current $2.2tn balance at the facility. In the near term, we suspect RRP usage will likely stay elevated, particularly as debt ceiling concerns remain forefront. With that said, our Treasury strategists are forecasting an X-date (when Treasury will likely exhaust all available resources) of June 7, with risks being skewed towards an even earlier date.... We suspect investors without access to the RRP facility will continue to tread carefully in the T-bill market and will likely extend maturities beyond the X-date. Meanwhile, some investors that might not be subject to the same headline risk as MMFs could continue to remain buyers of T-bills."
JPM adds, "Once a debt ceiling resolution is passed, our Treasury strategists foresee additional T-bill supply, bringing the CY23 net issuance total to $1,438bn.... The additional T-bill supply following a debt ceiling resolution will undoubtedly be welcomed by MMFs, and will likely help drain balances from the RRP facility and possibly bring MMFs' market share higher than their March-end levels."
Crane Data's latest Money Fund Portfolio Holdings data show money market funds with $998 billion in Treasury securities as of April 30, 2023 (out of a total of $5.595 trillion in taxable MMFs, or 17.8%). Of the $998 billion, 27.9% matures overnight, 13.3% matures in 2-7 days, 40.9% matures in 8-30 days, 11.72% matures in 31-60 days, 1.99% matures in 61-90 days and 4.17% matures in over 90 days. Our April 30 data shows just $12.25 billion of Treasuries maturing on June 1, $26.73 billion maturing on June 6, $8.58 billion maturing on June 8, $11.38 billion maturing on June 13, $9.47 billion maturing on June 15, $11.59 billion maturing on June 20, $4.85 billion maturing on June 22, $19.77 billion maturing on June 27, $6.10 billion maturing on June 29 and $368.6 million maturing on June 30.
