Daily Links Archives: August, 2019
Bloomberg Says Outflows from BIL
Bloomberg writes, "Ultra-Short Treasury Fund Sees Record Exodus as Trade Fears Ease." The article says, "The latest hints of a more-conciliatory tone in the U.S.-China trade war spurred massive outflows from an exchange-traded fund used to park cash." It adds, "The $9.1 billion SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, known as BIL, saw record outflows of about $568 million on Monday, according to data compiled by Bloomberg. The fund is seen as a popular strategy for times of trouble because it tracks the safety of short-term U.S. government debt. When appetite for risk returns, traders usually cut back on their exposure to the ETF."
Bond Fund Flows Get Volatile
Bond mutual fund and bond ETF flows have zigzagged over the past 3 weeks, following a long string of strong gains. ICI's latest "Combined Estimated Long-Term Fund Flows and ETF Net Issuance" says, "Total estimated outflows from long-term mutual funds and exchange-traded funds (ETFs) were $10.18 billion for the week ended August 21, 2019, the Investment Company Institute reported today. Estimated mutual fund outflows were $6.49 billion while estimated net issuance for ETFs was $3.69 billion. Reports of long-term flow estimates and ETF net issuance are available on the ICI website." The release explains, "Bond funds had estimated outflows of $3.95 billion for the week, compared to estimated outflows of $10.04 billion during the previous week. Taxable bond funds saw estimated outflows of $1.88 billion, and municipal bond funds had estimated inflows of $2.07 billion." The week prior to these saw combined bond fund and bond ETF flows down $2.6 billion. Crane Data, which continues to "beta" test a Bond Fund Intelligence Daily product, shows that bond fund and bond ETF assets increased by $8.6 billion over the week ended August 27. (Let us know if you'd like to see a copy of our new product, which tracks daily assets, yields and NAVs on a subset of the bond fund and ETF universe.)
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of August 23) includes Holdings information from 91 money funds (up from 77 last week), representing $1.957 trillion (up from $1.701 trillion last week) of the $3.504 trillion (55.9%) in total money fund assets tracked by Crane Data. Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $800.8 billion (up from $707.9 billion last week), or 40.9%, Treasury debt totaling $560.5 billion (up from $501.7 billion) or 28.6%, and Government Agency securities totaling $303.7 billion (up from $271.9 billion), or 15.5%. Commercial Paper (CP) totaled $100.0 billion (up from $76.2 billion), or 5.1%, and Certificates of Deposit (CDs) totaled $92.9 billion (up from $79.8 billion), or 4.7%. A total of $58.1 billion or 3.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $41.0 billion, or 2.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $560.5 billion (28.6% of total holdings), Federal Home Loan Bank with $206.1B (10.5%), Fixed Income Clearing Co with $147.7B (7.5%), BNP Paribas with $84.8 billion (4.3%), RBC with $57.5B (2.9%), Federal Farm Credit Bank with $55.5B (2.8%), JP Morgan with $46.9B (2.4%), Wells Fargo with $42.0B (2.1%), Barclays PLC with $40.5B (2.1%) and Societe Generale with $38.5B (2.0%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($147.0B), Fidelity Inv MM: Govt Port ($129.8B), Goldman Sachs FS Govt ($110.5B), BlackRock Lq FedFund ($101.6B), Federated Govt Oblg ($93.5B), Wells Fargo Govt MMkt ($81.1B), BlackRock Lq T-Fund ($79.5B), Fidelity Inv MM: MMKt Port ($66.7B), JP Morgan 100% US Trs MMkt ($64.3B) and Goldman Sachs FS Trs Instruments ($61.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Brokerage Sweep Rates Inch Down
Brokerage sweep and money fund yields inched lower in the latest week, though they were mostly flat. This follows several weeks of big moves -- Fidelity's brokerage sweep rate jumped from 0.79% to 1.07% two weeks ago -- while a number of brokerages cut their rates. (See our August 8, 9 and 12 Links of the Day, "Fidelity Now Sweeps to Money Fund," "WSJ on Fidelity: Cash's Sweeping Giant" and Barron's Clarifies Fidelity Sweep Push.") Money market mutual fund yields, which fell below 2.00% for the first time in a year. Our Crane 100 Money Fund Index had been 2.18% at the end of June, but feel below 2.00% on August 9 and is now at 1.95%, while our broader Crane Money Fund Average has inched down to 1.82%. (It fell below 2.00% just prior to the Fed cut on July 25.) Our latest weekly Brokerage Sweep Intelligence publication shows that two brokerages out of 11 cut just some of their sweep rates in the latest week. (two cut rates last week.) Ameriprise and Morgan Stanley both lowered rates on selected tiers in the past week. Ameriprise cut rates on $100K to under $250K balances from 0.20% to 0.15% and on the $500K to under $1 million tier from 0.35% to 0.30%. Morgan Stanley cut rates on their $500K to under $1 million tier from 0.35% to 0.10%. Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "sweep" rates, is currently showing a rate of 0.26% for balances of $100K to under $250K, the same as the previous week. The average FDIC sweep rate is now 0.25% for balances under $100K, 0.31% for balances under of $250K to under $500K, 0.35% for balances of $500K to under $1 million, 0.54% for balances of $1 million to under $5 million and 0.65% for balances over $5 million. Fidelity is by far the highest FDIC-insured sweep rates among the $100K balance tier, with a yield of 1.07% as of August 23. (Note: This is comparing the FDIC sweeps; Fidelity also has an even higher yielding money fund sweep for new accounts.) RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.57% on its $100K tier. Raymond James rank third with rates of 0.25% at the $100K tier, followed by Schwab , with a 0.18% rate. Wells Fargo was fifth, yielding 0.17% on balances of $100K, with Ameriprise and UBS in sixth yielding 0.15%. Morgan Stanley offers 0.10%, while E*Trade follows with 0.08%. Ameritrade pays 0.07% and Merrill ranks last with a rate of just 0.05%. (Contact us if you'd like to see our latest Brokerage Sweep Intelligence product.)
10 Years Ago: Money Fund Symposium
Ten years ago, Crane Data entered the conference business with our first Money Fund Symposium in Providence, Rhode Island. Back then, we wrote the update, "MMF Pros Arrive in Providence for Crane's Money Fund Symposium." The August 24, 2019 story tells us, "Approximately 150 money market mutual fund managers, marketers, suppliers, servicers, investors, and regulators descended on Providence, Rhode Island this weekend for the inaugural Crane's Money Fund Symposium at the Renaissance Hotel, which began Sunday afternoon. Speakers, sponsors and attendees will undoubtedly spend much of their time discussing the SEC's Money Market Fund Reform proposals, as well as a host of challenges, including ultra-low interest rates, potential consolidation, and competition from bank and other fixed-income products. But while participants have concerns, money fund managers will also just be happy to be there, still very much alive at $3.6 trillion in assets, following what was no doubt their most traumatic year in history. "Best of Times, Worst of Times" was an understatement for money funds in 2008." The piece adds, "Sunday's kickoff featured 'Welcome to Money Fund Symposium' comments from host Peter Crane, then a series of sessions, including: 'Washington & Money Market Funds' with Federated Investors' Eugene Maloney." (See our July 24, 2019 Link of the Day, "Federated's Gene Maloney Passes.") We'd like to thank our speakers, sponsors and attendees for their support of our events this past decade, and remind you below about our latest schedule of events. Our next event is the upcoming European Money Fund Symposium, which will take place Sept. 23-24 in Dublin, Ireland. We're also starting to prepare for our next "basic training" event, Money Fund University., which will take place at the Renaissance Providence Downtown Hotel in Providence, R.I., January 23-24, 2020. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. The affordable educational conference (see the agenda here or e-mail us to request our brochure) features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. Money Fund University offers attendees a 2-day course on money market mutual funds, educating attendees on the history of money funds, the Fed, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper, CDs, CP, ABC, repo, plus portfolio construction. At our Providence event, we will again feature a segment on ultra-short bond funds, and we'll also host a tutorial on Crane Data's money fund statistics and products (free for anyone who wants to "crash"). Crane Data will also soon be preparing the preliminary agendas for its next Bond Fund Symposium (March 23-24, 2020, at the Hyatt Regency Boston), and our "big show," Money Fund Symposium, which will be held June 24-26, 2020, at the Hyatt Regency Minneapolis. Let us know if you'd like to speak or sponsor, and let us know if you'd like to see us add any future events! (We're currently thinking about Money Fund Symposium Asia, but don't expect this to launch until 2021 at the earliest.)
Crane Adds $195 Billion to MFI Daily
Subscribers to Crane Data's Money Fund Intelligence Daily product may notice a huge jump in money fund assets this morning. Please note that the vast majority of the gains are due to the addition of $195 billion in previously untracked funds. The majority of the increase is due to the addition of one fund, the $111 billion American Funds Central Cash Fund. (See our Nov. 16, 2018 News, "American Funds Files for Internal Money Fund, Capital Group Central Cash.") The latest MFI Daily file, with data as of Thursday, August 22, contains 24 new funds with assets totaling $194.5 billion. So there was not a massive jump in MMF assets yesterday. Over the past several years, following October 2016 when the SEC began disclosing money fund information via its "Form N-MFP" data set in a timely manner, we've added batches of money funds that we hadn't previously tracked to our collections. A number of these funds are internal or private funds, but they are all "2a-7" money market funds. It's been over a year since we added a major batch of new funds, but we wanted to get our last large block added and over with. Note also that these funds are all already included in our monthly MFI XLS product. We apologize for the disruption in the asset series and any inconvenience this may cause, and we list the largest of these new funds below. Funds added to MFI Daily this morning include: American Funds Central Cash M (CMQXX with $110.9 billion), PGIM Inst Money Market Fund (PRU01, $18.4B), T Rowe Price Govt Reserve Fund (TRP01, $16.2B), Northern Trust AM Treas Assets Fund (NOR01, $8.0B), TIAA CREF Money Market Account R3 (TIA01, $5.1B), UBS Limited Purpose Cash Inv Fund (UBS03, $5.0B), T Rowe Price Treas Reserve Fund (TRP02, $4.2B), JPMorgan Sec Lending MM Agency SL (VSLXX, $3.5B), Principal Government MM Inst (PGVXX, $3.4B), TIAA CREF Money Market Account R2 (TIA02, $2.9B) and Fidelity VIP Govt Money Market Initial (FID07, $2.3B). Note once again that this only impacts our MFI Daily; our MFI, MFI XLS and MF Portfolio Holdings data collections already include these funds. For more on the addition of funds to our collections and "internal" money market funds, see our July 17, 2018 Link of the Day, "More Funds Added to MFI Daily," and our Jan. 5, 2017 News, "Internal and Private Money Funds Revealed.")
MFU 2020 Heading To Providence
While we're busy making preparations for next month's European Money Fund Symposium, which is Sept. 23-24 in Dublin, Ireland, we're also starting to prepare for our next "basic training" event, Money Fund University. Mark your calendars for Crane Data's 10th annual MFU, which will take place at the Renaissance Providence Downtown Hotel in Providence, R.I., January 23-24, 2020. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. The affordable educational conference (see the agenda here or e-mail us to request our brochure) features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. Money Fund University offers attendees a 2-day course on money market mutual funds, educating attendees on the history of money funds, the Fed, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper, CDs, CP, ABC, repo, plus portfolio construction. At our Providence event, we will again feature a segment on ultra-short bond funds, and we'll also host a tutorial on Crane Data's money fund statistics and products (free for anyone who wants to "crash"). New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing will benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities are $3K, $4K, and $5K. A block of rooms has been reserved at the Renaissance Providence Downtown Hotel. We'd like to thank our MFU sponsors –- Dreyfus/BNY Mellon CIS, Federated Investors, Fidelity Investments, Fitch Ratings, J.P. Morgan Asset Management, TD Securities, S&P Global, and Dechert -- for their support, and we hope to see you in Providence in January. E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details. Finally, Crane Data will soon be preparing the preliminary agendas for its next Bond Fund Symposium (March 23-24, 2020, at the Hyatt Regency Boston), and our "big show," Money Fund Symposium, which will be held June 24-26, 2020, at the Hyatt Regency Minneapolis. Let us know if you'd like to speak or sponsor!
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of August 16) includes Holdings information from 77 money funds (up from 76 two weeks ago), representing $1.701 trillion (up from $1.611 trillion 2 weeks ago) of the $3.402 trillion (50.0%) in total money fund assets tracked by Crane Data. Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $707.9 billion (up from $690.8 billion 2 weeks ago), or 41.6%, Treasury debt totaling $501.7 billion (up from $476.0 billion) or 29.5%, and Government Agency securities totaling $271.9 billion (up from $267.9 billion), or 16.0%. Commercial Paper (CP) totaled $76.2 billion (up from $62.2 billion), or 4.5%, and Certificates of Deposit (CDs) totaled $79.8 billion (up from $57.4 billion), or 4.7%. A total of $32.1 billion or 1.9%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $31.7 billion, or 1.9%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $501.7 billion (29.5% of total holdings), Federal Home Loan Bank with $184.1B (10.8%), Fixed Income Clearing Co with $140.1B (8.2%), BNP Paribas with $74.6 billion (4.4%), RBC with $53.0B (3.1%), Federal Farm Credit Bank with $49.5B (2.9%), Societe Generale with $36.2B (2.1%), Credit Agricole with $34.9B (2.1%), JP Morgan with $34.1B (2.0%) and Barclays PLC with $33.5B (2.0%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($147.0B), Fidelity Inv MM: Govt Port ($131.2B), Goldman Sachs FS Govt ($107.4B), BlackRock Lq FedFund ($101.6B), Wells Fargo Govt MMkt ($79.4B), BlackRock Lq T-Fund ($77.8B), Goldman Sachs FS Trs Instruments ($66.2B), Fidelity Inv MM: MMKt Port ($65.2B), JP Morgan 100% US Trs MMkt ($64.8B) and Morgan Stanley Inst Liq Govt ($60.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
IBD on Brokerage Sweep Accounts
Yesterday, Investor's Business Daily wrote, "Which Brokerage Default Sweep Account Pays The Best Yield?" The article tells us, "Fidelity Investments made a big splash the past week by touting seven-day yields on its so-called cash sweep accounts, which the Boston-based firm ballyhooed were up to 10 to 47 times higher than various marquee name rivals. Neither the Fidelity accounts nor the yields were new. But Fidelity found many investors are unaware big differences exist among yields on default sweep accounts at various brokerages. Default sweep accounts are where your cash automatically goes to, unless you ask for a different option. The best sweep account rates chosen by brokerages by default as of Aug. 9 topped 2%, while some brokerages offered as little as 0.01%, according to Crane Data." They add, "And Fidelity has hammered at the fact some rival firms are defaulting customers into lower yielding accounts. Sure, you can get one of those firms' higher yielding alternative accounts -- but you've got to ask for it by phone or via clicks of your mouse." The piece quotes Kathleen Murphy, President of Fidelity's personal investing business, "I would not characterize (the information that Fidelity is making public) as a campaign. It's a way of doing business. We want to make sure investors better understand what industry practices are and the fact that they should get more money for their cash." IBD also quotes Peter Crane, President of Crane Data, "Brokerages have made a living picking up pennies that savers are too lazy to pick up for themselves." Also, the Wall Street Journal and Barron's.com write, "E*Trade CEO Resigns as Online Brokerages Fight for Revenue." It says, "Online brokers are fighting to keep revenue afloat amid multiple downward pressures. Trading revenue is under siege from intensifying price competition. And brokerages are contending with lower interest rates that reduce their net interest margins on assets and lending -- a major source of profit.... Fidelity Investments, meanwhile, is highlighting its relatively high yields on cash sweep accounts, ramping up the pressure on Charles Schwab (SCHW) and other discount brokers." For more, see our Aug. 19 News, "Cash Stories: Barron's Explains Brokerage Sweeps; Bloomberg on Assets;" our Aug. 13 News, "Cash of the Titans: Schwab vs. Fidelity; MF Yields Dip Below 2.0 Percent;" and our latest Brokerage Sweep Intelligence publication (ask for a sample).
Wells MMF (WMPXX) to Waive Fees
A Prospectus Supplement for Wells Fargo Money Market Fund tells us, "Effective August 15, 2019, Wells Fargo Funds Management, LLC, the investment manager to the Fund, has implemented a temporary voluntary fee waiver of 0.07% for the Fund's Premier Class shares. This voluntary fee waiver is in addition to the Fund's current contractual fee waiver, which caps Premier Class expenses at 0.20% through May 31, 2020. A description of the Fund's current contractual fee waiver may be found in footnote 1 to the Fund's Annual Fund Operating Expenses table in the section entitled 'Money Market Fund Summary.' This additional voluntary fee waiver may be discontinued by Funds Management at any time without notice; however, Funds Management currently anticipates maintaining the waiver for a minimum period of six months from the effective date. Please note that the removal of the voluntary waiver will lead to increased expenses which will impact the Fund's yield." Currently, the Wells Fargo Money Market Fund Premium (WMPXX) holds $526 million in assets, is charging 0.20% in expenses and is yielding 2.19% (as of August 15). In other news, last week the Wall Street Journal wrote, "Rising Repo Rates Fuel Concern Over Mounting U.S. Debt." They explained, "The cost to borrow cash overnight using Treasurys as collateral is fueling concern among investors that bond dealers could become inundated with U.S. debt as the government funds widening budget deficits. The rate that lenders have charged for cash in the market for Treasury repurchase agreements was 2.22% on Tuesday, compared with the 2.1% that the Federal Reserve pays banks to hold excess reserves.... The elevated repo rate is a sign of the cost of bigger budget deficits, even as yields on 10- and 30-year Treasurys are near lows."
ICI: Money Fund Assets Push Higher
Money fund assets rose for the second week in a row and the 16th week out of the past 17 weeks, reaching their highest level since October 2009. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $311.4 billion, or 10.2%, since April 17, and they've increased by $307 billion, or 10.1%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $494 billion, or 17.3%, with Retail MMFs rising by $222 billion (21.3%) and Inst MMFs rising by $272 billion (15.0%). ICI writes, "Total money market fund assets increased by $18.02 billion to $3.35 trillion for the week ended Wednesday, August 14, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $18.49 billion and prime funds were unchanged. Tax-exempt money market funds decreased by $460 million." ICI's weekly series shows Institutional MMFs rising $18.27 billion and Retail MMFs decreasing $0.25 billion. Total Government MMF assets, including Treasury funds, stood at $2.512 trillion (74.9% of all money funds), while Total Prime MMFs were $707.1 billion (19.9%). Tax Exempt MMFs totaled $135.5 billion, 4.0%. They explain, "Assets of retail money market funds decreased by $251 million to $1.27 trillion. Among retail funds, government money market fund assets increased by $782 million to $722.24 billion, prime money market fund assets decreased by $647 million to $419.85 billion, and tax-exempt fund assets decreased by $386 million to $124.72 billion." Retail assets account for over a third of total assets, or 37.8%, and Government Retail assets make up 57.0% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $18.27 billion to $2.09 trillion. Among institutional funds, government money market fund assets increased by $17.70 billion to $1.79 trillion, prime money market fund assets increased by $0.64 billion to $287.29 billion, and tax-exempt fund assets decreased by $0.07 billion to $10.74 billion." Institutional assets accounted for 62.2% of all MMF assets, with Government Institutional assets making up 85.7% of all Institutional MMF totals.
AP Says Party Ending for Savers
The Houston Chronicle's website published the Associated Press article, "On the Money: Fed's rate cuts strike savers' pocketbooks." Writer Ken Sweet explains, "Just when bank customers were finally getting something reasonable for their hard-earned savings, the party is coming to an end. After several years of increasing the meager interest they paid on savings accounts and certificates of deposit, banks are starting to trim their offerings to savers. The declines are slight, usually less than 0.25 of a percentage point, but the trend is certain to continue for at least the next six months to a year, experts say. Blame the Federal Reserve, which cut interest rates in July and is widely expected to cut them again this year to help insulate the economy from the Trump administration's trade disruptions and to support the stock market." The article continues, "Some banks didn't wait for the Fed to cut rates. Earlier this summer Goldman Sachs cut Marcus' online savings rate to 2.15% from 2.25%, while competitor Ally cut its rate from 2.2% to 2.1%. The average online-only bank now offers an interest rate of around 1.68%. After the Great Recession, savers looking to safely store their cash and make a modest return had few, mostly terrible options.... But as the economy recovered, however, and the Fed steadily raised interest rates from near-zero to 2.50% at its highest level, banks started offering more to savers."
Fidelity Quarterly MM Commentary
Fidelity Investment's latest "Quarterly Money Market Commentary" discusses the recent Fed cut and talks briefly about money funds. Authors Kerry Pope and Chris Lewis write, "Amid mounting economic uncertainty, money market funds continue to see strong inflows, with total assets under management of more than $3.2 trillion as of July 31.... Assets have grown by $201.6 billion year to date. On the retail side, assets have risen as investors continue to see value in money market fund yields compared to rates on bank deposits. On the institutional side, increased mergers and acquisitions (M&A) activity and the repatriation of cash are driving asset growth." They add, "Repurchase agreements (repos) sponsored by the Fixed Income Clearing Corporation (FICC) have grown significantly as banks have sought more balance sheet-friendly repo funding. The FICC is a registered clearinghouse for repos, a type of short-term borrowing that allows banks and broker-dealers to fund their government securities more efficiently by netting their borrowing and lending in the repo conducted on the FICC platform. FICC-sponsored repos have more than doubled in the first half of 2019. The program's strong growth has created new efficiencies for money market funds and broker-dealers who invest in and fund government securities through repos." The commentary continues, "Many money market portfolios (including those of Fidelity) have been incorporating SOFR-linked securities into their portfolios, with a total of $153 billion in SOFR-based securities issued as of the end of July. Since SOFR is based on an overnight repo rate, it has shown some volatility at quarter- and year-end, when many banks and broker-dealers scale back their activity in the repo market.... However, New York Fed president and CEO John Williams in a speech recently suggested that institutions not delay converting to SOFR just because it is an overnight rate. Significant progress has been made in the transition, he said, although institutions must reconsider LIBOR-linked products and review fallback language carefully." The piece concludes, "Investment firms like Fidelity with deep resources and research capabilities are well-positioned to navigate changing interest rate environments, through a full market cycle. Fidelity has the breadth and expertise to identify risks and opportunities amid shifting market and regulatory dynamics to provide the stability and insight that investors are seeking."
Fitch Gives SSGA ESG Fund AAAmmf
A press release entitled, "Fitch Assigns New Rating to State Street ESG Liquid Reserves Fund," tells us, "Fitch Ratings has assigned a 'AAAmmf' rating to State Street ESG Liquid Reserves Fund.... The main drivers of the rating are: The fund's overall credit quality and diversification; low exposure to interest rate and spread risk; holdings of daily and weekly liquid assets consistent with shareholder profile and concentration; maturity profile consistent with Fitch's 'AAAmmf' rating criteria; and the capabilities and resources of State Street Global Advisors." It adds, "The fund seeks to limit interest rate and spread risk by maintaining weighted average maturities (WAM) and weighted average lives (WAL) below 60 days and 120 days, respectively, as per Fitch's AAAmmf criteria. The fund seeks to maintain sufficient levels of daily and weekly liquidity to manage investors' flows. Specifically, the fund invests at least 10% of its total assets in securities offering daily liquidity and at least 30% in securities maturing within seven days or other qualifying liquid assets." The release continues, "The fund seeks to maximize current income while considering ESG criteria, to the extent consistent with the preservation of capital and liquidity. The fund is a feeder fund that seeks to achieve its investment objective by investing substantially all of its investable assets in the State Street ESG Liquid Reserves Portfolio, which has substantially identical investment policies to the fund. The fund uses R-Factor, State Street Global Advisors' (SSGA's) proprietary ESG scoring system that draws on multiple data sources to generate a unique ESG score for issuers. In particular, the R-Factor score incorporates metrics and criteria recognized by the Sustainability Accounting Standards Board (SSAB) and ISS Governance (ISG) including impact on climate change and air quality, energy management, human rights, labor practices, business ethics, board independence and accountability, shareholder rights and engagement, and alignment of compensation business and strategy. Not all criteria are assigned equal weight in constructing an R-Factor score."
Barron's Clarifies Fidelity Sweep Push
In yet more news on Fidelity's announcement of higher brokerage sweep rates, Barron's writes, "Fidelity Is Giving Customers Higher Rates on Cash. Here’s Why." They explain (more clearly than previous articles and much better than Fidelity's unwieldy press release), "Yields on cash and money-market funds have fallen lately as the Federal Reserve cut interest rates. But Fidelity appears to be bucking the trend, at least temporarily. Fidelity caused a stir on Wednesday with an announcement that the firm 'has challenged conventional industry practices' by automatically defaulting brokerage customers into a government money-market fund yielding 1.9%. Fidelity didn't actually reveal anything new with the announcement (triggering some angry responses from advisors on Twitter). The firm has defaulted nonretirement accounts into Fidelity Government Money-Market fund (ticker: SPAXX) since the third quarter of 2015. New retail retirement accounts made the switch in May, 2019. Advisors who custody with Fidelity are still defaulted into F-Cash, rather than the money-market fund." The piece continues, "However, Fidelity did make one noteworthy change on Wednesday: The firm increased the yield on all cash-sweep holdings to 1.07%, up from 0.37% on balances of less than $100,000 and 0.79% above $100,000. The new yield applies to all cash balances that aren't defaulted into SPAXX." Barron's comments, "Of course, there is a good reason cash yields are so skimpy. Sweep accounts and deposits are a major source of revenue and profit for brokerage firms. Schwab reported that net interest revenue amounted to 57% of its total $10.1 billion in revenue in 2018, up from a 50% share of revenue in 2017. As Barron's reported, part of the rationale for Schwab's pending acquisition of brokerage and advisory accounts from USAA was the big pool of cash held by USAA customers." The piece adds, "Vanguard brokerage customers are automatically defaulted into Vanguard Federal Money-Market (VMFXX), a taxable fund yielding 2.19%." See also, Investment News' take on the news, "Fidelity draws adviser wrath with 1.9% cash offer." (Watch for Monday's Brokerage Sweep Intelligence report to reflect Fidelity's new higher rates, as well as a couple other changes. Ask us if you'd like to see the latest cut of this product.)
WSJ on Fidelity: Cash's Sweeping Giant
Yesterday, we mentioned Fidelity Investments' press release on raising its cash "sweep" rates. The Wall Street Journal also covered the news in "Fidelity Increases Rate on Cash Swept." (Fidelity also ran a full-page ad in the Wall Street Journal yesterday with the headline, "Your Cash Never Had It So Good." It directs readers to Fidelity.com/CashValue.) They comment, "Fidelity Investments said it has sweetened the deal for customers holding cash there, the latest salvo in the price war playing out among brokerages competing for clients' assets. [Fidelity] said Wednesday that it is automatically sweeping cash in new brokerage and retirement accounts into a money-market fund yielding 1.91% annually. That compares to the 0.2% national average yield on money funds [sic; they probably meant money market deposit accounts] and 0.09% on savings account balances, according to S&P Global Market Intelligence. Raking uninvested client cash from brokerage accounts into banking products is a common practice in the brokerage and banking world. Cash sweeps, as they are known, are lucrative because firms typically pay clients much less in interest than the firms earn on the cash." The WSJ quotes Devin Ryan, brokerage analyst at JMP Securities LLC, "Many of the incumbent brokerages have been going in the other direction.... What Fidelity is doing is removing that step." The Journal also quotes our Pete Crane, "Everyday investors have been driving that increase into money funds.... A big portion of that [rise] is a quiet revolt against ultralow yields. It was just a matter of time before cash became a battleground, too." Also, see AdvisorHub's "Fidelity Stokes New-Account War, Offering 1.9% on Client Cash," which says, "Fidelity Investments on Wednesday said it will automatically sweep cash in new client brokerage and retirement accounts into a government money market fund yielding 1.91%—far higher than many competitors. The move, when banks have been lowering yields following the Federal Reserve's 25-basis-point cut last week, escalates battles among discount brokerage firms and creates new incentives for self-directed investors to shift their accounts, consultants said." It adds, "Peter Crane, whose Crane Data tracks money-market fund returns, said the cash sweep yield Fidelity is offering is within spitting distance of the average 2.12% in his firm's index of 100 retail money-market funds."
Fidelity Now Sweeps to Money Fund
Fidelity Investments published a press release saying the company will use a money market fund for new brokerage customers' sweep assets. An unwieldy and oddly-worded press release, entitled, "Fidelity Investments Takes Another Strong Step to Provide Investors Unparalleled Value," tells us, "Fidelity Investments, the largest retirement and brokerage firm with nearly $8 trillion in total client assets, today announced it has challenged conventional industry practices by automatically directing investors' cash into higher yielding options available for brokerage and retirement accounts as well as providing product choice -- all without any minimum requirements. Fidelity's approach is contrary to typical industry practices of defaulting customers' cash into a low-yielding product -- often at an affiliated bank -- with no other option in what the industry calls a 'cash sweep.' Recent customer research shows that many investors don't focus on the rate paid on their cash when they open an account and, too often, they don’t take action later. Fidelity has made it easy for customers by automatically giving them the higher yielding option at account opening, while also providing other investment options for those customers who prefer it. With Fidelity's commitment to providing investors with unparalleled value and choice, cash investments at Fidelity could earn 47x more than TD Ameritrade, 10x more than Charles Schwab, and 27x more than E*TRADE cash sweeps." Kathleen Murphy, president of Fidelity Investments' personal investing business, comments, "Some firms have removed the option of a higher yielding money market fund as an option for their cash sweep, thereby forcing investors to take additional steps to get a better rate for their cash. By offering choice at account opening and directing cash into the higher yielding option when investors don’t make a choice, we are once again ensuring clients receive more value with Fidelity. It is unfortunate that millions of investors lose." Currently, Fidelity Government Cash Reserves is yielding 1.91%, versus 0.28% for Crane Data's Brokerage Sweep Intelligence Average (for $100K balances). See also, AdvisorHub's "Fidelity Stokes New-Account War, Offering 1.9% on Client Cash".
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of August 2) includes Holdings information from 76 money funds (up from 67 last week), representing $1.611 trillion (up from $1.328 trillion a week ago) of the $3.402 trillion (47.4%) in total money fund assets tracked by Crane Data. Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $690.8 billion (up from $551.6 billion a week ago), or 42.9%, Treasury debt totaling $476.0 billion (up from $393.0 billion) or 29.5%, and Government Agency securities totaling $267.9 billion (up from $224.2 billion), or 16.6%. Commercial Paper (CP) totaled $62.2 billion (up from $59.0 billion), or 3.9%, and Certificates of Deposit (CDs) totaled $57.4 billion (up from $55.3 billion), or 3.6%. A total of $29.2 billion or 1.8%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $27.6 billion, or 1.7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $476.0 billion (29.5% of total holdings), Federal Home Loan Bank with $185.5B (11.5%), Fixed Income Clearing Co with $129.4B (8.0%), BNP Paribas with $72.9 billion (4.5%), Federal Farm Credit Bank with $49.4B (3.1%), RBC with $47.2B (2.9%), Wells Fargo with $35.1B (2.2%), JP Morgan with $34.7B (2.2%), Credit Agricole with $34.3B (2.1%) and Societe Generale with $30.6B (1.9%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($140.8B), Fidelity Inv MM: Govt Port ($122.6B), BlackRock Lq FedFund ($103.4B), Goldman Sachs FS Govt ($101.1B), Wells Fargo Govt MMkt ($83.8B), BlackRock Lq T-Fund ($74.2B), JP Morgan 100% US Trs MMkt ($60.4B), Morgan Stanley Inst Liq Govt ($59.7B), Goldman Sachs FS Trs Instruments ($56.2B) and Dreyfus Govt Cash Mgmt ($55.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Fed to Develop 24/7 Payments
A statement entitled, "Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments," tells us, "The Federal Reserve Board on Monday announced that the Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow Service, to support faster payments in the United States. The rapid evolution of technology presents a pivotal opportunity for the Federal Reserve and the payment industry to modernize the nation's payment system and establish a safe and efficient foundation for the future. The Federal Reserve believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments." The release adds, "The Board is now requesting comment on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system. The Board anticipates the FedNow Service will be available in 2023 or 2024. In addition, the Board is announcing its intention to explore the expansion of Fedwire Funds Service and National Settlement Service hours, up to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services for faster payments and to support a wide range of payment activities, beyond those related to faster payments."
DoubleLine on Fed, Money Markets
Bond fund manager DoubleLine posted the paper, "Quantitative Tightening Risks Decoupling Money Markets from Fed Funds Rate." Written by Bill Campbell, Co-PM of DoubleLine Global Bond Strategy, the strange piece says, "Fixated on Federal Reserve interest-rate policy, the risk markets could be missing 90% of the monetary iceberg: the Fed's $3.8 trillion balance sheet and the more than $3.3 trillion U.S. money market. A decade ago, the central bank embarked on so-called quantitative easing (QE), bond-buying on a colossal scale to flood the banking system with excess reserves and avert a meltdown of the financial system. Now, with the U.S. economy showing years of continued improvement in employment, the Fed has reduced excess reserves. This effort at policy normalization is tightening financial conditions. Such quantitative tightening (QT) is at odds with recent signals by the Fed of its intent to ease official short-term interest rates. This policy divergence poses two threats. First, QT could choke off credit just as the U.S. is entering an economic slowdown, raising the odds of recession. Second, QT could derail the Federal Funds rate as an effective monetary lever. Indeed, signs of 'Fed Funds' losing its efficacy are already appearing in the overlooked but vital money markets. In fact, money market rates could decouple from Fed policy actions. Such a development would jeopardize market confidence in the Fed's ability to transmit monetary policy to markets, threatening a major risk sell-off." Campbell concludes, "I believe the Fed's reduction of excess reserves in the system is reaching a limit beyond which our financial institutions will enter increasingly turbulent waters within the money markets. Therefore, the Fed should cease its liquidity-draining efforts. Arising out of the wake of policies by the Fed and the broader government, these troubled seas have the potential to swamp the economy and financial system and blunt the Fed's principal tool: the Effective Federal funds rate. The Fed currently plans on ending QT by the end of this September. Let's hope that comes in time to avert striking the monetary iceberg."
CNBC: Fed Cut's Impact on Savings
In response to the rate cut on Wednesday, CNBC writes, "Here's how the Fed's rate cut will affect your high-yield savings account." They say, "The Federal Reserve cut interest rates on Wednesday for the first time since 2008. And while that may be good news for those looking to take out a loan or manage their credit card debt, it could mean the interest rates on high-yield savings accounts take a hit." "The only real losers in all of this are people with online-only savings accounts," WalletHub CEO Odysseas Papadimitriou tells CNBC Make It. He says interest on these accounts are expected to drop by about 0.11%." The article continues, "Yet major online banks already started dropping their rates in June. Ally Bank's online savings account APY fell from 2.20% to 2.10%, while Marcus by Goldman Sachs lowered its savings account rate from 2.25% to 2.15%. And while the robo-advisors haven't dropped rates yet, customers will likely see a dip following Wednesday's Fed announcement. In a blog post published last month, Wealthfront co-founder Andy Rachleff noted that he expects the Fed rate cut to affect the company's savings option. 'If the rate is lowered by 0.25%, then we will have to lower the rate for our cash account by the same amount.' But he added that while most banks will lower interest rates by more than the Fed rate decrease, Wealthfront will avoid this practice. Betterment's interest rate will also move in a similar direction to the Fed rate -- although customers who signed up for the Everyday Checking account waitlist will see a higher rate than those who opted out.... 'The very structure of the account is that the [interest] rate floats with Fed funds,' Adam Grealish, Betterment's director of investing, tells CNBC Make It." It adds, "Ken Tumin, founder of DepositAccounts tells CNBC Make It expects banks like Ally and Marcus will actually cut interest rates up to an additional 0.15%. ‘I think banks are careful to spread out the cuts so they're not so obvious. That may be why they began cutting last month,' he adds.... In a statement to CNBC Make It, Ally Bank said Wednesday it 'continually monitors market conditions, including the health of the economy, the current federal funds rate, the competitive environment and more when determining interest rates on deposit products.'"
ICD Portal on Rate Change Impact
Yesterday, online money market mutual fund trading platform ICD Portal published the brief, "How are Corporates Impacted by Rate Change?" They tell us, "Today the Federal Reserve cut the Fed Funds rate by 25bps, dropping from 2.5% to 2.25%. Historically, the effects on banking products in a falling rate environment is usually immediate as rates will adjust to the current fed funds position. Corporate investors have already witnessed a lower yield on their banking products in advance of the anticipated rate decrease. [But] MMFs will likely experience a slower impact from rate reductions than that of bank deposits, based on the fact that MMFs traditionally hold positions further out on the curve. On Government MMFs, we expect half of the anticipated rate to be recognized almost immediately after the rate cut, depending on the percentage of portfolio in overnight investments, with the other half coming over a period roughly in line with the weighted average maturity of the portfolio." They tell us, "Prime MMFs, however are expected to fall at a slower rate. Prime Funds are structured to maximize yield. And as such, WAM will not adjust fully until roughly 30 days after the Fed rate move.... Depending on the bank, the balances and the client's relationship with the institution, yield varies for banking products. Some clients report rates that approach Government MMF rates, while others see much less attractive rates offered.... We expect the yield for MMFs to take weeks to adjust after a Fed rate cut. Therefore, the spread is expected to widen within the first month between Prime & Government Funds." ICD's missive quotes our Peter Crane, "Historically, money fund yields have lagged direct money instruments following Fed hikes or cuts. So we expect cash to shift away from instruments like repo and commercial paper and to shift into funds to 'ride the lag', taking advantage of the older, higher-yielding securities in funds' portfolios."
