Daily Links Archives: August, 2020

Federated Hermes' Deborah Cunningham writes on "No shortage of smart" in her latest monthly commentary, saying, "The Fed keeps making good decisions to support the economy." She tells us, "The Federal Reserve continues to impress with how swiftly it addresses market needs in the coronavirus crisis. Emergency rate cut? Check. New facilities? Done. Quantitative easing? Of course. Shortage of coins in circulation? Somehow it got to that, too. Last week, the Fed even beat itself to the punch when it extended many of the new special purpose vehicles the day before its Federal Open Market Committee meeting concluded. End dates are now Dec. 31 for the Primary Dealer Credit Facility and Money Market Mutual Fund Liquidity Facility, and March 17, 2021, for the Commercial Paper Funding Facility. None of these programs have seen much use recently, but they give confidence to the markets simply by being there. I think all should stay in place until the pandemic is over or at least until we get a vaccine. The Fed also extended its dollar liquidity swap lines and repo facility for international monetary authorities through March 31, 2021. This is another good move as these have added support for the front end." Cunningham writes, "In mid-July, the Senate Banking Committee approved the nomination of Judy Shelton and Christopher Waller to the board of governors. If both are confirmed by Senate, the board would be full (seven governors) for the first time in several years. Waller, head of economic research at the St. Louis Fed, was always expected to make it through the committee, and is viewed as a dove. Shelton is another story. As a former advisor to President Trump, many are concerned she would ape his opinions, including supporting negative rates and limiting the central bank's independence." Finally, she adds, "The short end of the Treasury yield curve edged lower in July in response to the reduced supply. Already at historic levels, The Treasury Department's operating cash balance absorbed tax payments (both individual and corporate) on July 15, meaning it didn't need to issue much debt. That will change when Congress passes the new stimulus bill, whenever that happens. Even in this case, the Fed has alleviated the situation. Its increase of overnight and term repo rates in June has provided a floor above zero, leading the effective fed funds rate hovering around 9 basis points in July. Government fund asset levels were steady in July, while municipals experienced outflows typical around a tax day. Issuance of floaters and commercial paper went the opposite way as they continued their recovery from the barren days of March. Industry-wide, institutional prime fund assets essentially have returned to early January levels."

Money market fund yields continue to bottom out just above zero -- our flagship Crane 100 was down a basis point in the last week at 0.08%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over half of all money funds and just under a third of MMF assets have since landed on the zero yield floor, though many continue to show some yield. According to our Money Fund Intelligence Daily, as of Friday, 7/31, 521 funds (out of 850 total) yield 0.00% or 0.01% with assets of $1.638 trillion, or 33.0% of the total. There are 194 funds yielding between 0.02% and 0.10%, totaling $2.273 trillion, or 45.9% of assets; 120 funds yielded between 0.11% and 0.25% with $872.1 billion, or 17.6% of assets; 15 funds yielded between 0.26% and 0.50% with $173.6 billion in assets, or 3.5%. No funds yield over funds yield over 0.50%. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.05%, down a basis point in the week through Friday, 7/31. The Crane Money Fund Average is down 42 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.11% in the latest week and Government Inst MFs were flat at 0.04%. Treasury Inst MFs were unchanged at 0.04%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.06% (down a basis point for the week), Tax-exempt MF 7-day yields were down a basis point at 0.04%. (Let us know if you'd like to see our latest MFI Daily.) Our Crane Brokerage Sweep Index, which hit the zero floor almost four months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of July 31, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last ten weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). Fin-tech "robo" advisor firms Betterment, Wealthfront and Robinhood have also cut rates and are offering 0.40%, 0.35% and 0.30%, respectively. In other news, see Bloomberg's "Fed Is Headed for a Clash With Hedge Funds, Other Shadow Banks", which says, "The Federal Reserve and other central banks are heading for a collision with shadow lenders -- the firms with a sinister nickname that are increasingly dominating global finance. Even as policy makers struggle to reopen their economies in the midst of the coronavirous pandemic, they've launched a review of what went wrong with markets in March, when a worldwide dash for cash by investors nearly crashed the financial system and forced unprecedented rescue actions by central banks. Their focus is on loosely regulated money market and hedge funds, mortgage originators and other entities. Already, some watchdogs have pointed to highly leveraged trades involving U.S. Treasuries as one source of the turmoil."

A Prospectus Supplement filing for Dreyfus's General New Jersey Money Market Fund tells us, "The Board of Directors of General New Jersey Municipal Money Market Fund, Inc. (the 'Fund') has approved the liquidation of the Fund, effective on or about September 11, 2020 (the 'Liquidation Date'). Before the Liquidation Date, and at the discretion of Fund management, the Fund's portfolio securities will be sold and the Fund may cease to pursue its investment objective and policies. The liquidation of the Fund may result in one or more taxable events for shareholders subject to federal income tax." It explains, "Accordingly, effective on or about August 31, 2020 (the 'Closing Date'), the Fund will be closed to any investments for new accounts, except that new accounts may be established for 'sweep accounts' and by participants in group retirement plans if the Fund is established as an investment option under the plans before the Closing Date. The Fund will continue to accept subsequent investments until the Liquidation Date, except that subsequent investments made by check or pursuant to TeleTransfer or Automatic Asset Builder no longer will be accepted after August 31, 2020. However, subsequent investments by Individual Retirement Accounts and retirement plans sponsored by BNY Mellon Investment Adviser, Inc. or its affiliates (together, 'BNYM Adviser Retirement Plans') pursuant to TeleTransfer or Automatic Asset Builder (but not by check) will be accepted after August 31, 2020. Please note that checks presented for payment to the Fund's transfer agent pursuant to the Fund's Checkwriting Privilege on or after the Liquidation Date will not be honored. Fund shares held on the Liquidation Date in BNYM Adviser Retirement Plans will be exchanged for Dreyfus Class shares of General Government Securities Money Market Fund ('GGSMMF')." See also our March 25 Link of the Day, "Reuters on General NJ MMF's NAV."