Daily Links Archives: December, 2022
MMF Assets Approach Record Levels
ICI also released its latest weekly "Money Market Fund Assets" report, which shows that money fund assets jumped in the latest week, after falling last week. Two weeks ago, they hit their highest level since June 2020, and they remain just below their record level of $4.789 trillion (set on May 20, 2020). Money funds have risen in 7 of the past 9 weeks, rising by $150.7 billion since October 26. Over the past 52 weeks, money fund assets are up by $30 billion, or 0.6%, with Retail MMFs rising by $209 billion (14.2%) and Inst MMFs falling by $179 billion (-5.5%). ICI shows assets up by $30 billion, or 0.6%, year-to-date too (in 2022), with Institutional MMFs also down $179 billion, or -5.5% and Retail MMFs up $209 billion, or 14.2%. The weekly release says, "Total money market fund assets increased by $22.18 billion to $4.73 trillion for the week ended Wednesday, December 28, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $9.74 billion and prime funds increased by $7.48 billion. Tax-exempt money market funds increased by $4.97 billion." ICI's stats show Institutional MMFs rising $3.4 billion and Retail MMFs increasing $18.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.965 trillion (83.7% of all money funds), while Total Prime MMFs were $659.5 billion (13.9%). Tax Exempt MMFs totaled $110.5 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $18.82 billion to $1.68 trillion. Among retail funds, government money market fund assets increased by $5.22 billion to $1.16 trillion, prime money market fund assets increased by $9.26 billion to $413.79 billion, and tax-exempt fund assets increased by $4.34 billion to $99.23 billion." Retail assets account for over a third of total assets, or 35.4%, and Government Retail assets make up 69.4% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $3.36 billion to $3.06 trillion. Among institutional funds, government money market fund assets increased by $4.51 billion to $2.80 trillion, prime money market fund assets decreased by $1.78 billion to $245.73 billion, and tax-exempt fund assets increased by $630 million to $11.29 billion." Institutional assets accounted for 64.6% of all MMF assets, with Government Institutional assets making up 91.6% of all Institutional MMF totals.
1 Year Ago: SEC Disclosure Proposals
One year ago, we wrote a piece entitled, "Kitchen Sink II: SEC Doubles Down on Disclosures in MF Reform Proposal, which detailed possible new disclosure rules in the SEC's pending reforms. The Dec. 29, 2021 News article said, "As we've been writing about over the past two weeks, the Securities & Exchange Commission proposed its latest set of Money Market Fund Reforms, which include much higher liquidity levels, the removal of gates and fees, a controversial swing pricing feature and additional disclosures. See the Proposed Rules here, the press release here the Fact Sheet here, our Dec. 16 News, "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing," and our Dec. 27 News, "More Reforms: SEC Commissioners Comment on Controversial Proposal." Given the close 3-2 vote and the pending 60-day comment period, there could be substantial changes in the final rule, which is expected later in 2022. Today, we quote from the "Amendments to Reporting Requirements" section, which starts on page 119 of the 325-page proposal." It continued: They also propose "Amendments to Form N-MFP," explaining, "Form N-MFP is the form that money market funds use to report their portfolio holdings and other key information each month. We use the information on Form N-MFP to monitor money market funds and support our examination and regulatory programs. We are proposing amendments to improve our ability to monitor money market funds. The proposed amendments would provide certain new information about a fund's shareholders and disposition of non-maturing portfolio investments. We are also proposing changes to enhance the accuracy and consistency of information funds currently report, to increase the frequency of certain data points, and to improve identifying information for the reporting fund." Discussing the "New Information Requirements," the SEC states, "We are proposing to require additional information about the composition and concentration of money market fund shareholders. With respect to shareholder concentration, we are proposing that all money market funds disclose the name and percent of ownership of each person who owns of record or is known by the fund to own beneficially 5% or more of the shares outstanding in the relevant class. Money market funds currently provide substantially the same information on an annual basis in their registration statements. We believe more frequent information about shareholder concentration would be helpful for monitoring a fund's potential risk of redemptions by an individual or a small group of investors that could significantly affect the fund's liquidity." (See also: "SEC Money Fund Reform Disclosure Requirements Not Quite Kitchen Sink (8/6/14) and "More on Reforms: SEC Asks for Kitchen Sink in Disclosure Requirements" (6/12/13).)
MMF Break 4.0%; Sweep Rates 0.52%
Money fund yields continued their march higher last week, with our Crane 100 Money Fund Index (7-Day Yield) increasing 25 basis points to 4.04% for the week ended Friday, 12/23. Yields rose by 16 basis points the previous week and are up from 3.59% on Nov. 30, up from 2.88% on Oct. 31 and up from 2.66% on Sept. 30. Yields broke the 4.0% level last Wed., and they should keep inching higher as they digest the remained of the last 50 bps Fed hike. The top-yielding money market funds have broken above 4.50% and should move towards 4.75% in coming weeks. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 680), shows a 7-day yield of 3.91%, up 25 bps in the week through Friday. Prime Inst MFs were up 29 bps to 4.21% in the latest week. Government Inst MFs rose by 23 bps to 3.94%. Treasury Inst MFs up 18 bps for the week at 3.87%. Treasury Retail MFs currently yield 3.67%, Government Retail MFs yield 3.69%, and Prime Retail MFs yield 4.05%, Tax-exempt MF 7-day yields were up at 3.20%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/23), every money market fund (819 total) yields over 2.0% and almost all are now over 3.0%; 36 funds yield between 2.00% and 2.99% with $16.0 billion, or 0.3%; 476 funds yield between 3.00% and 3.99% ($2.104 trillion, or 40.9%), and now 307 funds yield 4.0% or more ($3.027 trillion, or 58.8%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, jumped 9 bps last week to 0.52% as Fidelity, R.W. Baird, Raymond James and Schwab all increased rates. The latest Brokerage Sweep Intelligence, with data as of Dec. 23, shows that Fidelity hiked rates to 2.19% from 1.4% (for all balances). Raymond James increased rates to 2.25% for balances between $1 and $9.9 million and to 3.00% for balances over $10 million. RW Baird increased rates to 1.69% for all balances between $1 and $999K, to 2.39% for balances between $1 million and $1.9 million, and to 3.00% for all balances over $5 million. Schwab increased rates to 0.45% for all balances from 0.40%. 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.
WSJ.com Explains "What Is APY?"
The Wall Street Journal explains, "What Is APY?" They write, "The annual percentage yield determines how much money you'll make with your savings. If you are looking to maximize your savings -- and who isn't? -- moving your money into an account with a higher annual percentage rate, or APY, can be a smart idea. The APY is the rate of return you get on your savings over the course of a year, taking into account both the interest rate and the effects of compounding. Regulators require banks to calculate APYs using the same formula and to publish the figure for products like savings accounts, checking accounts and CDs to make it easier for you to compare rates. Understanding how APYs can affect your savings is key to making your money grow. Continue reading to learn how APY works and what you can do to maximize your money." The brief explains, "When discussing APYs and interest, it's important to understand the difference between simple and compounded interest. Simple interest: With simple interest, you only earn interest on the principal amount in your account. Compound interest: By contrast, compound interest means you earn interest on your original principal plus any accumulated interest. Depending on the bank and your account type, interest can compound daily, weekly or monthly. Compounding is an incredibly powerful tool for helping to grow your money over time, especially with higher APYs. A bank account's APY measures the total amount of interest the bank pays on the account based on its interest rate and the frequency of compounding. As you save money in your account with a bank or credit union, a higher APY can help your money grow faster." The piece also lists the "Best High Yield Savings Accounts for December 2022."
Forbes Goes Inside Tether, Stablecoins
Forbes writes, "Inside Tether, Crypto's (So Far) Unbreakable Buck," which says, "Amid crypto's existential crisis, its largest liquidity provider, Tether, has withstood multiple multibillion-dollar redemption runs. Will competition from rival stablecoins like USDC and regulatory pressure force Tether to finally come clean?" The piece comments, "FTX and Alameda were big customers of Tether. To date Bankman-Fried had already minted $36 billion worth of its U.S. dollar based stablecoin USDT, almost half of the total amount created. 'He contacted us and asked for economic help,' says Ardoino. 'He didn't disclose details or exactly how much he needed, but we categorically refused.'" Forbes writes, "For Tether, the controversial company behind the $66 billion stablecoin USDT, used in more than 50 percent of all bitcoin trading worldwide, Bankman-Fried's demise was bittersweet. FTX was Tether's largest customer, but unlike Bankman-Fried who cultivated the media and hobnobbed with politicians, Tether has defiantly resisted regulatory scrutiny and is a constant source of media scorn. But through crypto's tumultuous 2022, Tether has persevered. In May, when TerraUSD, crypto's then third largest stablecoin and its sister token LUNA, accounting for $45 billion in market value, suddenly collapsed, Tether was faced with $16 billion in redemptions from panicky crypto investors. While USDT dipped to as low as 95 cents during the panic selling, it met its redemptions and bounced back to full value within a week. During FTX's more recent collapse some $3 billion in redemptions flooded in over the course of a few days, but Tether barely missed a beat. All of the redemptions were met 1:1 in US dollars." It adds, "While Tether has so far proven its staying power in the marketplace, the stablecoin provider has yet to gain trust outside of crypto.... The company has never produced an audit and it refuses to disclose the exact mix of its collateral, which includes crypto tokens, loans, and other illiquid investments. By comparison its closest competitor USD Coin, run by Boston-based Circle Financial, publishes the specific Treasury securities, CUSIPs and maturity dates that support its $45 billion digital dollar. But if crypto survives the current brutal winter, Tether, its dominant liquidity provider, must grow up. That is why Tether has recently been on a campaign to clean up its image. Long accused of padding its balance sheet with questionable commercial paper, in June 2022 it pledged to eliminate all of what was once $30 billion of the asset from its reserves and put most of that into US Treasury bills and other cash equivalents. Then in August it hired top five accounting firm BDO with the goal of undergoing a full audit. Last Tuesday the company announced that it will stop lending out USDTs -- whose loans amount to 9% of its assets -- by the end of 2023."
Fidelity Muni MMFs Fail Merger Vote
A Prospectus Supplement filing for the Fidelity Michigan Municipal Funds (the Fidelity Arizona, Connecticut, Ohio and Pennsylvania Municipal Funds contain virtually the same text) tells us, "On November 16, 2022, Fidelity Michigan Municipal Money Market Fund did not receive sufficient votes of shareholders to attain quorum with respect to the proposal to approve an Agreement and Plan of Reorganization between Fidelity Michigan Municipal Money Market Fund and Fidelity Municipal Money Market Fund. In light of the failure to attain quorum, Fidelity Michigan Municipal Money Market Fund will liquidate pursuant to a plan of liquidation approved by the Fidelity Michigan Municipal Money Market Fund's Board of Trustees on July 14, 2022. The fund will no longer pursue its stated investment objective and fund assets will be managed to provide for sufficient liquidity prior to liquidation. The fund is expected to liquidate on or about January 13, 2023. This date may be changed without notice at the discretion of the fund's officers. Effective after the close of business on December 1, 2022, new positions in the fund may no longer be opened. Existing shareholders may continue to hold their shares and purchase additional shares through the reinvestment of dividend and capital gain distributions until the fund's liquidation." (See our July 20 News, "Fidelity Merging State Muni Money Market Funds," which said, "Fidelity Investments filed to liquidate and reorganize most of their State Municipal money market funds, merging the AZ, CT, MI, OH, and PA Muni MMFs into Fidelity Municipal Money Market Fund, and consolidating their CA, MA, NJ and NY State Muni fund offerings. While there haven't been many moves in 2022, there has been a steady stream of exits in the Tax-Exempt money fund space, driven by years of near-zero yields and money fund reforms. Over the past 5 years, the number of Municipal money market funds has dropped from 245 to 150, while the number of State Municipal funds has fallen from 116 to 53. Since June 2008, assets in Muni MMFs have steadily declined from $490.6 billion to $111.4 billion (as of 6/30/22). Fidelity currently manages 33 Municipal MMFs with $28.0 billion; after these mergers go through, the lineup will be reduced to 20 Muni MMFs.) For more on recent liquidations in the space, see our Crane Data News pieces: "SSGA to Liquidate State Street ESG Liquid Reserves; ICI MMF Holdings (9/19/22); "DWS Liquidating Govt Cash Mgmt Fund; Weekly MF Portfolio Holdings (7/2/22), "Ivy Funds Liquidating ... Again (6/2/22); "Meeder Liquidating Prime Money Fund (11/12/21); "AIG Govt MMF, MuniFund Liquidate (8/3/21), "Western Files to Liquidate Tiny MMFs (6/7/21), "BlackRock Liquidates Ready Assets (2/11/21), "Delaware Liquidates Govt Cash Mgmt" (1/11/21); "DWS Liquidating Govt CR (BIRXX)" (11/25/20); "BMO Liquidating Inst Prime MMF" (11/17/20); "Morgan Stanley NY Muni MM Gone" (10/5/20); "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ" (9/28/20) and "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations (2/20/20).
Weekly Money Fund Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 16) includes Holdings information from 54 money funds (up 8 from two weeks ago), which represent $1.702 trillion (up from $1.543 trillion) of the $5.138 trillion (33.1%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.026 trillion (up from $877.1 billion two weeks ago), or 60.3%; Treasuries totaling $461.7 billion (up from $447.1 billion two weeks ago), or 27.1%, and Government Agency securities totaling $97.0 billion (down from $102.0 billion), or 5.7%. Commercial Paper (CP) totaled $50.4 billion (up from two weeks ago at $49.1 billion), or 3.0%. Certificates of Deposit (CDs) totaled $22.8 billion (down from $23.2 billion two weeks ago), or 1.3%. The Other category accounted for $31.2 billion or 1.8%, while VRDNs accounted for 13.5 billion, or 0.8%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $693.9 billion (40.8%), the US Treasury with $461.7 billion (27.1% of total holdings), Fixed Income Clearing Corp with $94.2B (5.5%), Federal Home Loan Bank with $57.5B (3.4%), Federal Farm Credit Bank with $36.5B (2.1%), JP Morgan with $31.8B (1.9%), Barclays PLC with $25.8B (1.5%), RBC with $24.8B (1.5%), Mitsubishi UFJ Financial Group Inc with $17.7B (1.0%) and BNP Paribas with $17.6B (1.0%). The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($136.8B), BlackRock Lq FedFund ($131.5B), Fidelity Inv MM: Govt Port ($122.5B), Dreyfus Govt Cash Mgmt ($118.3B), BlackRock Lq Treas Tr ($111.1B), Allspring Govt MM ($99.5B), State Street Inst US Govt ($87.6B), BlackRock Lq T-Fund ($86.0B), Fidelity Inv MM: MM Port ($82.1B) and Invesco Govt & Agency ($77.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Money Fund Yields Poised to Hit 4.0%
Money fund yields continued their march higher last week, with our Crane 100 Money Fund Index (7-Day Yield) increasing 16 basis points to 3.79% for the week ended Friday, 12/16. Yields rose by 3 basis points the previous week and are up from 3.59% on Nov. 30, up from 2.88% on Oct. 31 and up from 2.66% on Sept. 30. Yields should keep rising and approach 4.0% by year end, as they digest last Wednesday's 50 bps Fed hike. The top-yielding money market funds have broken above 4.20% and should move towards 4.50% in coming weeks. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 677), shows a 7-day yield of 3.68%, up 15 bps in the week through Friday. Prime Inst MFs were up 14 bps to 3.92% in the latest week. Government Inst MFs rose by 16 bps to 3.71%. Treasury Inst MFs up 14 bps for the week at 3.69%. Treasury Retail MFs currently yield 3.49%, Government Retail MFs yield 3.44%, and Prime Retail MFs yield 3.77%, Tax-exempt MF 7-day yields were up at 2.60%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/16), just 7 funds (out of 816 total) still yield between below 2.0%, with assets of $641 million, or 0.0% of total assets; 139 funds yielded between 2.00% and 2.99% with $103.8 billion, or 2.0%; 670 funds yield 3.00% or more ($5.033 trillion, or 98.0%), and 85 funds have now officially broken over the 4.0% yield barrier. Our Brokerage Sweep Intelligence Index was unchanged last week at 0.43%, but sweep rates rose two weeks ago as Fidelity increased its FDIC insured sweep rate to 1.94% from 1.57%. The latest Brokerage Sweep Intelligence, with data as of Dec. 16, shows that 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.
One Year Ago: SEC's Reform Proposal
One year ago, we wrote "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing," which reviewed the SEC's latest MMF Reform Proposal. While we await the SEC's Final Money Fund Reform changes, which could come any day now, we thought it would be a good time to look back at the original proposals. Our Dec. 16, 2021 News, said, "The Securities & Exchange Commission proposed Money Market Fund Reforms Wednesday, which include higher liquidity levels, the removal of the emergency gates and fees regime, a new swing pricing mandate for Prime Inst MMFs and additional disclosure requirements. The press release, "SEC Proposes Amendments to Money Market Fund Rules," tells us, "The Securities and Exchange Commission today voted to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940. In March 2020, growing economic concerns about the impact of the COVID-19 pandemic led investors to reallocate their assets into cash and short-term government securities. Prime and tax-exempt money market funds, particularly institutional funds, experienced large outflows, which contributed to stress on short-term funding markets. The Commission's proposed amendments are designed, in part, to address concerns about prime and tax-exempt money market funds highlighted by these events." (See also their "Fact Sheet" and the full Proposal here.) SEC Chair Gary Gensler comments, "Together, these amendments are designed to reduce the likelihood of runs on money market funds during periods of stress. They also would equip funds to better meet large redemptions, addressing concerns about redemption costs and liquidity. Given the broad reach of short-term funding markets, these proposals speak to our remit to maintain fair, orderly, and efficient markets." The release explains, "The proposed amendments would increase liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions. The proposed amendments also would remove provisions in the current rule permitting or requiring a money market fund to impose liquidity fees or to suspend redemptions through a gate when a fund's liquidity drops below an identified threshold. These provisions appeared to contribute to investors' incentives to redeem in March 2020 as some funds' reported liquidity levels declined." (See also our Dec 27, 2021 News, "More Reforms: SEC Commissioners Comment on Controversial Proposal," and our Dec. 29, 2021, News, "Kitchen Sink II: SEC Doubles Down on Disclosures in MF Reform Proposal.")
Federated's Sue Hill on Fed Statements
Federated Hermes Susan Hill writes in a brief entitled, "Disconnect: The Fed pushes back against market expectations," "The markets took a look at the Federal Reserve's new, and hawkish, forecasts today and seemed to shrug them off. Following today's 'mere' 50 basis-point hike of the federal funds rate to a range of 4.25-4.5%, futures contracts remained relatively unchanged, reflecting a terminal rate of around 4.8% next year and a quick reversal in policy later in 2023. This is not the message Chair Jerome Powell or the Summary of Economic Projections (SEP) gave as the FOMC participants pushed back on investor speculation that they are close to wrapping up the tightening campaign. The December summary of economic projections held notable adjustments to Fed thinking since the September SEP. GDP growth estimates for 2023 were notched down from 1.2% to barely positive territory at 0.50%; expectations for the unemployment rate rose from 4.4% to 4.6%; and inflation was forecast to stay above the preferred 2% until late 2023/2024. The dots jumped, as well. No less than 17 of 19 FOMC participants now expect the target rate to be in a range of at least 5-5.25% at the end of 2023, in sharp contrast to market pricing that sees the Fed in easing mode by that time." She adds, "All the words, both written and spoken, pointed to a hawkish Fed, one that is willing to push the economy to barely positive growth and will continue with rate increases until the right level is reached and one that will not back away too soon. But the fixed-income markets seem to doubt the Fed's resolve. Investors appear to be focusing too much on recent softening of inflation number. We are taking the Fed at its word, looking for a peak slightly above 5%, and anticipating slower turnaround than seems to be currently priced into the market. Quantitative tightening (QT) is still trucking along. The Fed will continue to allow $95 billion per month of securities to roll off its balance sheet. Eventually, QT should incrementally bump up short-term interest rates, as well as reduce bank reserves and usage of the New York Fed's Reverse Repo Facility (RRP). Counterparty participation of the latter has declined slightly since the November meeting to under $2 trillion, but the Fed opted to keep the rate 5 basis points above the lower bound of the new range, putting it at 4.30%."
Fed Hikes Rates 50 bps to 4.25-4.5%
A release entitled, "Federal Reserve issues FOMC statement" tells us, "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks." It explains, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May." The FOMC adds, "The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
Allspring on the Fed, Muni Sector
Allspring Money Market Funds latest "Overview, Strategy, and Outlook" tells us, "Currently, the futures market expects the FOMC to increase rates 50 bps at its December meeting and is torn between 25 bps and 50 bps at the early February meeting. Given the backdrop of an FOMC still in the process of raising rates, we tend to conservatively structure our portfolios in favor of keeping excess liquidity over the stated regulatory requirements, running shorter weighted average maturities, and looking to fixed-rate securities if the opportunity offers a favorable risk/reward proposition. This has allowed our portfolios to capture the Fed's rate increases quickly, while the enhanced level of liquidity allows our portfolios to meet the liquidity needs of our investors and helps dampen net asset value (NAV) volatility." On the "`Municipal sector," they write, "The municipal money market yield curve continued to steepen during the month of November as strong inflows drove demand for overnight and weekly variable-rate demand notes (VRDNs) and tender option bonds (TOBs) during the first half of the month. However, municipal money market fund assets broke their streak of strong inflows, dropping about $3 billion in the last week of the month, according to Crane Data, as municipal-to-taxable ratios fell to extremely rich levels. The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index also continued to fall, closing out the month at 1.85%, down from 2.24% at the end of October. Further out on the curve, rates on high-grade notes in the one-year space fell to 3.02%, down from 3.33% at the end of October." Allspring adds, "During the month, we continued to focus our purchases primarily in VRDNs and TOBs with daily and weekly put options in order to emphasize principal preservation and fund liquidity. We also continued to adopt a conservative posture with respect to weighted average maturities given the likelihood of additional rate hikes by the FOMC. Accordingly, we remained highly selective in our fixed-rate purchases further out on the curve and opportunistically added term trades to capture higher rates."
Crane 100 Index Grinds Higher to 3.63%
Money fund yields inched higher yet again last week -- the Crane 100 Money Fund Index (7-Day Yield) rose 3 more basis points to 3.63% in the week ended Friday, 12/9. Yields rose by 3 basis points the previous week and are up from 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should jump again and approach 4.0% by year end, if, as expected, the Fed hikes rates again (probably by 50 bps) on Wednesday, Dec. 14. The top-yielding money market funds have broken above 4.0% and should move towards 4.5% in coming weeks (see our "Highest-Yielding Money Funds" table above). Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 678), shows a 7-day yield of 3.53%, up 5 bps in the week through Friday. Prime Inst MFs were up 3 bps to 3.77% in the latest week. Government Inst MFs rose by 8 bps to 3.55%. Treasury Inst MFs up 5 bps for the week at 3.55%. Treasury Retail MFs currently yield 3.34%, Government Retail MFs yield 3.29%, and Prime Retail MFs yield 3.61%, Tax-exempt MF 7-day yields were up at 1.76%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/9), just 112 funds (out of 817 total) still yield between below 2.0%, with assets of $68.4 billion, or 1.3% of total assets; 64 funds yielded between 2.00% and 2.99% with $72.0 billion, or 1.4%; 641 funds yield 3.00% or more ($5.028 trillion, or 97.3%), and 22 funds have now officially broken over the 4.0% yield barrier. Our Brokerage Sweep Intelligence average was unchanged last week at 0.43%, but sweep rates rose the prior week as Fidelity increased its FDIC insured sweep rate to 1.94% from 1.57%. The latest Brokerage Sweep Intelligence, with data as of Dec. 9, shows that 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.
WSJ Hits Big Banks on Savings Rates
Friday's Wall Street Journal wrote on, "The $42 Billion Question: Why Aren't Americans Ditching Big Banks?" The article says, "Americans are missing out on billions of dollars in interest by keeping their savings at the biggest U.S. banks. The Federal Reserve has raised interest rates to their highest level since early 2008.... Yet the biggest commercial banks are still paying peanuts to savers. In theory, savers could have earned $42 billion more in interest in the third quarter if they moved their money out of the five largest U.S. banks by deposits to the five highest-yield savings accounts -- none of which are offered by the big banks -- according to a Wall Street Journal analysis of S&P Global Market Intelligence data." It explains, "The reality is complicated. The five banks collectively made far less than $42 billion in profit in the third quarter. And if savers were to move their money en masse, banks offering high-yield accounts could lower their rates. The five banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co. -- paid an average of 0.4% interest on consumer deposits in savings and money-market accounts during the quarter, according to S&P Global. The five highest-yielding savings accounts paid an average of 2.14% during the same period, according to data from Bankrate.com. The five banks collectively hold about half of all the money kept at U.S. commercial banks in savings and money-market accounts tracked by the Federal Deposit Insurance Corp. That share has held steady despite the availability of higher rates elsewhere." The Journal continues, "Since the start of 2019, Americans have lost out on at least $291 billion in interest by keeping their savings in the five biggest banks. That total balloons to $603 billion when going back to 2014, when the FDIC started tracking consumer deposits in money-market and other savings accounts. And U.S. savers have likely missed out on much more than $600 billion because the average rate the five biggest banks have paid over the past eight years, 0.24%, includes higher-yielding money-market accounts and some business accounts. Traditional savings accounts paid an average rate of 0.02% at the five largest banks during that period. The FDIC doesn't separate traditional savings and money-market deposits in its record-keeping." They ask, "`Why haven't savers moved more of their money? Opening a new bank account is time consuming, said Gary Zimmerman, CEO of MaxMyInterest.... Some customers aren't aware of how much money they could make by switching, he said, and others just don't care.... People also are willing to pay for convenience and simplicity, said Nathan Stovall, a principal analyst for financial sector data at S&P Global Market Intelligence. Banks refer to customers who shop around for higher savings rates as 'hot money,' Mr. Stovall said. They have invested billions of dollars into developing user-friendly technology and consumer-banking services, but that is still a fraction of what they would have to pay in interest were they to raise rates instead."
MMFs Jump Back Over $4.7 Trillion
ICI's latest weekly "Money Market Fund Assets" report shows the biggest MMF asset increase since March 2 and the second biggest jump of the year. Money funds registered the 5th increase in the past 6 weeks and moved back over the $4.7 trillion level for the first time since the first week of 2022. Over the past 52 weeks, money fund assets are up by $82 billion, or 1.8%, with Retail MMFs rising by $189 billion (13.1%) and Inst MMFs falling by $107 billion (-3.3%). ICI shows assets up by $13 billion, or 0.3%, year-to-date, with Institutional MMFs down $147 billion, or -4.5% and Retail MMFs up $161 billion, or 10.9%. The weekly release says, "Total money market fund assets increased by $47.72 billion to $4.72 trillion for the week ended Wednesday, December 7, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $29.22 billion and prime funds increased by $21.53 billion. Tax-exempt money market funds decreased by $3.03 billion." ICI's stats show Institutional MMFs rising $32.9 billion and Retail MMFs increasing $14.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.982 trillion (84.4% of all money funds), while Total Prime MMFs were $630.9 billion (13.4%). Tax Exempt MMFs totaled $105.4 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $14.78 billion to $1.63 trillion. Among retail funds, government money market fund assets increased by $6.32 billion to $1.15 trillion, prime money market fund assets increased by $10.83 billion to $383.75 billion, and tax-exempt fund assets decreased by $2.37 billion to $94.74 billion." Retail assets account for over a third of total assets, or 34.5%, and Government Retail assets make up 70.6% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $32.94 billion to $3.09 trillion. Among institutional funds, government money market fund assets increased by $22.91 billion to $2.83 trillion, prime money market fund assets increased by $10.70 billion to $247.10 billion, and tax-exempt fund assets decreased by $660 million to $10.63 billion." Institutional assets accounted for 65.5% of all MMF assets, with Government Institutional assets making up 91.7% of all Institutional MMF totals. (For the month of November, MMF assets increased by $47.7 billion to $5.113 trillion according to Crane Data's (revised) Money Fund Intelligence XLS, which tracks a broader universe of funds than ICI. Crane Data's Prime asset totals, which broke the $1.0 trillion level early in November, increased $28.7 billion last month to $1.024 trillion. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Webster Buys StoneCastle Sweeps
A press release entitled, "Webster Signs Definitive Agreement to Acquire interLINK," tells us, "Webster Financial Corporation ... announced that its principal bank subsidiary Webster Bank, N.A. has signed a definitive agreement to acquire StoneCastle Insured Sweep, LLC (d/b/a interLINK), a subsidiary of StoneCastle Partners, LLC. interLINK is a technology-enabled deposit management platform administering over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. interLINK leverages highly scalable technology, generating significant liquidity at minimal operating cost. The acquisition of interLINK provides Webster with access to core deposit funding and adds another technology-enabled channel to Webster's already differentiated, omnichannel deposit gathering capabilities, including our Commercial and Consumer Banking Businesses, HSA Bank and BrioDirect." John Ciulla, President & CEO of Webster Financial Corporation, comments, "The acquisition complements our strategy to build a bank with diverse funding capabilities and technology-enabled businesses. interLINK is a unique deposit channel that provides a scalable source of liquidity for the company." The release adds, "Under the agreement, interLINK will continue to operate and serve its broker/dealer and clearing firm clients as it does today. Financial terms of the transaction were not disclosed. The transaction is expected to close in the first quarter of 2023." The Stamford Advocate writes about the news in its story, "Webster Bank agrees to acquire deposit-management platform." They tell us, "Cash-sweep services are widely offered. Investopedia defines a sweep account as 'a bank or brokerage account that automatically transfers amounts that exceed, or fall short of, a certain level into a higher interest-earning investment option at the close of each business day. Commonly, the excess cash is swept into a money market fund.'"
Weekly Money Fund Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 2) includes Holdings information from 46 money funds (down 22 from a week ago), which represent $1.543 trillion (down from $1.967 trillion) of the $5.141 trillion (30.0%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $877.1 billion (down from $1.115 trillion a week ago), or 56.8%; Treasuries totaling $447.1 billion (down from $542.0 billion a week ago), or 29.0%, and Government Agency securities totaling $102.0 billion (down from $140.0 billion), or 6.6%. Commercial Paper (CP) totaled $49.1 billion (down from a week ago at $66.5 billion), or 3.2%. Certificates of Deposit (CDs) totaled $23.2 billion (down from $32.0 billion a week ago), or 1.5%. The Other category accounted for $31.6 billion or 2.0%, while VRDNs accounted for 13.4 billion, or 0.9%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $593.7 billion (38.5%), the US Treasury with $447.1 billion (29.0% of total holdings), Federal Home Loan Bank with $64.7B (4.2%), Fixed Income Clearing Corp with $63.2B (4.1%), Federal Farm Credit Bank with $34.2B (2.2%), JP Morgan with $31.6B (2.0%), Barclays PLC with $26.6B (1.7%), Citi with $21.9B (1.4%), Mitsubishi UFJ Financial Group Inc with $17.0B (1.1%) and BNP Paribas with $16.9B (1.1%). The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($137.5B), BlackRock Lq FedFund ($130.4B), Fidelity Inv MM: Govt Port ($124.4B), BlackRock Lq Treas Tr ($110.9B), Dreyfus Govt Cash Mgmt ($109.6B), Allspring Govt MM ($100.0B), BlackRock Lq T-Fund ($91.0B), State Street Inst US Govt ($84.7B), Fidelity Inv MM: MM Port ($76.7B) and First American Govt Oblg ($71.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Less Than 1% of 401k Assets in MMFs
ICI recently published a "Perspective" entitled "401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2020," which shows that money market funds continue to be a very small portion of retirement plan assets. They write, "Among individual 401(k) plan participants, the allocation of account balances to equities (equity funds, company stock, and the equity portion of balanced funds) varies widely around the average of 69 percent for all participants in the 2020 database.... `Younger participants tended to favor equity funds and balanced funds, while older participants were more likely to invest in fixed-income securities such as bond funds, GICs and other stable value funds, or money funds. For example, among participants in their twenties, the average allocation to equity and balanced funds was 89 percent of assets, compared with about 70 percent of assets among participants in their sixties." A chart entitled, "Average Asset Allocation of 401(k) Plan Accounts by Participant Age" shows the amount held in money funds averaged 0.9% (For those in their 20's, MMFs averaged 0.3%; for the 30's, it was 0.5%; the 40's were 0.7%; the 50's averaged 0.9%; and the 60's averaged 1.3%. GICs and other stable value fund holdings averaged 5.6%. (For those in their 20's, it was 1.7%; the 30's was 2.2%; the 40's 3.4%; the 50's 5.8%; and the 60's 8.4%.) Bond fund holdings in 401k plans averaged 8.7% (20's 4.9%; 30's 5.3%; 40's 7.1%; 50's 9.1%; and, 60's 11.2%). The survey also says, "The 401(k) plan sponsor selects the investment options available in the plan. Figure A7 in the excel file presents the distribution of plans, participants, and assets by four combinations of investment offerings. The first category is the base group, which consists of plans that offer neither company stock nor GICs or other stable value funds. Twenty-six percent of participants in the 2020 EBRI/ICI 401(k) database were in these plans, which generally offer equity funds, bond funds, money funds, and balanced funds as investment options. Another 52 percent of participants were in plans that offer GICs and other stable value funds as an investment option, in addition to the base options. Alternatively, 10 percent of participants were in plans that offer company stock but no stable value products, while the remaining 12 percent of participants were in plans that offered both company stock and stable value products in addition to the base options."
GLMX Hits $1 Trillion in Repo
A press release entitled, "Record $1 Trillion Daily Balance Reached on GLMX as Adoption of Electronic Trading for Securities Finance Accelerates," states, "GLMX Technologies LLC ('GLMX'), a comprehensive global technology solution for trading Money Market instruments, including repurchase agreements and securities lending transactions, yesterday eclipsed $1 Trillion in daily balances for the first time. These balances represent the trading activity of some of the largest global financial institutions which utilize GLMX technology to negotiate and execute securities financing transactions (SFTs). Since inception, GLMX has seen $120 Trillion in volume executed via its technology." Glenn Havlicek, CEO and Co-Founder of GLMX, tells us, "The $1 trillion mark is a major milestone for GLMX, and reflects the powerful and ongoing technology shift in the overall securities finance industry. Achieving this number, seemingly unreachable a few years ago, is testament to the hard work done by the talented team at GLMX and the commitment of our network of leading market participants who use our technology every day." COO sal Giglio comments, "GLMX has established itself as the leader in Dealer-to-Client (D2C) electronic negotiation and execution of securities finance transactions and our firm has played a significant role in defining the sector. We have seen adoption of GLMX trading technology increase dramatically over the past two years as many dealers and buy-side firms now view electronic trading as a prerequisite to establishing a comprehensive trading relationship." Chief Product Officer Andy Wiblin adds, "Growth has been driven by existing and new client activity globally across a diverse collateral set, with the balance split equally between flow coming from North America and that from EMEA." Havlicek also says, "Money Markets are a massive and globally overlapping ecosystem. And while the move to digitalization in those markets appears to have passed the tipping point, there is still enormous work to be done. GLMX is thrilled to be part of that evolution."
T. Rowe Price: 4 Reasons Money Funds
T. Rowe Price gives us, "4 Reasons to Save in a Money Market Fund." The article explains, "Money market funds may provide potentially higher growth potential than a bank savings account and more flexibility than certificates of deposit (CDs). If you have an investment goal, you likely know when you're going to need the money and how long you'll need it to last. If you're saving for a goal that falls within the next three to five years, saving in a lower-risk investment such as a money market fund, bank savings account, or CD may make sense for you. Money market funds don't have the growth potential of stock or bond funds; however, they are a more stable investment and can be especially useful for immediate to short-term savings goals that you don't want impacted by market volatility." After explaining, "`What is a money market fund?" the piece discusses, "Why do people invest in money market funds?" The reasons include: "1. Money market funds are useful for short-term goals such as saving for a vacation, a wedding, or a down payment for a house. In these cases, it may be more important that your savings hold their value over the shorter time period. 2. Maintaining an emergency reserve. Having money outside of retirement accounts can act as a personal safety net to get through financial hurdles, such as a period of unemployment or an unbudgeted large expense. We recommend an amount that could cover three to six months of expenses. The accessibility of money market funds makes them a good option. 3. Cover larger, regular expenses. For example, many people pay property taxes, insurance premiums, or other larger expenses on an annual or semi-annual basis using the checkwriting feature. An account earmarked for this purpose means there's no surprise when those bills come due. 4. A money market fund may also be used as a place to park assets, such as an IRA rollover, or transfer while trying to decide how to invest those funds for the long term." Finally, T. Rowe Price asks, "How safe are money market funds?" They reply, "There is little risk associated with money market funds. The Securities and Exchange Commission (SEC) mandates that only the highest credit rated securities are available in money market funds. While money market funds are considered to be one of the safest investments, they have dipped below the target share value of $1 (known as 'breaking the buck') during a few volatile markets or due to changes in inflation and interest rates, but have quickly recovered."
State Street's New Peer-to-Peer Repo
A press release entitled, "State Street Launches Venturi to Support Peer-to-Peer Financing," tells us, "State Street Corporation (NYSE: STT) today announced the launch of the firm's new peer-to-peer financing platform, Venturi, specifically designed to connect buy-side firms with new sources of liquidity in the global repo space. Venturi, built through a partnership with FinOptSys, a cutting edge FinTech focused on the securities financing market, supports trade negotiations and enhances trade settlement and collateral management, allowing traders to better manage and diversify their counterparty exposure." Gino Timperio, global head of Financing Solutions, says, "As a result of elevated market volatility and the changing liquidity and rate environment, buy-side firms are increasingly seeking new and diversified sources of financing. We are excited to further expand our product suite with the launch of Venturi to help foster the growth of and scale the peer-to-peer marketplace. Akin to our 2005 launch of FICC's Sponsored Repo Service, which has also provided our clients with critically needed liquidity solutions, we believe Venturi will empower our clients to discover new liquidity pools and make better, data-driven investment decisions. The launch of this platform -- designed in large part through extensive development and feedback from our clients -- is certainly a very noteworthy milestone for our business and the evolution of our peer-to-peer initiatives." The release tells us, "Venturi was built to provide clients: Increased Efficiency: Users negotiate economic terms of peer repo transactions on Venturi. A program master repo agreement streamlines the documentation process and supports ready scalability. Users may engage with any or all counterparties active on the platform. Improved Flexibility: Venturi supports a flexible suite of eligible collateral and margin requirements; Seamless Confirmation of State Street's Guaranty to Repo Buyers: Venturi allows buy-side participants to seamlessly submit and confirm the repo transaction terms satisfy the criteria necessary for State Street to guarantee the repurchase price payment obligations of the repo seller to the repo buyer following a repo seller default. State Street's short-term credit rating: A+/AA1; and, Transparency of trade and margin call settlement: With links to State Street's Collateral+ Triparty Solution for Peer-to-Peer Repo, Venturi displays confirmed trade matches, collateral valuation and margin calls, and collateral movements between counterparties. In helping to centralize liquidity pools and enhance transparency, Venturi seeks to open up for the buy-side new trading opportunities, lower their transaction costs and improve their returns."
