Daily Links Archives: July, 2022

American Banker tells us, "Why online banks aren't sweating the rise in deposit costs." They write, "Online banks are starting to feel more heat from depositors seeking higher-yielding savings options, but the increases so far are modest in light of the Federal Reserve's large rate hikes. The Fed's aggressive moves, including another 75-basis-point rate increase on Wednesday, have led online banks to pay higher rates to individuals with high-yield savings accounts. Critically, however, those banks have been able to raise their rates by less than the Fed's hikes, a lag that is putting a lid on rising deposit costs for now." It adds, "While competition in high-yield savings accounts is heating up, it 'doesn't seem to be getting out of hand,' said Ken Tumin, the founder of DepositAccounts.com. The somewhat benign outlook may continue for some time given worries about a looming recession, which increasingly has traders believing the Fed will end up cutting rates next year to boost growth." (Note: Let us know if you'd like to see a copy of our "`Bank Deposit Intelligence" collection, which tracks the highest-yielding bank deposits, or our Brokerage Sweep Intelligence product, which tracks FDIC-insured brokerage sweep options.)

The Federal Reserve Board again hiked short-term interest rates by 75 basis points, raising its Fed funds target rate to a range of 2.25-2.50%. The FOMC statement tells us, "Recent indicators of spending and production have softened. Nonetheless, 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.... The Committee is highly attentive to inflation risks <b:>`_." Money market fund yields should jump again in coming days as the new higher rate levels are passed through to funds. Our Crane 100 Money Fund Index, currently at 1.36%, should jump over the 1.5% level next week and should approach the 2.0% level as we approach the end of the summer. The Fed's release 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 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. 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 Committee is strongly committed to returning inflation to its 2 percent objective." It adds, "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."

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 July 22) includes Holdings information from 85 money funds (up 23 from a week ago), which represent $2.833 trillion (up from $2.093 trillion) of the $4.998 trillion (56.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our July 13 News, "July Portfolio Holdings: Fed Repo in MMFs Breaks $2.0 Tril; T-Bills Down," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.470 trillion (up from 1.100 trillion a week ago), or 51.9%; Treasuries totaling $996.3 billion (up from $721.2 billion a week ago), or 35.2%, and Government Agency securities totaling $151.9 billion (up from $118.9 billion), or 5.4%. Commercial Paper (CP) totaled $66.8 billion (up from a week ago at $47.8 billion), or 2.4%. Certificates of Deposit (CDs) totaled $47.1 billion (up from $37.0 billion a week ago), or 1.7%. The Other category accounted for $66.7 billion or 2.4%, while VRDNs accounted for $34.3 billion, or 1.2%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $1.062 trillion (37.5%), the US Treasury with $996.3 trillion (35.2% of total holdings), Federal Home Loan Bank with $85.9B (3.0%), ING Bank with $69.8B (2.5%), Federal Farm Credit Bank with $57.8B (2.0%), BNP Paribas with $47.4B (1.7%), Fixed Income Clearing Corp with $42.9B (1.5%), RBC with $32.9B (1.2%), Barclays PLC with $18.4B (0.7%) and Citi with $18.1B (0.6%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($245.0B), Goldman Sachs FS Govt ($211.4B), Morgan Stanley Inst Liq Govt ($166.9B), BlackRock Lq FedFund ($157.8B), Federated Hermes Govt ObI ($136.8B), Dreyfus Govt Cash Mgmt ($119.9B), BlackRock Lq Treas Tr ($118.4B), Fidelity Inv MM: Govt Port ($118.1B), BlackRock Lq T-Fund ($105.1B) and State Street Inst US Govt ($103.6B). (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.)

ACT & HSBC Asset Management wrote recently on "Ultra Short Duration Bond Funds: Seeking the right balance between risk and return," and on "Ultra Short Duration Bond Funds: The importance of credit." The first article talks about the topic of ultra-short bond funds and how they can supplement MMFs. It starts off, "In the pursuit of an improvement in yield for longer-term cash holdings, beyond that provided by money market funds (MMFs), treasurers have access to various fixed-income investment options. The key is finding a suitable risk-adjusted strategy, where an increase in the yield for cash that can be locked away for longer is delivered without significantly increasing risk. Compared to other longer-term investment strategies, the case for Ultra Short Duration Bond Funds (USBFs) is compelling, demonstrating better risk-return characteristics than many other fixed-income strategies." The second piece continues with the topic of ultra-short bond funds and the risk behind them. This piece states, "An Ultra Short Duration Bond Fund (USBF) can present a viable solution for treasurers seeking to improve yield, reduce volatility of returns (versus Short Duration strategies) and diversify exposure away from banks and sovereigns, typically used in a money market fund (MMF). With the appropriate credit strategy, the right USBF can achieve these objectives, without significantly increasing risk. Following on in the USBF series, this second article will focus on the importance of credit in an USBF and the reasons why investors should carefully consider the credit risks, which need to be specifically managed to meet the objectives."

Charles Schwab's earnings demonstrated the benefits of the disappearance of money fund fee waivers and the appearance of interest rate spreads and higher rates. CFO Peter Crawford comments, "Our second quarter financial results demonstrated the power of our all-weather model as we supported our clients through an increasingly challenging environment.... Record total revenue of $5.1 billion, up 13% versus the prior year, reflected a combination of ongoing business momentum, rapidly tightening monetary policy, and continued strength in client engagement. Net interest revenue was up 31% from the prior year as higher interest rates and client cash balances more than offset the impact of softer securities lending activity.... During the quarter, total assets contracted by 6% to $638 billion. This decrease was primarily attributable to record tax disbursements in April as well as expected client cash sorting behavior during the latter part of the period." Crane Data shows Schwab's money market funds increasing by $11.8 billion, or 8.0%, to $159.2 billion in June, and by $16.1 billion, or 11.3% in the latest quarter. Schwab is the 12th largest manager of money market funds.

ICI's latest weekly "Money Market Fund Assets" report shows assets rose for the third week in a row. Year-to-date, MMFs are down by $123 billion, or -2.6%, with Institutional MMFs down $130 billion, or -4.0% and Retail MMFs up $8 billion, or 0.5%. Over the past 52 weeks, money fund assets are up by $96 billion, or 2.1%, with Retail MMFs rising by $50 billion (3.5%) and Inst MMFs rising by $46 billion (1.5%). (For the month of July, MMF assets increased by $24.5 billion to $5.003 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI.) ICI's weekly release says, "Total money market fund assets increased by $9.03 billion to $4.58 trillion for the week ended Wednesday, July 20, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $954 million and prime funds increased by $12.92 billion. Tax-exempt money market funds decreased by $2.94 billion." ICI's stats show Institutional MMFs decreasing $230 million and Retail MMFs increasing $9.26 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.020 trillion (87.7% of all money funds), while Total Prime MMFs were $461.6 billion (10.1%). Tax Exempt MMFs totaled $100.5 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $9.26 billion to $1.48 trillion. Among retail funds, government money market fund assets increased by $3.97 billion to $1.15 trillion, prime money market fund assets increased by $7.65 billion to $238.49 billion, and tax-exempt fund assets decreased by $2.36 billion to $90.43 billion." Retail assets account for just under a third of total assets, or 32.2%, and Government Retail assets make up 77.7% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $228 million to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $4.93 billion to $2.87 trillion, prime money market fund assets increased by $5.28 billion to $223.10 billion, and tax-exempt fund assets decreased by $578 million to $10.10 billion." Institutional assets accounted for 67.8% of all MMF assets, with Government Institutional assets making up 92.5% of all Institutional MMF totals. (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.)

U.K.-based Treasury Management International and Calastone published "Global Liquidity Barometer 2022," which surveys corporate treasurers on "Short-Term Investment Trends and Treasury Insights." The paper tells us, "The first half of 2022 has been far from plain sailing for CFOs and treasurers, not to mention their short-term investments. Corporate investors are grappling with everything from interest rate and inflationary pressures to the knock-on effect of the Ukraine crisis, regulatory reform, and growing ESG requirements. The significant impact of these rapidly evolving market dynamics is reflected clearly in this Global Liquidity Barometer. Providing a real-life lens on these challenges and opportunities, drawing on data collected from the treasury and wider finance community, this survey report offers a means to understand the present -- and glimpse the future -- of short-term investing." Among the key findings: "Fifty-four percent of respondents view interest rates as their number one concern relating to short-term investments.... Thirty-nine percent see inflation as the second most important issue. And 32% believe the Ukraine crisis to be the third most significant challenge.... There is a clear lack of user-friendly investment technology among respondents and 47% have no investment portal whatsoever. Meanwhile, over three-quarters (77%) of respondents would prefer to access and manage their MMF and other short-term investments via a TMS, reflecting the desire for a true 'one stop shop.'" TMI explains, "The survey results show that 37% plan to invest in green/sustainable deposits over the coming 12 months and 32% are looking to use ESG-compliant MMFs -- perhaps eschewing non-sustainable investments in order to favour these emerging instruments.... The survey results show that potential US regulatory changes to prime MMFs mean that 70% of respondents (59% 'maybe' and 11% 'yes') are questioning their use of this instrument.... In Europe the proposal to remove stable NAV for LVNAV MMFs is extremely concerning (5%) or very concerning (27%) for almost one-third of respondents <b:>~_. If MMFs become less popular, short-term bond funds or deposits may benefit." It adds, "[`A]ccess to real-time information on areas such as fund performance, composition, yield is considered a major challenge by 46% of those surveyed, followed by the combination of lack of fee transparency and fees charged at 32%, with the remaining manual processes at 22%.... Over three-quarters (77%) of respondents would prefer to access and manage their MMF and other short-term investments via a TMS.... Only 13% wish to use an investment portal -- and yet 53% are using one or more portals today."

The Financial Times writes on, "'The return of cash': money market fund sector perks up on rising rates." They tell us, "Rising interest rates are turning the $4.6tn money market fund sector from a drag on profits into a source of earnings in a rare piece of good news for asset managers whose fees have been hit hard by falling equity and debt markets. Average fees for money market funds shrank by three quarters over the past 25 years and fell to 12 basis points in 2021, their lowest level in decades, according to the Investment Company Institute. That left asset managers covering day-to-day costs to keep returns for customers in positive territory. But rising returns have allowed fund managers to start charging more just in time to profit as customers fleeing turbulent markets move their holdings into cash." The removal of fee waivers "will provide a significant tail wind because rising rates mean fund providers will finally be able to stop subsidising money market funds", Capital Group CEO Tim Armour tells the paper. The piece continues, "BlackRock and State Street, two of the biggest global money fund providers, touted increases in their revenue from these funds and other cash management products when they published second-quarter earnings on Friday. BlackRock, which waived more than $500mn in fees on money funds in 2021, said it is now charging all its customers the full amount. Quarterly revenue from cash products rose 155 per cent year on year to $232mn. The world's biggest money manager also reported $21bn in net cash inflows, bringing total cash assets under management to $740bn.... State Street Global Advisors has seen inflows of $35bn into its cash funds this year including $15bn in the second quarter. It now has $403bn in cash assets under management, including $211bn in money market funds. After forgoing $80mn in fees last year and $10mn in the first quarter, it eliminated money market fee waivers in the three months to June 30, chief financial officer Eric Aboaf said." The FT adds, "Charles Schwab reported Monday that net interest revenue was up 31 per cent year on year in the second quarter.... Though big providers are reporting inflows to their cash management services, money market funds as a whole are not seeing an increase. There was $4.6tn parked in money market funds on July 13, basically the same as February, ICI data show. That is partly because ... institutional investors are finding other vehicles for their cash such as short-term Treasury bills or commercial paper and are opting for separately managed accounts."

"Companies Shrink Cash Buffers as Economic Shock of Pandemic Fades" writes The Wall Street Journal. The article states, "Companies are whittling down the cash buffers they built early on during the pandemic, putting capital to work through acquisitions, buybacks and, in some cases, buying extra inventory to weather supply-chain backlogs. Investors in the weeks ahead will scrutinize corporate cash levels to see if they continue to decline, or if they level off, as companies report second-quarter earnings. While corporate balance sheets remain strong overall, high inflation is putting pressure on profit margins and driving up expenses amid fears of an economic slowdown. After issuing record amounts of debt while interest rates were low, companies have pulled back on bond sales and raised less capital as rates have increased." The piece tells us, "Median cash ratios -- a liquidity metric that compares cash and equivalents to current liabilities -- have declined steadily in recent quarters but remain above prepandemic levels, according to S&P Global Market Intelligence, a financial data provider. Highly rated U.S. companies had a median cash ratio of 21.5 during the first quarter, down from 29.1 a year earlier, but still above the fourth quarter of 2019, before the pandemic began, when their ratio was 19.5, according to S&P.... Cash ratios at companies across a range of other industries -- consumer discretionary goods, information technology and energy, among others -- continue to decline but remain above 2019 levels, according to S&P." The Journal adds, "[A]mong the largest U.S. companies, total cash balances remain higher than they were before the pandemic. Cash, equivalents and short-term investments at S&P 500 companies totaled $8.3 trillion at the end of the first quarter, up 1% from a year earlier and 42% from the fourth quarter of 2019, according to S&P." See also the WSJ's "Hoarding Cash? Don't Swing at Every Yield Pitch".

BlackRock reported its Q2 2022 earnings and hosted a conference call with analysts late last week, which mentioned money markets and cash a few times. (See the earnings release here and Alpha Street's earnings call transcript here.) CFO Gary Shedlin says, "On an equivalent day count basis, our effective fee rate was up approximately 0.3 basis points benefiting from the elimination of discretionary money market fund fee waivers and higher securities lending revenue. As a result of significant global equity and bond market declines during the quarter, including the impact of excess related dollar appreciation, we entered the third quarter with an estimated base fee run-rate approximately 5% lower than our total base fees for the second quarter. Finally, with cash becoming a more attractive asset class as rates rise, BlackRock's cash management platform generated $21 billion of net inflows in the second quarter, benefiting from the investments we have made to build this business in recent years. Net inflows were driven by U.S. government mandates and included inflows from Circle as we became the primary manager of their USDC cash reserves. In a rising rate environment, BlackRock is well-positioned to grow market share by leveraging our scale, product breadth, technology and risk management on behalf of liquidity clients." CEO Larry Fink comments, "BlackRock's cash management platform reached record AUM levels in the quarter and generated $21 billion of net inflows. Surging short-term rates, flattening yield curves and now an inverted yield curve has made cash not just a safe place, but now also a more profitable place for investors to wait as they evaluate how to optimize their portfolios for the future. Even during low-rate environments, we invested in our cash business and have grown our share positioning us well to benefit from the resurgence of client demand as rates rise. BlackRock's diverse cash management offerings, including governments, prime, municipals, [and] ESG strategies allow us to serve all our clients' cash allocation needs." He adds, "Another area that has been increasingly interested with our clients is digital assets. BlackRock has been studying the ecosystem, particularly in areas that are relevant to our clients, including Stablecoins, crypto assets, tokenization [and] blockchains. Last quarter, we announced our minority investment in Circle, a global internet payments company and issuer of USD Coin, a stablecoin that is one of the fastest growing digital assets in the world. As part of our relationship, we became their primary manager of their USDC cash reserves with assets invested entirely in short-term US Treasuries."

ICI's latest weekly "Money Market Fund Assets" report shows assets jumped for the second week in a row in July. Year-to-date, MMFs are down by $132 billion, or -2.8%, with Institutional MMFs down $130 billion, or -4.0% and Retail MMFs down $1 billion, or -0.1%. Over the past 52 weeks, money fund assets are up by $94 billion, or 2.1%, with Retail MMFs rising by $39 billion (2.7%) and Inst MMFs rising by $55 billion (1.8%). (For the month of July, MMF assets increased by $23.5 billion to $5.002 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI.) ICI's weekly release says, "Total money market fund assets increased by $16.03 billion to $4.57 trillion for the week ended Wednesday, July 13, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $6.11 billion and prime funds increased by $11.05 billion. Tax-exempt money market funds decreased by $1.13 billion." ICI's stats show Institutional MMFs rising $10.3 billion and Retail MMFs increasing $5.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.021 trillion (87.9% of all money funds), while Total Prime MMFs were $448.7 billion (9.8%). Tax Exempt MMFs totaled $103.5 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $5.68 billion to $1.47 trillion. Among retail funds, government money market fund assets increased by $313 million to $1.14 trillion, prime money market fund assets increased by $6.21 billion to $230.85 billion, and tax-exempt fund assets decreased by $842 million to $92.79 billion." Retail assets account for just under a third of total assets, or 32.1%, and Government Retail assets make up 77.9% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $10.34 billion to $3.11 trillion. Among institutional funds, government money market fund assets increased by $5.80 billion to $2.88 trillion, prime money market fund assets increased by $4.83 billion to $217.83 billion, and tax-exempt fund assets decreased by $289 million to $10.68 billion." Institutional assets accounted for 67.9% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (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.)

A press release entitled, "CSOP USD Money Market Fund to Launch in Singapore" tells us, "CSOP Asset Management ('CSOP') will launch its third public fund in Singapore on 13 July 2022 and the initial offer period has started on 5 July 2022. Initially launched through retail distribution platform Moomoo Financial Singapore Pte. Ltd., a leading online broker in Singapore and Hong Kong, CSOP USD Money Market Fund will invest in high quality short-term money market instruments and debt securities to provide liquidity and returns comparable to USD deposit rates. With innovative product design, CSOP USD Money Market Fund renders as first T+0 subscription and redemption USD money market fund in Singapore. CSOP USD Money Market Fund is available for subscription at price of USD 1 with size of 1,000 shares in initial offer period and 100 shares after the close of the initial offer period. Worth noticing, the management fee of 0.30% per annum of the Net Asset Value will be waived for the first 3 months since official launch." The release explains, "A strong USD in rate-hike cycle has attracted global investors attention. About 59% of global foreign exchange reserves is in USD, having increased from USD 4,451 Billion in 2015 to USD 7,087 Billion in 2021 Q4, an increase of about 59%3. USD Money market fund (MMF) size continued to rise especially in Fed hike cycle, reaching record high of USD4.7 trillion in 2021, 9.5% higher than 20204. Strong inflow was supported by rising demand for quality assets with quality, liquidity and safety." Steve Zeng, Managing Director of Futu comments, "moomoo has become one of the most trusted fintech platforms in Singapore <b:>~_. Among the permanent residents aged between 20 to 70 years old in Singapore, 21.5% of them already use moomoo as of June this year. `We are pleased that CSOP and moomoo successfully launched the first USD money market fund in Singapore with T+0 settlement for subscriptions and redemptions, which can provide retail investors in Singapore with more choices for fund investment and wealth management. Through the collaboration with CSOP, we believe that moomoo can continue strengthening its services and platform and enhancing the investing experience of Singaporean investors." Melody He, deputy CEO of CSOP, tells us, "Leveraging on our rich experience in managing USD Money Market Fund in Hong Kong, CSOP is confident to introduce the first CSOP's T+0 USD money market fund to Singapore investors. Besides the competitive return compared to USD demand deposits5, CSOP USD money market fund also perfectly answers investors' demand on cash management with high liquidity and diversification. The launch of CSOP USD Money Market Fund is a milestone of financial inclusion in Singapore and we hope it can contribute to the development of Singapore's financial market." The release adds, "CSOP Asset Management Limited was founded in 2008 as the first offshore asset manager set up by a regulated asset management company in China."

MarketWatch writes, "Stable value funds have become today's most popular 401(k) investment, but they come with complex risks." The article tells us, "Stable value funds, which combine diversified bond portfolios with bank or insurance-company contracts that help guard against market volatility, took in 85% of 401(k) trading inflows in May, according to the Alight Solutions 401(k) Index. Looking at data going back to 2013, stable value funds have never attracted such a large percentage of trading inflows, according to the index.... Right now, 'stable value is the vehicle of choice for capital preservation' in 401(k)s and other defined-contribution plans, said Steven McKay [of] Putnam Investments, where stable-value assets climbed 87% between the end of 2019 and June of this year, to $16.4 billion." It explains, "While stable value funds' relatively smooth, consistent returns can look appealing when both stocks and bonds are sliding, their inner workings involve complicated tradeoffs and risks that vary widely depending on how the fund is structured. In some of these products, the underlying assets are owned by the retirement plan, fees are transparent, and there's a diversified set of issuers providing the contracts that ensure smooth and steady returns. In other stable value products, the retirement plan owns nothing but a piece of paper: A single insurance company owns the assets and provides the guarantee, earning a spread that's typically not disclosed to investors and exposing plan participants to considerable risk in the event that insurer goes belly up." They quote consultant Chris Tobe, "People don't understand the risk they're taking." The MarketWatch piece comments, "Investors should also be aware of trading restrictions and how rising rates may affect these funds, stable value experts say. As interest rates rise, stable value returns will ultimately move higher, but they may react more slowly than some other investments such as money market funds. Plan participants can generally sell their stable value holdings whenever they like but in many cases can't move their money directly from stable value to a money market fund. And at the plan level, dumping a stable value fund isn't easy: In some stable value products, it can take years for the plan to extract all its assets from the fund." Finally, they add, "In many retirement plans, stable value is now the only conservative investment option. These funds, which are available only in defined-contribution plans such as 401(k)s and 403(b)s, had about $918 billion in assets as of the first quarter of this year, accounting for about 9% of all defined-contribution plan assets, according to the Stable Value Investment Association, an industry group. But unlike many other 401(k) investment options, stable value funds aren't mutual funds and can't be easily tracked and compared using ticker symbols. Stable value investments, like money market funds, have shown cracks during past periods of market turmoil. In early 2009 Congressional testimony, former Federal Reserve chair Ben Bernanke defended the Fed's 2008 bailout of AIG, saying that if the insurance giant had been allowed to fail, 'workers whose 401(k) plans had purchased $40 billion of insurance from AIG against the risk that their stable value funds would decline in value would have seen that insurance disappear.'"

Our flagship Crane 100 Money Fund Index 7-Day Yield Average rose by 4 basis points to 1.23% in the week ended Friday, 7/8, after rising 4 basis points the previous week and 27 basis points the week before that. Money market fund yields have more than doubled from their level of 0.58% on May 31, and they're up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Brokerage sweep rates also moved higher again over the past week as RW Baird and Ameriprise Financial Services moved rates higher. Our latest Brokerage Sweep Intelligence shows brokerages now paying an average of 0.15% on FDIC insured deposits, up from 0.04% a month ago (and 0.01% two months ago). We review the latest money fund and brokerage sweep yields below. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 1.05%, unchanged in the week through Friday. The Crane Money Fund Average is up 58 bps from 0.47% at the beginning of June. Prime Inst MFs were down 1 bp to 1.27% in the latest week, and up 63 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 2 bps to 1.14%, they are up 59 bps since the start of June. Treasury Inst MFs unchanged for the week at 1.06%, up 55 bps since the beginning of June. Treasury Retail MFs currently yield 0.81%, (down 1 bp for the week, and up 51 bps since June), Government Retail MFs yield 0.85% (up 4 bp for the week, and up 57 bps since June started), and Prime Retail MFs yield 1.06% (down 4 bps for the week, and up 59 bps from beginning of June), Tax-exempt MF 7-day yields rose by 2 bps to 0.56%, they were up 15 bps since the start of June. Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched higher to 0.15%. This follows increases over the past several weeks but also follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of July 1, shows numerous changes over the previous week. Our latest Brokerage Sweep Intelligence reports that RW Baird hiked its Insured Deposit Sweep Program to 0.37% for balances under $250K, to 0.42% for balances between $250K and $1 million, to 0.54% for balances between $1 million and $2 million and to 0.71% for balances of $5 million and more. We also show that Ameriprise Financial Services increased rates to 0.08% for balances under $100K, to 0.09% for balances between $100K and $250K, to 0.11% for balances between $250K and $1 million, to 0.13% for balances between $1 million and $5 million and to 0.15% for balances of $5 million and more for the week ended July 8. Just four of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, and UBS. According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/8), just 23 funds (out of 818 total) still yield 0.00% or 0.01% with assets of $8.8 billion, or 0.2% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 88 funds yielding between 0.02% and 0.49%, totaling $69.2B, or 1.4% of assets; 259 funds yield between 0.50% and 0.99% with $465.1 trillion in assets, or 9.3%; 189 funds yield between 1.00% and 1.24% with $1.574 trillion in assets or 31.6%; 218 funds yielded between 1.25% and 1.49% with $2.479 trillion or 49.7%; and 41 funds yielded over 1.50% ($388.5 billion, or 7.8%).

Pensions & Investments published a brief entitled, "GSAM's head of liquidity solutions to retire at end of year." They tell us, "David Fishman, managing director and head of liquidity solutions at Goldman Sachs Asset Management, plans to retire from GSAM effective Dec. 31 and prior to that will step down as portfolio manager for several funds, including exchange-traded funds, regulatory filings show." A Prospectus Supplement filing for Goldman Sachs Trust, on behalf of Goldman Sachs Enhanced Income Fund, Goldman Sachs Short Duration Government Fund, Goldman Sachs Short Duration Bond Fund and Goldman Sachs Short-Term Conservative Income Fund explains, "David Fishman, Managing Director and Head of Liquidity Solutions within Goldman Sachs Asset Management, L.P. ('GSAM'), has announced his intention to retire from GSAM, effective December 31, 2022. On October 1, 2022, Mr. Fishman will no longer serve as a portfolio manager for the Funds. John Olivo, Managing Director and Global Head of Short Duration Strategies within GSAM, will continue to serve as portfolio manager for the Funds. Accordingly, effective October 1, 2022, all references to Mr. Fishman in the Prospectuses, Summary Prospectuses and SAI are deleted in their entirety." A separate filing for the Goldman Sachs ETF Trust, which includes Goldman Sachs Access Treasury 0-1 Year ETF and Goldman Sachs Access Ultra Short Bond ETF, adds, "David Fishman, Managing Director and Head of Liquidity Solutions within Goldman Sachs Asset Management, L.P., has announced his intention to retire from GSAM, effective December 31, 2022. On October 1, 2022, Mr. Fishman will no longer serve as a portfolio manager for the Funds. Todd Henry and David Westbrook, each a Vice President within GSAM's Fixed Income Team, will continue to serve as portfolio managers for the Funds. Accordingly, effective October 1, 2022, all references to Mr. Fishman in the Prospectus, Summary Prospectuses and SAI are deleted in their entirety."

ICI's latest weekly "Money Market Fund Assets" report shows assets jumped in the latest week with month-end and Holiday outflows in the rearview. Year-to-date, MMFs are down by $148 billion, or -3.1%, with Institutional MMFs down $141 billion, or -4.3% and Retail MMFs down $7 billion, or -0.5%. Over the past 52 weeks, money fund assets are up by $47 billion, or 1.0%, with Retail MMFs rising by $28 billion (2.0%) and Inst MMFs rising by $19 billion (0.6%). (For the month of June, MMF assets increased by $31.9 billion to $4.996 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI.) ICI's weekly release says, "Total money market fund assets increased by $26.45 billion to $4.56 trillion for the week ended Wednesday, July 6, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $15.42 billion and prime funds increased by $9.68 billion. Tax-exempt money market funds increased by $1.36 billion." ICI's stats show Institutional MMFs rising $16.5 billion and Retail MMFs increasing $10.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.015 trillion (88.1% of all money funds), while Total Prime MMFs were $437.6 billion (9.6%). Tax Exempt MMFs totaled $104.6 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $9.96 billion to $1.46 trillion. Among retail funds, government money market fund assets increased by $4.01 billion to $1.14 trillion, prime money market fund assets increased by $5.67 billion to $224.63 billion, and tax-exempt fund assets increased by $270 million to $93.63 billion." Retail assets account for just under a third of total assets, or 32.1%, and Government Retail assets make up 78.2% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $16.50 billion to $3.10 trillion. Among institutional funds, government money market fund assets increased by $11.41 billion to $2.87 trillion, prime money market fund assets increased by $4.01 billion to $212.99 billion, and tax-exempt fund assets increased by $1.09 billion to $10.97 billion." Institutional assets accounted for 67.9% of all MMF assets, with Government Institutional assets making up 92.7% of all Institutional MMF totals. (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.)

The latest "Minutes of the Federal Open Market Committee, June 14–15, 2022," discuss "Developments in Financial Markets and Open Market Operations." They comment, "The manager of the System Open Market Account (SOMA) turned first to a discussion of financial developments. Over the intermeeting period, there were significant swings in asset prices, and financial conditions tightened, on net, as market participants assessed incoming information about the economy. In the United States, near-term policy rate expectations shifted markedly toward the end of the period, particularly after the release of the May consumer price index (CPI) report. Ahead of the release of the report, market expectations reflected a broad consensus that there would be 50 basis point rate increases at both the June and July FOMC meetings. After the release of the higher-than-expected inflation data, policy-sensitive rates pointed instead to a considerable probability of 75 basis point moves at both the June and July meetings. The market-implied path of the federal funds rate moved higher at longer horizons as well. Market participants noted elevated uncertainty about the economic and monetary policy outlook." The FOMC writes, "Across the yield curve, rates on nominal Treasury securities ended the period significantly higher, primarily reflecting the revision in the outlook for monetary policy and the associated rise in real yields <b:>~_. Market-based measures of inflation compensation continued to indicate expectations that inflation would decline notably in coming quarters, and measures of medium-term inflation compensation fell over the intermeeting period. Market participants reported that while liquidity conditions in the market for Treasury securities had been affected by the elevated volatility in rates and larger trades were having an increased effect on pricing, overall market functioning had held up. Responding to higher interest rates and some concerns about the growth outlook, equity prices moved substantially lower over the period." They tell us, "`Regarding money market developments, the manager noted that the 50 basis point increase in the target range at the May FOMC meeting passed through to the effective federal funds rate and was also transmitted to other overnight rates. The federal funds rate held steady at 83 basis points throughout the period, while the Secured Overnight Financing Rate softened, on net, falling to the bottom of the federal funds target range later in the period. Contacts attributed the downward pressure on secured rates to high liquidity levels and declining Treasury bill supply, as well as elevated uncertainty about the interest rate path, which had increased demand for short-term investments. In this environment, participation in the overnight reverse repurchase agreement (ON RRP) facility increased, and a greater share of activity in overnight private repurchase agreement (repo) markets was conducted by lenders who lacked access to the facility. The manager noted that, if ON RRP usage continued to rise, it may be appropriate at some point to consider further lifting the per-counterparty limit. Over the longer term, ON RRP usage was expected to fall, with the reduction in the size of the Federal Reserve's balance sheet resulting in a gradual rise in money market rates relative to the ON RRP rate." The Fed states, "Conditions in short-term funding markets remained stable over the intermeeting period, with the May increase in the Federal Reserve's administered rates passing through promptly to overnight money market rates. Spreads on longer-tenor commercial paper (CP) and negotiable certificates of deposit narrowed moderately, with no signs of spillovers beyond the stablecoin market following the collapse of a large algorithmic stablecoin. Indeed, CP outstanding increased slightly over the period. Money market fund (MMF) net yields across all fund types rose notably, as increases in administered rates passed through to money market instruments. Secured overnight rates softened significantly relative to the ON RRP offering rate since the May FOMC meeting, with the downward pressure on rates attributed to continuing declines in net Treasury bill issuance, elevated demand for collateral in the form of Treasury securities, and MMFs maintaining very short portfolio maturities amid uncertainty about the pace of anticipated policy rate increases. Consistent with the downward pressure on repo rates, daily take-up in the ON RRP facility increased further." Finally, the Minutes add, "In their consideration of the appropriate stance of monetary policy, participants concurred that the labor market was very tight, inflation was well above the Committee's 2 percent inflation objective, and the near-term inflation outlook had deteriorated since the time of the May meeting. Against this backdrop, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 75 basis points at this meeting. One participant favored a 50 basis point increase in the target range at this meeting instead of 75 basis points. All participants judged that it was appropriate to continue the process of reducing the size of the Federal Reserve's balance sheet, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. In light of elevated inflation pressures and signs of deterioration in some measures of inflation expectations, all participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Participants observed that a return of inflation to the 2 percent objective was necessary for creating conditions conducive to a sustainably strong labor market over time."

ICI President Eric Pan comments in the Financial Times on "Liquidity strains in markets need structural fixes." He writes, "While high inflation is making the headlines, another potentially worrisome development for markets this year has been the deterioration of liquidity in trading. As the US Federal Reserve discussed in its latest Financial Stability Report in May, liquidity has been falling since late 2021 in US Treasuries as well as in futures contracts on the S&P 500 index and oil. Liquidity -- measured in the ease with which buyers and sellers can transact -- is critical to a well-functioning market for everyday investors and borrowers. Seeing strains across these multiple markets ought to be raising real concerns." His comment letter continues, "In fact, underlying structural weaknesses have been evident for some time. This is particularly so in wholesale funding markets where historically banks, acting as dealers, have played a key role in providing liquidity. More stringent regulatory capital regulations adopted in response to the financial crisis are often cited as making intermediating fixed-income trades more costly. To their credit, policymakers -- both in the US and globally -- have identified that there may be some fundamental structural issues at play in market-making activities. But supposed weaknesses in money market and open-end mutual funds have also been subject to scrutiny." Pan adds, "Policymakers have been looking at the risk that money market and open-end mutual funds might amplify liquidity shocks -- whether any advantage in being the 'first-mover' in fund redemptions could spur further selling or create challenges in offloading assets during stress. So we are seeing a raft of proposals aimed at money market and open-end mutual funds to increase liquidity buffers and require measures such as 'swing pricing' which seek to pass on some of the costs of redemptions to the sellers in times of stress. Some of this is due to a misreading of the evidence from previous episodes of stress, in particular the events of March 2020 when the pandemic caused an abrupt shutdown of the global economy. The fact is that money market and open-ended mutual funds were not the cause of the March 2020 liquidity crisis, and their supposed role in amplifying the crisis is not supported by data." Finally, the letter says, "Our research shows funds' total net sales of bonds, especially Treasuries, were much smaller than has been claimed by policymakers. And the timing of bond mutual funds' daily net sales don't align with the evolution of the dislocation in the Treasury market at the time. In addition, their small share of Treasury market trading volume indicates little, if any, amplification of stress. The main lesson to be drawn from the experience of March 2020 is this: we need to ensure that secondary markets can supply adequate liquidity to all when investors most need it."

An SEC filing for PGIM Ultra Short Bond ETF and several other PGIM funds tells us, "Effective July 1, 2022, Securities Finance Trust Company ('eSeclending') will replace Brown Brothers Harriman & Co. ('BBH') as securities lending agent for the Funds. Additionally, on or about June 3, 2022, The Bank of New York Mellon ('BNY') replaced BBH as Custodian Agent, Transfer Agent and Administrative Agent to the Funds.... Unless otherwise noted, the Funds may lend its portfolio securities to brokers, dealers and other financial institutions subject to applicable regulatory requirements and guidance, including the requirements that: (1) the aggregate market value of securities loaned will not at any time exceed 33 1/3% of the total assets of the Funds; (2) the borrower pledge and maintain with the Funds collateral consisting of cash having at all times a value of not less than 102% (or 105% for foreign securities) of the value of the securities lent; and (3) the loan be made subject to termination by the Funds at any time." It also says, "Cash collateral is invested in an affiliated prime money market fund and will be subject to market depreciation or appreciation. The Funds will be responsible for any loss that results from this investment of collateral. The affiliated prime money market fund in which cash collateral is invested may impose liquidity fees or temporary gates on redemptions if its weekly liquid assets fall below a designated threshold. If this were to occur, the Funds may lose money on its investment of cash collateral in the affiliated prime money market fund, or the Funds may not be able to redeem its investment of cash collateral in the affiliated prime money market fund, which might cause the Funds to liquidate other holdings in order to return the cash collateral to the borrower upon termination of a securities loan.... On termination of the loan, the borrower is required to return the securities to the Funds, and any gain or loss in the market price during the loan would inure to the Funds. If the borrower defaults on its obligation to return the securities lent because of insolvency or other reasons, the Funds could experience delays and costs in recovering the securities lent or in gaining access to the collateral. In such situations, the Funds may sell the collateral and purchase a replacement investment in the market. There is a risk that the value of the collateral could decrease below the value of the replacement investment by the time the replacement investment is purchased." PGIM adds, "During the time portfolio securities are on loan, the borrower will pay the Funds an amount equivalent to any dividend or interest paid on such securities. Voting or consent rights which accompany loaned securities pass to the borrower. However, all loans may be terminated at any time to facilitate the exercise of voting or other consent rights with respect to matters considered to be material. The Funds bears the risk that there may be a delay in the return of the securities which may impair the Funds' ability to exercise such rights."

ICI's latest weekly "Money Market Fund Assets" report shows assets down modestly in the latest week approaching month-end and roughly flat for the month of June. Year-to-date, MMFs are down by $174 billion, or -3.7%, with Institutional MMFs down $157 billion, or -4.9% and Retail MMFs down $17 billion, or -1.2%. Over the past 52 weeks, money fund assets are up by $4 billion, or 0.1%, with Retail MMFs rising by $21 billion (1.5%) and Inst MMFs falling by $18 billion (-0.6%). (For the month of June, through 6/29, MMF assets have increased by $12.5 billion to $4.972 trillion according to Crane's MFI Daily, which tracks a broader universe of funds than ICI.) ICI's weekly release says, "Total money market fund assets decreased by $11.83 billion to $4.53 trillion for the week ended Wednesday, June 29, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $14.29 billion and prime funds increased by $1.85 billion. Tax-exempt money market funds increased by $610 million." ICI's stats show Institutional MMFs falling $19.0 billion and Retail MMFs increasing $7.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.000 trillion (88.3% of all money funds), while Total Prime MMFs were $428.0 billion (9.4%). Tax Exempt MMFs totaled $103.3 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $7.15 billion to $1.45 trillion. Among retail funds, government money market fund assets increased by $911 million to $1.14 trillion, prime money market fund assets increased by $5.68 billion to $218.96 billion, and tax-exempt fund assets increased by $555 million to $93.36 billion." Retail assets account for just under a third of total assets, or 32.0%, and Government Retail assets make up 78.5% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $18.98 billion to $3.08 trillion. Among institutional funds, government money market fund assets decreased by $15.20 billion to $2.86 trillion, prime money market fund assets decreased by $3.83 billion to $208.99 billion, and tax-exempt fund assets increased by $55 million to $9.89 billion." Institutional assets accounted for 68.0% of all MMF assets, with Government Institutional assets making up 92.9% of all Institutional MMF totals. (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.)

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