Daily Links Archives: October, 2023
Money Fund Yields Climb to 5.19%
Money fund yields rose by another basis point this past week (ended 10/27) to 5.19% (as measured by our Crane 100 Money Fund Index), after rising one bp the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.17% on 9/30, 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $30.8 billion last week to $6.011 trillion according to Crane Data's Money Fund Intelligence Daily, but they have fallen by $62.3 billion since the start of October (after rising $93.9 billion in September). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 680), shows a 7-day yield of 5.09%, up 1 bp in the week through Friday. Prime Inst MFs were up 1 bp at 5.29% in the latest week. Government Inst MFs were unchanged at 5.15%. Treasury Inst MFs were unchanged for the week at 5.13%. Treasury Retail MFs currently yield 4.91%, Government Retail MFs yield 4.85%, and Prime Retail MFs yield 5.11%, Tax-exempt MF 7-day yields were up 31 bps to 3.63%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (10/27), 6 money funds (out of 807 total) yield under 3.0% with $11.9 billion in assets, or 0.2%; 114 funds yield between 3.00% and 3.99% ($86.8 billion, or 1.4%), 211 funds yield between 4.0% and 4.99% ($637.4 billion, or 10.6%) and 476 funds now yield 5.0% or more ($5.275 trillion, or 87.8%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Oct. 27, shows that there were no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Barron's Says "Time to Buy Bonds"
Barron's writes "After the Fall: It's Time to Buy Bonds." They tell us, "Rarely in American history has it been this bad for bonds -- and rarely has it been such an opportune time to buy. The bond rout has been brutal. Supposedly ultrasafe Treasuries are on track to lose money for three consecutive years, declining 42% over that period. Other bonds, whether mortgage-backed securities or high-quality corporates, have also taken a beating, leaving investors with losses from what are supposed to provide ballast in a portfolio. But consider what may come next: the end of the bond bear market." But the piece says at the end, "Perhaps the biggest competition for bond funds is cash and T-bills. Retail money-market funds yield an average 4.9%, while Vanguard Federal Money Market (VMFXX), one of the lowest-cost funds, yields 5.3%. Those yields are comparable to short-term Treasury bills, which largely track the federal-funds rate and prospects for additional rate hikes. A six-month T-bill held to maturity yields 5.56% while one-year bills yield 5.45%." Barron's adds, "The knock on cash and T-bills is that yields will fall fast if the Fed cuts rates next year. Investors could miss out on a big bond rally and would have to reinvest at lower market rates. It's an opportunity cost -- the risk of giving up capital gains if there's a geopolitical shock or the Fed cuts. Do-it-yourself investors, though, could 'ladder' the bonds, buying several at different maturities on TreasuryDirect.gov, at a bank, or in a brokerage account, and reinvesting the cash when they come due. No matter how you do it, a 5% cash yield may be a bird in the hand worth taking."
Fidelity's "Understanding Terminology"
Fidelity Investments posted a piece which gives some basic definitions of fund performance terminology. Entitled, "Understanding Money Market and Bond Fund Terminology," it tells us, "As a trusted provider of liquidity management solutions for more than 40 years, Fidelity offers investors a choice of liquidity management products to strike the optimal balance between liquidity, risk, and return, based on their unique investment objectives and risk tolerance. When choosing investments for an effective liquidity management strategy it is important to understand the differences in how yield and return are calculated for a money market mutual fund versus a short-term bond fund." The brief defines, "7-Day Yield" as, "The average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund's total income net of expenses, divided by the total number of outstanding shares and includes any applicable waiver or reimbursement." Fidelity says of "Weighted Average Maturity (WAM), "A weighted average of all the maturities of the securities held in a fund. WAM can be used as a measure of sensitivity to interest rate changes and markets changes. Generally, the longer the maturity, the greater the sensitivity to such changes. WAM is based on the dollar-weighted average length of time until principal payments must be paid. U.S. Securities and Exchange Commission (SEC) limits the WAM of a money market mutual fund to 60 days." Finally, the "30-Day Yield is, "A standard yield calculation developed by the SEC. For bond funds, the yield is calculated by dividing the net investment income per share earned during the 30-day period by the maximum offering price per share on the last day of the 30-day period. The yield figure reflects the interest earned during the 30-day period, after the deduction of the fund's expenses, and includes any applicable waiver or reimbursement. Absent such waivers or reimbursements, the returns will be lower. The 30-day yield is sometimes referred to as the 'SEC 30-Day Yield' or 'standardized yield.'"
WSJ on Smaller Banks' Shrinkage
The Wall Street Journal writes, "Smaller Banks Look to Shrink Their Way Back to Health." It states, "Regional banks have shelled out more and more to depositors to get them to stick around. For many, that still hasn't been enough. After an ugly third quarter, banks rolled out plans last week to try to shrink themselves back to health. Profits dropped by double digits from a year earlier at a number of them, including 44% at KeyCorp, 32% at Citizens Financial and 28% at Truist Financial. KeyCorp said it would become a “smaller, simpler company.” PNC Financial disclosed that it would lay off thousands of employees. Truist, which sold its student loan portfolio this summer, said it would downsize other books with lower returns. Citizens recently said that it would exit the auto loan business and continue to scale back its mortgage business." The piece also says, "Investors are getting nervous. Citizens shares slid nearly 6% on Wednesday after it reported earnings, and U.S. Bancorp shares were down more than 4%. Shares of Zions Bancorp sank almost 10% on Thursday. Regions Financial slid more than 12% on Friday. Megabanks have also had to pay more for deposits, but so far it hasn't been nearly as painful for them. JPMorgan Chase, Bank of America, Wells Fargo and Citigroup collectively earned about $30 billion in the third quarter, a 27% increase from a year earlier.... The banks say it could be worse. They are still making money, just much less of it. Many said their deposit levels were more stable in the third quarter, at least compared with the chaotic first quarter when a string of bank failures led many customers to flee for the perceived safety of the megabanks. Banks paid peanuts for deposits for a long time, including in recent years when customers had tons of extra cash from the pandemic. Now they have to compete with Treasurys and other investments that can yield 5%, or else find other ways to fund themselves."
Weekly MF 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 Oct 20) includes Holdings information from 61 money funds (down 1 from a week ago), or $2.442 trillion (down from $2.620 trillion) of the $5.980 trillion in total money fund assets (or 40.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.085 billion (down from $1.219 trillion a week ago), or 44.4%; Treasuries totaling $822.2 billion (down from $932.5 billion a week ago), or 33.7%, and Government Agency securities totaling $217.5 billion (down from $238.5 billion), or 8.9%. Commercial Paper (CP) totaled $104.1 billion (up from a week ago at $81.7 billion), or 4.3%. Certificates of Deposit (CDs) totaled $88.8 billion (up from $68.6 billion a week ago), or 3.6%. The Other category accounted for $90.0 billion or 3.7%, while VRDNs accounted for $34.0 billion, or 1.4%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $822.2 billion (33.7% of total holdings), the Federal Reserve Bank of New York with $368.4 billion (15.1%), Fixed Income Clearing Corp with $169.5B (6.9%), Federal Home Loan Bank with $160.1B (6.6%), RBC with $50.6B (2.1%), Federal Farm Credit Bank with $49.8B (2.0%), Bank of America with $48.3B (2.0%), BNP Paribas with $44.0B (1.8%), JP Morgan with $43.4B (1.8%) and Barclays PLC with $41.8B (1.7%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($246.6B), Fidelity Inv MM: Govt Port ($184.2B), JPMorgan 100% US Treas MMkt ($165.5B), Morgan Stanley Inst Liq Govt ($155.4B), Federated Hermes Govt ObI ($143.9B), State Street Inst US Govt ($127.9B), Fidelity Inv MM: MM Port ($116.7B), Allspring Govt MM ($109.3B), Dreyfus Govt Cash Mgmt ($100.9B) and JPMorgan Prime MM ($76.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Crane 100 Inches Up to 5.18%
Money fund yields rose 1 bp this past week at 5.18%, after remaining unchanged week prior, as measured by our Crane 100 Money Fund Index for the week ended Friday, 10/20. The Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. We expect yields to remain flat in coming days as MMFs have finished digesting the Fed's (last) July 26th 25 basis point hike. Yields were 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds fell by $5.2 billion last week to $5.980 trillion according to Crane Data's Money Fund Intelligence Daily, and they have fallen by $93.1 billion since the start of October (after rising $93.9 billion in September). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 681), shows a 7-day yield of 5.08%, up 1 bp in the week through Friday. Prime Inst MFs were up 1 bp at 5.28% in the latest week. Government Inst MFs were up 1 bp at 5.15%. Treasury Inst MFs up 1 bp for the week at 5.13%. Treasury Retail MFs currently yield 4.90%, Government Retail MFs yield 4.85%, and Prime Retail MFs yield 5.10%, Tax-exempt MF 7-day yields were up 47 bps to 3.32%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (10/20), 26 money funds (out of 808 total) yield under 3.0% with $17.1 billion in assets, or 0.3%; 103 funds yield between 3.00% and 3.99% ($109.4 billion, or 1.8%), 214 funds yield between 4.0% and 4.99% ($923.8 billion, or 15.4%) and 465 funds now yield 5.0% or more ($4.930 trillion, or 82.4%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Oct. 20, shows that there were no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Dreyfus Recaps 2a-7 Changes for AFP
BNY Mellon posted a contact page for this weekend's AFP Conference in San Diego, which includes a news piece from Dreyfus on "Navigating Money Market Fund Reform." It explains, "Given our commitment to engage and proactively communicate with our clients on an ongoing basis, we are sharing an update on money market fund (MMF) reform with developments as of October 2, 2023. To recap, the US Securities and Exchange Commission (SEC) approved long-anticipated MMF reform on July 12, 2023. This reform, which we refer to here as MMF amendments, modifies certain rules that govern MMFs under the Investment Company Act of 1940, as amended (1940 Act), and is designed to improve the resiliency, liquidity and transparency of money market funds, thereby benefiting underlying investors. We support the MMF amendments." The brief tells us, "Dreyfus is part of a comprehensive, multi-workstream working group which involves all areas of BNY Mellon that support the money market fund industry. Please see the following timeline and status updates from the Dreyfus team." Dreyfus explains, "Effective October 2, 2023" is the "Removal of redemption gates" and "Removal of tie between liquidity fees and thresholds." The Status is: "MMFs Implemented. No operational challenges to report." Discussing the "Reverse distribution mechanism; (RDM) permitted when gross yields are negative," they write for "Retail & Government MMFs" "Although RDM is now permitted, we continue to work with clients and operational partners on processing and refining workflows. Additionally, we, and the industry, are patiently waiting for the Internal Revenue Service (IRS) to advise on tax treatment implications if RDM is utilized. Stay tuned -- there will be more to come on the RDM front." The piece also tells us, "Effective April 2, 2024" is the "Discretionary liquidity fee [for] Non-government MMFs." "Discretionary fees are not new to MMFs; however, we are establishing a framework around this particular amendment internally. No operational challenges to report." Also, they mention, "Increased portfolio liquidity requirements" for all MMFs and say, "No operational challenges to report. We are prepared to manage portfolios with these higher liquidity percentages: At least 25% of the fund's total assets in daily liquid assets (increase from 10%), [and] At least 50% of the fund's total assets in weekly liquid assets (increase from 30%)." On the "Calculation of weighted average maturity (WAM)/weighted average life (WAL), they post, "We agree with the SEC's determination that standardized calculations for WAM and WAL should be based on the market value of securities. We are prepared to make these changes where necessary. No operational challenges to report." The update states that, "Effective June 11, 2024," regarding changes to "Forms N-MFP and N-CR," "We are in the process of working through these MMF amendments internally. No challenges to report." Finally, they say about the rules "Effective October 2, 2024," which include the "Mandatory liquidity fee for Institutional Prime and Tax-Exempt Funds," "We are evaluating client needs and expectations, including how to best support the imposition of a mandatory liquidity fee from an operational and timing standpoint. If you have any views on this topic, please connect with us through your Dreyfus sales representative." The piece adds, "While expected, the SEC's money market fund reform is a significant regulatory change. We strongly believe Dreyfus is well positioned to continue to be a trusted partner by delivering high-quality cash management investment solutions in the space."
Allspring MMFs' PM Commentary
Allspring Money Market Funds writes in their latest "Portfolio Manager Commentary, "The government money markets have settled into a civilized, orderly state based on a few key pillars: first, an expectation that short-term rates governed by the Federal Reserve (Fed) will be at the current level, or maybe a touch higher, for a good amount of time stretching well into next year; second, a steady, plentiful stream of Treasury bill (T-bill) supply that may span nearly a year, from late May this year through the first quarter of 2024; and third, a still-generous quantity of excess demand in the system, best represented by the roughly $1.5 trillion in the Fed's reverse repurchase program (RRP). This contrasts starkly with the prior year, when the Fed was in motion, with both the pace and final destination of rate changes unknown; T-bill supply gyrated wildly, largely due to debt ceiling constraints; and investors reacted to the uncertainty by parking cash in the RRP, which reached an all-time high above $2.5 trillion at the end of 2022. Over the summer, as investors became more comfortable with a careful Fed nearing the end of its hiking cycle, they steadily bought the new T-bill supply as it came, earning yields not far from the overnight RRP rate. This brought the RRP balance down by nearly $1 trillion in the nine months since the all-time high. Given the expected durability of the pillars currently driving market behavior, it will not be a surprise to see RRP cash continue to be deployed in the T-bill market in the same orderly fashion through the end of the year. If expectations of Fed activity become unanchored again, or when T-bill supply fades in the spring tax season, the money markets may shed their calm veneer and resume their messy search for the proper levels." The update comments on the "Prime sector <b:>," "In this environment of higher rates for a longer time, the front end of the rates curve continues to be an attractive asset class, offering lofty yields as well as reduced duration risk.... [P]rime money market yields have remained elevated as the markets focus on the 'higher for longer' messaging: The London Interbank Offered Rate (LIBOR) 1 yield curve was little changed from August month-end: while the 3-month printed at 5.66%, the 1-month yield sagged 1 bp to 5.43%, and the 6-month yield reset 2 bps higher at 5.90%. An interesting development this month was a very large commercial paper issuance or financing campaign by a large highly rated tech corporation. Most issuance in the 2a-7 prime space tends to be financials-sector-related, whether in the form of deposits or commercial paper issued directly by banks and finance companies or in the form of securities issued by funding programs sponsored by those entities, such as asset-backed commercial paper. This corporate program was brought to market with an authorized total program size of $46 billion; by month-end, outstandings had reached $26 billion. This was big news from a corporate issuer and a relative novelty in our space. Even with this size, however, and being primary issuance (i.e., not being written to roll a maturity), the pricing was somewhat on the rich side at just at or slightly above the term Secured Overnight Financing Rate (SOFR)."
Western's Offshore Mischler Shares
A press release entitled, "Western Asset Announces New Partnership with Mischler Financial Group," tells us, "Franklin Templeton announced the launch of Mischler Financial Group branded share classes in two Cayman Islands-based institutional money market funds sub-advised by Western Asset Management. The new share classes represent a partnership between Western Asset and Mischler Financial Group that aims to support their mutual corporate clients' objectives of maximizing their positive social impact through partnering with minority, women and disabled-veteran broker dealers. The share classes are available for investment by non-U.S.-based institutional shareholders through Mischler Financial Group and its affiliates and are intended as cash management solutions for non-U.S.-based shareholders, including corporate treasury and other qualifying institutional investors." La-Yona Rauls, Head of Corporate Cash Strategies at Mischler, comments, "We are excited to continue the expansion in investment solutions for investors aiming to support business growth for minority and veteran-owned enterprises. This new cash management solution for non-U.S. investors is an important addition for a number of our clients and increases the range of cash management strategies available to them supporting their focus on positive social change." Matt Jones, Head of Liquidity Distribution at Western Asset, adds, "We are excited to have been selected as the exclusive offshore money market fund provider to Mischler Financial Group's clients. Western Asset is committed to supporting the continued business growth of diverse broker dealers and Mischler is a leader in that category." The release also says, "Western Asset looks forward to working closely with Mischler to make the shares available to their non-U.S. corporate clients. Money market funds are a key product within Western Asset's extensive range of U.S. and internationally domiciled short-term investment solutions. In total, the firm manages $56.5 billion in money market funds as of June 30, 2023." For more on ESG & D&I/Social MMFs, see these Crane Data News pieces: "UBS Latest to Abandon ESG Money Funds; JNL Liquidates Money Fund" (10/13/23), "Morgan Stanley Latest to Abandon ESG MMFs" (8/16/23), "Money Fund Assets Decline Again; More AFP Survey: ESG Small in Cash" (6/23/23) and "ESMA, FSB Push European Money Fund Reforms; New HSBC ESG Euro MF" (3/27/23).
Weekly MF 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 Oct 13) includes Holdings information from 62 money funds (unchanged from two weeks ago), or $2.620 trillion (down from $2.851 trillion) of the $5.985 trillion in total money fund assets (or 43.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.219 billion (down from $1.474 trillion two weeks ago), or 46.5%; Treasuries totaling $932.5 billion (up from $929.6 billion two weeks ago), or 35.6%, and Government Agency securities totaling $238.5 billion (up from $229.5 billion), or 9.1%. Commercial Paper (CP) totaled $81.7 billion (up from two weeks ago at $74.8 billion), or 3.1%. Certificates of Deposit (CDs) totaled $68.6 billion (down from $74.3 billion two weeks ago), or 2.6%. The Other category accounted for $56.0 billion or 2.1%, while VRDNs accounted for $23.7 billion, or 0.9%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $932.5 billion (35.6% of total holdings), the Federal Reserve Bank of New York with $428.1 billion (16.3%), Fixed Income Clearing Corp with $199.0B (7.6%), Federal Home Loan Bank with $175.7B (6.7%), RBC with $55.0B (2.1%), Federal Farm Credit Bank with $53.2B (2.0%), Citi with $45.3B (1.7%), JP Morgan with $43.9B (1.7%), Goldman Sachs with $41.6B (1.6%) and Barclays PLC with $41.2B (1.6%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($250.8B), Goldman Sachs FS Govt ($241.7B), Fidelity Inv MM: Govt Port ($182.8B), JPMorgan 100% US Treas MMkt ($164.0B), Morgan Stanley Inst Liq Govt ($156.8B), State Street Inst US Govt ($129.9B), Fidelity Inv MM: MM Port ($113.4B), Allspring Govt MM ($110.8B), Dreyfus Govt Cash Mgmt ($102.5B) and Goldman Sachs FS Treas Instruments ($86.6B). (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 Flat Again at 5.17%
Money fund yields remain unchanged this past week at 5.17%, after falling 1 bp the week prior, as measured by our Crane 100 Money Fund Index for the week ended Friday, 10/13. The Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. We expect yields to remain flat in coming days as MMFs have finished digesting the Fed's (last) July 26th 25 basis point hike. Yields were 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds fell by $93.0 billion last week to $5.985 trillion according to Crane Data's Money Fund Intelligence Daily, and they have fallen by $87.9 billion since the start of October (after rising $93.9 billion in September). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 681), shows a 7-day yield of 5.07%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 5.27% in the latest week. Government Inst MFs were up 1 bp at 5.14%. Treasury Inst MFs up 1 bp for the week at 5.12%. Treasury Retail MFs currently yield 4.89%, Government Retail MFs yield 4.85%, and Prime Retail MFs yield 5.09%, Tax-exempt MF 7-day yields were down 27 bps to 2.85%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (10/13), 75 money funds (out of 808 total) yield under 3.0% with $38.2 billion in assets, or 0.6%; 55 funds yield between 3.00% and 3.99% ($88.1 billion, or 1.5%), 216 funds yield between 4.0% and 4.99% ($942.0 billion, or 15.7%) and 462 funds now yield 5.0% or more ($4.917 trillion, or 82.2%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Oct. 13, shows that there were no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
SSGA's Q3 2023 Cash Outlook
State Street Global Advisors released its "Q3 2023 Cash Outlook" last week, which was titled "MMF Balances at 25-Year High." It tells us, "[C]ash strategies are buying T-Bills and extending durations. The breakeven has been working. The extreme caution taken by MMFs in 2022 -- letting durations (weighted average maturity, WAM) roll into the single digits -- has passed and MMF durations are now in the mid '20s WAM. It is not exactly a dramatic extension in duration, but funds are no longer in fear of the next 75 bp hike from Chair Jerome Powell." The piece explains, "MMFs have been taking money out of the Fed's Reverse Repurchase Program (RRP) and buying T-Bills. The RRP is down USD 700 bn from the high balances it held back in spring. The decline has been consistent with the Debt Ceiling resolution and the dramatic increase in T-Bill issuance. There has been some concern over this decline in RRP utilization. Ironically, there was concern over the increase in program utilization back in the spring of 2021 when the program's balance went from zero to over a billion in a matter of months. Ultimately, the Fed would like to see the RRP balance at zero. That would indicate a healthy balance of liquidity and functioning money markets. It is probably going to be a while and several billion more of QT before we get there." SSGA adds, "An additional effect of QT has been the increased funding needs of primary dealers. These dealers are required to bid on all of the US Treasury auctions. When they buy US Treasuries at auction, they do not necessarily have the money to pay for them; thus, they need financing. MMFs and other short-term cash investors can provide this financing through a repo transaction, where money is loaned and US Treasuries are received as collateral. Overall, total dealer repo balances as reported by the Fed have been trending higher for the past several months." Finally, they write, "Maybe, as QT continues, dealers will be asked to finance more of the debt rolling off the Fed's balance sheet. `This should put upward pressure on SOFR rates as that financing comes more in demand and reliance on the RRP decreases further. If liquidity continues to drain, we could see the opposite of what has existed for the past two years: upward funding pressure. But that dynamic appears to be some ways off. Investment Company Institute (ICI) reports MMF balances at historic highs. Current MMF AuM is over USD 5.6 trn. A year ago, balances were at USD 4.5 trn, and 5 years ago they were at USD 2.8 trn. Back in 2006 and 2007, we saw similar percentage increases in cash balances. Could this foreshadow a turn in the business cycle?"
ICI: MMF Assets Dip But Still $5.7T
ICI's latest weekly "Money Market Fund Assets" report shows MMF assets inching lower after breaking the $5.7 trillion level last week. ICI's weekly asset series dipped to $5.706 trillion, just $2 billion below the record $5.708 trillion level. Assets are up by $972 billion, or 20.5%, year-to-date in 2023, with Institutional MMFs up $478 billion, or 15.6% and Retail MMFs up $494 billion, or 29.4%. Over the past 52 weeks, money funds have risen a massive $1.118 trillion, or 24.4%, with Retail MMFs rising by $617 billion (39.7%) and Inst MMFs rising by $501 billion (16.5%). The release says, "Total money market fund assets decreased by $1.57 billion to $5.71 trillion for the week ended Wednesday, October 11, the Investment Company Institute reported. Among taxable money market funds, government funds decreased by $7.29 billion and prime funds increased by $6.52 billion. Tax-exempt money market funds decreased by $797 million." ICI's stats show Institutional MMFs falling $13.1 billion and Retail MMFs rising $11.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.681 trillion (82.0% of all money funds), while Total Prime MMFs were $906.4 billion (15.9%). Tax Exempt MMFs totaled $119.5 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $11.52 billion to $2.17 trillion. Among retail funds, government money market fund assets increased by $5.46 billion to $1.42 trillion, prime money market fund assets increased by $6.39 billion to $641.46 billion, and tax-exempt fund assets decreased by $331 million to $108.15 billion." Retail assets account for over a third of total assets, or 38.1%, and Government Retail assets make up 65.5% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $13.08 billion to $3.53 trillion. Among institutional funds, government money market fund assets decreased by $12.75 billion to $3.26 trillion, prime money market fund assets increased by $131 million to $264.93 billion, and tax-exempt fund assets decreased by $467 million to $11.39 billion." Institutional assets accounted for 61.9% of all MMF assets, with Government Institutional assets making up 92.2% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $6.1 trillion level and hit a record $6.113 trillion last Thursday, Oct. 5, before easing back to $6.087 trillion Wednesday (10/11). Assets have risen by $13.7 billion in October through 10/11 after rising by $93.9 billion in Sept., $98.3 billion in August and $34.7 billion in July. 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.
Bloomberg on Muni Money Funds
Bloomberg writes "`Municipal Money-Market Funds Lose Out on Record Investor Cash Demand," which tells us, "Municipal money-market funds are missing out on record demand for cash as higher-yielding taxable products, volatile rates and fewer investment options make the niche sector less appealing for many retail buyers. With the Federal Reserve raising interest rates to the highest in 22 years, Treasuries headed for another annual loss and questions swirling around the outlook for stocks, the stability of taxable money-market funds that are yielding more than 5% has proved irresistible to many investors. Such assets have soared 18.3% through September to a record of about $6 trillion, according to Crane Data. Meanwhile, tax-exempt money-market funds have only grown 3.4%, reaching $122.9 billion." The article explains, "What it boils down to is that yields on the muni offerings, which are lower because of the tax benefit they provide, simply aren't compelling enough for buyers outside of the ultra-wealthy. The rates they offer also tend to be more volatile than on taxable options, complicating the comparison. 'The yields on munis just have not been attractive,' said Peter Crane, president of Crane Data, which tracks the money market-fund industry. The average seven-day yield for tax-exempt money-market funds as of Oct. 6 is 3.12%, while the average for taxable products is 5.07%, Crane data show.... 'The volatility of rates has fooled investors so many times,' Crane said. Investors are 'just sick of muni funds showing a high rate one week and then by the time you move in, it's gone.'" The piece adds, "Consolidation in the industry also limits the growth for tax-exempt funds. Over the last two decades or so, near-zero interest rates and US Securities and Exchange Commission changes resulted in many funds closing or merging with others, shrinking the number of options. 'It's pouring rain, and they've just got tiny buckets,' Crane said. 'They’re benefiting, but they're not the size they used to be, and they aren't on the menus like they used to be. There's only a handful of players now.'"
Crane 100 Index Dips Back to 5.17%
Money fund yields fell 1 basis point this past week to 5.17%, after rising 1 bp the week prior, as measured by our Crane 100 Money Fund Index for the week ended Friday, 10/6. The Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. We expect yields to remain flat in coming days as MMFs have finished digesting the Fed's (last) July 26th 25 basis point hike. Yields were 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $5.2 billion last week to $6.078 trillion according to Crane Data's Money Fund Intelligence Daily, and they have risen by $5.2 billion since the start of October (after rising $93.9 billion in September). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 682), shows a 7-day yield of 5.07%, unchanged in the week through Friday. Prime Inst MFs were down 1 bp at 5.27% in the latest week. Government Inst MFs were down 1 bp at 5.13%. Treasury Inst MFs down 1 bp for the week at 5.11%. Treasury Retail MFs currently yield 4.88%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.08%, Tax-exempt MF 7-day yields were down 58 bps to 3.12%. According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (10/6), 38 money funds (out of 809 total) yield under 3.0% with $21.3 billion in assets, or 0.3%; 93 funds yield between 3.00% and 3.99% ($107.5 billion, or 1.8%), 222 funds yield between 4.0% and 4.99% ($1.044 trillion, or 17.2%) and 456 funds now yield 5.0% or more ($4.905 trillion, or 80.7%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Oct. 6, shows that there were no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Barron's: Best Money-Market Funds
Barron's writes on "The Best Money-Market Funds." The piece says, "One investment class that has seen big inflows this year is also one of the humblest: money-market funds. Often used by investors as a place to get a higher yield on their cash than basic bank savings accounts, these highly liquid mutual funds seek to maitnain a stable net asset value and pay dividends that reflect short-term interest rates. Many now yield 5% or more, reflecting the current 5.25-5.5% federal-funds target, following the Federal Reserve's 11 interest-rate hikes over the past year. Money-market funds have received $632 billion in net inflows this year, putting net assets at $5.5 trillion, according to LSEG Lipper. That's up $1 trillion from 2022's year-end data and nearly double 2018's levels." They quote Judith Raneri, senior portfolio manager of Gabelli U.S. Treasury Money Market Fund, "I'm happy that money-market funds are finally getting their day in the sun. Money-market funds have definitely benefited from [the Fed's] pivot." The article explains, "With investors piling into these funds, Barron's surveyed the retail money-market fund landscape to see which funds are sporting the highest yields -- and to dig into how these funds operate to remind investors what they're buying. They are highly regulated to keep assets stable, but they do still carry a modicum of risk.... Over the years, the SEC has tried to strengthen these products. Recently, it passed reforms requiring that issuers maintain at least 25% of a fund's total assets in daily liquid assets and at least 50% of a fund's total assets in weekly liquid assets." Barron's adds, "Many portfolio managers say their liquidity levels are well above SEC requirements and publish these levels on their websites. Laurie Brignac, Invesco's chief investment officer and head of its global liquidity team, manages Invesco Premier Portfolio (IPPXX) and Invesco Government Money Market (INAXX). She says the funds publish full holdings weekly, along with daily and weekly liquidity, yields, and portfolio structure, offering more transparency than seen in other investment products."
ICI: MMF Assets Break $5.7 Trillion
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets breaking over $5.7 trillion for the first time ever. ICI's weekly asset series jumped to $5.708 trillion; it has broken records in 9 out of the past 12 weeks. Assets are up by $973 billion, or 20.6%, year-to-date in 2023, with Institutional MMFs up $491 billion, or 16.1% and Retail MMFs up $482 billion, or 28.8%. Over the past 52 weeks, money funds have risen a massive $1.130 trillion, or 24.7%, with Retail MMFs rising by $617 billion (40.0%) and Inst MMFs rising by $513 billion (16.9%). The release says, "Total money market fund assets increased by $64.13 billion to $5.71 trillion for the week ended Wednesday, October 4, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $52.59 billion and prime funds increased by $7.02 billion. Tax-exempt money market funds increased by $4.52 billion." ICI's stats show Institutional MMFs surging $37.4 billion and Retail MMFs jumping $26.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.688 trillion (82.1% of all money funds), while Total Prime MMFs were $899.9 billion (15.8%). Tax Exempt MMFs totaled $120.3 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $26.77 billion to $2.16 trillion. Among retail funds, government money market fund assets increased by $15.39 billion to $1.42 trillion, prime money market fund assets increased by $7.79 billion to $635.07 billion, and tax-exempt fund assets increased by $3.59 billion to $108.48 billion." Retail assets account for over a third of total assets, or 37.8%, and Government Retail assets make up 65.6% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $37.35 billion to $3.55 trillion. Among institutional funds, government money market fund assets increased by $37.19 billion to $3.27 trillion, prime money market fund assets decreased by $773 million to $264.80 billion, and tax-exempt fund assets increased by $932 million to $11.86 billion." Institutional assets accounted for 62.2% of all MMF assets, with Government Institutional assets making up 92.2% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $6.1 trillion level and hit a record $6.108 trillion on Tuesday, Oct. 3, before easing back to $6.096 trillion Wednesday (10/4). Assets have risen by $23.3 billion in October through 10/4 after rising by $93.9 billion in Sept., $98.3 billion in August and $34.7 billion in July. 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.
UBS Singapore Pilots Tokenized MMF
The website Cointelegraph posted a brief entitled, "Swiss bank UBS launches tokenized money market fund on Ethereum." They explain, "Leading Swiss bank UBS has launched a live pilot of a tokenized version of its variable capital company (VCC) fund as part of Project Guardian, an initiative led by Singapore's central bank. In a press release, UBS Asset Management announced that the fund is part of a broader VCC umbrella designed to bring different types of real-world assets (RWA) to the blockchain. According to Thomas Kaegi, the head of UBS Asset Management for Singapore and Southeast Asia, the project is a milestone in understanding funds tokenization." They quote Kaegi, "Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients." The article adds, "UBS Asset Management launched the controlled pilot of the tokenized money market fund through the company's in-house tokenization service called UBS Tokenize. Using a smart contract on Ethereum, the firm carried out various activities, including redemptions and fund subscriptions." UBS's release, "UBS Asset Management launches first blockchain-native tokenized VCC fund pilot in Singapore," tells us, "UBS Asset Management has launched its first live pilot of a tokenized Variable Capital Company (VCC) fund. The fund is part of a wider VCC umbrella designed to bring various 'real world assets' on-chain as part of Project Guardian, a collaborative industry initiative led by the Monetary Authority of Singapore (MAS)."
Weekly MFund 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 Sept 29) includes Holdings information from 62 money funds (down 15 from a week ago), or $2.851 trillion (down from $2.970 trillion) of the $6.073 trillion in total money fund assets (or 46.9%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.474 billion (down from $1.501 trillion a week ago), or 51.7%; Treasuries totaling $929.6 billion (up from $910.1 billion a week ago), or 32.6%, and Government Agency securities totaling $229.5 billion (up from $228.2 billion), or 8.0%. Commercial Paper (CP) totaled $74.8 billion (down from a week ago at $106.3 billion), or 2.6%. Certificates of Deposit (CDs) totaled $74.3 billion (down from $91.9 billion a week ago), or 2.6%. The Other category accounted for $41.4 billion or 1.5%, while VRDNs accounted for $27.8 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $929.6 billion (32.6% of total holdings), the Federal Reserve Bank of New York with $692.4 billion (24.3%), Fixed Income Clearing Corp with $218.4B (7.7%), Federal Home Loan Bank with $172.1B (6.0%), JP Morgan with $54.6B (1.9%), RBC with $50.0B (1.8%), Goldman Sachs with $49.8B (1.7%), Federal Farm Credit Bank with $48.1B (1.7%), BNP Paribas with $43.9B (1.5%) and Citi with $37.7B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($266.0B), Goldman Sachs FS Govt ($258.7B), Fidelity Inv MM: Govt Port ($186.3B), Morgan Stanley Inst Liq Govt ($162.5B), JPMorgan 100% US Treas MMkt ($155.6B), BlackRock Lq FedFund ($134.8B), State Street Inst US Govt ($128.6B), Allspring Govt MM ($116.0B), Fidelity Inv MM: MM Port ($112.9B) and Dreyfus Govt Cash Mgmt ($111.5B). (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 Inch Up to 5.18%
Money fund yields rose 1 basis point this past week to 5.18%, after rising 1 bp the week prior, as measured by our Crane 100 Money Fund Index for the week ended Friday, 9/29. The Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. We expect yields to remain flat in coming days as they've finished digesting the Fed's (last) July 26th 25 basis point hike. Yields were 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $54.0 billion last week to $6.073 trillion according to Crane Data's Money Fund Intelligence Daily, and they have risen by $93.9 billion since the start of September (after rising $98.3 billion in August). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 682), shows a 7-day yield of 5.07%, up 1 bp in the week through Friday. Prime Inst MFs were up 1 bp at 5.28% in the latest week. Government Inst MFs were up 1 bp at 5.14%. Treasury Inst MFs up 1 bp for the week at 5.12%. Treasury Retail MFs currently yield 4.89%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.10%, Tax-exempt MF 7-day yields were up 35 bps to 3.70%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (9/29), 5 money funds (out of 809 total) yield under 3.0% with $8.8 billion in assets, or 0.1%; 105 funds yield between 3.00% and 3.99% ($79.5 billion, or 1.3%), 240 funds yield between 4.0% and 4.99% ($1.294 trillion, or 21.3%) and 459 funds now yield 5.0% or more ($4.691 trillion, or 77.2%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Sept. 29, shows that there were no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Accounting Today: IRS Relief for MMFs
Accounting Today posted a brief entitled, "IRS offers relief on money market redemptions." It explains, "The Internal Revenue Service issued guidance Friday saying a redemption of shares in a money market fund won't be treated as part of a wash sale, which would subject it to taxes. Revenue Procedure 2023-35 says a redemption of money market fund shares will not be treated as part of a wash sale under Section 1091 of the Tax Code. The revenue procedure amplifies an earlier one from 2014, Revenue Procedure 2014-45, and extends its wash sale relief to redemptions of shares in money market funds that maintain fixed share prices. The IRS noted that money market funds have historically tried to keep the prices at which their shares are distributed, redeemed and repurchased stable -- usually at $1.00 -- with only minimal fluctuations in the value of an MMF's portfolio on a per-share basis. Prior to amendments in 2014, Rule 2a-7 of the Investment Company Act of 1940 generally allowed a fund to compute its price per share by using either or both of the amortized cost method of valuation, and the penny-rounding method of pricing. Under the amortized cost method of valuation, a money market fund's net asset value per share was determined by valuing its portfolio securities at their acquisition cost, adjusted for amortization of premium or accretion of discount."
