Daily Links Archives: November, 2023
Trustnet on U.K. Money Market Funds
An article entitled, "Trustnet's guide to money market funds" discusses money market funds in Europe and the U.K. Subtitled, "With attractive yields and low risk, money market funds are 'a no-brainer," it explains, "Money market funds are having a moment. In October, they enjoyed their third best month of inflows ever as investors fled the uncertainty of equity markets against a backdrop of rising inflation and high rates, according to data from Calastone. Savers gravitated towards money market funds' high yields of 5% and above, for relatively little risk. August was an even better month, when money market funds netted £673m; October's net inflows amounted to £586m." Trustnet comments, "Royal London Short Term Money Market was the most popular fund on interactive investor's platform in October (knocking the prestigious Fundsmith Equity from its perch at the top) and was the second most popular fund every month from June to September. It has been in the top 10 since April. UK-based savers' sudden enthusiasm for money market funds is notable because they have historically been neglected. During the long period of relatively subdued inflation and quantitative easing since the financial crisis, the yields on offer were less attractive than today." They add, "American savers allocate 17% of their investment portfolios to money market funds, but UK savers only have around 1% in the asset class, according to data from ICI Global (as of 31 March 2023). British consumers have tended to favour cash ISAs and savings accounts with banks and building societies, perhaps because they are easier to understand and to access."
American Banker Says Bye to BSBY
American Banker writes, "RIP BSBY: Bloomberg to shut down its lagging Libor replacement." The piece tells us, "Bloomberg L.P. says it's shutting down its BSBY interest rate benchmark, marking a quiet end to the data provider's attempt to offer a successor to the defunct London Interbank Offered Rate. The end of Libor, which was once dominant in worldwide financial contracts but was phased out after a rate-rigging scandal, had brought about opportunities for new benchmarks. Bloomberg's goal was to have some chunk of loans between banks and their borrowers refer to BSBY, an interest rate that would go up or down depending on broader financing conditions. But the rate failed to gain much traction over the last couple of years, as the Secured Overnight Financing Rate was cemented as Libor's successor in the United States. Another competitor called Ameribor says it's pressing on, though its usage is more prominent at smaller banks than at larger institutions." The piece adds, "BSBY had the backing of some regional and national banks -- most notably Bank of America -- but U.S. banks and their borrowers didn't rush to adopt the rate at the scale that it needed.... Bloomberg announced this month the 'permanent cessation' of the BSBY index starting on Nov. 15, 2024. Borrowers and the holders of other contracts that refer to BSBY have a year to prepare for its expiration.... Securities and Exchange Commission Chairman Gary Gensler was particularly combative, warning in September 2021 that 'a crisis will reveal BSBY's flaws all too clearly.' Banking regulators were more open to the usage of BSBY and other alternatives to SOFR in loan contracts. Still, they have continually highlighted SOFR's strengths and thus indirectly nudged the industry toward that rate. Criticisms of BSBY added a feeling of 'risk and grayness' over its usage, making it even tougher to gain momentum, said `Edward Ivey, a lawyer and head of the derivative and swaps practice at Moore & Van Allen."
Money Fund Yields Inch Up to 5.20%
Money fund yields rose by another basis point in the week ended 11/24 to 5.20% after remaining unchanged for three weeks prior. (This is as measured by our Crane 100, which 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 $53.5 billion last week to a record $6.178 trillion according to Crane Data's Money Fund Intelligence Daily, they have risen by $136.7 billion since the start of November (after falling $31.9 billion in October). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 5.10%, up 1 bp in the week through Friday. Prime Inst MFs were unchanged at 5.30% in the latest week. Government Inst MFs were unchanged at 5.16%. Treasury Inst MFs were unchanged at 5.14%. Treasury Retail MFs currently yield 4.91%, Government Retail MFs yield 4.88%, and Prime Retail MFs yield 5.12%, Tax-exempt MF 7-day yields were up 13 bps to 3.22%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (11/24), 27 money funds (out of 812 total) yield under 3.0% with $17.4 billion in assets, or 0.3%; 103 funds yield between 3.00% and 3.99% ($113.6 billion, or 1.8%), 197 funds yield between 4.0% and 4.99% ($407.9 billion, or 6.6%) and 485 funds now yield 5.0% or more ($5.639 trillion, or 91.3%). 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 Nov. 24, 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.
KC Fed on Big Declines in RRP
The Federal Reserve Bank of Kansas City published, "Rapid Declines in the Fed’s Overnight Reverse Repurchase (ON RRP) Facility May Start to Slow," which says, "The value of assets held at the Federal Reserve's overnight reverse repurchase (ON RRP) facility has dropped by close to 60 percent from its peak in December 2022. Much of this drop is attributed to an increase in Treasury bill issuance to refill the Treasury General Account (TGA) after the most recent debt-limit debate. However, the TGA is not expected to grow much more, suggesting the rapid decline in assets held at the ON RRP could slow." The overview states, "Since June 2022, the Federal Reserve has been working to remove policy accommodation by shrinking the size of its balance sheet. Substantial reductions in the balance sheet must come primarily through net reductions in one of three primary Fed liabilities: U.S. Treasury deposits at the Fed (the Treasury General Account or TGA), bank deposits at the Fed (reserves), or money market funds' 'deposits' at the Fed through the overnight reverse repurchase program (ON RRP). Thus far, the value of assets held in ON RRP has declined relatively rapidly, which may be encouraging for two reasons. First, the ON RRP has grown substantially over the last few years and become a dominant force in the money market fund industry. In the spring of 2021, the program began to steadily grow, surpassing $1 trillion in July and $2 trillion the following May. The program ultimately peaked in December with nearly $2.7 trillion in assets. Second, changes in the ON RRP may be more tractable than changes in the TGA or in reserves. The TGA, for example, is determined outside of the Fed through the political process. Further, while bank reserves will likely be an important part of future balance sheet reductions, reductions in the ON RRP are generally considered to represent a lower risk to the financial system than large reductions in bank reserves." It adds, "Since the debt-ceiling agreement was signed on June 3, the Treasury has been replenishing the TGA, with some of the money coming directly out of ON RRP. When money market funds purchase Treasury bills outright, instead of placing the same funds at the Fed, dollars shift from the ON RRP to the TGA (with little net effect on the Fed's balance sheet). As seen in Chart 1, drawdowns of the ON RRP have closely mirrored the runup in the TGA over the last several months. Similarly, as the supply of Treasury bills has increased by more than $1 trillion following the resolution of the debt-limit debate in May ... the assets under ON RRP have fallen by about $1 trillion. However, as of October 2023, the TGA stands at around $830 billion, above the Treasury's expectation of $750 billion by year-end (U.S. Department of the Treasury 2023). Thus, the recent rapid expansion in the TGA is unlikely to continue, limiting its ability to fuel further rapid reductions in the ON RRP."
Money Fund University 12/18-19/23
Crane Data continues making preparations for our "basic training" Money Fund University event, which will take place December 18-19, 2023 at The Westin Jersey City Newport in Jersey City, NJ. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics, but this year's event will again feature a slightly higher level "Master's in Money Markets" agenda. The event focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers, and the Jersey City show will include a Holiday cocktail party and a free training session for Crane Data clients. Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $750, exhibit space is $2,000, and sponsorship opportunities are $3K (Bronze), $4K (Silver), and $5K (Gold). A block of rooms has been reserved at The Westin Jersey City Newport. (Please reserve before 11/17.) We'd like to thank our MFU sponsors -- Capitolis, Silicon Valley Bank, Fitch Ratings, TD Securities, Northern Trust Asset Management, Dechert LLP, BlackRock, K&L Gates -- for their support, and we look forward to seeing you in Jersey City next month. Crane Data is also preparing the preliminary agenda for our next Bond Fund Symposium, which will be held March 25-26, 2024, at the Loews Philadelphia Hotel in Philadelphia, Pa. Our Bond Fund Symposium offers a concentrated program for fixed-income managers and dealers with a focus on the ultra-short segment. Registration for Bond Fund Symposium is $1000; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Finally, we'll also soon be making plans for our next "big show," Money Fund Symposium, which will be held June 12-14, 2024, at The Westin in Pittsburgh. Let us know if you'd like more details on any of our events, and we hope to see you in Jersey City in December, in Philly in March or in Pittsburgh in June 2024!
Weekly Money Fund Port 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 November 17) includes Holdings information from 63 money funds (down 5 from a week ago), or $2.779 trillion (down from $2.845 trillion) of the $6.124 trillion in total money fund assets (or 45.4%) 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 shows Government assets dominating the holdings list with Treasuries totaling $1.148 trillion (up from $1.144 trillion a week ago), or 41.3%; Repurchase Agreements (Repo) totaling $1.132 trillion (down from $1.208 trillion a week ago), or 40.7%, and Government Agency securities totaling $248.4 billion (down from $248.7 billion), or 8.9%. Commercial Paper (CP) totaled $83.8 billion (up from a week ago at $81.3 billion), or 3.0%. Certificates of Deposit (CDs) totaled $71.9 billion (down from $73.5 billion a week ago), or 2.6%. The Other category accounted for $65.4 billion or 2.4%, while VRDNs accounted for $29.8 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.148 billion (41.3% of total holdings), the Federal Reserve Bank of New York with $349.7 billion (12.6%), Fixed Income Clearing Corp with $201.2B (7.2%), Federal Home Loan Bank with $188.1B (6.8%), RBC with $53.5B (1.9%), Barclays PLC with $52.6B (1.9%), JP Morgan with $52.1B (1.9%), Federal Farm Credit Bank with $51.1B (1.8%), Citi with $46.0B (1.7%) and Bank of America with $43.3B (1.6%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($254.6B), Goldman Sachs FS Govt ($235.1B), Fidelity Inv MM: Govt Port ($180.5B), JPMorgan 100% US Treas MMkt ($174.2B), Morgan Stanley Inst Liq Govt ($146.3B), State Street Inst US Govt ($129.4B), Fidelity Inv MM: MM Port ($118.7B), Allspring Govt MM ($111.6B), Dreyfus Govt Cash Mgmt ($107.1B) and BlackRock Lq Treas Tr ($103.4B). (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 MF Index Flat at 5.19%
Money fund yields were unchanged for the third straight week last week (as of 11/17) at 5.19% (as measured by our Crane 100 Money Fund Index). (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 $14.7 billion last week to $6.124 trillion according to Crane Data's Money Fund Intelligence Daily, they have rose by $83.2 billion since the start of November (after falling $31.9 billion in October). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 5.09%, unchanged in the week through Friday. Prime Inst MFs were up 1 bp at 5.30% in the latest week. Government Inst MFs were unchanged at 5.16%. Treasury Inst MFs were up 1 bp at 5.14%. Treasury Retail MFs currently yield 4.91%, Government Retail MFs yield 4.87%, and Prime Retail MFs yield 5.11%, Tax-exempt MF 7-day yields were up 16 bps to 3.09%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (11/17), 36 money funds (out of 812 total) yield under 3.0% with $20.5 billion in assets, or 0.3%; 94 funds yield between 3.00% and 3.99% ($110.0 billion, or 1.8%), 199 funds yield between 4.0% and 4.99% ($989.2 billion, or 16.2%) and 483 funds now yield 5.0% or more ($5.005 trillion, or 81.7%). 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 Nov. 17, 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.
Wells Fargo on Maintaining Income
Wells Fargo Corporate & Investment Banking published a "Fixed Income Strategy for November 2023" entitled, "Front-end investor considerations: does another 25 basis points matter?" It states, "The November FOMC meeting resulted in the second consecutive rate 'skip' by the Committee last week and the third 'skip' this year. Year-to-date, the FOMC has lifted its policy rate by just 100 basis points, which pales in comparison to last year when the Fed had increased its policy rate 375 basis points by this time in the year and 425 basis points over the entire calendar year. This recent steep climb in rates weighs on the psyche of corporate cash investors and seems to be driving satisfaction to sit in cash-like products while the Fed remains in a 'skip' or 'pause' mode." Author Vanessa McMichael explains, "Cash and rates are high. The Federal Reserve's aggressive tightening has propelled rates on the front-end of the curve to historically high levels at a time when many organizations simultaneously hold an unusually high amount of excess cash. This combination of high rates and excess cash has made interest income a reality once again after years in a zero-rate environment. Moreover, a 5.0% yield has become somewhat of an expectation for investors. It's a level markets haven't seen across vanilla asset classes (like Treasuries or government money market funds) since the 2004-2006 tightening cycle. And for corporate investors, this informal threshold is beneficial as most investment policies allow for allocations only to front-end fixed income markets, which is the place where 5.0% investment rates reside.... Given the expectation for rates, one of the biggest risks for corporations is the erosion of interest income. 5.0% yields have made it easy to generate income in the near-term, but maintaining interest income in a falling rate environment will require strategies such as those implemented by 2a-7 money market funds. MMFs are important cash management vehicles (investments) for corporate organizations, but they are also sophisticated investors from which we can take cues.... MMF WAMs fell to historically low levels in 2022 because of aggressive fed funds hikes; however, since the Fed has slowed the magnitude and cadence of rate hikes, WAMs have lengthened. This year alone, government and prime fund WAMs have extended by nearly two weeks.... Funds do this to grab higher yields and lock in income before the rate environment changes, which is exactly what we are encouraging corporations sitting on excess cash to consider. There is also the argument of relative value right now driving MMFs to securities with some sort of 'term' (albeit short in nature) versus overnight options." The piece concludes, "We speak with corporate clients that are camped out in money market funds that ask our opinion on the 'right' time to allocate cash to individual investments.... If a company's goal is to keep interest income alive, it should consider carving out some excess cash to invest before the Fed shifts its policy."
Allspring MMFs on Prime, Muni Sectors
Allspring Money Market Funds recently released its "Overview, Strategy, and Outlook," which states, "The annual year-end funding rite is upon the money markets. As of October 25, 2023, the outstanding securities of Tier 1 and asset-backed commercial paper (CP) that matures after the end of the year increased to just over 40% -- a 3% increase from the previous week and a level that is slightly higher than past years' statistics. While the pressure on issuers to extend over year-end for regulatory requirements remains the same, the rate environment has caused the maturity distribution to skew toward longer-dated maturities as it fits with investors' need to lock in the positive-sloping rate curve. This is illustrated in the Fed's weekly reports of CP outstanding, which shows $29 billion in CP outstanding maturing in greater than three months, up from $20 billion in 2022 and $12 billion in 2021." Commenting on the Municipal Sector, they say, "Yields in the municipal money market space drifted higher during October as the Securities Industry and Financial Markets Association (SIFMA) Index continued its volatile ways. After beginning the month at 3.98%, the SIFMA Index initially fell to 3.36% before rapidly rising to 4.19%, or 78% of effective federal funds, on October 18. The attractiveness of SIFMA on both a nominal and relative basis resulted in approximately $7 billion in inflows into municipal money market funds, according to Crane Data. Further out on the curve, benchmark yields rose roughly 15 to 20 bps as market participants reassessed the outlook for monetary policy. Yields on one-year high-grade paper closed out the month at 4.00%, up from 3.79% at the end of September." Allspring adds, "During the month, we continued to adopt a conservative posture in terms of weighted average maturities (WAMs) and liquidity. Accordingly, during the month, we continued to focus our purchases primarily in variable-rate demand notes (VRDNs) and tender option bonds (TOB) with daily and weekly puts in order to emphasize principal preservation while benefiting from elevated rates given the backup in SIFMA. However, we did opportunistically add exposure to fixed-rate CP and notes targeted in the three-month and six-month space as rates backed up toward the end of the month. Seasonal weakness in the municipal space provided the opportunity to invest at attractive ratios relative to taxable alternatives."
Weekly Money Fund Port Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of November 10) includes Holdings information from 68 money funds (up 8 from two weeks ago), or $2.845 trillion (up from $2.590 trillion) of the $6.110 trillion in total money fund assets (or 46.6%) 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 $1.208 trillion (up from $1.112 trillion two weeks ago), or 42.5%; Treasuries totaling $1.144 trillion (up from $999.6 billion two weeks ago), or 40.2%, and Government Agency securities totaling $248.7 billion (up from $240.8 billion), or 8.7%. Commercial Paper (CP) totaled $81.3 billion (down from two weeks ago at $83.1 billion), or 2.9%. Certificates of Deposit (CDs) totaled $73.5 billion (up from $70.8 billion two weeks ago), or 2.6%. The Other category accounted for $59.6 billion or 2.1%, while VRDNs accounted for $29.9 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.144 billion (40.2% of total holdings), the Federal Reserve Bank of New York with $368.2 billion (12.9%), Fixed Income Clearing Corp with $201.0B (7.1%), Federal Home Loan Bank with $191.5B (6.7%), RBC with $63.3B (2.2%), Citi with $55.1B (1.9%), JP Morgan with $54.3B (1.9%), Barclays PLC with $53.9B (1.9%), Bank of America with $51.5B (1.8%) and Federal Farm Credit Bank with $47.6B (1.7%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($255.1B), Goldman Sachs FS Govt ($238.2B), Fidelity Inv MM: Govt Port ($182.9B), JPMorgan 100% US Treas MMkt ($172.7B), Morgan Stanley Inst Liq Govt ($145.4B), State Street Inst US Govt ($123.0B), Fidelity Inv MM: MM Port ($116.0B), Allspring Govt MM ($110.7B), Dreyfus Govt Cash Mgmt ($106.1B) and BlackRock Lq Treas Tr ($102.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Common Sense Blog Says Yield Sells
The blog A Wealth of Common Sense writes that "Yield Sells. The update from Ritholtz Wealth Management LLC's Ben Carlson tells us, "Boring old money market funds are the hottest thing in fund flows this year. Just look at the massive amount of money that has poured into these things.... There's a good reason these funds saw stagnating asset growth in the 2010s -- there was no yield. Now there is. Bloomberg's Eric Balchunas and Jeff Seyffart show vhow banks and fund companies across the board are vacuuming up money now that money market funds are yielding north of 5% <b:>`_." It continues, "Investors have a history of chasing the best-performing funds but they also have a history of chasing yield in money market funds.... Money market funds are still a relatively new development in the fund world. Back in the Great Depression the government imposed a limit on the amount of interest a bank could pay to depositors because so many banks failed in the 1930s. The ceiling was a little more than 5% which didn't matter for many decades because rates never got that high. Then the 1970s happened. Inflation caused higher interest rates and banking customers couldn't earn the much higher yields now available in short-term credit instruments. A guy by the name of Bruce Bent recognized what was going on here and didn't like it. So in the early-1970s Bent created the first money market fund, which wasn't technically a savings account so it could offer market interest rates and charge fees to get around the regulations. Bent had a powerfully simple idea that made sense and had wonderful timing -- the perfect combination for fund flows." The blog tells us, "The money market fund quite changed the course of the fund industry forever. John Bogle described how this new fund kept Vanguard afloat during the late-1970s and early-1980s in his book Stay the Course: 'Throughout the decade of the 1980s, I often bragged to our crew about Vanguard's spectacular asset growth, in part to maintain and build on the solid morale we had established. But in reality, our growth largely reflected the growth of the burgeoning fund industry. During that decade, mutual fund assets leaped from $241 billion to $1.45 trillion. The charge was led by money market funds, which soared from $2 billion to $570 billion, accounting for almost half of the increase." Finally, it adds, "If yields stay high, the money will likely keep flowing into fixed income funds like money markets. If yields go back down, it will be interesting to see how investors will react now that we have so many retired baby boomers and more on the way in the coming years. If history has taught us anything, something else will come along to grab investor attention and fund flows."
Money Fund Yields Flat Again at 5.19%
Money fund yields remained unchanged last week (ended 11/10) at 5.19% (as measured by our Crane 100 Money Fund Index) for the second straight week. (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 $32.0 billion last week to $6.110 trillion according to Crane Data's Money Fund Intelligence Daily, they have rose by $68.5 billion since the start of November (after falling $31.9 billion in October). Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 679), shows a 7-day yield of 5.09%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 5.29% in the latest week. Government Inst MFs were unchanged at 5.16%. Treasury Inst MFs were down 1 bp at 5.13%. Treasury Retail MFs currently yield 4.91%, Government Retail MFs yield 4.86%, and Prime Retail MFs yield 5.11%, Tax-exempt MF 7-day yields were down 46 bps to 2.93%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (11/10), 66 money funds (out of 806 total) yield under 3.0% with $39.7 billion in assets, or 0.7%; 63 funds yield between 3.00% and 3.99% ($91.3 billion, or 1.5%), 202 funds yield between 4.0% and 4.99% ($1.147 trillion, or 18.8%) and 475 funds now yield 5.0% or more ($4.832 trillion, or 79.1%). 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 Nov. 3, 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.
Forbes: SEC Targets PayPal Stablecoin
Forbes writes that the "SEC's Enforcement Division Targets PayPal's New Stablecoin." The piece explains, "PayPal is the latest company to catch the U. S. Securities and Exchange Commission's attention for its stablecoin. On November 1, PayPal revealed in a 10-Q filing it 'received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD.' PayPal stated it will comply with the request. This is not the first time the SEC has targeted a key stablecoin player. In light of the SEC's continued investigations into issuers and other stablecoin market participants, it's worth comparing the structure of PayPal’s offering to other dollar-pegged digital assets." Author Joshua Garcia, a partner at Ketsal, writes, "PayPal's stablecoin - called PYUSD - maintains its peg to the U.S. dollar with a reserve made up of 'secure and highly liquid assets [including] dollar deposits, U.S. treasuries, and cash equivalents,' according to PayPal's website. Incidentally, Tether and USDC maintain their peg to the U.S. dollar using a mechanism similar to PYUSD's. Tether's website states, 'all Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether's reserves.' These reserves, according to Tether's independent auditor, are mostly made up of U.S. treasury bills - $56.6 billion of them - not cash. The list of reserve assets includes, surprisingly, less than $1 billion of cash and bank deposits. The parties managing Tether's reserves lean heavily into overnight and term reverse repurchase agreements (about $8.8 billion), money market funds (about $8.2 billion), and secured loans (about $5.1 billion). Ironically, $1.6 billion of bitcoins are part of Tether's reserve assets, along with several billions in precious metals and a broad category of 'other investments.'" Forbes continues, "Circle has a similar, but less diverse, makeup of reserve assets. The company holds its reserves in cash, short-dated U.S. Treasuries, and overnight U.S. Treasury repurchase agreements. Some of these funds are held in Circle Reserve Fund, an SEC-registered government money market fund, which manages over $23 billion of reserve-backing assets." They add, "As the SEC's enforcement arm searches for an angle to regulate stablecoin issuers by enforcement, it will certainly latch onto the crucial role of centralized parties who manage the underlying reserve pools of U.S. Treasuries. Without those pools, and without the centralized management of those reserves, the SEC might argue, retail buyers may not have faith enough to believe 1 Tether, or 1 USDC, or 1 PYUSD, will equal $1 in perpetuity. Stablecoin issuers cannot ignore this centralization risk. Fortunately for PayPal, it is not a stablecoin issuer. Its stablecoin terms clearly draw the line between PayPal and the actual issuer: 'PYUSD is issued by Paxos, not PayPal.' In addition, Paxos - not PayPal - 'is obligated to buy and sell PYUSD to and from PayPal at a stable price of $1.00 U.S. dollar per PYUSD token.' PYUSD is, in reality, a Paxos stablecoin marketed as a PayPal one."
ICI: MMF Assets Retake Record $5.7T
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets jumping for the third week in a row after plunging in mid-October of tax payments and a big corporate takeover. ICI's asset series rose $16.9 billion (after jumping $62.7 billion the prior week) to $5.71 trillion. Assets are up by $977 billion, or 20.6%, year-to-date in 2023, with Institutional MMFs up $434 billion, or 14.3% and Retail MMFs up $543 billion, or 32.4%. Over the past 52 weeks, money funds have risen a massive $1.094 trillion, or 23.7%, with Retail MMFs rising by $630 billion (39.6%) and Inst MMFs rising by $464 billion (15.3%). The weekly release says, "Total money market fund assets increased by $16.88 billion to $5.71 trillion for the week ended Wednesday, November 8, the Investment Company Institute reported. Among taxable money market funds, government funds increased by $9.63 billion and prime funds increased by $6.35 billion. Tax-exempt money market funds increased by $896 million." ICI's stats show Institutional MMFs rising $10.9 billion and Retail MMFs rising $6.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.661 trillion (81.6% of all money funds), while Total Prime MMFs were $926.3 billion (16.2%). Tax Exempt MMFs totaled $125.1 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $6.02 billion to $2.22 trillion. Among retail funds, government money market fund assets decreased by $241 million to $1.44 trillion, prime money market fund assets increased by $4.47 billion to $662.82 billion, and tax-exempt fund assets increased by $1.79 billion to $112.94 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.1% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $10.86 billion to $3.49 trillion. Among institutional funds, government money market fund assets increased by $9.87 billion to $3.22 trillion, prime money market fund assets increased by $1.88 billion to $263.50 billion, and tax-exempt fund assets decreased by $891 million to $12.13 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets rose $59.8 billion in the first 8 days of November to $6.101 trillion. Assets fell by $31.9 billion in October after rising by $93.9 billion in September, $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.
Boston Globe on 5% Savings Rates
The Boston Globe writes on cash in "Trendlines: It's still a good time to jump on those 5 percent savings rates. Author Larry Edelman explains, "The Federal Reserve may well be done hiking rates, forecasters say, but it won't begin lowering them for a while.... 'Put a fork in it — they are done,' Jay Bryson, Wells Fargo & Co.'s chief economist, told Bloomberg." He continues, "Why it matters: Returns on safe and liquid savings and investment options are about as attractive as they've been in 16 years. A flare-up in inflation could send yields even higher. But the odds are good that the next sustained move is lower.... With that in mind I spoke with Raj Sharma, a private wealth adviser at Merrill Lynch Private Wealth Management in Boston, about options worth investigating to get more bang from your buck, whether it's money put aside for emergencies or funds you can tap on short notice. Right off the top, Sharma emphasized that 'everyone needs a long-term [investment] plan.... I am not suggesting moving money out of equities,' he said. 'But investors should take advantage of the opportunities available today' with any extra cash they have, he said." Edelman tells us, "Money market mutual funds, which hold mostly liquid and safe government securities, function like interest-paying bank accounts. They aren't insured by the Federal Deposit Insurance Corp., but instances in which investors lost some of their principal have been exceedingly rare. The average annualized yield on taxable money market funds was 5.19 percent last week, according to the Crane 100 Money Fund Index. That compares with 4.6 percent in April and 1.45 percent throughout 2022." He continues, "Sharma notes that investors in the highest tax brackets may want to look at money funds that specifically buy Treasuries because the interest paid isn't taxed at the state level. Money funds that hold municipal bonds are tax-exempt at the federal level, and factoring in that advantage, their yields can exceed those on taxable funds. (There are also municipal money funds that are exempt from Massachusetts tax.) Variable rate demand obligations are tax-exempt municipal debt securities suitable for high-net-worth individuals willing to put down the typical $100,000 minimum investment, according to Sharma. They pay interest at a rate that is adjusted periodically (most commonly every seven or 30 days), and investors can get their money back at that time. Current VRDO yields of about 4 percent equate to a taxable yield of more than 7 percent, Sharma said." The article states, "`High-yield savings accounts are another option if you are willing to trade fluctuating rates for immediate access to your money. Before the Fed began raising rates I moved extra cash into an online-only savings account from Marcus paying 0.5 percent. The account now yields 4.4 percent, and you can find others that pay 5 percent or more. High-yield savings accounts are insured by the FDIC up to $250,000 per person per bank. Bank certificates of deposits can pay more than high-yield savings accounts and are FDIC-insured, but you have to lock up your cash for anywhere from three months to five years. You'll most likely pay a penalty to take your money out early. In April I put money into a 1-year Marcus CD paying 4.75 percent. Today you can find 1-year yields of 5.5 percent or more." He adds, "Treasury bills are super-safe short-term government securities that can be bought directly from the US Treasury or through a broker. You get the posted yield if you hold to maturity, but you could take a loss if you sell before that. A recent 4-week bill yields about 5.4 percent, while a 6-month bill is at 5.48 percent and a 1-year bill brings 5.29 percent. A final thought: High yields on cash have been the only upside for savers of the Federal Reserve's campaign to cool inflation by boosting interest rates. Sharma recommends keeping an emergency fund of six months to a year in living expenses in cash or equivalents such as money funds or high-yield savings accounts. But for the long haul, he says stocks are still the way to go."
Wells, Allspring Launch Tribal Shares
As we mentioned in yesterday's Money Fund Intelligence, a press release entitled, "Wells Fargo and Allspring Collaborate on New Money Market Fund Share Class to Benefit Native American Communities" explains, "Wells Fargo & Company (WFC) ... announced it is working with Allspring Global Investments, a global asset management firm, to launch a Tribal Inclusion share class for the Allspring Government Money Market Fund, which will be offered exclusively to Wells Fargo corporate clients. The Tribal Inclusion share class is the first money market product with a charitable donation feature focused on benefiting tribal communities in the United States." Randall Lacayo, Capital Markets Diverse Segments leader at Wells Fargo Corporate & Investment Bank, comments, "As a long-term supporter of Native American and Alaska Native communities, we are delighted to partner with Allspring on the launch of their first money market fund share class focused on benefiting tribal communities.... We have supported Native Forward Scholars Fund over the past decade, and we are pleased to offer this new fund exclusively to Wells Fargo clients to further promote their diversity, equity, and inclusion initiatives serving tribal communities." The release states, "In addition to its ongoing support of Native Forward's mission, Wells Fargo will make a donation in celebration of the launch of the fund to Native Forward Scholars Fund, an organization focused on empowering students from more than 500 tribes across the U.S. by providing scholarships for higher education. Allspring will donate a percentage of the net management fee revenue earned on Tribal Inclusion share class assets." Sonya Rorie, Allspring's deputy chief diversity officer, says, "The Native American community is historically and culturally rich but underrepresented and often overlooked. For Allspring, this collaboration is an incredible opportunity to educate ourselves on the specific needs of tribal communities especially pertaining to Native Forward's objective to provide access to quality education for Native scholars via direct scholarships. Allspring's mission is to elevate investing to be worth more and part of our purpose is to contribute to organizations such as Native Forward to achieve better outcomes." Native Forward CEO Angelique Albert adds, "For the past five plus decades, Native Forward has remained steadfast in meeting the unmet needs of every Native scholar who wishes to pursue higher education. When you are investing in the Tribal Inclusion share class, you are doing more than just investing, you are impacting the economic mobility of Native people in this country. That type of social impact extends beyond individuals and creates opportunities for a more just and diverse workforce." For more on "Social" and ESG money funds, see our November MFI. (E-mail us to request the latest issue.)
FT on MMF Inflows, Recent Outflows
The Financial Times writes, "Money market funds spring a leak after year of record inflows." The article states, "A sharp rise in interest rates has cranked up mortgage payments for consumers and escalated borrowing costs for companies around the world over the past 19 months. But it has also lifted the available yields on money market funds to their highest level in years -- prompting investors to pour a record $1tn into the asset class since January. The cascade this year, concentrated mainly in the US, has come in stages. Initially, it was spurred by the Federal Reserve firing the starting gun on rate rises -- translating into much improved returns on money market funds, which typically hold short-dated assets, such as government debt. The inflows then accelerated in March and April as fears over the health of the banking sector pulled some investors away from their traditional deposit accounts." The FT continues, "However, even as these concerns eased, the inflows into money market funds broadly persisted, fueled by expectations that the Fed will keep borrowing costs 'higher for longer' before starting to cut them. Citing figures from data provider EPFR, strategists at Bank of America Securities now project record full-year fund inflows of $1.3tn. This enthusiasm for money market funds has been driven by both institutional and private investors." They add, "This enthusiasm for money market funds has been driven by both institutional and private investors. 'Retail investors have been extremely attracted to the 5 per cent yield that they can get on a money-market fund and are putting more and more money into them,' says Shelly Antoniewicz, deputy chief economist at the Investment Company Institute.... But, despite overall inflows in the year to date, October marked a partial reversal of the tide, with $36bn leaving US money market funds on a net basis. That marked the biggest monthly decline since April 2022." [Editor's Note: The article incorrectly states that inflows in 2023 are a record. Crane Data shows inflows in March and April 2020 as the record.]
Advisor Hub on SEC and Wells Sweeps
Website Advisor Hub writes that, "Wells Fargo Faces SEC Investigation Over Cash Sweep Programs." They tell us, "The Securities and Exchange Commission is investigating Wells Fargo & Company over cash sweep options provided to investment advisory clients, the company disclosed in a filing on Tuesday. The investigation focuses on cash sweep options provided to customers at the time of account opening, according to the filing, which did not provide any additional detail. A spokesperson for the company's Wells Fargo Advisors brokerage unit declined to comment." The piece says, "Wells Fargo Advisors has three sweep options for customer cash in advisory accounts, including two that deposit cash in interest-bearing bank accounts and a third that purchases money market funds. When clients open an account, they are placed into a default option based on the type of account and advisory program they are using, according to the filing. As of Tuesday, the bank deposit sweep rates, which scale upwards based on assets, range from 0.15% for households below $1 million and peak at 1.30% for those with $20 million or more." They add, "The SEC has brought several cases over cash sweep conflicts in the past two years, including a high profile example from 2022 in which Charles Schwab Corp. agreed to pay $187 million for failing to fully disclose the impact that its cash sweep program had on customer returns. In late September this year, AssetMark Inc., a Concord, California-based money manager, agreed to pay more than $18 million to settle charges that included failing to properly disclose millions of dollars in revenue sharing payments from third-party custodians in its cash sweep programs. Missouri-based advisory firm Huntleigh Advisors, Inc. and an affiliate in February agreed to pay almost $894,000 to settle allegations from the SEC that they failed to disclose revenue sharing payments that an affiliated broker-dealer received and shared with the RIA tied to investments in cash sweep vehicles. In May 2022, First Republic Bank agreed to pay $1.8 million to settle an SEC case over failing to disclose a conflict in placing customers in certain mutual fund share classes and cash sweep accounts." For more, see our latest Brokerage Sweep Intelligence and see Wells Fargo's latest 10-Q, which says "Under 'Legal Actions'," "ADVISORY ACCOUNT CASH SWEEP INVESTIGATION. The United States Securities and Exchange Commission (SEC) has undertaken an investigation regarding the cash sweep options that the Company provides to investment advisory clients at account opening."
Fitch's "Money Market Funds: 3Q23"
Fitch Ratings published, "U.S. Money Market Funds: 3Q23," which tells us, "Total taxable money market fund (MMF) assets increased by $225.4 billion from June 30, 2023 to September 30, 2023, according to Crane Data. Government MMFs gained $73.1 billion in assets during this period, prime MMFs gained $64.8 billion, and treasury MMFs gained $87.4 billion. Total MMF assets are up $876.8 billion since the beginning of the year.... Taxable MMFs increased their exposure to Treasury securities from June to September. Treasury holdings increased by $515 billion from June 30, 2023 to September 30, 2023 while Repo holdings decreased by $282 billion over the same period, according to Crane Data. Repo remained the largest portfolio segment for the 25th consecutive month." The brief adds, "As of September 30, 2023, institutional government and prime MMF net yields were 5.14% and 5.28%, respectively, per Crane Data. Yields are up significantly and have continued a steady positive trend since the Fed began increasing interest rates in March 2022."
Federated Hermes Converts MMSXX
A recent Prospectus Supplement filing, says, "On August 11, 2023, the Board of Trustees of Federated Hermes Money Market Obligations Trust approved a Plan of Conversion for the Service Shares of Federated Hermes Institutional Money Market Management pursuant to which the Service Shares of the Fund will be converted into the Fund's existing Eagle Shares on or about October 27, 2023, resulting in the closure and termination of the Fund's Service Shares. In approving the conversion, the Board determined that the conversion of the Service Shares into Eagle Shares is in the best interest of the shareholders of the Service Shares. Pursuant to the Plan of Conversion, Service Shares shareholders will automatically receive shares of Eagle Shares in exchange for their Service Shares without any fee, load or charge to the shareholder, including any contingent deferred sales charges, on or about October 27, 2023. Shareholders should consult their Fund's prospectus for additional information regarding Eagle Shares expenses.... No action is required by shareholders to effect the conversion. There will be no disruption to their accounts. Please delete all references to Service Shares effective as of October 27, 2023." Another recent Prospectus Supplement for the "HSBC U.S. Government Money Market Fund, HSBC U.S. Treasury Money Market Fund and HSBC ESG Prime Money Market Fund states, "Upon the recommendation of HSBC Global Asset Management (USA) Inc., the Board of Trustees of HSBC Funds has approved: (i) the conversion of the outstanding Class A Shares of the HSBC U.S. Government Money Market Fund (the ‘Government Fund’) into Class D Shares of that Fund; (ii) the termination of Class C Shares of the Government Fund and HSBC U.S. Treasury Money Market Fund; and (iii) the redesignation of Class D Shares of the Funds as 'Class A Shares'. These changes will take effect on October 27, 2023, or on such later date as the officers of the Trust determine.... Effective immediately, the Government and Treasury Funds will no longer sell Class A Shares or Class C Shares to new investors or existing shareholders (except through reinvested dividends), including through exchanges into each Fund from other funds of the Trust. Investors may continue to redeem shares of each Fund prior to the Effective Date. Investors of the Government Fund may convert their Class A Shares to Class D Shares, at any time prior to the Effective Date. As a result, effective on the Effective Date, the following changes are being made to the Prospectus and SAI: All references to Class C Shares of the Government and Treasury Funds are eliminated. All references to the current Class A Shares of the Government and Treasury Funds are eliminated. All references to Class D Shares of the Funds are revised to refer to 'Class A Shares'." For more on fund liquidations, see these Crane Data News articles: "Morgan Stanley Liquidates Tax-Exempts" (9/21/23), "JPMorgan Liquidates E*Trade Shares" (9/7/23), "Morgan Stanley Latest to Abandon ESG MMFs" (8/16/23), "Goldman Liquidating Resource Shares" (7/19/23), "SSGA to Liquidate State Street ESG Liquid Reserves" (9/19/22), "DWS Liquidating Govt Cash Mgmt Fund" (7/7/22) and "Cavanal Hill Liquidates $71M U.S. Treasury Service Class, Added to Fed RRP List" (5/22/23).
Weekly Money Fund Port 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 October 27) includes Holdings information from 60 money funds (down 1 from a week ago), or $2.590 trillion (up from $2.442 trillion) of the $6.011 trillion in total money fund assets (or 43.1%) 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 $1.112 billion (up from $1.085 trillion a week ago), or 42.9%; Treasuries totaling $999.6 billion (up from $822.2 billion a week ago), or 38.6%, and Government Agency securities totaling $240.8 billion (up from $217.5 billion), or 9.3%. Commercial Paper (CP) totaled $83.1 billion (down from a week ago at $104.1 billion), or 3.2%. Certificates of Deposit (CDs) totaled $70.8 billion (down from $88.8 billion a week ago), or 2.7%. The Other category accounted for $58.5 billion or 2.3%, while VRDNs accounted for $25.1 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $999.6 billion (38.6% of total holdings), the Federal Reserve Bank of New York with $383.9 billion (14.8%), Federal Home Loan Bank with $183.8B (7.1%), Fixed Income Clearing Corp with $178.3B (6.9%), RBC with $53.7B (2.1%), Federal Farm Credit Bank with $47.6B (1.8%), Citi with $43.4B (1.7%), JP Morgan with $41.5B (1.6%), Bank of America with $39.5B (1.5%) and BNP Paribas with $36.7B (1.4%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($254.7B), Goldman Sachs FS Govt ($244.7B), Fidelity Inv MM: Govt Port ($186.7B), JPMorgan 100% US Treas MMkt ($170.2B), Morgan Stanley Inst Liq Govt ($147.5B), Fidelity Inv MM: MM Port ($116.8B), State Street Inst US Govt ($114.4B), Allspring Govt MM ($110.9B), Dreyfus Govt Cash Mgmt ($103.3B) and Goldman Sachs FS Treas Instruments ($92.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
