Daily Links Archives: December, 2023

An Op-Ed in The Wall Street Journal earlier this month, entitled, "The Private Market Can Add Discipline to Deposit Insurance," comments, "Following the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank this spring, U.S. lawmakers have faced a policy head-scratcher. When bank runs happen on the internet, not at the teller's window, how can the government ensure that smaller and regional banks can meet increased demands for liquidity during moments of panic? Excessive capital requirements would harm smaller banks more than larger ones, while reducing the demand for liquidity by increasing the amount of deposit insurance would create serious moral hazard. Solving such a complex problem requires a fresh look at deposit insurance. The Federal Deposit Insurance Corp., to its credit, hinted at the answer in a May report on the history and nature of deposit insurance. It asked whether private insurance has a role to play. The answer is an emphatic yes -- even if the FDIC doesn't, so far, seem to agree." The piece tells us, "Congress should revisit the idea of a public-private deposit-insurance program and add a new twist that draws on historical experience. To encourage the growth of the nuclear-energy industry, Congress passed the Price-Anderson Act in 1957, which established a federal insurance backstop for nuclear accidents. Following 9/11, Congress passed the Terrorism Risk Insurance Act to ensure customers could obtain terrorism coverage from property and casualty insurers.... Congress should learn from these laws and propose new public-private deposit-insurance legislation. The bill could require banks to provide private-sector deposit insurance up to a certain threshold per depositor -- say $5 million -- and mandate that at least 90% of total deposits of each bank be covered by a combination of FDIC and private insurance policies. There is already a model that legislators, regulators and banks could follow: Credit unions have offered excess deposit insurance through private-sector insurance companies for over two decades." It adds, "An added wrinkle: If a bank isn't able to obtain private market insurance for 90% of its deposits during a given year, legislation could require the bank to pay a substantial premium over the private-market insurance rate of peer institutions for additional FDIC coverage. This pricing discipline would give the FDIC confidence that it's reducing the risk of bank runs without encouraging bankers to act imprudently."

Bloomberg writes in "Year-End Money-Markets Angst on Fed Exit Echoes 2018 Crunch." They explain, "The Federal Reserve's continued push to remove liquidity from the financial system is bringing back volatility to year-end trading in the overnight funding markets for the first time in five years. Volatility in the market for overnight repurchase agreements is generally tame, but it has started to move, with repos trading as high as 5.53% before closing at 5.32% on Tuesday, according to Curvature Securities. The last time the repo market moved at all around year-end was in 2018 when it spiked more than 3 percentage points to 6%. The move comes as the Secured Overnight Financing Rate rose to the highest level in more than three weeks through Tuesday, which is just shy of the all-time high reached on Dec. 1. Usage of the Fed's reverse repo facility, where counterparties can park cash overnight, is expected to rise further in coming days." The article explains, "Here's what to watch for further signs of funding strains in the coming days: ... The Secured Overnight Financing Rate, or SOFR, is a reference rate connected to transactions of overnight repurchase agreements. When funding costs rise it tends to drive SOFR higher as well. SOFR fixed at 5.35% as of Dec. 26 from 5.32% the prior session, according to New York Fed data published Wednesday. That's off the all-time high of 5.39% reached on Dec. 1.... The Fed's reverse repo facility, or RRP, has been a place where counterparties -- mostly money-market mutual funds -- can park excess cash to earn a market rate, currently 5.3%. As banks pare their repo market activity to tidy up their balance sheets, it spurs money funds to shift more cash to the RRP. On Wednesday, 90 counterparties parked $819 billion at the facility, the most since Dec. 13.... With year-end balance sheet constraints and an increased need to finance long Treasury positions in the cash market, banks are shifting more activity to sponsored repo. Total sponsored repo activity has risen, even reaching an all-time high of $1.031 trillion as of Dec. 22, Depository Trust & Clearing Corp. data show. That's because sponsored repo transactions allow lenders to transact with counterparties like money-market funds and hedge funds, without bumping up against regulatory constraints of their balance sheets. These agreements are effectively 'sponsored' or cleared via the Fixed Income Clearing Corp's repo platform, thereby allowing dealer banks to net two sides of a trade and hold less capital against it."

Money fund yields were unchanged for the 3rd straight week in the 7 days ended Dec. 22, at 5.19% on average (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 5.20% on 11/30, 5.19% on 10/31, 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 $8.4 billion last week to $6.263 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 5.09%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 5.30% in the latest week. Government Inst MFs were down 1 bp at 5.15%. Treasury Inst MFs were unchanged at 5.12%. Treasury Retail MFs currently yield 4.90%, Government Retail MFs yield 4.86%, and Prime Retail MFs yield 5.12%, Tax-exempt MF 7-day yields were up 76 bps to 3.67%. According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (12/22), 112 money funds (out of 817 total) yield under 3.0% with $115.7 billion in assets, or 1.8%; 19 funds yield between 3.00% and 3.99% ($14.0 billion, or 0.2%), 210 funds yield between 4.0% and 4.99% ($1.054 trillion, or 16.7%) and 476 funds now yield 5.0% or more ($5.115 trillion, or 81.2%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down 1 bp at 0.61%. The latest Brokerage Sweep Intelligence, with data as of Dec. 8, shows that there was one change over the past week. Last week, RW Baird moved rates to 2.03% for all balances between $1K and $999K, to 3.17% for balances between $1 million and $1.9 million, and to 4.11% for balances of $5 million and over for the week ended December 8. 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.

The Wall Street Journal posted a brief entitled, "Schwab CEO: Don't Count on Cash on Sidelines to Boost Stock Rally." It explains, "Everyday investors have moved a lot of cash this year into money-market funds. Charles Schwab CEO Walt Bettinger says that doesn't mean investors will rush to put their cash to work in stocks as the market rallies." He comments, "I think you have to be very cautious to assume that that money that is in retail money-market funds is going to pour back into the market. The returns are still very strong there at plus 5% in most funds," Bettinger said on CNBC's Squawk on the Street. 'I would not count on that as being a big tailwind to the equity markets in 2024.'"

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets lower for the second week in a row following an 8-week record-breaking tear. ICI's asset series fell $16.1 billion to $5.870 trillion in the past week, but it has risen $262.5 billion the past 10 weeks. Assets are up by $1.135 trillion, or 24.0%, year-to-date in 2023, with Institutional MMFs up $536 billion, or 17.5% and Retail MMFs up $599 billion, or 35.7%. Over the past 52 weeks, money funds have risen a massive $1.157 trillion, or 24.6%, with Retail MMFs rising by $618 billion (37.3%) and Inst MMFs rising by $539 billion (17.7%). The weekly release says, "Total money market fund assets decreased by $16.09 billion to $5.87 trillion for the week ended Wednesday, December 20, the Investment Company Institute reported. Among taxable money market funds, government funds decreased by $24.02 billion and prime funds increased by $7.66 billion. Tax-exempt money market funds increased by $269 million." ICI's stats show Institutional MMFs falling $26.1 billion but Retail MMFs rising $10.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.794 trillion (81.7% of all money funds), while Total Prime MMFs were $955.3 billion (16.3%). Tax Exempt MMFs totaled $120.8 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $9.96 billion to $2.28 trillion. Among retail funds, government money market fund assets increased by $8.95 billion to $1.48 trillion, prime money market fund assets increased by $897 million to $683.28 billion, and tax-exempt fund assets increased by $110 million to $110.20 billion." Retail assets now account for well over a third of total assets, or 38.8%, and Government Retail assets make up 65.2% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $26.05 billion to $3.59 trillion. Among institutional funds, government money market fund assets decreased by $32.97 billion to $3.31 trillion, prime money market fund assets increased by $6.77 billion to $271.98 billion, and tax-exempt fund assets increased by $159 million to $10.57 billion." Institutional assets accounted for 61.2% 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 have fallen by $9.3 billion month-to-date in December (through 12/20) to $6.258 trillion after spiking $219.8 billion in November. 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.

ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in November, prime money market funds held 41.5 percent of their portfolios in daily liquid assets and 58.5 percent in weekly liquid assets, while government money market funds held 79.1 percent of their portfolios in daily liquid assets and 86.7 percent in weekly liquid assets." Prime DLA was up from 39.9% in October, and Prime WLA was unchanged from 58.5%. Govt MMFs' DLA was down from 81.2% and Govt WLA decreased from 88.7% the previous month. ICI explains, "At the end of November, prime funds had a weighted average maturity (WAM) of 38 days and a weighted average life (WAL) of 55 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 34 days and a WAL of 78 days." Prime WAMs were 6 days longer and WALs were 4 days longer from the previous month. Govt WAMs were 4 days longer and WALs were 4 days longer from October. Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $460.02 billion in October to $473.12 billion in November. Government money market funds’ holdings attributable to the Americas rose from $4,199.91 billion in October to $4,332.73 billion in November." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $473.1 billion, or 50.7%; Asia and Pacific at $165.4 billion, or 17.7%; Europe at $279.8 billion, or 30.0%; and, Other (including Supranational) at $14.0 billion, or 1.6%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.333 trillion, or 89.5%; Asia and Pacific at $130.0 billion, or 2.7%; Europe at $360.4 billion, 7.4%, and Other (Including Supranational) at $18.2 billion, or 0.4%.

State Street Global Advisors' latest "Monthly Cash Review – November 2023 (USD)," which is subtitled, "Time to Chase Duration," explains, "We believe the US Federal Reserve (Fed) can cut rates by 100–150 bps in 2024, beginning as early as March, but more likely in June or July. With this timeline in mind, the chase for duration has begun as investors try to lock in longer-term yields before their eventual decline.... Money market funds began their extension in the early summer months of 2023, shortly after the Debt Ceiling debacle was resolved. The shift was aided by the US Treasury's aggressive issuance pattern, where T-Bill debt increased by almost $500 billion from May to June. In fact, as of October month-end, T-Bill debt has increased by almost $1.5 trillion since May. The outsized issuance has resulted in a cheapening of T-Bills vs. repo, making the extension out of repo (mostly overnight) into longer-term T-Bills a no-brainer." The piece continues, "For fund managers, extending duration is just one part of the equation. The bigger challenge is keeping duration extended. Each day, a fund's duration shrinks, so a manager must constantly search for the optimal point to position money further out the curve. As curves begin to flatten and ultimately invert, the job becomes more difficult, and could force a fund to buy yields that are lower than their shortest maturity investments (with the hope that the Fed eases its policy rate). Already we are seeing an inverted and flatter T-Bill curve, though the credit curve has yet to reach a similar point of inversion. There is still time for extension in a positive sloping curve, although by the time you read this circumstances may have changed." They conclude, "Finding the conviction to extend duration and add risk to one's portfolio is always a challenge in an uncertain market. Trying to time the move is even more difficult. Identifying economic leading indicators and market signals in your investment framework can help relieve pressure on the guessing game. At this point (December 2023), it seems obvious that the Fed will begin down the path of easing policy rates. Back in June, it was less obvious, and the rate moves in the month of September and October could have broken even the strongest of convictions. How fast the Fed eases is the million-dollar question, and next month, we will discuss what these economic outcomes could mean for fixed income returns."

Reuters writes "A $6 trillion cash hoard could fuel more U.S. stock gains as Fed pivots." It explains, "Investors wondering whether markets can continue their torrid rally are eyeing one important factor that could boost assets: a nearly $6 trillion pile of cash on the sidelines. Soaring yields have pulled cash into money markets and other short-term instruments, as many investors chose to collect income in the ultra-safe vehicles while they awaited the outcome of the Federal Reserve's battle against surging inflation. Total money market fund assets hit a record $5.9 trillion on Dec. 6, according to data from the Investment Company Institute." They quote Flavio Carpenzano, fixed-income investment director at Capital Group, "If you think the Fed is done with the hiking cycle, then it's time to deploy cash as the opportunity is there." The piece explains, "Not all the cash in money market funds may be available as 'dry powder' to be invested in stocks and bonds. Some of it is held by institutions that might otherwise have that money in bank deposits and is needed for cash purposes, said Peter Crane, president of Crane Data, which tracks money market funds. History also shows that the bulk of cash in money markets tends to remain even as rates come down, said Adam Turnquist, chief technical strategist for LPL Financial. 'I think you could start to see some flows come out of money markets and chase this rally, but I don't think we are going to see anything to the tune of a trillion dollars or some massive flows that some people might expect,' Turnquist said. And while money market assets are at record highs, their size relative to the S&P 500 is smaller than it has been during past peaks. Total money market fund assets as a percentage of market capitalization stand at about 15.5%, in line with the long-term median and well below the record high of 64% hit in 2009 in the aftermath of the global financial crisis."

The Investment Company Institute published a brief entitled, "Retirement Assets Total $35.7 Trillion in Third Quarter 2023." It includes data tables showing that money market funds held in retirement accounts jumped to $724 billion (up from $685 billion) in the latest quarter, accounting for 13% of the total $5.681 trillion in money funds. MMFs represent just 6.7% of the total $10.881 trillion of mutual funds in retirement accounts. This release says, "Total US retirement assets were $35.7 trillion as of September 30, 2023, down 2.8 percent from June 30, 2023. Retirement assets accounted for 32 percent of all household financial assets in the United States at the end of September 2023. Assets in individual retirement accounts (IRAs) totaled $12.6 trillion at the end of the third quarter of 2023, a decrease of 3.0 percent from the end of the second quarter of 2023. Defined contribution (DC) plan assets were $9.9 trillion at the end of the third quarter, down 3.3 percent from June 30, 2023. Government defined benefit (DB) plans—including federal, state, and local government plans—held $8.0 trillion in assets as of the end of September 2023, a 1.6 percent decrease from the end of June 2023. Private-sector DB plans held $3.1 trillion in assets at the end of the third quarter of 2023, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion." The ICI tables also show money funds accounting for $534 billion, or 10%, of the $5.400 trillion in IRA mutual fund assets and $190 billion, or 3%, of the $5.481 trillion in defined contribution plan holdings. (Money funds in 401k plans totaled $127 billion, or 3% of the $4.323 trillion of mutual funds in 401k's.)

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets dipping in the last week following a 7-week record-breaking tear. ICI's asset series fell $11.5 billion to $5.886 trillion in the past week, but it has risen $278.6 billion the past 8 weeks. Assets are up by $1.145 trillion, or 24.2%, year-to-date in 2023, with Institutional MMFs up $521 billion, or 16.8% and Retail MMFs up $624 billion, or 38.0%. Over the past 52 weeks, money funds have risen a massive $1.151 trillion, or 24.3%, with Retail MMFs rising by $624 billion (38.0%) and Inst MMFs rising by $521 billion (16.8%). The weekly release says, "Total money market fund assets decreased by $11.55 billion to $5.89 trillion for the week ended Wednesday, December 13, the Investment Company Institute reported. Among taxable money market funds, government funds decreased by $11.36 billion and prime funds increased by $1.38 billion. Tax-exempt money market funds decreased by $1.56 billion." ICI's stats show Institutional MMFs falling $14.5 billion but Retail MMFs rising $2.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.818 trillion (81.9% of all money funds), while Total Prime MMFs were $947.6 billion (16.1%). Tax Exempt MMFs totaled $120.1 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $2.92 billion to $2.27 trillion. Among retail funds, government money market fund assets increased by $651 million to $1.47 trillion, prime money market fund assets increased by $3.45 billion to $682.38 billion, and tax-exempt fund assets decreased by $1.18 billion to $110.09 billion." Retail assets now account for well over a third of total assets, or 38.5%, and Government Retail assets make up 65.0% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $14.47 billion to $3.62 trillion. Among institutional funds, government money market fund assets decreased by $12.01 billion to $3.34 trillion, prime money market fund assets decreased by $2.07 billion to $265.21 billion, and tax-exempt fund assets decreased by $381 million to $10.41 billion." Institutional assets accounted for 61.5% of all MMF assets, with Government Institutional assets making up 92.4% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $6.0 billion month-to-date in December (through 12/13) to $6.274 trillion after spiking $219.8 billion in November. 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.

A release entitled, "Federal Reserve issues FOMC statement," tells us, "Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks." The FOMC continues, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective." They add, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

The Wall Street Journal writes about "Money Moves to Make If You're Expecting the Fed to Lower Interest Rates." They state, "Playing it safe paid off for investors in 2023 better than it has in years. Now, it could be time to take more risk with your money. Americans piled into the safe, guaranteed return provided by cash and cash-like investments in the past year. Money-market funds and high-yield savings accounts each had inflows with households, adding more than $651 billion to money-market funds in the second quarter compared with last year, according to Federal Reserve data. Driving the decision to take money out of stocks and bonds and into cash was the Fed. A campaign of interest-rate increases from the central bank pushed the returns of money-markets and similar securities higher. In many cases, investors figured grabbing an easy and guaranteed 5% annual return on their money was a no-brainer." The Journal tells us, "On Wednesday the Fed will make a decision on whether to move interest rates and could provide more direction on its plans. While there is no guarantee the Fed is done raising rates or will cut them soon, history suggests it pays to make moves now, before a possible first rate cut." They add, "Cash still has an important role in investment portfolios, advisers said. For example, it is important to keep a few months' worth of expenses before increasing your investments. That said, if your emergency fund is shored up, you can probably afford to put more money into stocks and bonds, Leve said.... Many investors are still keeping too much of their assets in cash, advisers said. Households held 17% of their financial assets in cash or cash-like investments such as money-market funds or certificates of deposits in 2022 -- the highest share since 2012, federal data show.... Regular investors have a poor history of trying to time the market and often pull money out just in time to miss sustained growth. The case for holding stocks long term is that over the past centuries, it has provided the best opportunity for investors to build wealth."

Money fund yields were down one basis point in the week ended Dec. 8, at 5.19% on average (as measured by our Crane 100 Money Fund Index), after remaining unchanged the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.20% on 11/30, 5.19% on 10/31, 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 $46.2 billion last week to $6.299 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 5.09%, down 1 bp in the week through Friday. Prime Inst MFs were unchanged at 5.30% in the latest week. Government Inst MFs were down 1 bp at 5.16%. Treasury Inst MFs were down 1 bp at 5.12%. Treasury Retail MFs currently yield 4.90%, Government Retail MFs yield 4.86%, and Prime Retail MFs yield 5.12%, Tax-exempt MF 7-day yields were down 32 bps to 2.72%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/8), 112 money funds (out of 817 total) yield under 3.0% with $115.7 billion in assets, or 1.8%; 19 funds yield between 3.00% and 3.99% ($14.0 billion, or 0.2%), 210 funds yield between 4.0% and 4.99% ($1.054 trillion, or 16.7%) and 476 funds now yield 5.0% or more ($5.115 trillion, or 81.2%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down 1 bp at 0.61%. The latest Brokerage Sweep Intelligence, with data as of Dec. 8, shows that there was one change over the past week. Last week, RW Baird moved rates to 2.03% for all balances between $1K and $999K, to 3.17% for balances between $1 million and $1.9 million, and to 4.11% for balances of $5 million and over for the week ended December 8. 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.

Pensions & Investments published the article, "Women-led team at Federated Hermes reigns in money market fund boom," which tells us, "Higher yields in money market funds are drawing in new types of customers -- including corporations, family offices and even pension funds and endowments -- according to Federated Hermes' global liquidity team. Deborah Cunningham, CIO of global liquidity markets at the $715.2 billion asset management firm, said the yields, which are currently hovering above 5%, have lured both retail and institutional investors away from banks, which offer near zero interest on deposits. Cunningham said that in the last year and a half alone, there's been a trillion-dollar decrease in bank deposits and a trillion-dollar increase in money funds." Federated's Sue Hill adds, "Five percent rates on cash draws in a lot of people -- institutions that traditionally have relied on deposits at banks but see this attractive investment on the other side in the money fund space.... The pension and endowment space is not a traditional home for money fund investors. I know there have been allocations we're aware of where that's a part of the market that has been drawn into the space or seen value in the products that we offer." See also Federated Hermes' latest monthly commentary, "Cutting through the noise." It says, "All told, the size of U.S. money market funds continued to grow last month. Industry fund assets vaulted over the $6.2 trillion bar for the first time ever in November, says Crane Data. All three sectors—government, prime and municipal—added net assets, led by retail products. With the Crane 100 Money Fund Index at 5.20%, it's easy to see why. If the Fed does pause for most of 2024, the asset class should remain hard to beat." Cunningham writes, "`Liquidity products worldwide have benefited from the higher rates and the leadership of most central banks, including those of Canada and Australia, resulting in an adequate and stable supply of sovereign bonds. The large, high-quality corporate banks that comprise much of liquidity-product collateral have strong balance sheets, excess capital and hefty reserves. While flows to global money funds have not been as abundant as in the U.S., they are healthy."

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets surging for the 7th week in a row, hitting yet another new record, a hair below $5.9 trillion. ICI's asset series rose $61.6 billion to $5.898 trillion in the past week and has risen $290.1 billion the past 7 weeks. Assets are up by $1.163 trillion, or 24.6%, year-to-date in 2023, with Institutional MMFs up $576 billion, or 18.8% and Retail MMFs up $587 billion, or 35.0%. Over the past 52 weeks, money funds have risen a massive $1.179 trillion, or 25.0%, with Retail MMFs rising by $635 billion (39.0%) and Inst MMFs rising by $544 billion (17.6%). The weekly release says, "Total money market fund assets increased by $61.65 billion to $5.90 trillion for the week ended Wednesday, December 6.... Among taxable money market funds, government funds increased by $56.07 billion and prime funds increased by $6.06 billion. Tax-exempt money market funds decreased by $484 million." ICI's stats show Institutional MMFs rising $43.2 billion and Retail MMFs rising $18.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.829 trillion (81.9% of all money funds), while Total Prime MMFs were $946.2 billion (16.0%). Tax Exempt MMFs totaled $122.1 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $18.50 billion to $2.26 trillion. Among retail funds, government money market fund assets increased by $13.77 billion to $1.47 trillion, prime money market fund assets increased by $5.31 billion to $678.93 billion, and tax-exempt fund assets decreased by $586 million to $111.27 billion." Retail assets now account for well over a third of total assets, or 38.4%, and Government Retail assets make up 65.1% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $43.15 billion to $3.63 trillion. Among institutional funds, government money market fund assets increased by $42.30 billion to $3.36 trillion, prime money market fund assets increased by $750 million to $267.28 billion, and tax-exempt fund assets increased by $102 million to $10.79 billion." Institutional assets accounted for 61.6% of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $23.6 billion month-to-date in December (through 12/6) to $6.291 trillion after spiking $219.8 billion in November. 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.

The Financial Conduct Authority (FCA), which regulates financial markets in the U.K., published a consultation paper entitled, "Updating the regime for Money Market Funds." Their statement explains, "We are proposing 2 significant changes to current MMF regulation that we assess as particularly important in reducing the vulnerability of MMFs. Both aim to increase the usable liquidity of MMFs, so that in severe but plausible market stresses, MMFs do not reach a point at which they are unable to meet continuing investor demands for their money back without fire-selling assets. A significant increase in the minimum proportion of highly liquid assets that all MMF types have to hold. This will ensure that MMFs have enough liquid assets to withstand large amounts of withdrawals over a short period in severe but plausible market stresses. This will significantly reduce the first-mover advantage in MMFs explained above." They also propose, "The removal of an existing regulatory requirement for important types of MMF which 'links' the levels of liquid assets in those MMFs with the need for the MMF manager to impose or consider imposing tools that, if used, would reduce the ability of investors to get their money back without unanticipated delays or losses. This proposed policy change is known as 'delinking' and works to reduce the additional first-mover advantage the 'links' can cause for these types of MMF as their liquid asset levels decrease. We are proposing a series of further changes that will further enhance MMF resilience, as set out in the CP. Overall, all of our proposals prioritise strengthening the existing regulatory regime for MMFs while maintaining the broad current MMF operating model. In addition to increased financial stability, these measures also have the potential to strengthen the long-term competitiveness of the UK MMF sector, by increasing investor confidence in UK domiciled funds." They add, "We are also consulting to bring MMF rules that were previously contained in retained EU law into our Handbook.... Please send us your comments by 8 March 2024 via our response form or by email." Watch for coverage of the full paper in coming days.

A press release entitled, "GLMX Surges as Balances Eclipse $2 Trillion and Volumes Reach Record." It tells us, "GLMX Technologies LLC ('GLMX'), a comprehensive global technology solution for trading Money Market instruments, including repurchase agreements and securities lending transactions, for the first time eclipsed $2.0 trillion in daily system balances on November 30. Over 110 major financial market participants utilize GLMX technology to negotiate and execute securities financing transactions (SFTs). Additionally, record average daily volume of $634 billion in November puts GLMX at or near the top of the heap for SFT execution platforms." CEO and Co-Founder Glenn Havlicek comments, "2023 has been a year of multiple milestones at GLMX. Today's announcement follows less than 5 months after we reached $1.5 trillion in balances and puts 2023 on track to be the fifth consecutive year in which we will have seen compound balance growth of over 100%" Sal Giglio, GLMX's COO, tells us, "GLMX has moved solidly from startup to a top provider in SFT execution, led by our diverse client base of hedge funds, asset managers, sovereign wealth funds, pension funds, insurance companies, money market funds, corporate treasurers, prime brokers and securities lenders.... In addition, our powerful base in the repurchase agreement (repo) space has given us significant momentum and we see accelerating adoption of our technology in other market segments including securities lending, time deposits and total-return-swaps." Finally, Chief Product Officer Andy Wiblin adds, "This year of milestones is a testament to the trust our ever-growing client base places in us to help get their business done. It would not have been possible without the skill, hard work and dedication shown by the entire GLMX team. It is truly inspirational to be able to work in an environment of constant innovation and incredible energy."

Money fund yields were unchanged in the week ended Dec. 1 at 5.20% on average (as measured by our Crane 100 Money Fund Index) after rising 1 bp the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.20% on 11/30, 5.19% on 10/31, 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 $74.6 billion last week to $6.253 trillion according to Crane Data's Money Fund Intelligence Daily. 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%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 5.30% in the latest week. Government Inst MFs were up 1 bp at 5.17%. Treasury Inst MFs were down 1 bp at 5.13%. Treasury Retail MFs currently yield 4.92%, Government Retail MFs yield 4.87%, and Prime Retail MFs yield 5.12%, Tax-exempt MF 7-day yields were down 18 bps to 3.04%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/1), 41 money funds (out of 816 total) yield under 3.0% with $21.4 billion in assets, or 0.3%; 90 funds yield between 3.00% and 3.99% ($109.3 billion, or 1.7%), 197 funds yield between 4.0% and 4.99% ($659.1 billion, or 10.5%) and 488 funds now yield 5.0% or more ($5.463 trillion, or 87.4%). 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 Dec. 1, 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.

CNBC writes "Investors piled cash into money market mutual funds in 2023 and now could see a higher tax bill." They explain, "If you funneled cash into money market mutual funds in 2023 amid rising interest rates, you may have a surprise tax bill in April, experts say. Investors and institutions have piled $5.84 trillion into money market mutual funds, as of Nov. 29, according to the Investment Company Institute <b:>v_, and many funds are paying well over 5%. 'With pennies earned in 2022 on cash assets, the tax bill was negligible,' said certified financial planner `Robert Schultz, senior partner at NWF Advisory Group in Encino, California. 'At 5% rates, there will be much higher bills, which will catch many off guard.'" The article tells us, "With yields closely tied to the federal funds rate, money market funds -- different than money market deposit accounts -- are mutual funds that typically invest in shorter-term, lower-credit-risk debt, such as Treasury bills. Many investors are stockpiling money into these funds due to 'fear in the stock market' and many are nervous to spend cash, according to CFP Colin Day, an enrolled agent at Correct Capital in St Louis." CNBC adds, "Typically, money market funds pay dividends monthly, and the earnings made in 2023 'could be significant,' said Day. 'But unfortunately, this is before taxes.' Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%. By comparison, the top long-term capital gains rate is 20%."

Fitch Ratings published "Local Government Investment Pools: 3Q23," which tells us, "Fitch Ratings' two local government investment pool (LGIP) indices experienced an aggregate asset decrease in the third quarter of 2023 (3Q23). This is consistent with seasonal trends where LGIPs experience net outflows in 3Q. Combined assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $563 billion at the end of 3Q23, representing a decrease of $14 billion qoq and an increase of $78 billion yoy. The Fitch Liquidity LGIP Index was down 2.2% qoq and the Fitch Short-Term LGIP Index was down 2.9% qoq, compared to average declines of 2.5% and 4.0%, respectively, in the third quarter over the past three years." It continues, "Weighted average maturities (WAMs) continued to rise in 3Q23 as the Fed has paused hiking rates. The WAM of the Fitch Liquidity LGIP Index increased to 37 days, still higher than prime '2a-7' money market funds at 28 days. The Fitch Short-Term LGIP Index ended the quarter with a duration of 1.12 years, down 6% since last quarter. Both Fitch indices ended 3Q23 with improved average yield profiles with average net yields of 5.35% for the Liquidity Index and 4.31% for the Short-Term Index, reflecting the 25bp rate hike in July." Fitch states, "The Fitch Liquidity LGIP Index increased exposure to Repurchase Agreements by 2.23% and decreased exposure to Commercial Paper by -5.38% qoq. Exposure to Government Agencies, Certificates of Deposit and ABS cumulatively increased by 2.05%. Additionally, the 'Other' category increased by 5.19% qoq, driven primarily by an increase in bank deposit exposure."

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