Daily Links Archives: May, 2023

Money fund yields inched higher again over the past week as they digest the remainder of the Federal Reserve's May 2nd 25 basis point rate increase. Our Crane 100 Money Fund Index (7-Day Yield) was up 4 bps to 4.89% in the week ended Friday, 5/26, after increasing by 1 bp the week prior. Yields are up from 4.64% on April 30, 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. A number of the top-yielding money market funds now yield above the 5.0% level, and more should move above this level in coming days as they digest the remainder of the latest Fed hike. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.77%, up 4 bps in the week through Friday. Prime Inst MFs were up 1 bp at 4.97% in the latest week. Government Inst MFs rose by 3 bps to 4.87%. Treasury Inst MFs up 8 bps for the week at 4.76%. Treasury Retail MFs currently yield 4.54%, Government Retail MFs yield 4.55%, and Prime Retail MFs yield 4.80%, Tax-exempt MF 7-day yields were up 24 bps at 2.84%. According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (5/26), just one money fund (out of 819 total) yields under 2.0%; 84 funds yield between 2.00% and 2.99% with $48.5 billion, or 0.8%; 54 funds yield between 3.00% and 3.99% ($72.6 billion, or 1.3%), 526 funds yield between 4.0% and 4.99% ($3.387 trillion, or 58.5%) and 154 funds now yield 5.0% or more ($2.280 trillion, or 39.4%). Over the past week, 26 funds are yielding above the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow in coming days. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.59% after rising 3 bps two weeks ago. The latest Brokerage Sweep Intelligence, with data as of May 26, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

The Financial Times writes, "Yield-hungry investors push US money market assets to record $5.4tn." The piece explains, "US money market fund assets have swelled to a record high this week, as the best yields available in years and the early May collapse of First Republic Bank kept investors piling into the low-risk vehicles. Total net assets in money market funds, which invest in high-quality, short-dated debt, reached almost $5.4tn as of Wednesday, according to data from the Investment Company Institute. The figure is up from less than $5.3tn in late April and $4.8tn at the start of the year. Investors have rushed into money market funds this year due to the increasingly high yields on offer, particularly in government vehicles, fueled by the Federal Reserve's most aggressive campaign of interest rate rises in decades." It tells us, "In March, money market funds received a massive $370bn as the regional Silicon Valley Bank and Signature Bank collapsed, raising questions about the health of the wider sector. For Shelly Antoniewicz, senior economist at the ICI, rapid inflows into money market funds early this month were likely related to the demise of California-based First Republic, which had $93.5bn of deposits before it was shut down and largely sold to JPMorgan Chase at the beginning of May." The FT adds, "The flood of cash into money market funds has continued even as pressure on the banking system has eased and attention has turned to the prospects of a US government default if lawmakers in Washington fail to reach a deal to raise the country's debt ceiling. The prices of bills maturing around the time that the US is expected to run out of cash have plummeted, sending yields above 7 percent. The starring role of money market funds in markets this year may continue even after any deal to raise the federal borrowing limit. After a potential resolution, the Treasury department is expected to have to borrow vast amounts of cash in order to replenish its coffers -- roughly $750bn in Treasury bills in the four months after a deal, according to JPMorgan estimates."

The Investment Company Institute's most recent "Money Market Fund Assets" report shows MMFs hitting a record for the fifth week in a row and for the 10th week out of the past 11. Assets have risen by $568.0 billion, or 11.8%, over the past 13 weeks! ICI shows assets up by $653 billion, or 13.8%, year-to-date in 2023, with Institutional MMFs up $372 billion, or 12.2% and Retail MMFs up $281 billion, or 16.8%. Over the past 52 weeks, money fund assets have risen $860 billion, or 19.0%, with Retail MMFs rising by $538 billion (37.9%) and Inst MMFs rising by $322 billion (10.3%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke above $5.8 trillion for the first time ever and hit a record $5.817 trillion on Tuesday, 5/23, then dipped $10.9 billion on Thursday. 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 weekly release says, "Total money market fund assets increased by $46.67 billion to $5.39 trillion for the week ended Wednesday, May 24, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $41.25 billion and prime funds increased by $6.48 billion. Tax-exempt money market funds decreased by $1.07 billion." ICI's stats show Institutional MMFs jumping $39.4 billion and Retail MMFs rising $7.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.481 trillion (83.2% of all money funds), while Total Prime MMFs were $795.8 billion (14.8%). Tax Exempt MMFs totaled $111.7 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $7.26 billion to $1.96 trillion. Among retail funds, government money market fund assets increased by $3.22 billion to $1.32 trillion, prime money market fund assets increased by $4.91 billion to $536.95 billion, and tax-exempt fund assets decreased by $870 million to $101.22 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.4% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $39.41 billion to $3.43 trillion. Among institutional funds, government money market fund assets increased by $38.03 billion to $3.16 trillion, prime money market fund assets increased by $1.58 billion to $258.85 billion, and tax-exempt fund assets decreased by $196 million to $10.45 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals.

J.P. Morgan's latest "Mid-Week US Short Duration Update" tells us, "We fully expect a timely resolution of the debt ceiling constraint. That said, should a technical default occur, we believe MMFs would not be forced to liquidate Treasury securities. It is also not obvious that we will see outflows from MMFs before the drop-dead date as we did in 2011, due to the availability of the RRP as well as due to the still-continuing outflows from bank deposits in aggregate. Treasury MMFs that do not have access to the Fed's ON RRP program have somewhat fewer options to manage their liquidity.... Historically, MMFs have maintained a significant portion of their holdings in T-bills, though this has shifted materially over the past two years, in no small part due to the scaling up of the RRP program. Assuming the debt ceiling quagmire gets resolved, our Treasury strategists foresee a significant increase in net T-bill issuance following a resolution, with the largest increases potentially in shorter-maturity bills, accommodating MMFs' preference for shorter WAMs in the current interest rate environment." It states, "MMFs significantly reduced their footprint as a share of the T-bill market during the first three months of 2023. We estimate buyers that do not have access to the RRP facility continued to increase their holdings of T-bills during 1Q23. Such investors will likely continue to tread carefully in the T-bill market, extending maturities to beyond the X-date in early June. Meanwhile, other investors that may not be as vulnerable to headline risk as MMFs could remain buyers of T-bills.... MMF inflows have continued but meaningfully slowed in April compared to the influx that occurred in the immediate aftermath of the regional bank failures in March. MMFs made up about 95% of a total $2325bn in Fed ON RRP usage at April-end, with front-end supply still tight. Though government MMFs dramatically shifted their T-bill maturity profiles in favor of 1-month bills in April, anecdotally, we think MMFs' bill holdings have extended in May given that the projected X-date has moved earlier."

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 May 19) includes Holdings information from 87 money funds (up 16 from a week ago), which totals $3.252 trillion (up from $2.891 trillion) of the $5.595 trillion in total money fund assets (or 58.1%) 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 $1.895 trillion (up from $1.706 trillion a week ago), or 58.3%; Treasuries totaling $741.4 billion (up from $693.6 billion one week ago), or 22.8%, and Government Agency securities totaling $330.2 billion (up from $277.0 billion), or 10.2%. Commercial Paper (CP) totaled $96.8 billion (up from a week ago at $70.1 billion), or 3.0%. Certificates of Deposit (CDs) totaled $70.5 billion (up from $55.1 billion a week ago), or 2.2%. The Other category accounted for $82.4 billion or 2.5%, while VRDNs accounted for $35.4 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $1.157 trillion (35.6%), the US Treasury with $741.4 billion (22.8% of total holdings), Federal Home Loan Bank with $259.3B (8.0%), Fixed Income Clearing Corp with $181.5B (5.6%), Federal Farm Credit Bank with $63.1B (1.9%), JP Morgan with $54.0B (1.7%), Citi with $51.6B (1.6%), BNP Paribas with $44.7B (1.4%), Bank of America with $40.5B (1.2%) and RBC with $39.9B (1.2%). The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($277.3B), JPMorgan US Govt MM ($265.3B), Fidelity Inv MM: Govt Port ($183.9B), Morgan Stanley Inst Liq Govt ($157.8B), Federated Hermes Govt Oblig ($139.8B), BlackRock Lq FedFund ($136.9B), JPMorgan 100% US Treas MMkt ($135.1B), Dreyfus Govt Cash Mgmt ($116.0B), Fidelity Inv MM: MM Port ($100.1B) and BlackRock Lq Treas Tr ($98.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

Money fund yields inched higher over the past week as they finished digesting the Federal Reserve's May 2nd 25 basis point rate increase. Our Crane 100 Money Fund Index (7-Day Yield) was up 1 bp to 4.85% in the week ended Friday, 5/19, after increasing by 13 bps the week prior. Yields are up from 4.64% on April 30, 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. A number of the top-yielding money market funds now yield above the 5.0% level, and more should move above this level in coming days as they digest the remainder of the latest Fed hike. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.73%, up 2 bps in the week through Friday. Prime Inst MFs were up 2 bps at 4.96% in the latest week. Government Inst MFs rose by 1 bp to 4.84%. Treasury Inst MFs up 4 bps for the week at 4.68%. Treasury Retail MFs currently yield 4.45%, Government Retail MFs yield 4.53%, and Prime Retail MFs yield 4.79%, Tax-exempt MF 7-day yields were down 18 bps at 2.60%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/19), just four money funds (out of 819 total) yield under 2.0%; 121 funds yield between 2.00% and 2.99% with $115.3 billion, or 2.0%; 20 funds yield between 3.00% and 3.99% ($13.3 billion, or 0.2%), 546 funds yield between 4.0% and 4.99% ($3.646 trillion, or 62.9%) and 128 funds now yield 5.0% or more ($2.021 trillion, or 34.9%). Over the past week, 9 funds have now officially surpassed the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow in coming weeks. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.59% after rising 3 bps last week. The latest Brokerage Sweep Intelligence, with data as of May 19, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

A filing for Cavanal Hill U.S. Treasury Fund explains, "On April 28, 2023, the Board of Trustees of Cavanal Hill Funds approved a plan to liquidate and terminate the U.S. Treasury Fund Service Shares share class, upon the recommendation of Cavanal Hill Investment Management. Inc., the Fund's investment adviser. Effective May 18, 2023, the Service Class of the Fund will be closed to new investors and shareholder accounts. Furthermore, beginning July 15, 2023, Service Class shareholders will be prohibited from transacting in Service Class shares with the exception of redemptions of such shares. It is anticipated the Service Class will liquidate on or about August 1, 2023." It adds, "On the liquidation date, the Fund will redeem all outstanding shares of the Service Class at the net asset value of such shares. The Fund will distribute cash or in-kind pro rata to all Service Class shareholders who have not previously redeemed all of their shares on or about August 1, 2023. These distributions may be taxable events. Shareholders may redeem Service Class shares of the Fund at any time prior to the Liquidation Date. No sales charges, redemption or termination fees will be imposed in connection with such redemptions. In general, redemptions are taxable events for shareholders. If you own Service Class shares of the Fund in a tax deferred account, such as an individual retirement account, 401(k) or 403(b) account, you should consult your tax adviser to discuss the Fund's liquidation of the Service Class and determine its tax consequences." In related news, the Federal Reserve Bank of New York posted a brief entitled, "Reverse repo counterparties list updated," which says, "Cavanal Hill U.S. Treasury Fund and Vanguard Variable Insurance Funds - Vanguard Money Market Portfolio have been added to the list of reverse repo counterparties, effective May 5, 2023."

Capital Advisors Group published, "How to Position Corporate Cash Portfolios for the Debt Ceiling Showdown." They tell us, "Once again, it's time for CFOs and corporate cash investors to start focusing on another debt ceiling showdown in the United States Congress. On May 1st, 2023, Treasury Secretary Janet Yellen updated Congressional leaders that the United States would not be able to pay all its bills by June 1st, 2023. Secretary Yellen had previously informed Congressional leaders on January 19th, 2023, that the U.S. government had reached its statutory debt limit of $31.381 trillion, and a 'debt issuance suspension period' began during which the Treasury Department started using 'extraordinary measures' to keep the U.S. government funded through June 5th, 2023.... Secretary Yellen's letter was a significant development to the debt ceiling fight, as market participants had expected the U.S. government to make on time payments to all recipients until late summer or early fall 2023.... We believe that politicians will again come to their senses and authorize spending in time. But, if they should fail to reach an agreement, the Treasury Department may work with the Federal Reserve to prioritize payments on debt obligations to avoid a default, though this would not be without operational complexity. These 'extra-extraordinary measures' would most likely be temporary and politically distasteful but might create an additional incentive for Congress to authorize new spending limits. Nevertheless, given the high stakes and high degree of conflict in Congress this time around, liquidity investors are well-advised to pay attention." Author Lance Pan explains, "CFOs and institutional cash investors have tools at their disposal to contend with possible consequences of the current debt limit showdown. Reviewing past playbooks and coming up to speed on the details of the situation today -- especially looking past headline risk toward the possible timing of the default X-date -- can help investors position their portfolios for this year's uncertainties.... Knowing the X-date is important for CFOs and other managers responsible for corporate cash investments and liquidity. However unlikely, a delayed bond payment on the stated maturity date may result in bond maturity miss-matches in portfolios in relation to monthly or quarterly cash withdrawal estimates. For this reason, cash managers may prefer to avoid holding securities that mature around the X-date to minimize liquidity impact and operational difficulties. This is also why Treasury securities that mature around the X-date tend to see their yields rise, which move in the opposite direction to prices. All else being equal, one strategy to avoid the X-date is to consider selective investments in high-quality securities with longer maturities in order to avoid missed coupon and/or maturity payments from US Treasury securities." He adds, "We believe liquidity investors may benefit from following strategies that worked in previous debt ceiling episodes. They should not be overly concerned with the headline risk but instead monitor the timing of the X-date and allocate their liquidity targets accordingly. Although we are confident (but not blindly so) that the debt limit will be lifted in time and a default avoided, we recommend that investors consider a liquidity portfolio with laddered maturities and high-quality credit instruments, as market liquidity may be choppy as investors process the highs and lows of the negotiations.... Liquidity investors should review their portfolios with their investment advisors, repurchase agreement counterparties, and money market fund managers to limit exposure to securities with at-risk maturities, and refrain from buying securities with elevated yields near the X-date. Cash investors generally prefer to avoid holding securities facing delayed maturity payments. Since Secretary Yellen's estimate for the X-date is significantly sooner than earlier market projections, some liquidity portfolios, including money market funds, may own securities in this time window. As discussed earlier, a delayed maturity payment is a curable liquidity situation, not a credit event, as the U.S. government's ability to honor its obligations is never questioned. To the extent an investor does not rely on these securities for immediate liquidity, it may be prudent to hold on to them as the baseline outcome remains that the debtholders will be made whole."

The Wall Street Journal says, "Schwab Taps Credit Markets to Raise $2.5 Billion in Debt." The article comments, "Charles Schwab is selling $2.5 billion in long-term debt, people familiar with the matter said. The brokerage giant said Wednesday in a regulatory filing that it would offer senior notes due in 2029 and 2034. Schwab issued $1.2 billion of bonds due in 2029 and $1.3 billion of bonds due in 2034, according to a person familiar with the matter. The bonds due in 2029 were issued at a 5.643% yield, or 2.05 percentage point higher than U.S. Treasurys, while the notes due in 2034 were sold at a 5.853% yield or 2.27 percentage point spread." The piece tells us, "Schwab's finances have been under scrutiny since early March, when the collapse of Silicon Valley Bank triggered widespread concerns over how other midsize banks would navigate higher interest rates and a loss of deposits. Schwab's bank deposits dropped by roughly $40 billion over the first quarter, or 11%, as brokerage customers continued to shift idle cash into money-market funds and other higher-yielding investments. Schwab has moved to offset the loss of bank deposits by issuing CDs and borrowing from the Federal Home Loan Bank system. Those higher funding costs are expected to weigh on its earnings for another year or so.... Schwab Chief Executive Walt Bettinger said in an interview with The Wall Street Journal in March that the brokerage giant would have sufficient liquidity even if it lost most of its deposits over the next year."

With money market fund assets still hitting records almost daily (assets rose by $11.3 billion on Monday to a record $5.760 trillion), our upcoming Money Fund Symposium, has a good chance of breaking our pre-pandemic record of 570 attendees. Money Fund Symposium is scheduled for June 21-23, 2023 at The Hyatt Regency Atlanta, in Atlanta, Ga. The full agenda for the largest gathering of money market fund managers and cash investors in the world is available and registrations are still being taken. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. We review the show details, as well as Crane Data's other 2023 conferences, below. We'd like to thank our sponsors and exhibitors so far -- Bank of America, Barclays, J.P. Morgan, Dreyfus, Fidelity, Federated Hermes, TD Securities, U.S. Bank, Invesco, Moody's, Goldman Sachs, Nomura, Deutsche Bank, Nearwater Capital, Santander, Fitch Ratings, J.P. Morgan Asset Management, Bloomberg, Allspring, Citi, Natixis/BRED, Cavu Securities, BlackRock, Morgan Stanley, Northern Trust A.M., RBC, IntraFi, GLMX, Tradeweb, Toyota, UBS, S&P Global Ratings, Seelaus, Mischler, Lummis and MUFG -- for their support. E-mail us for more details. Visit the Money Fund Symposium website at www.moneyfundsymposium.com for more information. Registration is $1,000, and discounted hotel reservations are available. We hope you'll join us in Atlanta in June! Note that the agenda is still being tweaked, so watch for minor changes in coming weeks. E-mail us at info@cranedata.com to request the full brochure.) We're also making plans for our next European Money Fund Symposium, which is scheduled for Sept. 25-26, 2023, in Edinburgh, Scotland. Our 2022 event in Paris attracted a record 166 attendees, so we expect our 2023 event to be even bigger. Watch for the draft agenda to be posted in coming days and registrations ($1000 to attend) are now live. European Money Fund Symposium offers "offshore" money fund portfolio managers, and money market investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Finally, mark your calendars for our next Money Fund University "basic training" event, scheduled for Dec. 18-19, 2023, in Jersey City, NJ, and next year's Bond Fund Symposium, scheduled for March 25-26, 2024 in Philadelphia, Pa. Let us know if you'd like more details on any of our events, and we hope to see you in Atlanta in June, in Edinburgh in September or in Jersey City in December.

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. Their release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in April, prime money market funds held 44.5 percent of their portfolios in daily liquid assets and 61.9 percent in weekly liquid assets, while government money market funds held 81.6 percent of their portfolios in daily liquid assets and 88.3 percent in weekly liquid assets." Prime DLA was down from 48.3% in March, and Prime WLA was up from 60.9%. Govt MMFs' DLA was up from 80.2% and Govt WLA increased from 86.5% the previous month. ICI explains, "At the end of April, prime funds had a weighted average maturity (WAM) of 18 days and a weighted average life (WAL) of 45 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 17 days and a WAL of 59 days." Prime WAMs and WALs were both unchanged from the previous month. Govt WAMs were 1 day longer and WALs were 1 day shorter from March. Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $437.12 billion in March to $404.07 billion in April. Government money market funds’ holdings attributable to the Americas declined from $4,116.94 billion in March to $4,079.75 billion in April." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $404.1 billion, or 53.0%; Asia and Pacific at $118.9 billion, or 15.6%; Europe at $227.9 billion, or 29.9%; and, Other (including Supranational) at $10.9 billion, or 1.5%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.080 trillion, or 92.9%; Asia and Pacific at $85.0 billion, or 1.9%; Europe at $217.2 billion, 4.9%, and Other (Including Supranational) at $9.1 billion, or 0.2%.

The U.S. Department of the Treasury's Office of Financial Research (OFR) posted a paper which asks, "Why Is So Much Repo Not Centrally Cleared?" Its summary says, "The Office of Financial Research (OFR) conducted a pilot collection of data on non-centrally cleared bilateral repurchase agreement (NCCBR) trades spanning nine dealers over three reporting dates in June 2022. Using data from this pilot collection, we document basic facts about volumes, rates, counterparty types, collateral, and haircuts in this relatively opaque segment of the repurchase (repo) market. We find that on three dimensions -- rates, counterparty types, and collateral -- pilot participants' activity in the NCCBR segment roughly mirrors their activity in the centrally cleared bilateral segment, the DVP Repo Service of the Fixed Income Clearing Corporation (FICC). However, we find that haircuts in NCCBR materially differ from those in tri-party repo, with over 70% of Treasury repo in NCCBR transacted with zero haircut. Our findings suggest that differences in haircut, margining, and netting are primary factors that drive dealers' use of NCCBR over other segments of the repo market." The full study explains, "The repurchase agreement (repo) market is an integral component of the U.S. financial system, providing trillions of dollars of funding every day and facilitating trading in U.S. Treasuries and other securities. The repo market allows participants to borrow cash against securities pledged as collateral, with an obligation to repurchase those securities in the future. The U.S. repo market can be divided into four major segments, depending on two factors: (1) whether the trades are settled bilaterally or through a tri-party custodian and (2) whether the trades are centrally or non-centrally cleared through the Fixed Income Clearing Corporation (FICC). This brief focuses on NCCBR, which is the only segment of the market that contains neither a central counterparty nor a tri-party custodian." The Intro adds, "Despite the increased repo market transparency provided by transaction-level datasets, such as the OFR's Centrally Cleared Repo Data Collection and the Federal Reserve's collection of non-centrally cleared tri-party repo, regulators' understanding of NCCBR has been limited. Even the traders who conduct business in this market every day may have little direct visibility into the competitive landscape. This opacity persists despite the fact that the estimated size of primary-dealer activity in the NCCBR segment exceeds $2 trillion outstanding. This makes the NCCBR segment the largest of the four segments of the repo market in terms of gross repo exposure by primary dealers. This brief uses the OFR's pilot collection of NCCBR data to answer an obvious question raised by the trillions of dollars outstanding in NCCBR: why are volumes so high in this segment? Central clearing, as provided in the U.S. repo market by FICC, provides two main benefits to repo market participants: First, it can significantly reduce counterparty risk. Second, it allows a dealer to net their repo positions with one counterparty against reverse repo positions with another counterparty for the purpose of calculating certain regulatory ratios, thus reducing the balance sheet costs of participating in repo."

The ICI's "Money Market Fund Assets" report shows MMFs hitting record levels yet again this week after breaking above the $5.3 trillion level for the first time ever last week. Assets have risen by $507.7 billion, or 10.5%, over the past 11 weeks! ICI shows assets up by $593 billion, or 12.5%, year-to-date in 2023, with Institutional MMFs up $333 billion, or 10.9% and Retail MMFs up $260 billion, or 15.5%. Over the past 52 weeks, money fund assets have risen $827 billion, or 18.4%, with Retail MMFs rising by $530 billion (37.6%) and Inst MMFs rising by $297 billion (9.6%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $5.7 trillion barrier last week and hit a record $5.749 billion on Tuesday, 5/9 before dipping $7.1 billion Wednesday. 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 weekly release says, "Total money market fund assets increased by $18.33 billion to $5.33 trillion for the week ended Wednesday, May 10, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $9.35 billion and prime funds increased by $6.86 billion. Tax-exempt money market funds increased by $2.12 billion." ICI's stats show Institutional MMFs rising $6.1 billion and Retail MMFs rising $12.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.430 trillion (83.1% of all money funds), while Total Prime MMFs were $785.2 billion (14.7%). Tax Exempt MMFs totaled $112.9 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $12.25 billion to $1.94 trillion. Among retail funds, government money market fund assets increased by $4.65 billion to $1.31 trillion, prime money market fund assets increased by $5.12 billion to $525.27 billion, and tax-exempt fund assets increased by $2.48 billion to $102.13 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.6% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $6.07 billion to $3.39 trillion. Among institutional funds, government money market fund assets increased by $4.70 billion to $3.12 trillion, prime money market fund assets increased by $1.74 billion to $259.91 billion, and tax-exempt fund assets decreased by $365 million to $10.74 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.

Forbes recently published the article, "Where To Invest: Cash Is King for Now." Contributor Nick Sargen tells us, "One question I am increasingly asked by people is where they should deploy their funds amid the uncertainty about the economy and financial markets. My response is that for the first time in more than a decade, investors are being paid to park their spare cash in money market instruments. The reason: With the Federal Reserve boosting the federal funds rate by 25 basis points to 5.0%-5.25% at the May FOMC meeting, investors can now earn about 5% on money market funds (MMF), which compensates them for inflation. While investors could also place money in bank savings accounts, their deposit rates are considerably below MMF rates. For example, the average rate on savings accounts nationwide according to Lending Tree is only 0.37%, although there is a wide variation among individual banks." He continues, "Until recently, banks were slow to increase rates as the Fed tightened monetary policy because they thought deposits were sticky. According to a report by the Federal Reserve Bank of New York, the response of retail three-month CD rates to changes in the effective federal funds rate (called the deposit beta) has been much lower than that for money market funds.... However, banks began to lose deposits as the Fed tightened policy aggressively, and the pace of outflows has accelerated with the failures of regional banks such as Silicon Valley Bank, Signature Bank and First Republic Bank. According to research from Crane Data, investors have poured more than $400 billon in money market funds during March and April. These inflows have boosted their total assets to a record of more than $5.7 billion." The piece adds, "More recently, a growing number of banks and asset managers have responded by offering more attractive rates on CDs, with some CDs now topping 5.00%. These instruments are similar to savings accounts in that they carry protection up to $250,000 per individual. However, the holder cannot touch the instrument for a designated period -- whether for a few months or up to five years or more. In this respect, they are less liquid than money market instruments.... My take is that while the Fed may pause in raising rates now, it will be very reluctant to lower them as long as inflation is well above the Fed's 2% average annual target.... Now, for the first time in a long while, investors are being adequately compensated for holding more predictable and less-risky assets. This is especially important for retirees and low-income earners who cannot bear the risk of market fluctuations.... In these circumstances, it is understandable that many investors are uncertain about what to do with spare cash. Fortunately, they can finally earn a reasonable return on their cash holdings now."

Allspring Money Market Funds writes on the "debt ceiling in its latest "Portfolio Manager Commentary." They comment, "However the timing works out and however messy it seems to get, holders of U.S. Treasury securities should know they are very, very likely to be repaid. Although it hasn't happened before, it's possible that politicians may fail to act before the Treasury's stated x-date, but even if this were to happen, the Treasury may still have resources available, having declared a conservative x-date. Taking it a step further, it's possible there will be no resolution with the Treasury completely tapped, but even if this were to happen, the Treasury could prioritize debt service over other outlays to avoid affecting securities. Taking it one more step, it's possible in the absence of a resolution that the Treasury would be forced to delay payment on a security, but even if this were to happen, the holder would eventually, after what would likely be a short delay, receive its payment from the government. As the volume gets turned up, it'll be good to remember that U.S. Treasuries are still the closest thing to a risk-free investment that exists in the world." They add, "Another worthwhile thing to remember is that government money market funds and Treasury repurchase (repo) funds typically have access to the Fed's reverse repo (RRP) program and collectively are responsible for most of the more than $2 trillion parked in the RRP every day. So, while there may be some unease about Treasury securities, the government money market fund complex is sitting on the greatest stockpile of liquidity the economy has ever seen -- liquidity that is available to shareholders as they need. Treasury-only funds, which don't invest in repos, will necessarily have some Treasury exposure, but holders of those funds do so because they want the perceived nearly risk-free quality that comes with Treasuries, despite the turbulence that may come when the debt ceiling needs to be addressed every few years."

Money fund yields moved higher over the past week as they begin to digest the Federal Reserve's latest 25 basis point rate increase last Wednesday (5/2). Our Crane 100 Money Fund Index (7-Day Yield) was up 7 bps to 4.71% (it moved up to 4.77% yesterday) in the week ended Friday, 5/5. Yields are up from 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. Just a handful of the top-yielding money market funds yield above the 5.0% level, but more should move above this level this week as they digest the latest hike. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.59%, up 6 bps in the week through Friday. Prime Inst MFs were up 7 bps at 4.81% in the latest week. Government Inst MFs rose by 8 bps to 4.72%. Treasury Inst MFs up 5 bps for the week at 4.55%. Treasury Retail MFs currently yield 4.33%, Government Retail MFs yield 4.39%, and Prime Retail MFs yield 4.64%, Tax-exempt MF 7-day yields were up 12 bps at 3.10%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/5), just one money fund (out of 819 total) yields under 2.0%; 34 funds yield between 2.00% and 2.99% with $16.3 billion, or 0.3%; 130 funds yield between 3.00% and 3.99% ($143.6 billion, or 2.5%), and 654 funds yield 4.0% or more ($5.557 trillion, or 97.2%). Thirty one funds have now officially surpassed the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) but we expect a lot more to follow in coming weeks. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.56% after increasing one basis point 3 weeks ago. The latest Brokerage Sweep Intelligence, with data as of May 5, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

The Wall Street Journal explains, "What Investors Should Know About Money-Market Funds and CDs," which tells us, "Investors are rushing into cash, fearful of a recession later in the year. In addition to having emergency cash on hand, individual investors are pouring billions of dollars into cash-equivalent investments such as money-market funds and certificates of deposit that are yielding 5% or more—far more than a traditional low-yielding bank savings account. Some analysts say concerns about stability in the banking sector after the collapse of Silicon Valley Bank and Signature Bank, and most recently First Republic Bank, could help propel the trend in the weeks to come." On Money-Market Funds, they write, "About $488 billion has poured into money-market mutual funds this year through April 27, according to Crane Data. These funds now hold a record $5.687 trillion in assets, up from $4.941 trillion a year ago. 'Investors have been lured by the attractive rates they offer,' says Peter Crane, president of Crane Data. The Crane 100 Index of the largest taxable money-market funds has an average yield of 4.65%, up from 0.02% on Jan, 1, 2022. 'Money-market funds haven't looked this good in their 50-year history except in 1979 when they were yielding double digits,' he says. 'Recent inflows are among the strongest they have ever been.' These funds -- which are different than money-market savings accounts offered by banks -- invest in short-term debt instruments such as U.S. Treasury bills and are considered 'cash equivalents,' offering investors liquidity with extremely low levels of risk. They work like a typical mutual fund and issue redeemable units or shares to investors. But a key difference is that these funds aim to maintain a net asset value of $1 a share, and earnings generated through interest on portfolio holdings are distributed to investors in the form of dividends. Money-market funds come in several varieties. Treasury money-market funds invest in short-term U.S. Treasury-issued securities such as Treasury bills. Other types may invest in federal agency notes, repurchase agreements, certificates of deposit or commercial paper." The Journal adds, "According to Mr. Crane, 'These funds have become increasingly popular with mom-and-pop investors, and there has been a surge in inflows into these funds since the blowup with Silicon Valley Bank in mid-March.' He says the retail funds that have seen the biggest net inflows year-to-date through April 27 are the $240.7 billion Vanguard Federal Money Market Fund (VMFXX), with inflows of $25.1 billion, and the $117.2 billion Schwab Value Advantage Money Fund-Investor Shares (SWVXX), with inflows of $24.2 billion. When assessing these funds, advisers suggest looking at the seven-day SEC yield, which is annualized and net of fees and is the standard measure of performance for money funds."

The ICI's latest "Money Market Fund Assets" report shows MMFs hitting record levels again and breaking above the $5.3 trillion level for the first time ever. Assets have risen by $489.4 billion, or 10.2%, over the past 10 weeks! ICI shows assets up by $575 billion, or 12.1%, year-to-date in 2023, with Institutional MMFs up $327 billion, or 10.7% and Retail MMFs up $248 billion, or 14.8%. Over the past 52 weeks, money fund assets have risen $798 billion, or 17.7%, with Retail MMFs rising by $523 billion (37.3%) and Inst MMFs rising by $275 billion (8.8%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $5.7 trillion barrier this week and hit a record $5.729 billion on Thursday, 5/3. 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 weekly release says, "Total money market fund assets increased by $47.15 billion to $5.31 trillion for the week ended Wednesday, May 3, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $37.89 billion and prime funds increased by $6.00 billion. Tax-exempt money market funds increased by $3.27 billion." ICI's stats show Institutional MMFs rising $20.7 billion and Retail MMFs jumping $26.4 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.421 trillion (83.3% of all money funds), while Total Prime MMFs were $778.3 billion (14.7%). Tax Exempt MMFs totaled $110.8 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $26.44 billion to $1.93 trillion. Among retail funds, government money market fund assets increased by $17.69 billion to $1.31 trillion, prime money market fund assets increased by $6.04 billion to $520.15 billion, and tax-exempt fund assets increased by $2.71 billion to $99.64 billion." Retail assets account for over a third of total assets, or 36.3%, and Government Retail assets make up 67.8% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $20.72 billion to $3.38 trillion. Among institutional funds, government money market fund assets increased by $20.20 billion to $3.12 trillion, prime money market fund assets decreased by $43 million to $258.17 billion, and tax-exempt fund assets increased by $564 million to $11.11 billion." Institutional assets accounted for 63.7% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.

USAA Mutual Funds, the 37th largest manager of money market funds with $3.2 billion, is changing the name of its fund lineup to Victory Funds. The funds impacted include: USAA Money Market Fund (USAXX), USAA Treasury MM Trust (UATXX) and USAA Tax Exempt MMF (USEXX). An SEC filing for USAA Funds explains, "The Board of Trustees of USAA Mutual Funds Trust upon recommendation of Victory Capital Management Inc., the Trust's investment adviser, has approved a change in the name of the Trust and each individual fund, within the Trust. Effective at the start of business on April 24, 2023, the name of the Trust will change from USAA Mutual Funds Trust to Victory Portfolios III, and all references to USAA Mutual Funds Trust in the summary prospectuses, statutory prospectuses, and SAIs will be replaced by the new name." It says, "Also on the Effective Date, references to the current names of the Funds in the summary prospectuses, statutory prospectuses, and SAIs will be replaced with the new names as follows: USAA Money Market Fund is now Victory Money Market Fund; USAA Tax Exempt Money Market Fund is now Victory Tax Exempt Money Market Fund; and, USAA Treasury Money Market Trust is now Victory Treasury Money Market Trust. An FAQ on the "Mutual fund name changes <i:https://vcm.com/mutual-fund-name-changes>`_ on the Victory Capital website explains, "The USAA Mutual Funds Trust has been rebranded as Victory Portfolios III and the funds in the Trust are now known as Victory Funds. There are no changes to the funds' investment objectives, the investment teams that manage the funds or their respective investment processes due to the change in the product branding strategy, and there is no action required on the part of current investors." It continues, "Additionally, USAA Investments, a Victory Capital Investment Franchise, has been renamed 'Victory Income Investors.' The USAA-branded fixed income funds managed by the team have been rebranded as Victory Funds. There are no changes to the team or its investment process." The Q&A asks, "Why did Victory Capital decide to rebrand the mutual funds and Investment Franchise?" It answers, "Victory Capital licensed the brand from USAA in 2019 to facilitate a smooth transition and reduce investor confusion following the Company's acquisition of USAA Asset Management Company. Today, nearly four years later, investors know the Victory Capital brand through regular interaction with our contact center, use of our website and mobile app, and other recurring service and communication touchpoints. So, bringing the product branding in line with Victory Capital's broader fund line up is a natural and planned evolution."

A press release entitled, "FDIC Releases Comprehensive Overview of Deposit Insurance System, Including Options for Deposit Insurance Reform," tells us, "The Federal Deposit Insurance Corporation (FDIC) today released a comprehensive overview of the deposit insurance system and options for reform to address financial stability concerns stemming from recent bank failures. The report, 'Options for Deposit Insurance Reform,' examines the role of deposit insurance in promoting financial stability and preventing bank runs, as well as policies and tools that may complement changes to deposit insurance coverage." FDIC Chairman Martin J. Gruenberg said in a statement, "The recent failures of Silicon Valley Bank and Signature Bank, and the decision to approve Systemic Risk Exceptions to protect the uninsured depositors at those institutions, raised fundamental questions about the role of deposit insurance in the United States banking system.... This report is an effort to place these recent developments in the context of the history, evolution, and purpose of deposit insurance since the FDIC was created in 1933." The release explains, "As part of its analysis, the FDIC outlines three options for deposit insurance reform: Limited Coverage: Maintaining the current deposit insurance framework, which provides insurance to depositors up to a specified limit (possibly higher than the current $250,000 limit) by ownership rights and capacities. Unlimited Coverage: Extending unlimited deposit insurance coverage to all depositors. Targeted Coverage: Offering different deposit insurance limits across account types, where business payment accounts receive significantly higher coverage than other accounts." It says, "Of the three options outlined in this report, the FDIC believes targeted coverage best meets the objectives of deposit insurance of financial stability and depositor protection relative to its costs. These proposed options would require Congressional action, though some aspects of the report lie within the scope of the FDIC's rulemaking authority." Finally, the FDIC adds, "Following the failures of Silicon Valley Bank and Signature Bank, FDIC Chairman Gruenberg directed the agency to conduct an analysis of the current deposit insurance framework and identify reform options for consideration, as well as additional tools that can be used to maximize the efficiency of the system."

In her latest monthly update, Federated Hermes' Deborah Cunningham writes, "What's behind the substantial rise in assets of money market vehicles?" She explains, "While liquidity products such as money market funds and pools invest in banks, it is not a symbiotic relationship. We often compete for clients. Not that we root for them to fail. Their health is critical to the financial system -- a fact not lost on the Federal Reserve, U.S. Treasury and FDIC. The latter announced today it briefly seized and then sold troubled First Republic Bank to JP Morgan. While the deposits are secured, and at this time we don't see further contagion in the banking system, it's been a stressful time for customers there and at any regional bank. That's why I've always felt cash management should be about more than financial gain. We want people and institutions to thrive, and seeking the best return on their cash, with the least amount of anxiety, can be a large part of that, especially those in or close to retirement." Cunningham continues, "Indeed, the Fed's extraordinarily low rates of the last two decades have been particularly hard on savers, so every bit helps. Along with seeking stability of principal, we think part of the appeal of money funds, state pools and similar alternatives is their potential to deliver more 'bits' in the form of attractive yields. Interest rates on deposit products, such as a savings account or a money market deposit account (MMDA), generally have not kept up with the rate hikes of this Fed cycle, while money funds across the industry have. Why? Because banks chose to provide administered interest rates based on business calculations. In contrast, liquidity products operate in the marketplace, in which yields on most securities tend to track the rise in Fed rates." She adds, "We believe this is at the heart of the recent outflows from bank deposits and inflows to money market vehicles. Institutions have been actively moving around money since the first hike, but individuals and retail clients typically are slower to act. The bank stress initiated by the collapse of Silicon Valley Bank likely caused them to take a closer look at the interest rates on their accounts, especially those greater than the FDIC-insured $250,000. [T]he trend began about six months ago. But in any case, we think the relative yield advantage should remain for sometime. The Fed likely will raise rates another 0.25% this week, and hold them higher for longer. Liquidity products likely will stay elevated, too."

Bloomberg published an update entitled, "Money-Market Funds Are Hot Again After Years of Fee Discounts." They write, "Money-market funds -- those humdrum cash-equivalents that plodded along for years in the low-interest rate era -- have suddenly turned lucrative. The funds are throwing off reams of cash, buoyed by a flight to safety following the regional banking crisis, the US Federal Reserve's rate hikes and increased fees. About $369 billion net has flowed into money-funds since mid-March, and at the same time, money market funds stopped having to discount their fees to retain business. That combination propelled industry revenues for March to a record $14.9 billion on an annualized basis, according to Crane Data. The annualized figure for March 2022 was $10.3 billion." The piece explains, "The current value of all money-market funds stands at $5.3 trillion, an increase of $800 billion from a year ago, according to data from the Investment Company Institute. The good times could be a boon for asset managers, given that money-market funds charge higher fees than the stock and bond index funds that have attracted the most new cash in recent years. Experts predict the trend will last, as the Fed isn't expected to slash interest rates back to near-zero anytime soon. The biggest beneficiaries of the money-market renaissance include Fidelity Investments, BlackRock Inc., Federated Hermes Inc. and asset-management arms of Goldman Sachs Group Inc. and JPMorgan Chase & Co. In first-quarter results reported Thursday, Federated Hermes said money-market assets hit a record of $505.8 billion, up from $476.8 billion at the end of last year. The Pittsburgh, Pennsylvania-based firm's customers embraced money-market funds 'as interest rates continued their rise and as investors considered regional banking issues,' CEO J. Christopher Donahue said in a statement."

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