Daily Links Archives: June, 2023

Marty Margolis, founder of the predecessor company to PFM Asset Management, has launched the Public Funds Investment Institute, a "nonprofit organization dedicated to empowering public funds participants in the $4 trillion public funds investment market with insights, tools and resources to help them make well-informed investment decisions." One of the former local government investment pool (LGIP) manager's first posts is the piece, "Public Sector Financial Assets Continue to Grow, Even as the Economy Slows." Margolis writes, "Covid-19 revenue and spending patterns fueled strong growth in public funds investment balances over the past several years, and recent Federal Reserve data show that investment balances continued to expand this year to $3.7 trillion as of March 31, 2023. The data is buried in a 200+ page quarterly report on Financial Accounts of the United States from the Federal Reserve, and although it has some significant limitations ... it is the best there is when it comes to accounting for public sector investment trends." He comments, "Here's what we've seen in the past several years: Aggregate cash and investment balances grew by $855 billion, or 32%, from 2019-2021 as the Covid-19 lockdowns delayed state and local government spending, and Federal Covid relief funds swelled state and local government balances. Interestingly, the Pew Foundation Federal Pandemic Project estimated total Federal aid to state and local governments for Covid relief to be about $800 billion so this might account entirely for the growth. Balances stabilized in 2022 but continued to grow in the first quarter of this year. Investment assets grew about 3% in the first quarter of 2023. This is surprising. Though Federal Covid relief payments have largely ended, American Rescue Plan Act funds are being spent by states and localities, and overall economic growth is slow. Other factors -- including high interest rates that generate much higher investment returns -- swelled portfolios by $124 billion over year-end to $3.7 trillion. (The figure is not seasonally adjusted but 3% in a quarter is a hefty annual rate.) The growth could be reversed in coming months as state and local governments continue to spend Federal Coronavirus relief funds before the 2026 deadline. And an economic downturn would depress tax and other revenue receipts and push up the costs of social and economic aid programs, drawing down investment balances."

Bloomberg writes, "Money Markets Are Giving Fed Room to Keep Shedding Treasuries," which tells us, "Money markets are giving the Federal Reserve a green light to continue shedding Treasury securities from the massive pile accumulated as part of its pandemic response. By not rolling over all of its maturing holdings of US government debt, the Fed is forcing the Treasury to borrow more from the investing public. The risk is that the increased borrowing will drain reserves from the banking system to low levels that have caused problems in the past. So far, that's not happening. A surge in the quantity of Treasury bills being sold since US lawmakers agreed to suspend the debt limit in early June appears to be finding a home mainly with investors who have vast resources elsewhere." The article continues, "Money-market mutual funds that normally are big buyers of Treasury bills have been parking cash in the Fed's reverse repurchase agreement facility due to bill scarcity while the debt limit was in effect. A slump in usage of that daily operation suggests that money funds are scooping up most of the increased bill supply, limiting the impact on bank reserves. The total remains above $3 trillion. Wall Street strategists estimate — with low conviction -- that the banking system needs at least $2.5 trillion to function smoothly." It adds, "A key risk is that money-market funds appetite for Treasury bills is waning. Shifting assets from the Fed's RRP to bills affords higher returns, but also exposes funds to the risk of additional interest-rate increases by the central bank, which policy makers have signaled are likely. Morgan Stanley strategist Efrain Tejeda predicts reserves will fall by about $400 billion to $2.8 trillion by the end of the third quarter, with RRP balances dwindling to about $1.7 trillion. Bill supply is projected to increase by at least another $1 trillion this year. The final $300 billion could create problems, TD Securities' head of US rates strategy Gennadiy Goldberg told attendees at Crane’s Money Fund Symposium last week."

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 June 23) includes Holdings information from 77 money funds (up 25 from a week ago), which totals $2.838 trillion (up from $2.012 trillion) of the $5.817 trillion in total money fund assets (or 48.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.557 trillion (up from $1.056 trillion a week ago), or 54.9%; Treasuries totaling $732.1 billion (up from $583.9 billion a week ago), or 25.8%, and Government Agency securities totaling $244.5 billion (up from $194.0 billion), or 8.6%. Commercial Paper (CP) totaled $101.1 billion (up from a week ago at $53.8 billion), or 3.6%. Certificates of Deposit (CDs) totaled $77.7 billion (up from $45.2 billion a week ago), or 2.7%. The Other category accounted for $89.8 billion or 3.2%, while VRDNs accounted for $35.7 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $783.8 billion (27.6%), the US Treasury with $732.1 billion (25.8% of total holdings), Fixed Income Clearing Corp with $186.4B (6.6%), Federal Home Loan Bank with $180.2B (6.4%), JP Morgan with $58.1B (2.0%), Federal Farm Credit Bank with $56.2B (2.0%), RBC with $52.4B (1.8%), Barclays PLC with $48.6B (1.7%), Citi with $47.7B (1.7%) and BNP Paribas with $43.4B (1.5%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($253.9B), Fidelity Inv MM: Govt Port ($184.2B), Morgan Stanley Inst Liq Govt ($153.9B), Federated Hermes Govt ObI ($144.5B), BlackRock Lq FedFund ($144.0B), JPMorgan 100% US Treas MMkt ($136.1B), Dreyfus Govt Cash Mgmt ($111.5B), BlackRock Lq Treas Tr ($109.6B), Allspring Govt MM ($102.4B) and Fidelity Inv MM: MM Port ($102.2B). (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 were mostly flat over the past week, inching higher by another basis point. Our Crane 100 Money Fund Index (7-Day Yield) was up 1 bp to 4.93% in the week ended Friday, 6/23, after also increasing by 1 bp the week prior. Yields are up from 4.90% on May 31, 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. Just recently, now half of money market fund assets now yield above the 5.0% level. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 694), shows a 7-day yield of 4.82%, up 1 bp in the week through Friday. Prime Inst MFs were unchanged at 5.00% in the latest week. Government Inst MFs were unchanged at 4.89%. Treasury Inst MFs up 1 bp for the week at 4.86%. Treasury Retail MFs currently yield 4.64%, Government Retail MFs yield 4.59%, and Prime Retail MFs yield 4.85%, Tax-exempt MF 7-day yields were up 54 bps at 3.29%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (6/23), zero money funds (out of 824 total) yield under 2.0%; 29 funds yield between 2.00% and 2.99% with $16.5 billion, or 0.3%; 106 funds yield between 3.00% and 3.99% ($103.8 billion, or 1.8%), 499 funds yield between 4.0% and 4.99% ($2.783 trillion, or 47.8%) and 190 funds now yield 5.0% or more ($2.914 trillion, or 50.1%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.59% after rising 3 bps six weeks ago. The latest Brokerage Sweep Intelligence, with data as of June 23, shows that there was 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.

Bloomberg's Alex Harris wrote last week, "Money Funds Done With Crisis 'Whack-A-Mole': Crane's Day 1 Recap," reviewing some of the highlights of our recent Money Fund Symposium in Atlanta. She says, "Money-market funds are looking to extending the duration of their investments now that they have greater confidence in the Federal Reserve's policy path and have cleared crises such as the debt-limit standoff, while expecting cash to keep pouring in, participants said Wednesday on the first day of the Crane's Money Fund Symposium." She quotes Laurie Brignac, CIO and Head of Global Liquidity at Invesco, "I'm thankful we have the debt ceiling done so we can focus on Treasury debt, manage flows and look a little more forward without having to play whack-a-mole with crises." The piece tells us, "The expectation has been that once the debt ceiling was resolved, Treasury would unleash a deluge of bill supply, which would pull funding rates higher and draw cash away from the Fed's overnight reverse repo facility. Balances at the RRP have whipsawed around $2 trillion for the past week. Tony Wong, Invesco's co-head of investments, said there's still a lot of liquidity in the system so investors are looking at how that translates to central bank policy, as well as risk appetite." Bloomberg also quotes, "Dan LaRocco, head of US liquidity at Northern Trust Asset Management, said during a panel that they're still parking a lot of cash in the RRP -- at a rate of 5.05% -- because 'it makes a lot of sense with the liquidity profile and yield' and is 'still a natural fit in a lot of our portfolios.' LaRocco also said they're not buying Treasury bills that are pricing in Fed rate cuts as the central bank is likely to pause for an extended period of time." The piece adds, "The surge in bill supply is leading primary dealers to be more 'balance-sheet conscious' because the lack of capacity tends to push up secured funding rates, such as those for repurchase agreements, according to Barclays Plc strategist Joseph Abate. Barclays sees balances at the RRP dropping to $1.2 trillion by year-end, but Abate notes there's significant uncertainty around that estimate. As for inflows, they are expected to continue because 'companies are planning to hold even more cash,' Brignac said.... `Northern Trust's LaRocco said that the cash flowing into money funds seems to be coming out of bank deposits, but 'reversing it isn't as easy as banks having a higher deposit beta.'"

An article entitled, "Abrdn tokenizes money market fund on Hedera with Archax," posted by website Ledger Insights," tells us, "Major UK asset manager Abrdn has launched its first blockchain-based investment by tokenizing part of its £15 billion Lux Sterling money market fund. The token was issued on the Hedera Hashgraph DLT, where Abrdn is on the governing council. It used the Archax Tokenisation Engine to mint the token." Russell Barlow, Global Head of Alternatives at abrdn, comments, "We made the investment into Archax because we see the future for financial markets lies with leveraging new technologies, such as Web 3.0 and DLT. It is exciting to see a tangible application of Archax's tokenisation engine working with Hedera and it paves the way for us to look at creating other digital, blockchain-based token investment solutions." The brief adds "Archax has three arms, a regulated exchange or multilateral trading facility (MTF), its Tokenisation Engine for Issuance, and a custody subsidiary based on technology from Metaco. Barlow hinted at Abrdn's plans to issue tokens on Hedera in April. At the time, he noted that the token is a regulated security and hence is covered by Abrdn's existing regulatory permissions."

Bloomberg writes "Money Funds See $5.5 Trillion Pile Growing as Tool Kit Expands." The piece explains, "The US money-market industry, one of the big winners on Wall Street as the Federal Reserve hiked interest rates, is getting another lift with more tools at its disposal to attract investors and expand its unprecedented mountain of cash. That's the backdrop for Wednesday's kickoff of Crane's Money Fund Symposium, the marquee annual event for a business that has seen assets grow by some $1 trillion in the past year to a record of almost $5.5 trillion. The roughly 450 participants will gather as a crucial debate rages in markets over whether it's time to abandon these ultra-safe funds in favor of stocks or long-maturity bonds." Bloomberg's Alex Harris writes, "The Fed's aggressive tightening has been a boon for money markets, which have drawn investors seeking a haven from volatility and tiring of the skimpy rates on bank accounts. The industry can point to a major change from a year ago that it expects will help it retain that appeal and keep cash rolling in. The key is that money funds now have a range of higher-yielding assets to shift into -- led by Treasury bills after the resolution of June's debt-ceiling impasse. But they also have much more clarity around the Fed's path, so they have less need to hide out in overnight markets, where they still have almost $2 trillion stashed. That means they can buy longer maturities and eke out higher returns." Bloomberg's article adds, "For industry participants assembling in Atlanta this week, the vibe couldn't be more different than a year ago. Back then, the specter of regulatory change was a chief worry, but that threat has yet to materialize. It's also a lucrative time for the business: Revenue for May was a record $15.4 billion on an annualized basis, according to Crane Data <b:>`_."

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 June 16) includes Holdings information from 52 money funds (down 10 from two weeks ago), which totals $2.012 trillion (down from $2.747 trillion) of the $5.815 trillion in total money fund assets (or 34.6%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.056 trillion (down from $1.604 trillion two weeks ago), or 52.5%; Treasuries totaling $583.9 billion (down from $660.1 billion two weeks ago), or 29.0%, and Government Agency securities totaling $194.0 billion (down from $265.7 billion), or 9.6%. Commercial Paper (CP) totaled $53.8 billion (down from two weeks ago at $68.4 billion), or 2.7%. Certificates of Deposit (CDs) totaled $45.2 billion (down from $63.9 billion two weeks ago), or 2.2%. The Other category accounted for $62.0 billion or 3.1%, while VRDNs accounted for $17.8 billion, or 0.9%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $595.4 billion (29.6% of total holdings), the Federal Reserve Bank of New York with $568.6 billion (28.3%), Federal Home Loan Bank with $150.9B (7.5%), Fixed Income Clearing Corp with $92.1B (4.6%), JP Morgan with $47.5B (2.4%), Federal Farm Credit Bank with $36.4B (1.8%), Barclays PLC with $34.3B (1.7%), RBC with $29.0B (1.4%), Citi with $26.4B (1.3%) and Goldman Sachs with $26.1B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($272.3B), JPMorgan US Govt MM ($254.3B), Morgan Stanley Inst Liq Govt ($151.0B), JPMorgan 100% US Treas MMkt ($131.6B), Dreyfus Govt Cash Mgmt ($110.8B), Allspring Govt MM ($104.2B), Invesco Govt & Agency ($102.2B), State Street Inst US Govt ($90.0B), Goldman Sachs FS Treas Instruments ($89.0B) and JPMorgan Prime MM ($76.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

J.P. Morgan's latest "US Short Duration Update features a "May MMF Holdings Update, which tells us, "As we've discussed in recent research, since the regional bank failures in March drove a flight to safety into government MMFs, MMFs have continued to experience inflows. Though the bulk of inflows occurred in March ... both institutional and retail government MMF AUMs have risen considerably since then, increasing by about $69bn and $68bn, respectively, during May alone.... We suspect that inflows will likely continue, particularly as MMF yields are noticeably higher relative to other cash alternatives. Meanwhile, retail prime MMF AUMs have been gradually picking up since their March dip as retail investors have sought to benefit from rising interest rates, though these inflows haven't matched the pace of those prior to the banking crisis." They write, "In May, government MMF portfolios shifted considerably more into Treasury repo (+$250bn ex-Fed) and away from ON RRP (-$136bn) and T-bills (-$77bn).... Prime MMF portfolios also saw a slight decline in ON RRP (-$34bn) and an increase in repo holdings (+$28bn ex-Fed), though to a lesser degree.... With regard to MMFs' month-over-month repo pickup, they primarily increased holdings of FICC sponsored repo (+$104bn) and US repo (+$72bn), followed by Canadian (+$39bn), UK (+$26bn), and French (+$21bn) repo.... These portfolio shifts came as the TGCR-RRP spread rose to 0bp at month-end, as the anticipated June debt ceiling X-date still loomed, and as funds continued to extend their portfolios in anticipation of a nearing end to the hiking cycle. With regards to extension, government and prime MMFs alike increased WAMs by around 3.5 days month over month as of May month-end." The piece adds, "As we saw, MMFs' ON RRP usage fell somewhat in May, though uptake at the facility remains elevated. Of the $2255bn balance at the ON RRP at May month-end, government MMFs made up about 76%, and prime MMFs about 14%, totaling $2036bn in MMF RRP usage.... The facility has remained an attractive place for MMFs to park cash, but as front-end supply expands in 2H23 and more clarity sets in on the hiking cycle's end, we'd expect RRP balances to continue to diminish."

Fitch Ratings published Local Government Investment Pools: 1Q23," which tells us, "Fitch Ratings' two local government investment pool (LGIP) indices experienced an aggregate asset increase in the first quarter of 2023 (1Q23). Combined assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $559 billion at the end of 1Q23, representing increases of $28 billion qoq and $94 billion yoy. The Fitch Liquidity LGIP Index was up 9% qoq and the Fitch Short-Term LGIP Index was down 0.7% qoq, compared to average growth of 4.4% and -0.8%, respectively, in the first quarter over the past three years. The outsized increase in 1Q23 relative to historical first quarter growth for the Fitch Liquidity LGIP Index may have been influenced by the March banking volatility." They explain, "Weighted average maturities (WAMs) remained stable in 1Q23 as the Fed slowed the pace of rate hikes. The WAM of the Fitch Liquidity LGIP Index remained at 27 days, still higher than '2a-7' money market funds at 20 days. The Fitch Short-Term LGIP Index ended the quarter with a duration of 1.14 years, up 18% since last quarter. Both Fitch indices ended 1Q23 with improved average yield profiles, responding quickly to Fed rate hikes with average net yields of 4.77% for the Liquidity Index and 3.72% for the Short-Term Index." Fitch adds, "The Fitch Liquidity LGIP Index increased exposure to CP by 3.9% and decreased exposure to CDs by -2.7%. Exposure to treasuries, agencies and repo cumulatively increased by 1%. This aligns with investor behavior during the March banking volatility, where individuals diversified into U.S. government and nonbank credit exposures. Competitive repo rates continued to present managers with more attractive opportunities." (Note: We feature a session entitled, "Local Government Investment Pools & SMAs at next week's Money Fund Symposium in Atlanta, Ga., June 21-23, 2023.)

MarketWatch published, "Why this $6 trillion pile of cash isn't heading for stocks any time soon." It explains, "Even with U.S. stocks in a new bull market, investors aren't showing many signs of backing away from money-market funds and other cash-like investments offering yields of about 5%, the highest in about 15 years. Money-market funds hit a record of $5.9 trillion in assets as of Tuesday, signaling a continuing drain out of bank deposits into higher-yielding 'cash-like' investments, according to Peter Crane, president and publisher of Crane Data. He expects the tally soon to eclipse $6 trillion and then to stay elevated, even though money-market assets already grew almost 18% in May from a year ago. 'It's clear that bank deposits have sprung a leak,' Crane said, pointing to regional bank failures in March that spooked depositors and money-market funds recently offering yields closer to historical averages." The article continues, "While the Federal Reserve's interest rate rises may have created carnage in stocks and bonds last year, it also set up money-market funds to quickly reflect higher yields associated with the central bank's monetary tightening cycle to combat inflation.... Talking about the 'Wall of cash' it goes on to say, 'With the S&P 500 index qualifying for an exit from its longest bear-market stretch since 1948, it's logical to ask if investors clinging to a mountain of cash are being too conservative <b:>`_.... Michael Rosen, co-founder and chief investment officer of Angeles Investments, which advises endowments, foundations and private pension funds, still thinks a lot of cash on the sidelines and sustained bearishness about stocks could be a signal to move into stocks. 'You get maximum bearishness near the bottom on the market and maximum bullishness at top of the market,' Rosen said." MarketWatch adds, "But Crane, a 30-year veteran of the money-market world, doesn't expect bulls touting the 'wall of cash on the sidelines' to result in flows into equities. 'There's no correlation to assets in money funds and the stock-market,' he said, adding that instead institutional players like corporations mostly use money-market funds to deal with their cash balances. 'Saying that all of the sudden investors are going to get tired of 5% yields is a stretch,' Crane said."

A press release entitled, "Survey: Organizations' Cash and Short-Term Allocation to Bank Deposits Drop to 47%, Lowest in Four Years," tells us, "Forty-seven percent of organizations' cash and short-term allocation are maintained in bank deposits, according to the 2023 Association for Financial Professionals (AFP) Liquidity Survey, underwritten by Invesco. This figure is down 8 percentage points from 2022 and is the lowest recorded in four years. In response to the bank failures that occurred in March 2023, organizations began moving their cash and short-term investments from banks into Government/Treasury money market funds (up 4 percentage points), Treasury bills (up 2 percentage points) and Agencies (up 2 percentage points). Thirty-eight percent of treasury professionals report that their organizations plan to continue increasing their cash allocations to Government/Treasury money market funds into the next year, while only 8% indicate that their companies plan to decrease allocations to these funds. However, 27% plan to increase allocations in bank deposits, while 25% are looking to decrease their deposits in banks." AFP writes, "An organization's overall relationship with its bank remains the primary determinant in choosing where to maintain deposits (cited by 83% of respondents). However, this figure is down 10 percentage points from 2022 and suggests that treasury professionals are choosing to be more cautious in their approach to relationships with banking partners in response to recent bank failures. Other key findings from the 2023 AFP Liquidity Survey include: Environmental, social and governance (ESG) parameters are influencing almost half of organizations' investment policy revisions, with 27% adding ESG parameters/mandates and 21% adding ESG Money Funds in their investment policy. Despite a tumultuous environment, the three primary investment objectives reported by treasury professionals remain consistent with those of 2022: safety (cited by 63%), liquidity (33%) and yield (4%). When choosing a U.S. domestic Prime/Floating NAV Fund, yield (cited by 50% of respondents) continues to be the primary selection criteria. However, this figure is down from the 68% reported in 2022. In turn, the share of respondents who select a fund based on the ease of transaction process rose 17 percentage points (38%)." AFP President & CEO Jim Kaitz comments, "The global banking system has been fraught with concern in the wake of recent bank failures, and treasury professionals have responded accordingly with their organizations' cash and short-term allocation. In an uncertain economic environment, treasury professionals will need to prepare their organizations for numerous possible outcomes. Strong relationships with banking and money fund partners will remain critical to keeping up as economic cycles change." Invesco's CIO of Global Liquidity, Laurie Brignac, adds, "It's not surprising that institutional investors have become increasingly discerning when it comes to their liquidity solutions given the remarkable -- and quickly changing -- investment landscape so far this year. We are proud to once again partner with AFP to sponsor their Liquidity Survey, helping treasury professionals benchmark these types of trends and gain valuable insights into how their peers are navigating the current environment." The release explains, "The 2023 AFP Liquidity Survey was conducted in March 2023 and received responses from 222 treasury professionals from organizations of varying sizes representing a broad range of industries. Full survey results are available on the 2023 AFP Liquidity Survey page." Watch for more coverage in coming days and at our upcoming Money Fund Symposium in Atlanta.

Money fund yields were flat over the past week; they're now finished digesting the Federal Reserve's May 2nd 25 basis point rate hike. Our Crane 100 Money Fund Index (7-Day Yield) was unchanged at 4.91% in the week ended Friday, 6/9, after increasing by 2 bps the week prior. Yields are up from 4.90% on May 31, 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. Just under half of money market fund assets now yield above the 5.0% level. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 694), shows a 7-day yield of 4.80%, up 1 bp in the week through Friday. Prime Inst MFs were up 1 bp at 4.98% in the latest week. Government Inst MFs rose by 1 bp to 4.89%. Treasury Inst MFs up 3 bps for the week at 4.84%. Treasury Retail MFs currently yield 4.62%, Government Retail MFs yield 4.58%, and Prime Retail MFs yield 4.82%, Tax-exempt MF 7-day yields were down 34 bps at 2.72%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (6/9), just four money funds (out of 824 total) yields under 2.0%; 103 funds yield between 2.00% and 2.99% with $97.6 billion, or 1.7%; 30 funds yield between 3.00% and 3.99% ($25.0 billion, or 0.4%), 512 funds yield between 4.0% and 4.99% ($3.097 trillion, or 52.7%) and 175 funds now yield 5.0% or more ($2.653 trillion, or 45.2%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.59% after rising 3 bps four weeks ago. The latest Brokerage Sweep Intelligence, with data as of June 9, 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 Federal Deposit Insurance Corporation recently published its latest "FDIC Quarterly Banking Profile," which says "The net interest margin (NIM) of 3.31 percent was 7 basis points lower than the prior quarter as the average cost of deposits rose more than the average yield on loans. The NIM was 77 basis points higher than the year-ago quarter and, despite the quarterly decline, above the pre-pandemic average of 3.25 percent. The average cost of deposits increased 43 basis points from the prior quarter to 1.42 percent. The increase in the average cost of deposits was slightly lower than the 46 basis-point increase reported in the prior quarter but higher than the 34 basis-point increase in third quarter 2022. The average cost of deposits increased for all Quarterly Banking Profile (QBP) asset size groups relative to the previous quarter." It explains, "Total deposits declined $472.1 billion (2.5 percent) between fourth quarter 2022 and first quarter 2023. The quarterly decline is the largest reduction reported in the QBP since data collection began in 1984. This was the fourth consecutive quarter that the industry reported lower levels of total deposits. A reduction in estimated uninsured deposits (down $663.3 billion, or 8.3 percent) was the primary driver of the quarterly decline. Estimated insured deposits continued to increase (up $255.1 billion, or 2.5 percent) during the quarter. The decline in total deposits in first quarter 2023 was offset by increased wholesale funding (up $661.0 billion, or 14.4 percent) from the previous quarter. Wholesale funding as a percentage of total assets rose from 19.5 percent in fourth quarter 2022 to 22.2 percent in first quarter 2023." Under "Aggregate Condition and income Data, All FDIC-Insured Institutions," the quarterly shows deposits at $18.742 trillion for Q1'23, $19.215 trillion for Q4'22 and $19.932 trillion for Q1'22, an annual decline of -6.0%. The "Insurance Fund Balances and Selected Indicators" table shows estimated insured deposits Q1'23 at $10.481 trillion, Q4'22 showed $10.224 trillion, and Q1'22 showed $10.169T. Uninsured deposits as of Q1'23 was $7.391, Q4'22 $8.058T and Q1'22 was $8.704, a -15.1% change over the past year. See the press release, "FDIC-Insured Institutions Reported Net Income of $79.8 Billion in First Quarter 2023" and FDIC Chairman Martin Gruenberg's comments. See also, The Wall Street Journal's, "Online Banks Are Winning the Deposit War."

The Investment Company Institute's latest "Money Market Fund Assets" report shows MMF assets hitting a record for the 7th week in a row and the 13th week out of the past 15. Assets have risen by $636 billion, or 13.2%, over the past 15 weeks, and they broke the $5.4 billion barrier last week. ICI shows assets up by $722 billion, or 15.2%, year-to-date in 2023, with Institutional MMFs up $416 billion, or 13.6% and Retail MMFs up $306 billion, or 18.2%. Over the past 52 weeks, money fund assets have risen $930 billion, or 20.6%, with Retail MMFs rising by $563 billion (39.6%) and Inst MMFs rising by $368 billion (11.8%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record $5.865 trillion on Wednesday, 6/7. 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 $36.63 billion to $5.46 trillion for the week ended Wednesday, June 7, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $18.01 billion and prime funds increased by $15.78 billion. Tax-exempt money market funds increased by $2.84 billion." ICI's stats show Institutional MMFs jumping $24.0 billion and Retail MMFs rising $12.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.528 trillion (83.0% of all money funds), while Total Prime MMFs were $813.0 billion (14.9%). Tax Exempt MMFs totaled $115.2 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $12.58 billion to $1.98 trillion. Among retail funds, government money market fund assets increased by $4.38 billion to $1.33 trillion, prime money market fund assets increased by $6.12 billion to $546.32 billion, and tax-exempt fund assets increased by $2.08 billion to $103.93 billion." Retail assets account for over a third of total assets, or 36.3%, and Government Retail assets make up 67.2% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $24.04 billion to $3.47 trillion. Among institutional funds, government money market fund assets increased by $13.62 billion to $3.20 trillion, prime money market fund assets increased by $9.66 billion to $266.71 billion, and tax-exempt fund assets increased by $763 million to $11.28 billion." Institutional assets accounted for 63.7% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.

Federated Hermes' Deborah Cunningham appeared in a video update recently entitled, "Seeking relative safety: Regional bank collapses fueled inflows to money market funds." She is asked, "What's driving the recent significant inflows into liquidity products?" Cunningham answers, "I think initially, the flows began because of Silicon Valley Bank's collapse, and the concern over whether people's deposits were safe. What I think was then determined by those that continued to own deposits at that point, was that deposits were very lagging from an interest rate perspective. So, money market funds are known as some of the safest vehicles for liquidity products in the marketplace. They offer a lot of diversification, they offer current yield on a daily basis at par, and that's something that deposit products are not offering at this point. Current yields in money market funds are 4 to 5%, which represent where money market yields themselves are, compared to many deposit products in the marketplace that at the time of Silicon Valley Bank's collapse, were probably south of 1%. So, I think ... what was initially concern for safety, from a deposit perspective for investors in the marketplace, then turned into something more like realization that there was a better product out there that was providing a better return." The interview also asks, "Are there signs of lingering stress in the banking sector? She responds, "I would say not in the banking sector itself, but definitely with individual banks. For instance, Silicon Valley Bank, when it released its earnings, also showed a very large drop in deposits, and that was quantified in their earnings information. Now, contrast that to other small and large regionals, in addition to the large money center banks, many of which had increases in deposits, and all of which looked much better from an asset liability match standpoint, as well as diversification across their sectors. So, I think to some degree, it amplified that Silicon Valley Bank itself was, to some degree, a bit of an anomaly compared to the much larger banking sector in the US, which in fact, is at one of its healthiest phases right now in the last 20 years. The capital quality, the level of asset quality within the banks, the asset liability matching process, all of those things are working in favor of almost all of the banks at this point. So, the stress itself in the banking sector has largely been removed." See also Cunningham's recent commentary, "The Coming Deluge," which discusses expected T-bill issuance.

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 June 2) includes Holdings information from 62 money funds (down 4 from a week ago), which totals $2.747 trillion (up from $2.515 trillion) of the $5.839 trillion in total money fund assets (or 47.0%) 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 $1.604 trillion (up from $1.458 trillion a week ago), or 58.4%; Treasuries totaling $660.1 billion (up from $630.3 billion one week ago), or 24.0%, and Government Agency securities totaling $265.7 billion (up from $237.3 billion), or 9.7%. Commercial Paper (CP) totaled $68.4 billion (up from a week ago at $57.1 billion), or 2.5%. Certificates of Deposit (CDs) totaled $63.9 billion (up from $48.7 billion a week ago), or 2.3%. The Other category accounted for $58.0 billion or 2.1%, while VRDNs accounted for $27.6 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $951.9 billion (34.6%), the US Treasury with $660.1 billion (24.0% of total holdings), Federal Home Loan Bank with $214.4B (7.8%), Fixed Income Clearing Corp with $177.2B (6.5%), JP Morgan with $54.8B (2.0%), Federal Farm Credit Bank with $43.7B (1.6%), Barclays PLC with $41.7B (1.5%), Goldman Sachs with $36.5B (1.3%), RBC with $34.4B (1.3%) and BNP Paribas with $33.7B (1.2%). The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($290.0B), JPMorgan US Govt MM ($273.1B), Fidelity Inv MM: Govt Port ($188.2B), Morgan Stanley Inst Liq Govt ($159.3B), BlackRock Lq FedFund ($149.8B), JPMorgan 100% US Treas MMkt ($124.0B), Dreyfus Govt Cash Mgmt ($116.6B), Allspring Govt MM ($102.5B), Fidelity Inv MM: MM Port ($101.6B) and BlackRock Lq T-Fund ($97.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

Money fund yields inched higher again over the past week, digesting the last remnants of the Federal Reserve's May 2nd 25 basis point rate hike. Our Crane 100 Money Fund Index (7-Day Yield) was up 2 bps to 4.91% in the week ended Friday, 6/2, after increasing by 4 bps the week prior. Yields are up from 4.90% on May 31, 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 a few more may move above this level in coming days as they begin extending maturities. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.79%, up 2 bps in the week through Friday. Prime Inst MFs were unchanged at 4.97% in the latest week. Government Inst MFs rose by 1 bp to 4.88%. Treasury Inst MFs up 5 bps for the week at 4.81%. Treasury Retail MFs currently yield 4.60%, Government Retail MFs yield 4.57%, and Prime Retail MFs yield 4.81%, Tax-exempt MF 7-day yields were up 22 bps at 3.06%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (6/2), just one money fund (out of 819 total) yields under 2.0%; 43 funds yield between 2.00% and 2.99% with $21.4 billion, or 0.4%; 93 funds yield between 3.00% and 3.99% ($100.2 billion, or 1.7%), 503 funds yield between 4.0% and 4.99% ($2.783 trillion, or 47.7%) and 179 funds now yield 5.0% or more ($2.935 trillion, or 50.3%). Over the past week, 25 funds are now 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 three weeks ago. The latest Brokerage Sweep Intelligence, with data as of June 2, 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 Federal Reserve Bank of New York sent out a statement entitled, "Reverse repo counterparties list updated," which says, "Goldman Sachs Investor Money Market Fund, JNL Government Money Market Fund and JNL/WMC Government Money Market Fund have been added to the list of reverse repo counterparties, effective June 2, 2023." Money funds on the Fed's RRP counterparty list now include: AB Government Money Market Portfolio; Allspring Govt MMF, Heritage MMF, Money Market Fund, and Treasury Plus MMF; BlackRock Liquidity Funds: FedFund, T-Fund, TempCash, and TempFund; BlackRock Money Market Master Portfolio and Treasury Money Market Master Portfolio; Dreyfus Cash Management, Dreyfus Government Cash Management, Dreyfus Institutional Preferred Government Money Market Fund, Dreyfus Treasury and Agency Liquidity Money Market Fund and Dreyfus Treasury Obligations Cash Management; American Funds U.S. Govt MMF and Capital Group Central Cash Fund; Cavanal Hill Government Securities Money Market Fund and Cavanal Hill U.S. Treasury Fund; Schwab Govt MF, Retirement Govt MF, Treasury Oblig MF, Value Advantage MF and Variable Share Price MF; Columbia Short-Term Cash Fund; DFA Short Term Investment Fund; DWS Govt & Agen Fund and Deutsche Government Cash Mgmt Portfolio; Edward Jones Money Market Fund; Federated Hermes Capital Reserves Fund, Government Obligations Fund, Government Obligations Tax-Managed Fund, Government Reserves Fund, Inst Prime Obligations Fund, Inst Prime Value Obligations Fund, Municipal Obligations Fund, Prime Cash Obligations Fund, Tax-Free Obligations Fund, Treasury Obligations Fund and Trust for U.S. Treasury Obligs; Fidelity Cash Central Fund, Securities Lending Cash Central Fund, Government Portfolio, Money Market Portfolio, Treasury Portfolio, Government MMF, Money Market Fund, Treasury Money Market Fund, Govt Cash Reserves, Govt MMF and VIP Govt MMP; Franklin MM Port; Goldman Sachs Financial Square Government Fund, Money Market Fund, Prime Obligations Fund, Treasury Obligations Fund, Treasury Solutions Fund, and Investor MMF; HSBC U.S. Govt MMF; Invesco Govt and Agency Port, Govt MMF, Premier US Govt MP and Treasury Port; JNL Govt MMF and JNL/WMC Govt MMF, JPMorgan Liquid Assets MMF, Prime MMF, Tax Free MMF, U.S. Govt MMF and U.S. Treasury Plus MMF; Western Asset Govt Port, Liquid Reserves Port and US Treas Reserves Port; Morgan Stanley Institutional Liquidity Funds Govt Port, Govt Securities Port, Prime Portfolio, and Treasury Port; Northern U.S. Govt MMF, US Govt Select MMF, Govt Port, Govt Select Port, and Treasury Port; PIMCO Government Money Market Fund; PGIM Inst MMF; Principal Govt MMF; RBC Funds U.S. Govt MMF; SSgA Institutional Liquid Reserve Portfolio, Inst US Govt MMF, State Street Navigator Securities Lending Govt MMP and Treasury Plus Money Market Portfolio; T. Rowe Price Cash Reserves Fund, Government Money Fund, Govt Reserve Fund, Treasury Reserve and U.S. Treasury Money Fund; UBS Govt Master Fund, Limited Purpose Cash Inv Fund, Prime Master Fund and Treasury Master Fund; First American Govt Obligations Fund and Treasury Obligations Fund; Vanguard Treasury MMF, Market Liquidity Fund, Cash Reserves Federal MMF, Federal MMF and Money Market Portfolio; and Wilmington U.S. Govt MMF.

A press release entitled, "Moody's assigns Aaa-mf rating to LO Funds (CH) - Short-Term Money Market (USD)," tells us that, "Moody's Investors Service has assigned an Aaa-mf rating to LO Funds (CH) - Short-Term Money Market (USD), a short-term variable net asset value (VNAV) money market fund domiciled in Switzerland and managed by Lombard Odier Asset Management (Switzerland) SA. The Fund's primary objective is to preserve capital, provide high liquidity, and achieve a return in line with the money market rates. The Aaa-mf rating reflects Moody's view that the Fund will have a very strong ability to meet its objectives of providing liquidity and preserving capital. This view is supported by the portfolio's high credit quality and liquidity, strong asset profile, and low exposure to market risk." Moody's tells us, "The Fund invests primarily in a diversified portfolio of short-term money market instruments, which are predominantly denominated in USD and are of high credit quality at the time of purchase. The Fund also invests in currencies other than USD but these exposures are hedged against exchange risk. The Fund's weighted average maturity and weighted average life is below 60 days and 120 days respectively, which limits its exposure to market risks. The Fund, which follows the guidelines of the Asset Management Association Switzerland (AMAS) for short-term money market funds and is regulated by the Swiss Financial Market Supervisory Authority (FINMA), has to maintain at least 7.5% daily liquid assets but does not have a minimum requirement for weekly liquid assets. However, Moody's expects that the Fund will maintain a strong liquidity profile, supported by high levels of overnight and weekly liquidity." They add, "The Fund was launched in March 2010. It is managed by Lombard Odier Asset Management (Switzerland) SA, which is part of Lombard Odier Investment Managers, the asset management arm of Lombard Odier Group (Lombard Odier). Lombard Odier reported CHF 192 billion of total managed client assets as of 31 December 2022."

InvestmentNews published the article, "Finra fines Vanguard $800,000 for misleading information on money market accounts." They explain, "Finra ordered Vanguard to pay an $800,000 fine for issuing misleading account statements to money market customers and failing to respond to them when they indicated something was wrong. The Financial Industry Regulatory Authority Inc. found that from November 2019 to September 2020, Vanguard Marketing Corp. miscalculated the estimated annual yield and annual income for nine money market funds on approximately 8.5 million account statements, according to the Finra order posted [last] Thursday." The piece states, "The firm failed to update the yield data due to 'a technical issue where newer information received through an automated data feed did not overwrite certain existing data,' which led to the yield and income projections being overstated. After Finra began its investigation, Vanguard self-reported other problems on money market account statements that resulted in miscalculation of investment return. One occurred when customer contributions to an account were identified as an increase in market value instead of a cash deposit. This error affected approximately 23,000 statements from October 2019 to June 2021. Another misstep involved reflecting margin credits and debits as market appreciation or depreciation. That snafu affected 57,000 statements between October 2019 and June 2021." InvestmentNews adds, "Vanguard not only issued misleading customer statements but also failed to follow up on customer warnings that something was wrong, Finra found. From October 2019 to March 2021, the firm received communications from 100 customers who pointed out miscalculations and other errors on their statements. It failed to investigate promptly, Finra said, but did correct the statements after finally looking into the problems. Vanguard agreed to a censure and an $800,000. The firm did not admit or deny Finra's findings."

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