Daily Links Archives: November, 2024
Fitch's Local Govt Investment Pools
Fitch Ratings published "Local Government Investment Pools - 3Q24," which states, "Fitch Ratings' local government investment pool (LGIP) indices experienced a cumulative drop in the third quarter of 2024 (3Q24), consistent with seasonal trends, but are up yoy. Combined assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $609 billion at the end of 3Q24, representing a decrease of $18 billion qoq and an increase of $47 billion yoy. The Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were down 2.5% and 3.6% qoq, respectively, versus average decreases of 2.5% and 4.2% for the same period in the past three years." It continues, "Weighted average maturities (WAMs) continued to fall in 3Q24, with the Fitch Liquidity LGIP Index WAM decreasing to 33 days, still higher than prime '2a-7' money market funds at 24 days. The Fitch Short-Term LGIP Index ended the quarter with a duration of 1.32 years, up 8.3% since last quarter. Both Fitch indices ended 3Q24 with decreased average yield profiles with average net yields of 5.02% for the Liquidity Index and 4.39% for the Short-Term, as the Fed implemented a 0.50% rate cut in September." Fitch also says, "The Fitch Liquidity LGIP Index increased exposure to Repurchase Agreements by 1.51% and decreased exposure to Treasuries by 2.04% qoq. Exposure to Government Agencies, Money Market Funds, and Corporates increased in aggregate by 2.56% qoq."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Nov. 22) includes Holdings information from 73 money funds (up 12 from a week ago), or $3.899 trillion (up from $3.455 trillion) of the $6.993 trillion in total money fund assets (or 55.8%) 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 and our Nov. 13 News, "Nov. Money Fund Portfolio Holdings: Treasuries Surge, Reclaims Top Spot.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.864 trillion (up from $1.719 trillion a week ago), or 47.8%; Repurchase Agreements (Repo) totaling $1.310 trillion (up from $1.138 billion a week ago), or 33.6%, and Government Agency securities totaling $359.0 billion (up from $315.4 billion), or 9.2%. Commercial Paper (CP) totaled $144.9 billion (up from a week ago at $111.1 billion), or 3.7%. Certificates of Deposit (CDs) totaled $80.1 billion (up from $63.1 billion two weeks ago), or 2.1%. The Other category accounted for $91.1 billion or 2.3%, while VRDNs accounted for $49.3 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.864 trillion (47.8% of total holdings), Fixed Income Clearing Corp with $411.4B (10.6%), the Federal Home Loan Bank with $242.8 billion (6.2%), BNP Paribas with $95.9B (2.5%), Citi with $88.0B (2.3%), Federal Farm Credit Bank with $83.5B (2.1%), JP Morgan with $82.1B (2.1%), RBC with $73.6B (1.9%), Bank of America with $54.3B (1.4%) and Goldman Sachs with $50.8B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($293.1B), Goldman Sachs FS Govt ($261.8B), JPMorgan 100% US Treas MMkt ($230.0B), Fidelity Inv MM: Govt Port ($206.9B), BlackRock Lq FedFund ($175.8B), State Street Inst US Govt ($173.9B), Federated Hermes Govt ObI ($165.8B), Morgan Stanley Inst Liq Govt ($165.3B), BlackRock Lq Treas Tr ($146.1B) and Fidelity Inv MM: MM Port ($140.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Money Fund Yields Dip Lower to 4.45%
Money fund yields declined by 3 basis points to 4.45% on average during the week ended Friday, Nov. 22 (as measured by our Crane 100 Money Fund Index), after falling 9 bps the week prior. Yields are now reflecting the majority of the Federal Reserve's 25 basis point cut on November 7, but they should continue inching lower this week and next. They've declined by 61 bps since the Fed cut its Fed funds target rate by 50 bps percent on Sept. 18 and they've declined by 18 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.65% on average on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, and 5.20% on 12/31/23. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 672), shows a 7-day yield of 4.36%, down 3 bps in the week through Friday. Prime Inst money fund yields were down 3 bps at 4.56% in the latest week. Government Inst MFs were down 4 bps at 4.46%. Treasury Inst MFs were down 3 bps at 4.42%. Treasury Retail MFs currently yield 4.20%, Government Retail MFs yield 4.16%, and Prime Retail MFs yield 4.34%, Tax-exempt MF 7-day yields were up 2 bps to 2.86%. Assets of money market funds rose by $11.2 billion last week to $6.993 trillion, they reached a record high on Wednesday, November 13 of $7.010 trillion but assets have declined since, according to Crane Data's Money Fund Intelligence Daily. For the month of November, MMF assets have increased by $130.4 billion, after increasing by $97.5 billion in October and $149.8 billion in September. Weighted average maturities were unchanged at 36 days for the Crane MFA and unchanged at 37 days for the Crane 100 Money Fund Index. According to Monday's Money Fund Intelligence Daily, with data as of Friday (11/22), 75 money funds (out of 786 total) yield under 3.0% with $50.0 billion in assets, or 0.7%; 106 funds yield between 3.00% and 3.99% ($139.0 billion, or 2.0%), 605 funds yield between 4.0% and 4.99% ($6.804 trillion, or 97.3%) and following the recent rate cut there continues to be zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.46%, after dropping 2 basis points the week prior. The latest Brokerage Sweep Intelligence, with data as of Nov. 22, shows that there was one change over the past week. Merrill Lynch lowered rates once again for their advisory accounts, now at 4.48% (down 5 bps from the week prior). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Tokenized MMFs vs. Stablecoins
CoinDesk recently published an article titled, "How Tokenized Money Market Funds Dulled the Stablecoin Star." It begins, "It's been a banner year for the stablecoin market -- 11 straight months of inflows and an all-time market cap of $171 billion. Everyone's jumping in, even the industries stablecoins threaten to disrupt. Visa recently launched a platform to help banks issue stablecoins and use them across its network, with Spanish bank BBVA as one of its first takers. PayPal's PYUSD, launched in 2023, recently reached a $1 billion market cap and recently executed its first business payment via stablecoin. Revolut is rumored to be launching its own stablecoin, and Stripe just struck a $1.1 billion deal with a major stablecoin platform." The piece says, "The underlying holdings of stablecoins, often U.S. treasuries or other short-term fixed income holdings, pay the issuers consistent yields. While Tether and Circle pocket these profits, new and innovative market entrants are passing yields onto users to capture market share. Ethena Labs launched in February 2024 on the promise of returning consistent yield through its stablecoin sUSDe. It delivered, and has amassed more than $1.2 billion in market cap. Others followed, such as Mountain Protocol and Paxos International, which also seeks to pass along the yield from underlying holdings directly to users. BitGo's recent introduction of USDS and the Global Dollar Network's USDG promise to spread 'rewards' across their ecosystems. `Despite the attractiveness of this innovation, yield-bearing stablecoins are restricted in most major financial hubs, such as the U.S., because they are almost certainly securities operating outside of regulatory oversight. This regulatory impasse has paved the way for a new class of competitors that threatens to overtake stablecoins: tokenized yield-bearing instruments like money market funds. These on-chain products, regulated by the SEC under the Investment Company Act of 1940, offer the same advantages as stablecoins -- stable value, ease of transfer, and utility in settlements -- while also providing steady returns through investing in U.S. treasuries, bonds, and cash-equivalents." Coinbase adds, "Leading asset managers BlackRock and Franklin Templeton are early movers into this space, having launched tokenized money market funds that to date have amassed nearly $1 billion in assets. More are to come, with State Street working on a tokenized bond and money market fund. Now, BlackRock is advancing its money market fund and BUIDL token to be used as collateral for derivatives trading on DeFi exchanges. The benefit over stablecoins for this purpose is clear, as traders can continue to earn yield while posting BUIDL as collateral. This raises the question: Are stablecoin issuers fighting over a market that has already moved on? ... Clearly, the real prize for these financial instruments lies in their application within traditional financial markets as they evolve from electronic to digital."
ICI: MMFs Fall Back to $6.65 Trillion
ICI's latest "Money Market Fund Assets" report shows money funds falling $22.2 billion to $6.648 trillion in the latest week, after surging $81.6 billion to a record high of $6.667 trillion the week prior. Assets have still risen in 12 of the last 16, and 23 of the last 31 weeks, increasing by $344.9 billion (or 5.5%) since the Fed cut on 9/18 and increasing by $671.0 billion (or 11.2%) since April 24. MMF assets are up by $762 billion, or 16.1%, year-to-date in 2024 (through 11/20/24), with Institutional MMFs up $381 billion, or 12.5% and Retail MMFs up $381 billion, or 22.7%. Over the past 52 weeks, money funds have risen by $885 billion, or 15.4%, with Retail MMFs up by $427 billion (19.0%) and Inst MMFs rising by $458 billion (13.0%). ICI's weekly release says, "Total money market fund assets decreased by $22.21 billion to $6.65 trillion for the week ended Wednesday, November 20, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $24.62 billion and prime funds increased by $538 million. Tax-exempt money market funds increased by $1.87 billion." ICI's stats show Institutional MMFs decreasing $31.0 billion and Retail MMFs rising $8.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.446 trillion (81.9% of all money funds), while Total Prime MMFs were $1.066 trillion (16.0%). Tax Exempt MMFs totaled $136.7 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $8.73 billion to $2.67 trillion. Among retail funds, government money market fund assets increased by $4.25 billion to $1.70 trillion, prime money market fund assets increased by $3.07 billion to $846.47 billion, and tax-exempt fund assets increased by $1.42 billion to $124.34 billion." Retail assets account for over a third of total assets, or 40.2%, and Government Retail assets make up 63.7% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $30.95 billion to $3.98 trillion. Among institutional funds, government money market fund assets decreased by $28.87 billion to $3.75 trillion, prime money market fund assets decreased by $2.53 billion to $219.24 billion, and tax-exempt fund assets increased by $449 million to $12.39 billion." Institutional assets accounted for 59.8% of all MMF assets, with Government Institutional assets making up 94.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $143.1 billion in November through 11/20 to $7.006 trillion. Assets rose by $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion last November. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
S&P on Q3 Local Govt Inv Pool Trends
S&P Global Ratings recently published "'AAAm' Local Government Investment Pool Trends (Third-Quarter 2024)," which tells us, "Both prime and government LGIPs' assets slightly declined, which is typical for the third quarter because of cyclicality. State and local government spending trends typically lead to drawdowns in the second and third quarters of each year. Government LGIPs fell to $92 billion (1.5% decline) while prime LGIPs decreased to $282 billion (1.66% decline). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities -- similar to prime money market funds." They explain, "In recent years', LGIPs' assets have seen significant growth, driven by various factors such as attractive yields, increased tax receipts proceeds, and stimulus funds post COVID-19. Although there was a slight decline in the third quarter, LGIPs have maintained overall growth from recent years'.... We anticipate higher asset levels in the fourth quarter as participants receive tax revenues. Following the federal funds 50 basis point (bps) rate cut, government and prime yields declined to 4.99% (28-bps decline) and 5.08% (32-bps decline).... The swift drop in yields reflects managers remaining short, perhaps due to drawdowns and limited value in extending until the yield curve normalizes. The net asset value (NAV) per share averaged 1.00043 in third-quarter 2024.... Weekly liquid assets approached 50% for government funds while prime funds remained unchanged at 41%." S&P adds, "Unlike money market funds registered with the SEC, LGIPs are not regulated by the SEC and therefore not subject to SEC rule 2a-7. However, LGIPs typically benefit from the purview of state statutes, which provide guidelines on LGIPs' investment policy and objective, as well as from the standards and guidance of the Governmental Accounting Standards Board, where standard 79 allows the use of amortized cost to value an LGIP's portfolio assets."
Fed Rate Cuts Mean Outflows Says Slok
Bloomberg writes on the opposite view of our News today in, "Fed Rate Cuts to Spur $2 Trillion Money-Fund Exit, Apollo's Slok Says." They state, "The steady stampede into money-market funds is likely to reverse as the Federal Reserve keeps pushing down interest rates, giving investors incentive to shift cash into higher-yielding assets, according to Apollo Global Management's chief economist Torsten Slok. 'Where will the $2 trillion added to money market accounts go now that the Fed is cutting,' Slok wrote in a note to clients on Tuesday, citing the inflow to money-market funds since the Fed began raising rates in March 2022." He says, "The most likely scenario is that money will leave money market accounts and flow into higher-yielding assets such as credit, including investment grade private credit." Bloomberg comments, "Slok, who warned of a such an exodus earlier this year, has stuck to his call even after investors keep piling in. The assets of such funds swelled last week to $7 trillion for the first time ever, defying speculation that investors would pull out cash once the Fed started nudging interest rates down from a more than two-decade high. The persistence of inflows even after the Fed cut rates at the last two meetings likely reflects the fact that money-market funds tend to be slower than banks in reducing the payouts to investors." They add, "The seven-day yield on the Crane 100 Money Fund Index, which tracks the 100 largest funds, was 4.46% as of Nov. 18, just below the lower bound of the federal funds rate."
MUFG Bank White Labels BNY Portal
A press release titled, "MUFG Bank, Ltd. Launches MUFG CashFolio Leveraging BNY's LiquidityDirect Capabilities" states, "MUFG Bank, Ltd. announced ... the launch of MUFG CashFolio, its new liquidity trading portal leveraging LiquidityDirect from The Bank of New York Mellon Corporation ('BNY'), a global financial services company. Developed as an extension of MUFG's liquidity services, MUFG CashFolio is a powerful online tool that gives institutional clients greater access to shorter term investments through the vast money market mutual fund (MMF) industry, which hit a record of $6.51 trillion in assets this July. MUFG CashFolio is an all-inclusive investment portal that helps clients improve cash management and diversify risk exposure through an integrated platform. The portal offers MMF trade execution, settlement into an MUFG account, a full fund library, in-depth fund research capabilities, compliance tools, and sweep function." Ray Fattell, Head of Transaction Banking for MUFG Americas, comments, "Part of our mission is to enhance the range of products and services we offer our clients across the entire working capital cycle. Launching MUFG CashFolio with BNY gives clients more options to manage their excess cash through an all-inclusive investment portal with enhanced digital capabilities." The release continues, "MUFG CashFolio also includes social responsibility investing to help clients align with their ESG values. Its ESG Data Analytics module compliments MUFG's dedication to advancing sustainable principles and solutions with focused investing. MUFG CashFolio leverages BNY's market-leading short-end investments platform, LiquidityDirect, which offers clients a variety of innovative solutions to meet their investment and risk criteria and execute their liquidity strategy. The platform's technology and services provide a seamless user experience through single sign-on for their clients. It supports over $16 trillion in annual transaction flow for more than 7,000 of the world's largest institutional investors." George Maganas, Head of Liquidity Services at BNY, adds, "We are pleased to expand our relationship with MUFG through the use of our game changing LiquidityDirect White Labeling capabilities to launch MUFG CashFolio, providing institutional clients with greater access to shorter term investments, an enhanced user experience, and the combined benefits of both firms in the solution."
FT on BlackRock Money Market ETFs
The Financial Times writes "BlackRock files to launch lower-risk money market fund ETFs." The article states, "BlackRock has filed to launch two money market funds in exchange traded fund wrappers, following in the footsteps of Texas Capital Bank's rollout. The new iShares Prime Money Market and iShares Government Money Market ETFs will both adhere to maturities, credit ratings and liquidity requirements under the Securities and Exchange Commission's Rule 2a-7, intended to ensure a high-quality rating and minimal credit risk, according to filings. In September, Texas Capital's fund management division launched the industry's first 2a-7 ETF, the Texas Capital Government Money Market ETF." The FT continues, "The filings do not disclose the proposed ETFs' fees. Texas Capital's Government Money Market ETF charges 0.20 per cent.... The firm liquidated two open-end money market funds -- the $5.4bn TempFund and $872.2mn Liquid Environmentally Aware Fund -- in September in response to pending SEC rule amendments mandating liquidity fees for prime institutional funds." See our Nov. 12 Link of the Day, "BlackRock Files for Money Market ETFs," and our Sept. 26 Link of the Day, "Texas Capital Launches Govt MM ETF."
ICI's latest "Money Market Fund Assets" report shows money funds surging $81.6 billion to a new record of $6.667 trillion in the latest week, after jumping $79.5 billion the previous week. Assets have risen in 12 of the last 15, and 23 of the last 30 weeks, increasing by $363.5 billion (or 5.8%) since the Fed cut on 9/18 and increasing by $689.6 billion (or 11.5%) since April 24. MMF assets are up by $781 billion, or 16.5%, year-to-date in 2024 (through 11/13/24), with Institutional MMFs up $412 billion, or 13.5% and Retail MMFs up $369 billion, or 22.0%. Over the past 52 weeks, money funds have risen by $933 billion, or 16.3%, with Retail MMFs up by $428 billion (19.2%) and Inst MMFs rising by $505 billion (14.4%). ICI's weekly release says, "Total money market fund assets increased by $81.59 billion to $6.67 trillion for the week ended Wednesday, November 13, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $83.49 billion and prime funds increased by $82 million. Tax-exempt money market funds decreased by $1.99 billion." ICI's stats show Institutional MMFs increasing $79.4 billion and Retail MMFs rising $2.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.467 trillion (82.0% of all money funds), while Total Prime MMFs were $1.065 trillion (16.0%). Tax Exempt MMFs totaled $134.9 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $2.18 billion to $2.66 trillion. Among retail funds, government money market fund assets increased by $3.22 billion to $1.69 trillion, prime money market fund assets increased by $699 million to $843.40 billion, and tax-exempt fund assets decreased by $1.73 billion to $122.92 billion." Retail assets account for over a third of total assets, or 39.9%, and Government Retail assets make up 63.7% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $79.41 billion to $4.01 trillion. Among institutional funds, government money market fund assets increased by $80.28 billion to $3.77 trillion, prime money market fund assets decreased by $616 million to $221.77 billion, and tax-exempt fund assets decreased by $253 million to $11.94 billion." Institutional assets accounted for 60.1% of all MMF assets, with Government Institutional assets making up 94.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $147.3 billion in November through 11/13 to a record $7.010 trillion. Assets rose by $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion last November. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
CoinDesk on Copper, Tokenized MMFs
CoinDesk published, "Copper to Offer Custody Services for Tokenized Money Market Funds Such as BlackRock's BUIDL," which states, "Cryptocurrency firm Copper said it is now able to offer clients secure custody and trading of tokenized money market funds such as Blackrock's BUIDL, the company said in a press release Wednesday. Copper clients can also use tokenized money market funds as collateral in derivatives trades, after the crypto custodian received regulatory approvals from the Financial Services Regulatory Authority (FSRA) in Abu Dhabi, the London-based company said. The company has signed new partnerships with key participants involved in tokenization, including Securitize, Franklin Templeton, Ondo and Hashnote. Securitize is the transfer agent and tokenization platform for Blackrock's USD Institutional Digital Liquidity Fund, issued on the Ethereum blockchain and represented by the blockchain-based BUIDL token." See also CNBC's brief, "BlackRock expands its tokenized money market fund to Polygon and other blockchains," which comments, "BlackRock has expanded its tokenized money market fund to include several more blockchains. The investment manager said Wednesday that its USD Institutional Digital Liquidity Fund (BUIDL) is now available to investors on the Aptos; Arbitrum; Avalanche; OP Mainnet, formerly known as Optimism; and Polygon blockchains. It initially launched the fund on Ethereum in March."
MMF Yields Follow Fed Funds Lower
Money fund yields declined by 7 basis points to 4.57% on average during the week ended Friday, Nov. 8 (as measured by our Crane 100 Money Fund Index), after inching down 2 bps the week prior. Yields have just begun reflecting the Federal Reserve's 25 basis point cut on Thursday, so they should continue lower this week (and next). They've declined by 49 bps since the Fed cut its Fed funds target rate by 50 bps percent on Sept. 18 and they've declined by 6 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, and 5.20% on 12/31/23. Yields should remain flat to slightly lower until Friday, when they should decline sharply again if, as expected, the Fed's cuts rates by 1/4 percent at its Nov. 7 meeting. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 672), shows a 7-day yield of 4.48%, down 7 bps in the week through Friday. Prime Inst money fund yields were down 9 bps at 4.69% in the latest week. Government Inst MFs were down 7 bps at 4.58%. Treasury Inst MFs were down 6 bps at 4.51%. Treasury Retail MFs currently yield 4.29%, Government Retail MFs yield 4.29%, and Prime Retail MFs yield 4.48%, Tax-exempt MF 7-day yields were down 56 bps to 2.44%. Assets of money market funds rose by $98.9 billion last week to a new record high $6.969 trillion according to Crane Data's Money Fund Intelligence Daily. Assets reached its previous record high Thursday Nov. 7 at $6.945 trillion. For the month of November, MMF assets have increased by $106.3 billion, after increasing by $97.5 billion in October and $149.8 billion in September. Weighted average maturities were up 1 day at 36 days for the Crane MFA and up 1 day at 37 days for the Crane 100 Money Fund Index. According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (11/8), 115 money funds (out of 786 total) yield under 3.0% with $140.7 billion in assets, or 2.0%; 40 funds yield between 3.00% and 3.99% ($28.6 billion, or 0.4%), 631 funds yield between 4.0% and 4.99% ($6.800 trillion, or 97.6%) and following the recent rate cut there is now zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down 3 bps at 0.48%, after dropping 2 basis points four weeks prior. The latest Brokerage Sweep Intelligence, with data as of Nov. 8, shows that there were three changes over the past week. Fidelity lowered all rates to 2.32% and Schwab lowered all rates to 0.10%. Merrill Lynch lowered rates again for their advisory accounts, now at 4.63% (down 4 bps from the week prior). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
BlackRock Files for Money Market ETFs
BlackRock has filed registration statements for two new Money Market ETFs A Form N-1A Registration Statement for the BlackRock ETF Trust and its new iShares Prime Money Market ETF tells us, "The iShares Prime Money Market ETF seeks as high a level of current income as is consistent with liquidity and stability of principal.... The Fund seeks to achieve its investment objective by investing, under normal circumstances, in a broad range of U.S. dollar-denominated money market instruments, including government, U.S. and foreign bank, and commercial obligations and repurchase agreements. The Fund invests in securities maturing in 397 days or less (with certain exceptions) and the portfolio will have a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less. In addition, the Fund may invest in mortgage- and asset-backed securities, short-term obligations issued by or on behalf of states, territories and possessions of the United States, the District of Columbia, and their respective authorities, agencies, instrumentalities and political subdivisions and derivative securities such as tender option bonds, beneficial interests in municipal trust certificates and partnership trusts. The Fund may also invest in variable and floating rate instruments, and transact in securities on a when-issued, delayed delivery or forward commitment basis. The Fund's Board of Trustees has determined that the Fund will qualify as a 'money market fund' pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended ('Rule 2a-7')." It also states, "The securities purchased by the Fund are subject to the quality, diversification, and other requirements of Rule 2a-7, and other rules of the Securities and Exchange Commission ('SEC'). Unlike a traditional money market fund, the Fund operates as an exchange traded fund ('ETF'). As an ETF, the Fund's shares will be traded on [exchange to be determined] and will generally fluctuate in accordance with changes in net asset value ('NAV') per share as well as the relative supply of, and demand for, shares on [the exchange]." The filing adds, "You could lose money by investing in the Fund. The Fund is an actively managed ETF that does not seek to replicate the performance of a specified index. As with any investment, you could lose all or part of your investment in the Fund, and the Fund's performance could trail that of other investments. Because the share price and NAV of the Fund will fluctuate, when shares are sold on [the exchange] (or redeemed, in the case of an Authorized Participant), they may be worth more or less than what was originally paid for them. The Fund may impose a fee upon the sale of shares by Authorized Participants. The Fund generally must impose a fee when net sales of Fund shares exceed certain levels. An investment in the Fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor is not required to reimburse the Fund for losses, and you should not expect that the sponsor will provide financial support to the Fund at any time, including during periods of market stress. The Fund is subject to certain risks, including the principal risks noted below, any of which may adversely affect the Fund's NAV, trading price, yield, total return and ability to meet its investment objective. Unlike many ETFs, the Fund is not an index-based ETF. Certain key risks are prioritized below (with others following in alphabetical order), but the relative significance of any risk is difficult to predict and may change over time. You should review each risk factor carefully.... The Fund discloses its portfolio holdings daily at www.blackrock.com." See also the N1-A for iShares Government Money Market ETF and our Sept. 26 Link of the Day, "Texas Capital Launches Govt MM ETF."
ICI: MMF Assets Surge to Record
ICI's latest "Money Market Fund Assets" report shows money funds skyrocketing by $79.5 billion to a new record of $6.585 trillion in the latest week. Assets have risen in 11 of the last 14, and 22 of the last 29 weeks, increasing by $281.9 billion (or 4.5%) since the Fed cut on 9/18 and increasing by $608.0 billion (or 10.2%) since April 24. MMF assets are up by $699 billion, or 14.8%, year-to-date in 2024 (through 11/6/24), with Institutional MMFs up $333 billion, or 10.9% and Retail MMFs up $366 billion, or 21.8%. Over the past 52 weeks, money funds have risen by $873 billion, or 15.3%, with Retail MMFs up by $436 billion (19.7%) and Inst MMFs rising by $437 billion (12.6%). ICI's weekly release says, "Total money market fund assets increased by $79.49 billion to $6.59 trillion for the week ended Wednesday, November 6, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $69.51 billion and prime funds increased by $6.74 billion. Tax-exempt money market funds increased by $3.25 billion." ICI's stats show Institutional MMFs increasing $50.3 billion and Retail MMFs rising $29.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.384 trillion (81.7% of all money funds), while Total Prime MMFs were $1.065 trillion (16.2%). Tax Exempt MMFs totaled $136.8 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $29.18 billion to $2.66 trillion. Among retail funds, government money market fund assets increased by $19.40 billion to $1.69 trillion, prime money market fund assets increased by $7.22 billion to $842.71 billion, and tax-exempt fund assets increased by $2.55 billion to $124.65 billion." Retail assets account for over a third of total assets, or 40.3%, and Government Retail assets make up 63.6% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $50.31 billion to $3.93 trillion. Among institutional funds, government money market fund assets increased by $50.10 billion to $3.69 trillion, prime money market fund assets decreased by $486 million to $222.39 billion, and tax-exempt fund assets increased by $694 million to $12.19 billion." Institutional assets accounted for 59.7% of all MMF assets, with Government Institutional assets making up 94.0% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke over the $6.9 trillion level Tuesday, and have risen by $55.9 billion in November through 11/6 to $6.918 trillion. Assets rose by $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion last November. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $350 billion lower than Crane's asset series.
VettaFi on Money Market Substitutes
VettaFi ETF Trends writes that, "More Money Market Substitutes Taking Shape." They tell us, "Investors have been married to their money market funds for the better part of the last two years. But a recent poll from VettaFi's Q4 Fixed Income Symposium in October showed more market participants may finally be willing to break out of their comfort zones and redeploy those funds into riskier assets. 76% of advisors said they were looking to cut back their allocation to money market funds in the next 12 months. This is a move that has arguably been long overdue." The piece comments, "Plenty of cash will likely remain in money market funds even after some reallocation. Short duration products still offer attractive real positive yields, so the cost of staying short is not particularly high. Even if investors start to funnel more cash into other financial assets, it may take a while to make a significant dent in the record $6 trillion of cash still parked on the sidelines. Meanwhile, short Treasury bond ETFs, floating-rate instruments and ultra-short term structured products can all offer attractive money market fund-like alternatives." VettaFi adds, "But lately, many ultra-short duration products have begun to mimic money market funds on both a risk and return basis. The iShares 0-3 Month Treasury ETF (SGOV) and JPMorgan Ultra-Short Income ETF (JPST) continue to dominate the flow charts this year -- with north of $9 billion and $4 billion in net inflows each. Meanwhile, the $34 billion SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) remains the largest and most liquid of its kind.... PGIM offers a suite of ultra-short duration bond funds that have all amassed inflows last month – including the PGIM Ultra Short Bond ETF (PULS)."
Cunningham on Fuzzy Picture for Fed
Federated Hermes' Deborah Cunningham writes on the "Fuzzy picture: Noisy data and election uncertainty might slow Fed easing." She explains, "A common misconception about money market products is that they are only concerned with short-term economic developments because daily liquidity is a defining feature. But cash managers seek to gain higher yields than deposit products by investing across a longer time horizon, often out to a year. Noise in the data and news is no less impactful for liquidity vehicles than it is for bonds and stocks. Well, there's plenty of that to go around now: the general election, impact of storms, Federal Reserve decisions, interest rates, inflation and more. It reminds me of the television static that used to frustrate viewers of everything from Saturday morning cartoons to the evening news to (most importantly!) sporting events." Cunningham continues, "The FOMC meeting that ends Nov. 7 is more critical for the front end of the yield curve. Intriguingly, the uncertainty here stems as much from the Fed's 50 basis-point cut in September as it does from parsing of the recent data. While Fed Chair Jerome Powell probably doesn't have buyer's remorse, some policymakers seem to regret the magnitude of that reduction, based on the flurry of speeches and appearances since. Yes, the data had softened, and the markets gave them the opportunity for the large cut, but few expected the combination of a rebounding jobs market and sticky inflation. We think voters would like to skip a move next week, but the supersized slash essentially demands they do something to save credibility. But if they do lower the target range by a quarter point, which we expect, they could hold rates steady in December before easing again in January and then continuing that pattern of cut/not cut for multiple meetings." She adds, "Thankfully, the picture for money markets has little obscuring 'snow.' The longer the Fed takes to lower rates, the longer yields should remain elevated. Investors seem to be anticipating this. The Investment Company Institute (ICI) reported that U.S. money market funds reached a record $6.51 trillion last month. We estimate the broader liquidity market is following that trend. But it is hard to tell how everything will play out. The sooner the signal improves, the better."
Citi, Fido Demo Tokenized MMF, Swap
A press release titled, "Citi and Fidelity International demonstrate tokenized Money Market Fund and Digital Foreign Exchange Swap solution," states, "Citi and Fidelity International announced the proof-of-concept of an on-chain money market fund (MMF) with digital foreign exchange (FX) swap solution which demonstrates real-time settlement. The solution will be showcased at the Monetary Authority of Singapore (MAS) booth at the Singapore FinTech Festival 2024, happening from 6 to 8 November." It continues, "This innovative on-chain solution could enable investors to conduct seamless and real-time settlement of multi-asset positions in different currencies. The successfully tested solution -- a tokenized MMF with an embedded digital FX swap -- has the potential to enable faster, seamless management of treasury positions, eliminate delays and improve efficiency. It could also enable investors to access higher yields on foreign cash funds while managing liquidity and FX risk in real-time. For example, a corporate treasurer holding non-USD working capital could invest in US dollar denominated MMFs (USD MMFs) to enhance portfolio diversification and yield potential while ensuring continuous operational liquidity. The proof-of-concept results from a collaboration between Citi and Fidelity International. It successfully shows that the solution could run faster, programmable multi-asset transactions on-chain, which is currently not possible with traditional market infrastructure. Citi and Fidelity International explored smart contracts to synchronize settlement of simulated FX swaps and issuance/redemption of simulated MMF tokens, leveraging interoperability protocols to connect separate networks. They also tested built-in fund token standards designed to ensure compliance with on-chain permissions throughout the entire fund lifecycle." The release adds, "Tokenization refers to the creation of tokens on a blockchain to record information about underlying assets and liabilities including their attributes or characteristics, status, transaction history, and ownership. Tokenized MMFs are expected to be the fastest-growing digital asset class, reaching USD 400 billion by 2030. USD MMFs have a large number of issuers with over USD 6.1 Tr AUM. To access USD MMFs while mitigating FX risk, non-USD investors currently book and manually reconcile FX hedging separately. This can create friction, timing mismatches and FX transaction risks. A settlement delay can also prevent precise, real-time liquidity management. Tokenized MMFs with digital FX swaps would potentially enable faster, near-instant transactions, and increase liquidity and efficiency. The Citi and Fidelity International collaboration is under the MAS' Project Guardian, a global collaboration between policymakers and key industry players to enhance liquidity and efficiency of financial markets through asset tokenization."
UBS Launches Tokenized Money Fund
A press release titled, "UBS Asset Management launches its first tokenized investment Fund," tells us, "UBS Asset Management ... announces the launch of 'UBS USD Money Market Investment Fund Token' ('uMINT'), a Money Market investment built on Ethereum distributed ledger technology." Thomas Kaegi, Co-Head of UBS Asset Management APAC, comments, "We have seen growing investor appetite for tokenized financial assets across asset classes. Through leveraging our global capabilities and collaborating with peers and regulators, we can now provide clients with an innovative solution." The release continues, "Tokenholders can now access UBS Asset Management's institutional grade cash management solutions underpinned by high quality money market instruments based on a conservative, risk-managed framework. UBS Asset Management's global distributed ledger technology strategy is focused on leveraging public and private blockchains networks for enhanced fund issuance and distribution. As an active industry partner of the Monetary Authority of Singapore's Project Guardian initiative, in October 2023 UBS Asset Management launched a live pilot of a tokenized Variable Capital Company (VCC) fund." The release adds, "More broadly, this fund launch also forms part of the broader expansion of UBS's tokenization services through UBS Tokenize where in June 2023, UBS originated CNH 200 million of fully digital structured notes for a third-party issuer. And in November 2023, UBS completed the world's first cross-border repurchase transaction with a natively-issued digital bond fully executed and settled on a public blockchain." For more, see Bloomberg's "Wall Street's Tokenized Money-Market Funds Seek to Take on Tether" and The Wall Street Journal's "Federal Investigators Probe Cryptocurrency Firm Tether", and see these Crane Data News articles: "The Block: Regulatory Uncertainty Barrier to Tokenized Money Market Funds" (10/27/24), "Calastone on Tokenised Money Funds" (10/23/24), "Hashnote Tokenized Money Mkt Fund" (10/22/24), "State Street Looks at Blockchain MMFs" (10/11/24), "Coindesk on Aptos, Franklin Onchain" (10/4/24), "WisdomTree Connect Launched" (9/24/24), "More on Franklin MMF Tokenisation" (9/4/24), "Franklin MF Adds Arbitrum Blockchain" (8/12/24), "Fidelity Intl Tokenizes MF, Paxos" (6/14/24), "J.P. Morgan on Weekly Holdings, Treasury Repo Clearing; Fitch; OnChain" (5/2/24), "European Money Fund Symposium London, Sept. 19-20; Tokenized MMFs" (4/25/24), "CoinDesk on Tether Stablecoin; Paxos" (2/5/24), "Forbes: SEC Targets PayPal Stablecoin" (11/13/23), "J.P. Morgan on Stablecoin Shrinkage, Risks; Bloomberg, WSJ and NY Fed" (9/28/23), "CNBC on PayPal, Paxos' Stablecoin" (8/10/23) and "NY Fed on 'Runs on Stablecoins'" (7/19/23).
Treasury Today Cites Invesco's Mueller
Treasury Today published, "MMFs in a falling rate environment," which tells us, "Around the world, the much anticipated rate-cutting cycle is underway.... So, what does the falling interest rate environment mean for money market funds? Paul Mueller, Head of Global Liquidity EMEA portfolios at Invesco, points out that the onset of the current cutting cycle was largely anticipated, which has allowed money market funds (MMFs) to extend their weighted average maturities to help protect returns against declining yields." Mueller tells the publication that "for MMF managers, the decision to include longer-term securities -- which are aimed at safeguarding yields from further rate declines -- requires accepting lower yields compared to those available through shorter-dated securities. This decision can be hedged by investing in floating rate instruments, which may perform better if rates do not decrease as swiftly as the market anticipates." He says, "However, this creates a delicate balance: purchasing securities that may have already priced in excessive rate cuts could lead to sub-optimal yields, while delaying the extension of portfolio maturities risks missing the chance to lock in favourable yields if rates fall more quickly than expected." The article also quotes HSBCAM's Joseph Little, "On the face of it, lower policy rates pose a challenge for MMFs. Technical aspects, such as careful management of a duration ladder, can mitigate some of this. But the most important factor will be the shallow rate-cutting cycle, which will bolster MMF yields." Treasury Today says, "As Mueller explains, the structure of a typical MMF portfolio allows it to generally outperform bank deposits when rates are cut, as bank deposits typically have much shorter maturities. 'Investors are well aware of this dynamic, and during a rate-cutting cycle, we often observe increased inflows into MMFs,' he observes. 'This influx can accelerate the rate at which MMF yields align with those of short-dated bank deposits.'"
