Daily Links Archives: February, 2024
China Daily on CSRC's New MMF Rules
China Daily wrote recently on new tweaks to Chinese money market fund oversight. The article, "Securities regulator picks 'major' money market funds," explains, "China's securities regulator recently identified a number of newly designated major money market fund products and has put them under enhanced oversight, as part of the country's efforts to anchor investors' expectations and promote the sound development of its capital market. The China Securities Regulatory Commission designated 13 such products as 'major' money market funds to comply with stricter regulatory requirements under rules jointly issued by the People's Bank of China, the country's central bank, in February last year, the commission said in a statement." The piece says, "Money market funds with assets under management exceeding 200 billion yuan ($27.8 billion) or having more than 50 million individual investors, as stipulated in the rules, will be subject to evaluation for inclusion on the list. Money market funds from China's top three asset-management firms -- E Fund, China Asset and GF Fund, as well as from four other major money managers such as ICBC Credit Suisse Asset Management and China Universal Asset Management -- are on the list, according to the statement. Money market funds have gained popularity among investors seeking safe, liquid investment options that offer competitive yields, said Yang Chengzhang, chief economist with Shenwan Hongyuan Securities." China Daily adds, "Going forward, the commission will conduct assessments of money market funds on a regular basis, so as to include those that meet the criteria for listing among the major money market funds as appropriate, and will publicize information in accordance with relevant regulations. Data from financial information provider Wind shows that, as of the end of last year, certain money market fund products from investment management firms such as Fullgoal Fund, CCB Investment and Ping An UOB Fund are on the verge of being included on the list based on either their asset volume or individual investor scale. The commission, along with the PBOC, will make joint efforts to strengthen the risk monitoring and daily supervision of key money market funds, aiming to promote a safer and more stable operation of money market funds while safeguarding the legitimate rights and interests of fund shareholders." In related news, see the SeeNews brief, "Croatian regulator OKs Erste Money Market fund."
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 February 23) includes Holdings information from 81 money funds (up 22 from a week ago), or $3.527 trillion (up from $2.699 trillion) of the $6.409 trillion in total money fund assets (or 55.0%) 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 shows Government assets dominating the holdings list with Treasuries totaling $1.545 billion (up from $1.179 trillion a week ago), or 43.8%; Repurchase Agreements (Repo) totaling $1.308 trillion (up from $1.015 trillion a week ago), or 37.1%, and Government Agency securities totaling $308.9 billion (up from $259.3 billion), or 8.8%. Commercial Paper (CP) totaled $120.8 billion (up from a week ago at $87.2 billion), or 3.4%. Certificates of Deposit (CDs) totaled $106.1 billion (up from $72.9 billion a week ago), or 3.0%. The Other category accounted for $95.0 billion or 2.7%, while VRDNs accounted for $43.2 billion, or 1.2%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.545 trillion (43.8% of total holdings), Fixed Income Clearing Corp with $277.3B (7.9%), Federal Home Loan Bank with $239.4B (6.8%), the Federal Reserve Bank of New York with $178.7 billion (5.1%), RBC with $86.6B (2.5%), Citi with $85.7B (2.4%), JP Morgan with $82.0B (2.3%), BNP Paribas with $76.8B (2.2%), Barclays PLC with $66.3B (1.9%) and Federal Farm Credit Bank with $64.4B (1.8%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($264.4B), Goldman Sachs FS Govt ($221.9B), Fidelity Inv MM: Govt Port ($205.5B), JPMorgan 100% US Treas MMkt ($200.6B), State Street Inst US Govt ($156.3B), Federated Hermes Govt ObI ($154.2B), BlackRock Lq FedFund ($144.5B), Morgan Stanley Inst Liq Govt ($134.4B), Fidelity Inv MM: MM Port ($128.3B) and Dreyfus Govt Cash Mgmt ($115.4B). (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 Inch Down to 5.14%
Money fund yields fell 1 bp to 5.14% on average (as measured by our Crane 100 Money Fund Index) in the week ended Feb. 23, after remaining unchanged the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.17% on 1/31/24, 5.20% on 12/31/23 and 11/30, 5.19% on 10/31, 5.17% on 9/30, 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $15.8 billion last week to $6.409 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 690), shows a 7-day yield of 5.04%, down 1 bp in the week through Friday. Prime Inst MFs were unchanged at 5.25% in the latest week. Government Inst MFs were unchanged at 5.12%. Treasury Inst MFs were unchanged at 5.08%. Treasury Retail MFs currently yield 4.86%, Government Retail MFs yield 4.82%, and Prime Retail MFs yield 5.07%, Tax-exempt MF 7-day yields were down 9 bps at 2.94%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/23), 62 money funds (out of 809 total) yield under 3.0% with $31.8 billion in assets, or 0.5%; 61 funds yield between 3.00% and 3.99% ($96.5 billion, or 1.5%), 231 funds yield between 4.0% and 4.99% ($1.307 trillion, or 20.4%) and 455 funds now yield 5.0% or more ($4.974 trillion, or 77.6%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.61%. The latest Brokerage Sweep Intelligence, with data as of Feb. 23, shows that there was no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
The Wall Street Journal writes "A $150 Billion Question: What Will Warren Buffett Do With All That Cash?" The piece states, "The mountain of cash at Warren Buffett's Berkshire Hathaway just keeps growing. Berkshire's tally of cash and equivalents has marched skyward for five consecutive quarters, reaching a record $157.2 billion at the end of September. Whether it finished 2023 at new heights is one question investors will look to answer when the Omaha, Neb., company releases its annual report Saturday.... [T]he tower of cash leaves Buffett equipped to pounce should he spot an attractive business to add to the Berkshire empire, which includes insurer Geico, BNSF Railway and Dairy Queen. The cash also helps maintain what Buffett described in a February 2009 letter to shareholders as Berkshire's 'Gibraltar-like financial position.'" It tells us, "Many shareholders say they aren't worried that so much investing firepower is sitting in cash -- especially since higher yields mean that money is earning much more than in the recent past. Berkshire had more than $125 billion in short-term investments in U.S. Treasury bills on Sept. 30. Yields on such short-term government debt rocketed higher as the Federal Reserve raised interest rates in a bid to tame inflation. The yield on six-month Treasury bills, for example, was 5.35% Thursday, up from 0.71% in February 2022, according to Tradeweb ICE closes. 'A while back, when you could only earn zero, the cost of holding that cash seemed like it was high,' said Bill Stone, chief investment officer at Glenview Trust ..., which holds Berkshire shares. 'Now of course we're going to see it boost quite a bit of earnings.'" The article adds, "Some observers note that the company needs substantial cash for more than investing. Berkshire's insurance operations include business that carries the risk of big losses.... 'If it wasn't for the insurance business, they wouldn't need to hold such a huge amount of cash,' said Darren Pollock, portfolio manager at Cheviot Value Management.... 'They need to be prepared for those events. That's a big reason why many of those billions of dollars are sitting there.'"
FOMC Minutes Discuss Money Markets
The Federal Reserve's latest "Minutes of the Federal Open Market Committee January 30–31, 2024" contains a couple of mentions of money market funds and supply. They state, "Regarding developments in money markets and Desk operations, the effective federal funds rate was stable over the intermeeting period. While the Secured Overnight Financing Rate experienced temporary and modest upward pressure over the past few month-ends, including the year-end, such a pattern was common before the pandemic. The usage of the overnight reverse repurchase agreement (ON RRP) facility continued to fall over the period, with balances below $600 billion in late January. Since June 2023, when the debt ceiling was suspended, usage of the ON RRP facility had declined at a much faster pace than the Federal Reserve securities portfolio, and reserve balances had increased some." The Minutes state, "As part of its ongoing market surveillance, the staff continued to monitor a wide range of money market indicators; those gauges suggested that the supply of reserves remained abundant. The staff also noted that once the ON RRP facility is either depleted or stabilized at a low level, reserves will decline at a pace comparable with the runoff of the Federal Reserve's securities portfolio, all else equal." They also comment, "Conditions in short-term funding markets remained stable over the intermeeting period, with typical dynamics observed surrounding year-end. Usage of the ON RRP facility continued to decline over the period, primarily reflecting money market funds reallocating their assets to Treasury bills and private-market repurchase agreements, which offered slightly more attractive market rates relative to the ON RRP rate. Banks' total deposit levels were roughly unchanged in the fourth quarter of last year, as outflows of core deposits were about offset by inflows of large time deposits." Finally, the Fed Minutes add, "In the discussion of financial stability, participants observed that risks to the banking system had receded notably since last spring, though they noted vulnerabilities at some banks that they assessed warranted monitoring. These participants noted potential risks for some banks associated with increased funding costs, significant reliance on uninsured deposits, unrealized losses on assets resulting from the rise in longer-term interest rates, or high CRE exposures.... While participants noted that they were not seeing any signs of liquidity pressures at banks, several participants noted that, as a matter of prudent contingency planning, banks should continue to improve their readiness to use the Federal Reserve's discount window, and that the Federal Reserve should continue to improve the operational efficiency of the window. In addition, some participants commented on the difficulties associated with banks relying on some forms of private wholesale funding during times of stress. A few participants remarked on the importance of measures aimed at increasing the resilience of the Treasury market."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of February 16) includes Holdings information from 59 money funds (down 11 from two weeks ago), or $2.699 trillion (down from $3.158 trillion) of the $6.393 trillion in total money fund assets (or 42.2%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.179 billion (down from $1.381 trillion two weeks ago), or 43.7%; Repurchase Agreements (Repo) totaling $1.015 trillion (down from $1.228 trillion two weeks ago), or 37.6%, and Government Agency securities totaling $259.3 billion (down from $279.9 billion), or 9.6%. Commercial Paper (CP) totaled $87.2 billion (down from two weeks ago at $96.7 billion), or 3.2%. Certificates of Deposit (CDs) totaled $72.9 billion (down from $74.3 billion two weeks ago), or 2.7%. The Other category accounted for $57.3 billion or 2.1%, while VRDNs accounted for $28.0 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.179 trillion (43.7% of total holdings), Federal Home Loan Bank with $201.4B (7.5%), Fixed Income Clearing Corp with $195.5B (7.2%), the Federal Reserve Bank of New York with $133.4 billion (4.9%), RBC with $73.3B (2.7%), BNP Paribas with $65.2B (2.4%), JP Morgan with $62.0B (2.3%), Citi with $61.4B (2.3%), Goldman Sachs with $52.5B (1.9%) and Federal Farm Credit Bank with $52.1B (1.9%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($261.8B), Goldman Sachs FS Govt ($219.5B), Fidelity Inv MM: Govt Port ($200.4B), JPMorgan 100% US Treas MMkt ($192.2B), State Street Inst US Govt ($157.8B), Morgan Stanley Inst Liq Govt ($129.6B), Fidelity Inv MM: MM Port ($127.2B), Dreyfus Govt Cash Mgmt ($116.2B), Allspring Govt MM ($113.7B) and Goldman Sachs FS Treas Instruments ($86.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Crane 100 MF Index Flat at 5.15%
Money fund yields remain unchanged at 5.15% on average (as measured by our Crane 100 Money Fund Index) in the week ended Feb. 16, after falling one bp the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.17% on 1/31/24, 5.20% on 12/31/23 and 11/30, 5.19% on 10/31, 5.17% on 9/30, 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds fell by $8.0 billion last week to $6.393 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 690), shows a 7-day yield of 5.05%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 5.25% in the latest week. Government Inst MFs were unchanged at 5.12%. Treasury Inst MFs were unchanged at 5.08%. Treasury Retail MFs currently yield 4.86%, Government Retail MFs yield 4.83%, and Prime Retail MFs yield 5.07%, Tax-exempt MF 7-day yields were up 7 bps at 3.04%. According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (2/16), 43 money funds (out of 811 total) yield under 3.0% with $20.0 billion in assets, or 0.3%; 82 funds yield between 3.00% and 3.99% ($108.5 billion, or 1.7%), 229 funds yield between 4.0% and 4.99% ($1.307 trillion, or 20.4%) and 457 funds now yield 5.0% or more ($4.958 trillion, or 77.6%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.61%. The latest Brokerage Sweep Intelligence, with data as of Feb. 16, shows that there was no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Bloomberg: Wall of Cash Holding Firm
Bloomberg writes, "A $6 Trillion Wall of Cash Is Holding Firm as Fed Delays Cuts." It says, "Investors are plowing billions into money-market funds by the day. Corporate treasurers are hoarding record amounts of cash. The market is digesting a glut of Treasury bills without a hiccup. For an asset class that many market prognosticators all but left for dead to start the year, there's still plenty of life left in cash. Investors have added $128 billion to US money-market funds since the start of the year, Investment Company Institute data show. Companies were sitting on a record $4.4 trillion of cash at the end of the third quarter, and after a flood of more than $1 trillion of T-bills since mid-2023, the market has room for more. It's a stark contrast to just a couple of months ago, when one of the hottest questions on Wall Street was where investors would redeploy all their cash holdings once the Federal Reserve started cutting interest rates and making stockpiles of money less appealing." The article explains, "But a lot's changed since then. Traders have dramatically dialed back policy easing expectations, for one. The more time it takes the central bank to begin lowering its benchmark, the longer cash held in money-market funds should be able to earn 4%, 5% or more, keeping investors from looking further afield. Add to that corporate executives who seem in little rush to spend money following the pandemic and depositors still worried about the state of the banking system, and all signs point to 2024 being another big year for cash." They quote our Peter Crane, "The year of cash wasn't a flash in the pan.... The overall resensitization to interest rates is still spreading and even a lot of money hasn't moved or looked at it yet." Bloomberg writes, "Some corporations have already boosted their money-fund holdings. Meta Platforms Inc., the parent company of Facebook, increased its allocation to money funds to $32.9 billion at the end of the year from $29.6 billion as of end-September, according to filings with the Securities and Exchange Commission. Amazon.com Inc. had $39.2 billion in money funds at the end of 2023 from $20.4 billion the prior quarter. Meta and Amazon declined to comment. Qualcomm Inc., the world's biggest seller of smartphone processors, increased money-market fund holdings in 2023, while its cash and cash equivalents rose to $8.13 billion as of Dec. 24 from $4.88 billion a year earlier. 'For us, the cash balance is really strategic flexibility,' Akash Palkhiwala, chief financial and operating officer, said in an interview. 'We want to keep it liquid and we want to stay at the lower end of the risk profile. So if you look at our cash balance, a lot of it is invested in money-market funds.'" The piece adds, "Even with cuts on the horizon, cash isn't budging, according to Crane, who expects money fund holdings to reach $7 trillion this year, given unease about the banking system and the stack of uninsured deposits. 'I will eat my hat if money-market fund holdings were to decline from their current levels in 2024,' he said."
State Street Launches EUR Govt Fund
A press release entitled, "Fitch Rates State Street EUR Government Liquidity Fund 'AAAmmf'" tells us, "Fitch Ratings has assigned State Street EUR Government Liquidity Fund a Money Market Fund 'AAAmmf' Rating. The fund is managed by State Street Global Advisors Limited. The fund is expected to become open to investors on 22 January 2024. Fitch used the fund's filed final prospectus and investment guidelines for its analysis." It explains, "The 'AAAmmf' rating reflects Fitch's review of the fund's investment guidelines, expected credit quality and diversification, low exposures to interest-rate and spread risks, and high levels of daily and weekly liquid assets that are consistent with its shareholder profile. The rating also considers the capabilities and resources of State Street Global Advisors Limited in managing the assets of the fund.... The fund expects to seek and maintain diversified, high-credit quality portfolios that are consistent with Fitch's criteria for 'AAAmmf' rated MMFs, by investing in a range of euro-denominated securities issued or guaranteed by highly rated sovereigns, agencies or supranational organisations, as well as in related reverse repurchase agreements that are collateralised by highly rated sovereigns, agencies or supranational organisations. Counterparties of reverse repurchase agreements are of high credit quality, with credit ratings at 'F1' (or equivalent) or above, based on Fitch's analysis." It adds, "The fund expects to maintain sufficient daily and weekly liquidity to meet investors' flows and to be consistent with liquidity requirements for the 'AAAmmf' rating. As the fund accepts new investors following its launch date, shareholder concentration may be high initially. However, Fitch expects State Street Global Advisors Limited to take this into consideration when managing liquidity conservatively.... The fund is expected to limit interest-rate and spread risk by maintaining weighted average maturities (WAM) and weighted average lives (WAL) at below 60 days and 120 days, respectively.... The fund is a sub-fund of the Irish-domiciled umbrella fund, State Street Liquidity PLC, which is an open-ended investment company that falls under the UCITS directive. The fund is authorised and supervised by Central Bank of Ireland as public debt constant net asset value money market fund as defined in Regulation (EU) 2017/1131. The fund's investment objective is to maintain a high level of liquidity, preserve capital and provide a return in line with euro government money market rates. The fund size is expected to be close to EUR100 million at launch."
Cunningham: Sun Setting on Rates
Federated Hermes' Deborah Cunningham wrote earlier this month on the "Sun setting on the tightening cycle." She comments, "A busy month of news pertaining to the liquidity markets ended on a high note when the Federal Reserve maintained the target fed funds rate at 5.25-5.50% and pushed the probable first rate hike to late spring at the earliest.... Fed Chair Jerome Powell returned to the word 'confidence' many times in his post-FOMC meeting press conference yesterday. He said the Fed has much confidence in the authenticity of inflation's downward trajectory over the last six months, but needs more. Not sure two months will make that much of a difference, but this stance allows policymakers to sneak in a few more months of 'higher for longer.' Think of it as an 'insurance pause' lest inflation hover at present levels for a few readings." She tells us, "Investing in the front end of the Treasury yield curve improved last month as the markets pushed out forecasts for the first cut past March, a development likely to continue.... Trades are now more in line with our firm view of 75 basis points of cuts this year, helping us find more value along the curve than when the fed futures trading called for upwards of six cuts. This should be aided by the U.S. Treasury's quarterly refunding plans released this week that indicate bill supply will likely remain robust." The update adds, "We, and the greater financial world, thought we'd finally put the London interbank finance rate (Libor) price-fixing scandal behind us when the British Financial Conduct Authority ceased to support it last year. With the Fed's Secured Overnight Financing Rate (SOFR) now serving as the risk-free benchmark, the Bloomberg Short Term Bank Yield Index (BSBY) emerged in 2021 as an alternative reference rate for transactions in the credit markets. While it had worked well, it was punched in the gut punch by regulators over the summer and has been used less and less, and Bloomberg will shut it down by November. We and others made the case for it, but to no avail. The irony is that, while regulators such as the International Organization of Securities Commissions (IOSCO) and the SEC say BSBY is not secure enough to base short-term contracts on, market participants are now left with pricing rates at a spread over SOFR, meaning the risk of mispricing loans remains."
SSGA on Trends Moving Cash Markets
State Street Global Advisors published a brief entitled, "Eight Trends Moving Cash Markets Now." Author Will Goldthwait writes, "The money market landscape continues to evolve in January 2024, with a few notable trends and concerns. Some of these are the substantial growth in money market fund (MMF) assets under management (AuM) over the past year, the shifting dynamics of retail cash flows, and the ongoing discussions regarding the unwinding of quantitative tightening (QT) by the US Federal Reserve (Fed). We also see signs of strain on primary dealer balance sheets and changes in the Treasury Bill (T-Bill) and commercial paper (CP) markets. Lastly, MMFs have been extending durations amid uncertainty over the future path of interest rates. Here is a closer look at all of these developments." The piece states, "MMF AuM have experienced remarkable growth, increasing by over 23% in the past year and more than 60% since 2019. The most significant surge was observed in retail cash, with prime MMFs witnessing gains of over 60% and government MMFs experiencing a nearly 30% increase in 2023. While this growth is notable, it raises questions about the sustainability of these cash inflows, especially given historical declines in MMF AuM during recessions as observed in 2001 and 2008.... The decline in commercial bank deposit balances appears to have slowed, with indications that these balances are moving into MMFs. This reallocation of funds could be a response to changing market conditions and monetary policy." SSGA also says, "Weekly T-Bill auctions experienced significant growth in H2 2023 but have now stabilized. Most of the new supply appears to have been absorbed by cash that was previously invested in the Fed's RRP. Overall, outstanding T-Bill debt has reached historically high levels, surpassing $5 trillion and representing over 22% of the US Treasury's total debt. This situation could have implications for market dynamics and investor strategies.... CP issuance has seen only slight growth over the past decade, hovering around $1.2 trillion. While bank balance sheets have expanded, their reliance on short-term funding like CP has not increased significantly. CP yields relative to T-Bills are tight compared to their historical range. However, we advise caution, particularly regarding longer-dated CP. Shorter-dated CP may appear relatively cheaper." Finally, State Street tells us, "MMFs have been extending their duration, with typical weighted average maturities now reaching around 50 days. This represents a substantial change from 2022 when durations were closer to 10 days. In the face of an inverted yield curve in both rates and credit, maintaining current yields will be challenging for MMFs in the coming months.... The money market landscape is undergoing significant changes, driven by growth in AuM, shifts in cash balances, debates about the Fed's QT strategy, and the evolving market dynamics. As we move forward in 2024, market participants will need to adapt to these shifting conditions and carefully monitor the factors influencing the money market’s performance."
Money Fund Yields Inch Down to 5.15%
Money fund yields fell one basis point to 5.15% on average (as measured by our Crane 100 Money Fund Index) in the week ended Feb. 9, after remaining unchanged the week prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.17% on 1/31/24, 5.20% on 12/31/23 and 11/30, 5.19% on 10/31, 5.17% on 9/30, 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds fell by $8.6 billion last week to $6.401 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 690), shows a 7-day yield of 5.05%, down 1 bp in the week through Friday. Prime Inst MFs were down 2 bps at 5.25% in the latest week. Government Inst MFs were down 1 bp at 5.12%. Treasury Inst MFs were unchanged at 5.08%. Treasury Retail MFs currently yield 4.86%, Government Retail MFs yield 4.83%, and Prime Retail MFs yield 5.06%, Tax-exempt MF 7-day yields were down 46 bps at 2.96%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/9), 60 money funds (out of 811 total) yield under 3.0% with $33.4 billion in assets, or 0.5%; 65 funds yield between 3.00% and 3.99% ($95.3 billion, or 1.5%), 232 funds yield between 4.0% and 4.99% ($1.317 trillion, or 20.6%) and 454 funds now yield 5.0% or more ($4.955 trillion, or 77.4%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down 1 bp to 0.61%. The latest Brokerage Sweep Intelligence, with data as of Feb. 9, shows that there was one change over the past week. Wells Fargo moved rates to 0.05% for balances of $1 to $999K, to 0.15% for balances of $1 million to $1.9 million, and to 0.50% for balances of $10 million and greater. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
ICD Money Fund Assets Break $250B
A press release entitled, "ICD Announces 37% Year-Over-Year Growth in 2023," tells us, "ICD, provider of institutional investment technology, closed the year ending December 31, 2023 with money market fund (MMF) assets on ICD Portal eclipsing $250 billion. ICD's 37% year-over-year increase outpaced the market's 18% increase in institutional MMF assets tracked over the same period by the Investment Company Institute (ICI)." ICD Chief Executive Officer Tory Hazard comments, "ICD's spectacular growth and benchmark outperformance demonstrates the desire of corporate treasury professionals and other institutional investors to access short-term markets without bias through an independent portal. Both new and existing ICD clients find our high-touch service, broad selection of investment products and intuitive technology, second to none." The release continues, "ICD's community of over 500 invested clients increased 17% in 2023 versus 2022, while ICD maintained a 99% client retention rate. In October last year, Crane Data ranked ICD the largest U.S. investment portal by assets for institutional money market fund investments." It tells us, "Building on its 20-year history of co-innovating with clients to solve investment challenges, ICD also launched its AI-driven ICD Portfolio Analytics solution to automate the process of creating a comprehensive view of a company's entire investment portfolio for reporting and managing portfolio risk, including counterparty risk." Indivior Treasurer Bill Lundeen adds, "ICD Portfolio Analytics incorporates our underlying fund holdings with other investment positions, making it possible to see our true exposures across all of our investments. This is invaluable given the heightened focus on exposures due to the 2023 bank failures."
ICI: Money Fund Assets Jump Again
Money market mutual fund assets continued their record run in 2024 hitting a record $6.018 trillion in the past week. ICI's latest weekly "Money Market Fund Assets" report shows MMF assets jumped to break $6.0 trillion for the first time ever two weeks ago and continue to jump this week. Assets are up by $131 billion, or 2.8%, year-to-date in 2024, with Institutional MMFs up $60 billion, or 2.0% and Retail MMFs up $71 billion, or 4.2%. Over the past 52 weeks, money funds have risen a massive $1.213 trillion, or 25.2%, with Retail MMFs rising by $593 billion (33.5%) and Inst MMFs rising by $620 billion (20.4%). The weekly release says, "Total money market fund assets increased by $16.70 billion to $6.02 trillion for the week ended Wednesday, February 7, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $3.71 billion and prime funds increased by $12.39 billion. Tax-exempt money market funds increased by $589 million." ICI's stats show Institutional MMFs rising $3.08 billion and Retail MMFs rising $13.62 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.892 trillion (81.3% of all money funds), while Total Prime MMFs were $1.006 trillion (16.7%). Tax Exempt MMFs totaled $119.6 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $13.62 billion to $2.36 trillion. Among retail funds, government money market fund assets increased by $6.29 billion to $1.53 trillion, prime money market fund assets increased by $5.68 billion to $719.16 billion, and tax-exempt fund assets increased by $1.65 billion to $109.31 billion." Retail assets account for over a third of total assets, or 39.2%, and Government Retail assets make up 64.9% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $3.07 billion to $3.66 trillion. Among institutional funds, government money market fund assets decreased by $2.57 billion to $3.36 trillion, prime money market fund assets increased by $6.71 billion to $286.93 billion, and tax-exempt fund assets decreased by $1.06 billion to $10.31 billion." Institutional assets accounted for 60.8% of all MMF assets, with Government Institutional assets making up 91.9% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $7.23 billion in February to $6.401 trillion. Assets rose $93.9 billion in January, $32.7 billion in December, jumped $226.4 billion in November but fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
KC Fed on Bank Deposits vs. MMFs
The Federal Reserve Bank of Kansas City published, "Bank Deposit Rates Haven't Kept Pace with Yields on Other Investments, but Depositors Are Staying Anyway," which says, "Bank deposit outflows continued during 2023 despite rising deposit rates. One possible explanation is that deposit rate increases have not kept pace with rising yields on other investments. For example, spreads between bank deposit rates and yields on deposit substitutes such as money market funds have reached historically high levels. Although the outlook for deposit rates depends on the policy rate path, deposit levels are likely to remain stable under alternative policy scenarios." It explains, "Over the past year, banks continued to experience deposit outflows. First, monetary policy actions increased short-term interest rates, which enticed many depositors to seek more profitable investment opportunities. Second, banking stress episodes led some large depositors to question the safety of bank deposits and seek alternatives. In response, banks raised deposit rates to retain their core funding. However, deposit rates have risen more slowly than yields on alternative investments.... [M]any depositors may be reluctant to move their money out of deposits even when interest rates offered on alternative investments are higher than bank deposit rates. However, some alternative investments, such as money market funds, may be close substitutes for deposits. Although money market funds do not offer the same payment services or loss guarantees as bank deposits, they do offer returns comparable to other short-term investments on funds that can be withdrawn at par value with limited risk. In addition, government money market funds pose virtually no credit risk because they are fully invested in assets issued or backed by the U.S. government. Many money market funds can also invest in the Federal Reserve’s Overnight Reverse Repurchase (ON RRP) facility, which provides participants short-term investments at an administered rate without imposing credit, interest rate, or counterparty risk." The KC Fed states, "Historically, yields on money market fund investments have moved nearly concurrently with short-term policy rates, while deposit rates have lagged.... Bank deposit accounts offer customers greater convenience than money market funds and are accordingly expected to have lower rates; however, the current spread is about double the peaks in past tightening cycles. Partly as a result, money market fund assets have grown, while deposits have declined. Chart 2 shows that from 2022:Q1 through 2023:Q3, money market funds (green line) experienced cumulative inflows of about $900 billion. Those inflows are almost exactly matched by the total amount of bank deposit outflows (blue line) during that time. Notably, both money market inflows and deposit outflows accelerated in March 2023, when high-profile bank failures led uninsured depositors to question the safety of their deposits. Government money market funds, in particular, benefitted from uninsured depositor flight (not shown)." Finally, the piece comments, "If policy rates remain elevated, the current spread between money market fund yields and deposit rates is still likely to narrow as bank deposit rates 'catch up.' ... Although the factors driving deposit rates and money market fund yields in these policy scenarios differ, bank deposit levels are likely to remain stable in both cases. Indeed, deposit outflows largely stabilized in the second half of 2023 as deposit rate increases have continued. Moreover, deposits remaining at banks are more likely to be held by depositors who value the convenience and safety of bank deposits over higher yields offered by alternative investments."
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 February 2) includes Holdings information from 70 money funds (down 6 from a week ago), or $3.158 trillion (down from $3.166 trillion) of the $6.410 trillion in total money fund assets (or 49.3%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.381 billion (up from $1.317 trillion a week ago), or 43.7%; Repurchase Agreements (Repo) totaling $1.228 trillion (up from $1.211 trillion a week ago), or 38.9%, and Government Agency securities totaling $279.9 billion (up from $273.1 billion), or 8.9%. Commercial Paper (CP) totaled $96.7 billion (down from a week ago at $125.2 billion), or 3.1%. Certificates of Deposit (CDs) totaled $74.3 billion (down from $103.5 billion a week ago), or 2.4%. The Other category accounted for $68.4 billion or 2.2%, while VRDNs accounted for $30.1 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.381 trillion (43.7% of total holdings), Fixed Income Clearing Corp with $281.5B (8.9%), Federal Home Loan Bank with $212.2B (6.7%), the Federal Reserve Bank of New York with $159.0 billion (5.0%), RBC with $77.7B (2.5%), JP Morgan with $73.8B (2.3%), Citi with $69.3B (2.2%), BNP Paribas with $67.1B (2.1%), Barclays PLC with $65.6B (2.1%) and Goldman Sachs with $62.3B (2.0%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($266.7B), Goldman Sachs FS Govt ($223.0B), Fidelity Inv MM: Govt Port ($197.5B), JPMorgan 100% US Treas MMkt ($189.6B), State Street Inst US Govt ($150.7B), BlackRock Lq FedFund ($145.3B), Morgan Stanley Inst Liq Govt ($134.0B), Fidelity Inv MM: MM Port ($123.0B), Dreyfus Govt Cash Mgmt ($117.8B) and Allspring Govt MM ($115.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Sweep Rates Inch Higher; Yields Flat
Money fund yields remained unchanged at 5.16% on average (as measured by our Crane 100 Money Fund Index) in the week ended Feb. 2, after falling 1 bp two weeks prior. Our Crane 100 is an average of 7-day yields for the 100 largest taxable money funds. Yields were 5.17% on 1/31/24, 5.20% on 12/31/23 and 11/30, 5.19% on 10/31, 5.17% on 9/30, 5.16% on 8/31, 5.09% on July 31, 4.94% on June 30, 4.61% on March 31 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $46.0 billion last week to $6.410 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged last week. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 690), shows a 7-day yield of 5.06%, down 1 bp in the week through Friday. Prime Inst MFs were down 1 bp at 5.27% in the latest week. Government Inst MFs were unchanged at 5.13%. Treasury Inst MFs were unchanged at 5.09%. Treasury Retail MFs currently yield 4.87%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.09%, Tax-exempt MF 7-day yields were up 17 bp at 3.43%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/2), 13 money funds (out of 811 total) yield under 3.0% with $3.6 billion in assets, or 0.1%; 108 funds yield between 3.00% and 3.99% ($121.1 billion, or 1.9%), 227 funds yield between 4.0% and 4.99% ($1.076 trillion, or 16.8%) and 463 funds now yield 5.0% or more ($5.209 trillion, or 81.3%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was up 1 bp at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Feb. 2, shows that there was one change over the past week. RW Baird moved rates to 2.06% for balances of $1 to $999K, to 3.20% for balances of $1 million to $1.9 million, and to 4.14% for balances of $5 million and greater. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
CoinDesk on Tether Stablecoin; Paxos
CoinDesk writes that "Tether Reports Record $2.85B Profit as Biggest Stablecoin Nears $100B Market Cap," which tells us, "Stablecoin issuer Tether reported a 'record-breaking' $2.85 billion of profits last quarter as its flagship token USDT neared a $100 billion market capitalization. The latest quarterly attestation ... showed some $1 billion of the profit came from the interest earned on the company's vast U.S. Treasury, reverse repo and money market fund investments, which are held to back the USDT stablecoin, according to a Tether blog post. The rest came 'primarily' from appreciation of Tether's other investments such as bitcoin (BTC) and gold." We also heard from Adam Ackermann, Paxos' Head of Treasury & Portfolio Management, who recently published a memo saying, "Stablecoins are core to Paxos' strategy and our stablecoin reserve management practices differentiate our products in the marketplace. We have a steadfast commitment to operating a best-in-class, in-house portfolio management function responsible for the prudent oversight and investment of Paxos-issued stablecoin reserve assets. A key pillar of our approach that aligns to our regulated status and differentiates us from many of our competitors is that we hold ourselves to a fiduciary standard to ensure the prioritization of customer assets and interests above our own. While I am specifically highlighting PYUSD below, our approach is consistent across all Paxos-issued stablecoin reserve asset portfolios." He explains, "Paxos publishes two key documents for PYUSD on our website every month: PYUSD Reserve Report - Self-disclosed details on the composition of all assets that back PYUSD (December 2023) and PYUSD Attestation Report - Third-party issued examination of Paxos' compliance with attestation standards established by the AICPA (December 2023). As reflected in both reports, PYUSD's market cap hit $270M by December 29 and has now surpassed $300M, making it the fastest growing stablecoin in its first months since launch. This safe, regulated stablecoin represents the first successful partnership between a blockchain infrastructure platform like Paxos and an established global payments platform, PayPal. The PYUSD reports provide valuable insight and transparency into how Paxos approaches its business and operations. Several key observations: Paxos only holds the highest-quality liquid assets to back PYUSD: Reserve asset portfolio composition is a mix of cash, short-term U.S. Treasury Bills with maturities less than 3 months, and overnight repurchase agreements overcollateralized by U.S. Treasury securities. This conservative list of eligible assets is consistent with guidelines stipulated by Paxos' prudential regulator, the New York Department of Financial Services (NYDFS). The highly liquid and short-term nature of the reserve's backing PYUSD insulates customer funds from market volatility and preserves the integrity of the 1:1 dollar peg." Ackermann adds, "Paxos-issued stablecoins are more conservatively managed than money market funds because of our prudential regulation from the NYDFS: Money Market Mutual Funds are public investment vehicles that serve as primary liquidity tools for retail and institutional investors."
Fitch on U.S. MMFs in 4Q23
Fitch Ratings published "U.S. Money Market Funds: 4Q23" yesterday, which tells us, "Total taxable money market fund (MMF) assets increased by $219.5 billion from September 30, 2023 to December 31, 2023, according to Crane Data. Government MMFs gained $88.6 billion in assets during this period, prime MMFs gained $50.8 billion, and treasury MMFs gained $80.1 billion. Total MMF assets increased by $1.1 trillion in 2023." It continues, "Taxable MMFs increased their exposure to Treasury securities from September to December. Treasury holdings increased by $498 billion from September 30, 2023 to December 31, 2023 while Repo holdings decreased by $275 billion over the same period, according to Crane Data. MMFs' allocation to Treasury securities increased by over $1 trillion over the course of 2023." Finally, the brief adds, "As of December 31, 2023, institutional government and prime MMF net yields were 5.17% and 5.31%, respectively, per Crane Data. Yields increased significantly in 2023 but have remained stable since the last Fed rate hike in July."
RIA Advice on 'Cash On The Sidelines'
A website named RIA Advice posted a brief entitled, "Money Market 'Cash On The Sidelines' -- A Myth That Won't Die." It tells us, "As money market account balances soar, the mainstream media again proclaims, 'There is $6 trillion of cash on the sidelines just waiting to come into the market.' ... The surge in money markets since the 'pandemic' has revived the age-old narrative that 'money on the sidelines' is set to come into the markets. However, they don't tell you those funds have accumulated since 1974. Correctly, in the aftermath of crisis events, some of these assets rotate from 'safety' to 'risk,' but not the degree commentators suggest." It continues, "We have repeatedly discussed this myth, but it is worth repeating, particularly when the financial media begins to push the narrative to garner headlines. There is a superficial, glib appeal to the idea. After all, lots of people hold money on deposit at the bank, and they could use that money to buy stocks, right? After all, the latest financial data from the Office of Financial Research shows more than $6.3 Trillion sitting in money market accounts." The update adds, "If we look specifically at retail investors, their cash levels have been at the lowest level since 2014 and are not far from record lows. At the same time, equity allocations are not far from the levels in 2007.... The same is valid with money market levels relative to the market capitalization of the S&P 500 index. The ratio is currently near its lowest since 1980, which suggests that even if the cash did come into the market, it would not move the needle much."
