News Archives: August, 2022

Crane Data's latest monthly Money Fund Market Share rankings show assets were higher among the majority of the largest U.S. money fund complexes in July. Money market fund assets increased $26.1 billion, or 0.5%, last month to $5.013 trillion. Assets increased by $35.6 billion, or 0.7%, over the past 3 months, and they've increased by $74.4 billion, or 1.5%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by DWS, Goldman Sachs, Schwab, SSGA and HSBC, which grew assets by $18.6 billion, $16.7B, $14.1B, $8.6B and $8.4B, respectively. The largest declines in July were seen by Morgan Stanley, JP Morgan, Northern, Federated Hermes and BlackRock, which decreased by $32.6 billion, $12.3B, $6.8B, $4.0B and $3.1B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which surged again in July, below.

Over the past year through July 31, 2022, American Funds (up $63.9B, or 47.7%), Goldman Sachs (up $42.8B, or 12.3%), SSGA (up $36.4B, or 25.3%), Fidelity (up $28.8B, or 3.2%) and Schwab (up $26.4B, or 18.0%) were the largest gainers. Schwab, HSBC, Federated Hermes, SSGA and American Funds had the largest asset increases over the past 3 months, rising by $33.4B, $25.3B, $23.7B, $23.3B and $19.5B, respectively. The largest decliners over 12 months were seen by: Allspring (down $49.5B), BlackRock (down $29.8B), JP Morgan (down $28.9B), Northern (down $17.3B) and First American (down $9.3B). The largest decliners over 3 months included: BlackRock (down $30.4B), JPMorgan (down $22.3B), Allspring (down $18.3B), Northern (down $12.0B) and Invesco (down $10.6B).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $916.9 billion, or 18.3% of all assets. Fidelity was up $3.3B in July, up $19.5 billion over 3 mos., and up $28.8B over 12 months. BlackRock ranked second with $499.6 billion, or 10.0% market share (down $3.1B, down $30.4B and down $29.8B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $450.3 billion, or 9.0% of assets (up $1.9B, down $8.5B and down $7.0B). JPMorgan ranked fourth with $431.3 billion, or 8.6% market share (down $12.3B, down $22.3B and down $28.9B), while Goldman Sachs was the fifth largest MMF manager with $391.9 billion, or 7.8% of assets (up $16.7, up $8.8B and up $42.8B for the past 1-month, 3-mos. and 12-mos.).

Federated Hermes was in sixth place with $329.3 billion, or 6.6% (down $4.0B, up $23.7B and down $2.1B), while Morgan Stanley was in seventh place with $268.6 billion, or 5.4% of assets (down $32.6B, down $1.4B and down $6.7B). Dreyfus ($243.1B, or 4.8%) was in eighth place (up $8.1B, up $10.6B and up $9.2B), followed by American Funds ($197.8B, or 3.9%; unchanged, up $19.5B and up $63.9B). SSGA was in 10th place ($180.2B, or 3.6%; up $8.6B, up $23.3B and up $36.4B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Schwab ($173.3B, or 3.5%), Northern ($161.5B, or 3.2%), Allspring (formerly Wells Fargo) ($151.5B, or 3.0%), First American ($114.5B, or 2.3%), Invesco ($109.2B, or 2.2%), HSBC ($62.9B, or 1.3%), UBS ($45.8B, or 0.9%), T. Rowe Price ($43.8B, or 0.9%), DWS ($35.2B, or 0.7%) and Western ($26.5B, or 0.5%). Crane Data currently tracks 61 U.S. MMF managers, unchanged from last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except JPMorgan moves up to the No. 3 spot, Goldman moves up to the No. 4 spot and, Vanguard moves down to the No. 5 spot, And SSGA moves up to the No. 9 spot while American Funds drops down to the No. 10 spot. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($928.6 billion), BlackRock ($701.9B), JP Morgan ($610.3B), Goldman Sachs ($524.5B) and Vanguard ($450.3B). Federated Hermes ($339.4B) was in sixth, Morgan Stanley ($323.9B) was seventh, followed by Dreyfus/BNY Mellon ($261.7B), SSGA ($213.0B) and American Funds ($197.8B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/31/22, shows that yields skyrocketed in July for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 738), rose to 1.43% (up 38 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 1.17% (up 42 bps). The MFA's Gross 7-Day Yield rose to 1.82% (up 38 bps), and the Gross 30-Day Yield also moved up to 1.57% (up 42 bps). (Gross yields will be revised Monday afternoon, though, once we download the SEC's Form N-MFP data for 7/31/22.)

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.62% (up 43 bps) and an average 30-Day Yield at 1.38% (up 48 bps). The Crane 100 shows a Gross 7-Day Yield of 1.89% (up 43 bps), and a Gross 30-Day Yield of 1.65% (up 48 bps). Our Prime Institutional MF Index (7-day) yielded 1.62% (up 34 bps) as of July 31. The Crane Govt Inst Index was at 1.49% (up 35 bps) and the Treasury Inst Index was at 1.51% (up 46 bps). Thus, the spread between Prime funds and Treasury funds is 11 basis points, and the spread between Prime funds and Govt funds is 13 basis points. The Crane Prime Retail Index yielded 1.48% (up 42 bps), while the Govt Retail Index was 1.16% (up 31 bps), the Treasury Retail Index was 1.28% (up 47 bps from the month prior). The Crane Tax Exempt MF Index yielded 0.76% (up 20 bps) as of July 31.

Gross 7-Day Yields for these indexes to end July were: Prime Inst 1.93% (up 34 bps), Govt Inst 1.77% (up 35 bps), Treasury Inst 1.83% (up 46 bps), Prime Retail 2.03% (up 42 bps), Govt Retail 1.70% (up 31 bps) and Treasury Retail 1.80% (up 47 bps). The Crane Tax Exempt Index jumped to 0.95% (up 13 bps). The Crane 100 MF Index returned on average 0.11% over 1-month, 0.23% over 3-months, 0.25% YTD, 0.26% over the past 1-year, 0.46% over 3-years (annualized), 0.95% over 5-years, and 0.54% over 10-years.

The total number of funds, including taxable and tax-exempt, unchanged in July at 888. There are currently 738 taxable funds, unchanged from the previous month, and 150 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The August issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "MMF Yields Approach 2% on 2nd Fed 75; Assets $5 Trillion," which discusses the jump in yields and rise in assets in July; "CastleOak's Jones on Minority Dealers, Portals, D&I Shares," our most recent "profile"; and, "SEC's Birdthistle Speaks on MMFs, Pending Reforms," which quotes from a recent speech from the Director of the Division of Investment Management. We also sent out our MFI XLS spreadsheet Friday morning, and we've updated our database with 7/31/22 data. Our August Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Aug. 9, and our August Bond Fund Intelligence is scheduled to go out on Friday, Aug. 12. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.)

MFI's "Yields Approach 2%" article says, "Money fund yields surged higher again in July as the Federal Reserve hiked rates by 75 bps for the second time in 2 months. Our Crane 100 Money Fund Index (7-Day Yield) jumped by 44 basis points to 1.62% in July, and it's risen by 24 more bps already in August (through 8/3) to 1.86%. Average yields are now more than triple their level of 0.58% on May 31; they're up from 0.15% on March 31 and up from 0.02% on February 28 (where they'd been for 2 years prior)."

It continues, "The top-yielding money funds were poised just under 2.0% on 7/31, but they've since smashed through this level and are now above 2.25%. Yields continue to digest the Fed's 7/27 big hike, so the average money fund yield should break over 2.0% and the top-yielding funds should approach 2.5% in coming weeks. Money fund yields could even be as high as 3.0% or even 4.0% by year-end."

Our "CastleOak" piece explains, "This month MFI interviews David R. Jones, President & CEO of CastleOak Securities, a minority-owned dealer and one of the first firms to offer both an online money market trading portal and a D&I share class in the money fund space. We discuss the latest in diversity, corporate investing and cash. Our Q&A follows."

MFI says, "Give us some history. Jones comments, "I founded the firm back in 2006, and we've grown CastleOak to be one of the largest diverse investment banks on Wall Street. We've got six offices around the country and are headquartered in New York. We've grown the firm from four individuals ... and now we've got over 55 employees. We focus on the capital markets for our clients, and that includes primary issuance, both in debt and equity, and also the secondary trading that goes along with that. On the fixed income side, back in 2010 when I brought Dan Davis and his team on, that's when we got into the Treasury, Agency and Money Market space. We've got a very strong presence on the secondary side in the front end of the curve."

Our "Birdthistle" piece states, "U.S. Securities & Exchange Commission Division of Investment Management Director William Birdthistle recently gave a talk entitled, 'Remarks at PLI: Investment Management 2022,' where he spent some time discussing money funds. He comments, 'The final topic I would like to touch on today is `money market funds. These funds, together with a few others, have at times been called 'shadow banks.' Today, the more common, slightly less pejorative term is 'non-bank financial institution.' As a proud member of the SEC's Division of Investment Management, I tend to view the $128 trillion in regulatory assets under management subject to our oversight as a substantial universe in its own right.... But I understand that things might seem otherwise to advocates for the non-fund community."

Birdthistle explains, "Money market funds enjoyed their rise to prominence, of course, largely following the adoption of Regulation Q. Regulation Q imposed ceilings on interest rates that could be paid on bank deposits, which proved to be a competitive liability during the period of high inflation in the late 1970s and early 1980s. Instruments such as money market funds that could offer market interest rates (which peaked above 12% in 1981) prospered at the expense of bank accounts capped at the Regulation Q ceiling (which remained below 6% at the time). That moment served as the spark of life for an instrument that has since grown to hold approximately $5 trillion in assets."

MFI also includes the News brief, "Fed Hikes 75 Bps Again to 2.25-2.50%." It tells readers, "The Federal Reserve Board again hiked short-term interest rates by 75 basis points, raising its Fed funds target rate to a range of 2.25-2.50%."

Another News brief, "ICI President Eric Pan," explains, "ICI President Eric Pan posts, 'Fact-checking Statements on Money Market Fund Reform,' which briefly revisits pending SEC Money Fund Reforms and is partially in response to a recent speech by the SEC's William Birdthistle."

A third News brief, "The FT on "'`The return of cash': money market fund sector perks up on rising rates." They write, "Rising interest rates are turning the $4.6tn money market fund sector from a drag on profits into a source of earnings in a rare piece of good news for asset managers whose fees have been hit hard by falling equity and debt markets."

A sidebar, "Schwab on Cash Sorting," states, "Charles Schwab recently hosted a '2022 Summer Business Update,' which mentioned cash in a number of places. CFO Peter Crawford comments, 'Our performance was obviously helped by higher interest rates across the curve, which boosted our net interest margin and BDA [bank deposit account] yield and eliminated money fund fee waivers by the end of the quarter <b:>`_.... [T]he elimination of money fund fee waivers and organic inflows offset the impact of the market decline.'"

Another sidebar, "Fidelity Merging State MMFs," explains, "Fidelity Investments filed to liquidate and reorganize most of their State Municipal money market funds, merging its AZ, CT, MI, OH, and PA Muni MMFs into Fidelity Municipal Money Market Fund, and consolidating their CA, MA, NJ and NY State Muni fund offerings. While there haven't been many other moves in 2022, there has been a steady stream of exits in the Tax-Exempt space over the past decade. Over the past 5 years, the number of Muni MMFs has dropped from 245 to 150 <b:>`_, while the number of State funds has fallen from 116 to 53. Since June 2008, assets in `Muni MMFs have steadily declined from $490.6 billion to $111.4 billion (as of 6/30/22). Fidelity currently manages 33 Tax-Exempt MMFs with $28.0 billion; after the mergers go through, this will be reduced to 20 MFs."

Our August MFI XLS, with July 31 data, shows total assets increased $26.0 billion to $5.014 trillion, after increasing $31.9 billion in June, but decreasing $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion in March, decreased $34.6 billion in February and decreased $128.1 billion in January. Assets increased $104.6 billion in December, $49.7 billion in November and $20.5 billion October. Our broad Crane Money Fund Average 7-Day Yield was up 46 bps to 1.43%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 44 bps to 1.62% in July.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 1.82% and 1.89%, respectively. Charged Expenses averaged 0.40% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 7/31/22.) The average WAM (weighted average maturity) for the Crane MFA was a record low 22 days (down 1 day from previous month) while the Crane 100 WAM decreased 1 day to 23 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

ICI President Eric Pan posts a comment entitled, "Fact-checking Statements on Money Market Fund Reform" on LinkedIn, which revisits pending SEC Money Fund Reforms and is partially in response to a recent speech by the SEC's William Birdthistle. (See our July 27 News, "SEC's Birdthistle Weighs In on Money Market Funds, Pending Reforms.") Pan writes, "For over 80 years, our part of the financial industry – mutual funds, ETFs, and money market funds – has been one of the most well-regulated and transparent in the world, which is appropriate given our central role in managing money for hundreds of millions of Americans. It is therefore expected that policymakers and academics spend a lot of time thinking about us, and we appreciate the healthy dialogue we have always had with the dedicated and hard-working SEC staff about how to improve our regulatory framework. We also depend on SEC leadership having deep expertise about how funds and the markets work so that we can trust that they are exercising the right judgment to achieve the SEC mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation."

He explains, "One place where we need to make sure the SEC has its facts right is in its open Rulemaking on Money Market Funds (MMFs). Like regulators, funds want financial markets that are resilient to shocks – the question is how best to get there. ICI has written extensively, based on industry-leading data, about the liquidity events of March 2020, including our comment letter to the SEC. We show, through a comprehensive analysis of data, that MMFs were not the cause of market instability as COVID was spreading around the globe. If you missed our roundtable last year on the topic, it's worth taking a look at what we discussed here and here."

Pan's piece continues, "In its proposal, the SEC wants to mandate swing pricing for prime institutional money market funds. What the SEC does not appear to realize (or has not said is its intent) is that swing pricing would cut off prime money market funds at the knees, to the detriment of investors. The products would be stripped of their cash-equivalent features, such as same-day settlement and multiple NAV strikes per day. And investors would be hit with unpredictable costs for redeeming."

He tells us, "Recent statements by SEC leadership suggest that they think their proposal on swing pricing is appropriate because they believe that MMFs in Europe already use swing pricing. That fact is that European MMFs do not use swing pricing. There is neither a regulatory mandate to use swing pricing for MMFs in Europe, nor do any European MMFs voluntarily use swing pricing. In fact, we're unaware of swing-pricing for MMFs being used anywhere in the world. There's simply no parallel in the Europe for what the SEC is proposing, and the SEC is wrong to suggest that as a justification for its rulemaking."

Pan also comments, "We've also seen suggestions by the SEC leadership that any adverse impact on MMFs would not harm investors because they would just shift their money to ultrashort bond funds. Such a conclusion seems flawed given the nature of the markets. Ultrashort bond funds are not a substitute for MMFs. Ultrashort bond funds hold riskier portfolios, can't be considered as cash equivalents by businesses, and don't have intraday liquidity since they settle tomorrow rather than today."

Finally, he adds, "And the SEC leadership knows that MMF investors cannot easily go to MMFs' closer substitute: bank deposits. Only MMFs offer a market rate of return. This becomes even more important as the Fed continues to raise interest rates. And under current banking regulations, banks won't take large amounts of new deposits like these. The fact is that MMFs are vital to our capital markets. They are ingrained in the daily economic life of our country, and that success would be very difficult to replicate. The SEC needs to be extremely careful as it considers changes here. All to say, this is a good time to measure twice, and cut once."

In other news, both S&P Global Ratings and Fitch Ratings recently released updates on the money fund sector. S&P's "U.S. Domestic 'AAAm' Money Market Fund Trends (First-Quarter 2022)" tells us, "Rated U.S. government and prime money market funds (MMFs) experienced modest declines in assets under management during the first quarter of 2022. Asset growth in government funds was mixed, with a majority of government funds seeing net asset flows reverse course and begin to decline at the beginning of the year. Net assets dropped 4% overall during the quarter. Prime fund net assets remained flat compared to the previous quarter, at $365 billion, driven by growth in local government investment pools, offset by a decrease in net assets in registered prime funds. Weakened asset growth in government funds may persist this year as rates continue to rise and a portion of assets moves into higher yielding products."

It continues, "Both government and prime funds will reap the benefits of rate hikes in terms of higher yields. During the first quarter, the seven-day and 30-day net yields for government funds grew to 0.15% and 0.07%, respectively. The seven-day and 30-day net yield for prime funds jumped to 0.26% and 0.16%, respectively. For government and prime strategies, seven-day and 30-day net yields tended to be identical until the end of the quarter, when seven-day yields briefly moved higher than 30-day yields."

S&P continues, "Typically, when rates are rising, we see a greater spread between prime and government funds, followed by investors shifting cash to prime funds from government funds. However, investors have been more conservative due to the proposed changes to Rule 2a-7 of the Investment Company Act of 1940, under which MMFs are registered.... The asset composition of government funds looked similar to the previous quarter, with continued overweight exposure to repo. This was driven by a reduction in Treasury bill supply, offset by the continued supply of the Fed's reverse repurchase program. Exposure to agency and Treasury floaters increased, although floating rate exposure remained historically low."

They add, "Managers shortened the maturity profiles of their portfolios while keeping an eye on the Fed, with the expectation of rate hikes at each of the next six meetings. Weighted average maturities drifted lower by four days for government funds and as much as 10 days for prime funds. Managers will likely have a bias toward shorter maturity profiles until we get closer to the end of the rate hike cycle.... As rates rise, fixed-income prices will fall, which has a modest impact on MMF net asset values. Therefore, the distribution of net asset values (NAV per share) for rated funds has become more dispersed compared to the previous quarter. NAV per share ranged from 0.9990 to 1.0019 for rated funds, whereas the lower bound was previously 0.9995."

Fitch also published its "U.S. Money Market Funds: July 2022," which states, "Total taxable money market fund (MMF) assets decreased by $8.7 billion, from May 31, 2022 to, 2022, according to Crane Data. Government MMFs lost $19.4 billion in assets during this period, and prime MMFs gained $10.7 billion. Total assets have decreased by $95.5 billion since Dec. 31, 2021."

They add, "Treasury holdings decreased by $72 billion while Repo holdings increased by $129 billion, from May 31 to June 30, 2022, according to Crane Data. Repo remains the largest portfolio segment, followed by Treasury.... As of June 30, 2022, institutional government and prime MMFs' net yields were 1.10% and 1.27%, respectively, per Crane Data, both up significantly from the end of May.... This increase is due to the Federal Reserve (Fed) increasing rates 75 bps on June 16, 2022, in line with market expectations. The Fed is expected to raise rates to near 3.5% by the end of 2022." (See also "Fitch Assigns 'AAAf' Rating to Florida FIT Choice Pool and Texas FIT Choice Pool.")

Charles Schwab & Co. recently hosted a "2022 Summer Business Update," which discussed the brokerage company's latest quarter and mentioned cash and money markets in a number of places. (See Crane Data's July 25 Link of the Day, "Schwab Earnings Driven by Rates.) CFO Peter Crawford comments, "Our performance was obviously helped by higher interest rates across the curve, which boosted our net interest margin and BDA [bank deposit account] yield and eliminated money fund fee waivers by the end of the quarter. [F]alling equity markets weighed on asset management fees and the ensuing decline in investor sentiment ... resulted in trading activity and margin utilization that were lower than the first quarter, but still at historically high levels."

He tells us, "Despite the crosscurrents, our performance broke multiple records. Revenue increased 13% year over year and 9% sequentially, driven by a 31% increase in net interest revenue, reflecting a 16-basis point year over year increase in our net interest margin, up 24 basis points from the first quarter and interest earning assets that largely were in line with expectations. Asset management and administrative fees [were flat], as the elimination of money fund fee waivers and organic inflows offset the impact of the market decline."

The Schwab CFO also says, "That [performance] reflects continued expansion of margins at just over 2% by Q4, deposit betas that we expect to continue to run a bit lower than the last rising rate cycle and a continuation of clients moving some of their investing cash off our balance sheet in search of higher yield. But remember, when they do that, it frees up capital that we can return to our stockholders. We continue to thoughtfully and responsibly manage our expenses, navigating this inflationary environment, driving efficiency throughout our business, and prioritizing our investments."

Responding to a question on "cash sorting" (investors migrating from lower-paying bank deposits to money market funds), Crawford says, "So I would say in aggregate, the dynamics around cash sorting in the second quarter were very consistent with our overall expectations. I know there's going to be a lot of questions about sorting, so in an attempt maybe to anticipate or perhaps preempt them, it might be helpful just to share a few high-level thoughts around sorting. I want to reiterate that our expectation is that the level of sorting won't be higher than the last rising rate cycle, and it actually could be somewhat lower, given the fact that we're not going through the whole transfer process that we were doing in the last rising rate cycle."

He tells the webinar, "We have had an influx of smaller accounts who tend to do less sorting. And we also have a client base that is much more actively trading than they were previously. We know that when clients are trading, they tend to keep more transactional cash. Second, ... we know from history that eventually cash, both total cash and on balance sheet cash, will find its level, after which point it will grow with the growth in accounts and will grow with the growth of total client assets."

Crawford comments, "Third, and this is really important, the cash is staying at Schwab. We've done a lot to create a great array of cash solutions, and we've done a lot, and continue to do a lot, to make our clients aware of those solutions, to make sure they're making smart decisions with regarding their cash. We want our clients to be happy and we want that cash to stay at Schwab, and we're certainly seeing that happen."

He adds, "Fourth, I think, you know, when you look at sorting and isolation, you're only really looking at one part of the equation. What I mean by that is that the rate increases that give rise to the sorting also help us earn more on the interest assets that remain here, the cash remains here, driving NIR higher despite lower interest earning assets. So, in the scenario that we shared, if you do the math, as an example, you'll see that we'd expect to generate roughly $500 million more in net interest revenue in the fourth quarter than we did in the second quarter, despite allowing for some continuation of the client cash sorting. And the last point I would make, the fifth point I would make, is to the extent the cash balances decrease, it frees up capital enabling us to buy back stock and drive EPS growth one way or the other."

A questioner from UBS asks, "Previously on the Spring Update, you had indicated that of roughly 20% decline in sweep cash would be the expectation based upon the experience last cycle. When we look at the pie chart that shows the cash breakdown, I would assume that that 20% would apply to really just the universe that doesn't include obviously sweep money fund, BDA has a different profile as you said, and more active oriented and checking and savings. Is that the base that we should be thinking about when applying that 20%?"

Crawford responds, "Thanks for the question. So just to clarify, I think what we said in the spring business update that we didn't expect it to be higher than that level. I mentioned that it could conceivably be lower than that. But you're right that when you think about the pool that we're talking about here, it is really that that bank sweep and perhaps to a lesser extent the free credit balances. So, it definitely is not on the total pool of cash. You're actually right about that rate."

Finally, when asked about the investment portfolio, he responds, "It's definitely one of the things that we look to actively manage. You know, our overall portfolio duration now is down to about a little over 4.0, probably more like 3.5-ish when you consider the cash we're holding more cash. So we are definitely maintaining a much more liquid portfolio today, targeting new investments to be very short. Now that gives us a lot of asset sensitivity, but also gives us a lot of liquidity to be able to support a wide range of possible outcomes around this client activity."

Money fund yields, as measured by our Crane 100 Money Fund Index (7-Day Yield), surged higher again following the Fed's 75 bps hike, rising by 23 basis points to 1.57% in the week ended Friday, 7/29. Yields rose by 6 basis points the previous week and 6 basis points the week before that. On average, they're up from 1.18% on June 30 and almost triple their level of 0.58% on May 31. MMF yields are up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Yields should keep jumping in coming days as MMF portfolios adjust to the new higher Fed funds target rate of 2.25-2.5%; they should be about 2.0% on average by the end of summer. Brokerage sweep rates also inched higher over the past week too, as UBS, E*Trade and Morgan Stanley tweaked their rates upwards. Our latest Brokerage Sweep Intelligence shows brokerages paying an average of 0.18% on FDIC insured deposits, up from 0.04% a month ago and 0.01% two months ago. We review the latest money fund and brokerage sweep yields below.

Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 1.44%, also up 21 bps in the week through Friday. The Crane Money Fund Average is up 97 bps from 0.47% at the beginning of June. Prime Inst MFs were up 23 bps to 1.64% in the latest week, and up 100 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 22 bps to 1.51%, they are up 97 bps since the start of June. Treasury Inst MFs up 21 bps for the week at 1.51%, up 101 bps since the beginning of June. Treasury Retail MFs currently yield 1.25%, (up 21 bps for the week, and up 95 bps since June), Government Retail MFs yield 1.18% (up 20 bps for the week, and up 92 bps since June started), and Prime Retail MFs yield 1.45% (up 24 bps for the week, and up 97 bps from beginning of June), Tax-exempt MF 7-day yields rose by 31 bps to 0.68%, they are up 28 bps since the start of June.

Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched up a basis point to 0.18%. This follows increases over the past couple of months but also follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of July 29, shows three changes over the previous week.

Our latest Brokerage Sweep Intelligence reports that UBS increased rates to 0.05% for all balances between $1K and $249K, to 0.10% for balances between $250K and $999K, to 0.40% for balances between $1 million and $1.9 million, to 1.05% for balances $5 million and over for the week ended July 29. The two other changes came from E*Trade and Morgan Stanley, which both increased rates for accounts over $500K. E*Trade increased to 0.05% for balances between $500K and $999K, and to 0.15% for balances of $1 million and more. Morgan Stanley increased to 0.05% for balances between $500K and $999K, to 0.15 for balances between $1 million and $1.9 million, and to 0.30% for balances of $2 million and more. Just three of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/29), just 38 funds (out of 818 total) still yield between 0.00% and 0.49% with assets of $6.7 billion, or 0.1% of total assets. There were 166 funds yielding between 0.50% and 0.99%, totaling $168.8B, or 3.4% of assets; 102 funds yield between 1.00% and 1.24% with $118.3 billion in assets, or 2.4%; 178 funds yield between 1.25% and 1.49% with $1.471 trillion in assets or 29.4%; 219 funds yielded between 1.50% and 1.74% with $1.517 trillion or 30.4%; and 115 funds yielded over 1.75% ($1.715 trillion, or 34.3%). (We likely saw the first fund yield over 2.0% Monday, so Tuesday's MFI Daily should show some funds over this level.)

In related news, a release entitled, "FDIC and Federal Reserve Board issue letter demanding Voyager Digital cease and desist from making false or misleading representations of deposit insurance status," explains, "The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board today issued a joint letter demanding that the crypto brokerage firm Voyager Digital cease and desist from making false and misleading statements regarding its FDIC deposit insurance status and take immediate action to correct any such prior statements."

It explains, "According to the agencies, Voyager and certain officers and employees made various statements online, including on its website, mobile app, and social media accounts, stating or suggesting that: Voyager itself is FDIC-insured; Customers who invested with the Voyager cryptocurrency platform would receive FDIC insurance coverage for all funds provided to, and held by, Voyager, without reference to the insured depository institution account; and The FDIC would insure customers against the failure of Voyager itself."

The FDIC comments, "These representations are false and misleading. Based on the information gathered to date, it appears that these representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds. The Federal Deposit Insurance Act, however, prohibits any person from representing or implying that an uninsured deposit is insured or from knowingly misrepresenting the extent and manner in which a deposit liability, obligation, certificate, or share is insured under that Act. The FDIC is authorized to enforce this prohibition against any person."

It tells us, "Voyager maintains a deposit account for the benefit of its customers at Metropolitan Commercial Bank, which is supervised by the Board. Voyager is not itself insured by the FDIC, though, and so customers who invested through its cryptocurrency platform would not receive insurance coverage in the event of Voyager's failure."

The release adds, "The FDIC deposit insurance program protects customers in the event of the failure of an FDIC-insured bank. To determine if an institution is FDIC-insured, you can ask a representative of the institution, look for the FDIC sign at the institution, or use the FDIC's BankFind tool. For more information about FDIC deposit insurance, please see the following FAQs."

See also, CBS News' "Feds tell crypto broker Voyager to stop claiming it's FDIC insured -- because it's not," which states, "Federal regulators have ordered cryptocurrency brokerage Voyager Digital to stop telling customers that their deposits are protected from losses by the Federal Deposit Insurance Corporation because that's not true, according to letters from regulators sent this week. Voyager has mentioned its federally insured status on its website, mobile app and social media accounts."

Federated Hermes hosted its Q2'22 quarterly earnings call on Friday, which contained comments on money fund asset flows, regulations, fee waivers and more. (See their press release, "Federated Hermes, Inc. reports second quarter 2022 earnings.") CEO Chris Donahue comments, "Now moving to money markets, assets increased about $19 billion in the second quarter compared to the first quarter, with nearly all of the growth coming from money market funds. The funds benefited from higher yields [and] from continued elevated liquidity levels in the financial system. Money Funds also benefited from higher yields relative to deposit alternatives. Our money market mutual fund market share, which includes sub-advised funds, was about 7.3% at the end of the second quarter up from 6.9% at the end of the first quarter. With the recent increases in short-term interest rates, money fund minimum yield-related waivers have nearly ceased. We continue to believe that the higher short-term rates will benefit money market funds over time particularly as compared to deposit rates."

He explains, "Taking a look at recent total assets, managed assets were approximately $631 billion, including $436 billion in money markets, $82.5 billion in equities, $88 billion in fixed income, $21.5 billion in alternative private markets and $3 billion in multi-asset. Money market mutual fund assets were at $296 billion."

Tom Donahue tells us, "Total revenue for the quarter increased $41 million or 13% from the prior quarter due mainly to lower money market fund minimum yield-related waivers of $66.3 million, an additional day in the quarter and higher carried interest and performance fees, partially offset by lower average long-term assets, which reduced revenue by $22.6 million and lower average money market assets, which reduced revenue by $9 million. Q2 carried interest and performance fees were $2.5 million compared to about $100,000 in Q1. Operating expenses increased $33 million or 14% in Q2 compared to Q1, driven by $48.5 million of higher distribution expense from lower money market fund minimum yield related waivers.... With short-term rates higher in Q2, the negative impact on operating income from money market fund minimum yield-related waivers decreased to about $500,000 compared to $18 million in Q1. These waivers are now de minimis."

During the Q&A, Chris Donahue is asked about recent flows and says, "It's very, very, very difficult to make a long-term comment on a couple of weeks. We have big clients, I'm looking at the list and you've got $2 billion, $4 billion, $6 billion, $3 billion days, up and down so far here in July. It's just tough to make a prognostication from that."

Money Market CIO Debbie Cunningham comments, "We had a preauthorized client departure from about a year ago that was set for this summer. So we had some outflows in May. They started in May, June, July they got larger. If you mix those out, that single one large client that has moved into another type of product with their underlying client flows we are above the industry flows with that sort of data. So basically, large clients, similar to what Chris was saying, in this case, preauthorized that we knew about and were not surprised."

On MMF fee waivers, President Ray Hanley responds, "The yield improvement happened even coming out of Q1 continued into Q2. And of course, some of that came late. So the waiver recovery was nearly complete. You'll still see a little bit of -- in your terms, normalization in Q3, but it's largely complete. So yes, the geography is at this point, reflective of what it will look like based on the current assets, current channels, current funds, and all of that can change.... But that would be based on client changes, not the yield waivers."

Asked about pending regulations, Chris Donahue answers, "We continue to repeat the sounding joy of the beauty of money market funds. We continue our efforts to talk with all of the Commissioners, to talk to the staff, and even to talk to Treasury when we can about the importance of these money funds in the market. The only update that I would [is the] timing. The rumors are, note rumors, that perhaps in October they might finalize the rule. What will be in it? I don't know. As you know, our comments have been that swing pricing is a plague on money funds, and it's a novel plague in that it's never been tried before. And we have also commented that, all you have to do is detach the fees and gates from the liquidity requirements, and you're all set to go, and let the Boards decide how to run these funds and use all the tools they have in order to do the best fiduciary response for the customers. So that's a little summary -- 'just fix what was broken, declare victory and move on' has been our message."

Given a question on the outlook for the money fund business, Donahue responds, "From a longer-term perspective, ... the increase in the money supply [has gone] up, on average, 7% over a long, long period. And the money funds ... both the industry and Federated, [with] Federated going up slightly higher. What that tells you is that as the money stock goes up, people need to put it somewhere. And money market funds as a group are a very, very valuable and efficacious place for short-term cash, whether or not people are worried about inflation or up-rates or down-rates or whatever. So, these things have proven for half a century [to be] very resilient securities and places for short-term cash. We would expect that to continue. I would certainly expect, especially given what the Fed has done, to see increased flows. All of that is subject to whatever the SEC comes up with, which probably doesn't get put into effect until sometime in '23."

Cunningham adds, "I would say at this point, we are very optimistic. We are still looking at a Fed that is increasing rates.... We are not even six months into the process, and generally, ... it takes about six months for increasing rates to impact other types of specifics in the marketplace. So, we think that they are gaining control, but certainly not there yet. Our expectation will continue to see larger increases front-ended, so another 75 basis points likely in September.... If you look at a terminal rate of somewhere in the 3.5% to 4% area, and that holding then for maybe about six months or so.... But agreeing with what Chris was saying, the flows are incoming, the money stock has increased, and we are not at zero rates anymore. So, it's a good environment for people to take cover; it's a good environment for new cash flows to be placed; it's a good environment for people to earn something in a positive sense versus other asset classes at this point."

Finally, when asked about bond fund redemptions, Hanley comments, "If you look at high yield collectively where we had about $860 million of redemptions in Q2, that's now more like about $170 million. And, again, there have been challenges with that asset class.... On the ultra-short side, it's all part of the spectrum of what's happening with liquidity options. Chris mentioned micro-shorts having some inflows. Obviously, cash has had inflows. When you get the kind of rate movement that Debbie has talked about, and you had clients who moved out to ultra-short when money market yields were down close to zero, and you could get 1% or plus or minus at an ultra-short, there is less reason to do that now. So certainly ... some of that money that's left ultra-short's washed up into the money market part of the complex. But the pace of the net redemptions looks to be decreasing. It went down slightly in Q2 compared to Q1, and it's trending to be down more again, through the very early part of Q3."

Money Market News Archive