Link of The Day
OFR: Treasury Clearing, Repo, SOFR
The Office of Financial Research (OFR) recently published "How the Treasury Clearing Rule for Repo Might Affect SOFR." It states, "The Securities and Exchange Commission (SEC) rule requiring the central clearing of certain U.S. Treasury-secured repurchase agreements (repos) is scheduled to go into effect on June 30, 2027. While there are exceptions, this rule will cover up to 85% of non-centrally cleared repos. As these repos move to clearing, a portion of their associated rates will be used to calculate the Secured Overnight Financing Rate (SOFR), which serves as a benchmark for borrowing cash overnight in the United States." The piece explains, "The inclusion of repo-rate information from newly cleared repos could affect the level and behavior of SOFR and affect the price of many loans and swaps. One way to assess the potential impact is to estimate a hypothetical SOFR that includes representative non-centrally cleared bilateral repos (NCCBR). In this blog, the authors describe their estimation methodology and results. They use a 2022 pilot collection of NCCBR data from the Office of Financial Research (OFR) and apply the SEC rule that governs which NCCBR will need to be cleared. The authors also use tri-party repo data from the Federal Reserve Bank of New York (FRBNY) and GCF and DVP repo data from the OFR, as well as the FRBNY's methodology for calculating SOFR." It adds, "The OFR's pilot collected NCCBR data from nine sell-side participants on three days during June 2022, totaling about $900 billion in outstanding repos per day. The estimation shows that if the SEC rule had been in effect at the time of the pilot, 42% of the sampled volume would have been cleared under the rule, and about 9% of the volume would have been included in the reference rate. Including the volume in the SOFR calculation would have no effect on SOFR for those three days in June 2022. However, the new volume affects the SOFR distribution’s tails, indicating that including NCCBR could make SOFR slightly more volatile. This analysis does not account for the equilibrium effects of the SEC clearing rule. Dealers with constrained balance sheets may behave differently after the rule takes effect."
Fidelity Says Treasury Supply Shrinks
Fidelity Investments published a rare Money Market Monthly Commentary titled, "Inflated Uncertainties." It states, "In addition to the uncertain interest rate path, our funds are also experiencing a decline in money market eligible supply as the Treasury navigates the constraints on their issuance program as a result of having reached the debt ceiling earlier this year. Treasury Bills declined by $212 billion during the month of March to a total outstanding amount of $6.155 trillion. Going forward we anticipate further declines of Treasury Bill supply until a resolution is reached on the debt ceiling." It continues, "Going into this challenging market environment, our funds were positioned shorter than our respective peer groups. According to the Crane Data at the end of March, Government institutional funds had an average WAM of 34 days and an average WAL of 93 days while Government retail funds had an average WAM of 31 days and an average WAL of 87 days. Prime institutional funds ended the month with an average WAM of 29 days and an average WAL of 50 days while Prime retail funds had an average WAM of 29 days and an average WAL of 53 days. As we have always done, we will continue to prioritize both liquidity and price stability in our money market funds." They say, "After continuing to trade in a tight range for most of the period, both fixed rate yields and floating rate spreads moved higher amid the recent tariff driven volatility. Fixed rate CD/CP yields moved higher and the curve flattened (though the overall curve remained inverted) over the period with the 3-month tenor rising to 4.45% to 4.50% and the 6-month tenor rising to 4.40 to 4.50% on light volume." Fidelity also notes, "According to the ICI data, total money market fund assets increased ~$6 billion to $7.031 trillion from the beginning of March to the beginning of April. During this time, Government money market funds decreased by ~$14 billion to $5.751 trillion and Prime money market funds grew by ~$15 billion to $1.142 trillion."
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 April 18) includes Holdings information from 55 money funds (down 2 from a week ago), or $3.422 trillion (down from $3.494 trillion) of the $7.181 trillion in total money fund assets (or 47.7%) tracked by Crane Data. (Note: Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our April 10 News, "April Money Fund Portfolio Holdings: Repo Surges, Treasuries Plummet.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.647 trillion (down from $1.676 trillion a week ago), or 48.1%; Repurchase Agreements (Repo) totaling $1.154 trillion (down from $1.196 trillion a week ago), or 33.7%, and Government Agency securities totaling $293.7 billion (up from $291.0 billion), or 8.6%. Commercial Paper (CP) totaled $136.8 billion (down from a week ago at $139.4 billion), or 4.0%. Certificates of Deposit (CDs) totaled $73.5 billion (down from $74.8 billion a week ago), or 2.1%. The Other category accounted for $79.6 billion or 2.3%, while VRDNs accounted for $37.3 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.647 trillion (48.1% of total holdings), Fixed Income Clearing Corp with $356.4B (10.4%), the Federal Home Loan Bank with $197.3 billion (5.8%), JP Morgan with $119.1B (3.5%), Citi with $75.5B (2.2%), BNP Paribas with $74.1B (2.2%), RBC with $65.5B (1.9%), Federal Farm Credit Bank with $65.1B (1.9%), Wells Fargo with $54.3B (1.6%) and Bank of America with $49.5B (1.4%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($278.8B), Goldman Sachs FS Govt ($247.7B), JPMorgan 100% US Treas MMkt ($243.0B), Fidelity Inv MM: Govt Port ($225.3B), Morgan Stanley Inst Liq Govt ($171.0B), BlackRock Lq FedFund ($162.7B), State Street Inst US Govt ($162.5B), Fidelity Inv MM: MM Port ($154.5B), BlackRock Lq Treas Tr ($153.8B) and Dreyfus Govt Cash Mgmt ($128.4B). (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 Down to 4.13%
Money fund yields (7-day, annualized, simple, net) inched down to 4.13% on average during the week ended Friday, April 18 (as measured by our Crane 100 Money Fund Index), after staying unchanged the past 2 weeks. Fund yields should remain relatively flat until the Fed moves rates again. They've declined by 93 bps since the Fed first cut its Fed funds target rate by 50 bps on Sept. 18, 2024, and they've declined by 50 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.14% on 3/31/25, 4.16% on 2/28/25, 4.19% on 1/31/25, 4.28% on average on 12/31/24, 4.45% on 11/30/24, 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 3/31 and 5.20% on 12/31/23. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 4.03%, down one bp in the week through Friday. Prime Inst money fund yields were unchanged at 4.27% in the latest week. Government Inst MFs were down one bp to 4.14%. Treasury Inst MFs were unchanged at 4.08%. Treasury Retail MFs currently yield 3.84%, Government Retail MFs yield 3.85%, and Prime Retail MFs yield 4.03%, Tax-exempt MF 7-day yields were up 51 bps to 3.64%. Assets of money market funds fell by $153.1 billion last week to $7.3181 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of April (MTD), MMF assets have declined by $142.9 billion, after increasing by $2.8 billion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, $97.5 billion in October and $149.8 billion in September. Weighted average maturities were at 36 days for the Crane MFA and 36 days the Crane 100 Money Fund Index. According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/18), 48 money funds (out of 796 total) yield under 3.0% with $24.4 billion in assets, or 0.3%; 306 funds yield between 3.00% and 3.99% ($1.420 trillion, or 19.4%), 442 funds yield between 4.0% and 4.99% ($5.862 trillion, or 80.2%) and following the recent rate cut there continue to be zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.41%. The latest Brokerage Sweep Intelligence, with data as of April 11, shows no changes over the past week. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Blog on Stall in Bank Deposit Growth
Analyst Adam Josephson asks in his new "As the Consumer Turns" blog, "What Happened to the Growth in Bank Deposits?" He tells us, "In my last post I wrote about U.S. banks' loan trends, specifically the disproportionate amount of lending going to levered nondepository financial institutions (NDFIs) as opposed to real economy borrowers (meaning households and businesses). This time I'll focus on their deposit trends. From 2018 to February 2020, deposit growth averaged 4-5%, considerably below the 2000-2017 rate of 7.2% but nonetheless much better than what followed the pandemic spike.... [A] historic amount of government stimulus spending led to an unprecedented increase in bank deposits, from $13.3 trillion in February 2020 to $18 trillion by the end of 2021." He explains, "When the Fed started reducing its asset holdings in mid-2022 via its quantitative tightening (QT) program, bank deposits fell for the following year, from $18 trillion to just over $17 trillion. They've since recovered to just over $18 trillion, effectively unchanged versus three years ago. Deposits began growing on a year-over-year basis last March, but the average growth rate has only been around 2%, far lower than the historical growth rate. Just as bank loan growth has been unusually weak over the past two years (even with booming lending to NDFIs), so too has deposit growth. What explains the latter? Likely to a significant extent, QT and the growth of money market funds (MMFs). Just as QE created deposits, QT has done the opposite." Josephson's tells us, "MMFs have grown rapidly over the past few years. Money is a commodity, and as such it often goes whenever institutions and retail can earn the most attractive rates. And the rates on MMFs are far more attractive than what banks are paying on savings accounts. The Crane 100 Money Fund Index’s 7-day yield as of March-end was 4.15%, compared to the Crane Brokerage Sweep Index's yield of just 0.41%. Per the FDIC, the national deposit rate on savings accounts is an identical 0.41%. For any yield-sensitive institution or retail investor with the ability to move excess funds, the choice seems clear."
PFII Discusses LGIPs in Texas
The Public Funds Investment Institute published a brief titled, "Something’s Up in Texas," which says, "Local government investment pools have flourished in Texas and its local governments have benefitted from the highly competitive marketplace that provides a myriad of options, many at very low cost. But recently the industry has attracted the attention of state legislators who have introduced bills that would alter the landscape, likely to the detriment of Texas localities.... Texas may have the best local government investment pool industry in the nation. Eight statewide programs offer a total of 17 pooled investment options. The programs have assets of around $140 billion and expense ratios that are as low as four basis points.... And they all operate under a detailed state law that sets accounting and operating standards and promotes transparency." It continues, "Yet the Texas LGIP industry has attracted the attention of state legislators who have introduced bills that would restrict LGIP activities and alter the competitive landscape: One proposal would effectively give the state-sponsored pool a monopoly and eliminate the ability of local governments to use other programs; A second would require that at least 35% of the investments made by a local government be placed in Texas banks without regard to the effect this might have on local government interest earnings; A third proposal would prohibit an LGIP from entering into a sponsorship agreement with any organization and seems particularly directed at a program sponsored by the Texas Association of School Boards.... The biennial Texas legislative session ends on June 2, so one way or another these proposals will be resolved in short order." Note: Crane Data will be attending TEXPO 2025 in San Antonio, which takes place April 27-29. We hope to see some of you there!
Cunningham: MMFs Staying Steady
Federated Hermes' latest monthly insight, titled, "Staying steady," is subtitled, "The stability of the money markets is shining amid the greater financial turbulence." Author Deborah Cunningham writes, "The impact of Trump's 'Liberation Day' tariffs -- and the subsequent changes and recent delay -- on the broad financial market has been seismic ... but not necessarily for the liquidity space. The tariffs, which have caused massive equity and bond volatility, have not had the same effect on the money markets, which are relatively steady amid the turbulence. We presume some inflows are due to a flight to quality -- hot money that might soon be deployed in depressed stocks. But some retail investor purchases will likely stay put as we believe they are attracted by the yields of liquidity products. We deal with only banks of the highest quality, all of which in our analysis appear to have ample reserves and excellent credit metrics, and we see continued health in those markets." She continues, "A more significant 'named' date for most Americans is the dreaded Tax Day, which is almost upon us. The focus, of course, is on individuals and corporations, but it also affects asset managers. Money market vehicles traditionally see net outflows as people and entities redeem shares to meet their obligations. Portfolio managers must decide how much liquidity is needed to accommodate this. It's a complex, but familiar territory for the cash business. Despite that other government-imposed complication -- not raising the debt limit -- that process is going smoothly." Cunningham adds, "The Federal Reserve remains the government entity with the most impact on the money markets. It is focused on the extent to which Trump's sweeping tariffs, whatever form they end up taking, change the course of employment and inflation. Policymakers likely will cut if the former weakens but pause -- or at least ease at a slower pace -- if the latter rises. Either way, it's not yet time to react to the levies that are whipsawing every day. However, with volatility comes opportunity, as we can maintain our weighted average maturities to continue to benefit from the higher-for-longer environment."
Money Fund Yields Flat at 4.14%
Money fund yields (7-day, annualized, simple, net) were unchanged at 4.14% on average during the week ended Friday, April 11 (as measured by our Crane 100 Money Fund Index), after going unchanged last week and rising 1 bp the week prior. Fund yields should remain relatively flat until the Fed moves rates again. They've declined by 92 bps since the Fed first cut its Fed funds target rate by 50 bps on Sept. 18, and they've declined by 49 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.14% on 3/31/25, 4.16% on 2/28/25, 4.19% on 1/31/25, 4.28% on average on 12/31/24, 4.45% on 11/30/24, 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 3/31 and 5.20% on 12/31/23. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 4.04%, unchanged in the week through Friday. Prime Inst money fund yields were unchanged at 4.28% in the latest week. Government Inst MFs were unchanged at 4.15%. Treasury Inst MFs were unchanged at 4.08%. Treasury Retail MFs currently yield 3.84%, Government Retail MFs yield 3.85%, and Prime Retail MFs yield 4.04%, Tax-exempt MF 7-day yields were up 66 bps to 3.15%. Assets of money market funds fell by $38.4 billion last week to $7.307 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of April, MMF assets fell by $17.1 billion, after increasing by $2.8 billion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, $97.5 billion in October and $149.8 billion in September. Weighted average maturities were at 35 days for the Crane MFA and 36 days the Crane 100 Money Fund Index. According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/11), 48 money funds (out of 796 total) yield under 3.0% with $24.4 billion in assets, or 0.3%; 306 funds yield between 3.00% and 3.99% ($1.420 trillion, or 19.4%), 442 funds yield between 4.0% and 4.99% ($5.862 trillion, or 80.2%) and following the recent rate cut there continue to be zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.41%. The latest Brokerage Sweep Intelligence, with data as of April 11, shows no changes over the past week. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
BlackRock Q1'25 Earnings Cite Circle
BlackRock released its Q1'25 earnings and hosted its earnings call Friday, but made just a few comments on cash and fixed-income CFO Martin Small tells us, "Finally, BlackRock's cash management platform saw $1.0 billion of net inflows in the first quarter. Cash management results reflected growth in the Circle Reserve Fund, partially offset by seasonal redemptions from U. S. Government funds." CEO Larry Fink comments, "Whether seeking capital preservation in cash and short duration or capitalizing on opportunities and equities or looking for income and uncorrelated returns in private markets, BlackRock's comprehensive offering is leading to clients consolidating more of their portfolio with them. I look at our cash business as one example of how we help clients manage asset allocation and liquidity. Our cash AUM is up at an all time high. As of April now, it's at $950.0 billion." He says, "We see large opportunities for growth in digital assets and more broadly for blockchain and tokenization technology. Digital assets drove cash management net inflows this quarter as we continue to manage cash-based reserves through our relationship with Circle. And BlackRock tokenized digital liquidity fund [BUIDL] available on a public blockchain became the first Wall Street issued fund to cross over $1.0 billion in AUM and just recently surpassed $2.0 billion. BlackRock will continue to look for ways to push on chain finance forward as part of our leadership in financial technology and innovation and in data." During the Q&A, Fink adds, "We've seen an elevated increase in April, which is an unusual time to see elevated increases in cash. We had $20.0 billion in inflows this month alone in cash. But let's be clear, there's over $12.0 trillion [sic] in money market funds, so there is this huge reserve of money that will be put to work in the future. We're having a lot of conversations related to fixed income."
SEC Statement on Stablecoins
The SEC's Division of Corporate Finance posted a "Statement on Stablecoins," which says, "As part of an effort to provide greater clarity on the application of the federal securities laws to crypto assets, the Division of Corporation Finance is providing its views on certain types of crypto assets commonly referred to as 'stablecoins.' Specifically, this statement addresses stablecoins that are designed to maintain a stable value relative to the United States Dollar, or 'USD,' on a one-for-one basis, can be redeemed for USD on a one-for-one basis (i.e., one stablecoin to one USD), and are backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation. As discussed below, we refer to the types of stablecoins addressed by this statement as 'Covered Stablecoins.'" They explain, "A stablecoin is a type of crypto asset designed to maintain a stable value relative to a reference asset, such as USD or another fiat currency, or a commodity like gold, or a pool or basket of assets. Stablecoins generally are designed to track the value of the reference asset on a one-for-one basis. Stablecoins may use different methods to maintain a stable value. In some cases, stablecoins maintain a stable value by being backed by assets held in a reserve. In other cases, stablecoins are designed to use mechanisms other than reserves to maintain a stable value, such as using algorithms that increase or decrease the supply of stablecoins in response to demand. The risks associated with stablecoins vary significantly depending on multiple factors, including their stability mechanisms and the maintenance of a reserve (if applicable). Stablecoin issuers generally offer and sell stablecoins at a price corresponding to that of the reference asset on a one-for-one basis. For example, if the stablecoin references USD, the issuer will offer and sell one stablecoin for one USD. Stablecoins can be issued and traded in fractions, and in such case the stablecoins maintain the one-for-one reference (i.e., 0.5 stablecoin represents $0.50 USD). The issuer generally uses the assets held in the reserve to fund stablecoin redemptions (i.e., the delivery of the stablecoin in exchange for the reference asset on a one-for-one basis)." The piece adds, "It is the Division's view that the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the 'Securities Act') or Section 3(a)(10) of the Securities Exchange Act of 1934 (the 'Exchange Act'). Accordingly, persons involved in the process of 'minting' (or creating) and redeeming Covered Stablecoins do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act's exemptions from registration."
Financial Advisor: Solid Yields On Cash
Financial Advisor magazine published, "Solid Yields On Cash Are Still Possible, Advisors Say," which tells us, "Inflation is edging up, making further interest-rate cuts less likely anytime soon, experts say. In this unsteady, unpredictable market, where should clients be putting their cash? Advisors say there are several good options, each with its own pluses and minuses. For instance, one solution is Treasurys. 'T-bills offer 4.3% for three months [and] 4.2% for six months,' said Eric Lutton, CIO of Sound Income Strategies." The article continues, "But bonds aren't liquid. For some clients, tying up cash in a bond -- even a short-term one -- isn't desirable, especially when there are more liquid choices for generating solid yields, said Lutton. He cited 'ultrashort-term exchange traded funds,' which are ETFs that invest in short-term bonds, such as AllianceBernstein's Ultra Short Income ETF. It's an actively managed fund that primarily holds investment-grade instruments (corporates, Treasurys and others) with a duration of one year or less, chosen to deliver high-yield and capital preservation, according to the AllianceBernstein web site." The piece also says, "Another good option is to move cash to a money market fund through a brokerage account, he said. Their payouts are significantly higher than money market accounts from the bank, though they're not quite as safe. Still, advisors say they're about as safe as a non-bank account can be. 'Money market funds hold Treasury bills, government agency securities and repurchase agreements backed by these securities,' said Brian Therien, a senior fixed income analyst at Edward Jones.... They 'typically offer stable value by targeting a net asset value of $1 [per share], but there is no guarantee.' ... As of early April, money markets yielding 4% or higher were not hard to find, while inflation remains under 3%, said Peter Crane, president of Crane Data in Westborough, Mass."
Vanguard Launches Short Duration ETF
A press release titled, "Vanguard Expands Active Bond ETF Suite with Short Duration ETF," which states, "Vanguard ... launched Vanguard Short Duration Bond ETF (VSDB), an active fixed income ETF managed by Vanguard Fixed Income Group. VSDB is designed to provide clients with current income and lower price volatility consistent with short-duration bonds." Sara Devereux, Global Head of Vanguard Fixed Income Group, comments, "The addition of Vanguard Short Duration Bond ETF reaffirms our commitment to meeting the evolving needs of investors who are increasingly seeking active bond solutions through an ETF wrapper. VSDB combines institutional-quality active investment expertise with some of the lowest costs in the industry. VSDB seeks to deliver consistent, reliable returns that when compounded over time, can result in superior long-term outperformance." The release continues, "Vanguard Short Duration Bond ETF offers diversified exposure to primarily short-duration U.S. investment-grade bonds – including structured products exposure, like asset-backed securities – with the flexibility to invest in below investment-grade debt to seek additional yield. The ETF is actively managed, enabling the portfolio managers to seek the best opportunities within their investable universe while remaining highly risk aware. With the launch of VSDB, Vanguard has expanded its actively managed bond ETF portfolio to six, boosting the total number of actively managed products within the lineup to 27." It adds, "Vanguard Short Duration Bond ETF has an expense ratio of 15 bps. This expense ratio matches the lowest in the category, differentiating it relative to major competitors where the active ETF category has an average expense ratio of 39 bps. It will be managed by Arvind Narayanan and Thanh Nguyen, industry veterans each with two decades of experience."
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