Link of The Day
DWS on Record Money Fund Levels
DWS asks, "What now for record U.S. money market funds?" They comment, "Holdings of U.S. money market funds have grown strongly over the past two years, breaking record after record. The question has been whether rate cuts by the Federal Reserve (Fed) would bring their rise to a halt. Not so far. Since the Fed's first interest rate cut in September, the amount invested in these funds has risen by a further $40 billion [sic] to $6.65 trillion. Depending on the source, some reports even put the figure above $7 trillion. Although there was a slight setback last week according to the data provider ICI, we do not believe there is any reason to expect any major change and a wave of withdrawals from money market funds in the near future. Investors still seem to be comfortable with these short-term investments, especially as the Fed has recently scaled back expectations of rate cuts this year and next." DWS explains, "In our CIO Special from May 21, 2024, we had already suggested that rapid outflows were unlikely. However, we have to admit that we did not anticipate the further rise in inflows that we have seen recently. Since Donald Trump's victory in the U.S. presidential election at the beginning of November, the question marks surrounding U.S. political developments and market reactions have not diminished. As a result, we do not expect any major changes to the status quo for U.S. money market funds in the short term. The conclusions of our Special therefore remain valid. In our view, U.S. money market funds remain an attractive haven for investors in times of nervous markets."
Northern Trust Asset Management recently published "Global Investment Outlook 2025." The section on "U.S. Money Markets," titled, "Money fund assets up while rates go down," tells us, "For 2025, there is significant uncertainty over the economic outlook and monetary policy. A fairly wide range of outcomes with respect to the federal funds target range are possible. Accordingly, we favor a neutral position for our portfolios. Importantly for money market investors, we and the markets see little chance rates return to the zero lower bound anytime soon -- a welcome change from much of the past 15 years of very low yields on cash." It explains, "While the federal funds target range is the biggest driver of money market fund yields, money markets also exhibited signs of normalization in 2024, with more rate volatility within the federal funds target range. Credit spreads were generally little changed, to slightly tighter. While participation in the Fed’s reverse repurchase agreement operations (RRP) peaked at $2.3 trillion in 2023, it has trended substantially lower to as low as $150 billion. This is a consequence of balance sheet reduction by the Fed. While money market rate volatility is normal, rates near or above the top of the target range may be a sign of reserve scarcity. The Fed's balance sheet reduction may need to end, a dynamic we'll be monitoring closely." Northern adds, "While intuition may suggest that as yields on money market funds move lower along with policy rates they would be less attractive and drive outflows, we've seen the opposite in 2024, consistent with historical experience. Money market fund industry assets have increased by more than $500 billion this year ..., setting all-time-high records. Assets have been going up even as rates are going down, as money market funds remain an attractive alternative to other cash management options like deposits or Treasury bills."
Fitch's Local Govt Investment Pools
Fitch Ratings published "Local Government Investment Pools - 3Q24," which states, "Fitch Ratings' local government investment pool (LGIP) indices experienced a cumulative drop in the third quarter of 2024 (3Q24), consistent with seasonal trends, but are up yoy. Combined assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $609 billion at the end of 3Q24, representing a decrease of $18 billion qoq and an increase of $47 billion yoy. The Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were down 2.5% and 3.6% qoq, respectively, versus average decreases of 2.5% and 4.2% for the same period in the past three years." It continues, "Weighted average maturities (WAMs) continued to fall in 3Q24, with the Fitch Liquidity LGIP Index WAM decreasing to 33 days, still higher than prime '2a-7' money market funds at 24 days. The Fitch Short-Term LGIP Index ended the quarter with a duration of 1.32 years, up 8.3% since last quarter. Both Fitch indices ended 3Q24 with decreased average yield profiles with average net yields of 5.02% for the Liquidity Index and 4.39% for the Short-Term, as the Fed implemented a 0.50% rate cut in September." Fitch also says, "The Fitch Liquidity LGIP Index increased exposure to Repurchase Agreements by 1.51% and decreased exposure to Treasuries by 2.04% qoq. Exposure to Government Agencies, Money Market Funds, and Corporates increased in aggregate by 2.56% qoq."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Nov. 22) includes Holdings information from 73 money funds (up 12 from a week ago), or $3.899 trillion (up from $3.455 trillion) of the $6.993 trillion in total money fund assets (or 55.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Nov. 13 News, "Nov. Money Fund Portfolio Holdings: Treasuries Surge, Reclaims Top Spot.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.864 trillion (up from $1.719 trillion a week ago), or 47.8%; Repurchase Agreements (Repo) totaling $1.310 trillion (up from $1.138 billion a week ago), or 33.6%, and Government Agency securities totaling $359.0 billion (up from $315.4 billion), or 9.2%. Commercial Paper (CP) totaled $144.9 billion (up from a week ago at $111.1 billion), or 3.7%. Certificates of Deposit (CDs) totaled $80.1 billion (up from $63.1 billion two weeks ago), or 2.1%. The Other category accounted for $91.1 billion or 2.3%, while VRDNs accounted for $49.3 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.864 trillion (47.8% of total holdings), Fixed Income Clearing Corp with $411.4B (10.6%), the Federal Home Loan Bank with $242.8 billion (6.2%), BNP Paribas with $95.9B (2.5%), Citi with $88.0B (2.3%), Federal Farm Credit Bank with $83.5B (2.1%), JP Morgan with $82.1B (2.1%), RBC with $73.6B (1.9%), Bank of America with $54.3B (1.4%) and Goldman Sachs with $50.8B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($293.1B), Goldman Sachs FS Govt ($261.8B), JPMorgan 100% US Treas MMkt ($230.0B), Fidelity Inv MM: Govt Port ($206.9B), BlackRock Lq FedFund ($175.8B), State Street Inst US Govt ($173.9B), Federated Hermes Govt ObI ($165.8B), Morgan Stanley Inst Liq Govt ($165.3B), BlackRock Lq Treas Tr ($146.1B) and Fidelity Inv MM: MM Port ($140.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Money Fund Yields Dip Lower to 4.45%
Money fund yields declined by 3 basis points to 4.45% on average during the week ended Friday, Nov. 22 (as measured by our Crane 100 Money Fund Index), after falling 9 bps the week prior. Yields are now reflecting the majority of the Federal Reserve's 25 basis point cut on November 7, but they should continue inching lower this week and next. They've declined by 61 bps since the Fed cut its Fed funds target rate by 50 bps percent on Sept. 18 and they've declined by 18 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.65% on average on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, and 5.20% on 12/31/23. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 672), shows a 7-day yield of 4.36%, down 3 bps in the week through Friday. Prime Inst money fund yields were down 3 bps at 4.56% in the latest week. Government Inst MFs were down 4 bps at 4.46%. Treasury Inst MFs were down 3 bps at 4.42%. Treasury Retail MFs currently yield 4.20%, Government Retail MFs yield 4.16%, and Prime Retail MFs yield 4.34%, Tax-exempt MF 7-day yields were up 2 bps to 2.86%. Assets of money market funds rose by $11.2 billion last week to $6.993 trillion, they reached a record high on Wednesday, November 13 of $7.010 trillion but assets have declined since, according to Crane Data's Money Fund Intelligence Daily. For the month of November, MMF assets have increased by $130.4 billion, after increasing by $97.5 billion in October and $149.8 billion in September. Weighted average maturities were unchanged at 36 days for the Crane MFA and unchanged at 37 days for the Crane 100 Money Fund Index. According to Monday's Money Fund Intelligence Daily, with data as of Friday (11/22), 75 money funds (out of 786 total) yield under 3.0% with $50.0 billion in assets, or 0.7%; 106 funds yield between 3.00% and 3.99% ($139.0 billion, or 2.0%), 605 funds yield between 4.0% and 4.99% ($6.804 trillion, or 97.3%) and following the recent rate cut there continues to be zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.46%, after dropping 2 basis points the week prior. The latest Brokerage Sweep Intelligence, with data as of Nov. 22, shows that there was one change over the past week. Merrill Lynch lowered rates once again for their advisory accounts, now at 4.48% (down 5 bps from the week prior). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Tokenized MMFs vs. Stablecoins
CoinDesk recently published an article titled, "How Tokenized Money Market Funds Dulled the Stablecoin Star." It begins, "It's been a banner year for the stablecoin market -- 11 straight months of inflows and an all-time market cap of $171 billion. Everyone's jumping in, even the industries stablecoins threaten to disrupt. Visa recently launched a platform to help banks issue stablecoins and use them across its network, with Spanish bank BBVA as one of its first takers. PayPal's PYUSD, launched in 2023, recently reached a $1 billion market cap and recently executed its first business payment via stablecoin. Revolut is rumored to be launching its own stablecoin, and Stripe just struck a $1.1 billion deal with a major stablecoin platform." The piece says, "The underlying holdings of stablecoins, often U.S. treasuries or other short-term fixed income holdings, pay the issuers consistent yields. While Tether and Circle pocket these profits, new and innovative market entrants are passing yields onto users to capture market share. Ethena Labs launched in February 2024 on the promise of returning consistent yield through its stablecoin sUSDe. It delivered, and has amassed more than $1.2 billion in market cap. Others followed, such as Mountain Protocol and Paxos International, which also seeks to pass along the yield from underlying holdings directly to users. BitGo's recent introduction of USDS and the Global Dollar Network's USDG promise to spread 'rewards' across their ecosystems. `Despite the attractiveness of this innovation, yield-bearing stablecoins are restricted in most major financial hubs, such as the U.S., because they are almost certainly securities operating outside of regulatory oversight. This regulatory impasse has paved the way for a new class of competitors that threatens to overtake stablecoins: tokenized yield-bearing instruments like money market funds. These on-chain products, regulated by the SEC under the Investment Company Act of 1940, offer the same advantages as stablecoins -- stable value, ease of transfer, and utility in settlements -- while also providing steady returns through investing in U.S. treasuries, bonds, and cash-equivalents." Coinbase adds, "Leading asset managers BlackRock and Franklin Templeton are early movers into this space, having launched tokenized money market funds that to date have amassed nearly $1 billion in assets. More are to come, with State Street working on a tokenized bond and money market fund. Now, BlackRock is advancing its money market fund and BUIDL token to be used as collateral for derivatives trading on DeFi exchanges. The benefit over stablecoins for this purpose is clear, as traders can continue to earn yield while posting BUIDL as collateral. This raises the question: Are stablecoin issuers fighting over a market that has already moved on? ... Clearly, the real prize for these financial instruments lies in their application within traditional financial markets as they evolve from electronic to digital."
ICI: MMFs Fall Back to $6.65 Trillion
ICI's latest "Money Market Fund Assets" report shows money funds falling $22.2 billion to $6.648 trillion in the latest week, after surging $81.6 billion to a record high of $6.667 trillion the week prior. Assets have still risen in 12 of the last 16, and 23 of the last 31 weeks, increasing by $344.9 billion (or 5.5%) since the Fed cut on 9/18 and increasing by $671.0 billion (or 11.2%) since April 24. MMF assets are up by $762 billion, or 16.1%, year-to-date in 2024 (through 11/20/24), with Institutional MMFs up $381 billion, or 12.5% and Retail MMFs up $381 billion, or 22.7%. Over the past 52 weeks, money funds have risen by $885 billion, or 15.4%, with Retail MMFs up by $427 billion (19.0%) and Inst MMFs rising by $458 billion (13.0%). ICI's weekly release says, "Total money market fund assets decreased by $22.21 billion to $6.65 trillion for the week ended Wednesday, November 20, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $24.62 billion and prime funds increased by $538 million. Tax-exempt money market funds increased by $1.87 billion." ICI's stats show Institutional MMFs decreasing $31.0 billion and Retail MMFs rising $8.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.446 trillion (81.9% of all money funds), while Total Prime MMFs were $1.066 trillion (16.0%). Tax Exempt MMFs totaled $136.7 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $8.73 billion to $2.67 trillion. Among retail funds, government money market fund assets increased by $4.25 billion to $1.70 trillion, prime money market fund assets increased by $3.07 billion to $846.47 billion, and tax-exempt fund assets increased by $1.42 billion to $124.34 billion." Retail assets account for over a third of total assets, or 40.2%, and Government Retail assets make up 63.7% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $30.95 billion to $3.98 trillion. Among institutional funds, government money market fund assets decreased by $28.87 billion to $3.75 trillion, prime money market fund assets decreased by $2.53 billion to $219.24 billion, and tax-exempt fund assets increased by $449 million to $12.39 billion." Institutional assets accounted for 59.8% of all MMF assets, with Government Institutional assets making up 94.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $143.1 billion in November through 11/20 to $7.006 trillion. Assets rose by $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion last November. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
S&P on Q3 Local Govt Inv Pool Trends
S&P Global Ratings recently published "'AAAm' Local Government Investment Pool Trends (Third-Quarter 2024)," which tells us, "Both prime and government LGIPs' assets slightly declined, which is typical for the third quarter because of cyclicality. State and local government spending trends typically lead to drawdowns in the second and third quarters of each year. Government LGIPs fell to $92 billion (1.5% decline) while prime LGIPs decreased to $282 billion (1.66% decline). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities -- similar to prime money market funds." They explain, "In recent years', LGIPs' assets have seen significant growth, driven by various factors such as attractive yields, increased tax receipts proceeds, and stimulus funds post COVID-19. Although there was a slight decline in the third quarter, LGIPs have maintained overall growth from recent years'.... We anticipate higher asset levels in the fourth quarter as participants receive tax revenues. Following the federal funds 50 basis point (bps) rate cut, government and prime yields declined to 4.99% (28-bps decline) and 5.08% (32-bps decline).... The swift drop in yields reflects managers remaining short, perhaps due to drawdowns and limited value in extending until the yield curve normalizes. The net asset value (NAV) per share averaged 1.00043 in third-quarter 2024.... Weekly liquid assets approached 50% for government funds while prime funds remained unchanged at 41%." S&P adds, "Unlike money market funds registered with the SEC, LGIPs are not regulated by the SEC and therefore not subject to SEC rule 2a-7. However, LGIPs typically benefit from the purview of state statutes, which provide guidelines on LGIPs' investment policy and objective, as well as from the standards and guidance of the Governmental Accounting Standards Board, where standard 79 allows the use of amortized cost to value an LGIP's portfolio assets."
Fed Rate Cuts Mean Outflows Says Slok
Bloomberg writes on the opposite view of our News today in, "Fed Rate Cuts to Spur $2 Trillion Money-Fund Exit, Apollo's Slok Says." They state, "The steady stampede into money-market funds is likely to reverse as the Federal Reserve keeps pushing down interest rates, giving investors incentive to shift cash into higher-yielding assets, according to Apollo Global Management's chief economist Torsten Slok. 'Where will the $2 trillion added to money market accounts go now that the Fed is cutting,' Slok wrote in a note to clients on Tuesday, citing the inflow to money-market funds since the Fed began raising rates in March 2022." He says, "The most likely scenario is that money will leave money market accounts and flow into higher-yielding assets such as credit, including investment grade private credit." Bloomberg comments, "Slok, who warned of a such an exodus earlier this year, has stuck to his call even after investors keep piling in. The assets of such funds swelled last week to $7 trillion for the first time ever, defying speculation that investors would pull out cash once the Fed started nudging interest rates down from a more than two-decade high. The persistence of inflows even after the Fed cut rates at the last two meetings likely reflects the fact that money-market funds tend to be slower than banks in reducing the payouts to investors." They add, "The seven-day yield on the Crane 100 Money Fund Index, which tracks the 100 largest funds, was 4.46% as of Nov. 18, just below the lower bound of the federal funds rate."
MUFG Bank White Labels BNY Portal
A press release titled, "MUFG Bank, Ltd. Launches MUFG CashFolio Leveraging BNY's LiquidityDirect Capabilities" states, "MUFG Bank, Ltd. announced ... the launch of MUFG CashFolio, its new liquidity trading portal leveraging LiquidityDirect from The Bank of New York Mellon Corporation ('BNY'), a global financial services company. Developed as an extension of MUFG's liquidity services, MUFG CashFolio is a powerful online tool that gives institutional clients greater access to shorter term investments through the vast money market mutual fund (MMF) industry, which hit a record of $6.51 trillion in assets this July. MUFG CashFolio is an all-inclusive investment portal that helps clients improve cash management and diversify risk exposure through an integrated platform. The portal offers MMF trade execution, settlement into an MUFG account, a full fund library, in-depth fund research capabilities, compliance tools, and sweep function." Ray Fattell, Head of Transaction Banking for MUFG Americas, comments, "Part of our mission is to enhance the range of products and services we offer our clients across the entire working capital cycle. Launching MUFG CashFolio with BNY gives clients more options to manage their excess cash through an all-inclusive investment portal with enhanced digital capabilities." The release continues, "MUFG CashFolio also includes social responsibility investing to help clients align with their ESG values. Its ESG Data Analytics module compliments MUFG's dedication to advancing sustainable principles and solutions with focused investing. MUFG CashFolio leverages BNY's market-leading short-end investments platform, LiquidityDirect, which offers clients a variety of innovative solutions to meet their investment and risk criteria and execute their liquidity strategy. The platform's technology and services provide a seamless user experience through single sign-on for their clients. It supports over $16 trillion in annual transaction flow for more than 7,000 of the world's largest institutional investors." George Maganas, Head of Liquidity Services at BNY, adds, "We are pleased to expand our relationship with MUFG through the use of our game changing LiquidityDirect White Labeling capabilities to launch MUFG CashFolio, providing institutional clients with greater access to shorter term investments, an enhanced user experience, and the combined benefits of both firms in the solution."
FT on BlackRock Money Market ETFs
The Financial Times writes "BlackRock files to launch lower-risk money market fund ETFs." The article states, "BlackRock has filed to launch two money market funds in exchange traded fund wrappers, following in the footsteps of Texas Capital Bank's rollout. The new iShares Prime Money Market and iShares Government Money Market ETFs will both adhere to maturities, credit ratings and liquidity requirements under the Securities and Exchange Commission's Rule 2a-7, intended to ensure a high-quality rating and minimal credit risk, according to filings. In September, Texas Capital's fund management division launched the industry's first 2a-7 ETF, the Texas Capital Government Money Market ETF." The FT continues, "The filings do not disclose the proposed ETFs' fees. Texas Capital's Government Money Market ETF charges 0.20 per cent.... The firm liquidated two open-end money market funds -- the $5.4bn TempFund and $872.2mn Liquid Environmentally Aware Fund -- in September in response to pending SEC rule amendments mandating liquidity fees for prime institutional funds." See our Nov. 12 Link of the Day, "BlackRock Files for Money Market ETFs," and our Sept. 26 Link of the Day, "Texas Capital Launches Govt MM ETF."
ICI's latest "Money Market Fund Assets" report shows money funds surging $81.6 billion to a new record of $6.667 trillion in the latest week, after jumping $79.5 billion the previous week. Assets have risen in 12 of the last 15, and 23 of the last 30 weeks, increasing by $363.5 billion (or 5.8%) since the Fed cut on 9/18 and increasing by $689.6 billion (or 11.5%) since April 24. MMF assets are up by $781 billion, or 16.5%, year-to-date in 2024 (through 11/13/24), with Institutional MMFs up $412 billion, or 13.5% and Retail MMFs up $369 billion, or 22.0%. Over the past 52 weeks, money funds have risen by $933 billion, or 16.3%, with Retail MMFs up by $428 billion (19.2%) and Inst MMFs rising by $505 billion (14.4%). ICI's weekly release says, "Total money market fund assets increased by $81.59 billion to $6.67 trillion for the week ended Wednesday, November 13, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $83.49 billion and prime funds increased by $82 million. Tax-exempt money market funds decreased by $1.99 billion." ICI's stats show Institutional MMFs increasing $79.4 billion and Retail MMFs rising $2.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.467 trillion (82.0% of all money funds), while Total Prime MMFs were $1.065 trillion (16.0%). Tax Exempt MMFs totaled $134.9 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $2.18 billion to $2.66 trillion. Among retail funds, government money market fund assets increased by $3.22 billion to $1.69 trillion, prime money market fund assets increased by $699 million to $843.40 billion, and tax-exempt fund assets decreased by $1.73 billion to $122.92 billion." Retail assets account for over a third of total assets, or 39.9%, and Government Retail assets make up 63.7% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $79.41 billion to $4.01 trillion. Among institutional funds, government money market fund assets increased by $80.28 billion to $3.77 trillion, prime money market fund assets decreased by $616 million to $221.77 billion, and tax-exempt fund assets decreased by $253 million to $11.94 billion." Institutional assets accounted for 60.1% of all MMF assets, with Government Institutional assets making up 94.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $147.3 billion in November through 11/13 to a record $7.010 trillion. Assets rose by $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion last November. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
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