Money fund yields remained flat at 5.13% on average in the week ended July 26 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds). Yields were 5.13% on 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, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds fell by $8.2 billion last week to $6.513 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged at 34 days. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 706), shows a 7-day yield of 5.03%, unchanged in the week through Friday. Brokerage sweep rates also remained unchanged, contrary to the discussions on a number of brokerage earnings calls in recent weeks. (For more on recent Brokerage Sweep News, see these CraneData.com stories: "Federated Hermes' Donahue, Cunningham Call Hits Sweeps, Flows, Rates" (7/29/24), "Ameriprise, Raymond James Discuss Sweeps Issues on Earnings Call Q&As" (7/26/24), "Barron's Writes on Pressure on Sweeps" (7/25/24), "WSJ, Investment News on Brokerage Deposit, Advisory Sweep Pressures" (7/19/24), "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues" (7/17/24).)
Prime Inst money fund yields were unchanged at 5.18% in the latest week. Government Inst MFs were up 1 bp at 5.12%. Treasury Inst MFs were unchanged at 5.07%. Treasury Retail MFs currently yield 4.85%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.02%, Tax-exempt MF 7-day yields were up 50 bps to 2.92%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/26), 67 money funds (out of 826 total) yield under 3.0% with $42.9 billion in assets, or 0.7%; 57 funds yield between 3.00% and 3.99% ($88.5 billion, or 1.4%), 254 funds yield between 4.0% and 4.99% ($1.121 trillion, or 17.2%) and 448 funds now yield 5.0% or more ($5.260 trillion, or 80.8%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged (again) at 0.62%. The latest Brokerage Sweep Intelligence, with data as of July 26, shows that there were no changes over the past week. (We haven't seen any of the changes mentioned on earnings calls, which apparently only apply to a narrow slice of "advisory" accounts <b:>_.) `Nine weeks ago, we removed the rates for TD Ameritrade from the listings, which completed its merger with Charles Schwab and which pushed the averages higher (2 bps). 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.
A new piece from Morgan Stanley's E*Trade subsidiary, perhaps in reaction to the recent sweeps program scrutiny, titled, "`Money market funds: What to know about the low-risk investments," explains, "A money market mutual fund -- also called a money market fund -- is a type of fund that invests in high-quality, short-term debt instruments, including US government securities, municipal securities, and other securities, such as commercial paper, certificates of deposit (CDs), and repurchase agreements (repos). Money market funds pay dividends, referred to as yield, that typically reflect short-term interest rates, which moved rapidly upward in 2022 and 2023 as the Federal Reserve hiked its benchmark Fed funds rate from near zero to over 5% to help tame inflation. Unlike most other mutual funds or exchange-traded funds, money market funds don't aim to generate capital gains -- the yield is the only return on the investment. Money-market funds are of relatively low risk. In general, the prices of money market funds do not tend to experience the same type of volatility as stock prices."
Discussing the "Types of money market funds," E*Trade states, "By law, money market funds can only invest in securities with short maturities (typically 13 months or less). The securities in which they invest, however, can vary slightly. Funds often fall into three main categories: Government: Invest 99.5% or more of the fund's total assets in cash, US government securities, or repurchase agreements collateralized by government securities; Municipal: Invest primarily in municipal bonds, meaning the yield is typically exempt from federal income taxes; and, Prime: Invest in a variety of taxable short-term corporate and bank debt securities, as well as commercial paper and repos, among other securities."
The piece tells us, "Money market funds have strict maturity, credit quality, and diversification requirements, making them a lower-risk investment for investors who may be looking for an alternative to holding cash. Investors can generally sell their shares back to a money market fund on any business day at the NAV. Additionally, some municipal money market funds can offer advantages in taxable brokerage accounts since income may be exempt from federal income taxes."
It warns, "Though rare, there have been instances where money market funds dipped below their $1 NAV, resulting in investors losing part of the principal value of their investment (referred to as 'breaking the buck'). Money market funds with floating share prices can also lose value. Money market funds may impose liquidity fees or redemption restrictions during times of market stress. It's important to note that money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency the way CDs and other bank deposits are."
E*Trade comments, "When evaluating money market funds, investors may find themselves asking, 'Should I just invest in the fund with the highest yield?' The short answer is that there are many factors to consider in addition to the yield and historical performance. For instance, the net expense ratio reflects the percentage of a fund's assets that goes toward operating expenses and management fees. Investors may also want to pay attention to the initial investment minimum, which for retail funds can range from a few hundred dollars to several thousand dollars."
Finally, they write, "Money market funds are lower-risk investments that can offer liquidity and income but limited capital-gains potential. For investors with short time horizons, money market funds can help provide an option where capital preservation is the primary objective. As with other investments, it's important to consider diversifying your holdings and understand any potential risks associated with a specific security. Also, since all money market funds are different, investors should consider a fund's characteristics and its prospectus to make sure it aligns with their individual financial goals."
In related news, Fidelity Investments also wrote recently on "6 ways to earn more on your cash." It says, "Whether you are looking for a place to stash cash for short-term needs or waiting for the right opportunity to invest it for the long term, you have more opportunities right now to capture relatively high yields than you've had in decades. That's because the Federal Reserve’s policy of keeping interest rates high to fight inflation has pushed up yields on many popular ways to hold cash. But while the Fed has kept rates 'higher for longer' than many predicted, the central bank's leaders have said they expect to start cutting rates later this year. That makes this an excellent time to make sure your cash is earning as much as it can and to lock in today's high yields while they're still available. Once the Fed announces a decision to lower its key interest rate, known as the fed funds rate, yields on cash products are likely to begin declining shortly after. Some are likely to decline sooner after a rate cut than others and that may be another thing to consider as you look at your options for where to put your cash."
They tell us, "The good news is the range of options for keeping your cash safe and accessible while also earning interest are extensive. You can easily compare their yields and other characteristics on Fidelity.com. But finding the one that's right for you is not about just picking the highest-yielding option. It also depends on your particular needs and time frame. That fact makes it useful to understand how quickly cuts in interest rates might affect yields on the various options for storing your cash. Products such as longer-term CDs and bonds allow you to hang on to high yields for a longer time after interest rates start coming down. To get those yields, however, you'd need to give up access to your cash in the short term, which may not be what you want."
The piece adds, "Here are 6 destinations to consider when determining where to put your cash. 1. Savings accounts. Savings accounts at banks offer flexibility and insurance from the Federal Deposit Insurance Corporation (FDIC). Some brokerage firms offer cash management accounts, which automatically move cash in their clients' accounts into bank savings accounts which provide them with FDIC protection.... 2. Money market mutual funds. Money market funds are mutual funds that invest in short-term debt securities with low credit risk and yields that tend to closely track changes in the direction of the Fed's target interest rate.... 3. Certificates of deposit. CDs are time-deposit accounts issued by banks in maturities from 1 month to 20 years.... 4. Individual short-duration bonds.... 5. [and] Short-duration bond funds."
