Money market mutual fund assets surged on Thursday and Friday following the Federal Reserve's 50 basis point rate cut, jumping by $81.8 billion over 2 days to a record $6.717 trillion. (They increased another $28.1 billion yesterday, Sept. 23.) Money fund yields slid lower to 4.94% (down 12 bps) on average in the week ended Sept. 20 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds) after falling 2 bps the week prior. (Yields fell another 7 bps on Monday to 4.87%.) Yields were 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, 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. (Note: Thank you to those who attended and supported our European Money Fund Symposium in London last week! Mark your calendars for next year's show, which will be Sept. 25-26 in Dublin and watch for coverage of the event in our October Money Fund Intelligence.)
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 655), shows a 7-day yield of 4.84%, down 12 bps in the week through Friday. (Two weeks prior was the first time our Crane MFA fell below 5.0% since July 2023.) Prime Inst money fund yields were down 13 bps at 5.03% in the latest week. Government Inst MFs were down 12 bps at 4.95%. Treasury Inst MFs were down 10 bps at 4.88%. Treasury Retail MFs currently yield 4.66%, Government Retail MFs yield 4.67%, and Prime Retail MFs yield 4.85%, Tax-exempt MF 7-day yields were up 3 bps to 3.26%.
Assets of money market funds rose by $81.7 billion last week to $6.717 trillion (a new record) according to Crane Data's Money Fund Intelligence Daily. For the month of September, MMF assets increased by $101.9 billion, after increasing by $109.7 billion in August. Weighted average maturities were unchanged at 32 days for the Crane MFA and Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (9/20), 24 money funds (out of 774 total) yield under 3.0% with $14.6 billion in assets, or 0.2%; 101 funds yield between 3.00% and 3.99% ($119.4 billion, or 1.8%), 452 funds yield between 4.0% and 4.99% ($3.355 trillion, or 49.9%) and 197 funds now yield 5.0% or more ($3.228 trillion, or 48.1%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down (5 bps) at 0.57%. The latest Brokerage Sweep Intelligence, with data as of Sept. 20, shows that there was three changes over the past week. Fidelity lowered rates to 2.44% for all accounts and Schwab lowered rates to 0.20% for all accounts. Wells Fargo lowered rates to 0.02% for all accounts up to $999K and lowered rates to 0.05% for accounts between $1 million and $4.9 million, they also lowered rates to 0.15% for accounts of $10 million and greater. 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.
In other news, the Financial Times asks, "Has Powell just triggered a dash out of cash?" The article tells us, "Jay Powell, chair of the Federal Reserve, scored a big win this week when the US central bank started its rate-cutting cycle with a bang, chopping half a percentage point off the benchmark.... Now the common assumption is that the rate cut -- the start of a long series, judging from the Fed's messaging -- will prompt a huge wave of cash being held by investors to spill on to the shores of risky markets <b:>`_. Any day now this will start landing. Just you wait. It sounds too good to be true, and probably is."
It continues, "In 'cash' ... the focus among investors is on short-term deposits -- money market funds and the like -- carrying interest rates closely mirroring benchmark central bank rates. Asset managers have been saying for months that the game is up for cash, which had its latest heyday in the inflationary outburst of 2022, offering a haven while stocks and bonds bled out. This year and last, sensible people have repeatedly told me it made no sense to hold on in the immediate run-up to the rate-cutting cycle. When cash piles kept building up anyway, they said the outflows will start when rates start to fall. All that cash sitting on the sidelines is about to be unleashed. Again, any day now. Well, now the day is here so we will see if they are right."
The FT says, "It is hard to ignore the size of this asset class. Added together, money market funds hold easily north of $6tn in the US, up by 15 percent since the start of last year and with a pronounced pick-up just before this week’s rate cut. Gene Tannuzzo, global head of fixed income at Columbia Threadneedle, has dubbed this fondness for cash as 'T-bill and chill'.... Now, he says, 'cash is cool, but bonds are better'."
They quote, "Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes, said at a presentation this week [our European Money Fund Symposium] that she still expects money to flow in to cash, partly because the impact of rate cuts takes a little while to trickle through. She still expects assets in this area to reach $7tn. Investors don't tend to balk at the rate available on cash until it sinks to 1 percent or below -- an unlikely scenario in this more inflationary world after the pandemic, or at least a scenario she hopes never to see again in her lifetime, she said."
The piece states, "Contrary to what many others are currently saying which suggests a mass exodus of cash from money market funds during falling rates, historical data shows us otherwise," she said. Set in contrast to US bank deposit rates, which can often be under 1 percent, 'rates can be 3 percent and money market funds still look attractive', she added."
The FT adds, "It does still seem reasonable to assume that money will leak out of cash and into higher yielding assets as benchmark rates come down, eventually at least.... In the meantime, the stickiness of cash is a source of irritation.... Professional investors looking longingly at the huge accumulation of funds in boring old cash should remember that $6tn sounds like a lot of money. It is a lot of money."
