Money fund yields (7-day, annualized, simple, net) fell by 2 basis point to 4.25% on average during the week ended Friday, Jan. 3 (as measured by our Crane 100 Money Fund Index), after falling 7 bps the week prior and 7 bps two weeks prior. Fund yields have digested the majority of the Federal Reserve's 25 basis point cut from December 18, though they should continue to move lower in coming days. They've declined by 81 bps since the Fed first cut its Fed funds target rate by 50 bps percent on Sept. 18, and they've declined by 38 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.45% on 11/30, 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 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 678), shows a 7-day yield of 4.16%, down 2 bps in the week through Friday. Prime Inst money fund yields were down 2 bps at 4.35% in the latest week. Government Inst MFs were down 2 bps at 4.28%. Treasury Inst MFs were down 4 bps at 4.20%. Treasury Retail MFs currently yield 3.99%, Government Retail MFs yield 3.96%, and Prime Retail MFs yield 4.15%, Tax-exempt MF 7-day yields were down 46 bps to 2.80%.
Assets of money market funds rose by $84.5 billion last week to a new record high of $7.248 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of January, MMF assets have jumped by $74.0 billion, after increasing by $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 down 1 day at 37 days for the Crane MFA and down 1 day at 37 days for the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (1/3), 87 money funds (out of 790 total) yield under 3.0% with $94.0 billion in assets, or 1.3%; 164 funds yield between 3.00% and 3.99% ($317.5 billion, or 4.4%), 539 funds yield between 4.0% and 4.99% ($6.836 trillion, or 94.3%) 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 down 1 bp at 0.43%, after dropping 2 basis points two weeks prior. The latest Brokerage Sweep Intelligence, with data as of Jan. 3, shows one change over the past week. RW Baird lowered rates to 1.37% for accounts between $1 and $999K, to 2.17% for accounts of $1M to $1.9M and to 2.83% for accounts of $5M or 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, Federated Hermes' latest monthly insight, titled, "A gorgeous vista for cash managers," is subtitled, "Three things to watch in 2025." Author Deborah Cunnigham states, "After a year of ever-changing clouds, monetary policy looks clearer in 2025. The Federal Reserve seems to finally have realized it miscalculated in September by slashing rates. Inflation had already plateaued and the labor market was weakening, but hardly weak. Faced with a strong economy, officials have wised up to the reality that policy must be restrictive for longer and now project just two quarter-point cuts this year."
She continues, "In retrospect, it's odd that Chair Jerome Powell eagerly supported the easing campaign, as he consistently says he wants to avoid the Fed's mistake of easing too early in the 1970s. He has to be careful. Losing favor with Trump has nothing on losing credibility with investors or his colleagues -- the latter hinted at with recent FOMC dissents. But if this newly cautious Fed makes good on its revised projections, the slower pace is great news for the money markets, as it could mean yields will be even more attractive."
Cunningham says, "It's problematic enough that inflation has been persistent. If it starts to meaningfully rise, look out. But that's the danger of some of the policies Trump has promised to enact. While the post-Covid economy has not followed textbooks, a potential combination of more federal tax cuts, expanded government expenditures, additional tariffs and significant deportations could increase price pressures. While that might not be felt in 2025, the Fed might try to counter fiscal policy by further slowing the pace of cuts. The potential impact on liquidity products? See the previous paragraph's last sentence above, with an emphasis on 'even more.'"
She adds, "Trump's desire to reduce regulations is sure to be disruptive, but might lead to calm at the SEC -- and less market interference. The majority of the five commissioners will flip Republican, and the new administration has a pro-business agenda.... Outgoing Chair Gary Gensler had an adversarial relationship with financial institutions and issued many rules, some we feel were unnecessary, without proper dialogue with market participants. A healthy dynamic between the agency and markets should emerge if Trump's nominee, Paul Atkins, is confirmed. Expect more sensible regulations and attempts to rollback some onerous ones implemented under Gensler."
