Daily Links Archives: February, 2023
Money Fund Index Inches Up to 4.39%
Money fund yields inched higher last week after jumping earlier in the month after the Fed's 25 basis point hike on Feb. 1. Our Crane 100 Money Fund Index (7-Day Yield) rose 2 basis points to 4.39% in the week ended Friday, 2/24. Yields rose by 2 basis points the previous week and they're up from 4.15% on Jan. 31, 2023. Money fund yields have risen from 4.05% on 12/31/22, and they're up from 3.59% on Nov. 30, 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should inch higher in coming days as they digest the last bits of the Fed's latest hike and they should jump higher again following the Fed's next meeting on March 22. The top-yielding money market funds have broken above 4.70% and should move towards 5.0% in coming weeks. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 681), shows a 7-day yield of 4.27%, up 2 bps in the week through Friday. Prime Inst MFs were unchanged at 4.49% in the latest week. Government Inst MFs rose by 1 bp to 4.31%. Treasury Inst MFs up 3 bps for the week at 4.30%. Treasury Retail MFs currently yield 4.08%, Government Retail MFs yield 4.04%, and Prime Retail MFs yield 4.33%, Tax-exempt MF 7-day yields were down at 3.11%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/24), No money funds (out of 816 total) are now yielding below the 2.00% mark this past week, as many continue to rise over 4.0%; 42 funds yield between 2.00% and 2.99% with $19.3 billion, or 0.4%; 204 funds yield between 3.00% and 3.99% ($184.6 billion, or 3.5%), and 570 funds yield 4.0% or more ($5.009 trillion, or 96.1%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, remained unchanged at 0.55% after increasing the week before. The latest Brokerage Sweep Intelligence, with data as of Feb. 24, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
MarketWatch on Chasing MM Yields
MarketWatch posted the piece, "Tempted to chase fat yields in money market accounts? Why it might not pay to switch." It tells us, "The yield chase is on. After more than two years of historically low interest rates, savers are rediscovering that they can earn money on their money by letting it sit. During the pandemic, many savers noticed that their checking account paid little or no interest. Their savings account didn't pay much either. Maybe they moved money into a high-yield savings account. Perhaps spurred by ads from online banks, they decided it was worth the trouble to nab an extra 0.5% or 1% of interest. In the past six months, some money-market funds have offered an even better return. Money-market funds are a type of mutual fund that hold a mix of short-term corporate and municipal debt along with U.S. Treasury bills and other vehicles. Major brokerages such as Fidelity, Vanguard and Charles Schwab offer them ... and they now pay above 4%." The article adds, "Haas adds that chasing yields too aggressively can have unintended consequences. Linking each newly established account with your main bank account can prove difficult, and slow-moving wire transfers can delay access to your cash.... Before depositing money into any high-yield bank account or money-market fund, check for minimum account size, maximum number of transactions per month, direct deposit requirements and other restrictions."
Highlights of Latest FOMC Minutes
The most recent "Minutes of the Federal Open Market Committee" explain, "Market participants interpreted incoming data as pointing to moderating inflation risks. Against this backdrop, market participants judged that the FOMC would likely slow the pace of rate increases further at the current meeting, and respondents to the Desk's Survey of Primary Dealers and Survey of Market Participants widely expected the Committee to implement a 1/4 percentage point increase in the target range for the federal funds rate. Survey respondents assessed that uncertainty around the likely peak level of the policy rate narrowed relative to the comparable results from the December surveys and, on average, placed significant probability on a target federal funds rate range close to 5 percent. A significant share of survey respondents anticipated that the Committee would hold the policy rate stable for much of 2023." They continue, "The manager pro tem turned next to a discussion of money markets and Federal Reserve operations. Money market rates were stable over the period, with the year-end passing smoothly. As expected, balances in the overnight reverse repurchase agreement (ON RRP) facility increased at year-end but quickly retraced. Market participants generally expected usage of the ON RRP facility to continue a downward trend in 2023, moderating the decline in reserve balances as the Federal Reserve's holdings of securities continue to run off. Should transitory pressures occur in money markets over the course of the year, the manager pro tem noted that the standing repurchase agreement (repo) facility and discount window would be available to help support effective monetary policy implementation. The manager noted that, over coming months, developments affecting the Treasury General Account (TGA) and Treasury financing could influence money market conditions. An increase in TGA balances associated with April individual tax receipts could result in a temporary decline in reserve balances. In subsequent months, uncertainties associated with the debt limit could also be important. In particular, the Treasury could increase bill issuance to rebuild TGA balances once the debt limit is lifted, reducing reserves and potentially lifting money market rates. The manager pro tem noted that in recent months, investors in the ON RRP facility had responded to small increases in money market rates by shifting balances into private investments, and that reductions in ON RRP volumes may help smooth adjustments in money markets." The FOMC adds, "Conditions in short-term funding markets remained stable over the intermeeting period, with the December increase in the target range for the federal funds rate and the associated increases in the Federal Reserve's administered rates passing through quickly to overnight money market rates. In secured markets, repo rates were roughly the same as the ON RRP offering rate but continued to occasionally print slightly higher around days with Treasury bill and coupon settlements. Daily take-up in the ON RRP facility remained elevated, reflecting continued elevated assets under management (AUM) for money market mutual funds (MMFs), ongoing uncertainty around the policy path, and limited supply of alternative investments such as Treasury bills. Net yields on MMFs rose further over the intermeeting period, mostly passing through the increase in administered rates. Bank deposit rates gradually increased but continued to lag cumulative increases in the federal funds rate.... Vulnerabilities associated with funding risks were characterized as moderate. The rising rate environment has prompted inflows into prime retail MMFs, while AUM at prime institutional funds, which have proved more sensitive to turmoil in the past, have grown much less. Assets in open-end mutual funds that invest in less liquid instruments like bank loans or high-yield corporate bonds have declined notably over the past year. In response to vulnerabilities at MMFs and open-end mutual funds, the Securities and Exchange Commission has proposed rules to make these funds more resilient."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Feb. 17) includes Holdings information from 42 money funds (down 3 from a week ago), which represent $1.053 trillion (down from $1.359 trillion) of the $5.190 trillion (20.3%) in total money fund assets 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.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $641.8 billion (down from $834.5 billion a week ago), or 61.0%; Treasuries totaling $268.7 billion (down from $313.1 billion a week ago), or 25.5%, and Government Agency securities totaling $88.1 billion (down from $100.4 billion), or 8.4%. Commercial Paper (CP) totaled $26.1 billion (down from a week ago at $49.6 billion), or 2.5%. Certificates of Deposit (CDs) totaled $6.6 billion (down from $17.5 billion a week ago), or 0.6%. The Other category accounted for $16.4 billion or 1.6%, while VRDNs accounted for $5.1 billion, or 0.5%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $372.1 billion (35.3%), the US Treasury with $268.7 billion (25.5% of total holdings), Fixed Income Clearing Corp with $71.1B (6.7%), Federal Home Loan Bank with $50.0B (4.7%), JP Morgan with $36.9B (3.5%), Federal Farm Credit Bank with $35.6B (3.4%), RBC with $20.2B (1.9%), Goldman Sachs with $17.6B (1.7%), Mitsubishi UFJ Financial Group Inc with $15.0B (1.4%), and Citi with $12.5B (1.2%). The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($122.1B), Dreyfus Govt Cash Mgmt ($117.9B), Invesco Govt & Agency ($93.0B), Allspring Govt MM ($86.6B), State Street Inst US Govt ($71.4B), First American Govt Oblg ($66.0B), Invesco Treasury Portfolio ($50.1B), Dreyfus Treas Obligations Cash Mgmt ($48.2B), Morgan Stanley Inst Liq Treas Sec ($44.1B) and Dreyfus Treas Sec Cash Mg ($41.1B),. (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
The Basics of Money Market Accounts
A website called SmartAsset asks, "Can You Lose Money in a Money Market Account?" They tell us, "Money market accounts combine the benefits of both savings and checking accounts with the potential for higher interest yields. While the Federal Deposit Insurance Corporation or the National Credit Union Administration insures your money market account, bank fees and penalties can eat into your earnings. Here's what you need to know about whether you can lose money in a money market account. Remember that a financial advisor can help you allocate your money to different asset classes, including money market accounts." The site also asks, "What Is a Money Market Account?" It comments, "A money market account is a deposit account you can open at a financial institution like a bank, credit union or online brokerage. Money market accounts have many benefits, including interest rates typically higher than those on traditional savings and checking accounts. They are relatively safe because they are insured by institutions like the FDIC or NCUA. At the same time, they provide more liquidity than savings products like CDs." The piece adds, "Despite their many advantages, money market accounts can have higher minimum balance requirements than savings accounts. Interest rates on money market accounts can fluctuate depending on your account balance. Like savings account withdrawals, money market account withdrawals are usually limited to six per month. Keep in mind that a money market account is different from a money market fund."
CNBC: McNerncy, Schneider on USBFs
CNBC published, "Bond ETFs are bouncing back this year. Here's why." The piece excerpts from a video interview with ultra-short ETF managers James McNerny from JPM Asset Management and Jerome Schneider from PIMCO. (Note: Both PMs will be speaking at next month's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass. Click here for details.) CNBC.com writes, "After a dismal 2022 for fixed income funds, bonds are steadily regaining steam in the new year thanks in part to an inverted yield curve. Approximately $200 billion flowed into bond exchange-traded funds last year, but the funds have amassed roughly $26 billion in inflows in January alone." They quote Todd Rosenbluth, head of research at VettaFi (to Mike Santoli on CNBC's 'ETF Edge' last Monday), "`There’s now income within the fixed income ETFs that are available. We've seen higher-quality investment-grade corporate bond ETFs. We've seen high-yield fixed income ETFs see inflows this year, as well as some of the safer products." JPMAM's McNerny comments, "We have to take a look at all the macro factors and look at what's driving bond yields and credit spreads right now.... We think that there is a high enough likelihood priced into credit spreads in the front end of the curve right now that there is a harder landing potentially to come." The article continues, "Given the inverted shape of the yield curve, JPMorgan Ultra-Short Income ETF (JPST) offers a portfolio comprised of short-term, investment-grade bonds. According to JPMorgan, the fund is the largest actively managed ETF in the industry, growing to $24.2 billion in the past 5 1/2 years. McNerny suggested that, with valuations in the red, spreads are too tight to compensate for the possibility of a harder landing. 'When we break down the flows that we're seeing,' McNerny said, 'we're seeing flows into higher-quality, longer-duration products, and credit products on the front end of the curve. Those have been the lion's share of the majority of the flows that we've seen." CNBC's update adds, "Jerome Schneider, managing director at Pimco, said that fixed income funds are gaining popularity because they offer investors attractive yields in an uncertain economic environment.... 'For investors right now,' he continued, 'we have to really be looking at how to think about sectors and allocation in terms of portfolios. And insulating those portfolios to the outlooks, which may not necessarily be 100% convinced that the soft landing is here at hand.... More holistically, what investors really need to be doing is pivoting and putting portfolios in that position for maintaining some optionality." Finally, it says, "He advised that means seeking higher liquidity while balancing the Fed's tactic for fighting inflation long term. More importantly, he said, for the evolving evolutionary process that we see with regard to earnings and corporate earnings specifically. 'That's going to remove some clouds as we get further along into the year,' Schneider said."
Assets Rebound Towards Record
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets increasing after fallling the previous week (prior to that they'd hit records for two weeks in a row). Over the past 52 weeks, money fund assets are up by $265 billion, or 5.8%, with Retail MMFs rising by $306 billion (20.8%) and Inst MMFs falling by $41 billion (-1.3%). ICI shows assets up by $80 billion, or 1.7%, year-to-date in 2023, with Institutional MMFs down $23 billion, or -0.8% and Retail MMFs up $103 billion, or 6.2%. The weekly release says, "Total money market fund assets increased by $9.99 billion to $4.82 trillion for the week ended Wednesday, February 15, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $4.39 billion and prime funds increased by $14.45 billion. Tax-exempt money market funds decreased by $78 million." ICI's stats show Institutional MMFs falling $2.3 billion and Retail MMFs increasing $12.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.948 trillion (82.0% of all money funds), while Total Prime MMFs were $763.0 billion (15.8%). Tax Exempt MMFs totaled $103.8 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $12.31 billion to $1.78 trillion. Among retail funds, government money market fund assets increased by $1.79 billion to $1.19 trillion, prime money market fund assets increased by $11.09 billion to $497.92 billion, and tax-exempt fund assets decreased by $575 million to $93.72 billion." Retail assets account for over a third of total assets, or 37.0%, and Government Retail assets make up 66.8% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $2.33 billion to $3.03 trillion. Among institutional funds, government money market fund assets decreased by $6.18 billion to $2.76 trillion, prime money market fund assets increased by $3.36 billion to $265.11 billion, and tax-exempt fund assets increased by $496 million to $10.10 billion." Institutional assets accounted for 63.0% of all MMF assets, with Government Institutional assets making up 90.9% of all Institutional MMF totals. Month-to-date in February (through 2/15/23), money fund assets have increased by $16.6 billion to $5.202 trillion, according to Crane Data's Money Fund Intelligence Daily. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
MarketWatch: Cash Can Earn 4.5%
Late last week, MarketWatch wrote, "High-Yield Savings Accounts, Treasury Bills, Money Market Funds, and CDs -- Here's Where Your Cash Can Earn up to 4.5%." The article explains, "Cash isn't just the dollar bills you put in your pocket -- in this market, it might seem to be a patch of steady ground. There are multiple options: People can put their money in high-yield savings accounts, checking accounts, money market mutual funds, certificates of deposit, and short-term Treasury debt. As a super-safe alternative to equity markets, these investment vehicles are positioned to reap higher yields from higher interest rates. They may sound like reassuring places to park money while recessions worries persist, and as stocks and bonds try to recover from 2022's pummeling." It continues, "High-yield online savings account are averaging 3.3% annual percentage yields (APY), up from less than 0.5% one year earlier, according to DepositAccounts.com. A one-year online CD is averaging a 4.4% APY, up from nearly 0.6% a year ago, the site said. The average seven-day yield for the 100 biggest money market funds stands at 4.34% and it hasn't been this high for more than a decade, according to Crane Data, which tracks the industry. With maturities under a year, Treasury bills are fetching yields at or above 4.5%." Describing money funds, they state, "These mutual funds are comprised of ingredients like short-term, high-quality federal government and municipal debt, along with high-grade corporate debt that quickly comes due. By the end last year, money market funds had $5.2 trillion in assets under management, according to the Treasury Department's Office of Financial Research. That's well beyond the funds' $4 trillion in assets under management by February 2020, the data shows." The piece adds, "It will be a couple weeks before the latest 25 basis point hike is fully reflected in average yields, according to Peter Crane, president of Crane Data. The last time the biggest money market funds averaged seven-day yields surpassed 4% was in December 2007, according to Crane Data's statistics. 'Their biggest weakness [in recent years] is now their greatest strength. They follow the Fed,' Crane told MarketWatch. As the spread in yields from many savings accounts and money market funds widen, consumers would do well to pay more attention to these vehicles, said Kyle Simmons, founder and lead financial adviser at Simmons Investment Management in the Denver area. Ultra short-term ETFs are another option, he added. Like money market funds, they give exposure to government and high-quality corporate debt that matures quickly.... Treasury bills and CDs lie on the other side of the cash spectrum. They have maturity terms from 4 to 52 weeks. Yields may be higher than money market funds, but you must wait longer to get your money back."
Aviva's 2023 Liquidity Outlook
U.K.-based Aviva Investors recently published, "Opportunities in cash: Our 2023 liquidity outlook." They explain, "The outlook for cash investors in 2023 is broadly positive. Markets and professional forecasters expect central bank rate rises across developed markets, which will feed through to increasing yields in liquidity strategies. Our own House View favours a material overweight to cash: 'Cash, offering a decent yield and -- assuming inflation abates -- a store of value as well, is for the first time in many years a viable and essential tool to achieve target returns and manage risks for investors.'" The piece continues, "But there is always uncertainty. First, there is uncertainty as to the timing and peak level of central bank rates. Addressing a potentially highly variable rate environment will require prudent and, above all, active management of duration. Second, there is the potential impact of recessionary conditions on widely held issuers in liquidity portfolios. While these issuers have adequate buffers to protect themselves from a deteriorating economic picture, we will continue to closely monitor evolving credit conditions." Aviva tells us, "Rate hikes are positive for liquidity fund yields. Liquidity funds only hold short-dated securities. In a rising rate environment, as these securities mature, they are reinvested at the new, higher, prevailing rate. As a result, rate rises are passed on to investors quickly -- typically much faster than bank deposits -- and the risk of capital loss is low due to the high credit quality of issuers and diversification of the pools." Discussing "Three cash investment strategies for 2023," they write, "In this context, we see three main opportunities for cash investors: Allocating to liquidity funds <b:>`_: Liquidity funds will re-set quickly to the prevailing interest rate environment. This means funds should be able to quickly pass on rate rises to end investors. For example, sterling liquidity funds were yielding 3.45 per cent gross on average on 13 January 2023, 31 business days after the most recent rate hike of 50 basis points, demonstrating a rapid transmission of policy developments to investors. Allocating to short-term bond funds: As we discussed recently in Enhanced cash in short-duration fixed income, we see significant opportunities for investors in short-duration credit -- i.e. securities just outside the typical investible universe for liquidity funds. Opportunities look particularly strong across asset classes -- notably asset-backed securities -- bringing the potential of both stable returns above cash and diversification. Locking in: Yield curves across currencies are steep at the short end, while falling in the mid- to long-term. This implies investors view near-term prospects (rate rises) as more positive than longer-term prospects (economic issues). Given the expectation of rates plateauing -- or even beginning to decline -- in late 2023, investors may generate attractive returns from locking-in relatively short-dated baskets of securities, providing potential diversification, high credit quality and, most importantly, attractive yields available now."
Crane 100 Index Rises to 4.35%
Money fund yields moved higher again last week; our Crane 100 Money Fund Index (7-Day Yield) rose 12 basis points to 4.35% in the week ended Friday, 2/10. Yields rose by 9 basis points the previous week. They're up from 4.05% on 12/31/22, and up from 3.59% on Nov. 30, 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should inch higher in coming days as they digest the remainder of the Fed's Feb. 1 25 bps rate hike. The top-yielding money market funds have broken above 4.50% and should move towards 4.75% in coming days. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 675), shows a 7-day yield of 4.22%, up 11 bps in the week through Friday. Prime Inst MFs were up 13 bps at 4.47% in the latest week. Government Inst MFs rose by 12 bps to 4.27%. Treasury Inst MFs up 9 bps for the week at 4.23%. Treasury Retail MFs currently yield 4.01%, Government Retail MFs yield 3.99%, and Prime Retail MFs yield 4.30%, Tax-exempt MF 7-day yields were up at 2.45%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/10), Only 15 funds (808 total) are now below the 2.0% yield mark this past week, as many continue to rise over 4.0%; just 15 funds yield between 0.00% and 1.99% with $693 million, or 0.0%; 116 funds yield between 2.00% and 2.99% with $107.9 billion, or 2.1%; 142 funds yield between 3.00% and 3.99% ($127.0 billion, or 2.4%), and 535 funds yield 4.0% or more ($4.962 trillion, or 95.5%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged last week at 0.52%. The latest Brokerage Sweep Intelligence, with data as of Feb. 10, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
ICD Named Best Portal, Adds Cavu USD
A recent press release, "Treasury Industry Recognizes ICD as Best Portal Technology," tells us, "The corporate treasury industry recognized ICD with the Best Portal Technology Award in TMI's 2022 Awards for Innovation and Excellence. ICD is an independent portal provider of institutional money market funds and other short-term investments, focused exclusively on serving treasury organizations, globally." ICD CEO Tory Hazard comments, "We're happy to be recognized as the Best Portal Technology. This recognition is a testament to the deep trust our clients put in ICD to co-innovate solutions that address their needs. In our 20th anniversary year, we are proud to be the portal of choice for many who use ICD for its technology and unbiased access to the short-term markets." TMI Publisher Robin Page says, "Once again, we are delighted to have recognized ICD as it continues to evolve its portal offering, cited as the best by many of its clients, who have also integrated it into their own treasury ecosystems." The release adds, "The TMI Awards for Innovation and Excellence are recognized as the quality benchmark for industry participants who are defining new frontiers and driving best practices in treasury management, globally." A separate release, entitled, "CAVU Securities Offshore USD Share Class Now Available on ICD Portal," states, "Institutional Cash Distributors, LLC (ICD), an independent portal for short-term investments, and CAVU Securities, LLC (CAVU), a registered broker-dealer and Minority Business Enterprise (MBE) that is both U.S. veteran and minority-owned and operated, announced the first offshore USD Diversity, Equity and Inclusion (DEI) share class available on ICD Portal. This new product offering provides ICD clients with not only an attractive investment option for non-US domiciled investors but also a value-added way for ICD clients to advance DEI and ESG goals within their organizations. By partnering with Invesco, CAVU Securities provides clients with a product that delivers deep institutional experience, expertise, scale, and investment track record that investors value while also serving as a solution to treasurers and cash investors who share CAVU's commitment to making an impact via social and DEI directives. ICD and CAVU Securities recognize that as financial intermediaries, we help facilitate the flow of capital and provide access for investors in helping them to fulfill ESG mandates and reach their social impact objectives." ICD's Sebastian Ramos comments, "Offering the first offshore DEI fund on ICD Portal is in keeping with ICD's commitment to providing institutional investors with a wide selection of short-term investments. We're happy to have worked with CAVU to add another DEI product to our fund line-up, supporting clients' socially responsible investing." CAVU CEO Greg Parsons adds, "By investing in the CAVU Securities Share Classes, investors will be able to drive diversity and inclusion across the business landscape as well as support our country's military veterans. Through the CAVU Impact Pledge, CAVU is committed to giving ten percent (10%) of the GROSS revenue CAVU earns from all of the CAVU Share classes to organizations that are making a difference in the underrepresented and veteran communities."
MMF Assets Retreat from Record
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets falling after hitting records for two weeks in a row. Over the past 52 weeks, money fund assets are up by $212 billion, or 4.6%, with Retail MMFs rising by $291 billion (19.7%) and Inst MMFs falling by $79 billion (-2.5%). ICI shows assets up by $70 billion, or 1.5%, year-to-date in 2023, with Institutional MMFs down $21 billion, or -0.7% and Retail MMFs up $91 billion, or 5.4%. The weekly release says, "Total money market fund assets decreased by $16.36 billion to $4.81 trillion for the week ended Wednesday, February 8, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $22.31 billion and prime funds increased by $12.95 billion. Tax-exempt money market funds decreased by $6.99 billion." ICI's stats show Institutional MMFs falling $22.7 billion and Retail MMFs increasing $6.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.953 trillion (82.3% of all money funds), while Total Prime MMFs were $748.6 billion (15.6%). Tax Exempt MMFs totaled $103.9 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $6.33 billion to $1.77 trillion. Among retail funds, government money market fund assets decreased by $1.59 billion to $1.19 trillion, prime money market fund assets increased by $13.48 billion to $486.82 billion, and tax-exempt fund assets decreased by $5.56 billion to $94.30 billion." Retail assets account for over a third of total assets, or 36.8%, and Government Retail assets make up 67.1% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $22.69 billion to $3.04 trillion. Among institutional funds, government money market fund assets decreased by $20.73 billion to $2.77 trillion, prime money market fund assets decreased by $534 million to $261.75 billion, and tax-exempt fund assets decreased by $1.43 billion to $9.60 billion." Institutional assets accounted for 63.2% of all MMF assets, with Government Institutional assets making up 91.1% of all Institutional MMF totals. Month-to-date in February (through 2/8/23), money fund assets have decreased by $3.3 billion to $5.182 trillion, according to Crane Data's Money Fund Intelligence Daily. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
ESMA: European MMFs E1.44 Trillion
A press release entitled, "ESMA report finds EU MMF industry at close to E1.5tn" tells us, "The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, today published its inaugural market report on European Union (EU) Money Market Funds (MMF). With this report ESMA provides for the first time a comprehensive market-level view of EU MMFs, based on supervisory information collected by National Competent Authorities (NCAs) and ESMA." ESMA Chair Verena Ross comments, "MMFs play a central role in the financial system, by bringing together the demand for and supply of short-term funding, and [they] are closely interconnected with other parts of the financial sector. Recent periods of stress experienced by MMFs in the short-term funding markets (such as in March 2020) have shown the importance of monitoring trends and developments in the EU MMF sector. The MMF Regulation introduced a reporting obligation for managers of MMFs to inform competent authorities' supervisory activity, allowing ESMA to publish today the first overview of this market using regulatory data." The release continues, "The main findings included in today's report are: EU MMF sector: The EU MMF sector had E1.44tn of assets in 2021, with 89% of the funds domiciled in France, Luxembourg and Ireland; Sector breakdown: Low-volatility NAV (LVNAV) MMFs account for 46% of the total assets, followed by Variable NAV (VNAV) MMFs (42%) and Constant NAV (CNAV) MMFs (12%). All MMFs domiciled in France are of the VNAV type and almost exclusively denominated in EUR. MMFs in Luxembourg and Ireland are mainly in non-EU currencies and set up mostly as CNAVs and LVNAVs. MMFs authorised in other EU jurisdictions are VNAVs denominated in other EU domestic currencies and account only for a small fraction of assets; Asset allocation: The portfolio structure of EU MMFs remains relatively stable over time, and they are mainly exposed to the financial sector. Between March 2020 and June 2022, average exposures to credit institutions amount to 60% of total assets. Most of the EU MMFs' government debt exposure is towards non-EU sovereigns, and during March to December 2020 LVNAVs increased their share of government bonds before starting a slow readjustment back to the pre-COVID composition; Liquid assets and risk sensitivity: The share of daily and weekly liquid assets remained above the regulatory minimum, and increased for CNAVs at a regular pace starting in 3Q20. As of 3Q21, EU MMFs have significantly reduced the interest rate risk sensitivity of their portfolios, measured as the weighted average maturity of assets (WAM), to improve resilience to a rate rise; Ownership and liabilities: Professional investors hold more than 90% of EU MMFs. Financial corporations are the main unitholders of MMF shares, with insurance firms, pension funds and banks accounting together for 25% of NAV and other financial institutions, including collective investment undertakings, for 45% of the NAV. Between December 2021 and March 2022 MMFs experienced substantial outflows, partially driven by investor expectations linked to the increase in interest rates and a turning investor sentiment away from fixed income instruments in general, a trend that reversed later in 2022." ESMA's release adds, "In its opinion from February 2022, ESMA proposed that the European Commission should consider a number of changes to the MMF Regulation, intended to make MMFs more resilient. These reforms would help to improve the overall stability of financial markets, by reducing the risk of liquidity stress. Alongside key policy measures such as addressing the threshold effects for CNAV MMFs, and addressing liquidity related issues, ESMA suggested complementary reforms aimed at enhancing MMFs' preparedness for a crisis. These reforms would include enhancements of reporting requirements and the stress testing framework, as well as new disclosure requirements linked to the rating of MMFs. ESMA has also highlighted the importance of having these changes to the MMF Regulation implemented speedily. ESMA will continue to monitor and analyse the risks in the MMF sector." See the full Final Report here (and watch for more coverage in coming days), and see the "ESMA opinion on the review of the Money Market Fund Regulation.")
Bond Fund Symposium, March 23-24
Crane Data is gearing up for its sixth annual ultra-short bond fund event, Bond Fund Symposium, which will take place March 23-24, 2023 at the Hyatt Regency Boston. Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. Registrations are still being accepted ($1,000) and sponsorship opportunities are still available. See the latest agenda here and we review the latest details below. (Clients and friends are welcome to stop by the BFS Cocktail Party at BFS on 3/23 from 5-7pm!) Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of discounted rooms has been reserved at the Hyatt Regency. We'd like to thank our sponsors and exhibitors -- Northern Trust, GLMX, J.P. Morgan Asset Management, Morgan Stanley, Allspring Global, J.P. Morgan Securities, Fitch Ratings, Fidelity Investments, S&P Global Ratings, Dreyfus, Toyota and Dechert -- for their support. (We'd love to get some new ones!) E-mail us for more details. Also, we're starting preparations for our "big show," Money Fund Symposium, which will be held June 21-23, 2023, at the Hyatt Regency in Atlanta. The latest agenda for the largest gathering of money market fund managers and cash investors in the world is now available and registrations are being taken. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. (Let us know if you'd like details on speaking or sponsoring.) Finally, mark your calendars for our next European Money Fund Symposium, which will be held Sept. 25-26, 2023, in Edinburgh, Scotland. Watch for details on these shows in coming weeks and months.
Money Fund Yields Jump to 4.23%
Money fund yields jumped higher again last week, with our Crane 100 Money Fund Index (7-Day Yield) rising 9 basis points to 4.23% for the week ended Friday, 2/3. Yields rose by 2 basis points the previous week, and they're up from 4.05% on 12/31/22. They're up from 3.59% on Nov. 30, 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should move higher in coming days as they digest the Fed's Feb. 1 25 bps rate hike. The top-yielding money market funds have broken above 4.50% and should move towards 4.75% in coming weeks. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 672), shows a 7-day yield of 4.11%, up 8 bps in the week through Friday. Prime Inst MFs were up 7 bps at 4.34% in the latest week. Government Inst MFs rose by 8 bps to 4.15%. Treasury Inst MFs up 8 bps for the week at 4.14%. Treasury Retail MFs currently yield 3.92%, Government Retail MFs yield 3.87%, and Prime Retail MFs yield 4.18%, Tax-exempt MF 7-day yields were down at 1.52%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (2/3), 2 funds (805 total) have fallen below the 2.0% yield mark this past week, and many continue to rise over 4.0%; 132 funds yield between 0.00% and 1.99% with $109.2 billion, or 2.1%; 5 funds yield between 2.00% and 2.99% with $8.7 billion, or 0.2%; 194 funds yield between 3.00% and 3.99% ($221.1 billion, or 4.3%), and 474 funds yield 4.0% or more ($4.842 trillion, or 93.5%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged last week at 0.52%. The latest Brokerage Sweep Intelligence, with data as of Feb. 3, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
JPM Low Duration Bond Fund Update
J.P. Morgan Securities' latest "Short-Term Market Outlook & Stragegy includes a brief "Low duration bond fund update." They write, "Consistent with the broader U.S. fixed income markets, total short-term funds (effective duration of 1.5-3.5y) and ultra-short term bond funds (effective duration of 0.5-1.5y) saw significant outflows last year prompted by the Fed's aggressive tightening agenda. Based on the bond funds we track, low duration bond fund AUMs declined by an estimated $150bn (or 15%) YoY, to $841bn as of December-end: short-term fund AUMs declined by $117bn, and ultra-short term fund AUMs declined by $33bn." They add, "Not surprisingly, short-term credit funds saw most of the outflows last year (-$118bn) given their longer duration relative to ultra-short bond funds and money funds. In fact, total returns for short-term bond funds significantly underperformed last year, delivering substantial negative total returns on a 1y basis relative to ultra-short bond funds and MMFs.... In contrast, MMFs meaningfully outperformed as they benefitted from extremely low WAMs and quicker resets in an aggressively rising interest rate environment." (Watch for more coverage in the upcoming February issue of our Bond Fund Intelligence publication.)
Money Funds Eke Out Another Record
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets inching higher to their second record in a row following two weeks of modest declines. Money funds saw their biggest weekly increase since April 29, 2020 during the first week of 2023, and they've risen by $237.1 billion (or 5.2%) over the past 13 weeks. Over the past 52 weeks, money fund assets are up by $194 billion, or 4.2%, with Retail MMFs rising by $280 billion (18.9%) and Inst MMFs falling by $86 billion (-2.7%). ICI shows assets up by $86 billion, or 1.8%, year-to-date in 2023, with Institutional MMFs up $2 billion, or 0.1% and Retail MMFs up $85 billion, or 5.0%. The weekly release says, "Total money market fund assets increased by $2.14 billion to $4.82 trillion for the week ended Wednesday, February 1, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $7.57 billion and prime funds increased by $15.69 billion. Tax-exempt money market funds decreased by $5.98 billion." ICI's stats show Institutional MMFs falling $14.0 billion and Retail MMFs increasing $16.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.975 trillion (82.4% of all money funds), while Total Prime MMFs were $735.6 billion (15.3%). Tax Exempt MMFs totaled $110.9 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $16.16 billion to $1.76 trillion. Among retail funds, government money market fund assets increased by $8.30 billion to $1.19 trillion, prime money market fund assets increased by $12.67 billion to $473.34 billion, and tax-exempt fund assets decreased by $4.81 billion to $99.85 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 67.5% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $14.02 billion to $3.06 trillion. Among institutional funds, government money market fund assets decreased by $15.87 billion to $2.79 trillion, prime money market fund assets increased by $3.02 billion to $262.29 billion, and tax-exempt fund assets decreased by $1.17 billion to $11.03 billion." Institutional assets accounted for 63.5% of all MMF assets, with Government Institutional assets making up 91.1% of all Institutional MMF totals. For the month of January 2023 (through 1/31/23), money fund assets decreased by $3.3 billion to $5.196 trillion, according to Crane Data's Money Fund Intelligence Daily. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Fed Hikes Rates 25 bps to 4.50-4.75%
A release entitled, "Federal Reserve issues FOMC statement" tells us, "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. Russia's war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Watch for money market fund yields to move higher in coming days as the latest Fed hike gets digested.
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 Jan. 27) includes Holdings information from 53 money funds (down 14 from a week ago), which represent $1.727 trillion (down from $2.040 trillion) of the $5.195 trillion (33.2%) in total money fund assets 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.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.023 trillion (down from $1.227 trillion a week ago), or 59.2%; Treasuries totaling $467.8 billion (down from $508.7 billion a week ago), or 27.1%, and Government Agency securities totaling $108.2 billion (down from $117.7 billion), or 6.3%. Commercial Paper (CP) totaled $55.6 billion (down from a week ago at $73.1 billion), or 3.2%. Certificates of Deposit (CDs) totaled $24.1 billion (down from $32.6 billion a week ago), or 1.4%. The Other category accounted for $34.2 billion or 2.0%, while VRDNs accounted for $14.5 billion, or 0.8%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $637.4 billion (36.9%), the US Treasury with $467.7 billion (27.1% of total holdings), Fixed Income Clearing Corp with $111.8B (6.5%), Federal Home Loan Bank with $68.8B (4.0%), JP Morgan with $46.7B (2.7%), Federal Farm Credit Bank with $36.4B (2.1%), Barclays PLC with $29.1B (1.7%), RBC with $26.7B (1.5%), Citi with $18.6B (1.1%), and Mitsubishi UFJ Financial Group Inc with $18.5B (1.1%). The Ten Largest Funds tracked in our latest Weekly include: Dreyfus Govt Cash Mgmt ($153.2B), Fidelity Inv MM: Govt Port ($126.4B), Morgan Stanley Inst Liq Govt ($123.1B), BlackRock Lq FedFund ($120.8B), BlackRock Lq Treas Tr ($105.8B), Allspring Govt MM ($95.8B), Fidelity Inv MM: MM Port ($92.5B), BlackRock Lq T-Fund ($85.1B), Invesco Govt & Agency ($84.7B) and State Street Inst US Govt ($74.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
