Link of The Day
WSJ Quotes Powell: Maybe No Cuts
The Wall Street Journal writes, "Powell Dials Back Expectations on Rate Cuts." The article tells us, "Firm inflation during the first quarter has called into question whether the Federal Reserve will be able to lower interest rates this year without signs of an unexpected economic slowdown, Chair Jerome Powell said Tuesday. His remarks indicated a clear shift in the Fed's outlook following a third consecutive month of stronger-than-anticipated inflation readings, which derailed hopes that the central bank might be able to deliver pre-emptive rate cuts this summer. Officials had previously said they were looking for greater confidence that inflation was returning to their target and were optimistic another month or two of data might meet that standard." They quote Powell during a Q&A in Washington, "The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence." The piece continues, "The remarks were his first public comments since an inflation report last week sent stocks sliding as investors recalibrated their rate-cut expectations.... Powell indicated Tuesday the Fed wasn't considering rate increases, either. Instead, Powell said officials would leave rates at their current level 'as long as needed' if inflation proved more stubborn. He also said the Fed would be prepared to cut rates if the economy was slowing sharply. Officials raised rates last summer to a 23-year high and have held them there since July." Powell adds, "We think policy is well positioned to handle the risks that we face.... Right now, given the strength of the labor market and progress on inflation so far, it's appropriate to allow restrictive policy further time to work."
Kiplinger's Warns on High Rates
Kiplinger's writes, "Why You Shouldn't Let High Interest Rates Seduce You," which says, "[N]early half of all Americans (48%) said they are keeping more money than they should in cash because they're worried about a recession, according to the 2024 Q1 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America. More than half of Americans (57%) said they are keeping more money in a high-yield savings account (HYSA) or money market funds because of interest rates. Millennials, in particular, said they are holding more money in these accounts. While 62% of Millennials said they are keeping more money in high-yield savings accounts or money market funds because of rising interest rates, 50% of Gen Xers and 54% of Boomers said the same." The article tells us, "The allure of high interest rates can make it feel like holding cash in an HYSA is a wise financial move. Yes, you need to have cash for emergencies and unexpected expenses like car repairs, medical bills and other needs. You don't want to take on debt in order to cover those bills. So, your emergency fund should be kept in cash or another liquid asset. Beyond that, you need to keep your money for long-term savings working for you -- invested in the market. While some investments can be volatile in the short term, investments typically increase in value in the end." Kiplinger's adds, "While interest rates are high now, they may go back down. Moreover, we don't know when or by how much. So, for long-term growth, that HYSA may not cut it. Keeping money in cash could cause you to lose out in the end."
ICI's Money Market Fund Holdings
ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in March, prime money market funds held 41.1 percent of their portfolios in daily liquid assets and 59.5 percent in weekly liquid assets, while government money market funds held 78.6 percent of their portfolios in daily liquid assets and 88.1 percent in weekly liquid assets." Prime DLA was up from 39.4% in February, and Prime WLA was up from 58.3%. Govt MMFs' DLA was up from 78.1% and Govt WLA increased from 87.3% the previous month. ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 36 days and a weighted average life (WAL) of 52 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 40 days and a WAL of 85 days." Prime WAMs were 1 day longer and WALs were unchanged from the previous month. Govt WAMs were 1 day shorter and WALs were 1 day shorter from February. Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $504.42 billion in February to $544.42 billion in March. Government money market funds’ holdings attributable to the Americas rose from $4,435.52 billion in February to $4,442.71 billion in March." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $544.4 billion, or 53.9%; Asia and Pacific at $157.5 billion, or 15.6%; Europe at $290.3 billion, or 28.8%; and, Other (including Supranational) at $17.3 billion, or 1.7%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.443 trillion, or 90.8%; Asia and Pacific at $133.1 billion, or 2.7%; Europe at $296.8 billion, 6.1%, and Other (Including Supranational) at $21.6 billion, or 0.4%.
FT on Prime Inst Money Fund Shifts
The Financial Times writes, "Managers to shut or convert $220bn of US money market funds before rule change," which explains, "The $674bn US institutional prime money market funds sector is set to shrink by at least one-third this year, as large investment firms shut down these vehicles rather than pay for upgrades needed to meet new regulations. Cash managers including Federated Hermes, Capital Group and Vanguard say they are planning to close institutional prime money market funds holding more than $220bn in assets or convert them to another type of fund before Securities and Exchange Commission rules come into effect in early October, imposing a mandatory fee on large redemptions. Other managers say they are still deciding what to do, but analysts at Bank of America and industry executives predict additional closures and conversions as the deadline draws nearer." The article incorrectly states, "Under the new rules, institutional prime funds must impose a fee on departures whenever net redemptions top five per cent of total net assets in a single day." [Prices also have to move more than a "de minimis" amount.] It also says, "But a number of large managers have chosen to shut down prime funds or convert to government debt-focused vehicles, which will not be subject to the rules. They argue that the new criteria constitute an 'operationally difficult' and 'highly prescriptive' burden that will push up costs and complicate fund structures.... Interest remains strong in retail prime funds, which are not affected by the new SEC liquidity fees. These funds' net assets were up 48 percent year on year at $750bn at the end of March, according to Crane Data." The piece adds, "Many firms are still attempting to 'figure out' how to implement the rule, said Eric Pan, chief executive of the Investment Company Institute, noting that there is demand for prime money market funds and a number of providers will 'do [their] damnedest to try to meet that demand.'" Fpr more, see Crane Data's April Money Fund Intelligence and our April 1 Link of the Day, "Federated Liquidating Money Mkt Trust," our March 20 News, "Vanguard Market Liquidity Fund Files to Go Government, Joins American" and our Feb. 6 News, "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees."
MMF Assets Fall Ahead of April 15
ICI's latest "Money Market Fund Assets" report shows money market mutual fund assets falling sharply ahead of the April 15 tax payment date to $6.080 trillion in the latest week after a jump the prior week. MMF assets are still up by $194 billion, or 4.1%, year-to-date in 2024 (through 4/10/24), with Institutional MMFs up $68 billion, or 2.2% and Retail MMFs up $126 billion, or 7.5%. Over the past 52 weeks, money funds have risen by $803 billion, or 15.2%, with Retail MMFs rising by $513 billion (26.9%) and Inst MMFs rising by $290 billion (8.6%). The weekly release says, "Total money market fund assets decreased by $30.98 billion to $6.08 trillion for the week ended Wednesday, April 10, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $28.03 billion and prime funds decreased by $3.19 billion. Tax-exempt money market funds increased by $249 million." ICI's stats show Institutional MMFs falling $17.9 billion and Retail MMFs dropping $13.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.930 trillion (81.1% of all money funds), while Total Prime MMFs were $1.026 trillion (16.9%). Tax Exempt MMFs totaled $124.3 billion (2.0%). ICI explains, "Assets of retail money market funds decreased by $13.07 billion to $2.42 trillion. Among retail funds, government money market fund assets decreased by $10.30 billion to $1.55 trillion, prime money market fund assets decreased by $3.07 billion to $751.42 billion, and tax-exempt fund assets increased by $291 million to $112.69 billion." Retail assets account for over a third of total assets, or 39.7%, and Government Retail assets make up 64.2% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $17.91 billion to $3.66 trillion. Among institutional funds, government money market fund assets decreased by $17.74 billion to $3.38 trillion, prime money market fund assets decreased by $125 million to $274.27 billion, and tax-exempt fund assets decreased by $42 million to $11.57 billion." Institutional assets accounted for 60.3% of all MMF assets, with Government Institutional assets making up 92.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $100.6 billion in April (through 4/10) to $6.498 trillion (they were a record $6.538 trillion on 4/2). Assets fell $68.8 billion in March, but rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. 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.
FOMC Minutes Discuss RRP, MMFs
The latest "Minutes of the Federal Open Market Committee for the meeting dated March 19–20, 2024 tell us, "Conditions in U.S. money markets had been stable over the intermeeting period, with less upward pressure on repurchase agreement (repo) rates than in recent intermeeting periods. The usage of the overnight reverse repurchase agreement (ON RRP) facility had continued to decline, albeit at a somewhat slower pace than that seen over the second half of 2023. Staff projections suggested that total ON RRP balances might stabilize in coming months at either zero or a low level. This assessment was also supported by information acquired in Desk outreach efforts." The Minutes state, "The manager provided an update on indicators of reserve conditions. Over the past few years, rate control had been effective, with the effective federal funds rate being firmly within the Committee's target range. The staff assessed that, over the intermeeting period, the federal funds rate continued to be insensitive to day-to-day changes in the supply of reserves. This outcome, together with various other indicators of reserve conditions, supported the conclusion that reserves remained abundant. The manager noted that there was nevertheless significant uncertainty about the demand for reserves and that, under the current pace of runoff of the Federal Reserve's securities portfolio, stabilization in total ON RRP balances would, all else equal, cause reserves to start declining at a rapid rate." They comment, "Some participants also mentioned the importance of both the discount window and the standing repo facility as liquidity backstops as reserves decline. Many participants commented on aspects of the composition of the Federal Reserve's securities holdings, including the appropriate longer-run maturity composition of the System Open Market Account portfolio and options to achieve in the longer run a portfolio that consists primarily of Treasury securities." The Minutes also say, "Over the intermeeting period, the market-implied path for the federal funds rate through 2024 increased markedly, reversing the declines that had occurred since late last year. Consistent with the increase in the implied policy rate path, intermediate- and longer-term Treasury yields moved up over the period, with larger increases concentrated at shorter maturities. Most of the increase in short-term Treasury yields was attributed to a rise in near-term inflation compensation. Market-based measures of near-term interest rate uncertainty for shorter-term yields remained elevated by historical standards, in part reflecting investors’ continued uncertainty about the path of policy rates." They add, "Conditions in U.S. short-term funding markets remained stable over the intermeeting period. Usage of the ON RRP facility continued to decline. However, the decline in average take-up was less than in the two previous periods, suggesting that the rate of decline could be slowing. The continuing decline in ON RRP take-up primarily reflected money market funds' (MMFs) ongoing reallocation of assets to Treasury bills amid continued bill issuance and relatively attractive bill yields. Banks' total deposit levels edged up further in January and February, likely reflecting, in part, rising nominal income and somewhat more competitive deposit rates. MMFs continued to provide relatively attractive yields to investors and experienced modest inflows since the January FOMC meeting."
FDIC on Deposit Outflows in '23
A publication titled, "FDIC Quarterly: 2023 Summary of Deposits Highlights" reviews last year's decline in deposits. The FDIC states, "Total domestic deposits of FDIC-insured institutions decreased 4.8 percent in the year ending June 2023, the first annual decline in deposits since 1995, while the number of banks decreased 2.6 percent.... Deposit outflows largely subsided by second quarter 2023, declining slightly from $18.7 trillion to $18.6 trillion between March 31, 2023, and June 30, 2023." The brief tells us, "Between June 2022 and June 2023, deposits decreased $874.1 billion to $17.2 trillion (4.8 percent)." It explains, "Lower yields on deposit rates lagged other market interest rates, such as those paid by money market funds, contributing to the decline in deposits. The rate of deposit decline increased following three bank failures in the first half of 2023, causing the largest quarterly decline in deposits since Consolidated Reports of Condition and Income (Call Report) data collection began in 1984. Most of the quarterly deposit decline was in uninsured deposits." The FDIC adds, "Banks with assets greater than $10 billion reported deposit declines in 2023, while banks with less than $10 billion in assets reported slight growth or no growth.... Banks with total assets greater than $250 billion reported the largest decline in deposits, $675 billion or 6.8 percent. These 14 institutions represented about 77.5 percent of the total decline in the industry's deposits in the year ending June 30, 2023. Banks with assets between $1 billion and $10 billion reported 1.2 percent deposit growth, and the smallest banks reported slight deposit declines of 0.1 percent."
Tradeweb to Acquire ICD Portal
A press release titled, "Tradeweb to Acquire ICD," states, "Tradeweb Markets Inc. (TW), a leading, global operator of electronic marketplaces for rates, credit, equities and money markets, ... announced it has entered into a definitive agreement to acquire Institutional Cash Distributors, LLC ('ICD'), an institutional investment technology provider for corporate treasury organizations trading short-term investments, for $785 million, subject to customary adjustments. The purchase price is expected to be funded with cash on hand." It continues, "With the acquisition of ICD and its powerful, proprietary technology, Tradeweb will add a new and fast-growing client channel serving corporate treasury professionals, complementing Tradeweb's existing focus on institutional, wholesale and retail clients. Established in 2003, ICD enables more than 500 corporate treasury organizations from growth and blue-chip companies (including approximately 17% of the S&P 100 as of December 31, 2023) across 65 industries and more than 45 countries to invest in money market funds and other short-term products to manage liquidity. ICD is one of the largest U.S. institutional money market fund portals, and in 2023, had average daily balances of more than $230 billion. The company has a stable, growing and loyal client base, with 99% client retention and an exceptional net promoter score. ICD's flagship products include ICD Portal and ICD Portfolio Analytics. The portal is a one-stop shop to research, trade, analyze, and report on investments across more than 40 available investment providers primarily offering money market funds and access to other short term products including deposits, fixed term funds and separately managed accounts (SMAs). Portfolio Analytics is an AI-driven cloud solution for aggregating positions across a corporate treasury's entire portfolio for analysis and reporting." The release adds, "As part of Tradeweb, ICD will provide a comprehensive solution for corporate treasurers and asset managers worldwide to manage short-term liquidity needs and FX risk, as well as optimize yield and duration via Tradeweb's existing suite of products. ICD clients will retain the ability to fully integrate their workflows with leading third-party treasury management and accounting systems and ICD's portfolio analytics solution. In addition to opportunities to cross-sell Tradeweb’s products to ICD's clients, Tradeweb will aim to accelerate ICD's growth and expansion by leveraging Tradeweb's international presence and offering money market funds to Tradeweb's existing network of clients globally.... Upon closing of the transaction, ICD's CEO Tory Hazard will report to Tradeweb President Thomas Pluta and will join Tradeweb's Operating Committee."
MarketWatch: Cash Won't Flee MMFs
MarketWatch writes "Cash won't flee money-market funds if the Fed gets its soft landing." The piece tells us, "The Federal Reserve's slow approach to cutting interest rates could keep cash on the sidelines long after the central bank starts to unwind its most aggressive hiking cycle in four decades. Conventional wisdom says investors shouldn't wait for the Fed to start lowering rates to move out of cash into longer-duration bonds with some of the most attractive yields in roughly 15 years, largely because when cuts start, they can come quickly. But it's hard to argue against investors wanting to stay put, earning roughly 5% in money-market funds and other cashlike investments, especially when the timing and magnitude of potential rate cuts has been a moving target." It explains, "Since it began hiking rates two years ago, one of the Fed's biggest tests came with the collapse of Silicon Valley Bank a year ago. Assets in money-market funds swelled by about $1 trillion as deposits fled the banking system for higher yields elsewhere. Inflows into money funds continued, hitting a record $6.5 trillion in February, according to the U.S. Securities and Exchange Commission. While bank deposits now appear to have stabilized, the outlook for interest rates hasn't. Wall Street's initial estimate of up to seven rate cuts in 2024 has been dialed back to three, two or possibly none." They quote John Tobin, CIO of Dreyfus, "What the market has been predicting and what the Fed has been delivering have been very different things. It wasn't that long ago ... that traders were pricing in a roughly 80% chance of a March rate cut. `That wasn't our base case at all. We thought June was the right time and still believe that today. It's almost a coin toss if June is or isn't in play.... I think this easing cycle remains a tailwind for us."
MMFs Surge to Record $6.111 Trillion
ICI's latest "Money Market Fund Assets" report shows money market mutual fund assets rebounding sharply to a record $6.111 trillion in the latest week after declines the previous 2 weeks. MMF assets are up by $225 billion, or 4.7%, year-to-date in 2024 (through 4/4/24), with Institutional MMFs up $86 billion, or 2.8% and Retail MMFs up $139 billion, or 8.3%. Over the past 52 weeks, money funds have risen by $864 billion, or 16.5%, with Retail MMFs rising by $534 billion (28.2%) and Inst MMFs rising by $330 billion (9.9%). The weekly release says, "Total money market fund assets increased by $70.50 billion to $6.11 trillion for the week ended Wednesday, April 3, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $62.82 billion and prime funds increased by $4.93 billion. Tax-exempt money market funds increased by $2.76 billion." ICI's stats show Institutional MMFs jumping $45.2 billion and Retail MMFs jumping $25.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.958 trillion (81.1% of all money funds), while Total Prime MMFs were $1.029 trillion (16.8%). Tax Exempt MMFs totaled $124.0 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $25.31 billion to $2.43 trillion. Among retail funds, government money market fund assets increased by $18.95 billion to $1.56 trillion, prime money market fund assets increased by $4.52 billion to $754.49 billion, and tax-exempt fund assets increased by $1.84 billion to $112.40 billion." Retail assets account for over a third of total assets, or 39.7%, and Government Retail assets make up 64.3% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $45.19 billion to $3.68 trillion. Among institutional funds, government money market fund assets increased by $43.87 billion to $3.40 trillion, prime money market fund assets increased by $406 million to $274.40 billion, and tax-exempt fund assets increased by $918 million to $11.61 billion." Institutional assets accounted for 60.3% of all MMF assets, with Government Institutional assets making up 92.2% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $125.3 billion in April (through 4/3) to $6.523 trillion (they were a record $6.538 trillion on 4/2). Assets fell $68.8 billion in March, but rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. 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.
Reuters on Tax Season Liquidity
Reuters writes, "Wall Street gears up for US tax season liquidity test." The article comments, "Wall Street is bracing for a potential bout of stress in money markets by putting some cash on the side ahead of U.S. tax day, when high tax-related outflows could hurt market liquidity. Tax season, which culminates on April 15 when income tax returns are to be submitted to the U.S. federal government, is typically associated with a drop in financial sector liquidity as individuals draw down cash from bank deposits and money market funds to pay their taxes." It explains, "Liquidity, measured by bank reserves at the Federal Reserve and the Fed's overnight reverse repo facility (RRP) -- a favored place for money market funds to park their cash -- is still considered abundant, but high capital gains from booming stock markets last year could make outflows particularly sizeable this year, analysts have said, a scenario that could lead to a surge in short-term interest rates." The piece quotes Joseph D'Angelo, head of PGIM Fixed Income's money markets team, "It could be bumpy getting over that period. To be defensive ... you would effectively manage your maturities in such a way that you make sure you have enough liquidity in front of that date." Reuters adds, "Having more cash available ahead of tax day could also allow fund managers to take advantage of any potential volatility, some of them said, should borrowing costs increase because of higher demand for cash."
Weekly Money Fund 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 March 29) includes Holdings information from 61 money funds (down 21 from a week ago), or $2.941 trillion (down from $3.531 trillion) of the $6.397 trillion in total money fund assets (or 46.0%) 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 March 12 News, "March MF Portfolio Holdings Show Another Treasury Jump, Repo Plunge.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.432 trillion (down from $1.589 trillion a week ago), or 48.7%; Repurchase Agreements (Repo) totaling $1.017 trillion (down from $1.270 trillion a week ago), or 34.6%, and Government Agency securities totaling $251.1 billion (down from $303.7 billion), or 8.5%. Commercial Paper (CP) totaled $92.0 billion (down from a week ago at $126.0 billion), or 3.1%. Certificates of Deposit (CDs) totaled $69.6 billion (down from $96.6 billion a week ago), or 2.4%. The Other category accounted for $49.2 billion or 1.7%, while VRDNs accounted for $30.8 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.432 trillion (48.7% of total holdings), Fixed Income Clearing Corp with $245.3B (8.3%), Federal Home Loan Bank with $197.5B (6.7%), the Federal Reserve Bank of New York with $147.6 billion (5.0%), RBC with $71.9B (2.4%), BNP Paribas with $68.1B (2.3%), JP Morgan with $66.6B (2.3%), Goldman Sachs with $53.6B (1.8%), Citi with $51.8B (1.8%) and Federal Farm Credit Bank with $50.6B (1.7%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($251.1B), Goldman Sachs FS Govt ($210.8B), Fidelity Inv MM: Govt Port ($203.0B), JPMorgan 100% US Treas MMkt ($198.3B), BlackRock Lq FedFund ($144.7B), Morgan Stanley Inst Liq Govt ($133.8B), State Street Inst US Govt ($130.0B), Fidelity Inv MM: MM Port ($128.6B), Dreyfus Govt Cash Mgmt ($117.5B) and Allspring Govt MM ($115.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
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