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Pensions & Investments writes "U.K. money market funds suffer outflows amid bond market chaos." They tell us, "Certain sterling-denominated money market funds experienced 'substantial' outflows as a result of the decline in U.K. gilt prices over recent weeks, with some strategies potentially forced to convert to a different model, Moody's Investors Service said. The ratings agency said in a market note Wednesday that low-volatility net asset value money market funds -- a type of short-term money market fund -- are at risk of needing to convert to a variable net asset value model, which would be a credit negative. Outflows were not immediately available." The piece explains, "The outflows partly reflect moves by U.K. pension funds to sell assets to meet collateral calls on LDI-related derivatives positions, Moody's said. 'The combination of extreme volatility in the price of short-dated government bonds and investor outflows has put downward pressure on the mark-to-market (net-asset values) of the affected' money market funds." It adds, "Intervention by the Bank of England to temporarily buy long-dated gilts 'brought some stability, but the scale of the initial NAV declines demonstrate the stress the U.K. bond market was under,' Moody's said. The threat of forced conversions for low-volatility strategies is further adding to the money market fund industry's 'anxiety,' Moody's said." Crane Data's Money Fund Intelligence International shows GBP money market fund assets increasing substantially over the past week. They've risen by L41.4 billion to L245.0 billion for the week ended October 4. They had declined by L11.9 billion the prior week, and market NAVs are currently 0.9994 on average.

Crane Data's Peter Crane was recently featured on Blockworks' Forward Guidance Podcast hosted by Jack Farley. (See the YouTube video here and the Podcast here.) The episode "What Will Break First?" includes segments on: "Reflecting On the Fed's September FOMC Meeting (2:10)," "What Is A Money Market Fund? (4:48)," "What Will Break? (14:37)," "Maturity & Composition (18:41)," "Why Are There No Inflows Into Money Market Funds? (25:31)," "Quantitative Tightening (QT) (27:37)," "Who Invests In Money Market Funds (31:36)," "Offshore Dollar Money Market Funds (39:19)," "New SEC Regulation on Money Market Funds ("Swing Pricing") (43:03)," "What Part of The Financial System Will Crack First? (51:45)," "How Bad Is Treasury Liquidity? (1:05:12)," "Pete Crane on Stablecoins (1:06:33)," and, "Joseph Wang On Sales of Mortgage-Backed Securities (1:10:55)." The description says, "With the Fed hiking interest rates rapidly in order to fight inflation, cash is finally earning its highest yield since before the Great Financial Crisis. Peter Crane, President of Crane Data, and Joseph Wang, former senior trader for the Federal Reserve, join Jack to discuss how the growing attractiveness of cash might cause markets to 'break' as investors pull capital out of risk assets and deploy it in cash and money market funds, which harvest yields on cash by investing them in ultra-short duration loans to extremely safe counterparties, primarily the U.S. government and the Federal Reserve."

Money fund yields jumped again last week -- our Crane 100 Money Fund Index (7-Day Yield) rose 34 basis points to 2.68% in the week ended Friday, 9/30. Yields rose by 24 basis points the previous week, 5 bps the week before that, and 3 basis points the week before that. On average, they're up from 1.57% on July 29, up from 1.18% on June 30 and more than quadruple their level of 0.58% on May 31. MMF yields are up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Yields continue to surge higher as they digest the Fed's Sept. 21 75 bps rate hike. Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 679), shows a 7-day yield of 2.55%, up 32 bps in the week through Friday. The Crane Money Fund Average is up 152 bps since beginning of July and up 208 bps from 0.47% at the beginning of June. Prime Inst MFs were up 39 bps to 2.80% in the latest week, up 153 bps since the start of July and up 216 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 30 bps to 2.59%, they are up 149 bps since start of July and up 205 bps since the start of June. Treasury Inst MFs up 25 bps for the week at 2.54%, up 150 bps since beginning of July and up 204 bps since the beginning of June. Treasury Retail MFs currently yield 2.33%, (up 27 bps for the week, up 153 bps since July and up 203 bps since June), Government Retail MFs yield 2.33% (up 33 bps for the week, up 154 bps since July started and up 207 bps since June started), and Prime Retail MFs yield 2.64% (up 37 bps for the week, up 157 bps from beginning of July and up 216 bps from beginning of June), Tax-exempt MF 7-day yields rose by 45 bps to 1.77%, they are up 121 bps since the start of July and up 139 bps since the start of June. According to Monday's Money Fund Intelligence Daily, with data as of Friday (9/30), 155 funds (out of 818 total) still yield between 0.00% and 1.99% with assets of $95.5 billion, or 1.9% of total assets; 245 funds yield between 2.00% and 2.49% with $1.061 trillion in assets, or 21.1%; 388 funds yielded between 2.50% and 2.99% with $3.501 trillion, or 69.5%; and just 30 funds yielded 3.00% or more ($378.4 billion, or 7.5%). Brokerage sweep rates also rose over the past week. Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (almost all of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), rose this past week at 0.34%. The latest Brokerage Sweep Intelligence, with data as of Sept. 30, shows three rate changes over the previous week. Last week, Raymond James increased rates to 0.20% for all balances between $1K and $99K, to 0.40% for balances between $100K and $249K, to 1.00% for all balances between $250K and $999K and to 1.50% for all balances between $1 million and $4.9 million. Schwab increased rates to 0.40% for all balances between $1K and over $5 million. TD Ameritrade increased rates to 0.30% for all balances between $1K and over $5 million. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

The Wall Street Journal writes "Three Ways You Can Cash In on Cash." Columnist Jason Zweig tells us, "Cash isn't trash anymore. With stocks -- and just about every other asset -- taking a beating this year, even the most aggressive investors can suddenly see the virtue of keeping some money liquid and safe from market turmoil. And, at long last, your cash can earn income you don't need a microscope to detect. To do better, though, you'll have to put your money in motion. Bank accounts have earned next to nothing for nearly a decade and a half -- and still do. With the Federal Reserve jacking up interest rates, the national average yields on savings and money-market accounts at banks have doubled this year -- to 0.14%, a level that Greg McBride, chief financial analyst at Bankrate.com, calls 'nothing short of pathetic.'" The piece continues, "Fortunately, raising the return on your cash is easier than ever. For most investors, the two best choices are money-market mutual funds and U.S. Treasury securities. For years, money-market funds' yields have been stuck near zero, and individual investors yanked $43 billion out of such funds last year, according to the Investment Company Institute. In recent months, though, these funds have finally begun to pay more income. The Crane 100 index of the largest money-market funds yielded 2.64% this week, up from only 0.02% in February and 2.01% at the end of August. 'Money-market funds are worth a second look now,' says Harry Sit, who runs a blog called The Finance Buff. 'Rather than having to wait for [online banks] Ally or Synchrony or Marcus to adjust their rates on savings accounts or CDs, your money-fund yields can adjust daily with the market.'" Zweig adds, "Your brokerage firm may force you into its 'cash sweep,' an account with an affiliated bank that is likely to pay much lower yields -- a measly average of only 0.29% as of Sept. 23, according to Crane Data. Sweep accounts are designed as a receptacle for the dividend and interest payments your stocks or other investments throw off. All too often, they function like a jail, imprisoning your cash where it earns punitively low returns. However, you should be able to transfer your cash balance out of any sweep accounts into money-market funds offering much higher income. This week, more than 380 money-market funds were yielding 2.5% or higher, averaged over the past seven days, according to Crane Data. Many are from such leading firms as Fidelity Investments, Charles Schwab and Vanguard Group."

J.P. Morgan Securities wrote earlier this month on "Fixing the roof while the sun is shining," which was subtitled, "Treasury central clearing takes shape via the SEC." They explain, "Last week, the SEC unanimously voted to propose a rule to increase central clearing of US Treasury cash and repo transactions and improve risk management at central counterpart(ies), namely the Fixed Income Clearing Corporation (FICC), which clear these products. Notably, the proposed regulation stops short of imposing a clearing mandate for all Treasury trades, but instead would require clearinghouses to demand their members to clear eligible secondary market transactions in US Treasury cash and repo markets. If finalized, the rule could impact a significant portion of the $24tn Treasury market (an outside study noted that only 13% of trades in US Treasuries were centrally cleared in 2017) as well as the $3.8tn Treasury repo market, of which only 30% are currently centrally cleared." The piece continues, "According to the SEC, this should 'help increase the safety and efficiency of securities trading and reduce costs,' 'mitigate the potential for a single market participant's failure to destabilize other market participants or the financial system,' and 'address concerns by substituting the clearinghouse's liquidity and creditworthiness for each counterparty.' There is a 60-day comment period." JPM explains, "In any case, the proposed rule will have implications for the money markets given substantial exposures to T-bills, short-dated Treasury coupons, Treasury FRNs, and Treasury repo. Indeed, government MMFs -- one of the largest investors in the money markets -- currently hold over $1.5tn of Treasury exposures ($1.3tn in the form of unsecured Treasury exposure and $0.25tn in the form of secured Treasury exposure). Meanwhile, recent research indicates that $63bn of MMFs' Treasury repo holdings were centrally cleared as of 2Q22, mostly through the FICC's Sponsored Program. While the proposed rule would exclude the $2tn of balances currently sitting at the Fed RRP, to the extent that cash gets reallocated back into the Treasury cash and/or repo markets, this would further increase the impact this rule could have on government MMFs and the rest of the money markets." They add, "Fortunately, the availability of sponsored cleared repo should help mitigate some of the operational impact. Currently, both registered investment companies (e.g. money funds) and qualified institutional buyers (e.g., hedge funds) can be sponsored onto the FICC sponsored repo platform by direct participants of FICC.... Since its launch in 2017, sponsored cleared repo has expanded to include Delivery-versus-Payment (DVP) and general collateral tri-party transactions in overnight and term maturities. Accordingly, to comply with the clearing mandate, a money market participant would migrate their uncleared, bilateral or tri-party repo transactions to sponsored cleared repo. That said, while many money market participants are already on the sponsored repo platform, not all are, particularly given some counterparty limitations at the FICC. To get them on the platform takes time. Furthermore, current rating agency guidelines limit how much repo exposure a MMF could have to any one counterparty. An industry shift towards sponsored repo will likely necessitate a change to those guidelines, though again, this takes time."

T. Rowe Price posted a piece entitled, "Market Setbacks Don’t Need to Set Back Your Retirement Plans," which tells us, "Late last year, in our 2022 U.S. Retirement Market Outlook, we expressed our concern that investment returns might be lower over the next several years than they have been historically. Little did we know that our concerns would materialize so fast. In the first half of 2022, the S&P 500 Index dropped 21%. For those of us involved in retirement planning, the recent volatility begs the question of whether -- and how -- retirement savers should react. We address this question by revisiting our retirement saving guidance, particularly, our suggested saving rate of 15% (including employer contributions) and age‑ and income‑specific savings benchmarks. We also outline possible strategies for workers and retirees to adapt to the current market conditions." It explains, "When heading into retirement, we suggest a cash buffer that could cover one to two years of spending needs. Having an alternative and stable source available to fund expenses can be particularly helpful in a down market to give retirees cover until their investments rebound. Consider holding these assets in a bank savings or money market account; short‑term bond funds; short‑term certificates of deposit; or, if in a high tax bracket, tax‑free short‑term bond or money market funds. This money provides retirees access to short‑term liquidity so that they do not have to withdraw from their longer‑term investments."

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 Sept. 23) includes Holdings information from 55 money funds (down 7 from a week ago), which represent $1.498 trillion (up from $2.114 trillion) of the $5.026 trillion (29.8%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $849.2 billion (down from $1.105 trillion a week ago), or 56.7%; Treasuries totaling $453.4 billion (down from $722.8 billion a week ago), or 30.3%, and Government Agency securities totaling $89.5 billion (down from $114.8 billion), or 6.0%. Commercial Paper (CP) totaled $39.6 billion (down from a week ago at $49.6 billion), or 2.6%. Certificates of Deposit (CDs) totaled $17.5 billion (down from $38.7 billion a week ago), or 1.2%. The Other category accounted for $32.8 billion or 2.2%, while VRDNs accounted for $15.6 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $644.9 billion (43.1%), the US Treasury with $453.4 billion (30.3% of total holdings), Federal Farm Credit Bank with $45.7B (3.1%), Federal Home Loan Bank with $39.7B (2.6%), Fixed Income Clearing Corp with $30.5B (2.0%), BNP Paribas with $21.1B (1.4%), JP Morgan with $16.6B (1.1%), Citi with $14.2B (1.0%), RBC with $13.9B (0.9%) and Federated with $11.8B (0.8%). The Ten Largest Funds tracked in our latest Weekly include: BlackRock Lq FedFund ($145.6B), Federated Hermes Govt ObI ($138.6B), Morgan Stanley Inst Liq Govt ($138.1B), State Street Inst US Govt ($109.5B), BlackRock Lq Treas Tr ($106.7B), Allspring Govt MM ($104.2B), BlackRock Lq T-Fund ($92.5B), First American Govt Oblg ($78.3B), Invesco Govt & Agency ($67.1B) and Morgan Stanley Inst Liq Treas Sec ($50.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Money fund yields jumped higher again -- our Crane 100 Money Fund Index (7-Day Yield) rose 24 basis points to 2.34% in the week ended Friday, 9/23. Yields rose by 5 basis points the previous week, 3 bps the week before that, and 3 basis points the week before that. On average, they're up from 1.57% on July 29, up from 1.18% on June 30 and more than triple their level of 0.58% on May 31. MMF yields are up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Yields continue to surge higher as they digest the Fed's Sept. 21 75 bps rate hike. Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 679), shows a 7-day yield of 2.23%, up 22 bps in the week through Friday. The Crane Money Fund Average is up 120 bps since beginning of July and up 176 bps from 0.47% at the beginning of June. Prime Inst MFs were up 22 bps to 2.41% in the latest week, up 114 bps since the start of July and up 177 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 24 bps to 2.29%, they are up 119 bps since start of July and up 175 bps since the start of June. Treasury Inst MFs up 22 bps for the week at 2.29%, up 125 bps since beginning of July and up 179 bps since the beginning of June. Treasury Retail MFs currently yield 2.06%, (up 24 bps for the week, up 126 bps since July and up 176 bps since June), Government Retail MFs yield 2.00% (up 23 bps for the week, up 121 bps since July started and up 174 bps since June started), and Prime Retail MFs yield 2.27% (up 23 bps for the week, up 120 bps from beginning of July and up 179 bps from beginning of June), Tax-exempt MF 7-day yields rose by 28 bps to 1.32%, they are up 76 bps since the start of July and up 94 bps since the start of June. According to Monday's Money Fund Intelligence Daily, with data as of Friday (9/23), just 19 funds (out of 818 total) still yield between 0.00% and 0.99% with assets of $1.2 billion, or 0.0% of total assets; 91 funds yield between 1.00% and 1.49% with $48.7 billion in assets, or 1.0%; 78 funds yielded between 1.50% and 1.74% with $95.7 billion or 1.9%; 85 funds yielded between 1.75% and 1.99% ($96.0 billion, or 1.9%); 165 funds yielded between 2.00% and 2.24% ($1.021 trillion, or 20.3%) and 380 funds yielded 2.25% or more ($3.763 trillion, or 74.9%). Brokerage sweep rates jumped over the past week. Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (almost all of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), rose this past week at 0.29%. The latest Brokerage Sweep Intelligence, with data as of Sept. 23, shows just one rate change over the previous week. Last week, Fidelity increased rates to 1.57% for all balances between $1K and over $5 million. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

Crane Data is starting to make plans for our next Money Fund University educational conference. (We're also hosting our European Money Fund Symposium this week, Sept. 27-28, in Paris, France.) Our 12th annual MFU will change slightly from its previous "basic training" format to a more advanced "Master's in Money Markets" program this year. It will take place at the Hyatt Regency in Boston, Mass., December 15-16, 2022. (We cancelled MFU last January and hosted a virtual event, but this year we'll be back live and in person.) Crane's Money Fund University is designed for those relatively new to the money market fund industry or those in need of a concentrated refresher on a broad core curriculum. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers, and the Boston show will include an extended free training session (and lunch) for Crane Data clients, as well as a Holiday party where all are welcome. Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Registrations ($750) are now being taken, and the latest agenda is available here. (E-mail us to request the latest brochure.) New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Also, please join us for the 8th Annual Crane's European Money Fund Symposium. The latest agenda is available and registrations are still being taken for this year's European event, which will take place Sept. 27-28 at the Renaissance Paris La Defense in Paris, France. Registration for our 2022 Crane's European Money Fund Symposium is $1,000 USD. Please make your hotel reservations soon! Rooms must be booked before August 5 to receive the discounted rate of E259. Visit www.euromfs.com to register, and contact us to request the PDF brochure. (Let us know too if you'd like information on speaking or sponsorship pricing.) Mark your calendars for our next Bond Fund Symposium, which be held in Boston, Mass., on March 23-24, 2023. (Click here to see last year's agenda.) Bond Fund Symposium is the only conference devoted entirely to bond mutual funds, bringing together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers. The majority of the content is aimed at the growing ultra-short and conservative ultra-short bond fund marketplace. Finally, mark your calendars too for our next big show, Crane's Money Fund Symposium, which will be held in Atlanta, Ga., June 21-23, 2023. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators for 2 1/2 days of sessions, socializing and networking. Let us know if you'd like more details on any of our events, and we hope to see you in Paris in September, Boston in December or in March 2023, and Atlanta in June 2023. Thanks to all of our speakers, sponsors and supporters for your patience and support over the past 2+ rough years!

Mutual fund news source ignites posted, "Vanguard Pilots 'Savings Account Alternative' for Clients." They explain, "Vanguard is testing whether clients who trust the firm with their long-term investments are willing to park their day-to-day cash there, too. The firm is piloting a new Cash Plus Account with a select group of clients, according to advertisements and emails sent to individuals and subsequently posted on Vanguard client message boards. The brokerage account is separate from the firm's traditional trading accounts that funnel assets to a handful of partner banks. The banks, in turn, offer FDIC protection up to $250,000 and attractive deposit interest rates. In addition, the account offers unlimited movement of assets in and out of the account, unlike traditional savings accounts." The piece adds, "Vanguard's communications advertise an APR of 2.25% for the Cash Plus Account as of Aug. 2, significantly above other sweep account options offered by the firm. The Vanguard Federal Money Market Fund offered an SEC yield of 2.17% as of Sept. 20, according to the Malvern, Pennsylvania-based firm’s website. And its Vanguard Cash Deposit bank-sweep option, which launched in a pilot earlier this year, advertised a yield of 1.75% as of the same date. A Vanguard spokesperson described Cash Plus as 'a savings account alternative that enables our clients to manage their cash assets alongside their investments.'" A posting on the Reddit "Bogleheads" message board quotes from Vanguard's communication, "The Vanguard Cash Plus Account is a brokerage account offered by Vanguard Brokerage Services (VBS), a division of Vanguard Marketing Corporation, member FINRA and SIPC. Under the Vanguard Cash Plus program, Eligible Balances swept to Program Banks are the obligations of each Program Bank and are not cash balances held by VBS. Eligible Balances swept to Program Banks are not securities: they are not covered by the SIPC but are eligible for FDIC insurance, subject to applicable limits. See the Bank Sweep Terms of Use (PDF) for more information."

Barron's writes "Short-Term Bonds Yield 4%. Why They Could Beat Cash." The article tells us, "Until recently, short-term bonds were a yield wasteland: A two-year Treasury note yielded 0.21% a year ago and just 1% in January. Today, the yield is over 3.8% and could soon touch 4%, thanks in good measure to the Federal Reserve's aggressive interest-rate-hiking campaign.... But this could be a good entry point for short-term bonds: They may not fall much more, and yields are now high enough to withstand some price pressure. 'We are actually comfortable owning the front end of the yield curve here,' says Bob Miller, head of Americas fundamental fixed income at BlackRock.'" They also state, "Short-term funds have racked up losses this year. The iShares 1-3 Year Treasury Bond exchange-traded fund (ticker: SHY), a proxy for Treasuries, is down 3.85%, after interest. Yet some analysts think that short-term yields may now be close to pricing in the remainder of the Fed's rate increases. With yields at nearly 4%, there's far more of an income cushion against price declines. Investors may also scoop up a bit more income than with cash proxies like money-market funds, now yielding about 2%. 'When you have a 3.75% yield, that's much more manageable,' says Cary Fitzgerald, head of short-duration fixed income at J.P. Morgan Asset Management." The piece also says, "Tom Tzitzouris, head of fixed-income research at Strategas, says short-term yields are also now in the terminal ballpark. If that's the case, he adds, 'you're basically going to clip your coupons in two-year Treasuries because the market has already priced in the tightening.' Opportunities in shorter-term bonds aren't confined to Treasuries. `John Bellows, a portfolio manager at Western Asset Management, likes investment-grade corporate debt, which features both a yield component and some income from the credit risk embedded in the bonds." It adds, "Various mutual funds and ETFs offer exposure to the shorter end of the yield curve. For pure Treasuries, the $26 billion iShares 1-3 Year Treasury Bond ETF offers broad diversification at a low fee. It has an SEC yield of 3.31% and an expense ratio of 0.15%. For corporate bond exposure, consider the $43 billion Vanguard Short-Term Corporate Bond ETF (VCSH), an index fund covering the broad market. It sports an SEC yield of 4.22% and an expense ratio of 0.04%."

Allspring Money Market Funds' most recent "Overview, Strategy, and Outlook" discusses the economy, the Fed and the "relentless optimism of market participants." They then ask, "So what have we been up to? Given the backdrop of an FOMC still in the process of raising rates, we tended to conservatively structure our portfolios in favor of keeping excess liquidity over the stated regulatory requirements, running shorter weighted average maturities, and selectively adding fixed-rate securities if the opportunity offered a favorable risk/reward proposition. This has allowed our portfolios to capture the Fed's rate increases fairly quickly, while the enhanced levels of liquidity allow our portfolios to meet the liquidity needs of our investors and help dampen net asset value (NAV) volatility." Allspring writes, "Aside from rate path developments, which have been unambiguously positive, investors have suffered through a supply drought for much of the year. But it finally rained in August: Treasury-bill (T-bill) supply, which fell by almost $600 billion from February through July, rebounded by over $200 billion by the end of August, giving the market a more balanced tone for the first time this year. Supply issues should be more modest over the next few months, with some retrenchment accompanying the September tax receipts, then a steadier course after." They tell us, "The municipal money market yield curve widened dramatically during August as rates on overnight and weekly variable-rate demand notes (VRDNs) and tender option bonds (TOBs) gyrated throughout the month and longer-term fixed-rate paper gapped higher. The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index rose to a multi-year high of 1.83% on August 10, up from 1.33% at the end of July. This dramatic increase in short-term rates resulted in a temporary yield-curve inversion in the municipal space; however, this rare occurrence eventually corrected as the market headed into month-end." Allspring adds, "Yields on fixed-rate, tax-exempt paper in the short end of the maturity spectrum began to gap higher in response to the curve inversion. Ultimately, yields on high-grade one-year notes closed out the month at roughly 2.43%, up from 1.57% at the end of July. The sudden increase in tax-exempt rates boosted the relative attractiveness of the sector and, accordingly, municipal money market funds were the recipients of roughly $4 billion in inflows during the month, according to Crane Data. This resulted in a surge in demand for daily and weekly VRDNs. This second-half rebound in demand led the SIFMA Index to close out the month at 1.50%. During the month, we continued to focus our purchases primarily in VRDNs and TOBs with daily and weekly put options in our order to emphasize principal preservation and fund liquidity, and we continued to adopt a conservative posture with respect to weighted average maturities. Accordingly, we remained highly selective in our fixed-rate purchases further out on the curve and opportunistically added term trades to capture the higher rates. However, with lingering questions surrounding the pace of tightening by the FOMC and terminal federal funds rate, we feel it is prudent to remain relatively short for the near future."

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