Bloomberg on Muni Money Funds
Bloomberg writes "`Municipal Money-Market Funds Lose Out on Record Investor Cash Demand," which tells us, "Municipal money-market funds are missing out on record demand for cash as higher-yielding taxable products, volatile rates and fewer investment options make the niche sector less appealing for many retail buyers. With the Federal Reserve raising interest rates to the highest in 22 years, Treasuries headed for another annual loss and questions swirling around the outlook for stocks, the stability of taxable money-market funds that are yielding more than 5% has proved irresistible to many investors. Such assets have soared 18.3% through September to a record of about $6 trillion, according to Crane Data. Meanwhile, tax-exempt money-market funds have only grown 3.4%, reaching $122.9 billion." The article explains, "What it boils down to is that yields on the muni offerings, which are lower because of the tax benefit they provide, simply aren't compelling enough for buyers outside of the ultra-wealthy. The rates they offer also tend to be more volatile than on taxable options, complicating the comparison. 'The yields on munis just have not been attractive,' said Peter Crane, president of Crane Data, which tracks the money market-fund industry. The average seven-day yield for tax-exempt money-market funds as of Oct. 6 is 3.12%, while the average for taxable products is 5.07%, Crane data show.... 'The volatility of rates has fooled investors so many times,' Crane said. Investors are 'just sick of muni funds showing a high rate one week and then by the time you move in, it's gone.'" The piece adds, "Consolidation in the industry also limits the growth for tax-exempt funds. Over the last two decades or so, near-zero interest rates and US Securities and Exchange Commission changes resulted in many funds closing or merging with others, shrinking the number of options. 'It's pouring rain, and they've just got tiny buckets,' Crane said. 'They’re benefiting, but they're not the size they used to be, and they aren't on the menus like they used to be. There's only a handful of players now.'"
