Link of The Day
NY Fed's Perli on Short-Term Funding
The Federal Reserve Bank of New York's Roberto Perli gave a speech Friday titled, "Recent Developments in Treasury Market Liquidity and Funding Conditions," which "examines a rich set of topics that are core to monetary policy implementation, such as the quantity of reserves, demand elasticities of different investors in the Treasury cash and repo markets, the convenience yield of Treasury securities, and much more." He comments, "I will start by reviewing recent developments in Treasury market liquidity, something that I and my colleagues on the Federal Reserve's Open Market Desk (the Desk) monitor closely. Well-functioning Treasury cash and repo markets are of course essential for the effective transmission and implementation of monetary policy. A key point that I would like to emphasize is that, although liquidity in Treasury cash markets became strained in early April, those markets continued to function, in part because of the resilience of funding liquidity in the Treasury repo market. That resilience, even amid heightened yield volatility, likely prevented the unwind of certain shorter-term relative value trades, which would have exacerbated market dislocations. And funding liquidity resilience was likely helped by the robust rate control framework that the Federal Reserve has put in place. Finally, I will conclude with some thoughts on how implementation tools, such as the Standing Repo Facility (SRF), can be refined to further strengthen the implementation framework and the resilience of Treasury funding liquidity." Perli adds, "To conclude, the good functioning of the Treasury market is essential for the smooth implementation and transmission of monetary policy, and thanks in part to the resilience of funding liquidity, the Treasury market has continued to function well even amid a deterioration of liquidity conditions. At the same time, thinking of ways of appropriately enhancing the effectiveness of Fed facilities is at the core of our mission. The high-quality research that will be presented at this conference, geared toward a better understanding of Treasury repo and cash market functioning, is extremely helpful to us. It is my hope that my remarks provided some food for thought and encourage more research on these topics."
ICI: Money Fund Assets Jump in May
ICI published its latest weekly "Money Market Fund Assets" report Thursday. The weekly series shows money fund assets rising $37.6 billion to $6.946 trillion, after falling $4.1 billion the week prior and rising $31.7 billion two weeks ago. Three weeks prior assets fell $125.4 billion (these massive tax outflows were the largest weekly outflow in history). Money fund assets have risen in 26 of the last 40, and 37 of the last 55 weeks, increasing by $642.5 billion (or 10.2%) since the Fed cut on 9/18/24 and increasing by $968.5 billion (or 16.2%) since 4/24/24. MMF assets are up by $914 billion, or 15.2%, in the past 52 weeks (through 5/7/25), with Institutional MMFs up $462 billion, or 12.9% and Retail MMFs up $452 billion, or 18.7%. Year-to-date, MMF assets are still up by $96 billion, or 1.4%, with Institutional MMFs down $42 billion, or -1.0% and Retail MMFs up $137 billion, or 5.0%. ICI's weekly release says, "Total money market fund assets increased by $37.57 billion to $6.95 trillion for the week ended Wednesday, May 7.... Among taxable money market funds, government funds increased by $24.69 billion and prime funds increased by $11.36 billion. Tax-exempt money market funds increased by $1.51 billion." ICI's stats show Institutional MMFs increasing $15.1 billion and Retail MMFs increasing $22.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.662 trillion (81.5% of all money funds), while Total Prime MMFs were $1.142 trillion (16.4%). Tax Exempt MMFs totaled $142.1 billion (2.0%). It explains, "Assets of retail money market funds increased by $22.45 billion to $2.87 trillion. Among retail funds, government money market fund assets increased by $12.92 billion to $1.81 trillion, prime money market fund assets increased by $8.55 billion to $929.39 billion, and tax-exempt fund assets increased by $984 million to $129.55 billion." Retail assets account for well over a third of total assets, or 41.4%, and Government Retail assets make up 63.1% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $15.12 billion to $4.07 trillion. Among institutional funds, government money market fund assets increased by $11.77 billion to $3.85 trillion, prime money market fund assets increased by $2.81 billion to $213.04 billion, and tax-exempt fund assets increased by $530 million to $12.52 billion." Institutional assets accounted for 58.6% of all MMF assets, with Government Institutional assets making up 94.5% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have increased by $17.5 billion in May (through 5/7/25) to $7.317 trillion, last month assets hit a record high of $7.384 trillion on April 3. Assets fell by $24.4 billion in April, they rose $2.8 trillion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 trillion in November, $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April 2024. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $330 billion lower than Crane's asset series.
ICI's Antoniewicz Defends MMFs
ICI Chief Economist Shelly Antoniewicz posted a response to the recent Wall Street Journal column, "Your Money-Market Fund Is Ripping You Off." Her LinkedIn Post says, "Some recent media reports are trying to make the claim that money market funds (MMFs) are a bad deal for investors, accusing them of overcharging investors -- a 'king's ransom' as one reporter describes it. But such reports do not hold water. First, for years, when interest rates were low, most MMFs waived their fees to protect investor returns. In 2021, for example, 97% of MMF managers offered fee waivers, allowing retail investors to earn some yield despite near-zero rates. In other words, for several years managers charged a fee of 0% -- nothing -- and instead absorbed the costs on behalf of investors. Given this fact, it is unconscionable for the press to claim that investors are getting 'ripped-off' on their money market funds." Antoniewicz writes, "Second, now that rates have risen and stayed higher, those waivers are being phased out -- returning MMFs to normal operations. These reports would like readers to think these normal operations represent an unreasonable level of fees. But the fact is that annual expense ratios of MMFs have declined over the last 20 years and are less than expense ratios for other mutual funds. For some reason, the press wishes to play down these numbers." She adds, "Third, let's not forget that the primary reason investors are moving their money into MMFs is that MMFs offer superior returns. As of April 2025, government MMFs offered an average net yield of 4.10%, much higher than the measly 0.62% for money market deposit accounts in banks. We should celebrate, not denigrate, the ability of MMFs to offer investors such good value. Bottom line: MMFs offer liquidity, stability, and low cost, competitive returns. They remain strong value for investors."
Weekly Money Fund Port 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 May 2) includes Holdings information from 62 money funds (down 11 from a week ago), or $3.633 trillion (down from $3.968 trillion) of the $7.313 trillion in total money fund assets (or 49.7%) tracked by Crane Data. (Note: 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 April 10 News, "April Money Fund Portfolio Holdings: Repo Surges, Treasuries Plummet.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.626 trillion (down from $1.759 trillion a week ago), or 44.8%; Repurchase Agreements (Repo) totaling $1.341 trillion (down from $1.436 trillion a week ago), or 36.9%, and Government Agency securities totaling $330.2 billion (down from $357.8 billion), or 9.1%. Commercial Paper (CP) totaled $133.7 billion (down from a week ago at $169.2 billion), or 3.7%. Certificates of Deposit (CDs) totaled $82.3 billion (down from $95.0 billion a week ago), or 2.3%. The Other category accounted for $81.3 billion or 2.2%, while VRDNs accounted for $38.2 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.626 trillion (44.8% of total holdings), Fixed Income Clearing Corp with $433.7B (11.9%), the Federal Home Loan Bank with $210.2 billion (5.8%), JP Morgan with $122.1B (3.4%), BNP Paribas with $83.1B (2.3%), Citi with $82.8B (2.3%), Federal Farm Credit Bank with $80.9B (2.2%), RBC with $65.6B (1.8%), Bank of America with $55.1B (1.5%) and Wells Fargo with $49.7B (1.4%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($283.5B), Goldman Sachs FS Govt ($258.4B), JPMorgan 100% US Treas MMkt ($245.4B), Fidelity Inv MM: Govt Port ($227.6B), BlackRock Lq FedFund ($170.4B), Morgan Stanley Inst Liq Govt ($169.9B), BlackRock Lq Treas Tr ($157.6B), State Street Inst US Govt ($151.5B), Fidelity Inv MM: MM Port ($151.0B) and Dreyfus Govt Cash Mgmt ($128.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Yields Higher in Latest Week
Money fund yields (7-day, annualized, simple, net) rose 2 bps to 4.14% on average during the week ended Friday, May 2 (as measured by our Crane 100 Money Fund Index), after falling 1 bp the previ-ous two weeks. Fund yields should remain relatively flat until the Fed moves rates again. They've de-clined by 92 bps since the Fed first cut its Fed funds target rate by 50 bps on Sept. 18, 2024, and they've declined by 49 bps since the Fed cut rates by 1/4 point on 11/7. Yields were 4.14% on 3/31/25, 4.16% on 2/28/25, 4.19% on 1/31/25, 4.28% on average on 12/31/24, 4.45% on 11/30/24, 4.65% on 10/31, 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 3/31 and 5.20% on 12/31/23. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 684), shows a 7-day yield of 4.03%, up one bp in the week through Friday. Prime Inst money fund yields were unchanged at 4.26% in the latest week. Government Inst MFs were up 2 bps to 4.14%. Treasury Inst MFs were up 1 bp at 4.08%. Treasury Retail MFs currently yield 3.84%, Government Retail MFs yield 3.85%, and Prime Retail MFs yield 4.04%, Tax-exempt MF 7-day yields were down 64 bps to 2.65%. Assets of money market funds rose by $24.1 billion last week to $7.313 trillion, according to Crane Data's Money Fund Intelligence Daily. For the month of May (MTD), MMF assets have increased by $13.3 billion, after decreasing $24.4 billion in April, increasing by $2.8 billion in March, $94.2 billion in Febru-ary, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, $97.5 billion in October and $149.8 billion in September. Weighted average maturities were at 35 days for the Crane MFA and 35 days the Crane 100 Money Fund Index. According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/2), 104 money funds (out of 796 total) yield under 3.0% with $120.5 billion in assets, or 1.6%; 246 funds yield between 3.00% and 3.99% ($1.329 trillion, or 18.2%), 446 funds yield between 4.0% and 4.99% ($5.863 trillion, or 80.2%) and following the recent rate cut there continue to be zero funds yielding 5.0% or more. Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.41%. The latest Brokerage Sweep Intelligence, with data as of May 2, shows no changes over the past week. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
WSJ Hits Money Funds on Expenses
The Wall Street Journal's Jason Zweig claims, "Your Money-Market Fund Is Ripping You Off." He writes, "Cash is king. If only you didn't have to pay a king’s ransom to hold it. Ever since President Trump's tariff bombshells went off on April 2, cash has reasserted itself as a valuable shelter for investors. Money-market mutual funds -- the most convenient form of cash for most investors -- have stayed stable while providing steady income that has cushioned the damage in other markets. Yet money-market funds are surprisingly expensive, and a recent attempt to make them cheaper has been stymied. If you're like most investors, you probably pay close attention to your stock and bond funds, and little if any to your cash. But you're probably getting ripped off on your money-market funds -- and it's one of the biggest heists on Wall Street." The piece comments, "That stunning decline in costs has barely touched money-market funds. Since 2015, taxable and tax-free money-market mutual funds have grown by more than 150%, to $6.91 trillion from $2.75 trillion, according to the Investment Company Institute. Over the same period, stock mutual funds (including international and balanced portfolios) grew less than 70%, to $16 trillion from $9.48 trillion. Yet the average expense ratio at U.S. stock mutual funds fell to 0.33% annually from 0.54%, according to Morningstar -- a 39% decline. Meanwhile, annual expenses at money funds rose slightly to 0.21% from 0.19% -- even though their assets boomed. (All these figures are weighted by the size of the funds.)" The Journal column adds, "Fund investors are supposed to benefit from economies of scale, since fixed costs get spread over much larger pools of assets. `Why hasn't that happened with money-market funds? Blame big brokers that are gouging you on cash. For most of the period between 2008 and 2021, the Federal Reserve kept short-term interest rates so low that money funds would have yielded less than zero after expenses. So the managers waived more than $50 billion in fees. With short-term rates back above 4%, $1 trillion has poured into money funds over the past year and fund companies can charge full freight again. The managers are 'rolling in money now,' says Peter Crane, president of Crane Data, a firm that tracks cash accounts, 'but they don't want to hear about cutting expenses because they just spent 10 years waiving fees.' Also, nobody had tried running a money-market fund as an ETF. So the mutual funds faced no competition from dirt-cheap ETFs. `Only last September did Dallas-based Texas Capital Bank Private Wealth Advisors succeed in launching the first money-market ETF. It quickly grew to $40 million, thanks to low fees and high yields. BlackRock's iShares followed this February with two money-market ETFs of its own."
ICI: Money Fund Assets Inch Lower
ICI published its latest weekly "Money Market Fund Assets" report Thursday. The weekly series shows money fund assets falling $4.1 billion to $6.908 trillion, after rising $31.7 billion the week prior and falling $125.4 billion two weeks ago (these massive tax outflows were the largest weekly outflow in history). Money fund assets have still risen in 25 of the last 39, and 36 of the last 54 weeks, increasing by $604.9 billion (or 9.6%) since the Fed cut on 9/18/24 and increasing by $931.0 billion (or 15.6%) since 4/24/24. MMF assets are up by $907 billion, or 15.1%, in the past 52 weeks (through 4/30/25), with Institutional MMFs up $470 billion, or 13.1% and Retail MMFs up $437 billion, or 18.1%. Year-to-date, MMF assets are still up by $58 billion, or 0.8%, with Institutional MMFs down $57 billion, or -1.4% and Retail MMFs up $115 billion, or 4.2%. ICI's weekly release says, "Total money market fund assets decreased by $4.12 billion to $6.91 trillion for the week ended Wednesday, April 30.... Among taxable money market funds, government funds decreased by $6.11 billion and prime funds decreased by $1.55 billion. Tax-exempt money market funds increased by $3.54 billion." ICI's stats show Institutional MMFs decreasing $0.2 billion and Retail MMFs decreasing $3.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.637 trillion (81.6% of all money funds), while Total Prime MMFs were $1.131 trillion (16.4%). Tax Exempt MMFs totaled $140.6 billion (2.0%). It explains, "Assets of retail money market funds decreased by $3.92 billion to $2.85 trillion. Among retail funds, government money market fund assets decreased by $7.90 billion to $1.80 trillion, prime money market fund assets increased by $732 million to $920.84 billion, and tax-exempt fund assets increased by $3.24 billion to $128.57 billion." Retail assets account for well over a third of total assets, or 41.3%, and Government Retail assets make up 63.2% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $194 million to $4.06 trillion. Among institutional funds, government money market fund assets increased by $1.79 billion to $3.84 trillion, prime money market fund assets decreased by $2.28 billion to $210.22 billion, and tax-exempt fund assets increased by $299 million to $11.99 billion." Institutional assets accounted for 58.7% of all MMF assets, with Government Institutional assets making up 94.5% of all institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have fallen by $24.4 billion in April (through 4/30/25) to $7.299 trillion, hitting a record high of $7.384 trillion on April 3. Assets rose by $2.8 trillion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 trillion in November, $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April 2024. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $330 billion lower than Crane's asset series.
BlackRock Files for Blockchain Shares
A website CryptoSlate posted an article titled, "BlackRock unveils blockchain-enabled shares for $150B money market fund." It says, "BlackRock, the world's largest asset manager, has made additional moves to incorporate blockchain technology into its traditional finance operations. According to an April 28 filing with the US Securities and Exchange Commission (SEC), the firm seeks approval to introduce a blockchain-enabled share class, referred to as 'DLT Shares,' tied to its $150 billion [BlackRock Liquidity Funds: Treasury Trust] money market fund." According to the filing, The Bank of New York Mellon (BNY Mellon) will manage the sale of these shares and maintain a mirrored record of ownership using blockchain technology." The filing states, "DLT Shares may also be purchased by BlackRock Advisors, LLC or its affiliates. Although the Fund does not currently employ blockchain technology or invest in crypto assets, DLT Shares are expected to be purchased and held through BNY, which intends to use blockchain technology to maintain a mirror record of share ownership for its customers." The CryptoSlate piece continues, "Meanwhile, the minimum investment for this new share class is $3 million. The fund will allocate its assets across US Treasury securities, including bills, notes, and similar obligations. It will focus on short-term investments, maintaining a dollar-weighted average maturity of no more than 60 days and an average life of under 120 days." It adds, "BlackRock's latest move reflects its increasing interest in blockchain technology, especially following the success of its Bitcoin and Ethereum exchange-traded funds (ETFs) and BUIDL fund. Notably, BlackRock is already utilizing these ideas through its blockchain-native BUIDL fund, which was launched in partnership with Securitize in 2024. The fund manages over $2.5 billion in tokenized assets and has expanded operations to several blockchain networks, including Solana, Avalanche, and Ethereum layer-2 networks like Optimism."
Weekly Money Fund Port 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 April 25) includes Holdings information from 73 money funds (up 18 from a week ago), or $3.968 trillion (up from $3.422 trillion) of the $7.288 trillion in total money fund assets (or 54.5%) tracked by Crane Data. (Note: 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 April 10 News, "April Money Fund Portfolio Holdings: Repo Surges, Treasuries Plummet.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.759 trillion (up from $1.647 trillion a week ago), or 44.3%; Repurchase Agreements (Repo) totaling $1.436 trillion (up from $1.154 trillion a week ago), or 36.2%, and Government Agency securities totaling $357.8 billion (up from $293.7 billion), or 9.0%. Commercial Paper (CP) totaled $169.2 billion (up from a week ago at $136.8 billion), or 4.3%. Certificates of Deposit (CDs) totaled $95.0 billion (up from $73.5 billion a week ago), or 2.4%. The Other category accounted for $99.1 billion or 2.5%, while VRDNs accounted for $52.1 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.759 trillion (44.3% of total holdings), Fixed Income Clearing Corp with $475.1B (12.0%), the Federal Home Loan Bank with $208.7 billion (5.3%), JP Morgan with $135.7B (3.4%), Federal Farm Credit Bank with $112.3B (2.8%), Citi with $91.8B (2.3%), BNP Paribas with $88.6B (2.2%), RBC with $88.1B (2.2%), Bank of America with $62.7B (1.6%) and Wells Fargo with $58.0B (1.5%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($283.4B), Goldman Sachs FS Govt ($256.6B), JPMorgan 100% US Treas MMkt ($245.5B), Fidelity Inv MM: Govt Port ($225.4B), Federated Hermes Govt ObI ($166.9B), Morgan Stanley Inst Liq Govt ($163.6B), BlackRock Lq FedFund ($163.6B), Fidelity Inv MM: MM Port ($151.1B), BlackRock Lq Treas Tr ($147.8B) and State Street Inst US Govt ($143.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
2025 Investment Company Fact Book
The Investment Company Institute published its "2025 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A press release, "`ICI Releases Investment Company Fact Book With New Data Visualization Tool," states, "The Investment Company Institute (ICI) released the Investment Company Fact Book. The Fact Book, a compendium of research and analysis conducted by the Institute over the previous year, has served as a comprehensive source of statistical information about the US and global asset management industry. 'ICI's Fact Book is a vital resource for policymakers, regulators and academics as well as for millions of investors. As we celebrate another edition of the Fact Book, we reflect on the many milestones and progress the asset management industry has made over the past 65 years. Thank you to the dedicated ICI staff who work diligently to produce research that sheds light on key trends in the fund industry, financial stability, retirement, and investor demographics,' said ICI President and CEO Eric Pan." The release continues, "Key takeaways in the 2025 edition include: Worldwide demand for regulated long-term funds strengthened considerably in 2024. Worldwide regulated open-end long-term funds had net sales of $2.3 trillion in 2024 compared with $767 billion in 2023; Net issuance of ETF shares reached an all-time high in 2024. Net issuance of ETF shares surged to a record $1.1 trillion in 2024, up from $597 billion in 2023; Fund ownership is widespread, with more than half of US households owning funds. In 2024, 56 percent of US households owned shares of mutual funds or other US-registered investment companies -- including exchange-traded funds (ETFs), closed-end funds (CEFs), and unit investment trusts (UITs) -- representing 74 million US households and more than 125 million individual investors. This is a slight uptick from 2023, when 54.4 percent of US households (71.5 million households) owned funds." The release comments, "'For this edition of Fact Book, we also are excited to introduce our new data visualization tool. This innovative charting feature offers interactive, insightful displays of ICI's comprehensive data. Each of the data tables can now be viewed in graphical form, making it easier to analyze and interpret the information in Fact Book,' expressed ICI Chief Economist Shelly Antoniewicz." It adds, "Data Visualization Tool's Key Features: Interactive Charts: Easily explore trends and patterns with dynamic visualizations. In addition, the charts users create can be downloaded as an image for users to use in other documents or media. The underlying data is still available to download as an Excel file; User-Friendly Interface: Navigate through complex data effortlessly with ICI's intuitive design. Drop down menus allow users to choose the data series and time frame users would like to plot."
Fidelity: Short-Term Bonds Over Cash
Fidelity published, "The opportunity for short and intermediate bond funds," which tells us, "Many investors face a conundrum in 2025: Adding long-term bonds for diversification versus equities makes sense, but this could introduce unwanted volatility over the long term due to interest-rate risk. One way to potentially reduce this risk is by investing in short and intermediate investment-grade debt funds. Since 2012, these funds, on average, have generated 88% of the return of longer-term core bonds with 52% less volatility.... Why? The comparatively shorter-term securities in which short and intermediate bond funds invest have shown less sensitivity to movements in interest rates and spreads over time." The piece says, "Short and intermediate bond funds now look attractive relative to money market funds," explaining, "Interest rates were persistently low from 2008 until 2022 as the U.S. Federal Reserve maintained an easy monetary policy stance.... [Then] the Fed raised the Federal Reserve Overnight Funds Target Rate significantly beginning in 2022. `As a result, short-term yields increased to levels above longer-term bond yields.... However, during the fall of 2024, the Fed cut its target rate by 100 basis points, making yields on short and intermediate bond funds once again look attractive relative to money market funds." Fidelity adds, "Despite the historically strong performance of bonds when the Fed is cutting rates and the relative value of short and intermediate bonds, some investors still feel more comfortable staying in cash. Yet short and intermediate bonds have outperformed cash over time (regardless of the Fed rate cycle) with very few periods of negative returns. Moreover, the negative returns tended to happen during tightening cycles -- not when the Fed was cutting rates. We believe short and intermediate bond funds can make sense to improve yield and potentially add more total return.... Short and intermediate bond funds have offered attractive returns with significantly lower return volatility relative to longer duration bond funds over time. In addition, short and intermediate bond funds currently offer attractive yields and may outperform longer-duration bond funds in the current environment."
OFR: Treasury Clearing, Repo, SOFR
The Office of Financial Research (OFR) recently published "How the Treasury Clearing Rule for Repo Might Affect SOFR." It states, "The Securities and Exchange Commission (SEC) rule requiring the central clearing of certain U.S. Treasury-secured repurchase agreements (repos) is scheduled to go into effect on June 30, 2027. While there are exceptions, this rule will cover up to 85% of non-centrally cleared repos. As these repos move to clearing, a portion of their associated rates will be used to calculate the Secured Overnight Financing Rate (SOFR), which serves as a benchmark for borrowing cash overnight in the United States." The piece explains, "The inclusion of repo-rate information from newly cleared repos could affect the level and behavior of SOFR and affect the price of many loans and swaps. One way to assess the potential impact is to estimate a hypothetical SOFR that includes representative non-centrally cleared bilateral repos (NCCBR). In this blog, the authors describe their estimation methodology and results. They use a 2022 pilot collection of NCCBR data from the Office of Financial Research (OFR) and apply the SEC rule that governs which NCCBR will need to be cleared. The authors also use tri-party repo data from the Federal Reserve Bank of New York (FRBNY) and GCF and DVP repo data from the OFR, as well as the FRBNY's methodology for calculating SOFR." It adds, "The OFR's pilot collected NCCBR data from nine sell-side participants on three days during June 2022, totaling about $900 billion in outstanding repos per day. The estimation shows that if the SEC rule had been in effect at the time of the pilot, 42% of the sampled volume would have been cleared under the rule, and about 9% of the volume would have been included in the reference rate. Including the volume in the SOFR calculation would have no effect on SOFR for those three days in June 2022. However, the new volume affects the SOFR distribution’s tails, indicating that including NCCBR could make SOFR slightly more volatile. This analysis does not account for the equilibrium effects of the SEC clearing rule. Dealers with constrained balance sheets may behave differently after the rule takes effect."
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