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Money fund yields inched higher last week, with our Crane 100 Money Fund Index (​7-​Day Yield) rising 2 basis points to 4.​06% for the week ended Friday, 12/​30. Yields rose by 25 basis points the previous week. They’​re up from 3.​59% on Nov. 30, up from 2.​88% on Oct. 31 and up from 2.​66% on Sept. 30. Yields broke the 4.​0% level on Dec. 21, and they should inch a little higher as they digest the last of the Fed’​s 50 bps hike (​then jump again after an expected Feb. 1 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 680), shows a 7-​day yield of 3.​93%, up 2 bps in the week through Friday. Prime Inst MFs were up 1 bp to 4.​22% in the latest week. Government Inst MFs rose by 1 bp to 3.​95%. Treasury Inst MFs up 3 bps for the week at 3.​90%. Treasury Retail MFs currently yield 3.​70%, Government Retail MFs yield 3.​70%, and Prime Retail MFs yield 4.​05%, Tax-​exempt MF 7-​day yields were down at 3.​15%.

According to Monday’​s Money Fund Intelligence Daily, with data as of Friday (​12/​30), every single money market fund (​819 total) yields over 2.​0%, and almost all are now over 3.​0%; 43 funds yield between 2.​00% and 2.​99% with $​16.​9 billion, or 0.​3%; 458 funds yield between 3.​00% and 3.​99% ($​1.​990 trillion, or 38.​3%), and 318 funds yield 4.​0% or more ($​3.​184 trillion, or 61.​3%).

Our Brokerage Sweep Intelligence Index, an average of FDIC-​insured cash options from major brokerages, fell one basis point last week to 0.​51% as R.​W. Baird tweaked rates lower. The latest Brokerage Sweep Intelligence, with data as of Dec. 30, shows that RW Baird decreased rates to 1.​58% for all balances between $​1 and $​999K, increased rates to 2.​40% for balances between $​1 million and $​1.​9 million, and increased rates to 3.​08% for all balances over $​5 million. 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.

For the month of December (​through 12/​31), MMF assets increased by $​78.​7 billion to $​5.​191 trillion according to Crane Data’​s Money Fund Intelligence XLS, which tracks a broader universe of funds than ICI. Crane Data’​s Prime asset totals, which broke the $​1.​0 trillion level in November, increased $​46.​7 billion last month to $​1.​077 trillion. We expect flows to slow in January as the seasonal strength of November and December subside. (​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.) According to MFI Daily, our Crane 100 Money Fund Index rose by 47 bps in December to 4.​06%, while our broader Crane Money Fund Average rose by 48 bps to 3.​93%.

In other news, The Boston Globe writes “For the first time in years, bank CDs are worth it.” It says, “​What a difference a year makes. Last year about this time, certificates of deposit were generally earning less than 1 percent in interest. But now many banks are advertising CDs that pay more than 4 percent, and they may well rise higher in coming months. People who are looking for safe places to invest can earn a very respectable return by putting cash into a CD. And given the rocky performance of stocks and mutual funds over the past two years, an investment that guarantees a gain is increasingly attractive to some people.”

The Globe article continues, “There’​s little mystery about why interest rates on CDs have surged to some of the highest levels in more than 10 years. Confronted with rapidly rising prices on everything from food to energy, the Federal Reserve steadily ratcheted up its benchmark interest rate this year…. There is no direct relationship between the Fed rate and CD interest rates. But, historically, interest rates on CDs have tended to rise and fall with the Fed rate.”

It asks, “What are the basics?” The piece answers, “Like traditional savings accounts, CDs are bank deposits. What’​s different about CDs is they must remain on deposit for a certain period. With a regular savings account, you can withdraw your money at any time without financial penalty (​and you must accept a lower interest rate for the ability to do so). But with a CD you commit to not withdrawing your money for an agreed-​upon term. If you nevertheless insist on withdrawing your money, the bank will impose a penalty.”

Finally, an article by Benefits Pro, entitled, “Does your 401(​k) plan offer the best ‘​cash’ option? What you need to know about capital preservation,” tells us, “​Any discussion of capital preservation in a defined contribution plan can cause confusion or disinterest amongst plan fiduciaries…. As capital preservation continues to be one of the few asset classes providing participants with a positive nominal rate of return, fixed account products and stable value funds have come to the forefront when fiduciaries speak with recordkeepers and investment managers.”

It explains, “Although these may fill the ‘​cash’ bucket of the defined contribution plan investment menu, they might better be viewed as cash-​like. Many include unique terms and conditions that could prove challenging in the future. We’​ll endeavor here to describe the different types of investment products that can be used as the capital preservation offering within a plan menu, discuss how they differ from one another, and explain the considerations that must be evaluated.”

Discussing the “3 major capital preservation types,” the piece says, “The most well-​known of the three major capital preservation types is a money market fund. It is best described as a fixed income mutual fund that invests in short maturity, high credit quality securities. Money market funds are designed to hold a net asset value (​NAV) of $​1.​00, regardless of economic circumstances. Earning a consistent yield can be challenging, as returns are strongly linked to interest rates.”

It adds, “Next are stable value funds, which typically hold a diversified portfolio of short- and intermediate-​maturity fixed income securities. Stable value funds provide participants with a guaranteed rate of interest dependent on the underlying securities, and they have an explicit expense ratio. Finally, fixed accounts are like stable value funds in that they have a guaranteed interest rate. However, occasionally those rates are negotiated rather than market-​based and there may not be an explicit expense ratio.”