Tax-exempt money market funds have recently showed renewed strength after several years of lackluster yields in a prolonged low-interest-rate environment. For treasury and financial risk management professionals, this presents an attractive opportunity to earn interest on corporate investments, with the potential for even more yield as rates increase later this year.
A weekly high-grade market index composed of seven-day tax-exempt variable-rate demand notes (VRDNs), known as the SIFMA index, has increased steadily from yields of 0.01 percent at the beginning of 2016 to as high as 0.87 percent on October 3, 2016. The average from August 2016 to January 2017 for the SIMFA index was 0.66 percent yield, which compares very favorably with a 0.05 percent average for 2015.
Meanwhile, yields of one-year municipal notes have risen from 0.62 percent at the start of 2016 to the current 0.95 percent yield posted by Bloomberg Valuation on February 14, 2017. At these levels, the SIMFA is providing 92 percent of the yield reflected by the LIBOR seven-day average, according to Muni Monitor Analytics.
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