Measuring money... faster, cheaper, cleaner

Money funds saw outflows on Monday, Jan. 7, for the first time since Dec. 20 as the heavy year-end inflows into Government and Treasury money funds due to the expiration of unlimited FDIC insurance appear to be subsiding. Fears of a flood of formerly Government guaranteed cash pushing interest rates into negative territory and forcing funds to close to new investors also appear unfounded. Repo rates remain solidly in the black and we're not aware of any Treasury funds shutting their doors. One Treasury fund that had implemented maximum purchase limits at year has since lifted the restriction, so it seems that corporates and institutions are taking their time to reallocate cash out of now uninsured deposit vehicles.

Our Money Fund Intelligence Daily, which tracks 1,067 money funds' daily yields, assets, WAMs and factors, showed an asset decline of $523 million Monday. This follows a big buildup of $74 billion in money fund assets from Dec. 21 through Jan. 4, and a surge of $175.3 billion since Oct. 31, 2012. Interestingly, less than half of the inflows were Treasury Institutional or Government Institutional funds, indicating that the year-end cash buildup was likely more than just shifting TAG money. Retail money funds and Tax Exempt money funds saw strong increases in assets too during Q4 and December 2012 too.

We're not aware of any money funds closing to new investors during this period, but at least one fund group did temporarily limit investment sizes. However, Wells Fargo Advantage Funds, posted a "Service Alert" dated Jan. 3 on its website entitled, "Maximum purchase limits lifted for certain money market funds." It says, "Effective Friday, January 4, 2013, Wells Fargo Advantage Funds will lift the temporary maximum purchase limits for shareholders of the Wells Fargo Advantage 100% Treasury Money Market Fund and the Wells Fargo Advantage Treasury Plus Money Market Fund. The purchase limits had been instituted because continued volatility and challenges in the financial markets created additional demand for the money market securities in which these funds invest, resulting in low, and sometimes negative, yields on these securities. The temporary maximum purchase limit was designed to allow our fund managers to continue to pursue stated investment strategies as they seek to prudently manage the funds for the benefit of all shareholders."

The Wells notice adds, "Although these limits are being lifted, we strongly encourage notification at least one day in advance of transactions in excess of $25 million for the Wells Fargo Advantage 100% Treasury Money Market Fund and $50 million for the Wells Fargo Advantage Treasury Plus Money Market Fund. We also encourage that trades be placed as early in the day as possible. The effect of this prior notification will be to assist the portfolio management team in managing the funds in a more effective manner and may reduce the possibility that a large purchase is not able to be accepted. Please note that, as indicated in each fund's prospectus, we reserve the right to refuse or cancel a purchase or exchange order for any reason, including if we believe that doing so is in the best interest of the funds and their shareholders."

The FDIC explained on its website recently in a post entitled, "Expiration of Temporary Unlimited Coverage for Noninterest-Bearing Transaction Accounts," "Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts (NIBTAs) at all FDIC-insured depository institutions (IDIs) from December 31, 2010 through December 31, 2012 (the Dodd-Frank Deposit Insurance Provision). In anticipation of the expiration of the Dodd-Frank Deposit Insurance Provision, the FDIC issued Financial Institution Letter FIL-45-2012 to provide related direction and guidance to IDIs."

It adds, "Beginning January 1, 2013, noninterest-bearing transaction accounts will no longer be insured separately from depositors' other accounts at the same IDI. Instead, noninterest-bearing transaction accounts will be added to any of a depositor's other accounts in the applicable ownership category, and the aggregate balance insured up to at least the Standard Maximum Deposit Insurance Amount (SMDIA) of $250,000, per depositor, at each separately chartered IDI."

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