Money Market News
Standard & Poor's published a Q&A on its recent money fund ratings changes entitled, "`A Closer Look At The Revised Principal Stability Fund Ratings Criteria." The update, written primarily by Madeleine Parish and Ruth Shaw, says, "Standard & Poor's Fund Ratings Group released its updated criteria for rating principal stability funds, also known as money market funds, on June 8, 2011 (see "Methodology: Principal Stability Fund Ratings," published on RatingsDirect on the Global Credit Portal). After a five-month implementation period, the criteria went into effect on Nov. 1, 2011, for the principal stability funds we rate. Although our criteria aim to offer a high level of transparency and detail, over the past few months we have received questions from market participants regarding the application of the criteria to areas such as diversification, collateral, cure periods, and the calculation of weighted average maturity to final (WAM[F]), also known as weighted average life."
Earlier this month, the U.S. Chamber of Commerce held an event on "Money Market Fund Reform" which included a speech by Senator Pat Toomey (R-PA). We listened in on the event, but hadn't gotten a transcription until this weekend, when the organization PreserveMoneyMarketFunds.org sent one out. Below, we excerpt from the Senator's comments. Toomey said on Feb. 8, "I was asked to talk a little bit about the regulatory atmosphere, that which is -- appears to be coming. Of course the article yesterday on the front page of the Journal certainly does make this very timely.... Look, my own view -- I like to disclose my biases upfront -- I happen to think that money market funds are a very, very important part of today's financial marketplace. I think that money market funds are under attack. I think there is a concerted effort to impose very, very, very troublesome regulations that, in some cases, I think do threaten the viability of the product itself. I think that is not by accident. And I think we should push back very aggressively, because in the absence of this product, our financial markets will be less liquid. I think they will have fewer choices. And I think we will all pay a price, both investors and borrowers, for that."
Yesterday, Investment Company Institute President and CEO Paul Schott Stevens gave a speech at Bloomberg's "Portfolio Manager Mash-Up" conference entitled, "Do Money Markets Pose a Systemic Risk?," which says, "In recent weeks, several media outlets have reported stories that put investors and their advisers on alert. One headline said, 'U.S. Sets Money-Market Plan.' The reporting detailed the Securities and Exchange Commission's upcoming proposal to tighten the regulation of money market funds -- a core product that 56 million individual investors and their financial advisers all depend upon. In the fund industry's response to the reported proposals, I noted that these changes will 'harm investors, damage financing for business and state and local government, and jeopardize a still-fragile economic recovery.' Quite a hat trick for the SEC -- except that they're scoring against the interests of investors and the economy."
Crane Data's latest batch of Money Fund Portfolio Holdings, which were released to subscribers of our Money Fund Wisdom database and product "suite" on Monday, verify recent reports about money funds returning to Europe and France in January. (See Crane Data's Feb. 10 News "Eurozone Holdings Increase in Jan. Says JPM; BarCap on Supply Relief" and Feb. 2 "DB's Prophet on MMFs Return to Europe; ICI's December Composition".) A huge jump in Repurchase Agreement (Repo) holdings in January (up $69.4 billion, or 2.7%) was notable while Commercial Paper also rose strongly (up $19.8 billion, or 0.7%). Government Agencies, VRDNs and Other (which includes Time Deposits) showed drops in January. We review some of the trends and largest issuers below.
We mentioned SunGard's recent "Cash Management Study" in a "Link of the Day" last week. Today, we excerpt more extensively from the survey. SunGard's Study explains, "Since the financial crisis of September 2008, treasurers have increasingly recognized the importance of defining and delivering on the right investment policies. Treasurers need to find appropriate repositories for their cash and maintain access to liquidity in an environment where borrowing continues to be expensive and difficult to source. To help understand investment trends and corporate treasurers' priorities, SunGard conducted an online survey, which attracted responses from 215 corporations globally. This included respondents from all regions and industries, with over 50% of companies headquartered in the United States and significant responses from other regions such as Europe and Asia. The survey aimed to understand corporates' cash investment policies, their attitude to risk and return and consequently, their preferred cash investment instruments, both now and in the future. It also sought to explore how companies transact their investments in practice, such as using web-based portals."
The Investment Company Institute, the trade group representing the mutual fund industry, recently submitted an extensive comment letter to an international group of securities regulators. The document, listed under "ICI Submits Information to IOSCO on Money Market Fund Reform" is titled, "Submission by the Investment Company Institute Working Group on Money Market Fund Reform Standing Committee on Investment Management International Organization of Securities Commissions." It says, "In connection with the International Organization of Securities Commissions' Standing Committee on Investment Management's review of money market funds, the Investment Company Institute is pleased to offer the following submission. Our submission focuses on U.S. money market funds and explains why in light of the effectiveness of the U.S. Securities and Exchange Commission's recent amendments to the regulatory program for money market funds under the Investment Company Act of 1940, no further reforms are necessary."
Saturday's Wall Street Journal featured an article titled, "Time to Leave Your Money Market Fund", which says, "Short-term savings yields won't make anyone rich these days. But investors can pick up some extra cash -- and get a little added safety -- by switching from money-market funds offered by investment companies to money-market accounts held at banks. There are some trade-offs, however, and the maneuver won't make sense for everyone. "Money market" can refer to two entirely different financial products. One is a mutual fund that invests in safe, short-term securities and passes the income along to investors. The other is a bank account where the rate is set by the lender. Both offer safety and easy access. The average money-market fund yields just 0.06% as of Wednesday, according to Peter Crane, president of Crane Data, which tracks the funds."
While the broader markets have focused on the major problems that money markets face this week -- regulatory uncertainty and ultra-low yields -- there has been some good news. J.P. Morgan Securities reports that money fund holdings in the Eurozone did indeed hit bottom in December and have begun to rebound in January, and Barclays Capital writes about the surprising supply and yield relief that has recently appeared in the money markets. Below, we excerpt from Alex Roever's latest Portfolio Holdings Update, as well as a recent piece from Joe Abate.
Fidelity Management & Research Company Senior Vice President & General Counsel Scott Goebel is the latest to submit a Comment Letter to the SEC on the President's Working Group Report on Money Market Fund Reform. The letter says, "Fidelity Investments would like to provide the Commission with the results of some of our recent research into the views of money market mutual fund investors. Currently, money market mutual funds are subject to a comprehensive regulatory framework overseen by the Commission. This existing structure includes the recent enhancements to Rule 2a-7, which were designed to strengthen further money market mutual funds. Fidelity has been working with regulators, including Commission staff, to evaluate the need for additional money market fund reforms. To inforn our view, we have conducted extensive research with retail and institutional investors to gain insight into which money market mutual fund features are most important to investors and how investors might react to potential reforms. We urge the Commission to consider these materials as it evaluates whether any additional regulation for money market mutual funds is appropriate."
Investment Company Institute President & CEO Paul Schott Stevens posted a response to yesterday's Wall Street Journal article "U.S. Sets Money-Market Plan". Stevens piece, entitled, "The SEC's Money Market Fund Plans -- Scoring a Hat Trick Against Investors and the Economy," explains, "The Wall Street Journal reports today that the Securities and Exchange Commission (SEC) continues to pursue regulatory changes for money market funds that will harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile economic recovery. Quite a regulatory hat trick."
The February issue of Crane Data's flagship Money Fund Intelligence is scheduled to be e-mailed to subscribers this morning, along with our performance and rankings for the month ended Jan. 31, 2012. The latest edition of MFI features articles titled, "Changes Continue, Still More Cosmetic than Consolidation," which reviews recent changes and liquidations among money funds; "MMFs Going to Be Fine Says JPM's Bob Deutsch," which interviews J.P. Morgan Asset Management's Managing Director & Head of Global Liquidity; and "Heavy Hitters Comment on Pending Regulations," which excerpts from recent comments by regulators and CEOs. Crane Data will also be sending out its latest Money Fund Intelligence XLS monthly spreadsheet and rankings shortly, and we've updated our Money Fund Wisdom database with 1/31/12 data. (Note: We also quote from today's front page Wall Street Journal story on money funds, "U.S. Sets Money-Market Plan". See our 'Link of the Day' at right.)
Money market mutual funds were mentioned in both Federal Reserve Chairman Ben Bernanke's Economic Update before the House Committee on the Budget and in Treasury Secretary Timothy Geithner's Financial Reform speech on Thursday of last week. Bernanke was asked about the European debt situation and its possible impact on money market funds, and he was questioned by a member over the penalties that low rates are inflicting on savers. We excerpt from these exchanges below.
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