In an odd coincidence, both Fitch Ratings and Moody's Investors Service published 12-page reports entitled, "2014 Outlook: Money Market Funds." Both have stable ratings outlooks on the sector and focus on pending regulatory changes and further consolidation, but Moody's also discusses low yields and profitability while Fitch comments on corporate cash and shrinking supply. Fitch writes in its press release, "Fitch Ratings says its rating outlook for money market funds (MMFs) globally is stable for 2014, underpinned by funds' conservative, active management of credit, market, and liquidity risks. The outlook also reflects the status quo with respect to MMF regulations globally, as Fitch believes that any regulatory reform will take time to implement."
Crane Data released its December Money Fund Portfolio Holdings data earlier this week, and our latest collection of taxable money market securities, with data as of Nov. 30, 2013, shows a jump in Certificates of Deposits (CDs) and Treasuries, but drops in Repurchase Agreement (Repo) and Treasuries. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) decreased by $10.7 billion in November to $2.452 trillion. (Assets again shifted from Government and Treasury funds into Prime funds on concerns over the Treasury debt ceiling.) Portfolio assets declined by $9.4 billion in October, but rose by $55.3 billion in Sept., $1.1 billion in August and $68.9 billion in July. CDs increased their lead as the largest holding among taxable money funds, followed by Treasuries, Repo, CP, Agencies, Other, and VRDNs. Money funds' European-affiliated holdings inched lower to 30.0% on the decline in Repo holdings. Below, we review our latest portfolio holdings statistics.
Though the long-awaited Volcker Rule appears to have minimal direct impact on money funds and the money markets, there are a coupe areas where funds may be impacted. Citi's Vikram Rai wrote yesterday in a "Short Duration Strategy" Alert, an update entitled, "Final Volcker Rule Largely Positive for ABCP But Snags Some Conduits." He says, "Under the proposed Volcker rule, ABCP conduits would not have been covered by the loan securitization exclusion and would have been deemed covered funds. The Agencies have determined in the final rule to exclude from the definition of a covered fund an ABCP conduit that is a "qualifying asset-backed commercial paper conduit"." We excerpt from his piece below, and also quote from the ICI's Comment on the Volcker Rule.
As we mentioned Friday, our latest Money Fund Intelligence newsletter discusses the rebound in money fund assets over the past 6 months, which has continued into December, and the breaking of the $2.7 trillion level. Our lead December article, "Money Fund Assets Retake $2.7 Trillion; Flat Again in '13," says, "Money market mutual fund assets will be up slightly, but basically flat, for the second year in a row in 2013. However, these minor gains (up $24B YTD and up $10B in 2012) were the result of big declines in the first half of the year, followed by strong growth in the second half. This is a similar pattern to what we saw in 2012. But it's unclear whether this is a change in seasonality or is due to special factors."
Wells Fargo Advantage Money Funds' latest Portfolio Manager Commentary "Overview, strategy, and outlook" discusses the Treasury's pending FRN program. It tells us, "On November 6, the U.S. Treasury announced it would conduct its first auction of floating-rate notes (FRNs) on January 29, 2014. This is a notable event because it is the Treasury's first new product in 17 years. The FRNs will have a maturity of two years and an interest rate that resets daily based on the most recent 13-week Treasury bill (T-bill) auction rate plus or minus a spread that is set at the auction. The first auction is expected to be for an amount of $10 billion to $15 billion, with additional sales of the same issue, called reopenings, at the end of each of the next two months, for a total issue size of perhaps $40 billion. This auction schedule would allow for four distinct maturities, totaling in excess of $150 billion, to be issued each year."
The December issue of Crane Data's Money Fund Intelligence was sent out to subscribers on Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Money Fund Assets Retake $2.7 Trillion; Flat Again in '13," which reviews the growth of money fund assets over recent months and cycles of 2012 and 2013; "Northern Rethinks Cash: Interview with Peter Yi," which discusses money markets and enhanced cash with the Chicago manager; and, "MMF MNAVs Not Floating," which reviews the disclosure of market net asset values since the beginning of 2013. We've also updated our Money Fund Wisdom database query system with Nov. 30, 2013, performance statistics and rankings, and will be sending out our MFI XLS shortly. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our November 30 Money Fund Portfolio Holdings are scheduled to go out on Tuesday, Dec. 10.
S&P published a release entitled, "New U.S. Treasury Floating-Rate Notes Are Consistent With Our Principal Stability Fund Ratings Criteria" yesterday. It says, "Standard & Poor's Ratings Services today said that the new U.S. Treasury floating-rate notes (FRN) are consistent with our principal stability fund ratings criteria and, as such, would not be classified as a higher-risk investment. On Nov. 6, 2013, the U.S. Treasury announced final details of its initial FRN issuance that will take place Jan. 29, 2014. Representing the first new Treasury security introduced since inflation-protected securities 17 years ago, the initial FRN auction is expected to be $10 billion to $15 billion in size, with a maturity of two years."
We learned from Joan Ohlbaum Swirsky and John Baker of Stradley Ronon Stevens & Young, LLP that the SEC has posted its fall regulatory agenda which indicates that money fund reform should be completed by October 2014. Swirsky explained to Crane Data, "The fundamental reform of money market funds is scheduled to be finalized in 10/14. Also interesting is that almost all of the final rules are scheduled to be finalized 10/14. That makes the date seem like somewhat of a placeholder, to keep the items on the agenda for the year, but allow substantial time to finalize the item."
The Federal Reserve Bank of New York posted a brief entitled, "Who's Lending in the Fed Funds Market?. Authors Gara Afonso, Alex Entz, and Eric LeSueur write, "The fed funds market is important to the framework and implementation of U.S. monetary policy. The Federal Open Market Committee sets a target level or range for the fed funds rate and directs the Trading Desk of the New York Fed to create "conditions in reserve markets" that will encourage fed funds to trade at the target level. In this post, we use various publicly available data sources to estimate the size and composition of fed funds lending activity. We find that the fed funds market has shrunk considerably since the financial crisis and that lending activity is now dominated by one group of market participants."
We wrote last Wednesday about the SEC bringing fraud charges against the now-defunct Ambassador Money Market Fund, its first action involving money market funds since Reserve Primary Fund (see Crane Data's Nov. 27 News, "SEC Charges Ambassador Money Mkt Fund Portfolio Manager With Fraud), and excerpted from the SEC's press release "SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager". Today, we excerpt from the full "cease-and-desist" order and examine the issue in more detail. It says, "The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 ("Investment Company Act") against Ambassador Capital Management, LLC and Derek H. Oglesby (collectively "Respondents")."
ICI's latest "Trends in Mutual Fund Investing, October 2013" shows that money fund assets decreased by $11.5 billion in October, after increasing for 3 straight months (up $46.7 billion in September, $20.4 billion in August and $26.8 billion in July). (Money funds assets fell in each of the first four months of 2013, rose in May then fell in June.) YTD through 10/31, ICI shows money fund assets down by $24.4 billion, or 1.0%. The Institute's October asset totals show a continued rebound in bond fund assets (outflows continued, but principal gains drove overall totals higher), up by $18.2 billion after increasing $29.9 billion in Sept. and falling by $61.0 billon in August, $6.4 billion in July and a record $143.1 billion in June. (Note that assets include gains and losses and differ from "flows".) Money fund assets rebounded in the latest week after two weeks of modest outflows and assets are up by about $9.0 billion November-to-date. Finally, ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which show a drop in Treasuries and Repo, and an increase in CP. (See Crane Data's November 14 News, "Nov. MF Portfolio Holdings Show CP and TD Jump; Repo, Treasury.")
The Securities & Exchange Commission issues a press release yesterday entitled, "SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager," which says, "The Securities and Exchange Commission today announced fraud charges against a Detroit-based investment advisory firm and a portfolio manager for deceiving the trustees of a money market fund and failing to comply with rules that limit risk in a money market fund's portfolio. Money market funds seek to maintain a stable share price by investing in highly safe securities. Under the federal securities laws, a money market fund may only invest in securities determined by the fund's board of trustees to present minimal credit risk." (See the full SEC order here.) This is the only SEC action we're aware of involving a money market fund, other than ones related to the now infamous Reserve Primary Fund (which "broke the buck" in 2008).Archives »