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In the face of a negative interest rate environment and regulatory uncertainty in Europe, Northern Trust launched a variable net asset value money market fund in November, the Euro Liquidity Fund. (See our Nov. 6 "Link of the Day," "Northern's New Euro VNAV MMF.") Northern also recently held a webinar, "Why Returns Should Matter for Money Market Investors," featuring Wayne Bowers, CIO, EMEA and APAC, and David Blake, director, International Fixed Income, to discuss the possibilities and pitfalls of the shifting money market landscape and to explain why they launched a VNAV euro MMF. We review Northern's recent move and comments below, and we also quote from yesterday's Wall Street Journal article, "European Money-Fund Managers Brace for Losses".

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The Federal Reserve issued its FOMC statement following its 2-day meeting yesterday and removed its "considerable period of time" language and replaced it with "patient". The Fed also released its "dots" or "target federal funds rate projections," which shows expectations of 4 rate hikes in 2015 and a median Fed funds target of 1.125% by yearend. (The Wall Street Journal notes that the estimates are 2.5% for 2016 and 3.625% for 2017.) Chair Janet Yellen also held a press release where she affirmed market expectations for a hike in the Fed funds target rate around mid-year in 2015. The FOMC statement says, "Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate.... Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable."

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The Federal Reserve's latest Z.1 "Financial Accounts of the United States" statistical release (formerly the "Flow of Funds") for the Third Quarter of 2014 was published last week. The four tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, and Credit Market Instruments is the largest investment segment. Table L.206 shows the Household sector with $1.113 trillion -- or 43.4% of the $2.565 trillion held in Money Market Mutual Fund Shares as of Q3 2014. Household shares increased by $27 billion in the 3rd quarter, but are are down $22 billion year-to-date (after rising $21 billion in 2013). Household sector money fund assets remain well below their record level of $1.581 trillion at year-end 2008.

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Yesterday, we reported on Fitch Ratings stable outlook for money market funds in 2015. (See Monday's "News," "Money Fund Outlook Stable for 2015, Says Fitch; New Products, Global). Moody's, however, came out with a slightly different take on 2015, issuing a negative outlook for money market funds next year with its publication, "2015 Outlook - Money Market Funds: Market Challenges Underpin Negative Outlook." Moody's explains, "Moody's has revised its outlook for money market fund ratings to negative from stable. The change in outlook reflects our expectation that 2015 will be an inflection point where, despite cautious investment approaches, MMFs will struggle to maintain the highest credit and stability profiles in the face of an ongoing supply-demand imbalance, low to negative fund net yields, and elevated asset flow volatility." Below, we excerpt from Moody's European-centric outlook, which focuses on supply, regulations, and interest rates.

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What's in store for money market funds in 2015? The outlook for MMFs is "stable" according to Fitch Ratings in its new report, "2015 Outlook: Money Market Funds." Fitch sees three major themes emerging next year: regulatory clarity, supply challenges, and interest rate divergence between the U.S. and Europe. The report says, "Fitch Ratings' Stable Outlook for money funds globally is underpinned by the funds' active, conservative management of credit, market and liquidity risks. The Outlook also reflects our view that [the] status quo will hold in the short term for money fund regulations globally, as reform will take time to implement. Nevertheless, Fitch recognizes that money fund reforms will have far-reaching implications for funds and investors in the US and Europe over time."

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In a speech Thursday, SEC Chair Mary Jo White spoke on "Enhancing Risk Monitoring and Regulatory Safeguards for the Asset Management Industry" and gave an overview of the asset management in a "new period of regulatory change." Judging by her comments, it seems the SEC's focus is moving beyond money market funds to other areas, such as data reporting for separate accounts and other investments and Financial Stability Oversight Council concerns over systemic risks. "Over the years, our regulatory program for asset management has grown and adapted, guided by our mission, to address ever-evolving markets and the challenges that evolution presents. We are now embarking on a new period of regulatory change, driven by long-term trends in the industry and the lessons of the financial crisis. This morning, I will talk about the SEC's perspective on the asset management industry today through a review of some of its most important features, highlighting the regulatory issues that the industry presents, and setting out how we plan to enhance and strengthen our response to those issues," said White in her introductory remarks.

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Crane Data published its latest Money Fund Intelligence Family & Global Rankings earlier this week, which rank the asset totals and market share of managers of money market mutual funds in the U.S. and globally. The December edition, with data as of Nov. 30, shows asset increases for about half of money fund complexes in the latest month, as well as modest gains over the past three months. Assets were basically flat in November, increasing only 0.8%. Over the last 3 months, assets were up 2.6%, and over the last 12 months, assets are relatively flat, down 0.8%. Below, we review the latest market share changes and figures. (These "Family" rankings are available to our Money Fund Wisdom subscribers.)

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Crane Data released its December Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of Nov. 30, 2014, shows jumps in Agencies, CDs, and Repo, and drops in Other (Time Deposits) and Treasuries. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $11.5 billion in November to $2.451 trillion. Portfolio assets increased by $4.7 billion in October, $42.4 billion in September, and $28.2 billion in August, after decreasing by $6.2 billion in July. CDs remained the largest portfolio composition segment among taxable money funds, ahead of Repos. In third were Treasuries, just ahead of CP. These were followed by Agencies, Other (Time Deposits), and VRDNs. Money funds' European-affiliated holdings stood at 28.1%, the same level as last month. Below, we review our latest Money Fund Portfolio Holdings statistics.

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Money market funds are not the only cash investment vehicle feeling the pinch from regulators. Banks are under their own pressures, as detailed by the story on the front page of Monday's Wall Street Journal, "Banks Urge Clients to Take Cash Elsewhere." The story reads, "Banks are urging some of their largest customers in the U.S. to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits. The banks, including J.P. Morgan Chase & Co., Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp., have spoken privately with clients in recent months to tell them that the new regulations are making some deposits less profitable, according to people familiar with the conversations. In some cases, the banks have told clients, which range from large companies to hedge funds, insurers and smaller banks, that they will begin charging fees on accounts that have been free for big customers, the people said. Bank officials are also working with these firms to find alternatives for some of their deposits, they said. The change upends one of the cornerstones of banking, in which deposits have been seen as one of the industry's most attractive forms of funding, said more than a dozen corporate officials, consultants and bank executives interviewed by The Wall Street Journal."

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The European Parliament's ECON Committee put forth a new version of a proposal for money market fund reform in Europe in November. The new rapporteur of the ECON Committee drafted the amendments, which updates the EU's original proposal from September 2013. Partner Dan Morrissey and attorneys at Irish law firm William Fry, published a report entitled, "ECON publishes new report on proposed EU Money Market Fund Regulation" that summarizes the revised proposal. It explains, "The draft regulation, which was first proposed by the European Commission on 4 September 2013, contains new measures that would apply to all Money Market Funds, whether UCITS or AIFS, that are established, managed or marketed in the EU. While the European Commission has proposed the draft regulation, both the European Parliament and the Council of the EU have a role, in accordance with the EU's ordinary legislative procedure, in negotiating and deciding the final text to be adopted."

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The December issue of Crane Data's Money Fund Intelligence was sent out to subscribers Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Assets Flat 3rd Year in a Row; JPM Rates, Supply Outlook," a review of year-to-date asset totals and a look ahead to next year; "Wells' Sylvester Retiring: Parting Words of Wisdom," an interview with Dave Sylvester, senior portfolio manager and long-time head of money market funds at Wells Fargo; and, "ICI Recaps Regs, 80% Stable NAV," which examines highlights from ICI's 2014 Annual Report. We also updated our Money Fund Wisdom database query system with Nov. 30, 2014, performance statistics, and sent out our MFI XLS spreadsheet early this morning. (MFI, MFI XLS and our Crane Index products are available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to go out on Tuesday, Dec. 9.

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The U.S. Treasury's Office of Financial Research issued its 2014 Annual Report to Congress, which analyzes potential threats to U.S. financial stability, documents OFR's progress in meeting the mission of the Office, and reports on key research findings. "Since our 2013 report, several financial stability risks have increased. The three most important are excessive risk-taking in some markets, vulnerabilities associated with declining market liquidity, and the migration of financial activities toward opaque and less resilient corners of the financial system," writes OFR Director Richard Berner in the opening letter. "Gaps in analysis, data, and policy also persist, despite progress in narrowing them. If left unaddressed, these threats could adversely affect financial stability," adds the executive summary. The 164-page report includes several points related to money market funds, including a recap of the SEC's MMF reforms. Money market funds are also addressed in the OFR's soon-to-be-published strategic plan. Also, there is a new initiative related to data gaps in the repo markets.

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