Yesterday, Bloomberg featured the article, "Repo Market Decline Raises Alarm as Regulation Strains Debt". It says, "Regulations aimed at reducing the risk of another financial crisis are starting to upend a key part of the bond market that expedites trading in everything from Treasuries to junk bonds. The U.S. repurchase, or repo, market where banks and investors borrow and lend Treasuries and other fixed-income securities shrunk to $4.6 trillion daily outstanding last month, down 35 percent from a peak of $7.02 trillion in the first quarter of 2008, based on Federal Reserve data compiled from its 21 primary dealers."
Bloomberg writes, "From fewer repos to lower inventories of bonds, financial institutions are responding to more stringent capital standards imposed by regulators around the world. Already, the group of dealers and investors that advise the U.S. Treasury say that they see declines in liquidity in times of market stress, including wider gaps between bid and offer prices and the speed of completing trades. The potential consequences are higher borrowing costs for governments, companies and consumers."
The piece explains, "Repos are part of the non-bank, or "shadow banking," sector. Banks use repos to help finance investments in Treasuries, corporate bonds and mortgage-backed securities. Money-market funds such as those used by individuals to park cash and savings, are a major provider of repo financing."
It adds, "Concerns that the bond market is less efficient given regulations and fewer repos are overblown, according to Vanguard Group Inc., the biggest U.S. mutual-fund firm." They quote Vanguard's David Glocke, "From a liquidity perspective, the depth and breadth of the market is just as deep as it has ever been.... The people who are going to be impacted the most by the regulations’ effects on the marketplace are doing their very best to make regulators aware of their concerns."
Finally, the Bloomberg story says, "The Fed's primary dealers had an average $2.6 trillion last month in outstanding daily repurchase agreements, central bank data shows. When that is combined with reverse repurchase agreements, where dealers take in collateral and lend cash, the total outstanding reached $4.6 trillion."
In other news, the New York Federal Reserve wrote "Are Higher Haircuts Better? A Paradox", "Repurchase agreement (repo) markets played an important role in the 2007-09 financial crisis in the United States, and much discussion since then has focused on the role of repo haircuts. A repo is essentially a loan collateralized by securities. Typically, the value of the securities exceeds the value of the loan and the amount of overcollateralization corresponds to the haircut. In a 2010 paper, Yale's Gary Gorton and Andy Metrick identified a dramatic increase in haircuts in the bilateral segment of the repo market, which they interpreted as a run on repo. Separately, an industry task force aimed at reforming a different segment of the market, the tri-party repo market, indicated that haircuts may have been too low during the crisis, given the volatility of many of the underlying assets' values. Maintaining higher haircuts throughout the business cycle could solve both problems: the excessively rapid increase in haircuts in the bilateral segment of the market and the low level of haircuts in the tri-party segment. But are permanent higher haircuts always better? In this post, we dig a little deeper and find that they can have paradoxical effects."
The Liberty Street Economics blog explains, "There are a number of reasons to like high haircuts: 1) they limit the leverage and, thus, the fragility of borrowers, 2) they provide better protection for lenders, making them less likely to run, and 3) if already high in good times, they will likely need to increase less during times of stress, which could dampen the type of dramatic increase that Gorton and Metrick identified and help avoid the "scramble" for alternative sources of funding during a period of already tight credit conditions. All of these effects reduce the risk of run on a repo borrower and the risk of what we term a pre-default fire sale in which a dealer is forced to sell large quantities of securities at distressed prices to generate liquidity. There is certainly a case to be made that haircuts were too low in many segments of the U.S. repo market before the crisis, and they may still be too low today. So, case closed?"
Finally, the NY Fed piece adds, "If high haircuts can help mitigate the risk of pre-default fire sale, they can have a perverse effect and increase the risk of post-default fire sales. The latter type can occur because repos benefit from special treatment in the case of bankruptcy. Unlike many types of transactions that are subject to the automatic stay of bankruptcy, repos are exempt. (In the United States, a defaulting broker dealer is resolved under the Securities Investor Protection Act, which imposes a stay on liquidation of securities collateral. This stay is expected to be lifted in a short time period.) So, once a repo borrower has gone into default, the cash lenders can sell the repo securities to repay their loans."
The content page contains archives and delivery settings for all subscriptions.
|Price||$4000/yr||( Discount Policy )|
|News||( Research )|
|Ranks||( Custom )|
|Funds||( Full Database )|
|Archives||( Research )|
|Index||( Custom )|
|Subscribe Now »|
|See a demo issue.|
|Call 1-508-439-4419 for order or info.|
Crane Data is preparing to host its fourth annual Money Fund University conference, which will be held at The Renaissance Hotel in Providence, R.I., January 23-24, 2014. This year's event will focus heavily on regulations and the pending Money Market Fund Reform Proposals, featuring a faculty of the money fund industry's top lawyers and former regulators. Money Fund University offers attendees an affordable ($500) and comprehensive one and a half day, "basic training" course on money market mutual funds, educating attendees on the basics and history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Providence event, we will take a deep dive into Rule 2a-7 and current and potential future money fund regulations, with a full half-day and four sessions on the topic.
The morning of Day One of the 2014 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane, President & Publisher, Crane Data and Sean Collins, Senior Economist, Investment Company Institute; The Federal Reserve & Money Markets with Joseph Abate, Director F-I Strategy, Barclays Capital and Brian Smedley, U.S. Rates, Bank of America Merrill Lynch; Interest Rate Basics & Money Fund Math with Phil Giles, Adjunct Professor, Columbia University; and, Ratings, Monitoring & Performance with Ian Rasmussen, Senior Director, Fitch Ratings and Joel Friedman, Senior Director, Standard & Poor's.
Day One's afternoon agenda includes: Instruments of the Money Markets Intro with Alex Roever, Managing Director, J.P. Morgan Securities; Repurchase Agreements with Teresa Ho, J.P. Morgan Securities; Treasuries & Govt Agencies with Sue Hill, Senior Portfolio Manager, Federated Investors and Michael Duke, V.P., G.X. Clarke & Co.; Commercial Paper & ABCP with Garret Sloan, F-I Strategist, Wells Fargo Securities; CDs, TDs & Bank Debt with Ted Byrne, Money Market Specialist, J.M. Lummis & Co.; Instruments of the Money Markets: Tax-Exempt Securities, VRDNs, TOBs & Muni Bonds with Colleen Meehan, Senior PM, and Rebecca Glen, Senior Research Analyst, The Dreyfus Corp.; and, Credit Analysis & Portfolio Management with Adam Ackerman, VP & Portfolio Manager, J.P. Morgan Asset Management.
Day Two's agenda includes: Money Fund Regulations: 2a-7 Basics & History with John Hunt, Partner, Nutter, McClennan & Fish LLP and Joan Swirsky, Of Counsel, Stradley Ronon; Regulations II: Recent & Future Rule Changes with Stephen Keen, Partner, Reed Smith and Jack Murphy, Partner, Dechert LLP; Regulations III: Hot Topics in MF Regulation, with Robert Plaze, Partner, Stoock, Stroock & Lavan LLP; and New Disclosure Requirements & MMF Data, with Peter Crane and John Hunt.
New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities are $3K, $4K, and $5K. A block of rooms has been reserved at the Renaissance Providence Downtown. The conference negotiated rate of $159 plus tax is available through December 20th.
We'd like to thank our MFU sponsors -- G.X. Clarke & Co., Fitch Ratings, Dreyfus/BNY Mellon CIS, J.P. Morgan Asset Management, Invesco, Investortools, and Standard & Poor's -- for their support, and we look forward to seeing you in Providence in January. E-mail Pete for the latest brochure or visit www.moneyfunduniversity.com to register or for more details.
Crane Data is also preparing to publish the preliminary agenda and is already accepting registrations for its big show, Money Fund Symposium, which will be held June 23-25, 2014, at the Renaissance Boston Waterfront in Boston, Mass. (See www.moneyfundsymposium.com for details.) Finally, we're also making preparations for our 2nd European Money Fund Symposium; our "offshore" money fund event is tentatively scheduled for London on Sept. 23-24, 2014. Let us know if you'd like more information on any of our upcoming conferences, and watch for more information in coming weeks.
The November issue of Crane Data's Money Fund Intelligence was sent out to subscribers Thursday morning. The latest edition of our flagship monthly newsletter features the articles: "MMFs Dodge Debt Ceiling Bullet, Back to Battling Regs," which reviews the mini crisis over the Treasury debt ceiling and threat of technical default; "Going Global w/Liquidity: JPMAM's John Donohue," which interviews the leader of the largest money fund manager worldwide; and, "MMF Portals Continue Transparency, Direct Push," which discusses the flurry of enhancements announced by online trading platforms last month. We've also updated our Money Fund Wisdom database query system with Oct. 31, 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 October 31 Money Fund Portfolio Holdings are scheduled to go out on Tuesday, Nov. 12.
Our Debt Ceiling piece says, "In what seemed almost like a welcome relief from the seemingly permanent ultra-low yield and regulatory reform threats, money funds saw the threat of a Treasury debt ceiling default come and go, all within a matter of weeks in October. Assets fled and attention focused on what to do in the event of a Treasury default, and events unfolded just as they did the last time this overblown scare occurred late in the summer of 2011."
The November issue's lead story continues, "Money market mutual fund asset levels looked like a rollercoaster. (See the chart on page 2.) They had climbed slowly for 3 months straight through the end of September, then plunged by $70 billion in the first half of the month before rebounding strongly (up $60 billion) in the second half of the month. Treasury Institutional and Government Institutional funds drove the outflows, though Prime Institutional funds caught some of the rebound."
Our "profile" on JPMAM's John Donohue says, "In the latest Money Fund Intelligence, we speak with John Donohue, J.P. Morgan Asset Management's Head of Global Liquidity and Chief Investment Officer. Donohue shares his thoughts on market trends, portfolio strategies and the pending proposals for new money fund regulation. Our Q&A follows."
We write: "MFI: Tell us about JPMAM's history in money funds. Donohue: J.P. Morgan has been a provider of money market funds since 1987, which covers quite a few market cycles. In 2003, we decided to globalize the business and significantly bolster our investment platform, client service and fund management infrastructure. Back then, we had funds in just three currencies (USD, EUR, GBP). Now we have 30 different money market funds in eight currencies (including JPY, AUD, RMB, SGD, CNH) across 28 countries."
The article on the Portal Improvements explains, "As has been the case the last several years, the AFP's (Association for Financial Professionals') annual corporate treasury conference (most recently in Las Vegas) triggered a flurry of press releases, many from online money fund trading "portals". Among the most recent announcements -- Goldman Sachs' portal finally joined the "transparency" bandwagon, offering various look-through options on money fund portfolio holdings, SunGard released a survey on portal usage, BNY Mellon revealed enhancements to its Liquidity Direct portal, Cachematrix debuted a new module, ICD added functionality, and MyTreasury added funds to its portal."
Finally, registration is now open and the agenda is ready for Crane's Money Fund University, our "basic training" event, which will be held Jan. 23-24, 2014 in Providence, Rhode Island. Our 4th annual MFU will contain a heavy focus on money fund regulations, as well as the basics on money funds, interest rates, and overviews of various money markets. Our next big show, Crane's Money Fund Symposium, will take place June 23-25, 2014, in Boston. Registrations and sponsorships are now being accepted for this too, and the preliminary agenda is being finalized. (Watch for the agenda later this month.)
Yesterday, Crane Data published its latest monthly Money Fund Intelligence Family & Global Rankings, which ranks the asset totals and market share of managers of money funds in the U.S. and globally. (It's available to our Money Fund Wisdom subscribers.) The latest reports show big asset gains by the majority of major money fund complexes in September and in the 3rd quarter. Dreyfus, Fidelity and JPMorgan showed the largest gains in September, rising by $6.4 billion, $5.8 billion and $5.3 billion, respectively, while JPMorgan, Fidelity and Dreyfus also led in Q3 (rising by $19.5B, $13.7B and $11.8B). Money fund assets overall rose by $42.7 billion in September, after rising by $26.7 billion in August and $27.8 billion in July (according to our Money Fund Intelligence XLS); they rose a total of $97 billion in Q3.
Our latest domestic U.S. money fund Family Rankings show that Fidelity Investments remained the largest money fund manager with $432.7 billion, or 17.1% of all assets (up $5.8 billion in Sept., up $13.7B over 3 mos. and up $18.7B over 12 months), followed by JPMorgan's $244.8 billion, or 9.7% (up $5.3B, up $19.5B, and up $21.7B for 1-month, 3-months and 12-months, respectively). Federated Investors ranks third with $226.5 billion, or 9.0% of assets (up $4.1B, up $5.3B, and down $7.9B), Vanguard ranks fourth with $175.9 billion, or 7.0% (up $2.3B, $5.7B, and $14.5B), and Schwab ranks fifth with $163.4 billion, or 6.5% (up $1.5B, $3.2B, and $9.8B) of money fund assets.
The sixth through tenth largest U.S. managers include: Dreyfus ($162.2B, or 6.4%), BlackRock ($146.9B, or 5.8%), Goldman Sachs ($126.9B, or 5.0%), Wells Fargo ($121.4B, or 4.8%), and Morgan Stanley ($97.9B, or 3.9%). The eleventh through twentieth largest U.S. money fund managers (in order) include: SSgA, Northern, Invesco, UBS, BofA, Western Asset, DB Advisors, First American, RBC, and Franklin. Crane Data currently tracks 74 managers, down one from last month. (Hartford liquidated its money fund in September.)
Over the past year, JPMorgan shows the largest asset increase (up $21.7B, or 9.5%), followed by Fidelity (up $18.7B, or 4.5%) and Wells Fargo (up $16.9B, or 15.8%). Other big gainers since Sept. 30, 2012, include: Vanguard (up $14.5B, or 9.0%), SSgA (up $13.9B, or 20.7%), Schwab (up $9.8B, or 6.4%), Dreyfus (up $9.1B, or 6.0%), and Invesco (up $8.2B, or 14.9%). The biggest declines over 12 months include: `Federated (down $7.9B, or 3.4%), UBS (down $7.6B, or 14.2%), First American (down $3.1B, or 7.8%), and DB Advisors (down $2.9B, or 7.0%). (Note that money fund assets are very volatile month to month.)
When "offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Island -- are included, the top 10 managers match the U.S. list, except for BlackRock moving up to No. 3, Goldman moving up to No. 5, and Western Asset appearing on the list at No. 9. (displacing Morgan Stanley from the Top 10). Looking at these largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore), we show these families: Fidelity ($437.3 billion), JPMorgan ($369.4 billion), BlackRock ($244.4 billion), Federated ($236.9 billion), and Goldman ($191.0 billion). Dreyfus, Vanguard, Schwab, Western, and Wells Fargo round out the top 10. These totals include offshore US dollar funds, as well as Euro and Sterling funds converted into US dollar totals.
In other news, our October MFI and MFI XLS show net yields remained at record lows and gross yields continued to set new record lows for the month ended Sept. 30, 2013 Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 831), remained at a record low of 0.01% for both the 7-Day and 30-Day Yield (annualized, net) averages <b:>`_. (The Gross 7-Day Yield moved down one bps to a record low 0.14%.) Our Crane 100 Money Fund Index shows an average yield (7-Day and 30-Day) of 0.02%, also a record low, and down from 0.05% at the start of 2013. (The Gross 7- and 30-Day Yields for the Crane 100 were 0.17%.)
Our Prime Institutional MF Index yielded 0.2% (7-day), the Crane Govt Inst Index, Crane Treasury Inst, Treasury Retail, Govt Retail and Prime Retail Indexes all yielded 0.01%. The Crane Tax Exempt MF Index also yielded 0.01%. (The Gross Yields for these indexes were: Prime 0.20%, Govt 0.10%, Treasury 0.07%, and Tax Exempt 0.14% in Sept.) The Crane 100 MF Index returned on average 0.00% for 1-month, 0.01% for 3-month, 0.02% for YTD, 0.04% for 1-year, 0.05% for 3-years (annualized), 0.19% for 5-year, and 1.68% for 10-years.
The July issue of Crane Data's Money Fund Intelligence newsletter was posted on our website and e-mailed to subscribers this morning. It features the articles: "SEC on Reform Proposals; Comments Due by 9/17," which reviews the SEC's Sarah ten Siethoff's recent comments on proposed regulations; "ICI's Stevens Keynotes Symposium: Blasts Floating," which excerpts from Paul Stevens' recent speech in Baltimore; and, "Treasury's Rutherford on Reforms, FRNs, Stability," which quotes from the Assistant Secretary's Money Fund Symposium appearance. We've also updated our Money Fund Wisdom database query system with June 30, 2013, performance statistics and rankings, and our MFI XLS will also be sent out Monday a.m. (It is already available at our Content center too, along with the recordings and Powerpoints from our Baltimore Money Fund Symposium.) Our June 30 Money Fund Portfolio Holdings are scheduled to go out Wednesday, July 10.
Our SEC on Reform piece says, "The Securities & Exchange Commission proposed new reforms to money market mutual fund regulations last month, including the option of either a floating NAV for prime institutional funds or a liquidity fee and gates regime, plus a series of additional disclosures and tweaks The Proposed "Money Market Fund Reform" was officially published in the Federal Register on June 19, and interested parties have until Sept. 17 to submit comments. (See http://www.sec.gov/rules/proposed.shtml for the full 198-page proposal and to comment. No comments of substance have been submitted as of yet.)"
The July issue's lead story adds, "SEC Special Counsel Sarah ten Siethoff, who participated in the "Regulatory Roundtable" at our Money Fund Symposium (with Federated's John McGonigle and Dechert's Jack Murphy), commented in Baltimore, "We tried to be very clear on this proposal, from literally the first page of it and all the way through, on what the goals were for this rulemaking. [W]e were seeking to preserve, as much as possible, the benefits of money market funds, while lessening the susceptibility [to] redemptions, reducing contagion effects and increasing transparency of their risks.... What we were seeking to do is to try to find the best way to make that balance."
MFI excerpts from the Stevens keynote for its monthly "profile," writing, "Investment Company Institute President & CEO Paul Stevens delivered the opening keynote to the 5th annual Crane's Money Fund Symposium in Baltimore (which ran June 19-21). His speech, entitled, "Top of the Ninth? The State of Play for Money Market Funds," states, "From the start, ICI and the fund industry have consistently supported measures designed to make money market funds more resilient, subject to two conditions. First, we must preserve the key features of money market funds that make them so valuable for investors and issuers. Second, we must preserve choice for investors by ensuring a robust and competitive global money market fund industry.""
The article on Treasury's Rutherford explains, "The U.S. Treasury's Matt Rutherford also spoke at our recent Money Fund Symposium and discussed financial stability, reforms, and the likely introduction of floating rate notes later this year. We excerpt from his comments below. He told us, "As others have pointed out, intermediaries in the money markets often conduct maturity, liquidity, and credit transformation without access to central bank liquidity, deposit insurance and prudential regulation, and leading up to the financial crisis the role of these intermediaries ... increased greatly. The subsequent disruptions in specific markets revealed structural weaknesses in some of these intermediaries, including ABCP conduits, SIVs, securities lenders and money market mutual funds. Now this is territory that has been covered by policymakers and academics. [B]ut today I just want to focus my discussion more narrowly on Treasury's interest within money markets, and this includes our rule as an issuer, as well as our ongoing support to make private money markets more resilient, in particular through money market mutual fund reform as well as tri-party repo reform."
See the latest issue and future "News" postings for more details, or contact us to request the latest issue.