The June issue of Crane Data's monthly Money Fund Intelligence newsletter features the lead article, "Yields Climb Off Floor; MMF Reforms, Europe," which discusses the recent gradual rise in money fund yields, as well as the impact of recent SEC Reforms and concerns over European debt exposure. We excerpt from the article below.
MFI writes, "Concerns over European exposure and the impact of the first phase of the SEC's Money Market Fund Reforms going into effect dominated the money fund landscape in May. But there was also a fair amount of good news during the month too. Asset outflows slowed considerably, and yields continued their slow climb off of the zero floor."
It continues, "While expectations of a Federal Reserve rate hike have shifted into early 2011 from late 2010 due to Greece, fund managers appear to be enjoying a reduction in fee waivers due to higher repo and now LIBOR rates. The number of taxable money funds with yields of 0.00% or 0.01% has fallen from 603 to 538, but the amount of money fund assets with yields of 0.00% or 0.01% has fallen from almost half (46.7% of assets) to about one-third (33.4%) over the past 3 months."
The June issue's lead article explains, "Each basis point of fee waivers reclaimed represents about $250 million in annualized revenue on a $2.5 trillion base. (Funds are at $2.8 trillion currently.) Funds have likely already reclaimed several bps back from their lows of February, and more could be in the pipeline due to the newly-elevated LIBOR levels. We're guessing that fund managers are sharing any rate increases at these levels with investors. Our Crane 100 has climbed from 0.04% to 0.07% during the past 3 months." (It climbed another basis point Monday to 0.08%.)
The article also says, "Finally, though it of course is a concern given the sensitivity to headline risk, Europe does not appear to be a clear and present danger to money funds. It even looks like it is even a net positive for funds given the higher rates and traditional flight to quality move from stocks and bonds. Managers and analysts in the know, as opposed to some of the reporting of late, do not believe there is a real threat of anyone 'breaking the buck' or requiring a bailout. This is even though money funds do hold substantial amounts of European debt. Our estimate is $400 billion in European-affiliated CDs and CP [and likely decreasing by the day], down from $500 billion."
MFI continues, "Federated's Debbie Cunningham said last week at the New York Cash Exchange that Europe was 'more perception risk as opposed to credit quality risk.' `Greece and Portugal, she said, were never eligible for money market funds. (This is contrary to what was implied by a Fitch press release.)"
