Citi Research money market strategist Andrew Hollenhorst features, "MMF Reform Shifts Cash Away from Banks," in his latest "Short-End Notes." He writes, "These [MMF reform] changes are expected to lead to significant flows out of prime money funds (and bank liabilities) and into government money funds that hold US agency and Treasury debt and repo agreements backed by this collateral. With about $900 billion in institutional prime money fund assets we would not be surprised to see half these assets, or $450 billion, migrate to the government space. So far there has been little apparent flow out of prime and into government possibly as corporates and other institutional investors weight their response to the planned changes. In our view, this may mean that more of the flows become concentrated in early to mid-2016 exacerbating demand pressure on government securities during this period. These institutional flows will be initiated by the end-user money fund clients who prefer to avoid floating NAV or fees and gates. In contrast, in the retail fund space fund families themselves have taken the decision to convert retail prime funds to government funds totaling about $200 billion in assets.... The largest of these prime to government fund conversions is that of Fidelity Cash Reserves with about $115 billion in assets. Fidelity was also an early mover and plans to have the fund fully converted by the end of this year. Examining how Fidelity has handled this transition is instructive for understanding the pattern other similar conversions are likely to follow.... Roughly speaking $40 billion has been shifted out of bank CDs and $10 billion out of CP. The $50 billion in cash has been invested in US agency debt. Treasury holdings are essentially unchanged showing MMF preference for the higher yielding agency paper. Not only have holdings of CP and CDs fallen, the average maturity of those holdings have also declined.... A similar pattern of reallocation is likely to play out across institutional funds as redemptions are expected in 2016." Also, Fitch Ratings writes, "Investors Accept Negative Euro MMF Yields; VW Exposure Cut." It says, "Fitch Ratings says that investors are accepting negative euro money market funds' yields, as they face the lack of low-risk alternatives and amid heightened risk aversion at a time of market stress, as was the case over the summer... Outflows from euro constant net asset value (CNAV) funds halted in 3Q15 despite their negative yields, which are in line with short-term euro market rates. These funds even saw modest inflows over the quarter following three months of outflows after funds' yields turned negative in April. This highlights investors' acceptance of negative yields, especially at a time of market stress, as was the case over the summer. Overall CNAV MMFs assets declined 2% to EUR526bn over the quarter. The trend was similar, albeit more volatile, in French variable NAV funds' assets (EUR313bn at end-September 2015), the second largest segment of European MMFs, which are almost exclusively euro-denominated." Finally, Smart Investor writes, "Maybank Successfully Establishes a USD500 million U.S. Commercial Paper Programme.” It says, "Malayan Banking Berhad ("Maybank") has successfully established a U.S. Commercial Paper Programme on 27 October 2015. Under the CP Programme, Maybank New York Branch may issue, from time to time, Notes up to a maximum aggregate amount outstanding at any time of USD500 million in nominal value."
