The SEC released its latest "Money Market Fund Statistics" report, which like ICI's latest "Trends in Mutual Fund Investing" (see our Nov. 27 News) and our November Money Fund Intelligence XLS, shows big asset gains for the month of October. (Money fund assets continued inching higher in November too.) The $62.3 billion increase in October actually pushes money fund assets into the black year-to-date in 2015. The report, produced by the SEC's Division of Investment Management, summarizes monthly Form N-MFP data and includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. We also review Federal Reserve Chair Janet Yellen's speech yesterday on "The Economic Outlook and Monetary Policy," where she appears to set the groundwork for a hike in short-term interest rates at the FOMC’s Dec. 16 meeting.
Total money market fund assets stood at $3.086 trillion overall at the end of October, up $62.3 billion (after falling $2.6 billion in September), according to the SEC's broad total. (This series includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Of the $3.086 trillion in assets, $1.791 trillion was in Prime funds (58.0% of assets, up $42.6B from September 30), $1.041T was in Government/Treasury funds (33.7% of the total, up $18.4B), and $254.0 billion was in Tax-Exempt funds (8.2% of all assets; up $1.3B).
Total assets are now up $5.3 billion year to date through October 30. Prime assets are up $18.5 billion year-to-date, while Government/Treasury MMF assets are up $3.0 billion year-to-date. Tax exempt assets are down $16.2 billion year-to-date. The number of money funds was 518, down 3 from last month and down 35 from a year ago.
The Weighted Average Gross 7-Day Yield for Prime Funds on October 30 was 0.25% (down from 0.26% the previous month), 0.12% for Government/Treasury funds (unchanged), and 0.07% for Tax-Exempt funds (unchanged). The Weighted Average Net Prime Yield was 0.09% (unchanged). The Weighted Average Prime Expense Ratio was 0.16% (down 1 basis point from the previous month). Gross yields for Prime MMFs are up 5 basis points YTD (to 0.25%); expense ratios for Prime MMFs are up 1 bp YTD (to 0.16%); and net yields for Prime MMFs are up 4 bps YTD (to 0.09%).
The Weighted Average Life, or WAL, was 70.1 days (up 3 days from last month) for Prime funds, 88.8 days (up 6 days) for Government/Treasury funds, and 34.3 days (up 0.3 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 35.8 days (up 3.8 days from the previous month) for Prime funds, 40.4 days (up 2.4 days) for Govt/Treasury funds, and 32.1 days (up 0.3 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 27.5% in October (up 3.2% from last month). Total Weekly Liquidity was 41.7% (down 0.5%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $188.6 billion, followed by France with $188.0 billion, and the US at $186.6 billion. Japan was fourth with $179.0 billion, followed by Sweden ($113.6B), Australia/New Zealand ($89.6B), the UK ($73.7B), and The Netherlands ($53.5B). Norway ($48.5B) and Germany ($46.7B) round out the top 10.
The biggest gainers for the month were France (up $71.6B), Norway (up $41.6B), Sweden (up $29.9B), Aust/NZ (up $10.0B), Belgium (up $7.9B), Japan (up $4.3B), the US (up $3.3B), and Switzerland (up $2.5B). The biggest drops came from Canada (down $17.9B), The Netherlands (down $2.7B), Germany (down $1.7B), Singapore (down $529M), and Spain (down $234M). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $586.6 billion (up from $425.6B from last month), while its subset, the Eurozone, had $302.1 billion (up from $226.8B). The Americas had $377.8 billion (down from $392.8B), while Asia and Pacific had $294.2 billion (down from $279.0B).
Of the $1.785 trillion in Prime MMF Portfolios as of October 30, $536.4B was in CDs (up from $518.8B), $482.5B was in Government (including direct and repo) (down from $567.6B), $423.5B was held in Non-Financial CP and Other Short term Securities (up from $318.2B), $244.7B was in Financial Company CP (up from $231.5B), and $97.9B was in ABCP (down from $98.3B). Also, the Proportion of Non-Government Securities in All Taxable Funds was 46.3% at month-end, up from 42.4%. All MMF Repo with Federal Reserve was $188.4 billion on October 31, down from $414.4B. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 42.6% were in maturities of 60 days and over (up from 38.3%), while 8.6% were in maturities of 180 days and over (down from 8.8%).
In her speech yesterday, Yellen discussed monetary policy and the prospect of raising interest rates. She says, "Reflecting progress toward the Committee's objectives, many FOMC participants indicated in September that they anticipated, in light of their economic forecasts at the time, that it would be appropriate to raise the target range for the federal funds rate by the end of this year. Some participants projected that it would be appropriate to wait until later to raise the target funds rate range, but all agreed that the timing of a rate increase would depend on what the incoming data tell us about the economic outlook and the associated risks to that outlook.... As I have already noted, I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market. Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent as the disinflationary effects of declines in energy and import prices wane."
Yellen continues, "However, we must also take into account the well-documented lags in the effects of monetary policy. Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability."
She adds, "As you know, there has been considerable focus on the first increase in the federal funds rate after nearly seven years in which that rate has been at its effective lower bound. We have tried to be as clear as possible about the considerations that will affect that decision. Of course, even after the initial increase in the federal funds rate, monetary policy will remain accommodative."
Finally, Yellen concludes, "And it bears emphasizing that what matters for the economic outlook are the public's expectations concerning the path of the federal funds rate over time: It is those expectations that affect financial conditions and thereby influence spending and investment decisions. In this regard, the Committee anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.... The economy has come a long way toward the FOMC's objectives of maximum employment and price stability."
