Late last week, the Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States for the Third Quarter, 2015" statistical survey (formerly the "Flow of Funds"). The tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, though this segment dropped below the $1 trillion level earlier this year for the first time in a decade. Funding corporations (sec lenders) and nonfinancial corporations showed big gains in the latest quarter and year. We review the latest Z.1 numbers, and we also review Fitch Ratings' latest Criteria Changes to MMF Ratings below.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows total assets increasing by $47 billion, or 1.8%, in the 3rd quarter to $2.627 trillion. Over 1 year assets are up $62 billion. The Household sector totals $990 billion -- or 37.7%. These increased by $5 billion in the 3rd quarter (after decreasing $45 billion in Q2), and have decreased by $97 billion the past 12 months. Household assets hadn't fallen below $1 trillion in a decade prior to last quarter, and they remain well below their record level of $1.581 trillion (from year-end 2008).

Nonfinancial corporate businesses were the second largest investor segment, according to the Fed's data series, with $571 billion, or 21.7% of the total. Business assets in money funds increased $10 billion in the quarter and have risen by $52 billion over the past year. Funding corporations, which includes securities lending cash, remained the third largest investor segment with $455 billion, or 17.3% of money fund shares. They increased by $21 billion in the latest quarter and $69 billion over 12 months. Funding corporations held over $906 billion in money funds at the end of 2008.

State and local governments held 6.5% of money fund assets ($171 billion) -- up $2 billion for the quarter. Private pension funds, which held $138 billion (5.2%), remained in 5th place. The Rest of the world category was the sixth largest segment in market share among investor segments with 4.2%, or $111 billion, while Nonfinancial noncorporate businesses held $90 billion (3.4%), State and local government retirement funds held $54 billion (2.0%), Life insurance companies held $29 billion (1.1%), and Property-casualty insurance held $18 billion (0.7%), according to the Fed's Z.1 breakout.

The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in Debt securities ($1.442 trillion, or 54.9%), which includes: Open market paper ($332 billion, or 12.6%; we assume this is CP), Treasury securities ($385 billion, or 14.6%), Agency and GSE backed securities ($393 billion, or 14.9%), Municipal securities ($257 billion, or 9.8%), and Corporate and foreign bonds ($76 billion, or 2.9%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($681 billion, or 25.9%) and Time and savings deposits ($477 billion, or 18.1%). Money funds also hold minor positions in Foreign deposits ($12 billion, or 0.5%), Miscellaneous assets ($13 billion, or 0.5%), and Checkable deposits and currency ($2 billion, 0.1%).

During Q3, Security Repurchase Agreements (up $45 billion), Agency and GSE-Backed Securities (up $59 billion), and Corporate and foreign bonds (up $9 billion), showed increases. Time and Savings Deposit (down $33 billion), Open Market Paper (down $4 billion), Treasury Securities (down $13 billion), Municipal Securities (down $1 billion), Misc. Assets (down $3 billion), Checkable Deposits and Currency (down $2 billion), and Foreign Deposits (down $10 billion) all showed declines.

In other news, a press release entitled, "Fitch Updates Global Money Market Fund Ratings Criteria," says, "Fitch Ratings has updated its global criteria for rating money market funds (MMFs) and other cash management vehicles, taking into account significant market and regulatory changes affecting the sector. No rating changes are expected. Fund managers may adjust their MMFs following the release of the new criteria and Fitch would expect those changes to be made by end-January 2016."

The Fitch release highlights key changes, explaining, "Changes to criteria include: 1) Clarification that the ratings assigned under these criteria apply to all liquidity management products, including vehicles that are not regulated MMFs.... 2) Emphasizing that these rating criteria are principle-based, focusing on funds' key risks -- credit, liquidity, and market risk -- in a holistic manner. 3) The ability for rated MMFs to engage in repurchase agreements (repo) with counterparties rated 'A-'/'F2' or 'BBB+'/'F2' for maturities of one week or less. Such repos must be 102% over-collateralized by high quality government securities, are subject to 10% counterparty concentration limits, and are limited in the aggregate to 25% of portfolio assets."

Other changes include: "4) Increased weekly liquidity threshold to 30% from 25% for 'AAAmmf' funds. 5) Incorporation of additional liquidity cushions for regulated MMFs that are subject to liquidity metrics triggers for the implementation of liquidity fees and redemption gates. 6) Explicit 10% limit introduced for illiquid securities combined with a 120 maximum maturity limit at the 'AAAmmf' level. 7) Increased maximum maturity for government floating-rate securities to 762 days from 730 days. 8) Reduced maximum maturity for non-government floating-rate securities at 'Ammf' level to 397 days from two years. 9) Simplified approach for a fund's exposure to its affiliates, with maximum maturity set at 45 days. 10) Restricted investments in other MMFs, provided they are rated 'AAAmmf', to 10%."

Further, Fitch writes, "11) Introduced explicit 10% limit for the notional value of derivatives (interest rate and currency) as percentage of total portfolio assets. 12. For currency derivatives, changed current criteria to focus on specific currencies <b:>`_. 13) Introduced limits on exposure to fund manager's affiliates at 'AAmmf' and 'Ammf' levels. 14) Surveillance frequency changed to twice per month from weekly. 15) MMF rating definitions changed to explicitly recognize the conditions under which negative interest rates can be consistent with preservation of principle."

Finally, they add, "The primary focus of this criteria report is on MMFs and other cash management vehicles that seek to achieve principal preservation and provide shareholder liquidity through managing credit, market, and liquidity risks. Under these criteria, MMF ratings can be assigned to those MMFs and liquidity vehicles that operate as constant net asset value (CNAV) funds as well as variable net asset value (VNAV) funds that are managed under the same mandate of safety of principal and timely liquidity and demonstrate NAV stability."

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