The SEC released its latest "Money Market Fund Statistics" report, which shows a small decrease in assets for the month of November. The $6.6 billion decline was due to a huge $64.9 billion decline in Prime fund assets, offset almost entirely by a large $56.3 gain in Government funds, reflecting the conversion of some large prime funds to Government, including Fidelity Cash Reserves, now Fidelity Govt Cash Reserves. With this drop, money fund assets fell back into the red year-to-date in 2015. Meanwhile, yields kept moving up in anticipation of the Fed's December rate hike. 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. In other news, State Street Global Advisors a released a new white paper called, "Short-Term Cash Liquidity: What You Need To Know."
According to the SEC's latest update, total money market fund assets stood at $3.079 trillion overall at the end of November, down $6.6 billion (after rising $62.3 billion in October). (This series includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies.) As mentioned, the decline was due to a big drop in Prime assets. Of the $3.079 trillion, $1.726 trillion was in Prime funds (56.1% of assets), down $64.9 billion from Oct. 31. Further, $1.097 trillion was in Government/Treasury funds (35.6% of the total), up $56.3 billion. Finally, $256.0 billion was in Tax-Exempt funds (8.23% of all assets; up $2.0B). Total assets are flat year-to-date, down a mere $1.3 billion through November 30. Prime assets are down $46.4 billion year-to-date, while Government/Treasury MMF assets are up $59.3 billion. Tax exempt assets are down $14.2 billion year-to-date. The number of money funds was 516, down 2 from last month and down 30 YTD.
The Weighted Average Gross 7-Day Yield for Prime Funds on November 30 was 0.27% (up from 0.25% the previous month), 0.15% for Government/Treasury funds (up from 0.12% in October), and 0.06% for Tax-Exempt funds (down from 0.07%). The Weighted Average Net Prime Yield for Prime Funds was 0.11% (up from 0.09% the previous month). The Weighted Average Prime Expense Ratio was 0.16% (unchanged). Gross yields for Prime MMFs are up 7 basis points YTD (to 0.27%); expense ratios for Prime MMFs are up 1 bp YTD (to 0.16%); and net yields for Prime MMFs are up 6 bps YTD (to 0.11%). (The spread between Prime and Govt fund Gross Yields was 12 basis points at the end of November.)
The Weighted Average Maturity, or WAM, was 32.8 days (down 3.0 days from the previous month) for Prime funds, 38.3 days (down 2.1 days) for Govt/Treasury funds, and 31.7 days (down 2.6 days) for Tax-Exempt funds. The Weighted Average Life, or WAL, was 66.7 days (down 3.4 days from last month) for Prime funds, 84.6 days (down 4.2 days) for Government/Treasury funds, and 31.7 days (down 2.6 days) for Tax Exempt funds. Total Daily Liquidity for Prime funds was 30.1% in November (up 2.6% from last month). Total Weekly Liquidity was 43.1% (up 1.4%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $200.4 billion, followed by the US at $188.9 billion, and France with $179.9 billion. Japan was fourth with $172.1 billion, followed by Sweden ($108.6B), Australia/New Zealand ($88.2B), the UK ($73.6B), and The Netherlands ($51.0B). Switzerland ($45.1B) and Germany ($38.8B) round out the top 10. The only gainers for the month were Canada (up $11.9B), US (up $2.3B), Belgium (up $1.3B), and Spain (up $348M). The biggest declines came from Norway (down $13.1B) <b:>`_, France (down $8.1B), Germany (down $7.9B), Japan (down $6.9B), Sweden (down $5.0B), Netherland (down $2.5B), Aust/NZ (down $1.4B), and Switzerland (down $1.2B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $550.2 billion (down from $586.6B from last month), while its subset, the Eurozone, had $284.5 billion (down from $302.1B). The Americas had $391.8 billion (up from $377.8B), while Asia and Pacific had $285.6 billion (down from $294.2B).
Of the $1.726 trillion in Prime MMF Portfolios as of Nov. 30, $509.0B was in CDs (down from $536.4B), $477.5B was in Government (including direct and repo, down from $482.5B), $409.0B was held in Non-Financial CP and Other Short term Securities (down from $423.5B), $232.8B was in Financial Company CP (down from $244.7B), and $98.1B was in ABCP (up from $97.9B). Also, the Proportion of Non-Government Securities in All Taxable Funds was 44.3% at month-end, down from 46.3%. All MMF Repo with Federal Reserve was $133.9 billion on November 30, down from $188.4B. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 40.9% were in maturities of 60 days and over (down from 42.6%), while 7.5% were in maturities of 180 days and over (down from 8.6%).
In other news, SSgA published, "Short-Term Cash Liquidity: What You Need To Know," the latest in a series called "Yielding to a New Regulatory Reality." Its introduction says, "The new regulatory regime ... has changed the very meaning of liquidity in the short-term markets. There was a time when "liquidity" essentially meant the same thing to all market participants. It referred to the ease and quickness of issuing (from the suppliers' perspective) or selling (from the buyers' side) a particular instrument. Today, that is no longer the case."
SSgA explains, "Money market portfolio managers now think of liquidity in terms of their maturity profile. They primarily focus on using maturing bonds to provide readily available cash to meet shareholder redemptions. The 10 largest money market funds illustrate this point: They have seven-day liquidity on more than 40 percent of assets, on average. Note that this represents significant "excess" liquidity -- it is 10 percent higher than the SEC's mandatory liquidity requirement.... Today, the SEC's rule 2a-7 mandates 10 percent one-day liquidity and 30 percent seven-day liquidity for all funds. As a result, fund managers now use this level as a floor and hold an additional buffer to ensure they meet requirements."
They add, "These opposing incentives for dealers and money market funds led to the situation we see today: MMFs and primary dealers covet what each defines as liquidity; MMFs need more short-term debt, in particular securities with maturities within one or seven days; and dealers are hoarding HQLA and shifting issuance to longer-maturity bonds. The regulations appear to be succeeding at making the financial markets healthier. Yet they result in a severe mismatch between supply and demand. Money funds want and need more short-term assets. Yet banks are forced by regulations to issue less of their own short-term debt -- including the reverse repurchase agreements that made up much of the overnight market -- and to hoard government paper.... Investors looking to secure higher yields have to accept somewhat higher volatility or lower liquidity than they have been accustomed to from cash holdings."
The paper also discusses the impact of the Floating NAV, saying, "Institutional investors are widely anticipated to shift out of money market prime funds and into money market government funds during 2016. A widening of the spread between the prime and government money market fund yields will follow as the reduced demand for credit debt causes those yields to rise. This will provide a good opportunity for prime money market fund managers, who will now have the chance to be more choosy and to push back on offerings that look too expensive. We have had many conversations with our clients that lead us to believe that, for some, there will be a spread that will entice them to stay in an institutional prime fund and accept the variable NAV and potential for redemption gates and liquidity fees imposed by money market fund reform."
It continues, "Today investors with an appetite for longer-term repo structures are beginning to approve new counterparties that are in need of funding. Some of these counterparties are not the traditional primary dealers or banks. Further, the Federal Reserve, which has launched its own repo program, has provided significant funding for MMFs over the past few years.... The interaction between the traditional repo providers, the new repo counterparties and the Fed will make for an unpredictable mix since each provider may have a different goal in mind."
SSgA's piece concludes, "Many changes will come to the short-term fixed income market over the near term. Because portfolio managers now equate liquidity with maturity, money market funds will continue to hold more very-short-term securities than they have historically. If the 30 percent weekly fund liquidity requirement is the new minimum, then portfolio managers are likely to run money market funds with significant liquidity buffers above that level.... But as history has shown, the market and its participants will evolve to find new solutions and products to work in the new world of cash. We are already seeing new investment options and fund structures. Clients remain open to ideas to solve their investment needs, while portfolio managers are eager to explore new opportunities and structures to find ways to best serve their clients’ objectives."
