The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds"). Among the 4 tables it includes on money market mutual funds, the First Quarter, 2016 edition shows that the Household Sector remains the largest investor segment, though these assets dipped slightly in Q1. Funding Corporations, State & Local Governments, Life Insurance Companies, and Private Pension Funds showed gains in the latest quarter, while Households, Nonfinancial Corporate Businesses, State & Local Governments, and Funding Corporations showed increases over the past 12 months. We review the latest Fed Z.1 numbers below, and we also review an article from Bloomberg on Treasury bill market volatility and money fund regulatory shifts. (Note: Crane Data's June Money Fund Portfolio Holdings were delayed slightly due to recent SEC category changes. Watch for our "Reports" later this morning and for our News on this on Monday. We've also begun posting Form N-MFP data on our Holdings page.)
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows total assets inching up by $4.1 billion, or 0.14%, in the first quarter to $2.759 trillion. Over the year through March 31, 2016, assets are up $114.1 billion, or 4.3%. The largest segment, the Household sector, totals $1.036 trillion -- or 37.5% of assets. The Household Sector decreased by $30.2 billion, or -2.8%, in the quarter, after increasing $65 billion in the 4th quarter, and increasing $5 billion in Q2. Over the past 12 months through March. 31, 2016, Household assets are up $21.0 billion, or 2.1%. Household assets 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 $573.4 billion, or 20.8% of the total. Business assets in money funds decreased $3.4 billion in the quarter, or -0.6%, but have risen by $28.1 billion over the past year, or 5.2%. Funding Corporations, which includes Securities Lending cash, remained the third largest investor segment with $464.4 billion, or 16.8% of money fund shares. They increased by $26.7 billion in the latest quarter, and remain up $19.4 billion over the previous 12 months. Funding Corporations held over $906 billion in money funds at the end of 2008.
The fourth largest segment, State and Local Governments held 6.9% of money fund assets ($189.1 billion) -- up $5.1 billion, or 2.9%, for the quarter, and up $19.5 billion, or 11.5%, for the year. Private Pension Funds, which held $150.9 billion (5.5%), 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 $114.7 billion, while Nonfinancial Non-Corporate Businesses held $92.3 billion (3.3%), State and Local Government Retirement Funds held $59.2 billion (2.1%), Life Insurance Companies held $58.3 billion (2.1%), and Property-Casualty Insurance held $20.6 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," or Credit Market Instruments, with $1.632 trillion, or 59.1%. Debt securities includes: Open market paper ($333.4 billion, or 12.1%; we assume this is CP), Treasury securities ($545.5 billion, or 19.8%), Agency and GSE backed securities ($460.9 billion, or 16.7%), Municipal securities ($239.1 billion, or 8.7%), and Corporate and foreign bonds ($52.7 billion, or 1.9%). Overall, Credit Market Instruments are up $49.6 billion, or 3.1%.
Other large holdings positions in the Fed's series include Security repurchase agreements ($597.1 billion, or 21.6%) and Time and savings deposits ($493.0 billion, or 17.9%). Money funds also hold minor positions in Foreign deposits ($17.6 billion, or 0.6%), Miscellaneous assets ($12.3 billion, or 0.4%), and Checkable deposits and currency ($7.3 billion, 0.3%). Note: The Fed added a new breakout line to this table which lists "Variable Annuity Money Funds;" they currently total $39.4 billion, up $400 million in the quarter.
During Q1, Treasury Securities (up $62.6 billion), Open Market Paper (up $34.6 billion), Time and Savings Deposits (up $48.0 billion), Foreign Deposits (up $6.5 billion), and Miscellaneous Assets (up $2.3 billion), showed increases. Security Repurchase Agreements (down $102.2 billion), Municipal Securities (down $29.3 billion), Agency- and GSE-Backed Securities (down $6.5 billion), Corporate and Foreign Bonds (down $11.7 billion), and Checkable Deposits and Currency (down $300 million) all showed declines.
In other news, Bloomberg wrote the piece, "World's Safest Market Beset by Most Volatility Since 2008." It says, "The $1.5 trillion market for U.S. Treasury bills, known as an oasis of stability for investors worldwide, is experiencing the most volatility since the financial crisis. Daily swings in the government's shortest-maturity obligations are widening as debate over the Federal Reserve's path collides with rising demand for the securities before the implementation of regulations intended to make money-market funds safer. The gyrations underscore how it's a precarious time for investors in bills and other instruments in the money market, which the Fed uses to implement policy changes. Asset managers looking to park cash in the short-term securities have to navigate officials' efforts to normalize interest rates while also adapting to post-crisis rules."
It continues, "Skepticism toward the Fed's plans to boost its overnight target, following liftoff from near zero in December, is fueling the volatility. Futures assign a 2 percent chance of an increase at officials' June 14-15 gathering, and the probability doesn't exceed a coin toss until December. "The Fed has hiked once already, so we are in a tightening cycle, but there is enough uncertainty about what that will look like," said William Marshall, an interest-rate strategist in New York at Credit Suisse Group AG, one of the Fed's 23 primary dealers <b:>`_. "The other big uncertainty, where there is still a lot of debate, is what is going to be the end state for front-end demand once the money-fund reforms go into effect."
Bloomberg adds, "On Oct. 14, Securities and Exchange Commission rules take effect that may lead investors to shift into money-market funds focused on government debt, from prime funds, which typically buy commercial paper. The new regulations mandate that institutional prime funds report prices that fluctuate, rather than sticking to $1 per share. The measures also allow fund companies to use steps such as redemption fees to prevent runs in times of panic. Amid all the changes, which have already led many money-market companies to alter their offerings, institutional investors may pull about $400 billion from prime funds, JPMorgan Chase & Co. predicted in the first quarter."
It concludes, "The combination of fluctuating Fed bets and purchases of bills related to regulatory changes will spur volatility, said Jerome Schneider, head of short-term portfolio management at Newport Beach, California-based Pacific Investment Management Co., which oversees $1.5 trillion. "Until these stimuli become reconciled and resolved, we may continue to see relative repricing a normal event in this sector," he said."
