Thank you to those who attended, spoke or sponsored Crane's Money Fund Symposium last week in Philadelphia. The record 575 participants discussed Prime fund outflows and alternatives, adapting to the new regulatory and rate regime, and a number of important topics involving money market mutual funds. Watch for excerpts and coverage later this week and in our July Money Fund Intelligence; conference attendees and Crane Data subscribers may access Powerpoints and records in our "Money Fund Symposium 2016 Download Center." (Mark your calendars for next year's Symposium, which will be June 21-23, 2017 in Atlanta. For those that can't wait until then, we hope to see you at our London European Money Fund Symposium Sept. 20-21, or at our next Money Fund University, Jan. 19-20 in Jersey City, NJ.) Below, we review comments from Federated Investors' Deborah Cunningham on "Brexit," Federated's announcement on its "60-Day Max Maturity" MMF, and the SEC's latest monthly Form N-MFP Statistics Summary.
On Friday, Federated sent out a brief entitled, "In Short: Money markets keep composure in Brexit aftermath." It says, "It is certainly not business as usual, but money markets are reacting with relative calm to the unexpected news that Britain voted to leave the European Union. While the Leave vote is rattling most of the financial sphere, cash managers are not seeing any unusual activity. Markets are trading with normal flows, with buyers and sellers active in the marketplace. Global banks continue to offer good relative value with high credit quality. Overnight rates are elevated, exacerbated by quarter-end cutbacks, but not markedly so."
The piece adds, "As for Federated's own operations, while the Leave vote was a surprise, we were prepared to react to either decision. Our portfolios have ample liquidity and are functioning normally -- there will be no changes to our operational policies. It is important to remember that the actual separation of the U.K. from the EU will be a drawn-out process over two years. It is a historic decision, but money markets are taking the news in stride." Note: Crane Data's latest Money Fund Portfolio Holdings data (as of 5/31/16) shows U.K.-affiliated money fund holdings totaling just $89.9 billion, or 3.45% of Taxable U.S. MMF securities.
Another statement, entitled, "Federated Master Trust to transition to 60-day maximum format," explains, "As part of its ongoing effort to refine its product line to meet client demand, Federated announced today that Federated Master Trust, an existing money market mutual fund, will transition to an institutional money market fund that will seek to invest entirely in a portfolio of high-quality, dollar-denominated fixed-income securities issued by banks, corporations and the U.S. government that mature in 60 days or less. The fund will be renamed Federated Institutional Prime 60 Day Fund and typically maintain a weighted average portfolio maturity of approximately 40 days or less. The fund will invest in prime securities and will seek an AAA rating. The fund is expected to offer Premier Shares (PRM), Institutional Shares (IS) and Service Shares (SS). These changes are anticipated to be effective on or about Aug. 1, 2016 subject to Securities and Exchange Commission review. Prior to Oct. 14, 2016, the fund will continue to use amortized cost to value and transact at a stable $1.00 net asset value."
It adds, "Beginning on or about Oct. 14, 2016, the fund will begin transacting at a floating NAV that uses four-decimal-place precision ($1.0000) and its share price will fluctuate, but will seek to minimize volatility of its NAV by investing in high quality securities with maturities of 60 days or less, typically maintaining a weighted average portfolio maturity of approximately 40 days or less and using amortized cost to value such securities when permissible. The fund will offer three strike times at 8 a.m., noon and 3 p.m. Eastern time with same-day settlement beginning on or about Oct. 14, 2016, the compliance effective date for the relevant 2014 amendments to Rule 2a-7 under the Investment Company Act of 1940."
In other news, the SEC's "Money Market Fund Statistics" for May 2016 shows that assets fell (with a sharp drop in Prime MMFs and jump in Govt MMFs) and yields inched lower last month. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends.
The SEC's latest statistics show total money market fund assets dropped by $18.7 billion in May to $3.013 trillion. This after assets fell $40.5 billion in April, fell $50.1 billion in March, rose $58.5 billion in February, and fell $21.4 billion in January. (This series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Year-to-date, total assets are down $72.2 billion, or 2.3%, through 5/31.
Of the $3.013 trillion in assets, $1.403 trillion was in Prime funds, which dropped by $66.9 billion in May after falling $48.0 billion in April and $68.5 billion in May. Prime funds now represent 46.6% of total assets; they've declined by $168.7 billion YTD, or 10.7%, and they've fallen by 387.6 billion, or 21.6% since 10/31/15. Government & Treasury funds total $1.391 trillion, or 46.2% of assets, up $53.7 billion in May and up $26.5 billion in April. Govt & Treas MMFs are up $142.5 billion YTD and $350.9 billion since 10/31/15, just prior to the start of the Prime to Govt conversion trend. Tax Exempt Funds were down again, dropping $5.5 billion to $217.9 billion, or 7.2% of all assets. The number of money funds was 466, down 6 for the month and down 71 from 5/31/15.
Yields were flat to lower in May, but Tax-Exempt funds' inched higher. The Weighted Average Gross 7-Day Yield for Prime Funds on May 31 was 0.55%, down 1 basis point from the previous month and more than double the 0.27% of November 2015. Gross yields were 0.39% for Government/Treasury funds, unchanged from last month but up 0.24% from 11/15. Tax Exempt Weighted Gross Yields rose 1 basis point in May to 0.42% after jumping 8 bps in April and 25 bps in March. The `Weighted Average Net Prime Yield was 0.34%, unchanged from the month before but up 0.23% since 11/15. For the year-to-date, 7-day gross yields are up 14 basis points and net yields are up 12 basis points. The Weighted Average Prime Expense Ratio was 0.22% (unchanged from April). Prime expense ratios have risen from 0.16% in November 2015.
Maturities continued to move lower and liquidity continued to inch higher in May. The average Weighted Average Life, or WAL, was 46.8 days (down 4.9 days from last month) for Prime funds, 95.0 days (down 0.1 days) for Government/Treasury funds, and 21.1 days (down 2.3 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 30.5 days (down 2.8 days from the previous month) for Prime funds, 39.0 days (down 1.8 days) for Govt/Treasury funds, and 18.4 days (down 2.8 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 32.5% in May (unchanged from last month). Total Weekly Liquidity was 47.9% (up 2.2%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, France topped the list with $164.8 billion, followed by Japan with $160.9 billion and the US with $149.0 billion. Canada was fourth with $141.8 billion, followed by Sweden ($120.9B), the UK ($63.4B), Australia/New Zealand ($62.1B), and Germany ($53.8B). The Netherlands ($44.6B) and Norway ($38.5B) round out the top 10. The biggest gainers among Prime MMF bank related securities for the month were Canada (up $2.7B), Singapore (up $2.0B), Japan (up $1.4B), China (up $1.4B), and Germany (up $493M). The biggest drops came from the US (down $22.4B), France (down $13.1B), Australia (down $9.3B), the UK (down $5.7B), and Switzerland (down $3.5B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $545.7 billion (down from $571.4B last month), while its subset, the Eurozone, had $281.6 billion (down from $297.2B). The Americas had $292.4 billion (down from $312.7B), while Asia and Pacific had $251.0 billion (down from $255.5B).
Of the $1.413 trillion in Prime MMF Portfolios as of May 31, $610.7B (43.2%) was in CDs (down from $633.9B), $283.0B (20.0%) was in Government (including direct and repo), down from $296.9B, $211.4B (15.0%) was held in Non-Financial CP and Other Short Term Securities (down from $214.1B), $219.2B (15.5%) was in Financial Company CP (down from $228.9B), and $88.4B (6.3%) was in ABCP (down from $93.9B).
The Proportion of Non-Government Securities in All Taxable Funds was 40.5% at month-end, down from 42.4% the previous month. All MMF Repo with Federal Reserve rebounded to $90.9B in May from a record low $60.0 billion the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 28.8% were in maturities of 60 days and over (down from 32.4%), while a record low 3.5% were in maturities of 180 days and over (down from 4.5%).
