The SEC released its "Money Market Fund Statistics" for July 31, 2016 late last week, and the latest data shows that assets rose slightly (with yet another sharp drop in Prime and Tax Exempt MMFs and jump in Govt MMFs) and yields decreased slightly. 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 Commission's latest statistics show total money market fund assets increased by $21.2 billion in July to $3.014 trillion. (The SEC's series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Assets fell $20.7 billion in June, $18.7B in May, and $40.5B in April. Year-to-date, total assets are down $71.7 billion, or 2.3%, through 7/31. We analyze the latest numbers below, and also quote from a new Deutsche piece, "Primed for October."
Of the $3.014 trillion in assets, $1.234 trillion was in Prime funds, which dropped by $44.5 billion in July after falling $124.5 billion in June, $66.9B in May, $48.0B in April and $68.5B in March. Prime funds now represent 41.0% of total assets; they've declined by $337.7 billion YTD, or 21.5%, and they've fallen $556.6 billion, or 31.1% since 10/31/15. Government & Treasury funds total $1.589 trillion, or 52.7% of assets, up $77.0 billion in July, after being up $120 billion in June and $53.7B in May. Govt & Treas MMFs are up $339.5 billion YTD and $548.0 billion since 10/31/15, just prior to the start of the Prime to Govt conversion trend. Tax Exempt Funds were down again, dropping $11.3 billion to $190.3 billion, or 6.3% of all assets. The number of money funds was 453, down 11 for the month and down 78 from 7/31/15.
Yields decreased slightly in July. The Weighted Average Gross 7-Day Yield for Prime Funds on July 31 was 0.55%, down 2 basis point from the previous month, but still more than double the 0.27% of November 2015 (before the Fed hike). Gross yields were 0.41% for Government/Treasury funds, down 0.02% from the previous month but up 0.26% from 11/15. Tax Exempt Weighted Gross Yields rose 1 basis point in July to 0.47%. The `Weighted Average Net Prime Yield was 0.34%, down by 0.01% from the previous month 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 11 basis points. The Weighted Average Prime Expense Ratio was 0.21% in July (down one bps from June). Prime expense ratios have risen from 0.16% in November 2015.
Maturities continued to move lower and liquidity continued to inch higher in July. The average Weighted Average Life, or WAL, was 39.8 days (down 5.3 from last month) for Prime funds, 98.9 days (down 0.3 days) for Government/Treasury funds, and 26.7 days (up 1.4 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM was 24.8 days (down 4.2 days from the previous month) for Prime funds, 40.6 days (down 0.1 days) for Govt/Treasury funds, and 24.9 days (up 1.6 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 34.6% in July (up 4.1% from previous month). Total Weekly Liquidity was 55.7% (up 6.9%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, France topped the list with $157.2 billion, followed by Japan with $128.9 and the U.S. with $127.7 billion. Canada was fourth with $112.6 billion, followed by Sweden ($102.6B), Australia/New Zealand ($60.8B), the UK ($52.6B) and Germany ($47.6B). The Netherlands ($35.7B) and Switzerland ($34.0B) round up the top 10.
The biggest gainers among Prime MMF bank related securities for the month were France (up $45.8B), Norway (up $22.6B), Sweden (up $10.1B), Belgium (up $7.7B), and Switzerland (up $4.8B). The biggest drops came from Canada (down $25.1B), Japan (down $17.0B), the US (down $15.8B), the UK (down $4.9B), and the Netherlands (down $3.9B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $478.2 billion (up from $392.0 last month), while the Eurozone subset had $256.2 billion (up from 202.0B). The Americas had $241.7 billion (down from $282.6B), while Asian and Pacific had $219.5 billion (down from $241.9B).
Of the $1.233 trillion in Prime MMF Portfolios as of July 31, $528.7B (42.8%) was in CDs (up from $493.6B), $276.8B (22.5%) was in Government securities (including direct and repo), down from $315.9B, $177.2B (14.4%) was held in Non-Financial CP and Other Short Term Securities (down from $188.1B), $179.3B (14.5%) was in Financial Company CP (down from $192.0B), and $70.8B (5.7%) was in ABCP (down from $82.3B).
The Proportion of Non-Government Securities in All Taxable Funds was 34.6% at month-end, down from 34.9% the previous month. All MMF Repo with Federal Reserve declined to $84.8B in July from $242.8B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 21.1% were in maturities of 60 days and over (down from 25.9%), while 3.5% were in maturities of 180 days and over (down from 3.6%).
In other news, Deutsche Bank Securities' Steven Zeng writes in the latest "US Fixed Income Weekly," "The increase in Libor took a short pause this week. Three-month Libor fixing was 2 bps lower on Monday and Tuesday before creeping back up slightly toward the end of the week. Corresponding Libor spreads and Libor basis were also little changed during the week. The deceleration in Libor is supported by MMF fundamentals. We believe that the liquidity buffer built up by prime money market funds in anticipation of October has likely reached target levels for many, judging by the latest MMF statistics which we highlight below. This suggests that Libor should be rising at a slower pace from here on."
He explains, "Weekly liquidity for institutional prime funds rose to 67% of total assets this week, the highest level ever and more than twice the 30% threshold required by the SEC. Daily liquid assets have also climbed above 45% for the first time, according to Crane Data. The current buffer size suggests that institutional prime funds can now accommodate up to $200 billion of redemption requests without risking the need to impose liquidity fees and redemption gates…. Looking at the funds individually, roughly one-third of all institutional prime funds still have WLA of below 60% as of August 18. Getting everyone to above that threshold requires a further rotation of $19 billion (3% of total assets) out of credit investment with 5 day+ maturity and into shorter maturity paper or T-bills and agency discount notes. Getting everyone to 70%+ WLA raises that amount to $48 billion."
The DB piece states, "Weighted average maturity for large institutional prime funds has dropped precipitously over the last two months to a record low of 12.7 days this week. This compares to over 20 days just before July and over 30 days for earlier this year. The shift of MMF assets toward shorter-maturity has been the main driver of the widening in 3s1s basis and by large, the widening of 3m Libor-OIS. Prime money funds could shorten their WAM further still, but there is not much more room for it to fall from here. WAM showed some stabilization on Friday, which could be a sign that it has reached or is close to the bottom…. Prime funds (institutional and retail) recorded outflows of a further $40 billion this week -- the largest of the year -- bringing total reductions in their holdings since October 2015 to $550 billion. (Correspondingly, government funds, both institutional and retail, saw aggregate inflows of $640 billion.)"
Finally, it adds, "The Fed acknowledged at its July meeting the upcoming October reforms have had an impact on US money markets. According to the minutes released this week, the Fed saw potential risks for "some disruptions in the short run" caused by large MMF investor withdrawals, but changes in monetary policy, financial regulations and market business practices should make the money markets more stable than in the past. The minutes contained no reference to the increase in Libor or tighter financial conditions resulting from it. It's worth keeping in mind that the Fed saw only half of the Libor increase at the July meeting. Between June 30 and July 27, Libor rose 10 bps and Libor-OIS widened 6 bps. Since the meeting, Libor has risen another 7 bps and Libor-OIS widened a further 6 bps. It raises a question mark over whether the Fed would remain so sanguine still at the September meeting, especially if the Libor trend worsens."
