With news last week that the European Parliament has reached agreement on European money fund reforms, we thought we would review the latest European, "International" or "offshore" money fund assets, yields, and portfolio holdings, as well as some new commentary on the soon-to-be pending regulatory changes. (See our Nov. 17 News, "Europe Agrees to Money Fund Reforms: VNAVs, CNAVs and New LVNAVs.") European money fund assets domiciled in Dublin and Luxembourg and denominated in USD, Euro and Sterling are up $41 billion year-to-date through 10/31/16, and they're up $8.7 billion month-to-date in November to $748.8 billion, according to our Money Fund Intelligence International. (Note: Crane Data tracks money funds domiciled in Dublin and Luxembourg, but doesn't track French money funds, the other major segment of "European" money funds.)
U.S. Dollar (USD) funds (157) tracked by MFII account for over half ($380.2 billion, or 50.8%) of the total, while Euro (EUR) money funds (97) total just E90.1 billion and Pound Sterling (GBP) funds (107) total L185.3. USD funds are down $16 billion, or 4.1%, YTD through Oct. 31, and down another $4.5 billion in November (through 11/17). Euro funds are up E16 billion YTD (through 10/31) but down E1.6 billion in November MTD. GBP funds are up L4.1 billion in November, and up L31 billion YTD. USD MMFs yield 0.46% (7-Day) on average (11/17/16), up 30 basis points from 12/31/15. EUR MMFs yield -0.46% on average, down 27 basis points YTD, while GBP MMFs yield 0.22%, down 15 bps YTD.
European-domiciled US Dollar MMFs, on average, consist of 24% in Treasury securities, 22% in Commercial Paper (CP), 20% in Certificates of Deposit (CDs), 18% in Other securities (primarily Time Deposits), 13% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 30.1% of their portfolios maturing Overnight, 11.5% maturing in 2-7 Days, 18.5% maturing in 8-30 Days, 9.5% maturing in 31-60 Days, 10.1% maturing in 61-90 Days, 15.8% maturing in 91-180 Days, and 4.5% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (35.5%), France (15.6%), Japan (9.5%), Canada (7.7%), Germany (5.9%), Sweden (5.5%), Australia (4.7%), the Netherlands (4.3%), Great Britain (2.5%), Singapore (2.0%) and China (1.8%), according to our latest MFII MF Portfolio Holdings report, with data as of Oct. 31, 2016.
The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $103.7 billion (25.4% of total assets), Credit Agricole with $17.7B (4.3%), BNP Paribas with $16.9B (4.1%), Mitsubishi UFJ with $12.4B (3.0%), Natixis with $9.1B (2.2%), Society Generale with $8.3B (2.0%), Sumitomo Mitsui Banking Co with $7.7B (1.9%), Bank of Nova Scotia with $7.4B (1.8%), Federal Reserve Bank of New York with $7.4B (1.8%), DZ Bank AG with $7.3B (1.8%), RBC with $7.3B (1.8%), Wells Fargo with $7.3B (1.8%), Skandinaviska Enskilda Banken AB with $7.1B (1.7%), Credit Mutuel with $6.9B (1.7%), Rabobank with $6.7B (1.6%), Mizuho Corporate Bank LTD with $6.4B (1.6%), Sumitomo Mitsui Trust Bank with $5.8B (1.4%), Federal Home Loan Bank with $5.2B (1.3%), Nordea Bank with $5.2B (1.3%), and Swedbank AB with $5.1B (1.3%).
Euro MMFs tracked by Crane Data contain, on average 47% in CP, 25% in CDs, 17% in Other (primarily Time Deposits), 8% in Repo, 2% in Treasury securities and 1% in Agency securities. EUR funds have on average 21.2% of their portfolios maturing Overnight, 8.0% maturing in 2-7 Days, 16.1% maturing in 8-30 Days, 13.7% maturing in 31-60 Days, 17.1% maturing in 61-90 Days, 22.0% maturing in 91-180 Days and 1.9% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.0%), US (13.6%), Japan (13.0%), Germany (10.1%), Sweden (6.8%), Netherlands (6.4%), Belgium (5.3%), Great Britain (2.8%), Switzerland (2.4%), and Canada (2.0%).
The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E5.1B (6.1%), Rabobank with E3.9B (4.7%), Proctor & Gamble with E3.4B (4.1%), Mitsubishi UFJ Financial Group Inc with E3.3B (4.0%), Credit Agricole with E3.2B (3.8%), Societe Generale with E3.2B (3.8%), DZ Bank AG with E3.1B (3.7%), Credit Mutuel with E2.9B (3.5%), Sumitomo Mitsui Banking Co. with E2.9B (3.5%), Svenska Handelsbanken with E2.8B (3.4%), JP Morgan with E2.4B (2.9%), Norinchukin Bank with E2.4B (2.9%), Nordea Bank with E2.3B (2.8%), Dexia Group with E2.3B (2.7%) and Agence Central de Organismes de Securite Sociale with E2.2B (2.6%).
The GBP funds tracked by MFI International contain, on average (as of 10/31/16): 39.0% in CDs, 27.0% in Other (Time Deposits), 20.0% in CP, 10.0% in Repo, 3.0% in Treasury, and 1.0% in Agency. Sterling funds have on average 23.7% of their portfolios maturing Overnight, 6.1% maturing in 2-7 Days, 11.2% maturing in 8-30 Days, 17.4% maturing in 31-60 Days, 16.1% maturing in 61-90 Days, 21.4% maturing in 91-180 Days, and 4.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (15.5%), Japan (14.4%), Great Britain (14.1%), Australia (9.1%), Germany (8.4%), Canada (7.7%), Netherlands (6.4%), US (6.1%), Sweden (4.9%), and Belgium (2.7%).
The 15 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L9.8B (7.0%), Bank of America with L5.3B (3.8%), Mitsubishi UFJ Ltd with L5.2B (3.7%), DZ Bank AG with L5.2B (3.7%), Rabobank with L5.2B (3.7%), Commonwealth Bank of Australia with L4.8B (3.4%), BNP Paribas with L4.3B (3.1%), Credit Agricole with L4.3B (3.1%), Mizuho Corporate Bank Ltd. with L4.3B (3.0%), Toronto Dominion Bank with L4.2B (3.0%), Credit Mutuel with L4.0B (2.9%), Sumitomo Mitsui Banking Co. with L4.0B (2.9%), Sumitomo Mitsui Trust Bank with L3.9B (2.8%), Sevenska Handelsbanken with L3.5B (2.5%), Westpac Banking Co. with L3.5B (2.5%), BPCE SA with L3.3B (2.4%), Dexia Group with L3.2B (2.3%), Bank of Nova Scotia with L3.2B (2.3%), Erste Abwicklungsanstalt with L3.1B (2.2%), and ING Bank with L2.8B (2.0%).
For more on European money fund reforms, see our June 16 News, "European Money Fund Reform Deal Poised to Pass; CNAVs to Be LVNAVs," our April 16 News, "European Compromise Moves MMF Reforms Closer; Sterling MFs Jump," and our March 2 News, "IMMFA on European Reforms; MFI Intl Review; European MF Symposium." (Let us know too if you'd like to see our Money Fund Intelligence International, which tracks these markets, or our MFI Intl Portfolio Holdings data.)
J.P. Morgan Securities mentioned the new European MMF Regulations in their latest "Short Duration Strategy Weekly," "Lastly, it was reported this week that that the Council of EU has reached a provisional agreement with European Parliament on a draft regulation of European money market fund reform. Details of the draft regulation remain murky, but news sources suggest that they have settled on three types of funds post reform: public debt CNAV MMFs, low volatility NAV (LVNAV) MMFs and VNAV MMFs. Fees and gates will apply to CNAV and LVNAV MMFs, but not to VNAVs. As this is still a draft regulation, it remains to be seen if these structures will come to fruition. Furthermore, a number of technical issues relating to the draft regulation still need to be finalized.... Needless to say, European MMF reform is not done yet, but we are getting close to a final rule. We suspect a final rule could emerge by the end of this year/early next year. But for now, market participants must continue to wait and see what happens next."
Finally, "repatriation" could have a huge impact on the assets held in these "European" money funds, given that a substantial percentage are likely held by U.S. multinationals. Citi's Steve Kang writes in his most recent "Short-Term Notes," a brief called, "No place like home – $1.9 trillion repatriation possible." He says, "Trump proposed a lower corporate tax rate of 15% and a one-time 10% repatriation tax. On repatriation, bipartisan support is probable and this could lead to significant deficit reduction in the near-term. Our preliminary back-of-the-envelope calculation is $1.9trillion of repatriation: At the end of 2015, offshore cash was estimated to be $2.5 trillion dollars."
