The Investment Company Institute released its latest monthly "Money Market Fund Holdings" summary (with data as of April 30, 2017) yesterday. This release reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in April, prime money market funds held 25.2 percent of their portfolios in daily liquid assets and 43.6 percent in weekly liquid assets, while government money market funds held 58.9 percent of their portfolios in daily liquid assets and 77.1 percent in weekly liquid assets." Prime DLA fell from 29.5% last month and Prime WLA fell from 44.3% last month. We review the ICI's latest Holdings update, along with J.P. Morgan's Taxable money market fund holdings update, below, and we also cite a new white paper from Treasury Strategies on Money Fund Regulations' Winners and Losers.
ICI explains, "At the end of April, prime funds had a weighted average maturity (WAM) of 31 days and a weighted average life (WAL) of 67 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 35 days and a WAL of 87 days." Prime WAMs were up one day from the prior month, and WALs were unchanged. Govt WAMs decreased by 4 days and WALs decreased by 4 days as well.
Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $172.80 billion in March to $160.48 billion in April. Government money market funds' holdings attributable to the Americas declined from $1,863.92 billion in March to $1,696.58 billion in April." (See too our May 10 News, "May Money Fund Portfolio Holdings: Repo, CD, CP Up; Treasuries Plunge.")
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $160.5 billion, or 40.2%; Asia and Pacific at $81.0 billion, or 20.3%; Europe at $154.5 billion, or 38.7%; and, Other (including Supranational) at $3.1 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.697 trillion, or 81.1%; Asia and Pacific at $88.7 billion, or 4.2%; and Europe at $305.5 billion, or 14.6%.
J.P. Morgan's latest Holdings update adds, "Prime fund exposures to banks increased by $16bn post quarter-end. Holdings of CP/CD rose by $6bn, scattered across regions. YTD, prime exposures to CP/CD have increased by $51bn or 33%. Recall that prime fund demand for bank CP/CD has historically maintained a strong negative correlation with the 3mL – OIS spread. This relationship has weakened significantly post MMF reform with prime AuMs $1tn smaller."
They explain, "Taking that into consideration, this year's modest revival in MMF demand for bank CP/CD is probably not responsible for more than a basis point or two of the recent collapse in the 3mL – OIS spread. Away from banks, prime allocations across asset classes went relatively unchanged with two exceptions.... First, RRP usage decreased as banks came back to market in repo and time deposits. Additionally, holdings of Treasuries fell by $10bn."
In other news, Treasury Strategies published a paper entitled, "Money Market Fund Regulation Winners, Losers and Long-Term Consequences." It explains, "New Money Market Fund regulations which went into effect October 14, 2016 were intended to prevent future bailouts and enhance market stability. Instead, they have disrupted financial markets, hurt business and municipal borrowers, and increased U.S. taxpayer bailout exposure in future market stress events. While there are winners and losers with any regulatory change, the magnitude of the shifts in this case are massive. Private sector and municipal sector borrowers lost $1.2 trillion of available funding while the Federal government and its agencies reaped the gains."
The paper continues, "These are not the outcomes Congress or the SEC intended. There was never an objective to advantage the Federal government at the expense of the private sector and municipal entities. In retrospect, we can see which aspects of the new regulations caused the negative consequences and suggest corrections to address them. In this paper, we examine the Money Market Fund (MMF) regulation changes and the $1.2+ trillion in fund flows that resulted from them since 2014. We look at the very negative impact they have had on U.S. private sector businesses and state and local governments, and highlight winners and losers."
Treasury Strategies says the Winners include: the "U.S. Government MMFs which hold securities of government agencies such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank [and the] U.S. Treasury MMFs which hold U.S. Treasury debt securities – more than $158 billion of investments went into U.S. Treasury Funds." Meanwhile, the Losers include: Prime MMFs which invest in the short-term debt of corporations and banks [and] Tax Exempt MMFs which invest in the short-term debt of state and local governments, hospitals, universities and public works."
They explain, "The bottom line is that the attempt to solve a perceived problem with regulation has decimated an entire swath of the financial markets, at a level far more onerous than even the original worse-case scenario. The new rules have essentially devastated the part of the market they tried to improve."
The piece adds, "Considerable but reversible damage has already been done. The specter of additional damage looms over two major upcoming U.S. government initiatives: Repatriation of overseas corporate cash.... Unfortunately, because of these new MMF regulations, the cash will be stranded in government and treasury MMFs rather than employed in the private sector via Prime and Tax Exempt MMFs; and, Investments in infrastructure.... Success in this area requires that state and local governments have ready access to working capital. The most efficient way for these entities to obtain short-term working capital is via Tax Exempt MMFs."
Finally, they write, "We conclude the paper with recommendations for the SEC and Congress to rollback several provisions of the new MMF regulations immediately."
