The September issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Treasury Funds Dodge Debt Ceiling Again; Reviewing Risks," which discusses the narrow avoidance of a technical Treasury default, "European MMF Reforms & Comment Letters to ESMA," which reviews pending regulatory changes for offshore funds, and, "10 Year Anniversary of Start of Subprime Liquidity Crisis," which looks back at the start of the financial crisis and its impact on money funds a decade ago. We have also updated our Money Fund Wisdom database with August 31, 2017, statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our Sept. Money Fund Portfolio Holdings are scheduled to ship Tuesday, Sept. 12, and our Sept. Bond Fund Intelligence is scheduled to go out Friday, Sept. 15.
MFI's "Treasury Funds Dodge Bullet" article says, "While the danger of a technical default on U.S. Treasury bills may have passed for now, we think it's still worth looking at commentary on the subject over the past month. Though it likely won't be an issue again until December, the issues raised stress the need to examine risk, and steps to diffuse them, in the Government fund space (which is much bigger than it was). As they did in 2011, these fleeting concerns may prevent future dangers, but also may end up benefitting Prime MMFs."
The piece continues, "Federated's Sue Hill comments, 'Ultimately, we do not believe the Treasury will be forced into technical default. Treasury Secretary Steven Mnuchin and congressional leaders have pledged to take whatever steps are necessary to raise the debt ceiling. But we understand investors may be concerned by headlines. We expect either a short-term deal that pushes the issue off for a few months or a longer-term agreement. But short-term markets have begun to reflect concern, with early October Treasury bill yield 10-15 basis points higher than surrounding maturities.'"
She adds, "We have been shying away from Treasury coupon-bearing securities that mature within this period: not because we believe they will default, but because we understand our shareholders may perceive a risk in those holdings. It is only prudent to do contingency planning. We have found most of our client concerns are liquidity and price volatility."
Our European update reads, "This month, Money Fund Intelligence reviews pending European Money Market Fund Reforms, and features replies to the European Securities and Markets Authority's (ESMA's) recent technical paper the implementation of these reforms. Irish law firm Dillon Eustace recently published a brief review of the reforms, entitled, "Ireland: A Guide To Money Market Funds Under The MMFR." We review this paper and quote from several comment letters to ESMA below. (Note: Our European Money Fund Symposium, which takes place Sept. 25-26 at The Renaissance Paris La Defense Hotel in Paris, France, will discuss these issues in-depth. We hope to see many of you there!"
Dillon Eustace's paper states, "After protracted negotiations, the Council and the European Parliament reached political agreement on the final text of the Regulation on MMFs (the "MMFR") in November 2016.... MMFs in the EU manage assets of approximately E1 trillion representing approximately 15% of the EU's fund industry. As of 31 May 2017, Irish domiciled MMFs had assets ... of approximately E486.5 billion reflecting Ireland's status as the leading European domicile for MMFs."
It continues, "`The Council formally adopted the MMFR on 16 May 2017 following the Parliament's approval of the agreed text on 5 April 2017 <b:>`_. The MMFR entered into on 20 July 2017 ... will become effective from 21 July 2018.... [E]xisting UCITS and AIFs that meet the definition of an MMF under the MMFR will have 18 months (i.e. by 21 January 2019) to comply with the requirements of the MMFR and submit an application to their national competent authority for authorisation under the MMFR."
The paper tells us, "The purpose of this briefing is to summarise and clarify the: Key elements of the MMFR i.e. scope; types of MMFs; investment policy requirements regarding eligible assets, diversification, concentration and credit quality; risk management requirements regarding portfolio rules (such as WAM, WAL and liquidity buckets), MMF credit ratings, know your customer and stress testing; valuation and dealing requirements; specific requirements for Public Debt CNAV MMFs and LVNAV MMFs; external support; transparency and reporting requirements; and, Next steps in the implementation of the MMFR."
Our "Subprime Crisis" piece says, "We've been writing and talking a little bit over the past month about the start of the Subprime Liquidity Crisis, which began in August and September 2007. (See our August 11 News and August 8 Link of the Day, "10 Years Ago: Subprime Liquidity Crisis Began in Money Markets With ABCP Extensions.") Below, we take a look back at what, in retrospect, became the biggest challenge to the viability of the money fund industry in its almost 50 year history, and we also quote some of Fed Chair Janet Yellen's comments on the crisis."
The piece continues, "Though money funds were on top of the world going into the fall of 2007, things were about to change in a very bad way. In August 2007, we featured the stories: "Evergreen Removes Some ABCP Holdings to Protect Money Market Funds <i:https://cranedata.com/archives/all-articles/939/>`_" (8/20/07), "Columbia Comfortable With Fractional Extendible CP and CDO Holdings" (8/22), and "CFTC Sentinel Management Pool Is NOT a Money Market Mutual Fund" (8/14). (Note that these archives are still available to subscribers here.)"
In a sidebar, "Western Merges Primes," we write, "A new Prospectus Supplement filing for Western Asset Institutional Cash Reserves Inst (CARXX) tells us, "The Board of Trustees, on behalf of Western Asset Institutional Cash Reserves (the "Target Fund"), has approved a reorganization pursuant to which the Target Fund's assets would be acquired, and its liabilities would be assumed, by Western Asset Institutional Liquid Reserves (the "Acquiring Fund"), a series of the Trust, in exchange for shares of the Acquiring Fund."
Our Sept. MFI XLS, with August 31, 2017, data, shows total assets increased $68.7 billion in August to $2.897 trillion after increasing $32.6 billion in July, decreasing $20.2 billion in June, and increasing $20.3 billion in May and $68.9 billion in April. (Note that we added $67.3 billion in new funds in April.) Our broad Crane Money Fund Average 7-Day Yield was up 1 bp to 0.69% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was unchanged at 0.86% (7-day).
On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 0.02% to 1.15% and the Crane 100 rose 2 bps to 1.17%. Charged Expenses averaged 0.46% and 0.31% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 31 days (unchanged from last month) and for the Crane 100 was 31 days (down 1 day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
