Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Wednesday, and we'll be writing our normal monthly update on the August 31 data in Thursday's News. But we've also been generating a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of August 31, includes holdings information from 1,225 money funds (down from 1,275 on July 31), representing $3.138 trillion (down from $3.169 trillion on July 31). We review the latest data below, and we also quote from a recent J.P. Morgan Securities piece on the 10-year anniversary of the global financial crisis.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows that Repurchase Agreement (Repo) holdings in money market funds total $966.4 billion (down from $983.1 billion on July 31), or 30.8% of all assets. Treasury holdings total $854.9 billion (up from $830.0 billion) or 27.2%, and Government Agency securities total $668.8 billion (down from $704.3 billion), or 21.3%. Commercial Paper (CP) totals $241.2 billion (down from $248.1 billion), or 7.7%, and Certificates of Deposit (CDs) total $180.5 billion (up from $176.3 billion), or 5.8%. The Other category (primarily Time Deposits) totals $125.2 billion or 4.0%, and VRDNs account for $101.0 billion, or 3.2%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $148.1 billion, or 4.7%, in Financial Company Commercial Paper; $45.4 billion or 1.4%, in Asset Backed Commercial Paper; and, $47.7 billion, or 1.5%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($570.8B, or 18.2%), U.S. Govt Agency Repo ($360.3B, or 11.5%), and Other Repo ($35.3B, or 1.1%).
The N-MFP Holdings summary for the just the 223 Prime Money Market Funds shows: CP holdings of $235.2 billion (down from $243.6 billion July 31), or 32.2%; CD holdings of $179.0B (up from $176.2B) or 24.5%; Repo holdings of $101.8B (up from $84.8B), or 13.9%; Treasury holdings of $90.4B (up from $67.4B), or 12.4%; Other (primarily Time Deposits) holdings of $83.9B (down from $88.0B), or 11.5%; Government Agency holdings of $33.0B or 4.5%; and VRDN holdings of $7.1B, or 1.0%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $147.9 billion, or 20.3%, in Financial Company Commercial Paper; $44.4 billion, or 6.1%, in Asset Backed Commercial Paper; and, $42.8 billion, or 5.9%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($32.5B, or 4.4%), U.S. Govt Agency Repo ($35.0B, or 4.8%), and Other Repo ($34.3B, or 4.7%).
In other news, J.P. Morgan published a paper entitled, "Money markets: The forgotten epicenter of the global financial crisis," which is excerpted from "J.P. Morgan Perspectives – Ten Years After the Global Financial Crisis: A Changed World." Authors Alex Roever, Teresa Ho, and Ryan Lessing tell us, "The cash that funded the debt issued in the U.S. money markets came from a variety of sources including money market funds (MMFs) governed by SEC Rule 2a-7, other similar short-term liquidity funds (non-2a-7), bank securities lending operations, and other investors. Of these, MMFs were the largest and potentially the most problematic. As a product, MMFs were historically structured as mutual funds with stable NAVs, giving the impression that they functioned more like checking account deposits, where liquidity could be accessed daily. But where bank deposits were protected by bank capital and in some cases deposit insurance, MMFs have neither."
They explain, "While MMFs were managed prudently according to the requirements of Rule 2a-7 (very highly rated assets with maturities ranging from overnight to 397 days and limits on average maturity), their capital structure was such that shareholders could withdraw all of their funds on any business day without warning. In extreme circumstances, shareholder demand for liquidity could outstrip a fund's supply of liquid assets and leave it insolvent. While an insolvency ultimately did occur to one prime MMF immediately following the Lehman bankruptcy in September 2008, that risk had loomed over prime MMFs for over a year. The steps the MMF managers took to protect their shareholders played a major role in fueling the financial crisis."
J.P. Morgan writes, "In late 2007, AUM of taxable MMFs totaled nearly US$3 trillion, of which roughly US$2 trillion was in prime MMFs. Prime funds extended credit to a variety of financial and non-financial issuers but had material exposures to banks on both an unsecured (CP/CDs) and secured (ABCP, repo) basis. In mid-2007, Moody's estimated that the 15 largest MMFs held nearly 40% of their assets in various forms of securitized products."
They state, "By the time Bear Stearns collapsed in March 2008, the global money markets had been under extraordinary stress for over six months, and money market funds and other investors had long since grown extremely risk averse. Beginning in August 2007 through March 2008, these normally ultra-conservative investors experienced a marked decay in market depth and liquidity related to the still-building fear of subprime credit contagion. This was an especially problematic issue for prime MMFs and similar investment funds given their exposures to ABCP conduits that might be seen by shareholders as having hidden subprime exposures."
The paper comments, "The suddenness of Lehman's bankruptcy left the few MMFs still holding short-term unsecured Lehman debt in a bind. Indeed, it prompted the NAV of a particular MMF to fall below US$0.995, otherwise known as 'breaking the buck.' In response, MMF shareholders began redeeming their shares en masse in fear of losing their money. It did not help that memories of private institutional MMF (cash-plus fund) insolvencies were still fresh. Over the next month, over US$500 billion were withdrawn from prime MMFs and moved into government MMFs.... Like banks, MMFs were facing their own liquidity crisis."
It adds, "To stem this MMF crisis, U.S. Treasury quickly established the Temporary Guarantee Program for MMFs, designed to guarantee the NAV of eligible MMFs such that they would not 'break the buck'.... More significantly, the Fed interceded on behalf of certain non-banks intertwined in the banking system, even though it had long served as the 'lender of last resort' for banks only."
Finally, Roever, et. al. write, "The Fed responded on a number of fronts. It established multiple facilities to provide liquidity directly to borrowers and investors in the money markets. The Primary Dealer Credit Facility and the Term Securities Lending Facility provided funding to dealers, the Commercial Paper Funding Facility to financial and non-financial CP borrowers, and the ABCP MMF Liquidity Facility and the Money Market Investor Funding Facility to MMFs.... With the exception of MMIFF, the severity of the crisis led to significant usage of these facilities and months of use before the money markets began to stabilize, though this also expanded the Fed's balance sheet and temporarily created a significant amount of reserves in the banking system. Although MMIFF was never used, its presence helped calm markets."
