The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows MMF assets inching higher to again hit their highest levels since April 2010. It also shows that Prime assets continue their solid and steady rebound. Overall assets are now up $43 billion, or 1.5%, YTD, and they've increased by $154 billion, or 5.7%, over 52 weeks. Prime assets, though, have risen for 10 weeks in a row, and they've increased by $74.7 billion (16.3%) YTD and $91.7 billion (20.7%) over the past 52 weeks. We review the latest asset flows, and we also quote from Wells Fargo's latest PM Commentary and a Citi update on EU Reforms, below.

ICI writes, "Total money market fund assets increased by $288 million to $2.88 trillion for the week ended Wednesday, September 12, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $2.16 billion and prime funds increased by $2.68 billion. Tax-exempt money market funds decreased by $233 million." Total Government MMF assets, which include Treasury funds too, stand at $2.216 trillion (76.9% of all money funds), while Total Prime MMFs stand at $534.2 billion (18.5%). Tax Exempt MMFs total $131.1 billion, or 4.5%.

They explain, "Assets of retail money market funds increased by $2.50 billion to $1.06 trillion. Among retail funds, government money market fund assets increased by $1.23 billion to $633.45 billion, prime money market fund assets increased by $1.75 billion to $304.13 billion, and tax-exempt fund assets decreased by $481 million to $123.08 billion." Retail assets account for over a third of total assets, or 36.8%, and Government Retail assets make up 59.7% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $2.21 billion to $1.82 trillion. Among institutional funds, government money market fund assets decreased by $3.39 billion to $1.58 trillion, prime money market fund assets increased by $928 million to $230.11 billion, and tax-exempt fund assets increased by $248 million to $7.97 billion." Institutional assets account for 63.2% of all MMF assets, with Government Inst assets making up 86.9% of all Institutional MMFs.

In related news, Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" tells us, "The month of August is notoriously slow in this business. A number of firms in our industry still require that employees take two consecutive weeks off at some point during the year, and while many of those vacations occur throughout the summer, they seem to be especially back-loaded into the month of August. Not surprisingly, market practices are also accommodative of this phenomenon.... At the same time, however, prime fund assets grew by over $26 billion in August, evenly divided between retail and institutional funds, reaching a new post-reform high of $688 billion (as reported by Crane Data)."

Wells also comments, "The path of money market rates has generally followed the anticipated gradual pace of removing policy accommodation set by the Fed, and those rates continue to have a positively sloping yield curve. However, the reduction in money market supply in August has kept a fairly strong bid to investments with short maturity dates, causing rates to be a little slow to react to upcoming rate increases. This strong bid can be observed in the dramatic tightening of the London Interbank Offered Rate-Overnight Investment Swap (LIBOR-OIS) spread since its widest spread in April."

They continue, "As you may recall, the LIBOR-OIS spread represents the difference between an interest rate with some credit risk built in (LIBOR) and one that is relatively risk-free (OIS). The spread elevated to +59 basis points (bps; 100 bps equal 1.00%) through the first week of April before retracting off the highs at the end of tax season. Unlike previous episodes, this spread widening was due to supply and demand imbalances, not to credit stress in the markets. The current spread of +21 bps is a new low for the year."

Wells also discusses, "In the midst of the summer slowness, something occurred that we have not seen in many years: A new type of security came to the market. The structure itself was not new, it was a floating-rate note, but the index off which it reset was new: SOFR.... The inaugural issue of a floating-rate note with SOFR as the index came as somewhat of a surprise from Fannie Mae in the form of a $6 billion multi-tranche deal.... After this transaction, a few additional issuers tested the market—including a corporate issuer—and we expect more issuance of this type of security will become a trend as we progress toward year-end."

Finally, a new article on European Money Fund Reforms, written by Citi and published in Euromoney, and entitled, "EU MMF reforms: Preparing for a new regulatory environment," tells us, "The European Union's money market funds (MMFs) are set to change in the coming months as fund providers start to implement reforms in advance of a deadline of January 21, 2019. Europe's MMF sector is worth around €1.3 trillion and plays an important part in institutional investors' (IIs') liquidity management and investment strategy; MMFs are a valuable element in a portfolio of investment and deposit instruments."

The piece explains, "Similar to recent MMF reforms in the US, the EU's reforms aim to address concerns about the market's stability that arose a decade ago during the financial crisis. For MMF investors, the increased transparency and resilience that should result from the EU's reforms is welcome. Nevertheless, the scale of the changes mean that IIs need to start thinking about the implications of EU MMF reforms right now."

It quotes Crane Data President Peter Crane, "While European money fund reforms have so far impacted fund managers much more than investors, both groups have much work to do before the January 21, 2019 deadline to convert existing funds.... Though most market observers expect the bulk of existing CNAV fund assets to convert to new LVNAV structures, it's probably a good idea to start paying closer attention to the European money fund markets in coming months."

Finally, Citi adds, "The significant differences between CNAV, LVNAV and VNAV funds in terms of yield, liquidity and preservation of capital mean that IIs need to refer to fund prospectuses, keep abreast of updates from fund providers, and keep a close eye on the decision taken by individual MMFs.... In particular, investors should monitor fund conversion dates and build a buffer into their plans should they need access to funds on conversion day." (Note: Citi co-author Sabrina Hartzog will be speaking on "Money Fund Portals & Distribution in Europe" at next week's European Money Fund Symposium, Sept. 20-21, in London.)

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