S&P Global Ratings published a brief entitled, "European And Offshore 'AAAm' Fund Risk Metrics," which show that S&P Global Ratings 'AAAm' euro principal stability funds yield -0.47% (7-day) and -0.49 (30-day) on average. Euro MMFs have an average WAM of 45 days and total €71.7 in assets. S&P Global Ratings 'AAAm' sterling principal stability funds yield 0.68% (7-day) and 0.69% (30-day) on average, and have an average WAM of 37 days and £202.9. S&P Global Ratings 'AAAm' U.S. dollar principal stability funds yield 2.44% and 2.41%, respectively, and average WAMs of 31 days with $379.4 in total assets.
They write, "Offshore money market funds (MMFs) have recently faced a number of hurdles, including the discontinuance of share cancellation mechanisms under European MMF reform, the U.K.'s planned departure from the EU, and downward revisions to interest rate hike expectations in the U.S. The impact we expect these factors could have includes: European MMF reform: Although we've seen some product consolidation, we view the increased liquidity, diversification, and transparency outlined in the reform as a positive development for the industry; Brexit: We expect portfolio managers will continue to closely monitor U.K. bank exposures amid continued uncertainty around Brexit; and, U.S. interest rates: In 2019, we may see portfolio managers of USD funds reexamine their current positioning as optimistic expectations around Fed rate hikes have cooled off considerably."
S&P explains, "Euro-denominated MMF assets rated by S&P Global Ratings steadily decreased throughout 2018 but eventually rebounded, to €72 billion at the end of first-quarter 2019. Euro-denominated MMFs experienced little change in average seven- and 30-day net yields, ending the first quarter at -0.47% and -0.49%, respectively. The deposit facility rate remained unchanged at -0.40, and the European Central Bank (ECB) closed out 2018 by ending net new purchases under its Corporate Sector Purchasing Program. We anticipate the ECB will look to change the direction of interest rates in 2020. However, given uncertainties about the economic and inflation outlook, normalization will be very gradual."
The piece continues, "Fund sponsors spent much of 2018 preparing to adopt European MMF reform, which went into effect on March 21, 2019. Many fund sponsors cited a lack of clarity on share cancellation mechanisms--which are not permitted under the new regulations--as a contributing factor to delays in the implementation of new product lineups. The reform has driven considerable changes in the product landscape, with a majority of funds converting to the low volatility net asset value (LVNAV) structure plus launching variable NAV to attract a wider client base."
It tells us, "Sterling-denominated MMFs' average seven-day and 30-day net yields have increased to 0.68% and 0.69%, following the Bank of England raising the bank rate from 0.5% to 0.75% in August 2018. Despite increased yields, the EU's recent agreement to delay Brexit means investors will face continued uncertainty.... Sterling fund assets under management have remained relatively stable over the last 12 months, ending first-quarter 2019 at £202.9 billion, compared with £208.8 billion at the same time last year. In the event of a disorderly Brexit, the Bank of England could reduce interest rates if it saw an increased likelihood of the banking system coming under stress from a disorderly Brexit."
Finally, S&P adds, "U.S. dollar-denominated (USD) MMFs saw assets grow by $54.4 billion since last March, ending first-quarter 2019 at $379.4 billion. Increased investor interest comes as no surprise, given the relatively attractive yields offered by USD funds following four rate hikes in the U.S. in 2018. Average seven-day and 30-day net yields of offshore USD funds were 2.44% and 2.41%, respectively, at the close of the first quarter. Fund managers altered their portfolio exposures to take advantage of the rising interest rate, increasing average floating rate note exposure from 2.10% to 9.19% over the past 12 months and decreasing average WAL from 55 days to 51 days."
In other news, the Investment Company Institute latest weekly "Money Market Fund Assets" shows that assets rose slightly in the latest week, after plunging the prior week on tax payments. They write, "Total money market fund assets increased by $6.96 billion to $3.05 trillion for the week ended Wednesday, April 24, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $9.10 billion and prime funds decreased by $1.55 billion. Tax-exempt money market funds decreased by $583 million." ICI's weekly series shows Institutional MMFs rising $11.0 billion while Retail MMFs fell by $4.0 billion. Total Government MMF assets, including Treasury funds, stood at $2.274 trillion (74.6% of all money funds), while Total Prime MMFs fell to $643.2 billion (21.1%). Tax Exempt MMFs totaled $132.7 billion, or 4.3%.
ICI states, "Assets of retail money market funds decreased by $4.00 billion to $1.20 trillion. Among retail funds, government money market fund assets decreased by $4.41 billion to $690.18 billion, prime money market fund assets increased by $869 million to $385.17 billion, and tax-exempt fund assets decreased by $460 million to $123.30 billion." Retail assets account for over a third of total assets, or 39.3%, and Government Retail assets make up 57.6% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $10.96 billion to $1.85 trillion. Among institutional funds, government money market fund assets increased by $13.51 billion to $1.58 trillion, prime money market fund assets decreased by $2.42 billion to $257.98 billion, and tax-exempt fund assets decreased by $123 million to $9.35 billion." Institutional assets accounted for 60.7% of all MMF assets, with Government Institutional assets making up 85.5% of all Institutional MMF totals.
