Money market mutual fund assets broke above their previous January 2009 record levels this week on a record jump in assets, as assets of Government funds skyrocketed and Prime MMFs plunged, according to the ICI's latest weekly "Money Market Fund Assets" report. It explains, "Total money market fund assets increased by $158.62 billion to $3.94 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $249.33 billion and prime funds decreased by $85.38 billion. Tax-exempt money market funds decreased by $5.32 billion." ICI's weekly series shows Institutional MMFs rising $123.2 billion and Retail MMFs increasing $35.5 billion. Total Government MMF assets, including Treasury funds, were $3.094 trillion (78.6% of all money funds), while Total Prime MMFs were $712.7 billion (18.1%). Tax Exempt MMFs totaled $129.2 billion, 3.3%.
Money fund assets are up $304 billion, or 8.4%, year-to-date in 2020, and they've increased for 6 weeks in a row and in 10 out of the last 13 weeks. Over the past 52 weeks, ICI's money fund asset series has increased by $871 billion, or 28.4%, with Retail MMFs rising by $261 billion (21.6%) and Inst MMFs rising by $610 billion (32.8%).
ICI explains, "Assets of retail money market funds increased by $35.46 billion to $1.47 trillion. Among retail funds, government money market fund assets increased by $58.61 billion to $892.08 billion, prime money market fund assets decreased by $18.73 billion to $458.58 billion, and tax-exempt fund assets decreased by $4.42 billion to $117.21 billion." Retail assets account for over a third of total assets, or 37.3%, and Government Retail assets make up 60.8% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $123.16 billion to $2.47 trillion. Among institutional funds, government money market fund assets increased by $190.72 billion to $2.20 trillion, prime money market fund assets decreased by $66.65 billion to $254.13 billion, and tax-exempt fund assets decreased by $907 million to $11.97 billion." Institutional assets accounted for 62.7% of all MMF assets, with Government Institutional assets making up 89.2% of all Institutional MMF totals.
Crane Data's separate Money Fund Intelligence Daily asset series shows up $261.5 billion to a record $4.227 trillion month-to-date in March through 3/18. (We'll publish our 3/19 asset totals at 8am Friday, 3/20.) Prime MMF assets have fallen by $93.1 billion MTD to $1.002 trillion, while Government MMFs (including Treasury MMFs) have skyrocketed by an incredible $358.1 billion to $3.089 trillion. Tax Exempt MMFs have fallen by $3.6 billion to a mere $136.1 billion.
We briefly mentioned the launch of the Fed's new MMLF support program in yesterday's News ("Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF"), but we discuss the announcement in more detail below. A statement entitled, "Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF)" tells us, "The Federal Reserve Board on Wednesday broadened its program of support for the flow of credit to households and businesses by taking steps to enhance the liquidity and functioning of crucial money markets. Through the establishment of a Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds."
It continues, "Money market funds are common investment tools for families, businesses, and a range of companies. The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy. The attached term sheet details the types of assets, including unsecured and secured commercial paper, agency securities, and Treasury securities, that are eligible, as well as additional information. The MMLF program will purchase a broader range of assets, but its structure is very similar to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, that operated from late 2008 to early 2010."
The Fed adds, "The MMLF is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The Department of the Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the MMLF from the Treasury's Exchange Stabilization Fund."
An accompanying "Term Sheet," "Money Market Mutual Fund Liquidity Facility", elaborates, "To provide liquidity to Money Market Mutual Funds ('Funds'), the Federal Reserve Bank of Boston ('Reserve Bank') would lend to eligible borrowers, taking as collateral certain types of assets purchased by the borrower from Funds (i) concurrently with the borrowing; or (ii) on or after March 18, 2020, but before the opening of the Facility."
It explains, "All U.S. depository institutions, U.S. bank holding companies (parent companies incorporated in the United States or their U.S. broker-dealer subsidiaries), or U.S. branches and agencies of foreign banks are eligible to borrow under the Facility. Funds: A Fund must identify itself as a prime money market fund under item A.10 of Securities and Exchange Commission Form N-MFP.... The maturity date of an advance will equal the maturity date of the eligible collateral pledged to secure the advance made under this Facility except in no case will the maturity date of an advance exceed 12 months."
The document adds, "Advances made under the Facility that are secured by U.S. Treasuries & Fully Guaranteed Agencies or Securities issued by U.S. Government Sponsored Entities will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made. All other advances will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made plus 100 bps.... There are no special fees associated with the Facility."
It also explains, "The collateral valuation will either be amortized cost or fair value. For asset-backed and unsecured commercial paper, the valuation will be amortized cost.... The Department of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion as credit protection to the Reserve Bank.... Advances made under the Facility are made without recourse to the Borrower, provided the requirements of the Facility are met. For avoidance of doubt, borrowers under the MMLF will bear no credit risk."
Finally, the Fed writes, "Separately and consistent with the purposes of the MMLF, the Board, the OCC, and FDIC will act to fully neutralize the impact of a depository institution holding company or depository institution's participation in the facility for purposes of regulatory capital requirements, including risk-based capital and leverage requirements. The Board, OCC, and FDIC will fully exempt from risk-based capital and leverage requirements (i) any asset pledged to the MMLF and (ii) any asset purchased from a Fund on or after March 18, 2020 that the firm intends to pledge to the MMLF upon opening of the Facility.... No new credit extensions will be made after September 30, 2020, unless the Facility is extended by the Board of Governors of the Federal Reserve System."
An update on FXStreet, entitled, "Fed's Rosengren: US economy to suffer a 'significant shock' with higher unemployment quotes Boston Federal Reserve Bank President Eric Rosengren, "The goal of the new money market fund facility is to provide liquidity to prime money market funds that were experiencing some runoffs.... Money market liquidity facility is designed to give people confidence that the funds they view as liquid and secure are liquid and secure."
He adds, "The Fed can't do much about the pandemic but can take steps to mitigate financial spillovers.... Government securities money market funds are actually seeing funds flow in.... [The program] will be protected by collateral and $10 billion backstop from the Treasury."
