Money market mutual fund assets showed their biggest asset gain in history in March, skyrocketing by $624.9 billion to a record $4.591 trillion. Government MMFs rose a stunning $790.4 billion to $3.521 trillion, while Prime MMFs fell by $159.6 billion to $935.6 billion last month. In comparison, during September 2008, when Reserve Primary Fund "broke the buck" and MMFs saw $160.1 billion in outflows (to $3.203 trillion), Prime MMFs fell by almost 3 times as much then, $447.6 billion, as they did in March 2020. Government MMFs jumped by just $324.6 billion back during that tumultuous September of 2008. Tax Exempt MMFs, who have seen yields go through the roof, saw assets fall by $5.8 billion last month to $133.9 billion.
Our Money Fund Intelligence Daily, with data as of March 31, shows money fund assets have risen $160.6 billion over the past week (up $18.3 billion Monday) with Prime assets down $14.5 billion (down $4.5 billion Monday) and Government assets up $171.8B in the latest week (up $22.4 billion Monday). Tax-Exempt MMFs increased $3.3 billion in the past week. Given Monday was also quarter end and that the April 15 tax deadline has been postponed until July 15, money funds don't have any more seasonal outflow periods coming up until June, so flows should remain strong overall (and Prime outflows appear to be over).
Meanwhile in March, Taxable yields plunged and Tax Exempt yields skyrocketed. Our Crane 100 Money Fund Index declined by 95 basis points to 0.46% (7-Day Yield, net, simple), while the broader Crane Money Fund Average slid by 83 bps to 0.47%. Over the past week through March 31, the Crane 100 has declined 12 bps while the Crane MFA has fallen 10 bps. Spreads have never been wider between Government and Treasury money funds and Prime MMFs. Treasury Inst MMF fell 102 bps in March to 0.30%, while Government Inst MMF yields fell 95 bps to 0.43%. Prime Inst MMF yields, on average, fell 63 bps to 0.88%. Thus, Prime Inst MMFs are yielding 58 bps over Treasury funds and 45 bps over Govt funds. Treasury Retail MMFs fell 98 bps to 0.07% (you're likely seeing fee waivers already on some of these funds), Govt Retail fell 78 to 0.30%, and Prime Retail MMFs fell 53 bps to 0.79%.
Looking at "offshore" and European money market mutual assets, Crane Data's latest MFI International shows USD, GBP and EUR MMFs all rose in the latest week. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $27.5 billion MTD to $908.1 billion. They're up by $31.5 billion year-to-date. Offshore USD money funds, which hit a record $500 billion in January, are down $18.3 billion month-to-date and down $22.6 billion YTD. Euro funds are up E7.6 billion month-to-date, and YTD they're up E12.1 billion. GBP funds have risen by L12.0 billion MTD, and are up by L9.2 billion YTD. U.S. Dollar (USD) money funds (190, up one from the previous month) account for over half ($471.9 billion, or 52.0%) of our "European" money fund total, while Euro (EUR) money funds (92, unchanged from the previous month) total E116.8 billion (12.9%) and Pound Sterling (GBP) funds (123, unchanged from the previous month) total L234.1 billion (25.8%).
In related news, a release entitled, "ESMA Announces Update to Reporting Under the Money Market Funds Regulation," tells us, "The European Securities and Markets Authority (ESMA), the EU's Securities Markets regulator, today announces that the first reports by Money Market Funds (MMF) managers under the MMF Regulation (MMFR) should be submitted in September 2020. The original date for submissions was April 2020."
It continues, "This change in timeline comes as there will be an update to the XML schemas that should be used for the reporting, and MMF managers will need additional time to comply with the reporting obligation. The requirements of Article 37 of MMF regulation require MMF managers to submit data to National Competent Authorities (NCAs), who will then transmit this to ESMA. In July 2019, ESMA published a first version of the XML schemas and reporting instructions with the first quarterly reports originally meant to be received by the NCAs by the end of April 2020."
ESMA adds, "The amended XML schema and reporting instructions will be published shortly on ESMA's website. Reporting entities should use the version v1.1 to submit reports required under Article 37 of MMF regulation. As the MMF managers have already started to prepare the first quarterly reports based on the July 2019 template, the time for the submission of the first quarterly reports to the National Competent Authorities is now postponed to September 2020. The reference period for the first reporting is still envisaged for Q1 2020. That means that the MMF Managers will have to report in September 2020 quarterly reports for both the Q1 and Q2 reporting periods." (Note: We don't think these reports will be publicly available, but let us know if you'd like to see our data collections on these funds, MFI International and MFII MF Portfolio Holdings.)
Finally, J.P. Morgan Securities summarized recent money market events and Fed support recently in its "Short-Term Fixed Income." They wrote on Friday night, "Funding stress in the US money markets was intense as the week began, and less intense as it came to a close. Money markets are far from being out of the woods, but some signs of easing emerged as the week progressed.... While the MMLF launched on Monday and helped to provide much needed liquidity to domestic prime funds, there wasn't much help for offshore funds, securities lenders reinvestment portfolios, ultra-short funds and SMAs and other credit investors in the money market space. As the week-ends, funding conditions for issuers in this corner of the money markets remain very tough."
Authors Alex Roever, Teresa Ho, Ryan Lessing and Colin Paiva explain, "Speaking of CPFF and MMLF... In conjunction with the above announcements, the Fed also made tweaks to these programs. For CPFF, eligible issuers will now also include municipal CP issuers. CPFF pricing has also been amended to OIS +110bp, which is much more attractive relative to current market pricing. For MMLF, the list of eligible assets has been expanded to include variable rate demand notes (VRDNs) and bank certificate of deposits."
They continue, "As we noted last week, CDs make up roughly 30% of prime MMFs' portfolio. Their inclusion could unlock about another ~$235bn in liquidity to help with prime funds' weekly liquidity buffers, in addition to the $100bn based on prior list of eligible assets. That said, we’d note that many CDs tend to be longer-dated and have a floating rate note structure. While the Fed has agreed to make MMLF loans to primary dealers on a nonrecourse basis, it did not absolve them from interest rate risk."
The JPM piece also asks, "How much collateral has been pledged to MMLF? This has been the most common question that we have received to date. The facility was announced late Wednesday night (3/18) and officially launched this past Monday (3/24). But even prior to the launch but after the announcement of the facility, primary dealers had already been buying eligible assets from prime MMFs to help them restore liquidity. In effect, the facility has been around for five business days and has purchased $31bn from prime MMFs. Given the immediate improvement of prime institutional MMFs' weekly liquidity bucket, this facility has been extremely effective in providing relief to prime MMFs."
Finally, their latest daily update states, "We have seen a remarkable recovery in WLAs since many funds came dangerously close to breaking the 30% threshold two weeks ago.... In fact, every fund but one is currently operating above 40% WLA. The Fed's institution of the Money Market Liquidity Facility (MMLF) allowed prime funds to sell their Tier 1 CP, CDs, and ABCP to dealers who could, in turn, receive a non-recourse loan from the Fed secured by the paper they had just bought from the prime MMF. The facility has injected sorely needed secondary market liquidity into the unsecured funding markets, to the tune of $31bn as of March 25 (we'll get updated figures for this week tomorrow). MMLF has allowed prime funds to sell their paper in a more orderly fashion so they can meet redemption requests, of which there have been many.... While the pace of outflows has slowed lately, should redemptions return, there will be liquidity for the funds that need it."
