Crane Data's MFI International shows assets in European or "offshore" money market mutual assets rising again over the past month, after breaking above $1.0 trillion for the first time ever two months ago. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $32.8 billion over the last 30 days to $1.034 trillion; they're up by $157.1 billion year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are up $20.0 billion over the last 30 days and are up $51.4 billion YTD. Euro funds are up just 103 million over the previous 30 days, but YTD they're up E24.9 billion. GBP funds have risen by L9.8 billion over 30 days, and are up by L43.0 billion YTD. U.S. Dollar (USD) money funds (192) account for over half ($545.9 billion, or 52.8%) of the "European" money fund total, while Euro (EUR) money funds (92) total E123.5 billion (13.2%) and Pound Sterling (GBP) funds (123) total L268.0 billion (31.4%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.

Offshore USD MMFs yield 0.24% (7-Day) on average (as of 6/11/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.51% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.16%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's June MFII Portfolio Holdings, with data as of 5/31/20, show that European-domiciled US Dollar MMFs, on average, consist of 22.8% in Commercial Paper (CP), 15.1% in Certificates of Deposit (CDs), 13.1% in Repo, 33.3% in Treasury securities, 13.7% in Other securities (primarily Time Deposits) and 1.9% in Government Agency securities. USD funds have on average 33.0% of their portfolios maturing Overnight, 5.6% maturing in 2-7 Days, 15.6% maturing in 8-30 Days, 15.5% maturing in 31-60 Days, 11.5% maturing in 61-90 Days, 15.0% maturing in 91-180 Days and 3.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.8%), France (12.7%), Canada (7.2%), Japan (6.5%), the United Kingdom (5.6%), Sweden (4.9%), the Netherlands (4.1%), Germany (3.9%), Switzerland (2.1%), Australia (2.1%), Belgium (1.7%), China (1.7%), Norway (1.3%) and Singapore (1.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $202.7 billion (32.4% of total assets), Barclays PLC with $16.8B (2.7%), Credit Agricole with $16.7B (2.7%), BNP Paribas with $16.1B (2.6%), Bank of Nova Scotia with $12.5B (2.0%), Credit Mutuel with $10.5B (1.7%), Mizuho Corporate Bank Ltd with $10.3B (1.7%), Mitsubishi UFJ Financial Group Inc with $10.1B (1.6%), Scandinaviska Enskilda Banken AB with $9.7B (1.6%) and Natixis with $9.4B (1.5%).

Euro MMFs tracked by Crane Data contain, on average 42.5% in CP, 15.6% in CDs, 26.2% in Other (primarily Time Deposits), 12.2% in Repo, 3.1% in Treasuries and 0.4% in Agency securities. EUR funds have on average 31.3% of their portfolios maturing Overnight, 11.4% maturing in 2-7 Days, 12.1% maturing in 8-30 Days, 19.3% maturing in 31-60 Days, 13.4% maturing in 61-90 Days, 11.2% maturing in 91-180 Days and 1.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.6%), the U.S. (11.2%), Japan (9.5%), Germany (9.5%), Sweden (6.8%), the Netherlands (5.8%), the U.K. (5.6%), Belgium (4.8%), Switzerland (4.4%), Canada (3.5%), China (1.8%), Finland (1.3%) and Abu Dhabi (1.2%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.6B (5.5%), BNP Paribas with E6.3B (5.3%), BPCE SA with E4.9B (4.1%), Societe Generale with E4.7B (3.9%), Mizuho Corporate Bank with E4.5B (3.8%), Republic of France with E3.9B (3.2%), Svenska Handelsbanken with E3.7B (3.1%), Bank of America with E3.5B (2.9%), Mitsubishi UFJ Financial Group Inc with E3.4B (2.8%) and ING Bank with E3.3B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 5/31/20): 30.6% in CDs, 20.5% in CP, 25.3% in Other (Time Deposits), 16.0% in Repo, 7.2% in Treasury and 0.3% in Agency. Sterling funds have on average 34.5% of their portfolios maturing Overnight, 7.5% maturing in 2-7 Days, 11.6% maturing in 8-30 Days, 14.4% maturing in 31-60 Days, 14.8% maturing in 61-90 Days, 14.1% maturing in 91-180 Days and 3.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the U.K. (21.8%), France (17.9%), Japan (13.7%), Canada (9.2%), Germany (5.7%), the Netherlands (5.3%), the U.S. (4.8%), Sweden (3.9%), Australia (3.2%), Singapore (2.6%) and Switzerland (2.3%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L34.4B (14.7%), Mizuho Corporate Bank Ltd with L12.1B (5.2%), BNP Paribas with L9.1B (3.9%), BPCE SA with L7.2B (3.1%), RBC with L6.6B (2.8%), Credit Agricole with L6.5B (2.8%), Sumitomo Mitsui Banking Corp with L5.9B (2.5%), Nordea Bank with L5.8B (2.5%), Mitsubishi UFJ Financial Group Inc with L5.8B (2.5%) and Standard Chartered Bank with L5.2B (2.2%).

In related news, last week Fitch Ratings hosted a webinar entitled, "European MMF Update – Liquidity, credit risk and sterling yields featuring Alastair Sewell and Minyu Wang. They tell us, "Now, negative yields is something money market funds, of course, have seen before in Euro.... Euro denominated money market funds have been in negative territory for a considerable period of time [since] 2014 and 2015 .... EONIA ... turned negative several months before the yield on the money market funds turned negative. The important takeaway here is that money market funds can withstand negative rates on extremely short rate indexes for a period of time, before necessarily themselves having negative yields."

Sewell explains, "The reason that is possible is because of the maturity transformation that the money market funds effect.... They can only invest out to a year, so their ability to transform maturities is negligible. But the fact that they can do that gives them the ability to eke out some incremental yield over the shortest of rates and therefore to potentially maintain a marginally positive yield, even during a period in which the shortest rates, in fact, themselves are negative. In the case of Europe, both the shortest and longer dated rates subsequently went negative, which forced money market funds into negative yielding territory as well, in the first quarter of 2015."

He tells us, "The other point to highlight here is the spread between the gross and the net yield.... You can see that the spread between the gross and the net yield shrinks as the money market funds get closer to ... where they go into negative territory. So `this is in evidence of the funds waiving fees in order to preserve a net yield in excess of zero for as long as possible. Once yields had actually turned negative ... the gross net spread widens again, indicating the funds did, in fact begin charging fees again. So, take away number two is that the funds will do everything they can to avoid getting into negative yield. That includes, obviously, what they can control on the asset side of their portfolios [and] on the liability side.... There is no contractual obligation for them to do that, it's as a matter of choice by the managers. But we see the evidence that it happened."

Sewell asks, "When this happened in euros, what was the investor reaction? Well ... once yields turned negative, investors withdrew from Euro money market funds ... and there were outflows. Overall outflows weren't actually that severe ... and they were really managed by the funds without any issues. [Then] after a period of fairly flat assets, you actually started seeing money coming back into the Euro money market funds, despite the fact that they were resolutely negative by that point. And to us, that indicates that investors pulled money out of money market funds, hoping to find suitable replacement products. [But] they concluded that the alternative options were not sufficiently attractive to them and chose to come back in to money market funds due to this lack of palatable alternatives."

He adds, "Now, this was eased, of course, back in 2015 because money market funds were able to cancel shares.... However, this practice was outlawed in the European money market fund reform process. [Now] the principal mechanism would be to transfer investors in 'distributing' share classes [into] 'accumulating' share classes.... So, investors in an LVNAV in a negative market environment would still be in an LVNAV [that would] decrease very slowly in value overtime. But fundamentally, they would be in the same product.... All that would really change from an investor perspective is the need to move to an accumulating share class to comply with the requirements of the European money market fund reform.... It would seem to me that there is a greater sensitivity for negative rates in Sterling than there is in dollars based on current market conditions."

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