S&P Global Ratings recently published an update an entitled, "U.S. Domestic 'AAAm' Money Market Fund Quarterly Trends (Second-Quarter 2020)." They explain, "S&P Global Ratings' 'AAAm' money market fund quarterly trends highlight statistics of U.S. managed funds that seek to maintain principal preservation. These statistics provide a benchmarking tool of the ‘A-1+’ credit quality, portfolio composition, maturity distribution, net asset movements, and yields of 'AAAm' principal stability rated funds. The statistics demonstrate the investment practices of funds conforming to the principal stability fund rating criteria."
The brief explains, "Midway through 2020, money market funds (MMFs) evidently continue to be a prominent cash management tool for institutional investors seeking to weather heightened market volatility emerging from the COVID-19 pandemic. The second quarter of the year brought positive flows in both U.S. government and prime funds, while the primary focus remained liquidity. U.S. principal stability funds had net inflows of 12% over the quarter, ending June at over $3.2 trillion. U.S. prime MMF assets under management increased 32% through the second quarter, essentially returning to predownturn levels, while government MMFs continued to see strong inflows of over 10%."
It continues, "Both the level of inflows to prime MMFs and the ability of those funds to sell downgraded securities on the secondary market affirm our view from March that redemption activity was a function of poor market liquidity and not due to credit issues with investments purchased by MMFs. Notably, during the second quarter, some of the industry's largest MMF managers announced decisions to liquidate their prime MMFs altogether, citing investor behavior in March. During the market stress, when prime MMFs struggled to maintain daily and weekly liquidity levels above regulatory thresholds, funds saw withdrawals of $83 billion, a 16% decline, in one week in March."
S&P comments, "Prime funds' average Treasury bill holdings increased considerably over the second quarter, to 12% at the end of June from 2% at the end of March. This corresponds with a decline in average commercial paper and corporate bond holdings to 25% from 33%. The heavier allocation to T-bills came as prime funds raised liquidity levels following their experience in March. Government funds' average T-bill exposure increased to 43% from 17%, while repo exposure declined to 22% from 40%."
They add, "Fund NAVs stabilized considerably during the second quarter. By end-June, 116 funds had NAVs of 0.9995-1.0005, compared with 68 at end-March. No funds ended the second quarter with a NAV below 0.9995, compared with over 30 in March."
S&P also published, "European 'AAAm' Money Market Fund Quarterly Trends (Second-Quarter 2020)," which tells us, "S&P Global Ratings' 'AAAm' money market fund quarterly trends highlight statistics of European managed funds that seek to maintain principal preservation. These statistics provide a benchmarking tool of the 'A-1+' credit quality, portfolio composition, maturity distribution, net asset movements, and yields of 'AAAm' principal stability rated funds. The statistics demonstrate the investment practices of funds conforming to the principal stability fund rating criteria."
They comment, "Market turmoil has not dented the ability of European-domiciled money market funds (MMFs) rated by S&P Global Ratings to source assets and provide institutional investors a valuable cash management service. In fact, rated European-domiciled MMFs net assets continued to flourish during the second quarter of 2020, with euro funds rising €7 billion (9%), sterling funds rising £32 billion (15%), and U.S. dollar funds rising $81 billion (20%). U.S. dollar and sterling funds remain at record levels with $495 billion and £249 billion, respectively, and euro funds finished the quarter at €95 billion."
S&P tells us, "With the dramatic actions taken by the Federal Reserve and Bank of England during March to offset the effects of COVID-19, it is no surprise the seven-day yields of U.S. dollar- and sterling-denominated funds took a marked fall. In a general sense, MMF returns lag the actions of central banks due to their maturity profiles. But with operating in a post-regulatory era and MMFs holding more short-dated assets, the lag is not as great as it once was. Surprisingly, negative-yielding euro MMFs saw a positive return on a relative basis, with the average seven-day yield improving 14 basis points over the quarter."
Finally, they write, "We consider credit quality to play a key role in net asset value (NAV) stability and view higher-rated assets as reflecting higher price stability. During the second quarter, funds continued to increase their exposure to 'A-1+' names. This is particularly related to euro-dominated MMFs, which increased to an average 70% 'A-1+' in June compared to March with 63% 'A-1+'. Historically, euro funds have maintained a lower average credit quality.... Seeking a higher return, but with the potential for increased redemptions, these funds have found more comfort in higher credit quality investment for the time being."
In other news, money market fund yields continue to bottom out just below one-tenth of a percent -- our flagship Crane 100 was flat over the last week at 0.09%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over half of all money funds and over one quarter of MMF assets have since landed on the zero yield floor, though many continue to show some yield.
According to our Money Fund Intelligence Daily, as of Friday, 7/24, 499 funds (out of 850 total) yield 0.00% or 0.01% with assets of $1.535 trillion, or 31.1% of the total. There are 191 funds yielding between 0.02% and 0.10%, totaling $2.053 trillion, or 41.7% of assets; 135 funds yielded between 0.11% and 0.25% with $1.125 trillion, or 22.8% of assets; 23 funds yielded between 0.26% and 0.50% with $215.3 billion in assets, or 4.4%. No funds yield over funds yield over 0.50%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.06%, unchanged in the week through Friday, 7/24. The Crane Money Fund Average is down 41 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.12% in the latest week and Government Inst MFs were flat at 0.05%. Treasury Inst MFs were unchanged at 0.04%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.06% (down a basis point for the week), Tax-exempt MF 7-day yields were up a basis point at 0.05%. (Let us know if you'd like to see our latest MFI Daily.)
Our Crane Brokerage Sweep Index, which hit the zero floor roughly three months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of July 24, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last ten weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). Fin-tech “robo” advisor firms Betterment, Wealthfront and Robinhood have also cut rates and are offering 0.40%, 0.35% and 0.30%, respectively.
