Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds were flat to lower over the past month after hitting a record $1.056 trillion in August. They broke above the $1.0 trillion for the first time ever three months ago. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $149 million over the last 30 days (when translated into dollars); they're up by $172.2 billion (19.6%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are down $3.0 billion over the last 30 days but up $64.1 billion YTD to $558.5 billion. Euro funds are up E1.2 billion over the past month, and YTD they're up E34.2 billion to E132.8 billion. GBP money funds have fallen by L7.2 billion over 30 days, but are up by L28.3 billion YTD to L253.3B. U.S. Dollar (USD) money funds (192) account for over half (53.3%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 14.0% and Pound Sterling (GBP) funds (122) total 29.3%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Tuesday), below.
Offshore USD MMFs yield 0.08% (7-Day) on average (as of 9/14/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.59% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.03%, 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 September MFII Portfolio Holdings, with data as of 8/31/20, show that European-domiciled US Dollar MMFs, on average, consist of 22.8% in Commercial Paper (CP), 14.7% in Certificates of Deposit (CDs), 17.8% in Repo, 31.9% in Treasury securities, 11.3% in Other securities (primarily Time Deposits) and 1.5% in Government Agency securities. USD funds have on average 34.8% of their portfolios maturing Overnight, 4.5% maturing in 2-7 Days, 15.5% maturing in 8-30 Days, 14.8% maturing in 31-60 Days, 10.4% maturing in 61-90 Days, 16.0% maturing in 91-180 Days and 3.9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (43.3%), France (12.6%), Japan (8.3%), Canada (6.9%), Germany (4.9%), the U.K. (4.7%), Sweden (4.2%), the Netherlands (4.0%), Switzerland (2.0%), Australia (1.7%), Belgium (1.6%), Norway (1.5%), Singapore (0.9%) and China (0.7%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $196.2 billion (31.9% of total assets), Fixed Income Clearing Co with $22.3B (3.6%), BNP Paribas with $19.2B (3.1%), Credit Agricole with $16.9B (2.8%), Barclays PLC with $16.5B (2.7%), Mizuho Corporate Bank Ltd with $14.3B (2.3%), Sumitomo Mitsui Banking Corp with $13.1B (2.1%), Mitsubishi UFJ Financial Group Inc with $12.6B (2.0%), RBC with $11.8B (1.9%) and JP Morgan with $11.1B (1.8%).
Euro MMFs tracked by Crane Data contain, on average 41.8% in CP, 18.0% in CDs, 20.6% in Other (primarily Time Deposits), 15.3% in Repo, 3.0% in Treasuries and 1.3% in Agency securities. EUR funds have on average 32.9% of their portfolios maturing Overnight, 6.4% maturing in 2-7 Days, 15.4% maturing in 8-30 Days, 13.0% maturing in 31-60 Days, 9.6% maturing in 61-90 Days, 18.9% maturing in 91-180 Days and 3.9% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.0%), Japan (11.4%), the U.S. (10.1%), Germany (9.0%), Sweden (6.0%), the U.K. (4.6%), Switzerland (4.4%), Belgium (4.0%), Canada (3.6%), the Netherlands (3.5%), Austria (2.8%), Qatar (1.4%) and China (1.3%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E7.7B (6.5%), BNP Paribas with E7.2B (6.1%), Citi with E5.0B (4.2%), Republic of France with E4.8B (4.1%), BPCE SA with E4.2B (3.5%), Societe Generale with E4.1B (3.4%), Agence Central de Organismes de Securite Sociale with E3.9B (3.3%), Mizuho Corporate Bank Ltd with E3.9B (3.3%), DZ Bank AG with E3.9B (3.3%) and Sumitomo Mitsui Banking Corp with E3.6B (3.1%).
The GBP funds tracked by MFI International contain, on average (as of 8/31/20): 32.5% in CDs, 18.9% in CP, 24.7% in Other (Time Deposits), 18.8% in Repo, 4.6% in Treasury and 0.5% in Agency. Sterling funds have on average 37.6% of their portfolios maturing Overnight, 8.1% maturing in 2-7 Days, 10.5% maturing in 8-30 Days, 12.3% maturing in 31-60 Days, 11.0% maturing in 61-90 Days, 16.8% maturing in 91-180 Days and 3.7% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the U.K. (20.0%), France (19.1%), Japan (16.3%), Canada (9.5%), the Netherlands (5.6%), the U.S. (5.4%), Germany (4.3%), Sweden (3.9%), Australia (2.9%), Abu Dhabi (2.4%) and Singapore (2.0%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L23.4B (10.8%), Mizuho Corporate Bank Ltd with L12.3B (5.7%), BNP Paribas with L10.6B (4.9%), Sumitomo Mitsui Banking Corp with L8.6B (4.0%), Agence Central de Organismes de Securite Sociale with L7.6B (3.5%), RBC with L7.4B (3.4%), Credit Agricole with L7.3B (3.4%), Barclays PLC with L7.2B (3.3%), Mitsubishi UFJ Financial Group Inc with L7.0B (3.2%) and BPCE SA with L6.8B (3.1%).
In related news, BNP Paribas Asset Management discusses "offshore" MMFs in their, "Weekly Market Podcast," saying there is, "Still room for positive yields in USD, GBP money markets." An article on the podcast states, "Central banks provided economies with ample cash as the economic effects of the COVID-19 health crisis bit, driving down interest rates – and absolute returns – in the process, but as Philippe Renaudin, head of global money markets, tells senior investment strategist Daniel Morris in this interview, careful selection and diversification mean potential for competitive returns remains in money markets."
Morris asks, "Can you share with us the current conditions for the US dollar money markets, what about the level of rates, what about spreads, particularly following the turmoil we had from March?" Renaudin explains, "In general, major central banks including the Fed have done a good job calming the markets and providing liquidity after markets reeled this spring. The Fed actively entered the market and injected liquidity, resulting in low US yields and spreads. CDs (certificates of deposits), for example, now trade at 15bp – that is a fraction of the 80-100bp at the height at the crisis in March. So for three-month paper issued by US banks and corporates, the cost is only 0.15%, down from 1% half a year ago."
Renaudin explains, "The key for us is to buy paper that is liquid. This accounts for 30-40% of our portfolios. This portion is invested in bank deposits with yields close to the fed funds fixing. The remainder is invested in paper with different maturities, particularly from banks, which are very active, especially in three to six-month maturities. We actually favour these securities. With this allocation, we have been able to provide a positive daily yield and we are confident that we can maintain this positive level for a couple of months."
Morris comments, "In the eurozone, we do not expect much change, especially after the recent ECB decision to keep its monetary policy stance unchanged. In the UK, however, we believe that the monetary stance will need to remain loose for the foreseeable future, not least because the fiscal pendulum will soon swing back in the direction of budget consolidation ... given the backdrop of rising unemployment and greater uncertainty over the future relationship between the UK and the EU. We expect the Bank of England (BoE) to do more QE rather than cut interest rates significantly to below zero. Depending on economic developments in the interim, there is scope for a small cut to 0%, but no earlier than November and more likely in 2021."
Renaudin adds, "Similar to the Fed, the BoE provided liquidity on a large scale in the crisis, leaving market rates at close to zero and pushing spreads to very low levels. In terms of volatility, the UK market is quieter now than the US market, with rates at zero to 20bp on all types of instruments. Rates have remained under pressure: recently, we saw the UK three-month T-bill rate at -1bp. In these circumstances, it is hard to have positive yields for money market flows. The UK is a small market in terms of outstanding amounts and the numbers of issuers, so constructing a well-diversified portfolio is a challenge. Nevertheless, in the market, we are seeing rates of close to 5bp on deposits."
