The Financial Times weighed in on recent money fund news in its piece, "Asset managers overhaul money market funds after March rout." They write, "Some of the world's largest asset managers are shutting down US investment vehicles that have suffered rapid outflows in times of stress, threatening an important source of short-term funding for companies across America. Vanguard followed peers Fidelity and Northern Trust last month when it announced the closure of its 'prime' money market fund.... The manager's move to convert its prime fund to one buying government bonds by the end of September will pull $125bn from the remaining $750bn invested in the prime segment.... Some analysts are now braced for a regulatory clampdown on the sector."
The FT explains, "In 2016 regulators introduced stringent new rules for prime funds, including the ability for fund managers to temporarily prevent investors from withdrawing their money. But Fed economists argued in July that those rules may have actually exacerbated outflows from prime funds in this year's sell-off, by pushing investors to try to get hold of their cash at a faster pace. 'Given the notable role of [money market funds] in the short-term funding markets and in the shadow banking system, more research and collaborative regulatory efforts are warranted to enhance the stability of the industry,' they concluded."
They comment, "There could be more immediate effects, too, if fund closures curtail a vital source of short-dated financing for companies. The commercial paper market -- where companies borrow for up to 12 months, and where prime money market funds are among the largest players -- was rescued in March when the Fed set up a special purchasing program to stave off a funding crunch. The US central bank also launched a facility that made loans to banks secured by assets from money market mutual funds, in order to ensure that they could meet demands for redemptions.... The total amount of commercial paper outstanding in the US has sunk from $1.13tn at the beginning of the year to less than $1tn in September -- the lowest in three years."
The FT article adds, "Some analysts say that investors will continue to be drawn to the higher returns that prime funds offer, despite the risks. Pete Crane, who runs the money market fund data service Crane Data, said reports of the death of such funds are 'greatly exaggerated', adding: 'Yield always wins over safety, eventually.' But others are not so sure. If interest rates remain on hold, spreads -- the additional yield available on credit over Treasuries -- shrink further, and another round of regulation makes running these funds more onerous, 'it is possible you could see another round of  ... closures', said Mark Cabana, a strategist at Bank of America.
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our September 11 News, "Sept. MF Portfolio Holdings: Repo Jumps; Agencies, CP, CDs Decline.")
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in August, prime money market funds held 40.8 percent of their portfolios in daily liquid assets and 53.0 percent in weekly liquid assets, while government money market funds held 74.3 percent of their portfolios in daily liquid assets and 84.0 percent in weekly liquid assets." Prime DLA increased from 40.2% in July, and Prime WLA increased from 50.4%. Govt MMFs' DLA increased from 74.2% in July and Govt WLA was unchanged at 84.0% from the previous month.
ICI explains, "At the end of August, prime funds had a weighted average maturity (WAM) of 46 days and a weighted average life (WAL) of 66 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 42 days and a WAL of 99 days." Prime WAMs were down one day from the previous month and WALs were down two days from the previous month. Govt WAMs were down one day in August and WALs were down two days in the previous month.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $414.44 billion in July to $418.42 billion in August. Government money market funds' holdings attributable to the Americas declined from $3,273.06 billion in July to $3,239.43 billion in August." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $418.4 billion, or 5.2%; Asia and Pacific at $103.1 billion, or 13.6%; Europe at $227.9 billion, or 30.1%; and, Other (including Supranational) at $8.4 billion, or 1.1%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.239 trillion, or 87.5%; Asia and Pacific at $125.4 billion, or 3.4%; Europe at $325.1 billion, 8.8%, and Other (Including Supranational) at $13.4 billion, or 0.4%."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday (a day late due to our monthly Offshore MF Portfolio Holdings shipping Tuesday), which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of September 11) includes Holdings information from 78 money funds (up 1 from two weeks ago), which represent $2.322 trillion (down from $2.360 trillion) of the $4.867 trillion (47.7%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.255 trillion (down from $1.282 trillion two weeks ago), or 54.1%, Repurchase Agreements (Repo) totaling $526.8 billion (down from $527.5 billion two weeks ago), or 22.7% and Government Agency securities totaling $329.3 billion (down from $337.4 billion), or 14.2%. Certificates of Deposit (CDs) totaled $73.5 billion (down from $75.2 billion), or 3.2%, and Commercial Paper (CP) totaled $69.4 billion (up from $65.0 billion), or 3.0%. The Other category accounted for $36.1 billion or 1.6%, while VRDNs accounted for $31.7 billion, or 1.4%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.256 trillion (54.1% of total holdings), Federal Home Loan Bank with $177.7B (7.7%), BNP Paribas with $71.7B (3.1%), Fixed Income Clearing Corp with $61.3B (2.6%), Federal Farm Credit Bank with $60.3B (2.6%), Federal National Mortgage Association with $53.2B (2.3%), RBC with $43.6B (1.9%), Federal Home Loan Mortgage Corp with $35.2B (1.5%), JP Morgan with $35.0B (1.5%) and Mitsubishi UFJ Financial Group Inc with $30.8B (1.3%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt MM ($177.6B), Goldman Sachs FS Govt ($174.7B), Fidelity Inv MM: Govt Port ($163.3B), Wells Fargo Govt MM ($158.7B), BlackRock Lq FedFund ($139.4B), JP Morgan 100% US Treas MMkt ($110.7B), BlackRock Lq T-Fund ($93.4B), Morgan Stanley Inst Liq Govt ($90.3B), Dreyfus Govt Cash Mgmt ($88.7B) and JP Morgan Prime MM ($85.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
