Last week, Fitch Ratings hosted a webinar entitled, "Cash Investment in China," which featured Fitch Ratings' Alastair Sewell and J.P. Morgan Asset Management's Aidan Shevlin. The pair discussed, "The evolving cash management landscape in China; The rise of Chinese money market funds; Differences between Chinese and US/European money market funds; [and] The outlook for Chinese money market funds: current trends and new developments." Below we excerpt some of the highlights, and we also review the latest on yields. (Note: Register for Crane Data's next free webinar, "Asian Money Fund Symposium," which takes place June 17, from 10am-12pm EDT. This 2-hour presentation on money market funds in Asia will also feature Aidan Shevlin of J.P. Morgan Asset Management and Alastair Sewell of Fitch Ratings, along with Pat O'Callaghan of Goldman Sachs A.M., Andrew Paranthoiene of S&P Global and Peter Crane of Crane Data. Please join us!)
On Fitch's China event, Shevlin says, "The timing of this call is actually very interesting, I was talking with my colleagues in Shanghai just today and they were mentioning that they were celebrating their 17th anniversary. They [CIFM] were one of the earliest fund managers to launch in China. So, [this] shows how young this market is. If we roll the clock back to 1999, the early 2000s, if you were an investor in China or one of the multinational companies starting to operate there, you had extremely limited options for where to place your cash. It was basically time deposits or time deposits, there was nothing else available. And at that time, all of the time deposits ... in China would have to be controlled by the PBOC or Central Bank. They set the interest rates for all loans [and] all the time deposits. So regardless of your credit quality, regardless of the credit quality of the bank you were placing with, you were getting exactly the same interest rate and that to a lot of frustration in the market."
He explains, "When you were only closing time deposits 20 years ago, it was a simple structure [that] everyone understood, and it was relatively risk free because you were closing with banks which were owned by the government. It was basically both almost, and explicit, and implicit government guarantee. Those guarantees have gone now, and the range of products we have today is huge and the range of risks associated with those products is also huge. We're now in a much different environment, where you've got more choice, more ability to earn a higher return, but also considerably more risk, which we've seen evolving over the last few years."
Sewell comments, "You mentioned that regulation has developed steadily in China.... I think it was 2003 that money market funds first appeared in China.... But over a relatively short period of time, compared with the U.S. where these things have been around for over 40 years, [Chinese] money market funds have expanded quite rapidly. You see that here on this chart ... which shows you the expansion of the money market fund industry in China. It's grown enormously and it's grown rapidly. So, what has been driving the growth of money market funds in China? What was change in 2013, which drove assets to increase so significantly?"
Shevlin responds, "You are definitely correct, and I think you make a very good point. Money market funds have definitely been one of the success stories of the liberalization of interest rates and financial markets in China, and they really benefited from that liberalization.... [S]howing the mutual fund industry growth in China over the last, say, several years, it's grown rapidly. It's totaling about ... $3 trillion U.S. dollars, which is extremely large by global standards."
In related news, Fitch Ratings published the brief, "U.S. Money Market Funds: May 2021." It states, "Government MMFs Asset Gains Continue: Total taxable money market fund (MMF) assets increased by $36 billion from March 31, 2021 to April 30, 2021, according to iMoneyNet data. Government MMFs gained $45 billion in assets during this period, offset by a $9 billion decrease in prime MMF assets."
Fitch writes, "Prime MMFs have been steadily decreasing exposure to government securities while increasing exposure to commercial paper (CP), partially driven by managers' search for yield in the current low rate environment and the limited supply of treasuries. Prime MMFs increased CP exposure by $22 billion and decreased government exposures by $192 billion, from August 31, 2020 to April 30, 2021, according to Crane Data."
They add, "Low Yields Persist: Since the U.S. Federal Reserve cut rates in response to market volatility in March 2020, MMF yields have remained at near-zero levels, and are likely to stay as the Fed continues to support low rates. As of April 30, 2021, institutional government and prime MMF yields were 0.02% and 0.03%, respectively, per iMoneyNet data."
Crane Data's statistics also show money market fund yields continuing to bottom out just above zero. Our flagship Crane 100 remained unchanged in the last week to 0.02%. The Crane 100 Money Fund Index fell below the 1.0% level over a year ago in mid-March, and below the 0.5% level in late March. It is down from 1.46% at the start of 2020 and down from 2.23% at the beginning of 2019.
Over three-quarters of all money funds and over half 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, 5/28, 646 funds (out of 811 total) yield 0.00% or 0.01% with assets of $2.924 trillion, or 58.0% of the total $5.038 trillion. There are 161 funds yielding between 0.02% and 0.10%, totaling $2.090 trillion, or 41.5% of assets; 4 funds yielded between 0.11% and 0.20% with $23.2 billion. No funds yield over 0.15%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 654), shows a 7-day yield of 0.02%, unchanged in the week through Friday, May 28. The Crane Money Fund Average is down 45 bps from 0.47%, a year ago at beginning of April. Prime Inst MFs were unchanged at 0.03% in the latest week, Government Inst MFs were flat at 0.02%, and Treasury Inst MFs were unchanged at 0.01%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs also yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.01% (unchanged). Tax-exempt MF 7-day yields were also unchanged at 0.01%. (Let us know if you'd like to see our latest MFI Daily.)
Our latest Brokerage Sweep Intelligence, with data as of May 28, showed no changes in the last week. All major brokerages, with the exception of RW Baird, 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 58 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, 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). RW Baird offers a rate of 0.02% for its balances of $100K.
