A Reuters article, "China c.bank publishes rules regulating major money market funds," tells us that, "China's central bank published rules regulating major money market funds late on Friday, aiming to better supervise and monitor risks while promoting the smooth and healthy development of fund products. Money market funds with net assets of more than 200 billion yuan ($29.08 billion) or counting more than 50 million investors in 20 consecutive trading days should fall in the scope of the assessment, the People's Bank of China (PBOC) said in an online statement." (See our Dec. 20 News, "Worldwide MF Assets Plunge in Q3'22, Led by China, France, Lux; US Up," for more.)
It explains, "The PBOC urged fund managers to comprehensively and prudently assess the impact of such major money market funds on investors, the broad capital markets and the financial system. Such funds 'must not expand their sizes blindly,' the central bank said in the statement, jointly issued with the China Securities Regulatory Commission."
Reuters adds, "Major money market funds with a net asset value of more than 500 billion yuan for 20 straight trading days should make adjustments to fulfil certain requirements, the PBOC added. It said that the rules will come into effect on May 16. Tianhong Yu'e Bao, controlled by Ant Group, an affiliate of Alibaba Group, is China's biggest money market fund with 689.3 billion in net assets as of Friday." See also, The Business Times of Singapore's piece, "China central bank publishes rules regulating major money market funds."
In other news, Allspring Money Market Funds writes in their latest "Overview, Strategy, and Outlook" on the Government sector, "The debt ceiling -- the second-most-famous ceiling in the world after the Sistine Chapel's, as hideous as Michelangelo's is beautiful -- has begun to affect the government money markets. As the nation's total borrowing began approaching the statutory limit in December, the Treasury pared back Treasury bill (T-bill) supply, cutting it by $117 billion that month. On January 19, the outstanding debt reached the limit, and after announcing that it would implement extraordinary measures, the Treasury built T-bill supply back up, increasing it by $191 billion in January."
They tell us, "The otherwise unnecessary supply gyrations that left investors searching for investments in December -- a month that is typically a struggle influenced by year-end reporting -- and briefly sighing with relief in January are just a taste of what awaits over the next few quarters. The Treasury's cash flow map looks something like this: First, use extraordinary measures to allow robust issuance and build up the cash balance, as we have seen in January. Second, use the extra cash for tax refunds in February and March, so the country's good citizens can take spring vacations. Third, receive large cash inflows in April as other citizens pay their tax bills, rebuilding Treasury's cash balance. Fourth, over the following months, gradually exhaust the extraordinary measures and watch the cash balance melt away as the nation spends more than it takes in."
Wells continues, "Over these months, T-bill supply will shrink and investors may strive to invest in any T-bills they can find, pushing yields lower, while also simultaneously attempting to avoid T-bills they view as potentially facing repayment challenges due to the debt ceiling, shunning them like limburger. We just don't know how long that fourth phase -- the gradual cash drawdown -- will last because the spring tax season cash flows are uncertain as of now."
They comment, "Last year, they surprised on the upside, but then again, last year had a booming stock market and people had gains to pay taxes on. This year, not so many gains. Treasury Secretary Yellen noted that cash and other measures should be sufficient to fund operations until at least early June, and Treasury watchers on Wall Street have widely ranging views, suggesting that cash runs out anywhere from July to November. Timing clarity should arrive as tax season ends."
Wells adds, "On the Treasury's map, the end of the fourth phase, when cash and extraordinary measures are exhausted but the debt ceiling has not been raised or suspended, represents the edge of the known world. Beyond that, as the medieval maps said of the unknown, 'Here there be monsters.'"
Finally, Morningstar U.K. writes "Disappointed by Cash? Here's a Thought...." The article asks, "[H]ow do the rates actually differ from current accounts and what kind of returns can investors expect there?" They answer, "So, for a U.K. investor, a UK buyer of a money market account, it will be roughly where the Bank of England base rate is, which at the moment is around 3.5%. In the US, you're more likely to get maybe 4.5% and in Europe, down to 2.5%. You compare this to a bank account. So, just scanning the papers this morning, HSBC's online saver account is offering a 0.65% return gross of fees. Lloyds are offering their investors 0.6%, Barclays around 0.6% as well. So, there's a big difference now today, that 3.5% compared to the 0.6% you can get off the high street."
The piece also asks, "What kind of things do these funds invest in?" It explains, "So, the instruments ... you scan the fact sheet, you can see names like time deposits, certificates of deposits, commercial paper, asset-backed commercial paper, repos or repurchase agreements, floating rate notes. These all sound incredibly complex and sophisticated instruments when ultimately the manager is buying up debt that is issued by typically a bank or a large corporation and in return is receiving interest commensurate with the prevailing market rate."
