The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Money Fund Managers Comment on SEC Reforms," which reviews various articles on MMF Reforms; "SEC’s Money Fund Reforms: Swing Pricing Out, Liquidity In," which excerpts from the latest pending money fund rules; and, "European Commission Report on EU MMF Regs; LVNAVs OK," which reviews Europe's 5-year review of money fund rules. We also sent out our MFI XLS spreadsheet Monday a.m., and we've updated our Money Fund Wisdom database with 7/31/23 data. Our August Money Fund Portfolio Holdings are scheduled to ship on Wednesday, August 9, and our August Bond Fund Intelligence is scheduled to go out on Monday, August 14. (Note: Click here to see the replay of our recent Money Fund Wisdom Demo & Training, and register soon and make hotel reservations ASAP for our European Money Fund Symposium, which is Sept. 25-26, 2024 in Edinburgh.)
MFI's "MF Managers" article says, "In the 3 1/2 weeks since the SEC passed its latest 'Money Market Fund Reforms,' a number of money fund managers and others have published summaries and commentary. We quote from a number of these below, and we’ll continue to monitor the postings in coming days."
It explains, "The first, Allspring’s 'Amendments to Rules Governing Money Market Funds,' explains, 'On July 12, 2023, the Securities and Exchange Commission (SEC) approved amendments to Rule 2a-7 of the Investment Company Act of 1940, which governs money market funds (MMFs). The amendments are designed to improve the resilience and transparency of MMFs. The amended rule includes the following changes: Increased portfolio minimum liquidity requirements; Removal of temporary redemption gates and the link between portfolio liquidity and liquidity fees; New liquidity fee framework; Measures to address potential negative interest rate environment.'"
We write in our SEC Reforms recap, "We continue analyzing the SEC’s 424-page “Money Market Fund Reforms” final rules, and we continue to like what we see. (See the MMF Reforms press release and the Fact Sheet.) The rule’s summary explains, 'The Securities and Exchange Commission is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. These amendments are designed to improve the resilience and transparency of money market funds. The amendments will revise the primary rule that governs money market funds to remove the ability for a fund board to temporarily suspend redemptions if the fund’s liquidity falls below a threshold. In addition, the amendments will remove the tie between liquidity thresholds and the potential imposition of liquidity fees. The amendments will also require certain money market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors. In addition, the Commission is increasing the daily liquid asset and weekly liquid asset minimum requirements to 25% and 50%, respectively.”
The rule continues, “The Commission also is amending certain reporting requirements on Form N-MFP and Form N-CR and making certain conforming changes to Form N-1A to reflect amendments to the regulatory framework for money market funds. In addition, the Commission is addressing how money market funds with stable net asset values may handle a negative interest rate environment, including by adopting amendments that will permit these funds to use share cancellation, subject to certain conditions…. In addition, the Commission is adopting amendments to Form PF concerning the information large liquidity fund advisers must report for the liquidity funds they advise.”
Our "European Commission" piece states, "The European Commission published 'Report from the Commission to the European Parliament and the Council' on the 'adequacy of Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds from a prudential and economic point of view.' Its Intro says, 'Regulation (EU) 2017/1131 on money market funds (the MMF Regulation) was proposed in the aftermath of the global financial crisis, which exposed certain weaknesses of financial markets and their regulatory regimes around the globe. Since entering into application in January 2019, this Regulation has significantly strengthened the regulatory regime for MMFs in the EU, following recommendations by the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the European Systemic Risk Board (ESRB)."
It adds, "The new regulatory framework was put to the test by the market stress related to the COVID-19 pandemic. The impact of this stress on MMFs differed across jurisdictions due to differences in the structures of MMF markets (e.g the predominant types of MMFs, investor profiles, and underlying investments) and residual differences in the regulatory framework for MMFs.”
MFI also includes the News brief, "Money Fund Yields Break 5.0%," which says, "Money fund yields rose over the past month, breaking the 5.0% level on average for the first time since August 2007. We expect them to keep rising in coming day and weeks following the July 26 25-basis point hike by the Federal Reserve. Our Crane 100 Money Fund Index (7-Day Yield) was up 14 bps to 5.08% in the month ended 7/31/23.'"
Another News brief, "Money Fund Assets Break $5.9 Trillon (Crane) or $5.5 Trillion (ICI)," tells readers, "Assets rose for the 10th month in a row, increasing $21.0 billion to a record $5.896 trillion in July, according to our MFI XLS. Our MFI Daily shows assets breaking $5.9 trillion as we move into August. The Investment Company Institute’s latest 'Money Market Fund Assets' series broke the $5.5 trillion level for the first time ever, and shows MMFs up almost $1.0 trillion, and over 20%, over the past year. Assets are up by $781 billion, or 16.5%, year-to-date in 2023. Over the past 52 weeks, money fund assets have risen $940 billion, or 20.5%, with Retail MMFs rising by $576 billion (39.1%) and Inst MMFs rising by $364 billion (11.7%)."
A third News brief, "MarketWatch Asks, 'Want 5% yields? After Fed hike, it may be time to ditch high-yield savings accounts for money-market funds.' The article says, 'People focused on saving cash are poised to get another boost from the Federal Reserve <b:>`_…. Even so, `rising interest rates have not been lifting all accounts equally. The Fed raised the benchmark rate by 25 basis points to 5.25%-5.50%, the highest rate in 22 years. It marks the 11th rate hike of the Fed’s last 12 meetings. Many high-yield savings accounts now have annual percentage yields of around 4%, up from an average of approximately 0.5% in March 2022, according to DepositAccounts.com <b:>`_…. `However, yields for many money-market mutual funds are now hovering at 5%, up from an average of 0.43% in March 2022, according to Crane Data.'"
A sidebar, "Earnings: Cash Sorting Slows," says, "A number of asset managers, brokerages and banks reported second-quarter in July, and the few glimpses of money fund and bank deposit trends so far show that the massive 'cash sorting' and shift into money funds from bank deposits continued but slowed in Q2. Charles Schwab CFO Peter Crawford states, “Net interest revenue declined 10% from the prior year to $2.3 billion as the incorporation of higher cost liabilities brought our net interest margin down by 32 basis points sequentially to 1.87%. While anticipated client cash realignment, along with net equity buying during June, pushed cash levels lower, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months. The continuation of this trend through the end of the quarter further strengthens our conviction that this realignment activity will inflect before the end of 2023, unlocking growth in client cash held on the balance sheet."
Our August MFI XLS, with June 30 data, shows total assets increased $21.0 billion to a record $5.896 trillion, after increasing $20.3 billion in June, $152.7 billion in May, $56.5 billion in April, $345.1 billion in March, $56.0 billion in February, $22.5 billion in January, $70.2 billion in December and $55.4 billion in November. MMFs rose $42.2 billion in October, $1.7 billion in September, $2.3 billion in August and $26.0 billion in July.
Our broad Crane Money Fund Average 7-Day Yield was up 13 bps to 4.94%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 14 bps to 5.08% in July. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 5.21% and 5.13%, respectively. Charged Expenses averaged 0.38% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Tuesday once we upload the SEC's Form N-MFP data for 7/31/23.) The average WAM (weighted average maturity) for the Crane MFA was 24 days (down 1 day from previous month) while the Crane 100 WAM was down 1 to 23 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
