Daily Links Archives: January, 2008

WSJ writes "How the Crunch Has Hit Corner Of Muni Market". Businessweek writes "Bernanke's New Entourage: Why the Fed is spending more time with the managers of money-market funds". Bloomberg writes "Legg Mason's Earnings Fall 11% on Money-Fund Costs". WSJ writes "What Savers Should Do as Rates Drop" and "Where to Stash Short-Term Cash".

FT writes "Municipal bonds hit by monoline uncertainty". The article discusses "tender option bonds, have been popular with money market funds" and quotes Ben Thompson, portfolio manager at Samson Capital Advisors, saying, "Over the last few months, tax-free money market funds have liquidated anything they had concerns about."

"Morgan Stanley Writes Down SIVs After Helping Its Money Funds" says Bloomberg. Morgan Stanley wrote down $169 million after purchasing $1.06 billion in SIV investments from its money market funds the company said in an SEC filing yesterday. "The firm wasn't obliged to buy any of the securities and has no obligation to do so in the future," said Bloomberg. Crane Data reported this news in its article "Morgan Stanley Joins List of Advisors Supporting Money Funds Over SIVs" on Dec. 19.

Reuters writes, "Money funds cut maturities despite rate cuts - Crane". The article says, "Managers of money market mutual funds normally lengthen maturities in their portfolios when interest rates fall, but in the current round of cuts they have been doing the opposite, Peter Crane, president and publisher of Crane Data LLC, said on Tuesday." It quotes Crane, "In this environment, because of the the asset-backed commercial paper crisis and concerns about potential redemptions, everybody has been getting shorter".

"Dreyfus Lends Its Clout to Foreign Bond, Cash ETFs" writes WSJ. The article quotes WisdomTree Chief Executive Jonathan Steinberg, "Despite U.S. cash being a $3 trillion market segment, today's U.S. investor is surprisingly limited in their ability to easily hold cash in non-U.S. cash investments." The piece adds, "WisdomTree filed a family of cash ETFs for the U.S. and several foreign markets, including the Chinese yuan, Japanese yen and the euro." To date, there are still no "money market" ETFs available to U.S. investors.

SmartMoney's "What Lower Rates Mean for You" says of "Money-Market Accounts, Money-Market Funds, CDs", "Yields on money-market funds are also sliding, as Fed rate cuts are typically passed down to investors within 35 days, says Peter Crane, publisher of Money Fund Intelligence, which tracks money-market funds. Average yields, already down to 4.14% from 4.35% before the rate cut, should drop to 3.5% in the next month -- and even further if the Fed cuts rates again at its meeting this week."

"CacheMatrix Enhances Its Money Market Trading Technology with Online Dual Trade Authorization", the company said in a press release Friday. CacheMatrix provides online money market trading technology to a number of portals and money fund advisors, including Bank of America, Barclays, Comerica, UBS, and US Bank.

Reuters says "U.S. tax-free funds liquidate bond insurer exposure". "U.S. tax-free money market funds are selling insured variable-rate municipal notes amid fears that multiple-notch downgrades of troubled bond insurer ratings could hurt liquidity in the market," says the Friday evening article. It adds "Said Rafat, managing director at Fitch Ratings, said that some of the money market funds rated by Fitch have been selling assets they deem at risk, but liquidations have been orderly." He says, "To this point we've not seen any material impact on the net asset values of the funds that we rate".

"Lifting the Lid: Auction-rate debt tying up corporate cash" writes Reuters. The piece updates the problems with auction-rate securities, "debt instruments once touted as a highly liquid cash management strategy". It says, "Some 60 auctions have failed in recent months, representing about $6 billion in tied-up assets, according to Peter Crane, president and CEO of Crane Data LLC. See also, Bloomberg's "Munis Poised for Year's First Weekly Drop on Insurer Concerns".

FT writes "Money market funds wait to see where the buck will stop". The Financial Times discusses the municipal bond insurers, MBIA, Ambac, FGIC and SCA, and the potential impact on money funds. The overly sensational article quotes unnamed sources speculating on trouble for tax exempt money funds. But it adds, "Investors have not lost money on a US money market fund since 1994 and it is unlikely any fund operator now would allow such an event to occur."

Federated Investors, reported 4th quarter earnings, including record levels and increases in money fund assets. President & CEO Chris Donahue says, "Federated's unprecedented money market asset growth during 2007 demonstrated the confidence that our fund shareholders have in the stability of our money market funds. Federated's history of strong credit analysis has served us well in the recent environment."

The Bond Buyer reports that Thomson Financial's Municipal Market Data (MMD) has "created a new variable-rate demand obligation average yesterday that will exclude all floating-rate paper insured by a monoline insurer". Turmoil in the municipal markets continues, as money funds renegotiate or liquidate some tender-option bond positions.

"AIG Bails Out $2.2 Billion Nightingale Finance SIV" writes Bloomberg. The story says, "AIG follows Citigroup Inc. and HSBC Holdings Plc in financing their SIVs after the collapse of the U.S. subprime mortgage market caused prices of their assets to decline and triggered concern that fire sales would further roil credit markets. SIVs ... use short-term borrowing to invest in higher-yielding securities." Also, see Bloomberg's "Money-Market Rates in Dollars Plummet Most Since 2001".

WSJ's "Market Drop, Fed Cut Create Opportunities For Cherry Pickers", says, "Money-market mutual funds, whose yields are currently averaging 4.32% for the 100 largest funds, are likely to fall to about 3.5% in about a month, says Peter Crane of Crane Data LLC. "If we get another cut, we may be on our way to 3%," he says. Also, USA Today's "Rate cut should help borrowers, ease credit tightness", says, "Expect money market mutual fund yields to fall three-quarters of a percentage point, to about 3.25%, within the next 30 days, says Peter Crane, president of Crane Data in Westboro, Mass. Money fund yields typically track the fed funds rate." Finally, Newsday's "Fed cut will help some, hurt some" quotes Pete Crane, "The Fed cuts are good news for everyone but savers."

CBS News' Early Show writes "$afer Havens When Stocks Slide". The article says, "Some folks who have strayed from the typical money market fund to other so-called 'safe investments' as they searched for higher yields have been burned." It adds [erroneously], "Some money market funds have been reported to have closed due to a high volume of investor outflows, which makes it difficult for the funds' managers to sell the underlying investments for full value." The piece also discusses auction rate securities, certificates of deposit, and Treasury bills and TIPS.

Bond Buyer writes "Fitch Downgrades Ambac to AA". The article quotes one [unidentified] analyst, "The floating rate market is having a full blown meltdown right now. There is over $200 billion floating rate, puttable bonds that are insured by companies other than FSA and the money funds are dumping them off." We've heard a different tale from funds though, who say there is no wholesale put-back and that many funds are renegotiating TOB terms.

The American Securitization Forum finally released the full agenda for its upcoming ASF2008 conference Feb. 3-6 in Las Vegas. The event is the biggest ABCP and ABS conference in the world, and attracts hordes of money fund analysts and portfolio managers. Topics of interest to "cash" include: "ABCs of ABCP" by James Ahearn of Societe Generale, "ABCP Market Developments", "ABCP Investors' Perspective" (with Trisha Ostergard from Morgan Stanley, Natalie Metz from Federated, Chris Parrish from Columbia, Matt Grimes from Wells, and Craig Jacobson from Janus), "ABCP Issuers' Perspective", and "SIVs, Market Value and Alternative Liquidity" (with Alex Roever from JPMorgan Securities, Peter Rizzo from S&P, and Linda Klingman from Schwab).

"SEC Requests Money-Market Data" says Wall Street Journal. As we reported yesterday and BoardIQ.com reported Monday, the SEC is looking into money fund issues. WSJ says, "The SEC says it is seeking to better understand how fund advisors are responding to current conditions in the credit markets, and how funds have complied with Rule 2a-7.... In particular, the SEC says it is focused on asset holdings, valuation and board oversight."

Reuters writes "US taxable money market fund assets rise to record". Citing iMoneyNet's Money Fund Report, the article says money fund assets rose by $16 billion to $3.163 trillion. "The [MFR] average yield for taxable money funds fell 3 basis points to 3.96 percent, while tax-free yields fell 11 basis points to 2.58 percent," says Reuters.

"Banks Offer Bonuses to Lure Deposits to Savings Accounts" says WSJ. The article cites Wachovia, Washington Mutual, and Bank of America as examples of banks offering special deals to encourage customers to increase deposits to their accounts. The programs, including Wachovia's Way2Save, and Bank of America's Keep the Change, also encourage the use of debit cards.

"Legg Mason Net Falls on Fund Costs; KKR Buys Notes" writes Bloomberg. Legg Mason's earnings fall on "costs to protect its money funds from losses linked to subprime mortgages". Legg owns Western Asset, manager of the Citi money funds. Also, see WSJ article. In other earnings news, "U.S. Bancorp Q4 profit falls 21 percent", says the company was hurt by a "loss tied to financial market liquidity problems that led the bank to repurchase asset-backed commercial paper held in money market mutual funds run by its FAF Advisors unit".

The SEC's Division of Investment Management Staff No-Action and Interpretive Letters contains details on several recent protective actions by advisors, including those involving TDAM Money Market Portfolio, SEI Liquid Asset Trust Prime Obligation Fund, SEI Daily Income Trust Money Market Fund, SEI Daily Income Trust Prime Obligation Fund, and STI Classic Funds. Most of these letters seek exemptions from Section 17(a) of the Investment Company Act of 1940, requesting permission to conduct affiliated transactions between an advisor and a fund.

"eSecLending Selects EquiLend for Securities Lending Operational System Interface". Money funds have seen a huge increase in securities lending assets (see MFI's December issue). eSecLending is "a leading global provider and administrator of customized securities lending programs.... Their program has been adopted by some of the world's largest and most sophisticated asset gatherers including pension funds, mutual funds, investment managers and insurance companies."

Wall Street Journal says "Fitch Ratings Sees Little Threat To States From Risky Investments". As other ratings agencies have also pointed out, it appears that the Florida Board of Administration's Government Investment Pool troubles and run on assets were an anomaly, and that LGIPs overall have limited SIV exposure and no real troubles. Fitch told the Journal that its research, "[S]uggests that exposure to risky investments is relatively confined. Most states have investment statutes or policies in place preventing investment in riskier instruments, and the vast majority of states have not invested in such instruments." The Fitch release may be seen here.

"Scouring For Subprime In Client Holdings" on CNNMoney (via Dow Jones). The article illustrates some misinformation floating about among advisors. It adds, "In the historically rare event that a money fund's net asset value drops below $1, bailouts from the fund sponsor are typical, but not guaranteed. Clients could fume if a fund company ever declines to rescue a stumbling money market fund."

Kiplinger's features "Money Funds: Still Safe After All These Years". The subtitle says, "Barring unimaginable financial catastrophe, you can count on sponsors riding to the rescue". Joan Goldwasser writes, "Every few years, it seems, a new financial crisis threatens the money-market-fund industry's nearly perfect record for stability.... [But] with more than $3 trillion in assets in money funds, sponsors will do what it takes to dodge a black eye. To avoid 'breaking the buck,' sponsors may have to absorb losses of up to $150 million, less than half of one day's interest income from all of the nation's money funds."

MarketWatch.com writes "Cash is king: Wealthy investors turn to money-market funds as they eye market gyrations". The article says, "Despite subprime woes and credit-crunch complications, money-market mutual-fund assets have increased.... Money-market funds invest in high-quality, short-term securities that present minimal risk. These funds are regulated by the Securities and Exchange Commission, which sets strict requirements by limiting the fund's exposure to interest-rate and credit risk."

"Janus, Reserve, Russell Rank as Top Money Funds" says ignites.com. Citing preliminary Crane Data rankings, the article contains a table of the No. 1 ranked money funds for 2007 in six different categories. Janus Institutional Cash Management, Reserve Primary Institutional and Russell Money Market Fund S all "tied for the top spot with a return of 5.37%. Close behind were Oppenheimer Institutional MM E and Putnam Prime Money Market at 5.36%. Monarch Daily Assets Government Pref and Morgan Stanley Inst Liq Govt Inst, "which yielded 5.17%, were first among government money funds," says ignites. Fidelity Select MMF and Vanguard Prime MMF tied for the No. 1 Prime Individual spot with a return of 5.14%, and Vanguard Federal MMF's 5.07% ranked first among Govt Individual money funds. Full 2007 rankings will be available tomorrow in Money Fund Intelligence and MFI XLS.

"Don't be a sitting duck or the bear will eat you" says Bill Donoghue on MarketWatch.com. The original money market mutual fund guru, who is quite bearish, writes, "Also, keep more cash in liquid money-market mutual funds. Money-fund managers have demonstrated that they will take decisive action to protect their shareholders; ironically uninsured depositors at banks have lost money. Be sure your money fund is a real SEC-regulated money fund and not a savings account that is 'just like a money fund.'"

Boston.com writes (via Bloomberg) "Money-market funds rose 33% as Fed lowered borrowing costs". Citing iMoneyNet data, the article says, "Total assets of US money-market mutual funds rose 32.9 percent last year, the fastest annual growth since at least 1975, as investors sought higher returns after the Federal Reserve lowered overnight borrowing costs".

Bloomberg writes "Toronto Dominion Can Bolster a Money-Market Fund, SEC Says". TD Asset Management apparently has "received regulators' approval to buy $300 million in mortgage-linked securities out of one its money-market funds", reports Jesse Westbrook. The advisor received a "no-action" letter from the SEC on Dec. 21 to purchase "trust certificates, issued by Corsair Trust I-1020" says the article. It adds, "Corsair is a limited-purpose finance company, similar to a structured investment vehicle, TDAM spokeswoman Lisa Hodgins said. The trust certificates, which included a credit-default swap, were a 'non-material holding' for the TDAM Money Market Portfolio."

Union Bank of California's Highmark Funds has updated and upgraded its website at http://www.highmarkfunds.com. The new site has "modernized the look, feel and navigation of the site" and also simplied information gathering. Highmark manages 12 money funds with $5.4 billion in assets, including HighMark Diversified MMF, HighMark 100% US Treasury MMF, HighMark US Govt MMF, and HighMark CA Tax-Free MMF, all with Fiduciary, Retail and Sweep classes (biggest class is linked above).

Bloomberg says "Asset-Backed Paper Grows for First Time Since August". While the overall commercial paper outstanding jump -- CP overall grew by $13.2 billion to $1.799 trillion -- was somewhat seasonally adjusted (see Fed numbers), the rebound in asset-backed CP was indisputable. ABCP grew by $26.3 billion to $774 billion, the first signs of a reversal in a 5-month slide. The Bloomberg article cites a UBS report, "Banks have taken $278 billion of SIV assets onto their books.... SIVs will likely be forced to retire another $125 billion of medium-term notes with maturities up to 18 months and $50 billion of asset-backed commercial paper."

WSJ features "Quiz: How Well Do You Know ... Fund-World History?" Question 6 asks, "Which of the following wasn't a Fidelity innovation?" A. The industry's first money-market mutual fund; B. Check writing as a money-market-fund feature; C. Direct sales to individual investors through a toll-free telephone line; or, D. Computerized telephone system to provide price and yield quotes around the clock. The answer is A. WSJ says, "New York-based Reserve Funds and some other rivals already were offering the first money-market mutual funds when Fidelity in 1974 introduced Fidelity Daily Income Trust.

The Wall Street Journal writes about ETFs today and mentions the about-to-be-launched Bear Stearns Current Yield Fund, an "enhanced cash ETF". The fund, symbol YYY, "is among the closest to the finish line", says WSJ, and has amended its SEC application recently. The ETF "would be an enhanced cash fund, which typically seeks more yield than typical money-market funds and would focus on areas like mortgage-backed and asset-backed securities, as well as municipal and corporate debt," says the Journal. See too Crane Data's previous story on "Cash ETFs".

Investment Blog Finaxyz responds to an MSN article by Jon Markman claiming money funds aren't safe. The original piece is "Your 'safe' money isn't so safe" on MSN Money. The blog's Jack Krupansky writes, "To be crystal clear, no retail money market fund is as Markman insists 'thinly veiled bets on the deteriorating mortgage market.' Not even close." Markman also makes the mistake of confusing brokerage sweep accounts, most of which are banks, with money market funds.