Daily Links Archives: March, 2010

A press release posted yesterday entitled, "BNY Mellon Asset Servicing and Investor Analytics to Provide Money Market Stress Test Service for Reich & Tang Asset Management," says, BNY Mellon Asset Servicing and Investor Analytics "have been selected by Reich & Tang Asset Management, LLC to provide money market stress tests that will model the impact of interest-rate shocks, credit risk shocks and liquidity risk shocks on their funds." This service "will help money market funds comply with Rule 2a-7 issued by the U.S. Securities and Exchange Commission (SEC). The rule, which becomes effective May 5, 2010, requires money market funds to examine combinations of potential stresses." Joseph Jerkovich, senior V.P. and CFO of Reich & Tang Asset Management comments, "Our selection of BNY Mellon Asset Servicing was based on its ability to provide an objective, end-to-end solution that will facilitate both Reich & Tang and our fund directors in meeting their obligations under the new SEC and rating agency requirements. The strength of our 10-year relationship with BNY Mellon, the expertise of the Investor Analytics team, and the robustness of their product offering demonstrate that they really understand our business and are offering a solution that is optimized for money market funds, not adapted from longer-duration or equity strategies." The release adds, "The tests will examine changes in fund NAV resulting from: Parallel and non-linear shifts in yield curves; Changes in credit spreads; Increasing redemption requests; and, Combinations of the three above."

The Securities & Exchange Commission sent out and posted a document entitled, "Sample Letter Sent to Public Companies Asking for Information Related to Repurchase Agreements, Securities Lending Transactions, or Other Transactions Involving the Transfer of Financial Assets" yesterday. It says, "In March 2010, the Division of Corporation Finance sent the following illustrative letter to certain public companies requesting information about repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets." It says, "With regard to your repurchase agreements, please tell us whether you account for any of those agreements as sales for accounting purposes in your financial statements. If you do, we ask that you: Quantify the amount of repurchase agreements qualifying for sales accounting at each quarterly balance sheet date for each of the past three years. Quantify the average quarterly balance of repurchase agreements qualifying for sales accounting for each of the past three years. Describe all the differences in transaction terms that result in certain of your repurchase agreements qualifying as sales versus collateralized financings. Provide a detailed analysis supporting your use of sales accounting for your repurchase agreements...."

DepositAccounts.com (formerly BankDeals) writes "The Best Bank Ratings Services and Why You Should Care about the Financial Health of Your Bank". The blog says, "If you keep under the standard deposit insurance limit, you should not have to worry about losing your money if your federally insured bank or credit union fails. So why should depositors who keep under this limit care about the financial health of their banks? There are in fact several reasons." The piece says, "If a bank fails and the FDIC can't find a buyer, it'll send depositors checks for the insured principal and accrued interest. This takes at least a week.... If you have a checking account at a failed bank and there are no acquirers, and the FDIC does a pay-out of your insured deposit balance, your outstanding checks to vendors will all be returned.... Brokered CDs of a failed bank can take three or more weeks before funds reach your brokerage account.... When a bank fails, it's common that existing CDs will either be closed or the rate will be lowered.... FDIC now has rate caps for less than well capitalized banks." See also, Bond Buyer's "New VRDO Provisions Raise Concern".

ICI's weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $4.24 billion to $3.013 trillion for the week ended Wednesday, March 24.... Taxable government funds decreased by $9.51 billion, taxable non-government funds increased by $8.38 billion, and tax-exempt funds decreased by $3.11 billion. Assets of retail money market funds decreased by $4.57 billion to $1.023 trillion. Taxable government money market fund assets in the retail category decreased by $750 million to $159.05 billion, taxable non-government money market fund assets decreased by $2.24 billion to $641.58 billion, and tax-exempt fund assets decreased by $1.58 billion to $222.57 billion. Assets of institutional money market funds increased by $330 million to $1.990 trillion. Among institutional funds, taxable government money market fund assets decreased by $8.76 billion to $739.67 billion, taxable non-government money market fund assets increased by $10.62 billion to $1.106 trillion, and tax-exempt fund assets decreased by $1.53 billion to $144.42 billion." See also, Money Management Executive's "ICI Floats Idea of Money Fund Liquidity Facility".

The FT writes "Carry traders feel effect of rising US short-term rates". The article says, "The US Federal Reserve keeps saying rates will remain low for an extended period, but it is a message the money market is not buying. Short-term US rates have been edging higher amid volatile swings in recent weeks, and they have room to rise further, say analysts. That increases the cost for investors and institutions implementing carry trades, whereby the purchase of higher-yielding assets is financed by short-term borrowing.... The rise in general collateral, used in the repurchase or repo market for Treasury debt, has been accompanied by higher rates for other key short-term rates, such as three-month Libor, commercial paper, Treasury bills and notably, the effective Fed funds rate." The FT quotes Nomura's George Goncalves, "We now have some friction in the funding markets and Fed funds competes with repo, so it is being dragged higher." The piece adds, "The rise in short-term rates began when the US Treasury resumed selling short-term bills in February, and the issuance of up to $200bn of Supplementary Financing Bills, has created a bout of indigestion for the repo market. Also weighing on funding rates, has been an uptick in the sale of discount notes by the US housing enterprises, Fannie Mae and Freddie Mac. Meanwhile, traders are focused on the Fed increasing its other main short term interest rate, the discount rate." FT quotes Chris Ahrens from UBS, "The Fed effective rate, as well as three-month Libor, appear to be becoming more responsive to the potential for an upside move in rates."

"Schwab Seeks to Fend Off SEC Lawsuit Over YieldPlus" writes Bloomberg. It says, "Charles Schwab Corp. says it shouldn't be sued by U.S. securities regulators for switching half of the assets in its YieldPlus mutual fund into mortgage-backed securities without gaining shareholder approval. Schwab ... tried to dissuade the Securities and Exchange Commission from bringing a variety of claims over YieldPlus, once the world's largest short-term bond fund, according to excerpts of the firm's communications with the agency filed in federal court in San Francisco. Schwab is already fighting an investor suit over the fund, which lost 35 percent before dividends in 2008 amid the collapse of the housing market." The piece adds, "YieldPlus peaked at $13.5 billion in assets in 2007, and had $184 million as of Feb. 28, Bloomberg data show. The fund fell because of redemptions amid the credit crisis. From 2006 to 2008, the fund's investments in mortgage-backed securities backed by home loans not guaranteed by the government grew to 50.1 percent, according to shareholder lawsuits."

Yesterday's ignites.com News mentioned a release entitled, "Morningstar, Inc. to Acquire Realpoint, LLC, Nationally Recognized Statistical Ratings Organization," which says, "Morningstar, Inc., a leading provider of independent investment research, has entered into a definitive agreement to acquire Realpoint, LLC, a Nationally Recognized Statistical Ratings Organization (NRSRO) that specializes in structured finance." While this move is seemingly only of peripheral interest to money market investors currently, Realpoint was the "10th bond-rating firm recognized by the SEC as an NRSRO and the only rating agency specializing in the structured-finance sector that uses a subscription-based investor model as opposed to the traditional issuer-paid model" according to a June 2008 release. Given the SEC's new "Money Market Fund Reform" mandate for funds to choose 4 NRSROs to monitor (by Dec. 31), interest is growing in the 7 available designates beyond the "Big 3" (S&P, Moody's and Fitch). Other NRSROs include: A.M. Best Company, DBRS, Japan Credit Rating Agency Ltd., R&I, Egan-Jones, LACE Financial, and Realpoint. (Look for a review of who among these 7 has experience in the money market and commercial paper ratings space in coming weeks.)

U.S. News & World Report writes "Understanding the Ongoing Money Market Crisis", which says, "Turned away by dismal yields, investors are continuing their mass exodus from money market funds. And as a result of a prolonged period of outflows, the money market industry's assets have potentially dipped below $3 trillion for the first time since 2007.... With yields hovering dangerously close to zero, fund providers have been forced to waive management fees to keep even more investors from fleeing. In 2009, for instance, upwards of 95 percent of retail money market funds set aside at least some of their fees, according to the money market research firm iMoneyNet. But even that hasn't been enough to slow outflows, which amounted to $74 billion in the week that ended Wednesday, according to the Investment Company Institute (ICI). According to ICI, that leaves money market funds with $3.02 trillion in assets under management as of Wednesday. IMoneyNet, meanwhile, puts their total assets at $2.99 trillion as of Tuesday." The piece adds, "Peter Crane, the president and chief executive of the money market tracking firm Crane Data, estimates that as recently as a year ago, providers could expect their annual fees to generate $13 billion per year. In the current environment, that number is around $8 billion. Outflows, as opposed to fee waivers, account for the bulk of the reduction, according to Crane. 'Fee waivers hurt, but not as badly as losing assets,' he says. Still, there have been some indications that the situation could turn around in the coming months. For starters, yields are, at least by certain measures, ever so slightly rebounding. According to Crane, for example, the yields of the 100 largest money market funds have crept up to 0.05 percent recently." In other news, see MutualFundWire's "Shapiro Plans to Boost Money Fund Oversight and Mutual Fund Exams" and The Seattle Times' "Money funds fall below $3 trillion for first time in 2 years", which quotes "Institutional investors may purchase Treasurys directly, rather than through money-market funds, when rates rise because the impact on fund yields is delayed by existing, lower-yielding holdings, said Peter Crane, president of fund-tracking Crane Data."

The weekly "ICI Reports Money Market Mutual Fund Assets" release says, "Total money market mutual fund assets decreased by $73.71 billion to $3.017 trillion for the week ended Wednesday, March 17, the Investment Company Institute reported today. Taxable government funds decreased by $26.25 billion, taxable non-government funds decreased by $44.19 billion, and tax-exempt funds decreased by $3.28 billion." It was the largest single week decrease since the week ended Sept. 17, 2008, when assets declined by $121.3 billion during the week Reserve Primary Fund broke the buck. Assets are at their lowest point since the week ended November 7, 2007. Outflows were driven by rising repo rates, quarterly tax payments and the continued shift into higher-yielding assets. Year-to-date, money fund assets have declined by $276 billion, or 8.4%. Institutional assets have declined by $236 billion, or 10.6%, YTD, while Retail assets have declined by just $40 billion, or 3.8%. Over the past 52 weeks, money fund assets have declined by $847 billion, or 21.7%. Retail assets have declined by $334 billion, or 24.5%, and Institutional assets have declined by $513 billion, or 20.2%.

SmartMoney writes "Extreme Makeover: Money Markets" which says, "Money-market funds were a hot topic at the Mutual Funds and Investment Management conference in Phoenix this week. SmartMoney sat down with Paul Stevens, president and chief executive of the Investment Company Institute, a mutual fund industry trade group, to talk about what options there are for modifying one of the most commonly held forms of mutual fund, including his group's position: creating a pool of cash, funded by the money-market industry, as a backstop for the funds." SmartMoney asks, "The Investment Company Institute created a working group during the financial crisis to look at ways to strengthen money-market funds. Why did you feel this was necessary?" Stevens says, "Money-market funds account for more than one-quarter of the assets in mutual funds now, so it is a huge segment of our business. More importantly, they were the part of the business that was hit in the fall of 2008, and they've been the focus of a great deal of regulatory attention. The Securities and Exchange Commission, the Federal Reserve and the Treasury Department are all continuing to mull over what steps to take to make sure that money-market funds will be safe in tough market conditions." The piece also says, "One idea that the SEC has suggested is allowing money-market funds to have variable share prices, just like other mutual funds. They would no longer have the share price of $1. In that case, how would money-market funds be different from short-term bond funds?" Stevens answers, "They wouldn't be." SmartMoney continues, "Why does the Investment Company Institute oppose this idea?" Stevens responds, "If net asset values were allowed to fluctuate, individual investors would be deprived of what has become a vitally important vehicle for managing their cash. These funds had their inception in the 1970s. At that time, individual investors didn't have access to high-yielding money markets. All they had was demand deposit accounts. That may not seem like an important distinction now, because yields are so low. But as interest rates move up -- and clearly they will, particularly if we get into an inflationary environment -- then it would be a real loss if investors were unable to buy money-market funds." See also, LA Times' "Money market mutual fund assets fall below $3 trillion".

MarketWatch writes "Money-market funds may reclaim waived fees". The story says, "With interest rates at historic lows, the money-market mutual fund industry has lost hundreds of millions of dollars in waived fees. But some of these funds are likely to want that money back. Many money-market funds have been waiving almost all fees since late 2008 because interest rates, and thus the funds' yields, have been so low that fee charges would have caused losses for shareholders.... But investors might not realize that the funds can raise their fees to reclaim lost revenues. And because of language inserted into fund documents, investors wouldn't receive notification of any attempts to recoup waived fees." The article continues, "Charles Schwab Corp. for instance, said because of fee waivers it lost about $224 million of income in calendar year 2009, and the firm estimates lost income in the first quarter of 2010 of about $125 million. Bank of New York Mellon Corp. is on track this fiscal year to lose more than $190 million in income, while Federated Investors Inc. could suffer lost income of nearly $45 million, according to estimates by analyst Rob Lee of Keefe Bruyette & Woods. Once rates rise, most firms will take steps to claw back these waived fees, Lee predicted." Lee wrote in a research note, "Our analysis suggests that virtually all the asset managers are poised to recapture most, if not all, of their money fund fee waivers following an increase in short-term rates, even if they suffer some incremental outflows." See also, The Arizona Republic's "Possible change to funds stirs worries".

Clearwater Analytics will host a webinar entitled, "Money Fund Reform: How Will the New Regulatory Requirements Impact Investors?" on March 25 at 2pm. The intro says, "For months leading up to the official SEC release of the new money fund regulations, many proponents and critics alike took positions on the matter of reform. In the wake of this torrent of information and with the final regulations in hand, investors are still left wondering how this new regulation affects them.... Matt Clay, Clearwater Analytics Head of Commingled Fund Solutions, will moderate the March 25th panel of leading money fund industry experts who will share their thoughts and insights on how the recent rule changes will affect portfolio risk, liquidity, and transparency." Panelists will include: the Investment Company Institute's Sean Collins, Reed Smith's Stephen Keen, and S&P's Ruth Shaw. Note also that ICI's Brian Reid is hosting a panel at the Mutual Funds Investment Management Conference this morning in Phoenix featuring Invesco Laurie Brignac, Crane Data's Peter Crane, Reed Smith's Stephen Keen, and the U.S. Securities and Exchange Commission's Robert Plaze. (Look for highlights in tomorrow's "News".)

The Wall Street Journal writes "Repos Played a Key Role in Lehman's Demise". The article says, "Six weeks before it went bankrupt, Lehman Brothers Holdings Inc. was effectively out of securities that could be used as collateral to back the short-term loans it needed to survive. The bank's subsequent scramble to stay alive exposed the murky but crucial role that short-term lending, done in a corner of Wall Street known as the repo market, plays in the financial world." It continues, "The battles Lehman had show that the repo market, which is the lifeblood of Wall Street, often isn't as simple and routine as some investors believe. The basic mechanics involve firms raising cash to fund their operations by posting high-quality assets, with a simultaneous obligation to repurchase them within days.... [F]actors combined with collapsing market conditions put repo agreements into a tailspin." The Journal quotes Stephen Lubben, a professor at Seton Hall, "The basic problem is that the investment banks have become highly dependent on the repo markets for their funding ... but they were using a whole bunch of nontraditional securities for those repo agreements." It adds, "The rare look into the repo market embedded in the report comes 18 months after Lehman Brothers collapsed in the U.S.'s largest bankruptcy filing."

ICI's latest weekly "Money Market Mutual Fund Assets shows assets falling below the $3.1 trillion level for the first time since November 2007. Yesterday afternoon's release said, "Total money market mutual fund assets decreased by $36.22 billion to $3.090 trillion for the week ended Wednesday, March 10, the Investment Company Institute reported today. Taxable government funds decreased by $18.82 billion, taxable non-government funds decreased by $12.35 billion, and tax-exempt funds decreased by $5.05 billion." Year-to-date, money fund assets have declined by $203 billion, or 6.2%, with institutional assets falling $169 billion, or 7.6%, and retail assets falling $34 billion, or 3.2%. Over 52 weeks, money fund assets have fallen a startling $816 billion, or 20.9%. (Institutional assets have fallen $485 billion, or 19.1%, and retail assets have fallen $331 billion, or 24.3%.) In other news, see "FDIC Board Approves An Extension Regarding the Safe Harbor Protection for Securitizations", which says, "The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved by notational vote an extension through September 30, 2010 of the Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation." (The ASF send out a release too.) Finally, see The Wall Street Journal's "Reserve Management Demands Trial in Fraud Case".

A press release posted on Nasdaq.com says, "Fitch Ratings has released a primer for investors on European Money Market Funds (MMFs) which provides clear and key insights into the EUR1.3trn sector, as well as explaining how different funds operate and the risks they present among other factors. The primer, which is presented in an easy-to-navigate question and answer format, aims to answer investors' questions about money market funds, such as who bears the risks, the differences between MMFs and other cash instruments, and which risks are embedded in such funds among other pointers. In addition, Fitch provides additional information explaining how the agency rates money market funds, and on its new MMF rating scale introduced in October 2009." Aymeric Poizot, head of Fitch Ratings EMEA Fund and Asset Manager Ratings group says, "Fitch provides MMF ratings to help investors compare between funds and distinguish between true/traditional money market funds and so-called liquidity plus or enhanced cash funds whose risk profiles may be more akin to short-term bond funds.

The more printer-friendly (62-pages) Federal Register version of the SEC's Money Market Fund Reforms was recently posted on the SEC's Final Rules web page. Also, the New York Federal Reserve, which yesterday issued its "Statement Regarding Counterparties for Reverse Repurchase Agreements," added a clarifying document, "RRP Eligibility Criteria for Money Funds: Frequently Asked Questions." A couple of the Q&A's include: "Does the $20 billion net assets requirement apply to the money fund or the fund family? The net asset requirement applies to the RRP counterparty applicant, which is the money market fund itself. As stated in the RRP Eligibility Criteria for Money Funds, to be accepted as a RRP counterparty, an applicant must, among other things, be a money market fund that satisfies the description set forth in Section I(A) and have net assets of no less than $20 billion for six consecutive months (measured at each month-end) prior to the submission of the application.... Will a seven-day put option be provided to money market funds who become RRP counterparties? Yes. As stated in footnote 4 in the RRP Eligibility Criteria for Money Funds, it is contemplated that for RRP with terms exceeding seven days, the RRP counterparty will be permitted to resell the securities to the New York Fed upon seven days prior notice. The specifics of this option will be provided in the New York Fed's Master Repurchase Agreement for money market funds, which the New York Fed expects to publish in about a month."

The Wall Street Journal writes "Money Funds Welcome Repo Shift". It says, "The New York Federal Reserve has at least three -- and probably many more --willing potential partners as it plans to expand the tools used to control liquidity in financial markets. Vanguard Group, Fidelity Investments and Federated Investors on Monday welcomed the New York Fed's announcement that it will expand the counterparties, starting with money funds, with which it conducts reverse-repurchase agreements." The Journal quotes Vanguard Group's David Glocke, "We would enthusiastically want to take a look at these transactions for our portfolios. It's a great alternative to other transactions that we already do." The piece continues, "Money-market funds applying to act as counterparties must have net assets of no less than $20 billion for six consecutive months, have been in existence for at least one year and be a consistent investor in the tri-party repo markets, according to the New York Fed's eligibility criteria.... Others in the $3.1 trillion money-fund industry are likely to be cheered by the prospect of deals with a party as trusted as the Fed. The supply of safe assets in which money-market funds can invest has dwindled during the financial downturn, and plans for tighter rules on just how money-market funds can invest are likely to make liquid assets even more scarce. Access to the 'reverse repos' will actually help money funds comply with the new Securities and Exchange Commission rules, said Peter Crane, president of Crane Data LLC, 'As those go into effect, there's going to be even more of a thirst for liquidity.'" See also, New York Daily News' "Government to institute new standards that may make money-market funds safer for investors".

"Island Intellectual Property Awarded Additional Patents for FDIC Cash Sweep Technology" says a release posted on DoubleRock's website. It says, "Island Intellectual Property LLC, which owns and manages the intellectual property for Double Rock Corporation, its subsidiaries, and affiliates, is pleased to announce that on March 2, 2010, the U.S. Patent and Trademark Office issued three additional patents relating to its FDIC cash sweep technology.... Adding to its already impressive patent portfolio, Island IP has been awarded five (5) patents thus far in 2010 relating to its innovative expanded FDIC cash sweep programs. The patents awarded on March 2nd apply to FDIC sweep products offered in the broker-dealer, banking and retail markets." A Feb. 23 release, entitled, "Island Intellectual Property Awarded Additional Patents for Innovative FDIC Sweep Technology," said, "Island IP and Intrasweep LLC filed a federal lawsuit on February 23, 2010, in the U.S. District Court for the Southern District of New York, seeking to enforce the ... Patents -- Docket No. 10-cv-1518, ISLAND INTELLECTUAL PROPERTY LLC and INTRASWEEP LLC v. DEUTSCHE BANK TRUST COMPANY AMERICAS, and TOTAL BANK SOLUTIONS, LLC." DoubleRock's patents, listed here, include: U.S. Patent No. 7,672,886, "Systems and Methods for Managing Client Accounts," U.S. Patent No. 7,672,901, "System and Method for Holdback Procedure for After-Hours Transactions," U.S. Patent No. 7,672,902, "System and Method for Pre-Funding Interest for Early Termination of Client Account Having Funding In One or More Aggregated Account," U.S. Patent No. 7,668,771, "System and Method for Allocation to Obtain Zero Activity in a Selected Aggregated Account," U.S. Patent No. 7,668,772, "Systems and Methods for Money Fund Banking With Flexible Interest Allocation," U.S. Patent No. 7,509,286, "Systems and Methods for Money Fund Banking with Flexible Interest Allocation," U.S. Patent No. 7,519,551, "Systems and Methods for Administering Return Sweep Accounts," U.S. Patent No. 7,536,350, entitled "Systems and Methods for Providing Enhanced Account Management Services for Multiple Banks."

Barron's writes on "Money-market reform" in this week's "Fund of Information" column. It says, "The Securities & Exchange Commission recently issued a 220-page report on money-market reform rules slated to take effect beginning in May.... The rules were in response to the $63 billion Reserve Primary Fund fiasco in late '08, when its net asset value "broke the buck," or fell below $1 a share.... A general panic by investors ensued, as they sought billions of dollars in redemptions. Under the new rules, money-market funds will still only be 'as good as cash' until they aren't. On May 28, funds' boards of directors will be authorized to bar investors from redeeming their shares when the NAV falls below $1 and it decides to liquidate. That's new. Also on that date, money-market funds must be at least 10% liquid within one day and 30% within one week. The new maximum weighted average life, or duration, is 60 days, down from 90. There were no liquidity requirements previously." Finally, Barron's adds sarcastically, "So, if you're looking for yields of 0.02%, enjoy."

ICI's weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $39.70 billion to $3.126 trillion for the week ended Wednesday, March 3. Taxable government funds decreased by $17.94 billion, taxable non-government funds decreased by $21.07 billion, and tax-exempt funds decreased by $690 million." It adds, "Assets of retail money market funds decreased by $6.04 billion to $1.043 trillion.... Assets of institutional money market funds decreased by $33.66 billion to $2.083 trillion. Among institutional funds, taxable government money market fund assets decreased by $16.44 billion to $790.31 billion, taxable non-government money market fund assets decreased by $16.86 billion to $1.141 trillion, and tax-exempt fund assets decreased by $350 million to $151.51 billion." Year-to-date, money fund assets have declined by $167 billion, or 5.1%. Institutional money fund assets have declined by $142 billion, or 6.4%, while retail money fund assets have declined by $24 billion, or 2.3%. Over 52 weeks, money fund assets have declined by $78 billion, or 20%.

While the Federal Register version of the Securities & Exchange Commission's recent "Money Market Fund Reforms" has yet to be posted on the Commission's "Final Rules" website page, the SEC did just add a version entitled, "Rule 2a-7 Amendments Adopted by SEC in February 2010 Marked to Show Changes from Previous Rule 2a-7." The new 24-page "red-lined" version indicates changes from the original Rule 2a-7 core text, such as adding terms like "Daily Liquid Assets" (means cash, direct obligations of the U.S. Government, or securities that will mature or are subject to a demand feature that is excercisable and payable within one business day), designated NRSROs (any of at least four), and weekly liquid assets. See also, MarketWatch's "Fed's Hoenig wants rate hike sooner than later", which says, "The Federal Reserve should raise short-term interest rates 'sooner rather than later,' said Thomas Hoenig, the president of the Kansas City Federal Reserve bank. Rates 'could be higher, and the effects would be minor' on growth, Hoenig said in an interview with CNBC business cable television channel. Hoenig indicated he would keep up pressure on the central bank to soften its pledge to keep rates near-zero for an 'extended period.'"

Moody's says "Bond Fund Inflows Benefiting from Shift out of Money Market Funds" in its new "Bond Funds: 2009 Review and 2010 Outlook". The ratings agency says, "The bond fund industry suffered peak outflows in the final quarter of 2008 but started to regain momentum during the first half of 2009.... Moody's new "Bond Funds: 2009 Review and 2010 Outlook" report says that, as investor risk aversion has eased in recent months, the markets have again been supplied with liquidity and demand for bond funds has risen. As a result, investors have been shifting money out of money market funds into bond funds." Moody's also recently assigned a Aaa/MR1+ fund rating to HSBC Corporate Money Funds Ltd. -- Canadian Dollar Fund. In other news, money fund portal technology provider Cachematrix announced that "more than $3 trillion in institutional money market fund assets have been traded through its software and customized trading systems." Founder and CEO George Hagerman says, "We are in exciting times as more and more financial institutions look to restructure and modernize their investment operations. As institutions move to address these technology needs and subsequently recognize the revenue producing power money market portals are capable of providing we expect and look forward to continued growth."

Treasury & Risk writes "New Game of No TAG", which is subtitled, "As banks opt out of unlimited FDIC protection on corporate accounts, treasurers scramble to find safe havens for cash." The piece says, "Beginning in October 2008, the FDIC's transaction account guarantee, or TAG, program, insured the full amount in accounts, rather than just the $250,000 normally covered. Last year, TAG was extended through this June, but more than 3,100 banks have opted out, including Bank of America, Bank of New York Mellon, Citigroup, HSBC, JPMorgan Chase, PNC, SunTrust, USBank and Wells Fargo. Comerica and KeyBank had not opted out at press time." T&R quotes Dave Robertson, a partner at Treasury Strategies, "This is a huge issue for corporations. As most banks opt out, depositors go from full protection by the U.S. government to direct counterparty risk with their banks, very few of which are rated above A. That's quite a drop-off." The article also quotes Ben Campbell, CEO of Capital Advisors Group, "Unlimited FDIC insurance on corporate accounts had provided cash managers with a worry-free vehicle. Now that it's going away, we've had inquiries about the alternatives. I've talked with treasurers who had billions of dollars in FDIC-insured accounts." In other news, see the press release "Confluence Experts Available to Comment on Money Market Fund Reform's Impact on Fund Administration and Holdings Reporting".

Sunday's Financial Times writes "Money funds remain key despite the exodus". The article says, "As investor confidence came back in the spring of 2009, money market funds posted enormous outflows. It was not as devastating for the industry as it could have been because the previous year and even 2007 saw huge inflows courtesy of the worst financial crisis in decades. Yet stubbornly low yields and a less frightening stock market have resulted in a continued investor exodus from money markets. In spite of the outflows, money market funds remain important to investors, particularly institutions that have set allocations to cash and liabilities that need to be paid promptly.... The outflows themselves have come primarily from American retail investors, while institutions, especially those in Europe, have largely maintained their cash holdings." It quotes JPMorgan's Kathleen Hughes, "Investors with high allocations to cash, such as hedge funds, retail investors and private groups, have rotated into risk. However, the true institutional investor doesn't have a lot of options. They have to hold cash." FT also quotes State Street Global Advisors' Steve Meier, "We've all learned painful lessons. There's no free lunch out there. When liquidity dries up, it dries up for everyone." See also, Palm Beach Daily News' "Bank deposit or money market fund? Investors' liquidity dilemma continues".