Daily Links Archives: April, 2015

The SEC released its latest "Money Market Fund Statistics" report, summarizes Form N-MFP info and includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends as of March 31, 2015. Overall, total money market fund assets stood at $3.009 trillion at the end of March, down $38.8 billion from February, according to the SEC's broad total (which includes private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $3.009 trillion, $1.746 trillion was in Prime funds (down $34.1B from last month), $996.2 billion was in Government/Treasury funds (down $3.6B), and $266.9 billion was in Tax-Exempt funds (down $1.3B). In March, the number of funds dropped by 1 to 542. Total assets were down $71.3 billion YTD through 3/31. Looking at other statistics, the Weighted Average Gross 7-Day Yield for Prime Funds was 0.21% on March 31 (unchanged), 0.10% for Government/Treasury funds (up from 0.08%), and 0.06% for Tax-Exempt funds (unchanged). The Weighted Average Net Prime Yield was 0.06% (same as last month), while the Weighted Average Prime Expense Ratio was 0.16% (up from 0.15%). The Weighted Average Life, or WAL was 77.5 days (same as last month) for Prime Funds, 81.9 days (up from 80.1 days) for Government/Treasury funds, and for 32.1 days (down from 32.2 days) for Tax-Exempt funds. The Weighted Average Maturity, or WAM, was 41.6 days (down from 43.4 days) for Prime funds, 44.2 days (up from 42.9 days) for Govt/Treasury funds, and 30.6 days (down from 30.9 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 25.1% in March -- down from 26.0% last month, while Total Weekly Liquidity was 38.8%-- down from 39.9% last month. In the category Prime MMF Holdings of Bank Related Securities by Country, Canada topped the list with $210.4 billion, followed by the US at $192.4 billion. Japan moved to third with $179.6 billion, jumping ahead of France at $122.6B. Rounding out the top 10 were Australia/New Zealand ($97.1B), Sweden ($84.4B), U.K. ($67.9B), The Netherlands ($63.3B), Switzerland ($51.4B), and Germany ($51.1B). The biggest gainers for the month were Canada (up $3.9B), Germany (up $2.3B), and Switzerland (up $235M). The biggest drops came from France (down $61.5B), UK (down $35.9 billion), and Sweden (down $30.3 billion). For Prime MMF Holdings of Bank-Related Securities by Region, Europe had $468.0 billion (down from $626.6B last month) while its subset, the Eurozone, had $248.7 (down from $315.4B). The Americas was next with $405.4 billion (up from $404.7B), while Asia and Pacific had $302.0 (down from $312.2B). The Total Amortized Cost of Prime MMF Portfolios was $1.737 trillion as of March 31, 2015. That was made up of $566 billion in CDs, $496 billion in Government (including direct and repo), $338 billion in Non-Financial CP and Other Short term Securities, $241 billion in Financial Company CP, and $97 billion in ABCP. Also, the Proportion of Non-Government Securities in All Taxable Funds was 45.3% at month-end, down from 51.5% the previous month. All MMF Repo with Federal Reserve was $366.7 billion on March 31, 2015, up from $200.9 billion on Feb. 28. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 44.0% were in maturities of 60 days and over, while 11.4% were in maturities of 180 days and over. In other news, the Federal Reserve's FOMC released a statement Wednesday indicating no change in interest rates.

The Wall Street Journal reported, "Parking Corporate Cash Is Sure to Get More Complicated" in its CFO Journal yesterday. The piece says, "Sweeping changes in money-market funds are still a year and a half away, but finance executives are already preparing. The new rules could tarnish traditional money funds as a go-to parking place for corporate cash.... Starting next fall, regulators will prohibit companies from investing in some money funds that don't have a floating NAV. The Securities and Exchange Commission intends for the change to prevent a repeat of the mass exodus from certain money funds that happened in the fall of 2008." It continues, "With the new rules on the horizon, many finance chiefs have started discussions with their company's board, treasury staffs and technology teams about how to deal with them. "It's going to be difficult; 18 months is a very short time frame," said Thomas Deas, treasurer of Philadelphia-based chemical maker FMC Corp., and a former chairman of the National Association of Corporate Treasurers. At stake are so-called prime institutional funds. At over $850 billion in combined assets, these funds make up the largest chunk of the about $2.6 trillion money-market industry, according to industry tracker Crane Data LLC. Corporate treasurers tend to regard the funds' fixed NAVs as a near-guarantee that the funds will do no worse than break even, preserving their principal. But a floating NAV "defeats the reason" corporate treasurers have historically flocked to such funds, said Pete Nachtwey, CFO of asset manager Legg Mason Inc. Smaller companies might find it simpler just to move money out of prime money funds." Further, "Fidelity Investments, BlackRock Inc. and Federated Investors Inc. have proposed changes in the prime institutional funds they manage. Their proposals range from closing some funds to shifting fund assets into either ultra-short-term or government securities. Problem is, the roughly $331 billion playground of government institutional money funds [Crane Data note: this figure excludes $300+ more billion in Treasury Inst MMFs] couldn't accommodate any huge capital inflows. The space "is not big enough to hold all that money," said Peter Crane, chief executive of Crane Data. Because big inflows from companies and other investors would threaten to push the already-low yields of government funds into negative territory, fund managers might move to close the funds to new cash, to protect the funds' existing investors.... There also are potential ripple effects for corporate commercial paper, which some companies sell to fund their short-term needs.... If corporations stop parking their cash in prime funds, then companies like FMC might find less demand in the marketplace for their short-term commercial paper. As those funds' pool of assets shrinks, so would demand for commercial-paper offerings. Some market watchers think worries about the rule changes are largely overblown. They include Tony Carfang, a partner at consulting firm Treasury Strategies Inc. For one thing, he believes investors such as hedge funds, insurers and bond funds would step in to buy corporate commercial paper if the prime funds couldn't soak up the supply. "It's really like the Y2K problem," with companies preparing for a worst-case scenario, like a global computer failure, that never actually materializes, he said. He said overly cautious CFOs and treasurers would pull money out of prime funds, retreating from them at first. But they will come back "when they see their friends [who stayed put] getting better returns," he added."

Yesterday's USA Today featured an article entitled, "3 Good Reasons to Park Money in a Money Fund. Columnist John Waggoner writes, "Cash isn't trash. Now, you may point out -- correctly -- that the interest from a money market fund wouldn't feed a family of gnats, and you'd be correct. The average money fund yields 0.02%, which would generate a fully taxable $2 in interest on a $10,000 balance, the remainder of which would be overwhelmed by inflation. All true. But there are three good reasons to park money in a money fund, or a bank money market account." He continues, "You need to write a check. This may seem obvious, but if you have money you need to spend within the next year, you should have it in cash. As anyone who was in the stock market in 2008 knows, you can easily lose 20% or more in a 12-month period in stocks.... If you have a tuition bill to pay, or a major purchase, you shouldn't let the capital markets determine whether or not you can make the payment. You can't sleep at night. In theory, the longer you have before you'll need to spend your money, the more money you should have in stocks.... During most 10-year periods, you'll earn more in stocks than you would in bonds or cash. During all 20-year periods, the stock market will beat all alternatives. And that's fine in theory. Some people can sock away money in the stock market and be blithely unaffected when their account plunged 45% or more. You may not be one of those people. And it's better to hold some cash as a buffer, if that's what keeps you from panicking when the market swoons. You want to buy when the market is cheap. The best financial position in the world is to be liquid when no one else is. If you'd had plenty of cash on hand in 2009, you could have snapped up stocks (and real estate, for that matter) at thrift-store prices. You just had to have had the cash on hand. Most people didn't. Big buying opportunities don't happen often, but when they do, they're fabulously lucrative.... All you need is the cash on hand." Waggoner adds, "The general definition of cash is "any investment that can be swiftly converted to cash." For most investors, that means a money market fund. Most money funds will allow you to write checks on them, just as you would a bank account. And you can use your brokerage account's money fund to buy stocks, bonds or mutual funds nearly instantly. Money funds are mutual funds that invest in highly liquid, high-quality securities, such as Treasury bills and jumbo bank CDs. They can't promise you a particular yield: They simply distribute what they get equally among shareholders. Cash has one additional virtue. Short-term interest rates have been near zero since late 2008 -- an unprecedented period of extraordinarily low rates. If you were to bet on one investment rising in value in the next two years, money funds would be the safest bet."

On Friday, Citi Research's Vikram Rai wrote a "Short Duration Strategy" brief entitled, "VRDNs are attractive." It explains, "Money market funds (MMFs) typically face outflows around tax-day but this year the redemptions from tax-exempt MMFs have been unusually heavy and they have lost about $12.6 billion over the last 7 weeks ($5.9 billion from institutional MMFs and $6.8 billion from retail MMFs). As a result, the SIFMA index, which had been static at 2bp for 14 weeks, has spiked to 8bp after two weekly resets. In our view, VRDNs are attractive at current levels given that MMF outflows typically reverse once tax-day recedes in the rear-view mirror. As we approach the start of the next month, money funds are likely to witness cash infusions, due to reinvestment of coupon payments and surplus cash after tax payments, which will make its way back to the VRDN market. Also, lately, VRDNs had been out of favor with taxable investors owing to elevated O/N GC repo rates which had averaged around 20bp over the last month. But, we expect renewed demand from taxable investors now that repo rates have dropped back down to low teens. But, it bears to note that weekly street inventory @ $10.9 billion is up significantly vs. same time last year ($6.8 billion on 04-23-14) and the SIFMA index was @ 12bp then. Thus, it is possible for SIFMA to trend a couple of basis points higher over the next two weeks. But, we still expect it to ratchet back down by mid-May 2015. Also, Moody's has announced the introduction of Counterparty Risk (CR) assessments for senior bank obligations and VRDN investors have wondered if potential bank downgrades could lead to an even smaller universe of liquidity support providers. We do not envision any material impact to the VRDN market. If anything, VRDNs might face scarcity issues which will pressure rates downwards." Note: Crane Data's Money Fund Intelligence Daily shows Tax Exempt money fund assets down $5.6 billion since April 15, to $243.4 billion, and down $9.2 billion since March 31. (Total MMF assets are down $13.6 billion since 4/15 and down $69.4 billion since 3/31.)

ICI's latest "Money Market Fund Assets" report shows the fourth consecutive weekly decline in assets. It says, "Total money market fund assets decreased by $6.88 billion to $2.59 trillion for the week ended Wednesday, April 22, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $3.33 billion and prime funds increased by $1.04 billion. Tax-exempt money market funds decreased by $4.58 billion. Assets of retail money market funds decreased by $10.53 billion to $865.30 billion. Among retail funds, Treasury money market fund assets decreased by $1.24 billion to $191.32 billion, prime money market fund assets decreased by $5.32 billion to $491.84 billion, and tax-exempt fund assets decreased by $3.96 billion to $182.13 billion. Assets of institutional money market funds increased by $3.65 billion to $1.72 trillion. Among institutional funds, Treasury money market fund assets decreased by $2.09 billion to $750.50 billion, prime money market fund assets increased by $6.36 billion to $905.54 billion, and tax-exempt fund assets decreased by $620 million to $66.49 billion." Assets normally decline for weeks surrounding the April 15 tax deadline. Year-to-date, money fund assets have declined by $145 billion, or 5.3%. In other news, a press release entitled, "Fitch: EU's Proposed LVNAV MMFs Could Face Concentration Risks" says, "A new money market fund structure, proposed as a compromise between constant and variable net asset value funds, may face challenges in maintaining high diversification due to the growing scarcity of high-quality short-term investments, Fitch Ratings says. This could make it harder for these funds to achieve and maintain 'AAAmmf' ratings than for other MMF structures. The new class of MMFs, low-volatility net asset value (LVNAV), has been proposed by the European Parliament's Committee on Economic and Monetary Affairs and will be put to the full parliament at end-April. It allows an MMF to issue and redeem units at a constant net asset value (CNAV) as long as this is within 20bp of its actual NAV, based on the amortised cost accounting approach for assets maturing within 90 days. All other assets must be valued using market or model prices."

Bloomberg writes "China's Biggest Money Fund Grows as Peers Lose to Stocks Rally", which says, "Yu'EBao, which is also the world's fourth-biggest money fund, saw its assets under management rise by 132.8 billion yuan ($21.4 billion) from the end of last year to 711.7 billion yuan as of March 31, according to a report issued Wednesday by the fund's manager, Tianhong Asset Management Co. The size of all money-market funds increased 78.8 billion yuan to 2.2 trillion yuan, Asset Management Association of China data show." [Note: This would make `Yu-EBao Money Fund approximately $114.7 billion, which would make this the second largest money funds in the world, behind Vanguard Prime MMF but now ahead of Fidelity Cash Reserves and JPM Prime MMF according to Crane Data's latest figures.] The Bloomberg piece adds, "Yu'EBao is sold on Alibaba Group Holding Ltd.'s Taobao marketplace, and can be used to make credit-card payments, and buy products. "This isn't a traditional money-market fund in the sense that online payment activities instead of capital market performance have a bigger impact on its size," Liu Changjiang, a Shanghai-based analyst at Essence Securities Co., said by phone Wednesday." In other news, Funds Europe writes "HSBC money market fund withstands large exit". The article says, "The first multi-billion euro money market fund to experience a large outflow after its yield turned negative, managed the crunch without incident, a report by Moody's says. The study of the E1.6 billion outflow from the HSBC Euro Liquidity Fund that took place last week comes a month after regulators announced a study of systemic risk in asset management. The net negative yield posted by the fund sent investors for the exits and marked the first time that a multi-billion euro prime constant net asset value, or CNAV, money market fund has fallen victim to the European Central Bank's quantitative-easing policy, which has pushed yields to a record low, Moody's says. "The fund managed the outflow without incident, a credit positive, especially because Moody's expects other funds to be similarly tested," says Vanessa Robert, a Moody's senior credit officer. "We expect more of the E90 billion prime CNAV MMF [money market fund] sector to turn negative in the coming weeks. This may create reallocations within the sector, but no outflows from the sector. MMFs continue to offer a good value proposition on a relative basis given that custodian banks are offering even more negatively yielding deposit rates.""

Crane Data has posted the preliminary agenda and is now accepting registrations for its 3rd Annual European Money Fund Symposium (www.euromfs.com), which will be held Sept. 17-18, 2015, at The Conrad Hilton in Dublin, Ireland. Crane Data's previous European event, held last September in London, attracted over 110 attendees, sponsors and speakers, and we expect our return to Dublin to be even bigger and better. We expect once again to host the largest money fund conference in Europe. European Money Fund Symposium offers "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals. Attendee registration for our 2015 Crane's European Money Fund Symposium is $1,000. Thanks for your support, and we hope to see you in Dublin! Finally, also visit www.moneyfundsymposium.com to learn more about our big U.S. show, Crane's Money Fund Symposium which will be held June 24-26, 2015, in Minneapolis, and www.moneyfunduniversity.com to learn more about our "basic training" event, Crane's Money Fund University, which will take place January 21-22, 2016, in Boston, Mass.

Fitch Ratings posted an article entitled, "Why Short-Term Bond Funds Warrant a Longer Look." (Note: Crane Data released the April issue of its Bond Fund Intelligence Friday.) Fitch says, "Some investors are considering short term bond funds as an alternative to money market funds in light of recent reforms and the current low yield environment in the US and in Europe. However, there are important differences between money funds and short term bond funds. While the latter may provide a higher yield, that comes with additional risks relative to money funds." Their update explains, "Investors who segment their cash between true daily liquidity needs and longer term cash may consider the higher risk of short-term bond funds acceptable in return for more yield. A sample of ultra-short bond funds Fitch reviewed showed an average yield of 0.80% for US dollar denominated funds as of year-end 2014, compared to a yield of just 0.04% posted by institutional prime funds in the same currency." The piece adds, "Asset managers are increasingly launching new short-term bond funds in response to growing investor interest. For example, Goldman Sachs and Western Asset, among the largest managers of money funds, recently launched new ultra-short bond funds to attract displaced money fund investors. Other managers are also coming to market with new offerings in the US and in Europe, but the market remains small and fragmented compared to money funds. Short-term bond funds are not as standardized as money funds, with duration, maturity and portfolio credit quality varying greatly. In fact, with no standard naming conventions for the funds, classifications can vary between different fund managers and data providers. Common characterizations of these funds include 'enhanced cash', 'cash plus', 'short-term', 'short-duration', and 'ultra-short-term'." See also the release, "Fitch Affirms 6 South African Money Market Funds at 'AA+(zaf)'/'V1(zaf)'."

Dreyfus Senior Portfolio Manager Colleen Meehan says in her latest monthly "Tax Exempt Money Market Commentary," "Investor demand and continued decreasing supply have kept yields on variable-rate demand notes (VRDNs) at historical lows. The SIFMA index, a weekly high-grade market index comprised of seven-day tax-exempt VRDNs produced by Municipal Market Data Group, averaged 0.05% for 2014. In the first quarter of 2015 the average maintained a historical low of 0.02%. We continue to maintain high levels of liquidity and weighted average maturities within the industry averages. In general, municipal credit quality has continued to improve as most states and many local governments have recovered slowly from the recession. In particular, state general funds have shown consecutive quarters of growth in personal income tax and sales tax revenue, both important sources of revenue. Careful and well-researched credit selection remains key. State general obligation bonds, essential-service revenue bonds issued by water, sewer and electric enterprises, certain local credits with strong financial positions and stable tax bases, and various healthcare and education issuers should remain stable credits. The industry continues to analyze the money market regulatory reforms (implementation October 2016) and the recent proposals with regard to the proposed amendment addressing the removal of credit ratings and IRS tax compliance relief." (See also, Dreyfus Senior Portfolio Manager Patricia Larkin's latest monthly "Taxable Money Market Commentary," which discusses recent Fed statements.)

Money market fund assets dropped sharply, breaking below $2.6 trillion for the first time since Sept. 2014, according to ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $39.34 billion to $2.59 trillion for the week ended Wednesday, April 15, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $6.54 billion and prime funds decreased by $27.25 billion. Tax-exempt money market funds decreased by $5.55 billion. Assets of retail money market funds decreased by $7.52 billion to $875.61 billion. Among retail funds, Treasury money market fund assets decreased by $1.37 billion to $192.57 billion, prime money market fund assets decreased by $3.59 billion to $496.95 billion, and tax-exempt fund assets decreased by $2.56 billion to $186.09 billion. Assets of institutional money market funds decreased by $31.82 billion to $1.72 trillion. Among institutional funds, Treasury money market fund assets decreased by $5.17 billion to $752.59 billion, prime money market fund assets decreased by $23.66 billion to $898.61 billion, and tax-exempt fund assets decreased by $2.99 billion to $67.11 billion." Year-to-date, money fund assets are down $139 billion, or 5.1%. In other news, Bloomberg reports, "Safest U.S. Debt Likely Only Collateral Covered in Repo Clearing." It says, "Treasuries and U.S. government-related bonds are likely be the only collateral covered when financial institutions begin offering centralized trade clearing in the short-term market for borrowing and lending debt. The securities account for about 85 percent of the almost $1.7 trillion financed daily in the repurchase-agreement market, where banks typically borrow cash for a short time from investors, such as money-market mutual funds, using securities as collateral."

Former Federal Reserve Board Chair Ben Bernanke posted a speech titled "Monetary Policy in the Future," on his blog at the Brookings Institution web site. The speech was delivered at the IMF's Rethinking Macro Policy III conference" today. He said, "The FOMC has indicated that it intends to let the Fed's portfolio run off over time, so that excess reserves in the banking system eventually return to levels comparable to those before the crisis. Of course, I have not been privy to the internal discussions, having left the Fed more than fourteen months ago, but I wonder if the case for keeping the balance sheet somewhat larger than before the crisis has been adequately explored. As I mentioned, a larger balance sheet should not affect the ability of the FOMC to change the stance of monetary policy as needed. Indeed, most other major central banks have permanently large balance sheets and are able to implement monetary policy without problems. Moreover, the fed funds market is small and idiosyncratic. Monetary control might be more, rather than less, effective if the Fed changed its operating instrument to the repo rate or another money market rate and managed that rate by its settings of the interest rate paid on excess reserves and the overnight reverse repo rate, analogous to the procedures used by other central banks." Bernanke continued, "Another potential advantage of a large balance sheet is that it facilitates the creation of an elastically supplied, safe, short-term asset for the private sector, in a world in which such assets seem to be in short supply. On the margin, the Fed's balance sheet is financed by bank reserves and by reverse repos, which can be thought of as reserves held at the Fed by nonbank institutions. From the private sector's point of view, Fed liabilities are safe, overnight assets that could be useful for cash management or as a form of reserve liquidity.... The principal objection to a permanently large balance sheet financed in part by a reverse repo program appears to be a concern about financial stability. The worry is that the availability of reverse repos would facilitate runs. For example, in a period of stress, money market funds might dump commercial paper in favor of Fed liabilities. I take that concern seriously but offer a few observations. First, the overall increase in liquidity in the financial system that would be the result of a larger Fed balance sheet would probably itself be a stabilizing factor, so that the net effect on stability is uncertain. Second, if private-sector entities ran to Fed liabilities, there are actions the Fed could take after the fact to mitigate the problem, including not only capping access to reverse repos but also recycling liquidity, for example, by increasing lending to banks (through the discount window) or to dealers (through repo operations). Finally, runs can occur even in the absence of a reverse repo program, as we saw during the crisis. Regulatory action to minimize the risk of or incentives for runs would seem to be the more direct way to deal with the issue. Put another way, if runs really are a major concern, getting rid of the Fed's repo program alone seems an inadequate response."

Main Street, a personal finance publication owned by The Street, posted an article on "Money Market Fund Reforms: Parking Cash is Not a Risk-Free Proposition." It says, "For money market funds, a dollar in has by and large translated to a dollar out, perhaps with a bit of interest earned along the way. This $1 net asset value has been the cornerstone of cash held in investment accounts. And for retail investors, that worked fine -- until 2008 when one fund wrote off its bad Lehman Brothers debt and priced its fund at 97 cents on the dollar. Institutional investors immediately ran for the doors, liquidating their holdings in the fund and, in doing so, nearly left unsuspecting retail investors with less than one dollar out. Jay Sommariva was managing $50 billion of fixed income assets for BNY Mellon the day the Reserve Primary Fund "broke the buck." "We had skin in the game at that point -- it was the worst," remembers Sommariva, now with Fort Pitt Capital Group in Pittsburgh. "Just like everybody else, we had to put gates up on our portfolios because there was a mass exodus of the institutional money -- what they call the 'smart money' -- that knew what was going on." While institutions with hundreds of millions were redeeming their shares, retail investors with mere thousands of dollars were mostly clueless. "They had no idea -- until four or five days later, and then they started to get a whiff of what was going on. And obviously by that point it was too late," Sommariva says. "The funds were in disarray. If the government didn't step in, I think I heard there would have been 30 money market funds that would have broken the buck the next day. It would have been a total disaster."" The piece adds, "In an effort to prevent a similar future run on money market funds, regulators have issued rules set to go into effect in October 2016. But large investment firms such as Fidelity, BlackRock and JPMorgan are already beginning the process of adjusting their money fund offerings." It continues, "Sommariva thinks that, in the long run, the new regulations may even make things worse, particularly for the typical U.S. investor. He contends that by maintaining a fixed-share price, investors will still feel a false sense of security -- mistakenly believing that a dollar in means you are assured of a dollar out. "So I don't know if they've actually fixed the problem," he adds." Also, SEC Commissioner Daniel Gallagher discussed money market funds in his speech, "Bank Regulators at the Gates: The Misguided Quest for Prudential Regulation of Asset Managers" at the Virginia Law and Business Review Symposium on April 10.

The Financial Times reports, "All Money Market Funds are Created Equal, Says Moody's." It says, "Flexibly priced money market funds are just as prone to runs in times of crisis as fixed price ones, analysis from Moody's suggests. This potentially undermines the rationale of a push by industry regulators to clamp down on fixed-price vehicles. Regulators on both sides of the Atlantic fear the money market fund industry's preferred constant net asset value structure -- whereby funds are priced at a flat $1 or E1 a share unless in extremis -- creates a potential systemic risk as investors have an incentive to rush to sell during a crisis in order to be repaid at par. The US has already decreed that much of its $2.6tn money market sector will have to switch to variable NAV status -- where unit prices immediately move to reflect market prices -- from 2016. The EU is working on similar proposals. But analysis by Moody's, the rating agency, suggests this upheaval will achieve little. "We believe that at times of crisis, redemptions will occur regardless of a fund's structure," said Vanessa Robert, a senior credit officer at Moody's." In other news, The New York Times wrote on April 11, "Money Funds Remain Haunted by Fears of 'Breaking the Buck'." It says, "Of all the regulatory concerns about the fund industry, the most persistent worries are perhaps those focused on money market mutual funds, which now hold more than $2.6 trillion in assets. That may be because there has already been a money-market fund crisis. In 2008, the share price of one fund fell below a dollar, "breaking the buck," in Wall Street jargon. That set off a panic among some institutional investors and required the government to create a temporary insurance program. The memory of that episode still haunts regulators. Most of the official focus is on prime money funds, which take on slightly more risk to provide slightly higher returns. "Prime money market funds with a fixed net asset value remain vulnerable to investor runs if there is a fall in the market value of their assets," the Federal Reserve said in its monetary report in February. But many of the people who manage these funds say they are puzzled by the continuing regulatory concern. For one thing, they say, the kinds of securities held by money market funds -- high-quality, low-risk, short-term notes -- would be considered a haven for investors during a crisis, providing enough demand to support liquid trading. Moreover, money market funds now operate under more stringent post-crisis regulatory rules: Money funds must take less credit risk and maintain more substantial cash cushions to cover redemptions than they did before the crisis. New regulations that go into effect next year will impose even more safety rules on money funds, which will be divided into institutional and retail categories.... "What I wonder is, why do regulators have so little confidence in the changes they have put in place to address these liquidity issues in money funds?" said Joseph K. Lynagh, who heads the cash management team at T. Rowe Price.... "Everything I see suggests the industry is more robust than it's ever been." That may well be. But investors may still want to remember that while the pre-crisis money fund risks may have declined, regulatory worries have not."

Reuters writes "GE plan further shrinks its money market presence". The article says, "General Electric Co.'s plan to retrench from the finance business will further reduce its already diminishing presence in the U.S. money market, which it has leaned on to fund consumer and business loans. This development from a major issuer of U.S. commercial paper comes at time when tighter regulations have caused money market funds, which own most of the $1 trillion of ultra short-dated debt issued by banks, brokerages and commercial lenders, to cut their holdings. There was no significant reaction on Friday in the money market in the wake of GE's plan, which includes shedding $375 billion in GE Capital assets. As part of the overhaul, GE will also reduce the lending unit's commercial paper to $5 billion by the end of the year from $22 billion at the close of 2014, analysts and investors said." It adds, "GE Capital's commercial paper comprised 6.3 percent of its overall debt at the end of December, roughly half the percentage in mid-2007, before the global credit crisis, when it had about $60 billion in such debt.... The price on a GE Capital commercial paper issue that was issued last July and will mature April 17 was quoted at 99.9978, up fractionally from late on Thursday, according to Reuters data." J.P. Morgan Securities' latest "Short-Term Fixed Income" says, "To be sure, GE's announcement that it is planning to sell most of its GE Capital assets does not help the supply/demand imbalance in the money markets. Currently, GECC has one of the largest US CP programs in the market. With $22bn outstandings, they are one of 10 largest CP issuers. A look at GECC's historical CP balances shows that the company has already shrunk its program by 67% ($45bn) from its peak in 2007.... With today's announcement, the company anticipates reducing its unsecured CP balances to [approx.] $5bn by the end of 2015. This implies that $17bn of GECC CP will be removed from the market. For context, that represents about 2% of the total USCP market." Crane Data's latest Money Fund Portfolio Holdings data shows GE as the 46th largest Issuer to money market mutual funds with $7.6 billion in Commercial Paper and Other Notes (0.3% of taxable money fund assets).

The Federal Reserve released the "Minutes" from its March 17-18 FOMC meeting on late Wednesday. They said, "A staff briefing provided background on options for setting the aggregate capacity of the ON RRP facility in the early stages of the normalization process. Two options were discussed: initially setting a temporarily elevated aggregate cap or suspending the aggregate cap for a time. The briefing noted that, as the balance sheet normalizes and reserve balances decline, usage of the ON RRP facility should diminish, allowing the facility to be phased out over time. In addition, the briefing outlined strategies for actively reducing take-up at the ON RRP facility after policy normalization is under way, while maintaining an appropriate degree of monetary control, if take-up is larger than the FOMC desires. These strategies included adjusting the values of the interest on excess reserves (IOER) and ON RRP rates associated with a given target range for the federal funds rate, relying on tools such as term RRPs and the TDF to broaden arbitrage opportunities and to drain reserve balances, and selling shorter-term Treasury securities to reduce the size of the balance sheet at a faster pace." It continues, "In their discussion of the options and strategies surrounding the use of tools at liftoff and the potential subsequent reduction in aggregate ON RRP capacity, participants emphasized that during the early stages of policy normalization, it will be a priority to ensure appropriate control over the federal funds rate and other short-term interest rates. Against this backdrop, participants generally saw some advantages to a temporarily elevated aggregate cap or a temporary suspension of the cap to ensure that the facility would have sufficient capacity to support policy implementation at the time of liftoff, but they also indicated that they expected that it would be appropriate to reduce ON RRP capacity fairly soon after the Committee begins firming the stance of policy. A couple of participants stated their view that the risks to financial stability that might arise from a temporarily elevated aggregate ON RRP capacity were likely to be small, and it was noted that there might be little potential for a temporarily large Federal Reserve presence in money markets to affect the structure of those markets if plans for reducing the facility's capacity were clearly communicated and well understood. However, a couple of participants expressed financial stability concerns, and one stressed that more planning was needed to address the potential risks before the Committee decides on the appropriate level of ON RRP capacity at the time of liftoff." In other news, money market fund assets decreased slightly this week, says ICI in its latest Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $610 million to $2.63 trillion for the week ended Wednesday, April 8, the Investment Company Institute reported today." Year-to-date MMF assets are down $100 billion, or 3.6%.

Bloomberg's Businessweek reports on "cash-like" ETFs in the story, "Tempted to Mimic Mohammed El-Erian's Move Into Cash? Check Out These ETFs." It says, "The news that Mohamed El-Erian has his portfolio largely in cash has many investors wondering if they should follow suit. But what may make sense for a megamillionaire's portfolio isn't necessarily a good move for people with much more modest holdings.... But if average investors are tempted to move some money out of the market, actively managed "enhanced" money-market exchange-traded funds may be a good option. These ETFs offer a way to earn some income and ward off any bite from inflation without taking on much risk. These ETFs live in the space between money-market funds and short-term bond funds. They generally hold all investment-grade bonds from a variety of issuers with weighted average maturities of around a year or less. The largest actively managed ETF of the bunch is the Pimco Enhanced Short Maturity Active Exchange-Traded Fund (MINT). It has 70 percent of its assets in corporate bonds and 16 percent in mortgage bonds; the rest is in U.S. treasuries and municipal bonds. Half of its holdings are outside the U.S., in bonds from South Korea, the United Kingdom, and Switzerland. That mix of holdings adds up to a yield of 0.80 percent, and the ETF returned 0.60 percent in the past year, after fees.... MINT charges 0.35 percent in annual fees. Blackrock's answer to MINT is the iShares Short Maturity Bond ETF (NEAR). It focuses almost entirely on U.S. government debt but picks up yield by holding some bonds with maturities between one and three years. That combination produces a yield of 0.84 percent and a one-year return of 0.74 percent after fees. NEAR has $626 million in assets and an annual fee of 0.25 percent. Further out on the risk spectrum is Guggenheim Enhanced Short Duration ETF (GSY), which has a 1.4 percent yield and a one-year return of 0.93 percent, after fees. GSY manages to earn that by adding 15 percent in high-yield debt to a portfolio of mostly investment-grade corporate and government bonds that mature in less than a year. It charges investors 0.27 percent of assets under management." (Look for more coverage of the ultra-short bond and ETF market in our next Bond Fund Intelligence, which will ship to Crane Data subscribers next week.) In other news, the Federal Reserve released the Minutes from its March 17-18 FOMC meeting. (Watch for excerpts and its comments on rates and the RRP program tomorrow.)

Western Asset Management issued a press release yesterday, entitled "Western Asset Announces Preliminary Plan For Money Market Fund Offerings." The release says, "Western Asset Management, an affiliate of Legg Mason, today announced preliminary recommendations for its money market mutual fund product suite. The proposed changes are intended to meet client needs and comply with criteria announced in July 2014 by the U.S. Securities and Exchange Commission (SEC). Western Asset Management believes this information will assist shareholders by providing ample time to consider how these changes will impact their portfolios. The plan announced today may be adjusted before the October 2016 compliance date for the money market fund reform rules and will require approval of the funds' Board. In its planning process, the firm spent considerable time listening to both institutional and retail investors to understand their preferences With those preferences in mind, steps have been taken to adjust its product line to continue to offer all types of investors a full menu of product choices for cash management. In addition, Western Asset Management has begun to define the business and operational requirements necessary to complete a seamless implementation of reform rules on a timely basis. Western Asset Management has a robust liquidity product set and the flexibility to adjust it according to clients' needs. The company offers U.S. Treasury, government, prime and municipal money market mutual funds to institutional and retail investors. Initial plans to modify the fund lineup can be summarized as follows. U.S. Treasury and government money market funds. Funds will continue to seek to transact at a $1.00 net asset value and already meet the new SEC requirement to invest at least 99.5% of their assets in cash, government securities, and/or repurchase agreements that are fully collateralized. Western Asset Management has no current intention to recommend instituting liquidity fees or redemption gates on these funds. Institutional prime money market funds and institutional municipal money market funds. Funds will price and transact at a floating net asset value, which reflect current market-based values of the portfolio securities and will adopt required policies relating to liquidity fees and redemption gates, subject to Board approval. Funds will comply with the new rules by the mandatory compliance date of October 2016. Retail money market funds. The firm expects to continue to offer funds that will seek to transact at a $1.00 net asset value. The company will adopt policies to impose liquidity fees, as well as provide for redemption gates, subject to Board approval. Funds will comply with the new rules by the mandatory compliance date of October 2016." It continues, "To provide investors with a full menu of expanded product choices for cash management, the firm has recently added two non-money market short duration bond funds to its product offerings. Western Asset Ultra Short Obligations Fund (LWAUX) seeks a high level of income, consistent with liquidity and the preservation of capital; and Western Asset Short Term Yield Fund (LGSTX) seeks current income. These funds both price and transact at a floating net asset value and are subject to market fluctuations. Because they are not money market funds, they will not be subject to the requirements for liquidity fees and redemption gates. Western Asset will provide periodic updates on its plans and their implementation."

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" report, which shows total MMF assets down slightly for the month and yields climbing since the beginning of the year. The report, with data as of February 28, 2015, summarizes Form N-MFP info and includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. Overall, total money market fund assets stood at $3.048 trillion at the end of February, down $9 billion from Jan. 31, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $3.048 trillion, $1.780 trillion was in Prime funds (up $11B from Jan. 31), $1.000T was in Government/Treasury funds (down $19B), and $268 billion was in Tax-Exempt funds (same as last month). The number of funds dropped by 1 in February to 543. Total assets were down $32.5 billion YTD through 2/28, but were up $30.8 billion from a year ago. The number of funds has dropped from 586 on Feb. 28, 2013, to 559 on Feb. 28, 2014, to 543 on Feb. 28. 2015. Looking at other statistics, the Weighted Average Gross 7-Day Yield for Prime Funds was 0.21% on Feb. 28 (unchanged), 0.08% for Government/Treasury funds (unchanged), and 0.06% for Tax-Exempt funds (unchanged). One year ago on Feb 28, 2014, prime yields were 0.19%, government/treasury yields were 0.08%, and tax-exempt yields were 0.09%. The Weighted Average Net Prime Yield was 0.06% -- up 0.01% from the previous month and up from 0.04% 12 months earlier. The Weighted Average Prime Expense Ratio was 0.15% (unchanged). The Weighted Average Life, or WAL, for Prime funds at month-end was 77.5 days (down from 77.8 last month), for Government/Treasury funds was 80.1 days (down from 79.7 days), and for Tax Exempt funds was 32.2 days (down from 34.0 days). The Weighted Average Maturity, or WAM, for Prime funds was 43.4 days (down from 43.5 days), for Govt/Treasury funds was 42.9 days (down from 43.7 days), and for Tax-Exempt funds was 30.9 days (down from 33.0 days). Total Daily Liquidity for Prime funds was 26.0% in January -- up from 25.7% last month, 22.3% at the beginning of the year, and 25.1% on Feb. 28, 2014. Total Weekly Liquidity was 39.9%-- down from 40.6% last month, 41.3% at the beginning of the year, and 40.4% one year ago. In the category Prime MMF Holdings of Bank Related Securities by Country, Canada topped the list with $206.4 billion, jumping ahead of the US at $195.5 billion. France was third with $184.1 billion, followed by Japan at $182.0B, Sweden at $114.7B, the U.K. at $103.8B, and Australia/New Zealand at $100.2B. The Netherlands ($63.5B), Switzerland ($50.8B), and Germany ($48.9B) round out the top 10. The biggest gainers for the month were Norway (up $17.7 billion), Japan (up $10.3 billion), and Canada (up $5.6 billion). The biggest drops came from the US (down $8.0 billion), Belgium (down $2.0 billion), and Sweden (down $1.3 billion). For Prime MMF Holdings of Bank-Related Securities by Region, Europe had $626.6 billion (up from $626.2 billion the previous month) while its subset, the Eurozone, had $315.4 (same as last month). The Americas was next with $404.7 billion (down from $407.1 billion at the end of January), while Asia and Pacific had $312.2 (up from $303.5 billion the previous month). The Total Amortized Cost of Prime MMF Portfolios was $1.774 trillion as of Feb. 28, 2015. That was made up of $610 billion in CDs, $356 billion in Government (including direct and repo), $446 billion in Non-Financial CP and Other Short term Securities, $270 billion in Financial Company CP, and $93 billion in ABCP. Also, the Proportion of Non-Government Securities in All Taxable Funds was 41.5% at month-end, up from 50.5% the previous month. All MMF Repo with Federal Reserve was $200.9 billion on Feb. 28, 2015, up from $173.2 billion on Jan. 31, and down from $371.1 billion at year-end. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 44.0% were in maturities of 60 days and over, while 11.6% were in maturities of 180 days and over.

Friday's Wall Street Journal featured "Pressure in Repo Market Spreads", which claimed, "A shortage of high-quality bonds is disrupting the $2.6 trillion U.S. market for short-term loans known as repurchase agreements, or "repos," creating bottlenecks for a key source of liquidity in the financial system and sending ripples through short-term debt markets. Stresses in the repo market are amplifying price swings in government bonds and related debt markets at a time when many investors are reshuffling their portfolios around new interest-rate expectations, following a period of low volatility, traders and analysts said. Although traders said the impact so far has been manageable, the broad concern is that scarcity in repos will pressure rates and could complicate efforts by the Federal Reserve to lift interest rates when the time comes. Problems in the repo markets have been the subject of discussions at the U.S. Treasury, people familiar with the matter said. Since there is typically a strong relationship between repos and overall bond markets, the shifts can influence trading in everything from U.S. Treasurys to commercial paper, short-term IOUs taken on by companies." It added, "Firms clamoring for the bonds include banks that are required under new rules to hold high-quality assets for liquidity purposes, the $2.67 trillion money-market-fund industry that is limited to high-quality debt maturing in less than 13 months and hedge funds that require specific securities to settle certain bets and cannot accept substitutes. Money-market funds take comfort in repos because the trades are secured by bonds. When they can't find their first-choice trades in the repo markets, they look to the next best thing in the open market, dragging down yields on Treasury bills, commercial paper and other short-term debt."

Money market fund assets were down sharply this week, says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $47.23 billion to $2.63 trillion for the week ended Wednesday, April 1, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $19.02 billion and prime funds decreased by $27.06 billion. Tax-exempt money market funds decreased by $1.16 billion. Assets of retail money market funds decreased by $2.63 billion to $882.11 billion. Among retail funds, Treasury money market fund assets decreased by $1.26 billion to $193.02 billion, prime money market fund assets decreased by $380 million to $501.59 billion, and tax-exempt fund assets decreased by $990 million to $187.50 billion. Assets of institutional money market funds decreased by $44.61 billion to $1.75 trillion. Among institutional funds, Treasury money market fund assets decreased by $17.76 billion to $769.70 billion, prime money market fund assets decreased by $26.67 billion to $911.62 billion, and tax-exempt fund assets decreased by $170 million to $70.45 billion." This was the largest decline in over a year, since the week ended Feb. 19, 2014. Year-to-date through April 1, assets are down $99 billion, or 3.6%. In other news, Reuters writes "More Permanent Role Seen for Fed's Repurchase Program". The article says, "A pledge by the U.S. Federal Reserve to phase out a new tool to lift interest rates is being challenged by economists and financial professionals who think the central bank may need to keep using it longer than Fed officials expect. As the Fed approaches an interest rate hike -- expected later this year -- it will use a suite of tools, including an overnight reverse repurchase facility (ON RRP) for money market funds to help lift its traditional federal funds rate from near zero. The notion of making the repurchase program a more permanent fixture at the Fed reflects the increasing role that non-bank lenders, also known as shadow banks, are playing in the U.S. borrowing market.... The Fed has said it will shutter the repo program as soon as it's no longer needed, with Atlanta Fed President Dennis Lockhart saying on Wednesday that the central bank can adjust rates in a way to where the program "dies under its own weight." Boston Fed Vice President Joe Peek said the central bank may have to make its new tools for controlling rates a permanent feature of monetary policy."

Federated Investors' CIO, Global Money Markets, Deborah Cunningham, released her latest "Month in Cash" column entitled, "Is the Fed willing to overlook soft patch in push for liftoff?." She writes, "The Federal Reserve has always operated with a good measure of mystery. Even former Chairman Ben Bernanke's implementation of press conferences and the vast amount of Fed governor speeches have shed little light on what the Fed will actually do in any given Federal Open Market Committee (FOMC) meeting. Lately, however, it has been more ambiguous and taking more seemingly conflicting positions than typical. On the one hand, comments by Fed officials, including Chair Janet Yellen, and changes in statement language seem to confirm a hike is likely in 2015, and maybe sooner rather than later. If the policymakers aren't "impatient," they at least often sound eager to get the process underway. That would seem to point to a September date for liftoff. But on the other hand, the Fed has expressed that any rate move will be data dependent, and economic data has not been stellar as of late.... There are many things that could deter them from raising rates in the near term due to this soft patch." She continues, "And it is important to keep in mind that the next stage of Fed maneuvers is indeed not "tightening" but "normalization." Traditionally what we think of as tightening is when the Fed starts raising interest rates. What Yellen keeps emphasizing, and what the market doesn't always get, is we have to withdraw from ultra-accommodative monetary policy before a rise in rates will have the same impact as tightening has had in the past. If the federal funds rate increased to a range around even 1.25%, it is probably still easy money. It is important to distinguish between normalizing in an increasing rate environment and tightening in an increasing rate environment." In related news, CNBC writes "Fed's Lockhart sticks with June to September liftoff." The article says, "Atlanta Federal Reserve bank president Dennis Lockhart said on Wednesday that the United States remains on track for a likely interest rate hike in the June to September period, with a weak first quarter likely to give way to stronger growth. "The weakness of the first quarter got my attention. I still believe the factors are transitory," Lockhart told reporters at a monetary policy conference here. "We will see a pick-up." Fed officials say they remain convinced that the economy has enough underlying strength for the recovery to continue, and that cheap oil will ultimately be a boon to the economy, felt through increased consumer spending and higher company profits."

Reich & Tang, which announced the liquidation of its U.S. money market funds earlier this month, is also liquidating its offshore Daily Dollar International MMFs, according to a statement on its website. It says, "Liquidation of the Daily Dollar International, Ltd. This Supplement replaces the Supplement dated March 12, 2015.... The Board of Directors (the "Board") of Daily Dollar International, Ltd. (the "Fund") has determined that it is advisable to liquidate, dissolve and terminate the legal existence of the Fund. In connection with the liquidation of the Fund, effective May 1, 2015, the Fund will cease sales of portfolio shares to new investors. The Fund will permit current investors to continue purchasing new shares. The Fund is expected to be closed on or about July 27, 2015 (the "Liquidation Date") and commence formal liquidation proceedings thereafter. The Board has directed Reich & Tang Asset Management, LLC ("RTAM"), the Fund's investment adviser, to manage the Fund conservatively in anticipation of liquidation and with the goal of returning $1.00 per share to each investor in the Fund. Accordingly, the Fund's yield and performance may be reduced prior to the Liquidation Date." According to Money Fund Intelligence International, the portfolios had about USD $1.7 billion in assets with most of the shares, USD $843 million in the Retail class. Earlier in March, Reich & Tang announced that it was liquidating its US-based money funds, which had about $10.9 billion in assets. (See our March 17 "News," "Federated In Talks with Reich & Tang Over MMF Assets." In other offshore MMF news, Moody's withdrew the Aaa-mf money market fund rating of Aberdeen EUR Liquidity Fund. The release says, "Moody's Investors Service has today withdrawn the Aaa-mf money market fund rating of Aberdeen Global Liquidity Funds PLC-Aberdeen Euro Liquidity Fund. The Fund is managed by Aberdeen Asset Investments Limited. Moody's has withdrawn the rating for its own business reasons." The fund has E615 million in assets under management as of March 30, according to Crane's MFII.