Daily Links Archives: January, 2017

Investment News writes, "401(k) plans make big fund changes following new money market rules," which claims, "A significant portion of employers switched to a stable value or government money market fund in response to SEC reforms." The article explains, "Employers have drastically mixed up the "safe" investment options offered in their defined contribution plans in response to new rules that came into effect last year regarding money market funds. The Securities and Exchange Commission's rules, which came into force in October, instituted new investor safeguards for money market mutual funds that included special fees and redemption restrictions, as well as a floating net asset value. The changes have pushed DC plan sponsors to evaluate their capital-preservation funds and adopt different funds that aren't subject to these restrictions." The piece adds, "According to the consulting firm Callan Associates, 64% of plan sponsors either changed to a different money market fund or eliminated their money fund altogether within the past two years, largely because of the rules. Of the employers that changed or replace their money fund, nearly 13% added a stable value fund, which aren't subject to the SEC reforms, and 61% adopted a government money market fund."

BlackRock writes "Time for Prime?". The brief says, "Leading up to the implementation of money market reform in the US in the fall of 2016, investors moved approximately $1 trillion from prime money market funds (MMFs) to government MMFs, signaling, in our view, a preference for low volatility and operational certainty over yield. Now, with two Fed rate hikes since December 2015, a rise in benchmark rates such as LIBOR, and three months of operational stability, we are seeing renewed interest in prime MMFs as yields have risen to levels that have eluded cash investors for many years. Is it time to revisit prime MMFs for a portion of your cash investments?" It comments on the "Trends in money market funds that there are "Signs that appetite is returning for prime MMFs." BlackRock cites 3 reasons: "Prime MMF assets under management are growing. We've seen investors start to return to this asset class as the understanding of prime MMFs in the new world matures. At $11 billion, TempFund, a series of BlackRock Liquidity Funds (TempFund), stands as one of the largest institutional prime MMFs in the industry and has experienced 34% growth in assets since the beginning of the year; Rising rates broaden the spread over government MMFs. In a normal and rising interest rate environment, the natural spread between government and prime MMF strategies may materialize. Today, this spread stands at approximately 40 basis points, representing what we believe to be a meaningful difference in the yield of prime MMFs over government MMFs; Opportunities in short term credit are compelling, but require a strong credit management approach to identify. With demand heavily focused on government securities, prime MMFs have been able to capitalize on opportunities in the credit markets without taking disproportionate risk." The piece adds, "We believe prime MMFs can be a useful addition to a balanced portfolio as they may help boost overall cash portfolio income and returns and represent a diversified companion to government MMFs.... A strategic allocation to prime MMFs offers diversification benefits and higher return potential while adding only incremental risk to your portfolio.... We understand that change can be challenging, but looking at these investment strategies with an eye on total return and seeking to understand the credit process can help even the most discerning cash investors."

The latest weekly "Money Market Fund Assets" report says, "Total money market fund assets increased by $19.66 billion to $2.69 trillion for the week ended Wednesday, January 25, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $17.77 billion and prime funds increased by $2.24 billion. Tax-exempt money market funds decreased by $350 million." Total Government MMF assets, which include Treasury funds too and which represent 80.8% of all money funds, stand at $2.169 trillion, while Total Prime MMFs, which total 14.3%, stand at $385.2 billion. Tax Exempt MMFs total $130.9 billion, or 4.9%. It explains, "Assets of retail money market funds decreased by $6.71 billion to $978.18 billion. Among retail funds, government money market fund assets decreased by $5.21 billion to $601.23 billion, prime money market fund assets decreased by $910 million to $251.20 billion, and tax-exempt fund assets decreased by $600 million to $125.75 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 61.5% of all Retail MMFs. The release continues, "Assets of institutional money market funds increased by $26.37 billion to $1.71 trillion. Among institutional funds, government money market fund assets increased by $22.97 billion to $1.57 trillion, prime money market fund assets increased by $3.15 billion to $134.01 billion, and tax-exempt fund assets increased by $250 million to $5.19 billion." Institutional assets account for 63.6% of all MMF assets, with Government Inst assets making up 91.8% of all Institutional MMFs.

The Wall Street Journal wrote "Money-Fund Overhaul Gives Federal Home Loan Banks New Prominence. The article says, "The Federal Home Loan Banks are emerging as one of the unexpected beneficiaries of last year's money-market fund overhaul, lending fresh support to a U.S. mortgage market in flux as interest rates creep higher. Money funds that invest in government debt are fueling a rise in debt issuance by the FHLBs, independently chartered financial institutions created by Congress 80 years ago to bolster U.S. housing finance. The increase is a boon to FHLB member banks like J.P. Morgan Chase & Co. and Wells Fargo & Co., which borrow from the FHLBs for a range of needs including to fund mortgage lending, and is the latest ripple from a series of regulatory changes at the heart of financial markets." It adds, "The home loan banks' outstanding debt rose nearly 10% from a year earlier in 2016, finishing the year at $989.3 billion, its highest level since 2009. About 30% of their debt is now floating-rate debt, the most since at least 2002, and a nod to growing money-market fund appetite for short-term government debt." In other news, State Street, in its "Fourth Quarter Earnings release, says, "Management fees decreased from the third-quarter of 2016, primarily due to the impact of the stronger U.S. dollar and cash outflows, partially offset by ETF inflows. Compared to the fourth-quarter of 2015, management fees increased primarily due to an estimated $64 million from the acquired GEAM business, lower money market fee waivers, higher global equity markets, and ETF inflows, partially offset by the stronger U.S. dollar and cash outflows."

A new filing for Wells Fargo Municipal Money Market Fund explains, "Effectively immediately, the Wells Fargo Municipal Money Fund is no longer offered and all references to the Fund are hereby removed." An earlier Prospectus Supplement filing for Wells Fargo Muni MMF," says, "At a meeting held on August 9-10, 2016, the Wells Fargo Funds Trust Board of Trustees unanimously approved the merger of the Wells Fargo Municipal Money Market Fund ("Target Fund") into the Wells Fargo National Tax-Free Money Market Fund ("Acquiring Fund"). The merger was proposed by Wells Fargo Funds Management, LLC, investment manager to the Wells Fargo Funds. The merger is subject to the satisfaction of a number of conditions, including approval by the shareholders of the Target Fund at a special meeting of the shareholders expected to be held in December 2016.... The merger, if it is approved by shareholders and all conditions to the closing are satisfied, is expected to occur in January 2017. Prior to the merger, shareholders of the Target Fund may continue to purchase and redeem their shares subject to the limitations described in the Target Fund's Prospectus. No shareholder action is necessary at this time." A separate filing for the Morgan Stanley Institutional Liquidity Funds states, "Patricia Maleski joined the Board of Trustees of the Fund as an Independent Trustee effective January 1, 2017. In addition, Ms. Maleski has been appointed to the Compliance and Insurance Committee, the Investment Committee and the Liquidity and Alternatives Sub-Committee of the Investment Committee of the Morgan Stanley Funds."

The Federal Reserve Bank of New York sent a statement entitled, "Reverse repo counterparties list updated," which says, "PNC Government Money Market Fund has been added to the list of reverse repo counterparties, effective January 23, 2017." The NY Fed explains, "To prepare for the potential need to conduct large-scale reverse repurchase agreement transactions, the Federal Reserve Bank of New York is developing arrangements with an expanded set of counterparties with whom it can conduct these transactions." Among the Fed's RRP counterparties, Banks include: Ally Bank, Bank of America, N.A., Bank of Montreal (Chicago Branch), Barclays Bank PLC - New York Branch, Citibank, N.A., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, Credit Agricole Corporate and Investment Bank, Credit Suisse AG, New York Branch, Discover Bank, Goldman Sachs Bank USA, HSBC Bank USA, National Association, JPMorgan Chase Bank, N.A., Mizuho Bank, Ltd., Morgan Stanley Bank, N.A., Natixis New York Branch, Royal Bank of Canada, Sumitomo Mitsui Banking Corporation, NY branch, Svenska Handelsbanken AB (publ) New York Branch, The Northern Trust Company and Wells Fargo Bank, NA. Investment Manager Money Market Funds include: AllianceBernstein L.P. AB Fixed-Income Shares, Inc., AB Government Money Market Portfolio; BlackRock Advisors, LLC: BlackRock Liquidity Funds: FedFund, T-Fund, TempCash, TempFund, Master Treasury Strategies Institutional Portfolio, Master Money LLC, Master Premier Government Institutional Portfolio; BlackRock Fund Advisors: Money Market Master Portfolio, Prime Money Market Master Portfolio; Charles Schwab Investment Management, Inc.'s Schwab Advisor Cash Reserves, Schwab Cash Reserves, Schwab Government Money Fund, Schwab Money Market Fund, and Schwab Value Advantage Money Fund; Columbia Management Investment Advisers, LLC's Columbia Short-Term Cash Fund, a series of Columbia Funds Series Trust II; Deutsche Investment Mangement Americas, Inc.'s Government Cash Management Portfolio; Dimensional Fund Advisors LP's The DFA Short Term Investment Fund of The DFA Investment Trust Company; The Dreyfus Corporation's Dreyfus Cash Management, Dreyfus Government Cash Management, Dreyfus Institutional Preferred Government Money Market Fund, Dreyfus Institutional Preferred Money Market Fund, Dreyfus Treasury & Agency Cash Management, and General Money Market Fund; Federated Investment Management Company's Federated Capital Reserves Fund, Federated Government Obligations Fund, Federated Government Obligations Tax-Managed Fund, Federated Government Reserves Fund, Federated Institutional Money Market Management, Federated Prime Cash Obligations Fund, Federated Prime Obligations Fund, Federated Prime Value Obligations Fund, Federated Tax-Free Obligations Fund, Federated Treasury Obligations Fund, and Federated U.S. Treasury Cash Reserves; Fidelity Investments Money Management, Inc.'s Fidelity Revere Street Trust: Fidelity Cash Central Fund, Fidelity Revere Street Trust, Fidelity Securities Lending Cash Central Fund, Fidelity Management & Research Company's Fidelity Colchester Street Trust: Government Portfolio, Money Market Portfolio, Prime Money Market Portfolio, and Treasury Portfolio, Fidelity Hereford Street Trust: Fidelity Government Money Market Fund, Fidelity Money Market Fund, Fidelity Money Market Trust: Retirement Government Money Market II Portfolio, Fidelity Newbury Street Trust: Fidelity Treasury Money Market Fund, Fidelity Phillips Street Trust: Fidelity Government Cash Reserves, and Fidelity Salem Street Trust: Fidelity Series Government Money Market Fund; Franklin Advisers, Inc.'s The Money Market Portfolio; Goldman Sachs Asset Management's Goldman Sachs Financial Square Government Fund, Goldman Sachs Financial Square Money Market Fund, Goldman Sachs Financial Square Prime Obligations Fund, Goldman Sachs Financial Square Treasury Obligations Fund, Goldman Sachs Financial Square Treasury Solutions Fund, and Goldman Sachs Investor Tax-Exempt Money Market Fund; HSBC Global Asset Management (USA), Inc.'s HSBC U.S. Government Money Market Fund; Invesco Advisers, Inc.'s Premier Portfolio, a series of the AIM Treasurer's Series Trust (Invesco Treasurer's Series Trust), STIT Government and Agency Portfolio, STIT Liquid Assets Portfolio and STIT Treasury Portfolio; J. P. Morgan Investment Management Inc.'s JPMorgan 100% U.S. Treasury Securities Money Market Fund, JPMorgan Liquid Assets Money Market Fund, JPMorgan Prime Money Market Fund, JPMorgan Tax Free Money Market Fund, JPMorgan U.S. Government Money Market Fund, and JPMorgan U.S. Treasury Plus Money Market Fund; Legg Mason Partners Fund Advisor, LLC's Western Asset/Government Portfolio, and Western Asset/Liquid Reserves Portfolio; Morgan Stanley Investment Management, Inc.'s Morgan Stanley Institutional Liquidity Funds Government Portfolio, Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio, Morgan Stanley Institutional Liquidity Funds Prime Portfolio, and Morgan Stanley Institutional Liquidity Funds Treasury Portfolio; Northern Trust Investments, Inc.'s Northern Funds - Money Market Fund, Northern Funds - U.S. Government Money Market Fund, Northern Institutional Funds - Government Assets Portfolio, Northern Institutional Funds - Government Portfolio, Northern Institutional Funds - Government Select Portfolio, and Northern Institutional Funds - Treasury Portfolio; Passport Research, Ltd.'s Edward Jones Money Market Fund; PFM Asset Management LLC's PFM Funds Government Select Series; PNC Capital Advisors, LLC's PNC Government Money Market Fund; RBC Global Asset Management (U.S.) Inc.'s RBC Funds Trust, U.S. Government Money Market Fund; SSgA Funds Management, Inc.'s Institutional Liquid Reserve Portfolio, Institutional US Gov. Money Market Fund, a series of the State Street Master Funds, State Street Navigator Securities Lending Trust, and State Street Treasury Plus Money Market Portfolio; T. Rowe Price Associates, Inc.'s T. Rowe Price Cash Reserves Fund, T. Rowe Price Government Money Fund, Inc., and T. Rowe Price Government Reserve Fund; UBS Asset Management (Americas) Inc.'s - Government Master Fund, Prime Master Fund and Treasury Master Fund; U.S. Bancorp Asset Management, Inc.'s First American Government Obligations Fund, First American Prime Obligations Fund, and First American Treasury Obligations Fund; The Vanguard Group, Inc.'s Vanguard Federal Money Market Fund, Vanguard Market Liquidity Fund, and Vanguard Prime Money Market Fund; Wells Fargo Funds Management's Wells Fargo Cash Investment Money Market Fund, Wells Fargo Government Money Market Fund, Wells Fargo Heritage Money Market Fund, Wells Fargo Money Market Fund, and Wells Fargo Treasury Plus Money Market Fund." It explains, "New reverse repurchase transaction (RRP) counterparties will begin transacting with the New York Fed upon completion of legal, operational and technical setup. Each listed counterparty applied to be an eligible RRP counterparty under the criteria and application published by the New York Fed. Inclusion on this list simply means that, should the New York Fed conduct reverse repurchase agreements, those listed would be eligible to participate. It does not mean that any listed eligible RRP counterparty is eligible for any other program or transactional relationship with the New York Fed. Further, it does not in any way constitute a public endorsement of any listed eligible RRP counterparty by the New York Fed, nor should inclusion on the list be viewed as a replacement for prudent counterparty risk management and due diligence."

Morningstar posted a video interview with Fidelity Conservative Income Bond Fund Manager Rob Galusza entitled, "Fidelity: Money Market Reform Transition Went Well." (Note: Galusza is scheduled to speak on a "Senior Portfolio Manager Perspectives panel at our upcoming Crane's Bond Fund Symposium, March 23-24 in Boston.) It says, "The $1 trillion shift from prime to government money market funds last year was surprisingly smooth, says Fidelity Limited Term Bond's Rob Galusza." The Morningstar piece quotes Galusza, "You are correct, it was a big event that occurred last year. There was a transition of over $1 trillion out of prime money market funds into government money market funds. So as that transition occurred, there was a large movement of money that transitioned from one investment strategy into the government money market. So, for a time period, last summer and into the fall there was a little bit of dislocation that occurred into those markets with commercial paper, spreads moving higher. The LIBOR rates or interbank offering rates moving higher. So, that created some opportunities for the ultrashort and short-term bond space to come in and invest in those markets, both on the municipal money market side as well as the taxable money market side. Surprisingly, with such a large amount of money that moved, the transition went relatively well." On the Fed, he comments, "We're in a rising interest-rate environment, and the question is how much and how fast. So, there are various views on how quickly the Fed will move.... [T]hey have given guidance of up to three potential tightenings this year. I would say we are more in line with the market and that we see potentially two tightenings in 2017. We think they are going to be more toward the back part of the year, potentially June and December as the market and the Fed has to digest what the new initiatives are going to be with the administration." Galusz adds, "A couple of things, we have looked at within our short duration portfolios leaning a little bit on the short side of our target benchmark durations, as well as being overweight the spread sector. So, we are constructive on the economy at this point and we do like corporates as a sector. [W]e have been overweight corporate bonds and some of the other spread sectors ... they tend not to trade with the same duration as the rates market and government market. So, that will allow our portfolios to empirically perform a little bit on the shorter side of the benchmark. [W]e see that positioning being beneficial for shareholders in a rising rate environment."

Minutes from the Financial Stability Oversight Council's (FSOC's) January 11 Meeting mention "Money Market Mutual Fund Developments." They say, "The Chairperson then introduced the next agenda item, an update on money market mutual fund (MMF) developments. He noted that there had been a broad recognition following the financial crisis that MMF reform was needed, and he stated that significant progress had been made. He introduced Sarah ten Siethoff, Deputy Associate Director of the Rulemaking Office in the Division of Investment Management at the SEC, and Viktoria Baklanova, Senior Financial Analyst at the OFR. Ms. ten Siethoff noted that the SEC had adopted MMF reforms in July 2014. Ms. ten Siethoff briefly described the final rules, noting that the reforms established a floating net asset value (NAV) for institutional prime MMFs and permitted MMF boards to impose liquidity fees and redemption gates in certain circumstances. She noted that the compliance date for these reforms was October 2016. She then described MMF industry developments in 2015 and 2016. She noted that while aggregate MMF assets had remained stable, there had been significant reallocations from prime to government MMFs and that the transition had been orderly. She stated that prime MMFs had substantially increased the liquidity of their portfolios by shortening the duration of their investments prior to the effective date of the reforms. Ms. Baklanova then further described the reallocation of assets from prime to government MMFs in 2015 and 2016. Ms. ten Siethoff noted that regulators had not observed significant asset shifts from prime MMFs into alternative investment vehicles. Ms. Baklanova described fluctuations in borrowing costs, including the London Interbank Offered Rate and municipal funding rates, which had increased by a small amount. The presenters then described the experience with floating NAVs, noting that NAVs had not significantly deviated from $1.0000 and that those NAVs that had floated generally rose rather than falling below $1.0000. Ms. ten Siethoff concluded that the SEC's MMF reforms had had a significant effect on the MMF industry, but that those effects had been anticipated during the SEC's rulemaking process, and that the transition showed the ability of the financial system to undergo significant shifts in an orderly manner with sufficient time and planning."

Capital Advisors Group distributed a paper entitled, "Trumponomics, Debt Ceiling Rollercoaster and Geopolitics: Three Trends to Watch in 2017." Written by Lance Pan, its "Abstract" explains, "We select Trumponomics, the debt ceiling rollercoaster and geopolitics as three main themes to watch in 2017. Federal stimulus may in fact be underwhelming and a stronger dollar and trade wars may further erode the effect of increased government spending. The immense size of government money market funds ($2.2 trillion) may present challenges throughout the upcoming debt ceiling rollercoaster ride. 2017 may also bring multiple geopolitical risks from various parts of the world. Longer duration, higher credit quality and increased liquidity are advised for cash portfolio construction." The piece tells us, "The new administration's economic initiatives may impact short-term debt markets on both the interest rate and credit fronts. Short-term rates were expected to move higher regardless of the presidential election outcome. Following the Fed's rate hike last December, the market currently expects two to three more hikes in 2017. Quick nominations of the two vacant seats on the Federal Reserve Board may tilt the central bank's bias to a more aggressive Fed, but more than three rate hikes in 2017 is unlikely unless there are clear signals that the economy is rapidly overheating. Longer-term interest rates, on the other hand, remain a wild card."

The Federal Reserve Bank of New York released the article entitled, "The Effect of 'Regular and Predictable' Issuance on Treasury Bill Financing" in for its Economic Policy Review. The description says, "This article examines the impact of regular and predictable issuance on the short-run cost of issuing Treasury bills -- in particular, whether this approach effectively minimizes the cost of financing government debt. The authors estimate the cost differences between two types of strategies for setting the size of Treasury bill auctions: one that focuses solely on cost-minimization and alternative strategies that emphasize regularity and predictability. The authors find that the additional cost of adhering to a regular and predictable schedule is likely less than one basis point." The abstract explains, "The mission of Treasury debt management is to meet the financing needs of the federal government at the lowest cost over time. To achieve this objective, the U.S. Treasury Department follows a principle of "regular and predictable" issuance of Treasury securities. But how effective is such an approach in achieving least-cost financing of the government's debt? This article explores this question by estimating the difference in financing costs between a pure cost-minimization strategy for setting the size of Treasury bill auctions and strategies that focus instead on "smoothness" considerations -- interpreted here as various forms of the regular and predictable principle. Using a mathematical optimization framework to analyze the alternative strategies, the authors find that the additional cost of including smoothness considerations, expressed as the increase in average auction yield over the cost-minimization strategy, is likely less than one basis point. The cost gap narrows further when the flexibility to use a limited number of cash management bills is added."

The New York Times writes "Money Market Funds and C.D.s Show Signs of Life." The article explains, "Benign neglect has been a rational approach to managing cash since the financial crisis. It made little sense to apply any elbow grease searching for yields when options ranged from earning nothing to earning next to nothing. But with last month's rise in the Federal Reserve's target interest rate and the expectation that there could be three rate increases this year, money market mutual funds are showing signs of life. "We are heading to 1 percent yields, and the bleeding edge of cash could touch 2 percent in 2017," said Peter G. Crane, the publisher of Money Fund Intelligence. Modest, you say? Well, modest gains may be especially appealing given recent bond losses. In the fourth quarter, core bond funds, the go-to diversification tool for most investors, fell 3 percent, as rising yields pushed down bond prices. If you're inclined to seek out even more stability in a money market mutual fund now that yields are resuscitating, make sure you understand recent changes in the rules that govern how some funds operate." It adds, "Shareholders may find these fees and gates quite unappealing; the fund industry certainly does. It is afraid that the changes will scare off investors. That's why most fund companies and brokerages have switched their default money market fund for retail clients from a prime fund to a government fund. Government funds invest in extremely liquid government debt, adding safety and liquidity, and these funds don't have redemption fees or gates. But government money market funds have a downside: lower yields. The largest retail money market fund, now called Fidelity Government Cash Reserves (it was a prime money market fund known as Fidelity Cash Reserves until the company changed the fund's mandate), yielded just 0.13 percent in early January."

Wells Fargo Money Market Funds writes in their latest "Overview, strategy and outlook" about the looming debt ceiling. They comment, "Now that we, as an industry, are past money market reform, a bit of normalcy is returning; and this is truly a case where a "new normal" applies.... One of the first challenges the new president and a unified Congress will face is resolution of the debt-ceiling suspension, which is due to expire in March. That doesn't mean that the government will run out of money in March if the debt ceiling isn't raised immediately; as we know from previous bouts, the government has a number of extraordinary measures at its fingertips that could keep it solvent for several months before being in danger of running out of money and defaulting on U.S. debt. One of the first hurdles the U.S. Treasury must overcome is bringing its cash balance down to pre-suspension levels, which means losing about $370 billion from their cash balances. While issuing refunds to taxpayers over the next couple of months will certainly help, we anticipate the Treasury will still need to reduce their cash by up to $200 billion. Normally we would expect to see the Treasury reducing the size of its bill auctions in order to facilitate this run off. However, this has not yet happened. If it does in the coming months, it is possible Treasury rates could decline in the face of demand from government funds; to the extent government funds weren't able to find alternatives -- such as the Fed's RRP program -- this could cause yields on government funds to sag as well. But this may not come to pass. The Treasury may believe, or have reason to believe, that harmony amongst political allies will prevail, and this event will be quickly and easily resolved. One can hope that will be the case, but only time will tell."

Bloomberg writes "China's Biggest Money Fund Bracing for More Liquidity Shocks." The article says, "China will face more frequent liquidity shocks this year, according to the manager of the nation's biggest money-market fund, which plans to hold extra cash to protect against the risk of rising redemptions. The government's efforts to curb risk in the financial system and support the sliding yuan are likely to 'over-stretch a rope that's already tight,' said Wang Dengfeng, who manages the 800 billion yuan ($115 billion) Yu'EBao fund at Tianhong Asset Management Co. 'The biggest challenge for us this year is to appropriately manage our own liquidity risks -- that we have ample cash to meet demand when large redemptions occur,' Wang said in an interview in Beijing last week. 'We'll set aside much more cash than needed, rather than allocating into high-yielding assets.'" The Bloomberg piece adds, "Yu'EBao is sold on Alibaba Group Holding Ltd.'s Alipay platform, and can be used to make credit-card payments and buy products. That means that most of its investors -- who numbered some 300 million as of June last year -- are individuals rather than cash-starved companies or financial intermediaries. In fact, Yu'EBao has been a beneficiary of the recent market volatility: the spike in borrowing costs is driving up money-market fund returns, attracting inflows in December, Wang said, without being more specific.... The average seven-day return for Yu'EBao investors was last at an annualized 3.37 percent, versus 2.52 percent at the end of November, data from Tianhong's website show. The pool is the world's fourth-largest money-market fund, according to data compiled by Bloomberg." Bloomberg also writes, "Tianhong is the biggest money manager in China, overseeing 845 billion yuan in assets at the end of last year, according to a statement on its website. Almost all of that is in the Enhanced Income Treasure Money Market Fund, marketed as Yu'EBao. Bank deposits and reserves accounted for 80 percent of the fund's investments at the end of Sept. 30, while bonds account for 18 percent, according to its third-quarter report. Holdings by institutional investors accounted for only 0.35 percent at the end of June."

PFM Funds filed a Prospectus Supplement entitled, "Termination of Government Series," which says, "On November 15, 2016, the Board of Trustees of PFM Funds (the "Trust") approved the termination of Government Series (a series of the Trust), effective December 29, 2016 (the "Termination Date"). Shares of Government Series are currently being offered and sold only to persons having Government Series shareholder accounts that were established on or before November 22, 2016. Shareholders may redeem shares of Government Series at their net asset value per share (normally, $1.00) any time before the Termination Date using the procedures set forth in the Prospectus. However, shareholders are advised to cease the use of redemption checks within a reasonable timeframe in advance of the Termination Date to assure that any redemption checks are presented to the Trust for payment prior to the Termination Date. Redemption checks presented to the Trust on or after the Termination Date will not be honored." The filing adds, "Shareholders that redeem shares of Government Series may use the proceeds of their redemptions to purchase shares of the Institutional Class ("Institutional Class") of shares of Government Select Series (another series of the Trust), subject to the eligibility and minimum investment requirements of the Institutional Class (which are set forth in the Prospectus). Various banking services provided by the Trust's custodian to shareholders of Government Series are also available to holders of the Institutional Class of shares of Government Select Series; however, shareholders of Institutional Class that avail themselves of such services bear the costs of using those services. Please read the Prospectus, which describes the risks and expenses associated with an investment in Institutional Class shares, in deciding whether to invest the proceeds of redemptions of shares of Government Series in shares of Institutional Class.... Upon the making of such distributions, all shares of Government Series then outstanding will be canceled and Government Series will terminate. Any outstanding subscriptions for which shares have not been issued will be returned to a shareholder following the Termination Date upon confirmation of good federal funds. In anticipation of the termination of Government Series and significant share redemptions that are likely to occur prior to the Termination Date, Government Series is investing its assets solely in investments that mature prior to the Termination Date and is maintaining a very short average portfolio maturity so as to have a high degree of daily liquidity. This will adversely affect the yield of Government Series."

As a final reminder, Crane Data will host its "basic training" event, Money Fund University, next week at the Westin Jersey City Newport, Jersey City, NJ, January 19-20, 2017. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. The affordable ($500) educational conference (see the final agenda here or e-mail us to request our brochure) features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. Money Fund University offers attendees a 2-day course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Jersey City event, we will also take a look at some remaining issues involving regulations, and we'll have a mini "Bond Fund University" segment on ultra-short bond funds. Crane Data has also released the preliminary agenda for our new Bond Fund Symposium, which is March 23-24, 2017, at the Boston Hyatt Regency, and we're preparing the draft agenda for our "big show," Money Fund Symposium, which will be held June 21-23, 2017, at the Atlanta Hyatt Regency.

On Friday, Wells Fargo Securities' wrote in its "Daily Short Stuff," "The first week of the year saw $35 billion in assets leave institutional government money market funds, while prime funds gained $4.1 billion. This is not a sea change per-se but could suggest some reallocation from government to prime within fund families at BlackRock and JP Morgan. Looking at the largest gains amongst prime institutional funds, we note that BlackRock's Liquid TempFund gained $1.6 billion and JPMorgan's Prime Money Market Fund gained $1.4 billion. Each of these funds remains at the high-end of the yield spectrum, with each paying north of 80 basis points on the share classes that earned the majority of the assets. On the government side, the largest outflows came from JP Morgan's funds, Dreyfus's Government Cash Management Fund and Goldman Sachs's FS Government Fund, which saw outflows between $5 billion and $6 billion. Morgan Stanley and Fidelity saw outflows between $3 and $5 billion and Federated, BlackRock and Wells Fargo each had outflows between $1 billion and $3 billion." The piece, written by Garret Sloan and Vanessa Hubbard, adds, "Given that the shift out of government funds is likely to be the result of year-end cash needs, it is difficult to make conclusions that any of the cash leaving the BlackRock and JP Morgan funds is related to reallocation, but we would not entirely discount the idea that investors could be taking a fresh look at the MMF landscape and shift assets back to prime in the New Year. The low MNAV volatility may be one thing that is attracting fund investors back to prime along with the higher yield. Currently, based on Crane Data, there are 6 MMF share classes that are trading with a NAV below 1.000 and 122 prime institutional share classes trading with a NAV at or above 1.000. This compares to 127 share classes that traded at or above 1.000 on October 14, and 1 fund trading below 1.000 on October 14. The high and low range of MNAV prices today is $0.9996-$1.0009, while on October 14, the range was $0.9999-$1.0009."

Forbes.com writes "Five Quick Ways To Boost Savings Returns In 2017." The article, written by John Wasik, says, "There wasn't much to cheer about in 2016 when it came to savings yields. They continued to be rock bottom. I know this doesn't sound like much, but rates are expected to rise in 2017. If the U.S. economy continues to rebound -- as many analysts predict -- that means more demand for credit. That typically translates into higher rates on savings vehicles like Certificates of Deposit (CDs), money market funds and savings accounts. While I'm not predicting anyone is going to get rich over higher savings returns, you can boost your yields by shopping around. Here are five proven ways to make more money, according to depositaccounts.com: Keep an eye on money market fund yields. They have been going up a lot this year, but they're still inferior to internet savings account rates. Plus, due to the new money market fund rules, they now have more risks." The piece adds, "`But most of all, build up your emergency funds in cash accounts you can access at any time with a check or transfer. Pay yourself first every month. Even though you may not be earning much on your savings, it's still a cushion against unanticipated expenses and hard times."

The latest Minutes of the Federal Open Market Committee, December 13–14, 2016 comment on "Developments in Financial Markets and Open Market Operations," saying, "The manager of the System Open Market Account (SOMA) reported on developments in U.S. and global financial markets during the period since the Committee met on November 1–2, 2016. Nominal yields on longer term U.S. Treasury securities rose substantially over the period, reflecting both higher real yields and an increase in inflation compensation. The value of the dollar on foreign exchange markets rose, U.S. equity indexes increased considerably, and credit spreads on U.S. corporate bonds narrowed. Market pricing and survey results indicated that market participants had come to see a high probability of an increase of 25 basis points in the FOMC's target range for the federal funds rate at this meeting, and that the path of the federal funds rate anticipated by market participants for coming years had steepened." They add, "The manager also reported on developments in money markets and open market operations. Market interest rates on overnight repurchase agreements (repos) fell during the intermeeting period. Market participants pointed to a number of factors contributing to the decline, including lower demands for funding by securities dealers and the ample availability of financing from government-only money market funds (MMFs). The decline in repo rates, together with the shift of MMF assets toward government-only funds, had likely boosted usage of the System's overnight reverse repurchase agreement (ON RRP) facility over the period. In contrast to the decline in interest rates for secured money market transactions, the effective federal funds rate generally remained near the middle of the FOMC's 1/4 to 1/2 percent target range. The manager also reported on the Open Market Desk's regular review of operational readiness for a range of open market operations."

A Prospectus Supplement filing for the UBS Money Series' UBS Select Prime Preferred Fund and UBS Select Government Preferred Fund allows the former to invest more in municipal securities and extends fee waivers for the latter. It says, "First, this supplement updates certain information contained in the Prospectus for UBS Select Prime Preferred Fund. Effective January 17, 2017, the fund will be permitted to invest in municipal securities without limitation. Currently, the fund may invest up to 5% of its net assets in such investments, which have more recently become more attractive because of market changes. The fund is not expected to be able to "pass through" the tax-exempt nature of interest from such investments; however, they may be more attractive relative to other potential fund investments even without taking such tax advantage into account. Additionally, this supplement updates certain information contained in the Prospectus regarding a voluntary fee waiver for the fund. Second, this supplement updates certain information contained in the Prospectus regarding a voluntary fee waiver for UBS Select Government Preferred Fund." The filing explains, "Effective January 1, 2017, UBS Asset Management (Americas) Inc. ("UBS AM") will continue to voluntarily waive 0.06% of its management fee (imposed at the related master fund level) and 0.04% of its administrative fees (imposed at the feeder fund level) until January 31, 2017 in order to continue to voluntarily reduce the fund's expenses by 0.10% until January 31, 2017. These voluntary fee waivers are in addition to the pre-existing contractual fee waiver arrangements that cap the fund's ordinary operating expense ratio at 0.14% through August 31, 2017; the contractual cap is not being increased. The aggregate impact of both the voluntary fee waivers and the contractual fee waiver is to reduce the fund's ordinary operating expense ratio to 0.04% until January 31, 2017.... UBS AM may further voluntarily waive fees and/or reimburse expenses from time to time. For example, UBS AM may voluntarily undertake to waive fees and/or reimburse expenses in the event that fund yields drop below a certain level. Once started, there is no guarantee that UBS AM would continue to voluntarily waive a portion of its fees and/or reimburse expenses. Waivers/reimbursements may impact the fund's performance."

The Wall Street Journal writes "Overnight Rates Hit New Lows in Europe." It explains, "Over the past week, the cost of borrowing cash overnight using German and French securities as collateral has turned deeply negative, reaching new record lows, according to data by RepoFunds Rate. It all has to do with European banks trying to make their books look better. To borrow large amounts of short-term cash safely, investors often use repurchase agreements, or repos, which involve selling a security and pledging to buy it back at a slightly different price in the near future. This difference between both prices -- the repo rate -- acts as the interest rate on the loan." The Journal continues, "The overnight interest rate that the European Central Bank steers directly is the unsecured interbank rate -- called Eonia -- but German and French repo rates usually hover not far below it. Two weeks ago, Eonia was at minus 0.354%, with the German and French repo rates at minus 0.686% and minus 0.618%. Now, Eonia is at the same level but rates on secure money-market borrowing using German and French collateral have plunged to minus 1.93% and minus 1.126%, respectively. Investors were already getting paid to borrow because of the ECB's negative-rate policy, but now they are getting paid huge amounts. The reason is that many players in the repo market are desperate to lend, chiefly all the money-market funds that lend their cash to banks in exchange for, say, German sovereign bonds. That's much safer than putting money in deposit accounts at the same bank. On the other side, banks have inventories of bonds because they buy them from clients who want to sell. They are happy to hand them to money-market funds in exchange for cash. Indeed, that's often how they find cash to pay for the purchases in the first place. Banks have been cutting down on the size of their inventories, and at year's end they slash them even more. This is because they need to report the size of their balance sheet to European regulators so they can calculate their liquidity coverage ratios. These ratios impose capital costs on how much balance sheets expand, so banks are eager to minimize them. According to Fitch Ratings Inc., European money-fund managers have been sweating to find somebody to take their money since December started."

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