Daily Links Archives: October, 2017

Fidelity Investments' latest "Money Markets" update, entitled, "The Fed Stays On Its Fairly Hawkish Path," tells us, "Fidelity's money market funds are well-positioned for higher rates. We believe policy interest rates will continue to trend higher. The September FOMC meeting largely confirmed the Fed's expectations for three more rate hikes in 2018, in addition to the quarter-point hike expected at yearend 2017. This likely will continue the trend of higher rates that began 21 months ago. While the Fed slightly reduced its long-run rate outlook at its September meeting, removing nearly one full quarter-point rate hike from its long-term projection, this slightly dimmer view may not matter very much, given the number of Fed board governors set to be replaced in the coming months. The steady increase in market rates is driving liquidity into both money market and ultrashort bond funds. While government money market funds have yet to return to their prior peak after a sluggish first half, prime money market funds have grown by $66 billion year-to-date and may continue to benefit as corporate treasurers further segment liquidity. Any tax repatriation may also benefit the funds, as treasurers seek enhanced diversification and relatively higher rates versus bank-administered deposits.... Fidelity's money market funds are positioned with short weighted-average maturities. Thus, we believe the funds are well-positioned in a market that has exhibited higher yields and fairly stable spreads ... and are prepared for higher rates."

Earlier this month, the ICI released its "Profile of Mutual Fund Shareholders, 2017" and "Characteristics of Mutual Fund Investors, 2017." They write, "Ownership of mutual funds by US households grew significantly in the 1980s and 1990s and has remained steady over the past decade. On average since 2000, household ownership of mutual funds has been about 45 percent each year; this is down a bit from 49 percent in 2001, but higher than the 41 percent rate in 1998. Between mid-2000 and mid-2017, assets held in mutual funds increased from $7.1 trillion to $17.4 trillion. In mid-2017, 44.5 percent of US households owned mutual funds, representing 100.0 million individual mutual fund shareholders. Mutual fund holdings represent a significant component of the savings and investments of many US households, with mutual fund assets now accounting for about one fifth of households' financial assets." On "Mutual Fund Ownership," the report says, "Equity mutual funds were the most commonly held mutual funds. Among households that owned mutual funds, median mutual fund holdings were $120,000.... The largest percentage of mutual fund–owning households, 87 percent, owned equity funds. Thirty seven percent had invested in balanced funds, 44 percent in bond funds, and 54 percent in money market funds. In addition, 39 percent of mutual fund–owning households held global or international equity funds. Mutual fund holdings represented more than half of household financial assets for 65 percent of households that owned mutual funds."

Federated posted a brief entitled, "3 Questions: Federated prime money market funds and also released its Third Quarter Earnings Thursday. Federated asks, "Q: Could you speak to how prime money market funds fit into a broad strategy of cash management?" MM CIO Deborah Cunningham writes, "Investors have many choices for managing cash, decisions that change as their needs change. Liquidity and stability of principal are paramount criteria, but yield matters. The liquidity portfolio of institutions and individuals often include government money market funds due to their relatively safe investments and the convenience of their constant net asset value (NAV) of $1 per share without the potential of gates or fees. But while U.S. government bills, notes or bonds are generally considered risk free, they offer low yield, especially with the Federal Reserve holding rates at historic lows. Here is where prime money funds come in. They traditionally have offered higher yield compared to government money funds, with comparable stability." They also ask, "Q: How do prime funds compare to bank deposits?" Federated writes, "While both offer liquidity and seek to preserve principal, prime money market fund portfolios typically contain variable-rate and short-term instruments. These allow portfolio managers to quickly reinvest assets to capture the growing yields stemming from a rising-rate environment, as we are in now.... In contrast, banks offer an administered rate, which is slow to respond to changes, generally rising only around half as much (i.e., if market rates increase 100 basis points, bank rates rise on average 50 basis points). Unlike money market funds, bank deposits are FDIC insured and offer fixed rates of return.... In times of uncertainty, and these days of anxiousness about the length of the record-breaking run of the risk markets, prime money funds may be a good choice." Also, see Federated's Q3 Earnings Release. The earnings call will be held Friday, Oct. 27 at 9 a.m. (Dial 877-407-0782 to listen.)

A Prospectus Supplement filing for Northern Institutional Funds says, "The Board of Trustees (the "Board") of Northern Institutional Funds (the "Trust") has approved the reorganization of the Government Assets Portfolio, a series of the Trust (the "Acquired Portfolio"), with and into the U.S. Government Portfolio, also a series of the Trust.... It is expected that the reorganization will be completed on or about November 28, 2017. The reorganization will be effected pursuant to a Plan of Reorganization. In the reorganization, all of the assets of the Acquired Portfolio will be transferred to the Acquiring Portfolio.... The Shares of the Acquiring Portfolio then will be distributed to the shareholders of the Acquired Portfolio in complete liquidation of the Acquired Portfolio. Immediately after the reorganization, former shareholders of the Acquired Portfolio will hold Shares of the Acquiring Portfolio having an aggregate net asset value equal to the aggregate net asset value of the shares of the Acquired Portfolio that the shareholder held immediately prior to the reorganization. The Portfolios are government money market funds that currently buy and sell their shares at $1.00 per share by valuing their portfolio securities at amortized cost. Accordingly, it is expected that the Shares that you receive will be valued at $1.00 per share.... Based on current holdings, Northern Trust Investments, Inc. ("NTI"), the Portfolios' investment adviser and administrator, does not expect to sell a significant portion of the Acquired Portfolio's portfolio securities prior to the reorganization. NTI will bear any out-of-pocket costs related to the reorganization, including legal and audit expenses and the expenses of preparation, assembling and mailing the enclosed Combined Prospectus/Information Statement." The filing adds, "NTI believes that the shareholders of the Acquired Portfolio may benefit from the larger combined assets of one combined Portfolio and a better opportunity for future growth by combining the Acquired Portfolio's assets with the Acquiring Portfolio, rather than continuing to operate the Acquired Portfolio separately. The reorganization is also expected to benefit NTI and its affiliate, The Northern Trust Company, by creating efficiencies from the operation of only the Acquiring Portfolio after the reorganization.... NTI also believes that the Acquiring Portfolio's identical investment objectives and strategies make it compatible with the Acquired Portfolio. NTI considered the future prospects of the Acquired Portfolio if the reorganization is not effected, which included NTI continuing to operate two nearly identical government money market portfolios. After considering NTI's recommendation, the Board concluded that the reorganization would be in the best interests of the Acquired Portfolio and the Acquiring Portfolio and their respective shareholders, and the interests of their respective shareholders will not be diluted as a result of the reorganization."

The Wall Street Journal published "Wealthier Depositors Pressure Banks to Pay Up." The article discusses how, "Large U.S. banks are starting to pay up to keep depositors from moving their money, the latest sign that customers are growing more demanding as the economic recovery takes hold." It points out that, "`The average rate paid by the biggest U.S. banks on interest-bearing deposits jumped to 0.40% in the third quarter, the highest level since 2012 and the biggest quarterly increase this year, according to research firm Autonomous. Banks capacity to take advantage of ultralow interest rates is coming under pressure as more-sophisticated customers weigh other options for holding their cash, such as money-market funds that tend to pay higher rates than bank deposits. In reviewing third-quarter results, bank executives said that the pressure for higher rates came primarily from wealth-management customers, typically well-to-do individuals and families who deposit cash as part of their investment accounts." The Journal explains that, "Wealth-management deposits declined at big banks in the third quarter for the first time in several years, Autonomous said. At Bank of America Corp. , J.P. Morgan Chase & Co., and Wells Fargo & Co., such deposits fell on average by 4% from a year ago, even as deposits overall grew 5%, according to company results." The piece adds, "Morgan Stanley this quarter said earlier this year it started paying 0.06% on some investment cash in deposit accounts, up from just over 0.01%. It added that it was in the process of building out more certificates-of-deposit and savings-account products." (See also Crane Data's Oct. 12 News, "Wells Bumps Up Brokerage Sweep Rates, Raises FDIC Insurance Coverage.")

The Wall Street Journal writes on "What Some Investors Don't Understand About Stable-Value Funds." It says, "Most retirement plans offer stable-value funds on their menu of investment options as a means of capital preservation. But the structure of these funds can make them more volatile, less liquid and less appropriate as a cash alternative than some investors realize. Commonly characterized as an alternative to traditional money-market funds, stable-value funds actually are more akin to bond funds, investing in similar short- and intermediate-term fixed-income securities. They are different from bond funds in that a series of insurance contracts insulate them from interest-rate fluctuations in the bond market, making their returns more consistent. If the securities in a stable-value fund return less than promised in the contract, the insurer pledges to cover the difference. While this insurance wrapper might provide clients with confidence in their investment, it also means the price of the fund doesn't reflect what's happening with the underlying securities. And should the insurer find itself in a position of insolvency during a market downturn, the contract would be worth the value of the underlying assets, which might be less than the investor believes. While stable-value funds can return more than a money-market fund, the insurance wrapper also puts a cap on the fund's upside." The piece adds, "For some investors, a high-quality bond fund may be more appropriate. In addition to a portfolio of high-quality, shorter-term bonds, these funds offer far more transparency in terms of investments, fee structure and pricing."

The Charles Schwab Corporation's latest quarterly earnings release mentions money market funds and cash in a couple of places. CEO Walt Bettinger says, "We continue to leverage our scale to provide products and services that help investors achieve their goals, while delivering great value and making it easier for clients to do business with us. Most recently, we enhanced our money fund offerings by lowering expenses, reducing and standardizing investment minimums, and streamlining share classes across our entire lineup. These changes are part of our work to ensure clients continue to have access to a range of cash solutions offering attractive yields and smart features." CFO Peter Crawford comments, "We've achieved yet another quarter of record financial performance, helped by strong client growth and an improved economic environment. Schwab posted its ninth consecutive quarter of record revenues for the period ending in September. Net interest revenue grew 28% to $1.1 billion as a result of higher short-term rates and growing client cash balances. Following the Federal Reserve's June rate hike, our net interest margin reached 200 basis points for the third quarter – our highest level since the second quarter of 2010. Asset management and administration fees were up 8% year-over-year to a record $861 million, largely attributable to growing balances in advised solutions, mutual funds, and ETFs. These increases in our largest sources of revenue more than offset a 21% decline in Trading revenue due to lower trade pricing. Overall, we produced net revenues of $2.2 billion, a 13% increase." Crawford adds, "During the third quarter, we transferred $1.7 billion in sweep balances to Schwab Bank – $1.4 billion from Schwab One and approximately $300 million from sweep money market funds. In addition, we used $5 billion in Federal Home Loan Bank advances to provide temporary funding for additional investments ahead of future bulk transfer activity. The FHLB advances, the third quarter money fund transfers, and higher client cash levels all helped our consolidated balance sheet reach $230.7 billion as of September 30th; our preliminary Tier 1 Leverage Ratio at quarter-end was 7.7%. We delivered a 15% return on equity for the third quarter, reflecting our ability to combine effective capital management with a relentless drive for profitable growth to help build stockholder value." (See Schwab's release "Announcing Lower Minimums and Expenses for Schwab Money Funds," and watch for more coverage on this in coming days.)

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 10th week out of the past 11, and the 16th out of the past 18. Prime MMFs have risen by $39.9 billion, or 9.5%, over the past 20 weeks, and $77.1 billion, or 20.9%, year-to-date. ICI writes, "Total money market fund assets increased by $2.89 billion to $2.74 trillion for the week ended Wednesday, October 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $1.95 billion and prime funds increased by $1.11 billion. Tax-exempt money market funds decreased by $167 million." Total Government MMF assets, which include Treasury funds too, stand at $2.169 trillion (79.0% of all money funds), while Total Prime MMFs stand at $446.8 billion (16.3%). Tax Exempt MMFs total $128.1 billion, or 4.7%. They explain, "Assets of retail money market funds decreased by $865 million to $983.68 billion. Among retail funds, government money market fund assets decreased by $1.45 billion to $599.18 billion, prime money market fund assets increased by $571 million to $262.17 billion, and tax-exempt fund assets increased by $17 million to $122.33 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 60.9% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $3.76 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $3.40 billion to $1.57 trillion, prime money market fund assets increased by $539 million to $184.59 billion, and tax-exempt fund assets decreased by $184 million to $5.81 billion." Institutional assets account for 64.2% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

FT Alphaville writes "Dealers loosen their grip on money markets (a little bit)." The odd update explains on "Money market funds" (apparently in relation to the FICC), "Now they can purchase collateral from (or lend cash into) the centrally cleared pools for general collateral financing repurchase agreements -- known as GCF repo -- that were previously dominated by dealers. They had lent $16bn of cash into that pool at the end of September, up from nothing at the start of the year, according to the Office of Financial Research's money market fund monitor. Now, money-market funds don't get the full benefits of GCF repo, since the funds are currently only permitted to purchase collateral/lend cash. (GCF transactions are backed by high-quality securities, so dealers end up lending out Treasuries or agencies they have on hand at the end of the day, within an agreed-upon range of quality.) But they can earn a slightly higher return on cash than they'd get at the Fed, without the need to pay a dealer intermediary.... And because GCF repo is centrally cleared and usually collateralised by Treasuries, the transactions are generally safe as well." The piece adds, "Money-market funds' expansion into GCF repo was made possible by a rule change from the Depository Trust & Clearing Corp earlier this year. While investment funds could lobby for dealer-sponsored access to the clearing platform before the rule change, that required the cooperation. In short, it required dealers to voluntarily give up their privileged access to a safe source of returns on cash (or sometimes, collateral). That's a tough sell, even after regulations made it more expensive for dealers to intermediate these transactions on behalf of their clients."

An update from the U.S. Treasury's OFR says, "The U.S. Office of Financial Research has updated the Money Market Fund Monitor with data as of September 30, 2017. The monitor can be found here: https://www.financialresearch.gov/money-market-funds/. The OFR MMF Monitor is designed to track the investment portfolios of money market funds by funds asset types, investments in different countries, counterparties, and other characteristics. Users can view trends and developments across the MMF industry. Data are downloadable and displayed in six interactive charts. For examples of how to use the monitor and additional information, click on this reference guide." (See also our Oct. 11 News, "Oct. Money Fund Portfolio Holdings: Treasuries Rebound, FICC Grows.")

A recent posting on the Federal Reserve Bank of New York's "Liberty Street Economics" blog, entitled, "Just Released: New York Fed Markets Data," explains, "The Federal Reserve Bank of New York releases data on a number of market operations, reference rates, monetary policy expectations, and Federal Reserve securities portfolio holdings. These data are released at different times, for different types of securities or rates, and for different audiences. In an effort to bring this information together in a single, convenient location, the New York Fed developed the Markets Data Dashboard, which was launched today." It continues, "While the content of the Markets Data Dashboard is not new, the information is aggregated and centralized in a new interface that provides all of the markets data published by the New York Fed. These data are updated as results are released to the public. Users of existing data feeds from the New York Fed should note that the Markets Data Dashboard does not affect delivery of those data feeds." To see the brand-new Markets Data Dashboard, please click on this link: http://libertystreeteconomics.newyorkfed.org/2017/10/just-released-new-york-fed-markets-data-dashboard.html.

Wells Fargo Money Market Funds' latest "Overview, Strategy, and Outlook" tells us, "For money market funds, the gradual pace of Fed tightening has enabled prime money market funds to opportunistically extend weighted average maturities (WAMS) and weighted average lives(WALS) to take advantage of what yield pickup there is from extension out of the curve. The average maturity for institutional prime funds has hovered in the mid-20s for the past several months. Our funds' WAMS have been slightly lower at around 20 days recently (with WALS closer to 60 days) in an effort to maintain increased amounts of liquidity and to be in a position to more quickly capture the effects of future rate hikes. In this environment, we continue to construct high-quality portfolios that are focused on liquidity while opportunistically purchasing floating-rate notes in an effort to incrementally increase yields." The piece adds, "The money market industry is experiencing a small but noticeable change in the composition of asset growth this year. After the implementation of money market reform, we surmised that it might take a pickup in yield of 30 bps to 35 bps to entice investors who moved to government funds during reform to come back into prime funds. In looking at weighted industry assets, the yield differential between the two fund types has averaged 30 bps since the end of 2016; on a year-to-date basis, prime institutional assets have increased by $61 billion (+50%) while government/ agency institutional funds have declined by $50 billion (-3%). As investors become more comfortable with the new fund structures and behavior, we fully expect the trend to continue. To help investors understand the total return proposition of floating net asset value (NAV) money market funds as compared with stable NAV money market funds, Wells Fargo Asset Management, the money market funds' sponsor, recently published a total return calculator designed to model multiple investment scenarios. You can find it and other helpful information at www.wellsfargofunds.com/icm/ market-commentary-insights/money-fund-calculator.html."

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 9th week out of the past 10, and the 15th out of the past 17. Prime MMFs have risen by $38.8 billion, or 9.3%, over the past 19 weeks, and $76.0 billion, or 20.6%, year-to-date. ICI writes, "Total money market fund assets increased by $280 million to $2.74 trillion for the week ended Wednesday, October 11, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $713 million and prime funds increased by $1.00 billion. Tax-exempt money market funds decreased by $12 million." Total Government MMF assets, which include Treasury funds too, stand at $2.167 trillion (79.1% of all money funds), while Total Prime MMFs stand at $445.6 billion (16.3%). Tax Exempt MMFs total $128.3 billion, or 4.7%. They explain, "Assets of retail money market funds decreased by $1.92 billion to $983.46 billion. Among retail funds, government money market fund assets decreased by $1.12 billion to $599.55 billion, prime money market fund assets decreased by $888 million to $261.60 billion, and tax-exempt fund assets increased by $90 million to $122.31 billion." Retail assets account for over a third of total assets, or 35.9%, and Government Retail assets make up 61.0% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $2.20 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $407 million to $1.57 trillion, prime money market fund assets increased by $1.89 billion to $184.05 billion, and tax-exempt fund assets decreased by $103 million to $5.99 billion." Institutional assets account for 64.1% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

A U.S. Treasury report on Capital Markets reform, "A Financial System That Creates Economic Opportunities," includes a couple brief mentions of money market funds. It says, "Changes to regulation since the financial crisis have driven changes in holdings of Treasury securities by the domestic banking sector and money market mutual funds. According to Federal Reserve data, U.S. chartered bank holdings of Treasury securities have grown from about $78 billion in 2007 to over $500 billion in the first quarter of 2017, due in part to U.S. Basel III capital requirements to hold greater amounts of high quality liquid assets (HQLA) since the financial crisis. Money market mutual fund holdings have grown from $92 billion to about $741 billion over the same period, primarily as a result of revised SEC rules on the securities money market funds can hold to retain a fixed net asset value. The Federal Reserve, through the System Open Market Account, is also a significant holder of Treasury securities; the Federal Open Market Committee recently announced it will begin normalizing its balance sheet." In other news, the Federal Reserve Bank of New York send a notice entitled, "Reverse repo counterparties list updated. They tell us, "JPMorgan 100% U.S. Treasury Securities Money Market Fund is no longer a reverse repo counterparty, effective August 21."

SIFMA's latest "Research Quarterly" for the Second Quarter 2017 says about "Funding and Money Market Instruments," "The average daily amount of total repurchase (repo) and reverse repo agreement contracts outstanding was $3.98 trillion in 2Q'17, an increase of 1.5 percent from 1Q'17's $3.92 trillion and a decline of 0.3 percent y-o-y. Average daily outstanding repo transactions totaled $2.22 trillion in 2Q'17, an increase of 1.7 percent q-o-q and an increase of 1.4 percent y-o-y. Reverse repo transactions in 2Q'17 averaged $1.76 trillion daily outstanding, an increase of 1.3 percent and a decline of 1.0 percent q-o-q and y-o-y, respectively." The update tells us, "DTCC general collateral finance (GCF) repo rates increased for Treasuries and MBS in 2Q'17 on a q-o-q basis and y-o-y basis: the average repo rate for Treasuries (30-year and less) rose to 94.2 basis points (bps) from 1Q'17's average rate of 62.5 bps and 2Q'16's average of 45.2 bps. The average MBS repo rate rose to 96.2 bps from 64.0 bps in the previous quarter and 46.0 bps in 2Q'16." On "Financial and Nonfinancial 3-Month Commercial Paper Interest Rates," SIFMA writes, "Interest rates for nonfinancial commercial paper (CP) rose to 110 bps end-June 2017 from 84 bps end-March 2017 and from 49 bps end-June 2016, and financial CP increased to 116 bps end-June from 83 bps end-March 2017 and also rose from 55 bps end-June 2016." The quarterly adds, "Preliminary outstanding volume of commercial paper, stood at $925.70 billion at the end of the second quarter, down 1.2 percent from the prior quarter's $937.20 billion and a decline of 8.9 percent y-o-y."

The U.K.-based publication Treasury Today features the article "A New Way for Treasurers to Find Yield," which discusses the use of direct repo for treasurers as a way to add yield. Banks are "finding it more expensive to accept short-term cash," which in turn means that "banks are passing these costs on to treasurers in the form of reduced yields," says the piece. It quotes Robert O'Riordan of Insight Investment in the UK, "[This] is affecting deposits held directly with the banks, and investments in prime money market funds (MMFs), which predominantly have bank counterparties." Regulation in June of this year "is set to increase liquidity requirement and reduce the maturity of profiles of prime MMFs." The European Union sets this regulation and currently regulates these Prime MMFs. O'Riordan states that "this will apply further downward pressure to the yields they generate." Because of this, "prime MMFs will no longer offer treasurers a constant NAV in all market conditions, which they desire." The article states, "MMFs are now designated differently because of regulation, which has created "new criteria" for CNAV funds, and has led to the institution of a "new low volatility NAV (LVNAV) fund type." It tell us, "The Holy Grail for treasurers is for their cash investments to be backed by government securities, to have daily access to their cash and for the yield they receive to be comparable to a prime MMF. 'A few years ago, this dream was unachievable given the limited amount of cash investment choices,' notes O’Riordan. 'But this is now very much a reality due to the opening up of the non-bank repo market.'" Finally, Treasury Today explains, "However, [O'Riordan] believes that it is increasingly possible for treasurers to transact repo directly with cash borrowers, 'thus avoiding the large spread typically imposed by banks'. In this model, non-bank counterparties offer gilts as collateral for the cash they borrow, giving treasurers the highest form of security, with a yield enhancement over what they would receive if they went directly to a bank. In addition, it gives treasurers the ability to diversify their cash away from bank risk."

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 8th week out of the past nine, and the 14th out of the past 16. Prime MMFs have risen by $37.8 billion, or 9.3%, over the past 18 weeks, and $75.0 billion, or 20.3%, year-to-date. ICI writes, "Total money market fund assets increased by $384 million to $2.74 trillion for the week ended Wednesday, October 4, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $1.69 billion and prime funds increased by $1.41 billion. Tax-exempt money market funds increased by $663 million." Total Government MMF assets, which include Treasury funds too, stand at $2.168 trillion (79.1% of all money funds), while Total Prime MMFs stand at $444.6 billion (16.2%). Tax Exempt MMFs total $128.3 billion, or 4.7%. They explain, "Assets of retail money market funds increased by $1.22 billion to $985.38 billion. Among retail funds, government money market fund assets increased by $302 million to $600.67 billion, prime money market fund assets increased by $590 million to $262.48 billion, and tax-exempt fund assets increased by $325 million to $122.22 billion." Retail assets account for over a third of total assets, or 36.0%, and Government Retail assets make up 61.0% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $833 million to $1.76 trillion. Among institutional funds, government money market fund assets decreased by $2.00 billion to $1.57 trillion, prime money market fund assets increased by $824 million to $182.15 billion, and tax-exempt fund assets increased by $338 million to $6.10 billion." Institutional assets account for 64.0% of all MMF assets, with Government Inst assets making up 89.3% of all Institutional MMFs.

The Federal Reserve Bank of New York posted another update on Tri-Party repo, "The Cost and Duration of Excess Funding Capacity in Tri-Party Repo." (See our Oct. 3 News, "Federated'​s Cunningham on Fed in December; NY Fed on Tri-​Party Repo.") The Liberty Street Economics piece says, "In a previous post, we showed that dealers sometimes enter into tri-party repo contracts to acquire excess funding capacity, and that this strategy is most prevalent for the agency mortgage-backed securities (MBS) and equity asset classes. In this post, we examine the maturity of the repos used to pursue this strategy and estimate the associated costs. We find that repos that generate excess funding capacity for equities and corporate debt have longer maturities than the average repo involving either of these asset classes. Furthermore, the premiums dealers pay to maintain excess funding capacity can be substantial, particularly for equities.... Dealers acquire excess funding capacity to be able to cope with unanticipated funding demands and shocks in the future. But how far into the future do dealers secure excess funding? We answer this question using confidential, daily tri-party repo market data covering March 2017. We divide repos into two categories: those that generate excess funding capacity ("excess") and those that don't ("no excess"). In the table below, `we compare the cumulative maturity distributions for these two groups of repos, looking across three asset classes."

The latest Barron's features the article, "Beware the Risks of Floating-Rate Funds." Subtitled, "High yields can blind income seekers to the dangers of these below-investment-grade investments," it says, "Words are powerful, and for investors seeking income, the words "floating rate" are particularly alluring these days. The Federal Reserve is likely to raise interest rates again in December, and rates globally have risen sharply in just the past week. When rates rise, bond prices fall. But the coupons of floating-rate securities adjust higher, so they pay more and their prices are stable. If only it were that simple. A wide array of floating-rate securities trade today, and the holdings of mutual funds with "floating rate" in their name vary widely. Such funds, which offer investors high yields -- now close to 4% -- often hold what are known as bank loans, leveraged loans, or senior loans. Regardless of what they're called, these loans are made to below-investment-grade companies—and thus are packed with credit risk." The piece quotes Brian Rehling from Wells Fargo Investment Management, "Most of the funds that are floating-rate tend to be bank-loan funds, whether they say it or not.... They have higher yields, and with funds, yield sells."

A Prospectus Supplement for The Gabelli Money Market Funds and the "The Gabelli U.S. Treasury Money Market Fund," tells us, "Supplement dated September 28, 2017 to the Fund's Summary Prospectus and Prospectus for Class AAA, Class A, and Class C shares each dated January 27, 2017, as supplemented from time to time. Effective October 1, 2017, the total expense ratio for the Fund is reduced from 0.11% of the Fund's average daily net assets to 0.08% of the Fund's average daily net assets. Accordingly, corresponding changes are made to the Fees and Expenses table in the Prospectus and the Summary Prospectus." A separate filing for UBS Money Series and the UBS Select Prime Investor Fund dated September 28, 2017, says, "Dear Investor: The purpose of this supplement is to update certain information contained in the Prospectus for UBS Select Prime Investor Fund (the "fund") regarding a voluntary fee waiver for the fund.... Effective from October 1, 2017 through October 31, 2017, UBS AM will voluntarily waive 0.04% of its management fee (imposed at the related master fund level) for UBS Select Prime Investor fund. The full benefit of this additional voluntary fee waiver may not flow through in its entirety to fund shareholders given the interplay between the 0.04% voluntary waiver and the pre-existing contractual fee waiver/expense reimbursement arrangements that cap UBS Select Prime Investor Fund's ordinary operating expense ratio at 0.50% through August 31, 2018; the contractual cap is not being increased."

A press release entitled, "BNY Mellon and Hazeltree Join Forces to Simplify Buy-side Cash Management," tells us, "BNY Mellon and Hazeltree, a leading provider of treasury solutions, have joined forces to deliver an independent platform that streamlines cash management for buy-side and corporate firms. The initiative delivers BNY Mellon's full suite of cash, treasury and custody services through Hazeltree's advanced treasury management technology. The strategic relationship not only provides BNY Mellon clients with full transparency across their portfolio, regardless of where their money is held, but optimizes cash investment, streamlines FX hedging, and drives increased efficiency. By linking participants with BNY Mellon's award-winning Liquidity DIRECT solution, clients can also take advantage of an array of investment vehicles." Jonathan Spirgel, Head of Global Liquidity Services, BNY Mellon Markets, comments, "At a time of increasingly complex global markets, this integrated platform can make the treasury function a lot more efficient. It enhances performance, while ensuring that participants maintain the level of security and liquidity of their assets they rightly expect from BNY Mellon." Sameer Shalaby, President and CEO of Hazeltree, adds, "Many firms are missing opportunities to optimize their cash usage due to manual and incomplete processes. Our new platform increases transparency into their holdings, minimizes frictional costs and reduces operational risk." The release adds, "The initiative is being rolled out in phases to select BNY Mellon clients, that will be provided access to both the Hazeltree technology platform and the existing BNY Mellon infrastructure, including efficient payment processing via SWIFT."