Daily Links Archives: June, 2017

DTCC issued a press release on a "New Era of Repo Clearing." It says, "The Depository Trust & Clearing Corporation (DTCC) ... today announced that the new Centrally Cleared Institutional Tri-Party (CCIT) Service of its Fixed Income Clearing Corporation (FICC) subsidiary is live, and the first trade has been executed between Citadel and Morgan Stanley. Since the U.S. Securities and Exchange Commission (SEC) approved rule changes last month that allow institutional investors to participate directly in the clearinghouse through CCIT membership, FICC has been working with dealers and cash lenders -- including corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities and state treasuries -- to prepare all the necessary documentation and agreements to begin this next stage in the evolution of the repo market." Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services, says, "We are very pleased to have been able to work with Citadel and Morgan Stanley to take this next step to make CCIT a reality. With a greater number of market participants leveraging the clearinghouse through the CCIT Service, we are able to strengthen both the safety and efficiency of the tri-party repo marketplace." The release adds, "The new CCIT membership expands the availability of central clearing in the repo market and extends central counterparty (CCP) services and the guaranty of the completion of eligible tri-party repo transactions between its dealer members and eligible institutional cash lenders. Expanding the CCP guaranty to a broader number of participants would lower the risk of diminished liquidity in the tri-party repo market caused by a large scale exit of participants in a market stress situation. The expanded membership also means more trading activity with a failed counterparty can be centrally liquidated in an orderly manner by FICC, which would reduce the risk of "fire sales" that drive down asset prices and spread stress across the financial system."

The Federal Reserve Bank of New York's Liberty Street Economics blog published two pieces of interest to the money markets recently. The first, "Low Interest Rates and Bank Profits," discusses "how harmful low rates have been to banks," while the latest, "Market Liquidity after the Financial Crisis," talks about how regulations have hurt liquidity. The Low Rates piece says, "The Fed's December 2015 decision to raise interest rates after an unprecedented seven-year stasis offers a chance to assess the link between interest rates and bank profitability. A key determinant of a bank's profitability is its net interest margin (NIM) -- the gap between an institution's interest income and interest expense, typically normalized by the average size of its interest-earning assets. The aggregate NIM for the largest U.S. banks reached historic lows in the fourth quarter of 2015, coinciding with the "low for long" interest rate environment in place since the financial crisis. When interest rates fall, interest income and interest expenses tend to fall as well, but the relative changes -- and the impact on NIM -- are less clear. In this post, we explore how NIM fell during the low-interest-rate period, finding that banks mitigated some, but not all, of the impact of lower rates by shifting into less costly types of liabilities. Our analysis also gives insight into how NIM may respond to the new rising interest rate environment." The Fed's latest piece says, "The possible adverse effects of regulation on market liquidity in the post-crisis period continue to garner significant attention. In a recent paper, we update and unify much of our earlier work on the subject, following up on three series of earlier Liberty Street Economics posts in August 2015, October 2015, and February 2016. We find that dealer balance sheets have continued to stagnate and that various measures point to less abundant funding liquidity. Nonetheless, we do not find clear evidence of a widespread deterioration in market liquidity."

PlanSponsor Magazine writes "Money Market vs. Stable Value," which discusses "Considerations for fiduciaries" and the use of money funds and stable value options in retirement plans. The piece says of capital preservation options for defined contribution (DC) plans, "[B]oth of the most widely used options, money market funds and stable value accounts, have shown their weaknesses in recent years, so there is no compelling choice. The idea behind a capital preservation option is granting participants a shelter for their hard-won assets when conservatism is warranted -- such as during extreme market conditions -- or to accommodate a preference for steady asset values." It comments, "Of the 1,900 plans surveyed in 2015 for The Vanguard Group Inc.'s "How America Saves 2016," money market funds were present at 72% of plans and stable value accounts at 57%. In a 2016 client survey by consultants NEPC, however, 38% of plans offered money markets, 47% provided stable value, and 15% presented both. Although the two options hold similar positions at the conservative end of the investment risk continuum, their returns have been worlds apart.... [F]or the five years ended this past December, stable value accounts returned an annual average of 1.84% -- somewhat better than short-term high-quality bonds -- while money market funds earned next to nothing.... Those results are reflected in investors’ holdings: At year-end 2016, participants at recordkeeping clients of Aon Hewitt held 10.5% of their portfolios in stable value, versus just 2.1% in money market funds." The article adds, "In view of the significant and persistent differences in returns, it might seem logical that, over the last few years, sponsors would have substituted stable value accounts for money market funds, or at least increasingly offered them as a further option. An overt opportunity for such a switch arose last October, when new regulation on prime money market funds, which are offered by many DC sponsors, made them impractical.... But the move was not meant to be. Notwithstanding the better historical yields on stable value funds, sponsors remembered the challenges during the financial crisis. "Stable value accounts were hit by the one-in-a-million event, and the ratios of market value to book value dropped to the low 90% level across the board," Bremen recalls."

Bankrate.com writes, "More Americans are getting better about saving. No, really!" They explain, "Way to go, savers! There are more of you out there, putting more money away in case of a financial emergency. Only 24 percent of adults now say they have no money saved for an emergency like a layoff or a huge medical bill, according to Bankrate's June Financial Security Index survey. That's the lowest level since polling began in 2011. Also, 31 percent have what's considered an adequate savings cushion: enough to cover six months' worth of expenses or more. That's the highest Bankrate has seen in the seven years we've been asking about that. But, looking at the flip side, the findings mean about a quarter of Americans still don't have any emergency fund. And more than two-thirds are short on savings." The piece adds, "Experts recommend having enough savings to cover expenses for three to six months. If you're an entrepreneur or breadwinner, McBride says, you may need to save more. Bankrate's survey finds 1 in 5 adults has some savings but not enough to pay the bills for the three-month minimum. To help you reach the three-month savings target, put any extra money you make into a high-yield savings or money market account."

The Wall Street Journal writes "When Everything Is Expensive, Not Investing Is a Great Option." The piece, subtitled, "Stocks are at record highs and bond yields exceedingly low. It is time to hoard cash for the next buying opportunity," explains, "In a world where many markets look expensive, putting cash to work is hard. Simply hanging on to more of it might be a good idea. That is particularly the case after the first half of 2017 has delivered good results across the board. Most strikingly, both bonds and stocks are up. The MSCI World index of developed-market stocks is up 9.7% so far this year, while long-dated bonds are also partying, with the 30-year Treasury yield falling around 0.25 percentage point to just 2.73%, boosting prices. Corporate-bond yield spreads are back to their tightest levels since the global financial crisis." The Journal adds, "Yet falling bond yields and rising equity markets are sending conflicting signals: the former reflecting the lackluster picture for inflation; the latter hopes for growth. Bond yields are still ultralow, while equity valuations are high.... A divergence in either direction will mean that one of the asset classes will have to rethink its assumptions. The jury is out on what happens from here: hopes of a fiscal bump to growth led by the U.S. have faded, while the recent decline in oil prices may cause new worries about headline inflation. More significantly, perhaps, the flood of global central-bank liquidity that has supported markets is past its peak: the Federal Reserve is raising rates, and the European Central Bank is inching toward an exit from ultra-loose monetary policy.... `In this environment, faced with unappetizing initial valuations, not investing might be a valid strategy. For a long time central banks have sought to make cash as unattractive an asset as possible -- going so far as to introduce negative interest rates in Japan and Europe. But the more expensive financial assets like bonds and equities get, the less relatively expensive cash looks. The latest Bank of America Merrill Lynch global fund manager survey shows cash holdings at 5% of assets under management, above the 4.5% long-term average but lower than last year."

Citi's Vikram Rai writes, "Maintain bullish view on municipal cash." He comments, "We maintain our bullish view on municipal cash owing largely to positive supply-demand technicals1 and expect 2YR, 5YR, 10YR and 30YR municipal Treasury yield ratios to end July 2017 around 65%, 68%, 82% and 92% respectively. Thus, yield ratios for all tenors could decrease more from current levels (and we have factored in the robust issuance calendar over the next few weeks). In fact, it is quite possible that 2YR and 5YR ratios could drop even below 65% and 68% respectively as statistical relationships tend to break down for the front end when yields are too low. We stress that it is important to maintain the distinction between cash and derivative products. Our recent recommendation to buy MCDX2 at current levels is a tactical trade idea in light of the failure of the MCDX index to follow fundamental trends; MCDX premiums have moved steadily lower despite the credit deterioration in some of underlying reference entities. A downgrade or a credit event could cause these premiums to rise fairly quickly. We are NOT recommending that investors should short the broader municipal market.... In fact, we believe that investors should continue to add duration as we expect the issuance calendar to be lighter during the latter half of the year, which could cause a minor scarcity of high grade, long duration paper."

The website Lexology writes, "Double-up for Money Market Funds -- Council adopts Regulation," which says, "Money market funds ("MMFs") provide short-term finance to financial institutions, corporations, and governments. The (non-binding) Guidelines on a common definition of European money market funds ("Guidelines"), which were adopted by the Committee of European Securities Regulators (CESR) on 19 May 2010, were applied by 12 Member States only. In view of this, the Council of the European Union ("Council") adopted the Regulation on money market funds ("MMF Regulation" or "MMFR") on 16 May 2017, which will apply directly in all Member States." The brief asks, "What is the scope of the MMFR?" It answers, "The MMFR applies to collective investment undertakings that (a) are established, managed, or marketed in the European Union, (b) are undertakings for collective investment in transferable securities ("UCITS") under the Directive 2009/65/EC on UCITS ("UCITS Directive") or are AIFs under the Directive 2011/61/EU on alternative investment fund managers ("AIFM Directive"); and (c) invest in short-term assets (being financial assets with a residual maturity not exceeding two years); and (d) have distinct or cumulative objectives that offer returns in line with money market rates or that preserve the value of the investment." It adds, "The new rules on MMFs add a layer on top of the existing UCITS and AIFM framework (as implemented into the national legislations). In addition to these new rules, an MMF will have to continue to apply either the UCITS or AIFM framework depending on whether it is a UCITS or an AIF."

Bloomberg writes "India's Paytm Said to Seek License to Offer Money Market Fund." The article explains, "India's largest digital-payments company, Paytm, is seeking a license to set up a money market fund where users can store cash and earn interest, in competition with the country's banks, according to a person familiar with the matter. Paytm has applied to India's central Reserve Bank of India to start the fund and increase its offerings to its over 250 million users, said the person, asking not to be named because the matter is private. It's another step in the startup's push to disrupt the country's financial services industry after it secured a banking license and began offering gold trading earlier this year. The company is now officially called Paytm Payments Bank Ltd., and is allowed to take deposits and pay interest but not lend money. Paytm is following the path of Alibaba Group Holding Ltd.'s financial affiliate, which set up its Yu'E Bao fund less than five years ago in China and saw it become the world's biggest such fund with 1.14 trillion yuan ($167 billion) in assets. Both Alibaba and its affiliate Ant Financial are investors in Paytm." The piece adds, "Like traditional money market funds started in the 1980s, the Paytm money market fund will sweep leftover digital cash into a fund and pay users interest on it. The rate of interest is not immediately known but the fund will offer better returns than the interest rates banks offer on savings accounts currently, the person said."

A new fund filing, or Form N1-A (or Form 485APOS) for State Street Treasury Obligations Money Market Fund indicates that the firm is preparing to launch a new "feeder" Treasury and "repo" fund. The tentative prospectus says, "The Fund is a government money market fund and attempts to meet its investment objective by investing only in U.S. Treasury bills, notes and bonds (which are direct obligations of the U.S. government) and repurchase agreements collateralized by these obligations. The Fund may hold a portion of its assets in cash pending investment, to satisfy redemption requests or to meet the Fund's other cash management needs. The Fund invests in accordance with regulatory requirements applicable to money market funds, which require, among other things, the Fund to invest only in short-term securities (generally, securities that have remaining maturities of 397 calendar days or less and that the Fund believes present minimal credit risk), to maintain a maximum dollar-weighted average maturity and dollar-weighted average life of sixty (60) days or less and 120 days or less, respectively, and to meet requirements as to portfolio diversification and liquidity. The Fund seeks to achieve its investment objective by investing substantially all of its investable assets in the Treasury Plus Portfolio, which has substantially identical investment policies to the Fund. When the Fund invests in this "master-feeder" structure, the Fund's only investments are shares of the Treasury Plus Portfolio, and it participates in the investment returns achieved by the Treasury Plus Portfolio. Descriptions in this section of the investment activities of the "Fund" also generally describe the expected investment activities of the Treasury Plus Portfolio." The new feeder does not show an expense ration yet and appears to have a minimum investment of $1 billion.

The Investment Company Institute published a "Research Perspective entitled, "The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016," which briefly mentions money market funds, which are a minor player in the massive 401k market. ICI's statistics show that just 3% of $3.0 trillion in 401k plans is held in money funds, which totals approximately $90 billion. ICI writes, "Only 3 percent of 401(k) mutual fund assets were invested in money market funds at yearend 2016. 401(k) participants holding money market funds had an asset-weighted average expense ratio of 0.22 percent in 2016, higher than in 2015. Industrywide, the average expense ratio investors incurred on money market funds also rose in 2016. The increase in money market fund expense ratios in 2016 is largely reflective of a change in the current interest rate environment. Recent Federal Reserve decisions to increase interest rates led to the paring back of expense waivers that money market funds had adopted to ensure that net yields did not fall below zero. This caused the expense ratios of money market funds to rise somewhat." ICI's study shows that 63% of 401k plan assets are held in mutual funds overall, and 10% of this total, or about $300 billion, is held in bond funds.

Website Law360UK writes, "BOE Urges Banks To Sign Up To Forex, Money Markets Codes," which discusses "The UK Money Markets Code" released by the Bank of England recently. The article says, "A top Bank of England official outlined on Tuesday how bankers should adhere to new regulatory codes of conduct governing foreign exchange and money market activities in a move to restore trust in the sector’s reputation following a series of scandals. Several voluntary codes of conduct were handed out to the industry by central banks in April and May, covering ethics, governance, compliance and risk management at U.K. financial institutions, as regulators seek to encourage the industry to police its own behavior. Sarah John, the Bank of England's head of sterling markets, used a meeting in London to urge senior management to embed the principles of the code in their firms' day-to-day practices and demonstrate their adherence to the rules with a tailored statement of commitment." She commented, "This should provide market participants with an accessible and standardized means of demonstrating code adherence, without the need to provide bespoke sign-offs for different counterparties and service providers," at a briefing at the Association of Corporate Treasurers." The piece adds, "The Bank of England issued its code for participants in U.K. money markets including deposit, repo and securities lending on April 26, covering ethics, governance, risk management, confidentiality, execution and settlement."

The Federal Reserve's FOMC announced its 4th interest rate hike in 2 1/2 years and its second of 2017. Money fund managers and investors are thrilled with the news, and rates should begin rising to reflect the new higher levels today. The Fed's Statement says, "Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.... On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent.... Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.... In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.... The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. This program, which would gradually reduce the Federal Reserve's securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee's Policy Normalization Principles and Plans."

Wells Fargo Money Market Funds writes in its latest "Portfolio Manager Commentary about the imminent hike in rates by the Federal Reserve. They tell us, "The main topic in the government space continues to be the Federal Reserve (Fed), including its potential interest-rate path and balance sheet changes. The Federal Open Market Committee (FOMC) remains on track for another 0.25% rate hike at its mid-June meeting, which would bring its reverse repurchase program rate to 1.00% and the rate it pays on excess reserves to 1.25%. Pricing in the government markets largely reflects this expected move, and Fed speakers have not pushed back against this view, suggesting it would take a major development to derail a June tightening. With June a seeming fait accompli, attention has turned to future meetings, and opinions about those are mixed and evolving. While the data has been mixed, the Fed appears poised to look through the weak 1.2% first-quarter gross domestic product growth, forecasting a rebound in the second quarter. That sense of deja vu you're feeling may be due to this data point's tendency to execute the first-quarter dip and subsequent recovery; if it happens as expected, it'll be the fourth year in a row." In other news, Zacks writes "Invesco's May AUM Up 2.1% on Improved Money Market Assets". They write, "Invesco Ltd. announced an increase in its preliminary month-end assets under management for May 2017. The company's AUM came in at $859 billion, up 2.1% from $841.4 billion recorded in the prior month. The rise reflected favorable market returns, higher Money Market AUM and inflows into PowerShares QQQs and net long-term inflows." (Note: Invesco will also be the unofficial host for next week's Crane's Money Fund Symposium. See you in Atlanta!)

RBC Capital Markets' Mike Cloherty writes on "Deposit runoff and the rate outlook." He explains, "We look at one conceivable disruption to the rally: Fed balance sheet unwind will cause banks to shorten the expected life of their deposits, forcing them to shorten their asset mix. While the timing of this model change remains uncertain, we might see enough of a portfolio adjustment this summer to turn the rally on its head. The core issue is not a funding shortfall -- the deposit outflow due to Fed balance sheet unwind is likely to be just over $500bn in 2018 out of an $11.7T deposit base. Normal growth would push deposits up $850bn increase in 2018 -- that suggests a $350bn increase in deposits in 2018 as the Fed portfolio shrinks. But there will be dramatic effects on deposit modeling. In today's heavily regulated world, changes in models can have significant real world impacts." Cloherty continues, "We are not suggesting these shifts will cause massive 2003-style bank sales.... The huge question is timing. Will banks anticipate a regime change and alter their deposit modeling in advance of the Fed runoff? Or is the world so F9 driven that we will have to wait to see the empirical results of more rapid deposit turnover before deposit models change? `QE created bank deposits and the balance sheet unwind will eliminate deposits. Unfortunately, the distribution of the deposit loss across the system will be wildly uneven and hard to predict. The big issue is how modeling of deposits changes. Banks adjust their asset-liability mix to ensure that they are not excessively relying on short funding of long assets. In recent years, massive deposit creation from QE, soft loan demand, zero rates, and MMF reform depressed deposit competition. Any deposit modeled on data from recent years will show an extremely long average life. That long liability allows banks to own higher yielding, longer maturity assets without showing a worrisome funding gap. A significant shortening of the expected life of a deposit would create an asset/liability gap, putting pressure on banks to shorten their assets."

A recent article entitled, "Profile: Keeping the peace," which appeared in "The Journal of the Chartered Institute for Securities & Investment," interviews Paul Schott Stevens, president and CEO of the Investment Company Institute. He "reflects on the many crises faced during his time working in the US financial services industry, and explains why an appropriate framework of regulation will be so important moving forward," says the piece. It quotes Stevens on money market funds, "`In August 2007, I got a call from the Securities and Exchange Commission (SEC) -- it was a 'Houston we have a problem' moment." The profile explains, "Issues with money markets and money market funds grew over time, eventually resulting in intervention by the US Treasury Department. Paul was heavily involved in the effort to collect insight from ICI's members that helped to form regulation recommendations for the SEC -- to ensure a crisis on this scale did not happen again. As a result, money market funds were the first part of the US financial system to be reformed during the crisis. 'The Dodd-Frank Act doesn't contain any provision directed to money market funds -- I don't think any other part of the US financial system can say the same thing.'" For more Stevens comments, search for "Schott" on www.cranedata.com or see his past keynotes from Crane's Money Fund Symposium -- "ICI's Stevens Unveils Stable Value Coalition at Crane's MF Symposium (7/27/10) and "ICI's Stevens Says Floating NAV Wrong Approach at Crane's Symposium (6/20/13)." (Note: Our 2017 Money Fund Symposium takes place next week, June 21-23, in Atlanta, Ga. This year's keynote will feature Invesco CEO & President Martin Flanagan.)

Treasury Strategies' Anthony Carfang posted a statement on LinkedIn entitled, "Bipartisan U.S. Congressional support for bringing back CNAV Money Market Funds grows." He comments, "Yesterday, eight more members of the U.S. House of Representatives, four Democrats and four Republicans, signed on as co-sponsors to H.R.2319, a bill which brings back institutional prime and institutional tax exempt money funds. Since new SEC regulations went into effect last October, over $1.2tn has left these money funds, negatively impacting corporate investors and borrowers alike. H.R.2319 and its Senate counterpart S.1117 seek to restore these important money market tools. For more information, download our whitepaper, Money Market Fund Regulation, Winners, Losers and Long-Term Consequences. See our congressional testimony at https://www.youtube.com/channel/UChaxQwDEFxt37bliRoP02eQ/featured." (For more, see our May 24 News, "Stable NAV Bill Re-Introduced in House; Amortized Cost for Inst Funds?," our May 22 News, "NEAFP Treasury Show Focuses on Prime MF Issues; Atlanta Symposium, and our March 8, 2016 News, "`Long Shot Legislation Could Keep All Money Funds Stable, Ban Bailouts.")

A Prospectus Supplement filing for Retirement Government Money Market Portfolio tells us, "Reorganization. The Board of Trustees of Fidelity Money Market Trust and Fidelity Hereford Street Trust has unanimously approved an Agreement and Plan of Reorganization ("Agreement") between Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio (together, the "Acquired Funds"), each a series of Fidelity Money Market Trust, and Fidelity Government Money Market Fund, a series of Fidelity Hereford Street Trust. Substantially similar to each Acquired Fund, the Fidelity Government Money Market Fund seeks as high a level of current income as is consistent with preservation of capital and liquidity. The Agreement provides for the transfer of all of the assets and the assumption of all of the liabilities of each of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio in exchange for shares of Fidelity Government Money Market Fund (Retail Class) equal in value to the respective net assets of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio. After the exchange, Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio will distribute the Fidelity Government Money Market Fund shares to its shareholders pro rata, in liquidation of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio (these transactions are referred to as the "Reorganization"). The Reorganization, which does not require shareholder approval, is expected to take place on or about September 22, 2017. The Reorganization is expected to be a tax-free transaction. This means that neither Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio nor their shareholders will recognize any gain or loss as a direct result of the Reorganization."

Fox Business writes "One Market Gauge Is Signaling Fed Should Continue to Tighten Policy," which says, "A key measure that tracks stress in U.S. money markets tumbled to near its lowest level in seven years -- a sign of loose financial conditions that could prompt the Federal Reserve to maintain its pace of tightening monetary policy. The three-month dollar Libor-OIS spread -- the difference between the rate at which banks lend to each other and the market's expectations of central bank rates -- fell below 0.1 percentage point on Monday. It was 0.0998 percentage point, the lowest since August 2015, according to Steven Zeng, interest rate strategist at Deutsche Bank. The spread's lowest level in recent years was in March 2010, when it hit 0.06 percentage point." The piece adds, "As markets fret over whether the Fed will raise short-term borrowing rates too quickly, potentially constraining growth in the economy, the narrowing Libor-OIS spread is one indication that the U.S. central bank has the latitude to stay on its course of raising interest rates. The Fed lifted rates in December and March and is expected to act again at its June 13-14 meeting. Tracking the spread helps investors and policy makers monitor the health of money markets. A higher reading signals growing stress, while a lower one indicates easy funding conditions. The gauge soared to a record in October 2008 as banks lost trust in each other and money markets seized up."

The Wall Street Journal wrote, "'Ultrashort' Bonds Beckon as Rates Rise." It explains, "Bonds with less than a year before they mature are increasingly seen as an alternative to money-market funds. With the Federal Reserve's next interest-rate rise all but certain in June and the stock market at or near highs, some investors are taking a more-defensive approach. Historically, that has meant money-market funds. But new rules have placed liquidity constraints on those funds. Rising interest rates also mean that investors could see fees creep up, effectively neutralizing much of the yield that makes money-market funds attractive. As a result, "ultrashort-duration" bond funds and exchange-traded funds are becoming more popular. About $13 billion is in ultrashort bonds year-to-date through May 24, compared with $8.2 billion at the end of 2016, according to Morningstar data." The somewhat confusing piece adds, "Ultrashort-duration bonds are bonds that are due to come to maturity in less than two years. These securities can sometimes be removed from bond indexes once the maturity date drops below one year, creating an opportunity for short-term investors to pool them and capture the yield at maturity. The resulting performance of an ultrashort-duration bond product often looks similar to or slightly better than that of a money-market fund.... Still, there are key differences between money-market funds and ultrashort-bond products. For one, investors in the bond category will be taking on credit risk, however briefly. Vanguard Group, for example, advises investors in its Ultra-Short-Term Bond Fund (VUBFX) to hold off on tactical moves as a way to manage some of this risk."

SIFMA published its "US Research Quarterly, First Quarter 2017, which, they explain, is "A quarterly report containing brief commentary and statistics on the U.S. capital markets, including but not limited to: municipal debt, U.S. Treasury and agency debt, short-term funding and money market debt, mortgage-related, asset-backed and CDO debt; corporate bonds, equity and other, derivatives, and the primary loan market." The piece contains a brief section on "Funding and Money Market Instruments." SIFMA writes, "The average daily amount of total repurchase (repo) and reverse repo agreement contracts outstanding was $3.92 trillion in 1Q'17, a decline of 3.9 percent from 4Q'16's $4.09 trillion and a decline of 0.4 percent y-o-y. Average daily outstanding repo transactions totaled $2.18 trillion in 1Q'17, a decline of 2.9 percent q-o-q but a increase of 0.8 percent, respectively, q-o-q and y-o-y. Reverse repo transactions in 1Q'17 averaged $1.74 trillion daily outstanding, a decline of 5.2 percent and 1.9 percent q-o-q and y-o-y, respectively.... DTCC general collateral finance (GCF) repo rates increased for Treasuries and MBS in 1Q'17 on a q-o-q basis and y-o-y basis: the average repo rate for Treasuries (30-year and less) rose to 62.5 basis points (bps) from 4Q'16's average rate of 43.5 bps and 1Q'16's average of 46.0 bps. The average MBS repo rate rose to 64.0 bps from 46.0 bps in the previous quarter and 47.6 bps in 1Q'16." The update adds, "Interest rates for nonfinancial commercial paper (CP) rose to 84 bps end-March 2017 from 74.0 bps end-December 2016 and from 47 bps end-March 2016, while financial CP declined to 83 bps end-March from 87 bps end-De-cember 2016 but rose from 55 bps end-March 2016." Regarding "Total Money Market Instruments Outstanding," SIFMA comments, "Preliminary outstanding volume of commercial paper, stood at $937.2 billion at the end of the first quarter, up 5.9 percent from the prior quarter’s $884.9 billion but a decline of 8.2 percent y-o-y."

A recent Prospectus Supplement filing for BlackRock's FFI, or Funds for Institutions Series, which includes the former Merrill Lynch FFI funds -- BlackRock Premier Government Institutional Fund, BlackRock Treasury Strategies Institutional Fund, and BlackRock Select Treasury Strategies Institutional Fund, says, "On May 24, 2017, the Board of Trustees of Funds For Institutions Series on behalf of its series, BlackRock Premier Government Institutional Fund, BlackRock Treasury Strategies Institutional Fund and BlackRock Select Treasury Strategies Institutional Fund (each individually, a "Fund" and collectively, the "Funds") approved a proposal to close each Fund to share purchases. Accordingly, effective at the close of business on December 1, 2017, each Fund will no longer accept purchase orders. Dividends will continue to be reinvested, at the shareholders' option, in Fund shares. Shareholders may continue to redeem their Fund shares at any time." A separate filing for the FFI funds adds, "On May 24, 2017, the Board of Trustees of Funds For Institutions Series on behalf of its series, BlackRock Premier Government Institutional Fund and BlackRock Select Treasury Strategies Institutional Fund (each a "Fund," and collectively, the "Funds") approved a proposal to implement a low account balance policy. Accordingly effective July 31, 2017, the Prospectus for the Funds is amended as follows: The section of the Prospectus entitled "Account Information -- Funds' Rights -- Note on Low Balance Accounts" is deleted in its entirety and replaced with the following: Note on Low Balance Accounts. Because of the high cost of maintaining small investment accounts, each of Premier Government Institutional Fund, Select Treasury Strategies Institutional, Treasury Strategies Institutional Fund, Government Fund and Treasury Fund reserves the right to redeem your shares if at any time the total investment in your account does not have a value of at least $5,000. You will be notified that the value of your account is less than $5,000 and will be allowed 60 days to make an additional investment into your account before the redemption is processed. If you do not, within 60 days after receiving notice from such Fund of such deficiency, purchase additional shares of such Fund, each of Premier Government Institutional Fund, Select Treasury Strategies Institutional Fund, Treasury Strategies Institutional Fund, Government Fund and Treasury Fund is authorized to redeem your shares and have the proceeds of the redemption paid directly to you."

MarketWatch writes "How to earn more on your emergency savings." The piece explains, "When it comes to emergency savings, a common practice is to hold money in a liquid money-market fund or a bank checking or savings account. But I recommend an alternative: a high-grade, short-term bond fund. For one, the money can be just as liquid -- unless, of course, you need to write a check today. Suppose you need $2,000 for car repairs. You could move $2,000 as of the end of today from your short-term bond fund into your money-market fund held at the same institution and use the funds tomorrow to write a check to cover these expenses. Second, you could get a better return on your money for little added risk. I compared the annual returns for each year from 2002-2016 on Vanguard Group's Prime Money Market Fund VMMXX and Short-term Bond Index Fund VBISX (Investor shares). The average return on the short-term bond fund was 3.05%, which is more than twice the money-market fund's 1.38% average return. I also compared these two funds' quarterly returns for the 41 quarters through the first quarter 2017, which is the longest period available online at Vanguard.com. This short-term bond fund earned more than the money-market fund in 31 of the prior 41 quarters, and the worst one-quarter loss on the short-term bond fund was 1.14%." It adds, "This also supports my contention that the short-term bond fund is not materially riskier than the money-market fund. Daily and monthly returns are not available, but the nature of high-grade short-term bond funds ensures us that the maximum daily and monthly losses are negligible."

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