Daily Links Archives: August, 2017

With less than a month to go before our Paris event, Crane Data is making final preparations for its 5th Annual European Money Fund Symposium. European MFS is the largest money market fund event in Europe; this year's event will be held Sept. 25-26, our first time in Paris, France. We're urging European money fund professionals to make hotel reservations and register ASAP. See the latest agenda here, see hotel information here, and click here to register. Last year's event in London attracted 120 attendees, sponsors and speakers -- our largest European event ever. Given pending new money fund regulations in Europe and possible plans for "repatriation" of assets, we expect our first show on the Continent in Paris to attract even more interest this year. "European Money Fund Symposium offers European, Asian and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue," says Crane Data President Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he added. EMFS will be held at the Renaissance Paris La Defense hotel. Registration for our 2017 Crane's European Money Fund Symposium is $1,000 (USD or Euro). Visit www.euromfs.com to register or contact us to request the PDF brochure, or for Sponsorship pricing and info, and for more details. We hope to see you in Paris next month! Finally, thanks to those who attended our Money Fund Symposium earlier this summer in Atlanta. Next year's event will be June 25-27, 2018, in Pittsburgh, Pa. Watch our site or visit www.cranesmfsymposium.com for details in coming months. Also, our next Money Fund University "basic training" event will take place Jan. 18-19, 2018, in Boston, and our next Bond Fund Symposium will be held March 22-23, 2018, in Los Angeles, Calif.

Pensions & Investments writes, "It's time for the Fed to raise interest rates." They comment, "The Federal Reserve's low-interest-rate policy must end. The policy helped the economy recover from the depths of the Great Recession, but the economy is now strong enough to withstand higher rates. While the low-interest-rate policy helped the wider economy recover, it harmed parts of it. Many observers have noted the impact of the low interest rates on savers, particularly those retirees who have much of their retirement savings in money market funds and bank savings accounts. Those retirees found their savings greatly reduced by daily living costs because of the ultralow interest paid on such accounts. Few have noted the impact of the low rates on defined benefit plans, and the companies and government entities that sponsor them. Low interest rates have greatly weakened pension plans and accelerated the trend away from them in the private sector. The decline in rates since 2007 has pushed unfunded liabilities up, and the strong stock market recovery since 2009 has not been enough to bring liabilities down, even though companies and many state and local governments have contributed billions to their plans." They add, "Companies also need cash reserves against unforeseen crises. It's not surprising that cash reserves have risen since the recession, when companies failed after they ran out of cash and no institution was willing to lend.... These pressures on pension plan sponsors, private and public, could be greatly eased by higher interest rates. The Fed should wait no longer to push rates up."

Reuters writes "U.S. money funds held 20 pct T-bills due to October - Citi." It says, "U.S. money market funds at the end of July held $63 billion, or 20 percent, of outstanding Treasury bills due in October, when the government faces a deadline to increase the federal debt limit, according to Citi analysts. Yields on T-bills due in October have risen in the absence of a deal by lawmakers to raise the statutory borrowing cap, and they could rise more if members of Congress do not reach an agreement to raise the debt ceiling when they return from their summer recess next week, the analysts said in a research note published late Friday. They noted that money market fund managers had been slow to act on their bill holdings ahead of new industry rules going into effect last year. "Given that the MMF (money market fund) community started clearing up at-risk bill issuance just 2-3 weeks going into the reform, we may see further sales going forward," they wrote. "Of course, some of that dynamic may be behind us since the data is as of end of July." On Friday, October T-bill yields ended about 8 basis points to 20 basis points higher than yields on issues maturing in September and November, Reuters and Tradeweb data showed." The piece adds, "Until a deal is clinched, the T-bill market is vulnerable to further selling by money funds, whose ownership of T-bills increased last year as a number of them converted into government-only funds in response to tighter regulations. "We believe that default is highly unlikely but think the Oct bill dislocation can grow further," Citi analysts wrote."

J.P. Morgan Securities' latest "Short Duration Strategy Weekly," comments, "[P]erhaps the most notable thing this week was the cheapening in October Treasury bills, reflecting investors' growing concerns about the debt ceiling and the potential for a technical default. Indeed, Treasury bills maturing in early- to mid-October backed up 2bp to 7bp over the past week, significantly underperforming surrounding maturities.... Interestingly, this cheapening occurred in spite of assurances from Congressional leadership this week.... That being said, Fitch also commented this week that "brinkmanship over the debt limit could ultimately have rating consequences, as failure to raise it would jeopardize the Treasury's ability to meet debt service and other obligations.... Away from Treasury bills, recent flows into MMFs have been particularly strong over the past few weeks. Since the end of June, taxable MMF balances have increased $79bn, driven predominately by inflows into government MMFs. As we discussed last week, it's not uncommon for MMFs to see inflows in the second half of the year.... That said, the recent surge has been notable relative to this time in prior years and could be driven in part by some very large corporate bond deals that took place this summer: AT&T $22.5bn on 7/27/17, BAT $17.3bn on 8/8/17, Amazon $16bn on 8/15/17. After large bond deals, corporations have been known to temporarily park their bond proceeds in MMFs." (Note: Crane Data's Money Fund Intelligence Daily showed large outflows at the end of last week, so the surge in money fund assets may indeed be inflated by temporary factors.)

A new Prospectus Supplement filing for Western Asset Institutional Cash Reserves Inst (CARXX) tells us, "The Board of Trustees, on behalf of Western Asset Institutional Cash Reserves (the "Target Fund"), has approved a reorganization pursuant to which the Target Fund's assets would be acquired, and its liabilities would be assumed, by Western Asset Institutional Liquid Reserves (the "Acquiring Fund"), a series of the Trust, in exchange for shares of the Acquiring Fund. The Target Fund and the Acquiring Fund have the same investment objectives, strategies and policies, and the same investment manager and subadviser. Each fund invests as a feeder fund through Liquid Reserves Portfolio, an underlying mutual fund having the same investment objectives and strategies under a master/feeder structure. After the reorganization, the Target Fund would be liquidated, and shares of the Acquiring Fund would be distributed to fund shareholders. Under the reorganization, Target Fund shareholders would receive shares of the Acquiring Fund with the same aggregate net asset value as their shares of the Target Fund. It is anticipated that no gain or loss for federal income tax purposes would be recognized by Target Fund shareholders as a result of the reorganization. The reorganization is currently expected to be effected in August 2017. Prior to the reorganization, shareholders may continue to purchase, redeem and exchange shares subject to the limitations described in the Target Fund's Prospectus. Target Fund shareholders are not required to vote with respect to the reorganization, but the reorganization is subject to the satisfaction of certain conditions. Target Fund shareholders will be sent an Information Statement containing important information about the Acquiring Fund, outlining the differences between the Target Fund and the Acquiring Fund and about the terms and conditions of the reorganization."

Bloomberg writes "Once Shunned, Money Market Funds Are Proving to Be an Unlikely Haven." They tell us, "Cash is flowing into short-term U.S. government debt funds at the fastest pace in more than six months, just when you might expect investors to be running for the exits. Demand is surging even as lawmakers wrangle with a looming debt-ceiling deadline and investors become concerned about Treasury missing payments on the securities held in most of the funds. More than $75 billion has been deposited in government money-market funds in the four weeks ended Aug. 16, compared with outflows of about $18.5 billion from U.S. exchanged-traded and mutual funds, Investment Company Institute data show.... As of July, taxable money-markets funds, which includes Treasury funds, held about $679 billion of short-term U.S. government debt. Of that, $111 billion is maturing in October, or about 11 percent of all Treasury holdings in the funds and 2 percent of all government money-markets assets, according to a J.P. Morgan Securities note." The piece quotes Dreyfus Corp.'s Patricia Larkin, "I'm not frightened by those numbers or scale as we have many options to invest during this general time frame that people discuss as the problematic time. The Fed's RRP is a very welcome tool from the capacity perspective, especially in a situation like this." Bloomberg adds, "For those risk-averse investors, remaining in money market funds may be the best bet since they don't have many options. Banks may be unwilling to take on more deposits as they are near a record $11.8 trillion, according to Fed data since 1973."

The latest "FDIC Quarterly Banking Profile" says, "Higher net interest income and restrained growth in operating expenses helped lift banking industry profits in second quarter 2017. The 5,787 commercial banks and savings institutions insured by the FDIC reported net income of $48.3 billion for the quarter, an increase of $4.7 billion (10.7 percent) compared with the second quarter of 2016. Almost two out of every three banks -- 63.4 percent -- reported year-over-year earnings improvement, while only 4.1 percent were unprofitable, down from 4.6 percent a year earlier. The average return on assets (ROA) rose to 1.14 percent from 1.06 percent the year before. This is the highest quarterly ROA for the industry since second quarter 2007.... Net operating revenue -- the sum of net interest income and total noninterest income -- rose to $190.5 billion in the second quarter, an $11 billion (6.1 percent) increase from second quarter 2016. Most of the improvement consisted of higher net interest income, which was $10.3 billion (9.1 percent) higher than a year earlier. The increase in net interest income helped lift the industry's net interest margin (NIM) to 3.22 percent, from 3.08 percent in second quarter 2016. This is the highest quarterly NIM since fourth quarter 2013. While 57.7 percent of all banks reported higher NIMs, the improvement was greatest at larger institutions. More of their assets reprice or mature in the short term, and they are better-positioned to benefit from rising short-term interest rates. Noninterest income totaled $66.8 billion, up $654 million (1 percent) from a year earlier. Income from asset servicing was $1 billion (93.9 percent) higher, while gains on asset sales were $1.6 billion (31.7 percent) lower. Trading income fell $313 million (4.5 percent)." It adds, "The Deposit Insurance Fund (DIF) balance increased by $2.7 billion, to $87.6 billion, during the second quarter. Assessment income of $2.6 billion, which includes temporary assessment surcharges on large banks, drove the fund balance increase.... The deposit insurance assessment base -- average consolidated total assets minus average tangible equity -- increased by 0.5 percent in the second quarter and by 3.5 percent over 12 months. Total estimated insured deposits decreased by 0.4 percent in the second quarter of 2017 but rose by 5.5 percent year-over-year."

J.P. Morgan Securities published a brief entitled, "Q&A on a US Treasury Technical Default." They write, "In a note published earlier this year, we provided an overview of the debt ceiling debate, the history of previous episodes, and possible market implications of rising fears of, or the actual occurrence of, a technical default by Treasury (see "What would Alexander Hamilton do?" 3/15/17). In this note we review some of the operational and more technical aspects of a failure to pay.... Considering October 13 as the "drop dead" date and assuming any technical default is short-lived, bills maturing in early- to mid-October appear to be most at risk of being the first to default if the debt ceiling is not raised.... We should state upfront that prior debt ceiling debates have never resulted in a technical default, and we do not think it is likely to occur.... As in prior episodes, we expect there will be a cheapening of Treasuries versus comparable assets.... Yields on bills that mature in the potential default window are also likely to head higher. We note that there are no cross-default provisions on Treasuries, so we are likely to see localized dislocations -- for instance, 1-month bills are likely to cheapen substantially relative to longer-maturity bills heading into the deadline.... There are also likely to be selective dislocations in the repo markets -- while we expect GC repo to head higher, haircuts applied to various bonds will likely differ, with bonds with mid-April or mid-October maturities incurring larger haircuts.... The implications of a US government default are complicated for MMFs, but ultimately we believe these funds would not be forced to liquidate Treasury securities in a technical default. Taxable MMFs are significant owners of short-term Treasury debt, with holdings of about $679bn as of July 31, the most recent date for which we have data. Of this amount, $111bn was held in Treasuries maturing in October, with most of this amount ($67bn) held by Treasury-focused MMFs. Based on these July month-end numbers, Treasuries maturing in October comprised about 11% of all Treasury MMF holdings, 2% of all government funds, and only 2% of all prime funds. Neither Rule 2a-7, nor any of the criteria governing rated funds' investments explicitly requires immediate liquidation upon default. The decision to sell-or-hold would most likely be left to the discretion of the boards of directors of individual funds. In the case of a solvent, high-quality government issuer facing a temporary payment delay, we believe few fund boards would choose to liquidate defaulted securities at distressed levels. Likewise, fund ratings criteria include provisions giving managers reasonable cure periods for dealing with defaulted securities."

We wrote recently about the start of the Subprime Liquidity Crisis, which began 10 years ago this month. (See our August 11 News, "MMF Assets Jump, Prime Up Again; 10 Years Ago: Subprime Crisis Starts," and our August 8 Link of the Day, "10 Years Ago: Subprime Liquidity Crisis Began in Money Markets With ABCP Extensions.) August 2007 though was full of tumult. Ten years ago this week, we also wrote about the following stories: "Evergreen Removes Some ABCP Holdings to Protect Money Market Funds (8/20/07)," "Columbia Comfortable With Fractional Extendible CP and CDO Holdings (8/22)," and "CFTC Sentinel Management Pool Is NOT a Money Market Mutual Fund (8/14)." We commented, "In an "Evergreen Money Market Product Update" on their website, the company says, "Recent media and industry sources have published reports related to the asset-backed commercial paper (ABCP) market and the impact of these securities on various money market investment vehicles. In managing Evergreen's money market funds, we have reduced our exposure to ABCP and eliminated certain holdings." We also wrote on Sentinel, "CNBC reported Tuesday morning that Sentinel Management Group has asked the Commodities Futures Trading Commission (CFTC) to halt redemptions from its pooled accounts. The CNBC report erroneously identified the managed account as a money market mutual fund." Finally, ten years ago, we wrote "A History of Liquidity Incidents Impacting Money Market Mutual Funds (8/19/07)," which discussed past problems with money funds. Our piece said, "With recent hysteria and misinformation surrounding commercial paper and money funds, we wanted to review the historical record of minor problems involving these conservative investments. No individual investor has ever lost money in a money fund, and there has only been one case of an institutional fund "breaking-the-buck", or dropping below $1.00. Here is a synopsis of prior money fund bailouts: 2001 California Energy Crisis - PG&E defaults, about 10 funds buy out CP from funds (PG&E pays all principal and interest); 1998 General American Life - Funding agreements seized in bankruptcy, several funds impacted (investors paid in full); 1997 Mercury Finance - Strong Money funds bailed out over defaulted CP; 1994 Derivatives Bailouts, Orange County Bankruptcy - 20+ funds bailed out of troubled securities, since banned from money funds; 1994 Community Bankers US Govt Money Mkt Fund - first and only money fund to "break-the-buck", $100 million fund liquidated at $0.96 per dollar."

Bloomberg writes "World's Biggest Money-Market Fund Can Grow More, Fitch Says." The article says, "Yu'E Bao, the world's biggest money-market fund, still has potential to grow more even after it expanded at the fastest half-year pace in three years in the first six months of 2017, according to Fitch Ratings. The Chinese fund is sold on the mobile-payment platform Alipay, offered by Alibaba Group Holding Ltd.'s financial affiliate, which is controlled by Jack Ma.... Yu'E Bao has 1.4 trillion yuan ($210 billion) of assets under management, accounting for about 28 percent of China's money-market funds." It adds, "Chinese money-market funds have gotten an extra boost this year, after the government sparked an increase in short-term bond yields as it cracked down on leverage in the financial system. The seven-day annualized yield offered by Yu'E Bao has averaged 3.87 percent in 2017, according to Bloomberg-compiled data. That compares with 3.74 percent on all local money-market funds this year, according to research firm Howbuy. The flood of money into Yu'E Bao may have prompted Tianhong Asset to seek ways to control risks, said Fitch's Huang. The company lowered the investment cap in the fund to 100,000 yuan earlier this month. But the rule change may not alter the growth trend, said Huang.... Recent figures underscore how Yu'E Bao is driving expansion in the industry. Its assets under management rose by 623 billion yuan in the first half of this year. That accounted for the bulk of the 822 billion yuan expansion in all Chinese money-market funds, according to the Asset Management Association of China."

The Federal Reserve Bank of New York sent out a release entitled, "Reverse repo counterparties list updated." It says, "BlackRock Treasury Money Market Master Portfolio and Wilmington U.S. Government Money Market Fund have been added to the list of reverse repo counterparties, effective August 16, 2017." The Federal Reserve also released its latest "Minutes of the Federal Open Market Committee, July 25-26, 2017. They say, "Conditions in short-term funding markets were stable over the intermeeting period. Reflecting the FOMC's policy action in June, yields on a broad set of money market instruments moved about 25 basis points higher. However, over much of the period, the net increase in rates on shorter-dated Treasury bills was smaller, reportedly reflecting a reduction in Treasury bill supply.... Members agreed that the timing and size of future adjustments to the target range for the federal funds rate would depend on their assessment of realized and expected economic conditions relative to the Committee’s objectives of maximum employment and 2 percent inflation. They expected that economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate, and that the federal funds rate was likely to remain, for some time, below levels that are expected to prevail in the longer run. They also again stated that the actual path of the federal funds rate would depend on the economic outlook as informed by incoming data."

Federated Investors posted a video interview with Money Market CIO Deborah Cunningham which asks, "Is it time to start moving money back to prime funds?" She tells us, "We have been saying that it is definitely the time for prime, [but] I think that there are probably 3 main competitive disadvantages in the marketplace right now that keep that from happening. First of all, when you look at the yields of prime products versus government funds, they're very attractive, 30 to 35 basis points, or two to three times what the historical norms would have been in those spreads. Against deposit products, they look very, very attractive. Yet, I think the three main impediments are the following: number one, the earlier cutoff times. Prime institutional products, generally speaking, have a cutoff time around 3 pm, versus what used to be 5pm products ... and still is for the gov't money market funds. Secondly, I think it's the small size of the prime funds. Their assets were reduced drastically during money market reform, and they're just now starting to grow back to become a factor in the market again. Thirdly, I think, and it's probably a larger factor, are the operational issues associated with systems. I think that many participants have not yet tested their systems to be able to undertake the floating net asset value and the product that could have a gate or a fee associated with it, and this is also a natural impediment. I don't think it causes the market to stymie completely, yet it definitely causes it to be slower from a reaction standpoint, despite what are very attractive features from a spread standpoint. But the answer is, it's definitely time for prime, it was yesterday, it is today, and it will be tomorrow."

Nikkei Asian Review writes "Alibaba lowers retail investor ceiling again on money market fund." It says, "China's Alibaba Group Holding on Monday imposed a lower cap on individual holdings in its 1.43 trillion yuan ($214 billion) online money market fund, an apparently voluntary move to restrict flows into a vehicle that regulators worry could destabilize the financial system. The ceiling for the Yu'e Bao fund's more than 300 million individual investors in China was lowered to 100,000 yuan per person from 250,000 yuan. This follows a reduction in May from 1 million yuan. Alibaba group member Ant Financial's investment product, described as the world's largest money market fund, lets users of the Alipay payment service park their idle money." The article explains, "The fund's attraction lies partly in the high interest rates holders earn -- an annualized 4% or so, compared with a standard one-year rate of 1.5% on bank time deposits.... Its size, along with the fact that more than 80% of its holdings are deposited with major banks, gives it a systemic significance that regulators can hardly ignore. One cause for concern is the possibility that banks are channeling the funds they raise from Yu'e Bao into real estate loans and other risky investments. Yu'e Bao's convenient features include instant redemptions. But the fund's investment holdings have an average maturity of more than 70 days, and some banks have turned Yu'e Bao money around into even longer-term loans, financial market watchers say. With Chinese regulators increasing scrutiny of online financial services, Alibaba Group has moved again to restrict the fund's size." See also, Crane Data's June 5 News, "`China's Yu'e Bao Limits Accounts; Australian Study on Chinese MMFs," and see the WSJ's "China Sets Its Banks on Scramble for Funding".

The Association for Financial Professionals will host a webinar entitled, "Managing Operating Cash Post Reform" on Tuesday, August 15 from 3:00-4:00pm Eastern. The webinar, which follows the release of AFP's 2017 Liquidity Survey last month, features AFP's Tom Hunt, Crane Data's Pete Crane, Qualcomm's Geoffrey Nolan and SSGA's Don Cooley. The description says, "In this webinar, hear from participants as they discuss the short term investing market, strategies to segmenting cash, and investment policy considerations. [The webinar will help listeners] Better understand how changes in post money fund reform impact investment decisions and timing around those decisions in light of a rising interest rate environment. Participants will walk away with an understanding of current investment allocation best practices, investment policy changes, and benchmarking around current member practices." The event's Learning Objectives include: Identify best practices for investment allocation; and Understand the impact of post money fund reform on investment decisions." Note: Fore more on the "`AFP Liquidity Survey, see the AFP's press release. (See also our July 12 Link of the Day.)

Wells Fargo Securities' Garret Sloan writes in his "Daily Short Stuff," "Crane's money market fund holdings were released yesterday afternoon revealing some interesting trends in 2a-7 fund investment strategy. On the government fund side.... In terms of alternative repo structures, we continue to see a slowly building counterparty position to FICC in 2a-7 funds. Given that 2a-7 funds are not able to directly face FICC, this is likely part of a dealer-sponsored program in which a dealer/custodian faces FICC on behalf of its 2a-7 fund clients. We would anticipate that if the dealer/custodian is sponsoring this activity, it is charging an additional fee to offer the product, which may be why we only see a very small number of counterparties trading in it. Based on the sharply different repo levels appearing in the data there may be some discrepancies in how the funds are reporting the trades, or the trade levels may be reflective of volatility in the intra-day FICC-cleared repo market. Looking at July month-end, there were five funds facing FICC according to Crane Data: Goldman Sachs Treasury Obligations Institutional Fund, Goldman Sachs FS Government Fund, Federated Government Reserves Fund, BMO Government Money Market Fund and BMO Prime Money Market Fund. Amongst those five funds, the "coupons" reported in the Crane holdings ranged from 12 to 108 basis points. If the FICC trades are available throughout the day, the differences in coupon could simply be chalked up to timing, as there is a marked difference between repo levels offered before the Fed RRP auction and those available at the end of the day. If certain funds are entering these transactions earlier in the day when there are other overnight options available, they would likely have increased pricing power in the cleared-FICC repo market, while those looking to place end-of-day cash may have few, if any, substitutes available." (For more, see our June 30 Link of the Day, "DTCC on CCIT Repo and see the DTCC release.")

Bloomberg writes "With $1 Trillion Chasing Deals, Investors Park Cash in ETFs". The article tells us, "With private equity firms sitting on a record amount of cash they're struggling to invest, their clients are turning to exchange-traded funds for relief. BlackRock Inc. and State Street Corp., two of the world's biggest providers of ETFs, say an increasing number of institutional investors are using their products to park money earmarked for private funds. These investors -- pension plans, foundations and endowments that are under pressure to meet obligations -- are trying to eke out an extra return on cash that would otherwise languish in a money market fund." The piece quotes BlackRock's Armit Bhambra, "They can't afford to have money sitting in cash or similar low-yielding investments. It's difficult to justify sitting in cash for 24 months, so they're having to think about different ways to fund these types of mandates." Bloomberg explains, "The amount of dry powder -- money raised but not yet invested -- could hit $1 trillion by the end of year in private equity alone, after reaching $963 billion in July, according to researcher Preqin Ltd.... ETFs, which have grown to more than $4 trillion in assets, can give investors instant and diversified exposure to an asset class, while allowing for a quick liquidation to meet obligations. Unlike traditional money funds, they are exposed to the ups and downs of the underlying markets, and there's some debate about how liquid ETFs really are when they track inherently illiquid assets such as junk bonds.... Until that cash is used for deals, private equity investors "are putting the money into equity markets, plain and simple," said Wayne Bowers, Northern Trust Corp.'s Chief Executive Officer for Europe and Asia. "They’re making the money sweat.""

Law firm Dillon Eustace published, "Ireland: A Guide To Money Market Funds Under The MMFR," which reviews pending European Money Fund Regulations. They write, "After protracted negotiations, the Council and the European Parliament reached political agreement on the final text of the Regulation on MMFs (the "MMFR") in November 2016. The Council formally adopted the MMFR on 16 May 2017 following the Parliament's approval of the agreed text on 5 April 2017. The MMFR entered into on 20 July 2017 (having been published in the Official Journal of the European Union on 30 June 2017) and will become effective from 21 July 2018 with the exception of certain provisions imposing obligations on the European Commission to adopt delegated acts and implementing technical standards, which provisions came into effect on 20 July 2017. Consequently the provisions of the MMFR will not impact new MMFs until 21 July 2018 and existing UCITS and AIFs that meet the definition of an MMF under the MMFR will have 18 months (i.e. by 21 January 2019) to comply with the requirements of the MMFR and submit an application to their national competent authority for authorisation under the MMFR." The update explains, "The purpose of this briefing is to summarise and clarify the: Key elements of the MMFR i.e. scope; types of MMFs; investment policy requirements regarding eligible assets, diversification, concentration and credit quality; risk management requirements regarding portfolio rules (such as WAM, WAL and liquidity buckets), MMF credit ratings, know your customer and stress testing; valuation and dealing requirements; specific requirements for Public Debt CNAV MMFs and LVNAV MMFs; external support; transparency and reporting requirements; and, Next steps in the implementation of the MMFR." (For more information on European money market funds, ask about our Money Fund Intelligence International product or our upcoming European Money Fund Symposium, Sept. 25-26 in Paris, France.)

We were reminded by a Bloomberg reporter about the 10-year anniversary of the start of what we've called the "Subprime Liquidity Crisis," which for the money markets began almost exactly a decade ago with troubles in the "extendible" asset-backed commercial paper market. We wrote in our August 8, 2007 News, the two briefs -- "Extendible Commercial Paper Woes Make Rare WSJ Appearance" and "'Subprime 'Tsunami' Hits Asset-Backed CP Market' Says Bloomberg." The former story told us, "Today's Wall Street Journal features "Commercial Paper Shows Some Stress," one of only a handful of stories the Journal has ever run on the CP, or commercial paper, market. It discusses the recent extensions of ABCP, and estimates that "`Extendible asset-backed commercial paper makes up about 12% to 13%, or around $144 billion to $156 billion, of the $1.2 trillion asset-backed commercial-paper market." Fitch's AJ Santos told Dow Jones that ABCP "borrowings secured by bundles of home loans accounted for about 10% to 12% of the market in the first quarter." The latter piece explained, "Extendible asset-​backed commercial paper yesterday carried yields of 5.75 percent to 5.95 percent, compared with 5.45 percent for asset-backed commercial paper that isn't extendible and 5.25 percent to 5.30 percent for corporate commercial paper," said the article, quoting Money Market One's Lee Epstein. Bloomberg says extendible notes "make up about 15 percent of the asset-backed" market of $​1.​15 trillion, "or about $172.5 billion, according to Moody's." The 10-year-old Journal piece commented, "A little-known corner of the commercial-paper market where companies commonly fund their short-term capital needs -- from inventories to mergers -- is showing signs of stress as faulty mortgages come home to roost. Investors are taking note of highly unusual moves in the extendible asset-backed commercial-paper market, where three issuers this week took advantage of the option to extend their short-term borrowings.... Long-time market participants say that is the first time they can remember this happening. Two of the three issuers -- American Home Mortgage Investment Corp., which has filed for bankruptcy protection, and real-estate investment trust Luminent Mortgage Capital Inc. -- are in distress because of their mortgage investments and are facing severe financial crunches. Both companies are extending loan maturities because of liquidity problems. The third commercial-paper program is run by asset manager Aladdin Capital." See Crane Data's News Archives from August 2007 for more stories, and watch for more 10-year anniversary crisis retrospectives in coming days and months. How time flies!

J.P. Morgan Securities' latest "Short-Duration Strategy Weekly" says, "Against this stable backdrop, perhaps the most notable development this week was Treasury's Quarterly Refunding announcement. Minutes to the TBAC meeting noted Treasury's plans to restore its operating cash balance to a more prudent level by the end of this year (once the debt ceiling legislation is passed), which would require Treasury to increase its net marketable borrowing to more than $500bn in 4Q17. This is a much more aggressive issuance schedule than was attempted in the months following the last debt ceiling deadline in November 2015, and would represent the heaviest quarter of supply since 2008.... More importantly, a significant portion of this funding need will likely come in the form of bills, whether via the regular weekly auctions and/or cash management bills. Specifically, our Treasury strategists estimate that about $360bn (or 70% of Treasury's anticipated 4Q funding needs) will be in the form of bills, with the rest coming in the form of increased coupon auction sizes. Net T-bill issuance of this magnitude would represent a 20% increase in the amount outstanding. Furthermore, it's worth noting that Treasury's funding needs are expected to rise to nearly $1tn by FY 2021 (on the back of Fed balance sheet normalization and an increased budget deficit), suggesting that the additional bill supply is likely to stay for some time to come."

Federated Investors' latest "Month in Cash," entitled, "Libor's long goodbye," tells us, "If any field operates better under a deadline, it's the financial industry. That may be the reasoning behind the Financial Conduct Authority's announcement late in July of a time frame for phasing out the London interbank offered rate (Libor). The catch is that the date is so far out (year-end 2021) to be much of an immediate incentive. It points to that other near-given when it comes to the financial sphere: change takes a long time to implement. For reference, remind yourself of money market reform!" Federated's Deborah Cunningham explains, "We have known Libor's time was numbered for some time now. The long time frame until its termination reflects the ongoing debate about what the replacement should be. We expect the solution will come from the same regulator, but others have been pushing for a rate based off Treasury repo and other options. It is now time to cease arguing about pluses and minuses of various replacements and put forth effort to decide on one and work to fine-tune it. As far as cash managers are concerned, the issue mostly concerns floating-rate securities, which use Libor for price. But it is not just us. From a broader market perspective all sorts of derivatives -- swaps, puts, calls -- hinge on the rate, or on the spread between Libors of differing maturities." She adds, "We think the ultimate solution for a replacement will vary according to what will work best for each portion of the market and the types of securities used. The replacements don't all have to be the same. We would caution against using Treasuries as a benchmark, however, because they are flight-to-quality securities often moving due to global developments. You want to use a measure that is mostly dependent on market conditions. Bottom line for us is that our cash products are not immediately affected by the announcement and any adjustment down the line won’t be disruptive."

The Financial Times writes "The demise of Libor is not a done deal for markets." They say, "Reports of the death of Libor may be exaggerated, particularly in US markets. The UK markets regulator, the Financial Conduct Authority, has set a rough timeline for banks to prepare for a transition away from the floating interest rate benchmark that is crucial to world markets. By the end of 2021, it will no longer require banks to contribute to its calculation for rates in sterling, it said. Yet that may not signal the passing of a number that over the last 30 years emerged as one of the pillars of global finance and, more recently, a symbol of its decay. Libor's administrator, the US's Intercontinental Exchange, will still be able to publish the dollar rate after that point, and analysts and trading executives say it may still be necessary. Five years is not long enough for banks to overhaul the $350tn of outstanding derivatives, loans and mortgages tied to the key reference rate, they say. Banks, companies, insurers, pension funds and consumers are among a multitude of participants that have swaps and debt that is regularly affected by changes in short-term interest rates in the money market. Libor for a term of one month and, more often, three months maturity are the cornerstones of the floating interest rate market for the broader economy and users of derivatives."

The Federal Reserve Bank of New York said in a statement Monday, "T. Rowe Price U.S. Treasury Money Fund has been added to the list of reverse repo counterparties, effective July 31." The NY Fed's "Revised List, Investment Manager Money Market Funds" now includes: AllianceBernstein AB Government Money Market Portfolio; BlackRock Liquidity Funds: FedFund, T-Fund, TempCash, TempFund, Master Treasury Strategies Institutional Portfolio, Master Money LLC and Master Premier Government Institutional Portfolio, and Money Market Master Portfolio; American Funds U.S. Government Money Market Fund; Schwab Advisor Cash Reserves, Schwab Cash Reserves, Schwab Government Money Fund, Schwab Money Market Fund, and Schwab Value Advantage Money Fund; Columbia Short-Term Cash Fund; Deutsche Government Cash Management Portfolio; Dimensional Fund Advisors DFA Short Term Investment Fund; Dreyfus Cash Management, Dreyfus Government Cash Management, Dreyfus Institutional Preferred Government Money Market Fund, Dreyfus Treasury & Agency Cash Management, General Money Market Fund; Edward Jones Money Market Fund; Federated Capital Reserves Fund; Federated Government Obligations Fund, Government Obligations Tax-Managed Fund; Government Reserves Fund; Institutional Money Market Management; Prime Cash Obligations Fund; Prime Obligations Fund; Prime Value Obligations Fund, Tax-Free Obligations Fund, Treasury Obligations Fund, and U.S. Treasury Cash Reserves; Fidelity Cash Central Fund, Securities Lending Cash Central Fund, Government Portfolio, Money Market Portfolio, Prime Money Market Portfolio, Treasury Portfolio, Government Money Market Fund, Fidelity Money Market Fund, Retirement Government Money Market II Portfolio, Treasury Money Market Fund, Fidelity Government Cash Reserves, and Fidelity Series Government Money Market Fund; Franklin Money Market Portfolio; Goldman Sachs Financial Square Government Fund, Money Market Fund, Prime Obligations Fund, Treasury Obligations Fund, Treasury Solutions Fund, and Investor Tax-Exempt Money Market Fund; HSBC U.S. Government Money Market Fund; Invesco STIT Government and Agency Portfolio, STIT Liquid Assets Portfolio, STIT Treasury Portfolio; JPMorgan 100% U.S. Treasury Securities Money Market Fund, Liquid Assets Money Market Fund, Prime Money Market Fund, Tax Free Money Market Fund, U.S. Government Money Market Fund, and U.S. Treasury Plus Money Market Fund; Western Asset/Government Portfolio and Liquid Reserves Portfolio; Morgan Stanley Institutional Liquidity Funds Government Portfolio, Government Securities Portfolio, Prime Portfolio, and Treasury Portfolio; Northern Funds - Money Market Fund, U.S. Government Money Market Fund, Government Assets Portfolio, Government Portfolio, Government Select Portfolio, and Treasury Portfolio; PFM Funds Government Select Series; PNC Government Money Market Fund; RBC U.S. Government Money Market Fund; SSgA Institutional Liquid Reserve Portfolio and Institutional US Gov. Money Market Fund, State Street Navigator Securities Lending Trust, and State Street Treasury Plus Money Market Portfolio; T. Rowe Price Cash Reserves Fund, Government Money Fund, Government Reserve Fund, and U.S. Treasury Money Fund; UBS Government, Prime and Treasury Master Funds; First American Government Obligations Fund, Prime Obligations Fund, and Treasury Obligations Fund; Vanguard Federal Money Market Fund, Market Liquidity Fund, and Prime Money Market Fund; Wells Fargo Cash Investment Money Market Fund, Government Money Market Fund, Heritage Money Market Fund, Money Market Fund and Treasury Plus Money Market Fund.

An updated Dreyfus Prospectus Supplement tells us, "The Board of Directors of The Dreyfus/Laurel Funds, Inc. (the "Company") has approved the liquidation of General AMT-Free Municipal Money Market Fund (the "Fund"), a series of the Company, effective on or about October 4, 2017 (the "Liquidation Date"). Accordingly, effective on or about August 31, 2017 (the "Closing Date"), the Fund will be closed to any investments for new accounts, except that new accounts may be established for "sweep accounts" and by participants in group retirement plans if the Fund is established as an investment option under the plans before the Closing Date. The Fund will continue to accept subsequent investments until the Liquidation Date, except that subsequent investments made by check or pursuant to Dreyfus TeleTransfer or Dreyfus Automatic Asset Builder no longer will be accepted after September 20, 2017. However, subsequent investments by Dreyfus-sponsored Individual Retirement Accounts and Dreyfus-sponsored retirement plans (collectively, "Dreyfus Retirement Plans") pursuant to Dreyfus TeleTransfer or Dreyfus Automatic Asset Builder will be accepted after September 20, 2017. Please note that checks presented for payment to the Fund's transfer agent pursuant to the Fund's Checkwriting Privilege on or after the Liquidation Date will not be honored." Another Dreyfus filing tells us, "Effective on or about July 31, 2017, Participant shares of Dreyfus Institutional Preferred Money Market Fund (the "Fund") will no longer be offered by the Fund and will be terminated as a separately designated class of the Fund. Effective on or about September 8, 2017 (the "Effective Date"), the Fund will issue to each holder of its Administrative shares, in exchange for said shares, Hamilton shares of the Fund having an aggregate net asset value equal to the aggregate net asset value of the shareholder's Administrative shares. Thereafter, the Fund will no longer offer its Administrative shares. The Fund reserves the right to no longer offer and terminate its Administrative shares as a separately designated class of the Fund prior to the Effective Date if there are no holders of, or assets in, such class of shares."