Daily Links Archives: November, 2018

The latest "Minutes of the Federal Open Market Committee" tells us, "The staff noted that banks' liquidity management practices had changed markedly since the financial crisis, with large banks now maintaining substantial buffers of reserves, among other high-quality liquid assets, to meet potential outflows and to comply with regulatory requirements. Information from bank contacts as well as a survey of banks indicated that, in an environment in which money market interest rates were very close to the interest rate paid on excess reserve balances, banks would likely be comfortable operating with much lower levels of reserve balances than at present but would wish to maintain substantially higher levels of balances than before the crisis. On average, survey responses suggested that banks might reduce their reserve holdings only modestly from those 'lowest comfortable' levels if money market interest rates were somewhat above the interest on excess reserves (IOER) rate. Across banks, however, individual survey responses on this issue varied substantially." It adds, "The staff highlighted how changes in the determinants of reserve demand since the crisis could affect the tradeoffs between two types of operating regimes: (1) one in which aggregate excess reserves are sufficiently limited that money market interest rates are sensitive to small changes in the supply of reserves and (2) one in which aggregate excess reserves are sufficiently abundant that money market interest rates are not sensitive to small changes in reserve supply. In the former type of regime, the Federal Reserve actively adjusts reserve supply in order to keep its policy rate close to target. This technique worked well before the financial crisis, when reserve demand was fairly stable in the aggregate and largely influenced by payment needs and reserve requirements. However, with the increased use of reserves for precautionary liquidity purposes following the crisis, there was some uncertainty about whether banks' demand for reserves would now be sufficiently predictable for the Federal Reserve to be able to precisely target an interest rate in this way. In the latter type of regime, money market interest rates are not sensitive to small fluctuations in the demand for and supply of reserves, and the stance of monetary policy is instead transmitted from the Federal Reserve's administered rates to market rates -- an approach that has been effective in controlling short-term interest rates in the United States since the financial crisis, as well as in other countries where central banks have used this approach."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Nov. 23, includes Holdings information from 73 money funds (up from 68 on Nov. 16), representing $1.158 trillion (down from $1.185 trillion) of the $2.984T (38.8%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Nov. 13 News, "Nov. MF Portfolio Holdings: Treasury, Repo, CDs Up; Fed Repo Near Zero.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $431.4 billion (down from $454.9 billion on Nov. 16), or 37.3% of holdings, Treasury debt totaling $357.7 billion (down from $383.4 billion) or 30.9%, and Government Agency securities totaling $223.4 billion (up from $222.4 billion), or 19.3%. Commercial Paper (CP) totaled $56.1 billion (up from $49.7 billion), or 4.8%, and Certificates of Deposit (CDs) totaled $40.5 billion (up from $40.0 billion), or 3.5%. A total of $28.8 billion or 2.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $20.3 billion, or 1.7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $387.7 billion (30.9% of total holdings), Federal Home Loan Bank with $163.0B (14.1%), RBC with $51.8 billion (4.5%), BNP Paribas with $47.9B (4.1%), Federal Farm Credit Bank with $42.5B (3.7%), Fixed Income Clearing Co with $24.7B (2.1%), Credit Agricole with $24.7 B (2.1%), ING Bank with $23.9B (2.1%), Wells Fargo with $22.7B (2.0%), and Natixis with $20.6B (1.8%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($122.0B), Goldman Sachs FS Govt ($103.7B), Federated Govt Oblg ($70.0B), Wells Fargo Govt MMkt ($69.0B), Goldman Sachs FS Trs Instruments ($59.1B), Dreyfus Govt Cash Mgmt ($57.3B), Morgan Stanley Inst Liq Govt ($50.8B), State Street Inst US Govt ($44.8B), Fidelity Inv MM: MMkt Port ($42.7B) and First American Govt Oblg ($38.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

This past weekend, The Wall Street Journal wrote about repo, or repurchase agreements in "Investment Banks' Secret Cash Cow." They said, "Investment banks have made a nice little money-spinner out of a once broken trading strategy: The repo. But now that the secret is out, it risks losing its force. Repo desk revenues at the top-12 investment banks grew 21% between 2015 and 2017, data by research firm Coalition shows, even as overall income fell 6%. Traders say they've become highly profitable, too. Repos, or repurchase agreements, are an integral part of the world's financial plumbing, allowing investors and banks to borrow large amounts of short-term cash by selling a security and pledging to buy it back at a slightly higher price in the near future. On the other side of the trade, asset managers get access to the securities they want—often, ultra-safe government bonds." The piece adds, "A more efficient repo operation not only frees up capital; it can also bring in sales. When top clients' immediate funding and collateral needs are better met, they are more likely to pay big bucks for other services. With underwriting revenues down, investment banks need to lean more heavily on areas like prime brokerage -- which includes lending stocks to hedge funds so they can sell them short -- and so-called 'nonlinear' finance. The latter allows cash-rich behemoths such as private-equity firm KKR to buy complex assets like mortgage-backed securities."

Mutual fund publication ignites features a video brief with Crane Data's Peter Crane entitled, "'Frustrated' by Low Bank Deposit Yields, Investors Moving to Money Funds." The brief interview, which was posted last week, says, "The biggest competitors right now to money market funds are bank deposit accounts, which have lured significant market share from the funds, says Peter Crane, president and CEO of Crane Data. But some investors who are frustrated by bank products' near-zero yields are growing more sensitive to rising interest rates and starting to move into money funds, he adds." When asked about competition, Crane comments, "There are potential threats from ultra-short bond funds, from a money market ETF being developed [or] from something new occurring, but the biggest competition and threat right now is from bank deposits, who have taken major slices of market share. It's unclear whether banks will aggressively push up deposit rates to protect that money if it starts leaving towards money market funds.... In the past they haven't. Banks have been content to underpay. But there are signs [that] banks are moving and tweaking [rates]. Banks are trying to have it both ways, where they pay near zero on the vast majority of deposits, and then they run a special for new accounts where they're paying 1.6% or something to try to get new money." He adds, "Investors really became desensitized to interest rates during the zero-yield environment. Whether they become re-sensitized -- if that's a word -- remains to be seen. But there's clearly indications that there are slices of cash that are frustrated by the zero yields and are starting to move. Whether that spreads to the broad base of money out there remains to be seen. But the longer we're here at 1.75%, 2% yields, or the higher we go, or depending on what happens in the stock market, the more likely that is to happen."

Bloomberg's Daybreak Asia Radio show on Wednesday featured Fitch Ratings' Alastair Sewell, who "discusses the growth he expects to see in Chinese money market funds and how regulatory clampdown has impacted that." Sewell says, "The growth is continuing. One of the key drivers of that growth is the spread between deposit rates and that's the rate between funds and what investors could earn leaving their money at a bank ... and that spread is on average positive. So there still are supportive conditions for investors leaving money in money market funds vs. banks in China.... Yu'e Bao has been a phenomenon. It was launched in 2013 ... so it's 5 1/2 years old. It became and remains the world's largest money market funds.... That fund has shrunk, but if you scratch beneath the surface you can actually see that a lot of the assets in that fund have spread out into other funds. The funds are from different fund managers but are [accessed via] Alibaba.... Risks certainly remain compared to other markets ... but the regulatory tightenings have been effective." He continues, "There have been no new approvals in money market funds in China. One of the less publicized parts [of regulatory changes] has been the stall in the launch of new funds." Sewell adds, "There's a huge amount of domestic money invested in these funds. There's a very significant retail component as well.... Some of the funds which are sold to corporates are clearly going to be affected by wider macroeconomic conditions ... [like] U.S. tax reform. Certainly in multiple jurisdictions around the world, we have seen money move back onshore.... The U.S. industry is significantly larger still than China ... at $4 trillion. China comes in at about $1.2 trillion.... [Yu'e Bao is] still the biggest [fund].... The two closest funds ... are both U.S. [Government] funds." For more, see our Nov. 20 Link of the Day, "Tencent Launches WeChat Money Fund," our Nov. 1 News, "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds," and our Oct. 1 News, "Worldwide Money Fund Assets: Chinese MFs Plunge; US, India Up in Q2."

ICI's weekly "Money Market Fund Assets" report shows MMF assets rising in the latest week, their 5th week in a row of strong gains. Government, Prime and Tax Exempt MMFs all increased. Overall assets are now up $100 billion, or 3.5%, YTD, and they've increased by $177 billion, or 6.4%, over 52 weeks. Retail MMFs have increased by $95 billion, or 9.4% YTD, while Inst MMFs, which broke above the $1.8 trillion level, have increased $5 billion, or 0.2%. Over 52 weeks, Retail money funds have gained $119 billion, or 12.0%, while Inst money funds are up $58 billion, or 3.3%. We review the latest asset figures below. ICI writes, "Total money market fund assets increased by $17.79 billion to $2.94 trillion for the six-day period ended Tuesday, November 20, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $12.76 billion and prime funds increased by $3.41 billion. Tax-exempt money market funds increased by $1.61 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.257 trillion (76.8% of all money funds), while Total Prime MMFs stand at $542.9 billion (18.5%). Tax Exempt MMFs total $137.5 billion, or 4.7%. They explain, "Assets of retail money market funds increased by $8.93 billion to $1.11 trillion. Among retail funds, government money market fund assets increased by $5.53 billion to $659.15 billion, prime money market fund assets increased by $2.53 billion to $320.72 billion, and tax-exempt fund assets increased by $871 million to $129.07 billion." Retail assets account for over a third of total assets, or 37.7%, and Government Retail assets make up 59.4% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $8.85 billion to $1.83 trillion. Among institutional funds, government money market fund assets increased by $7.23 billion to $1.60 trillion, prime money market fund assets increased by $880 million to $222.17 billion, and tax-exempt fund assets increased by $742 million to $8.47 billion." Institutional assets account for 62.3% of all MMF assets, with Government Inst assets making up 87.4% of all Institutional MMFs.

A press release from the OFR published last week says, "The U.S. Office of Financial Research (OFR) released its 2018 Annual Report to Congress today, stating that risks to U.S. financial stability remain in the medium range, reflecting a mix of high, moderate, and low risks to the financial system." OFR's Annual Report, which contains almost nothing on money market funds, tells us, "The U.S. market for repurchase agreements, or repos, provides more than $3 trillion in funding every day to securities dealers and others. But its vulnerability to runs and fire sales poses potential threats to financial stability. Data gaps persist in securities financing transactions, including repo agreements and securities lending. In particular, comprehensive and detailed data are scant for about half of the U.S. repo market -- bilateral repo transactions. The OFR is proposing to collect data on cleared bilateral repos. We are also exploring ways to learn more about uncleared bilateral repos. In a repo transaction, a security owner sells a security to raise cash. The agreement requires the seller of the security to repurchase it on a specific date for a prearranged price." The report adds, "The OFR continued during the year to update our suite of financial stability monitoring products, including the U.S. Money Market Fund Monitor, which tracks the investment portfolios of money market funds. Users of the monitor can see trends and developments across the money market fund industry. The OFR updates the monitor with data from the SEC and presents the data in a visual format."

The South China Morning Post writes "Tencent's WeChat testing money market fund and score system in bid to catch up with Alipay." They tell us, "WeChat Pay has launched a beta version of a new money-market fund as its parent Tencent Holdings seeks to expand its payment services to help diversify business in the face of uncertainties in its gaming segment. Tencent's Lingqiantong, similar to Alibaba's Yu'e Bao, was released in beta version last Friday, inviting users to test the platform's functions. The new features - which allow users to earn interest from their balance as well as transfer payments to pay bills, send virtual red packets and pay off credit card debts -- were rolled out on a test basis to a small pool of users in September last year. The move is seen as an attempt by WeChat Pay to catch up with Alipay, which operates the world biggest money-fund market Yu'e Bao and is the country's third-party payments provider."

Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" discusses supply, saying, "As is usually the case, issuance in the short end of the yield curve slows at month-end and at quarter-end as managers hold more cash available for potential outflows. So the timing of this hike resulted in a greater impact on fund yields from a 25 bp higher reset on overnight securities. At the same time, London Interbank Offered Rate (LIBOR) settings were also moving up. You may recall we experienced a large increase in rates before the March tightening but a very muted response to the June hike. This time around, three month LIBOR increased 8 bps in September and another 16 bps in October. Three-month fixed-rate paper is now being placed to mature after the new year as issuers are incented to get funding past year-end." The monthly continues, "During the first week of October, issuance of commercial paper written to mature in 81 or more days spiked as investors and issuers put quarter-end behind them. The first week of October averaged 12% written 81 days or longer compared with 9.80% in September. Not only do issuers want to get funded past year-end, those affected by regulatory requirements prefer maturity dates 32 days or more after year-end, which puts targeted issuance to the first week of February. A look at the pattern of commercial paper maturing after December 31 shows issuers winding up yearend financing at a faster pace than the previous two years." Wells update adds, "As we near the end of the tightening cycle, money market participants may look to extend weighted average maturities (WAMs) to lock in higher yields, but we are more than a few months away from that scenario. In the meantime, we believe breakeven yield calculations favor buying short dated fixed maturities or securities that reset frequently over longer-dated maturities and resets. Our strategy of emphasizing highly liquid portfolios, relatively short WAMs, and a position in securities that reset frequently allows us to capture future FOMC rate moves with minimal net asset value (NAV) pricing pressures and afford the flexibility to add longer-dated securities as opportunities arise."

Earlier this month, Capital Research and Management Company, manager of the American Funds filed to launch Capital Group Central Cash, an internal money market fund open only to other funds in the American Funds Group. The filing says, "The investment objective of the fund is to provide you with a way to earn income on your cash reserves while preserving capital and maintaining liquidity. The fund is an institutional money market fund. The net asset value of the fund's shares will "float," fluctuating with changes in the value of the fund's portfolio securities. Shares of the fund are primarily purchased by other funds and investment vehicles managed by the fund's investment adviser and its affiliates and are not available to the public." The new fund registration continues, "While it has no present intention to do so, the fund's board may change the fund's objective without shareholder approval upon 60 days' written notice to shareholders. The fund is an institutional money market fund managed pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended ('1940 Act'). The net asset value of the fund's shares will fluctuate with changes in the value of the fund's portfolio securities. If the fund's weekly liquid assets fall below a certain threshold, the fund may impose a liquidity fee on redemptions and/or suspend redemptions, as discussed further in paragraphs below." It adds, "In accordance with applicable rules and regulations relating to money market funds, the fund will maintain a dollar-weighted average maturity of 60 days or less and its dollar-weighted average life will not exceed 120 days. Additionally, the fund will hold at least 10% of its total assets in daily liquid assets and at least 30% of its total assets in weekly liquid assets. For purposes of these limits, daily liquid assets and weekly liquid assets are generally defined to include cash, U.S. Treasuries, certain other government securities, as well as other securities that can be readily converted to cash within one or five business days, respectively. Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as the investment adviser to the fund and other funds, including the American Funds. Capital Research and Management Company is a wholly owned subsidiary of The Capital Group Companies, Inc. Class M shares are generally available for purchase only by funds and other investment vehicles managed by the investment adviser or its affiliates, and therefore are not available to the public." For more on "internal" money market funds, see our Jan. 5, 2017 News, "Internal and Private Money Funds Revealed; TDAM Changes to TD; TRP."

U.S. News & World Report writes "How Investors Can Win as Interest Rates Rise." The article tells us, "Savers can enjoy rising interest rates with money market mutual funds. An easy way to profit from rising rates, is investing your emergency cash in a money market mutual fund at Charles Schwab Corp., Fidelity or other brokerage houses, experts say. But don't confuse a money market mutual fund with your bank's money market savings account. The former is sold through an investment broker and typically carries a higher rate compared with the savings product from your bank. David Mullins, owner of David Mullins Wealth Management in Richlands, Virginia reminds investors to become "rate shoppers" and compare interest rates earned on checking accounts, savings, and money market accounts as well as certificates of deposit." The piece adds, "Some wealth advisors recommend investors to keep bond maturities for the short to intermediate term until interest rates plateau. For investors with bond funds, as they reinvest their dividends, new money will be reinvested in bonds with higher yields. That will keep returns growing and offset the discomfort of small declines in the principal value of your fund." It quotes Federated Investors' Randall Bauer (who is "profiled" in our latest Bond Fund Intelligence -- see today's News), "Ultrashorts are built for investors who want to reduce their interest-rate exposure while gaining better yields than similar maturity government securities."

The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of Oct. 26, 2018) Friday. This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See also Crane Data's November 13 News, "Nov. MF Portfolio Holdings: Treasury, Repo, CDs Up; Fed Repo Near Zero.") The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in October, prime money market funds held 24.1 percent of their portfolios in daily liquid assets and 43.3 percent in weekly liquid assets, while government money market funds held 61.4 percent of their portfolios in daily liquid assets and 78.0 percent in weekly liquid assets." Prime DLA decreased from 25.7% in Sept., and Prime WLA increased from 43.2% in August. Govt MMFs' DLA increased from 61.1% in Sept. and Govt WLA increased from 76.8% last month. ICI explains, "At the end of October, prime funds had a weighted average maturity (WAM) of 30 days and a weighted average life (WAL) of 67 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 32 days and a WAL of 89 days." Prime WAMs were down two days from last month, and WALs were down two days. Govt WAMs were down two days from Sept. and Govt WALs were unchanged from last month. Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $226.26 billion in September to $212.05 billion in October. Government money market funds’ holdings attributable to the Americas declined from $1,736.95 billion in September to $1,729.35 billion in October." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $212.0 billion, or 39.7%; Asia and Pacific at $103.7 billion, or 19.4%; Europe at $213.0 billion, or 39.9%; and, Other (including Supranational) at $5.1 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.729 trillion, or 77.2%; Asia and Pacific at $125.1 billion, or 5.6%; and Europe at $379.9 billion, or 16.9%.

An op-end piece in the Birmingham Business Journal, entitled, "How Congress can help Alabama's communities get more for less," urges the adoption of House Bill 2319, which would restore Prime and Muni Inst money funds' stable NAV. It says, "When Congress reconvenes for a lame duck session following the November elections, it will have an opportunity to protect our communities and local taxpayers from the negative impact of higher interest rates. There is bipartisan legislation ready to be voted on that would protect our state from higher interest rates and borrowing costs by restoring money market funds as an important source of low-cost capital markets financing. This legislation (HB 2319 in the House and SB 1117 in the Senate) would effectively reverse a Securities and Exchange Commission (SEC) regulation that hurt the ability of money market funds to invest in our state." Author John McMillan, commissioner of the Alabama Department of Agriculture and Industries, explains, "As a result of the regulation, which forced money market funds to operate on a floating rather than stable value basis, investors withdrew $1.2 trillion in assets from money market funds that support local economies to funds that invest strictly in U.S. government debt. Tax-exempt money market funds, which are the largest investors in the short-term debt issued by state and local governments for public infrastructure and economic development, dropped by 50 percent. According to a recent study by financial consulting firm Treasury Strategies, state and local government entities in Alabama lost more than $500 million in funding from tax-exempt money market funds between January 2016 – when implementation of the SEC rule started to be phased in – and April 2018. Over the same period, borrowing costs for our state entities that issued debt to tax-exempt money market funds rose from an average of .05 percent to 1.77 percent." The letter adds, "Congress needs to enact legislation to restore the stable value for all money market funds. This would significantly and immediately increase investor demand for tax-exempt debt and lower the cost of borrowing for infrastructure and economic development projects. The bill pending in Congress has the support of more than 300 national, state and local organizations, including 30 from Alabama. Supporters include elected leaders, public and private sector finance officers, trade organizations and local chambers of commerce.... We ask our state's Congressional delegation to support enactment of legislation to restore the stable value of money market funds."

Bond mutual funds and ETFs saw their largest outflows since December 2015 in the latest week, according to ICI's "Combined Estimated Long-Term Fund Flows and ETF Net Issuance". The November 7, 2018 release, with data as of Oct. 31, 2018, says, "Total estimated outflows from long-term mutual funds and exchange-traded funds (ETFs) were $16.27 billion for the week ended October 31, 2018, the Investment Company Institute reported today. Estimated mutual fund outflows were $28.70 billion while estimated net issuance for ETFs was $12.43 billion. Reports of long-term flow estimates and ETF net issuance are available on the ICI website.... Bond funds had estimated outflows of $18.52 billion for the week, compared to estimated outflows of $7.04 billion during the previous week. Taxable bond funds saw estimated outflows of $17.33 billion, and municipal bond funds had estimated outflows of $1.19 billion." See also, Reuters' "Investors Pull $18.5 Billion From U.S. Bond Funds in One Week: ICI", which says, "U.S. fund investors fled bonds at the fastest pace since 2013 in the final week of October, worried about rising interest rates and tightening monetary policy, Investment Company Institute (ICI) data showed on Wednesday. More than $18.5 billion of mutual fund and exchange-traded fund assets flowed out the debt market during the week ended Oct. 31, the most since the "Taper Tantrum" panic of June 2013, when markets worried about the U.S. Federal Reserve planning to stop buying bonds." Crane Data, which has begun "beta" testing a new Bond Fund Intelligence Daily product, estimates that bond fund assets have declined an additional $9.3 billion in the week ended November 7. (Let us know if you'd like to see a copy of our new product, which tracks daily assets, yields and NAVs on a subset of the bond fund and ETF universe. Also, watch for more details in the pending November issue of our Bond Fund Intelligence newsletter, which will be released on Thursday, November 15.)

Federated Investors published the brief, "A quick take on the midterms: Gridlock." They ask, "What do you think the election outcome means for equities, the money markets and fixed income?" Deborah Cunningham, chief investment officer for global money markets, comments, "From an economic perspective, divided governance suggests mixed results. While the U.S. economy should continue to outperform the rest of the world, growth probably has peaked, although there is no recession in sight. We would anticipate inflation to continue to trend modestly higher on tariffs and trade disputes, with disagreements on these issues more likely in a divided Congress. We also expect wage inflation to keep trending higher as the worker skills that are available aren't necessarily meeting the requirements of many of the new jobs that are available. From a money markets perspective, we expect to see modestly higher short-term interest rates, probably in the 3+% neighborhood, with good growth and opportunity in liquidity products in a slightly increasing market." Robert Ostrowski, chief investment officer for global fixed income, adds, "Last night was as expected: no macro surprise and no real new information. The margins on the House and Senate races give something for each side to spin as victory. Maybe the pollsters were the real winners. Prepare for gridlock, which is generally constructive for the fixed-income markets as it reduces the tail risk to either end of the pre-election forecast (a "Blue Wave'' capturing all of Congress or a "Red Fort'' with Republicans holding off the Dems' charge.) ... Looking further, it will be interesting to see if President Trump and the House Democrats can work together on infrastructure and trade initiatives."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Nov. 2, includes Holdings information from 64 money funds (down from 83 on Oct. 26), representing $1.098 trillion (down from $1.351 trillion) of the $2.942T (37.3%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Oct. 11 News, "October MF Portfolio Holdings: Treasury, Agency Down; FICC Repo Up.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $418.6 billion (down from $505.5 billion on Oct. 26), or 38.1% of holdings, Treasury debt totaling $354.2 billion (down from $422.1 billion) or 32.3%, and Government Agency securities totaling $206.6 billion (down from $259.3 billion), or 18.8%. Commercial Paper (CP) totaled $44.4 billion (down from $63.1 billion), or 4.0%, and Certificates of Deposit (CDs) totaled $32.3 billion (down from $44.4 billion), or 2.9%. A total of $25.5 billion or 2.3% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $16.6 billion, or 1.5%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $352.8 billion (32.1% of total holdings), Federal Home Loan Bank with $156.6B (14.3%), BNP Paribas with $60.1 billion (5.5%), RBC with $40.1B (3.7%), Federal Farm Credit Bank with $36.5B (3.3%), Credit Agricole with $30.9B (2.8%), HSBC with $22.9 B (2.1%), JP Morgan with $22.9B (2.1%), ING Bank with $20.5B (1.9%), and Natixis with $19.8B (1.8%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($116.8B), Goldman Sachs FS Govt ($104.0B), BlackRock Lq FedFund ($83.9B), BlackRock Lq T-Fund ($69.2B), Wells Fargo Govt MMkt ($66.9B), Dreyfus Govt Cash Mgmt ($57.8B), Goldman Sachs FS Trs Instruments ($56.6B), Morgan Stanley Inst Liq Govt ($49.2B), Fidelity Inv MM: MMkt Port ($42.0B), and First American Govt Oblig ($37.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

The FT writes "GE Capital calls time on commercial paper borrowing," which tells us, "General Electric's financial services division is giving up on using commercial paper, in a landmark moment for a business that was once the largest borrower in the market. GE Capital's move away from commercial paper -- debt with a maturity of up to 270 days -- could add to its cost of financing, which is also under upward pressure after downgrades in its credit rating.... Before the 2008 crisis, GE Capital boasted about being the largest borrower in global commercial paper markets, using them to support operations that included consumer credit, mortgages and industrial lending. At the end of 2007, it accounted for about 4 per cent of all the commercial paper outstanding in the US. Since the crisis, it has been running down its exposure. GE Capital's commercial paper outstanding was about $106bn at the end of 2007. By the end of 2015, that was down to $5bn, as the group sold the majority of its financial services assets, and it plans to reduce that to zero by the end of the year. Parent GE has also been cutting its use of commercial paper sharply over the past year. The company is instead becoming more reliant on bank lending." The FT quotes Crane Data's Peter Crane, "It has been years since GE was a major player in the CP market. The CP market has been growing and recovering nicely since the financial crisis and since the 'big sort' of money fund reforms in 2016."

An announcement entitled, "First American Funds Announce Closing Time Change" says, "Effective October 30, 2018, the First American Government Obligations, Treasury Obligations and Retail Prime Obligations Funds will close later each day, at 3:45 p.m. Central Standard Time (CST). The former closing time was 3:30 p.m. CST. For shareholders trading the fund through an intermediary, the deadline may be earlier to allow for processing, so please confirm with your service provider. All classes of the funds are included in the change." A separate earlier release, "Cavanal Hill Closing Times," explains, "BOK Financial Corporation ... announced the Cavanal Hill U.S. Treasury Fund and Cavanal Hill Government Securities Money Market Fund will be moving their daily closing time to 3 p.m. CDT effective October 22, 2018. The 2A-7 Money Market Reforms enacted in 2016 changed the structure of money market funds for the industry. Since that time, Cavanal Hill and its customers have complied with an 11 a.m. CDT daily closing time due to regulatory limitations on late-day liquidity dealers and repurchase agreement counterparties. Cavanal Hill has since been looking for a way to move the Funds' daily closing back to 3 p.m. CDT where it had been prior to the enactment of the reforms. Fortunately, changes in late-day liquidity markets have allowed us to once again provide our clients with the convenience that a later daily closing offers. As of June 29, 2018, both the Cavanal Hill U.S. Treasury Fund and the Cavanal Hill Government Securities Money Market Fund are AAA-mf rated by Standard & Poor's and Aaa by Moody's Investors Services, the two main ratings agencies. This signifies that the portfolios' credit quality, investment policies, market price exposure, and management have the highest possible rating."

ICI's weekly "Money Market Fund Assets" report shows MMF assets rising slightly in the latest week after jumping the prior week. Government assets rose while Prime and Tax Exempt MMFs declined. Overall assets are now up $46 billion, or 1.6%, YTD, and they've increased by $155 billion, or 5.7%, over 52 weeks. Retail MMFs have increased by $77 billion, or 7.6% YTD, while Inst MMFs have decreased $31 billion, or -1.7%. Over 52 weeks, Retail money funds have gained $109 billion, or 11.1%, while Inst money funds are up $45 billion, or 2.6%. ICI writes, "Total money market fund assets increased by $2.67 billion to $2.88 trillion for the week ended Wednesday, October 31, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $5.69 billion and prime funds decreased by $2.75 billion. Tax-exempt money market funds decreased by $272 million." Total Government MMF assets, which include Treasury funds too, stand at $2.219 trillion (76.9% of all money funds), while Total Prime MMFs stand at $531.1 billion (18.4%). Tax Exempt MMFs total $134.2 billion, or 4.7%. They explain, "Assets of retail money market funds increased by $6.32 billion to $1.09 trillion. Among retail funds, government money market fund assets increased by $5.53 billion to $651.22 billion, prime money market fund assets increased by $960 million to $313.45 billion, and tax-exempt fund assets decreased by $175 million to $126.24 billion." Retail assets account for over a third of total assets, or 37.8%, and Government Retail assets make up 59.7% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $3.65 billion to $1.79 trillion. Among institutional funds, government money market fund assets increased by $161 million to $1.57 trillion, prime money market fund assets decreased by $3.71 billion to $217.67 billion, and tax-exempt fund assets decreased by $97 million to $7.91 billion." Institutional assets account for 62.2% of all MMF assets, with Government Inst assets making up 87.4% of all Institutional MMFs.

CNBC.com featured a commentary entitled, "What investors need to know about going to cash during stock market corrections." Guest Contributor Mitch Goldberg of ClientFirst Strategy writes, "Say hello to investors' new best friend -- cash. It is an old friend, as well. Cash is an important part of any investor's portfolio, but how much you should allocate to it depends on a number of factors, and not all of them have to do with how old you are." The piece explains, "Now that money market funds are yielding 2 percent, the 'cash drag' from the days when interest rates were pegged at zero are gone. In fact, a money market position yielding 2 percent may prove to be your biggest winner for 2018." It add, "As a financial advisor who likes to assort my clients' accounts based on time horizons and the timing of cash needs -- as opposed to the old way of just based on client age or account value -- I can tell you that cash and cash equivalents play a critical role in portfolio composition.... The bottom line is that there is no single one-size-fits-all way to allocate to cash."