CNBC writes "​Rising interest rates have made this investment attractive again". The article says, "Retirees, rejoice: Rising interest rates are providing a much-​needed boost to money market fund yields. Five years ago, yields on Vanguard'​s Prime Money Market Fund (​VMRXX) were in the neighborhood of 0.​06 percent. Today, the yield on this $​12.​7 billion fund is 1.​84 percent. Meanwhile, one-​year certificates of deposit through online banks are touting rates as high as 2.​25 percent. Money market funds are mutual funds that invest in U.​S. Treasury bills and commercial paper. They aim to maintain a net asset value of about $​1 per share." The piece explains, "You can thank the Federal Reserve'​s recent move to increase interest rates: The Fed has increased overnight interest rates six times since 2015. Additional rate hikes this year are likely. That also means conditions are just right for conservative investors who are hoping to squeeze some more yield out of their '​safe money'.... If rates continue to rise, money market funds will be a compelling story, where you can get close to 2 percent on cash." Finally, it adds, "​Amid low interest rates, investors have turned to short-​term bond funds for yields that will beat money markets, but advisors warn against placing money you might need immediately in those investments."

Yesterday'​s Wall Street Journal featured the story, "Companies Look to Libor for Debt Savings as Rates Rise." The somewhat odd piece claims that companies are shifting funding from that linked to 3-​month LIBOR to those linked to 1-​month LIBOR. It explains, "​Companies are making a mad dash to save money in the debt markets as rising short-​term interest rates increase their borrowing costs. One place that'​s increasingly apparent is the market for corporate loans, where companies that can are tying their floating-​rate debt payments to benchmarks that are rising at a slower pace. The rejiggering among companies comes as rates have climbed this year, spurred by increases from the Federal Reserve, expectations for a pickup in inflation and an increase in government debt sales to fund last year'​s tax-​cut package. The rate at which banks lend to each other for three months has been rising much faster than the rate at which they lend for one month, pushing the gap in April between the two to its widest since 2009. The three-​month U.​S. dollar London interbank offered rate has climbed 0.​62 percentage point this year to 2.​32%, while the one-​month counterpart has climbed a comparably meager 0.​41 point to 1.​98%." The Journal adds, "For years after the financial crisis, the Fed'​s easy-​money policies pushed all short-​term rates down, leaving little daylight between the costs of borrowing for one month versus three months. But the central bank is set to raise rates in June for the seventh time this economic cycle and analysts say one or two more increases may be in store in 2018. The shift among benchmarks may hold clues for how companies adjust to another change coming to the short-​term rates market: Regulators are encouraging Wall Street to reduce its reliance on Libor altogether, and instead peg loans and derivatives to a new rate that the Federal Reserve Bank of New York began publishing earlier this year."

A piece posted on MarketWatch, entitled, "In a volatile market, retirement investors may find this type of bond fund appealing,: touts the benefits of stable value funds. Written by ICMA RC'​s Karen Chong-​Wulff, it says, "Capital preservation is a priority for many retirement investors, especially those who are in retirement or are nearing the end of their working years. Investors who experienced the sharp market downturn in 2008 may be particularly wary of market turbulence and may seek alternatives designed to protect their portfolios from losses. However, capital preservation cannot be guaranteed. Investors who are attracted to the stock market know that stock indexes have climbed to historic records, leaving plenty of possibilities for declines. Investors also have reason to question the relative '​stability' of bonds as they construct their portfolios, since there are known risks there, too.... Both stable value funds and comparable-​quality bond funds are generally backed by higher quality, investment-​grade bonds. But what about the impact of interest rates on comparable-​quality bond and stable value funds? `​Stable value funds can be an investment option for risk-​averse, income-​oriented investors. Although the bonds that underlie stable value funds may fluctuate in value, these funds offer capital preservation in rising-​rate markets, along with income, which is usually higher than money market yields. And, as rates rise gradually, so does the income that stable value funds generate." The piece adds, "​Because they provide capital preservation and generate relatively attractive yields, stable value funds can provide a sound, conservative core for a retirement portfolio. However, not all stable value funds are created equal. In addition to interest rate risk, liquidity and credit risks should also be considered."

Consumer Reports wrote the article, "6 Places to Put Your Cash Now," earlier this month. It tells us, "If you keep your cash savings in a brick-​and-​mortar bank, you may not be aware that you earn significantly more at other kinds of institutions, such as online banks and credit unions. Large national players like Ally Bank, American Express National Bank, Marcus by Goldman Sachs, and Alliant Credit Union are currently paying interest of 1.​5 percent and more on new online savings accounts, and 2 percent or more on one-​year certificates of deposit. Capital One'​s online 360 Money Market account is paying 1.​6 percent. By contrast, brick-​and-​mortar institutions such as Chase Bank, HSBC Bank, and Wells Fargo are currently paying 0.​01 percent, according to Bankrate. Behind the rate race is competition for customers and Federal Reserve actions." The piece recommends four strategies, including: "Online savings accounts currently offer yields of 1.​5 percent or more annually. They'​re among the safest savings vehicles and up to $​250,​000 in deposits per account, whether through a bank or credit union, is covered by federal insurance.... Money market accounts offer around 1.​8 percent these days. These accounts are similar to savings accounts, but with some additional benefits and restrictions.... Money market funds are good options as a secondary savings account, or to hold a portion of your emergency money. They are offered by mutual-​fund and investment companies and currently provide returns around 1.​85 percent.... [​and] High-​yield reward checking accounts."

The Wall Street Journal'​s "Heard on the Street" column yesterday featured a brief entitled, "Would Cam Newton Buy Stocks Now? The TINA trade, in which there is no alternative to stocks, may be over as investors can finally earn something in cash-​like securities." With a chart entitled, "Cash No Longer Trash," they write "​The phenomenon most responsible for the epic bull market now in its 10th year isn'​t FOMO -- fear of missing out -- but TINA -- there is no alternative. While there has been plenty of debate about exactly how unorthodox monetary policies like quantitative easing helped the economy, it is no mystery how they boosted stock prices. The lousy return on riskless assets such as Treasurys practically forced investors to pay up for riskier ones.... The three-​month Treasury bill, which has never offered a negative annual return based on data since 1928, saw its yield plunge from nearly 5% in early 2007 to zero by early 2009. As it essentially stayed there, the S&​P 500'​s annualized return between 2009 and 2017 was a whopping 15.​2 percentage points higher than that of the bill ... but the performance gap during the preceding 80 years had been a far more modest 7.​3 percentage points. In other words, the opportunity cost of sitting on your hands was less than half as much. During 29 of those 80 years bills actually outperformed stocks by an average of nearly 15 percentage points." The piece explains, "With the cash-​like instruments now yielding 1.​93%, their highest since the collapse of Lehman Brothers, worrywarts can once again earn at least a bit of money on the sidelines. They may do even better than that in relative terms given the fact that stocks are now well into the most expensive decile of valuations compared to their long-​run average when measured by Professor Robert Shiller'​s cyclically adjusted price-​to-​earnings ratio.... Mr. [​David] Tepper noted in January that he believed bond prices remain key to stock values and that, at that point, stocks looked '​cheap.' But yields have risen meaningfully since then, while stock prices are at the same level. Mr. Tepper does seem to be diversifying, putting some $​2.​3 billion of his own money into an entirely different asset: the Carolina Panthers."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (​with data as of May 18) includes Holdings information from 69 money funds (​down from 76 on 5/​11), representing $​1.​208 trillion (​down from $​1.​414 trillion on May 11) of the $​2.​908 trillion (​41.​5%) in total money fund assets tracked by Crane Data. (​For our monthly Holdings recap, see our May 10 News, "May Money Fund Portfolio Holdings: Treasury Surge Ends; Repo Rebound Down.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​274.​1 billion (​down from $​510.​4 billion a week ago), or 35.​4%, Treasury debt totaling $​364.​0 billion (​down from $​437.​4 billion) or 30.​1%, and Government Agency securities totaling $​274.​1 billion (​down from $​302.​8 billion), or 22.​7%. Commercial Paper (​CP) totaled $​48.​5 billion (​down from $​53.​0 billion), or 4.​0%, and Certificates of Deposit (​CDs) totaled $​38.​6 billion (​down from $​43.​5 billion), or 3.​2%. A total of $​26.​5 billion or 2.​2%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​28.​8 billion, or 2.​4%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​364.​0 billion (​31.​0% of total holdings), Federal Home Loan Bank with $​218.​0B (​18.​1%), BNP Paribas with $​57.​9 billion (​4.​8%), Federal Farm Credit Bank with $​39.​9B (​3.​3%), RBC with $​38.​9B (​3.​2%), Wells Fargo with $​23.​8B (​2.​0%), Credit Agricole with $​23.​8B (​2.​0%), HSBC with $​23.​7B (​2.​0%), Natixis with $​23.​5B (​1.​9%), and Societe Generale with $​21.​2B (​1.​8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​143.​1B), Fidelity Inv MM: Govt Port ($​106.​0B), Goldman Sachs FS Govt ($​94.​0B), Wells Fargo Govt MMkt ($​71.​2B), Dreyfus Govt Cash Mgmt ($​63.​1B), Morgan Stanley Inst Liq Govt ($​56.​9B), State Street Inst US Govt ($​53.​1B), Goldman Sachs FS Trs Instruments ($​50.​9B), JP Morgan Prime MM ($​39.​0B), and JP Morgan 100% US Trs MMkt ($​34.​1B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

The website ThinkAdvisor features the brief, "Advisors Make the Case for Short-​Term CDs, Bonds and Treasury Bills." Subtitled, "All three investments, held to maturity, are now available with yields above 2% and little risk," the piece tells us, "The rise in interest rates is depressing bond prices but also creating opportunities for investors who have been starving for yield and worried about a stock market correction. They can now collect more yield in a riskless 6-​month Treasury bill than in many dividend paying stocks. The 6-​month T-​bill was yielding 2.​08% as of Friday'​s close, well above the 1.​91% dividend yield of the S&​P 500, which has gained just 1.​47% year to date. And many one-​year CDs are paying between 2.​15% and 2.​25%, according to Bankrate.​com." They quote Leon LaBrecque, managing partner and CEO of LJPR Financial Advisors, "We have been advising clients to get surplus cash into CDs, since we are seeing CD rates north of 2% on 18- to 24-​month CDs.... On our individual bond portfolios, we are staying short as well." The article continues, "​During periods of low inflation, like the last nine post-​recession years, bonds have served as a hedge against volatility in the stock market. But now that inflation is rising, the '​balance of risk is changing,' says `​Mihir P. Worah, chief investment officer, Asset Allocation and Real Return, at Pimco.... 'Bonds will not help to hedge equity holdings.... In the absence of a recession there is a negative correlation between stocks and bonds.'"

With just over a month to go before our 10th annual Crane'​s Money Fund Symposium, June 25-​27 in Pittsburgh, we'​re making final preparations for our big show. We'​d like to remind anyone planning on attending to register and make hotel reservations ASAP. Money Fund Symposium is the largest gathering of money market fund managers and cash investors in the world, and we'​re on track for near-​record attendance of over 550. This year'​s show will take place at The Pittsburgh Westin Convention Center, and see here for latest agenda. Our previous MFS in Atlanta attracted over 550 attendees. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. Visit the MF Symposium website at www.​moneyfundsymposium.​com for more details. Registration is $​750, and discounted hotel reservations are still available (​for now). Finally, mark your calendars for Crane'​s 6th annual "​offshore" money fund event, European Money Fund Symposium, which will be held in London, England, September 20-​21, 2018. This website (www.​euromfs.​com) shows the latest agenda and is taking registrations. (Contact us to inquire about sponsoring or speaking.) Our next Money Fund University "​basic training" event is also tentatively scheduled for Jan. 24-​25, 2019, in Stamford, Conn, and our 2019 Bond Fund Symposium is tentatively scheduled for March 21-​22 in Philadelphia. Watch www.​cranedata.​com for more details on these events, and please let us know if you have any questions or feedback on our growing conference business. Note: Crane Data Subscribers have access to all our conference binder materials, including Powerpoints, recordings and attendee lists. See the bottom of our "Content Center" for a listing of available conference materials.

Bloomberg writes "Put Your Bitcoins in the Money Market," which stretches to link cryptocurrency and money market funds. The odd article is based on an even odder release on the website BitcoinExchangeGuide, entitled, "Compound Helps Earn Interest On Crypto Via Money Market Protocol." Bloomberg says, "​Crypto money markets. Cryptocurrency markets keep rediscovering financial history for themselves, I keep saying every day, and now they have discovered money-​market funds.... Money-​market funds aim to achieve a stable value, but in what currency? One assumes it is whatever gets swept: If you have 100 Bitcoins that get swept overnight on Monday, you'​d hope that they'​d come back worth like 100.​01 Bitcoins on Tuesday, even if those 100.​01 Tuesday Bitcoins are worth twice, or half, as many dollars as the 100 Monday ones." The source posting explains, "Compound, found online at Compound.​finance, is an open-​source lending protocol built on the Ethereum blockchain.... Compound is an Ethereum-​based platform that lets you earn interest or borrow ERC20 tokens without managing an order book. As described by the official website, the platform is '​an open-​source protocol for algorithmic, efficient money markets on the Ethereum blockchain.' The unique feature behind Compound'​s money market protocol (​aside from getting an $​8.​2 million seed round investment from Coinbase) is its ability to algorithmically adjust money market interest rates based on asset-​specific supply and demand. That means users and applications can frictionlessly exchange the time value of Ethereum assets without needing to negotiate terms, rates, or complex flows." (​Editor'​s Note: Sorry, we thought we should mention, but good luck understanding this one! We also don'​t recognize any of the principals involved.)

RBC Global Asset Management published a piece entitled, "Floating Rate Notes: A Primer," which reviews the benefits of floating rate notes in a rising rate environment. RBC'​s piece states, "Floating rate notes can be beneficial in a rising rate environment due to their ability to protect principal and generate attractive income. This paper outlines key features of floaters and how they can support high quality bond portfolios given their stable market values and performance." The article also discusses how floaters work. RBC GAM explains, "Floating rate notes, commonly referred to as FRNs or '​floaters,' have a variable rate of interest that resets periodically. Floating rate notes are different from fixed rate bonds in that the coupon payment is made up of two components: (​1) an underlying reference benchmark and (​2) an additional margin." The brief says, "The reference benchmarks fluctuate and reset with the market, therefore driving the variability in the floater'​s coupon, while generally limiting the note'​s market value changes. Common reference benchmarks are Treasury Bills (​T-​Bills) and 1-​month or 3-​month LIBOR (​London Interbank Offered Rate).... The additional margin, or spread, is added to the reference benchmark to determine the periodic payment the issuer is obligated to pay over the underlying benchmark." RBC adds, "​Recall that fixed rate bond prices move in the opposite direction of interest rates. Therefore, during a rising rate environment, fixed rate bonds are susceptible to price erosion, whereas floaters are better protected because the coupon rate adjusts with the now higher market rate, returning the price to par at reset."

The Wall Street Journal'​s Jason Zweig wrote a column on Friday, entitled, "Mercedes Wants to Borrow Money From You. Should You Bite? Short-​term corporate notes offer more yield but less safety." He tells us, "This spring, tens of thousands of people who own or lease a Mercedes-​Benz vehicle are receiving an unusual direct-​mail offer: an invitation to invest in short-​term securities from Mercedes paying a 2.​5% annual rate. That looks like a limousine of yield alongside the jalopy rates of less than 1% you get right now on most bank accounts, certificates of deposit or money-​market funds." The piece explains, "Whether the Mercedes cash vehicle or others like it are right for you depends primarily on whether you think of cash as an offensive or defensive investing weapon. If you urgently need to squeeze more income out of your cash, it might make some sense to put a small portion in such a high-​yielding issue. Many investors, however, regard cash as a bulwark against the risk of loss elsewhere in their portfolio -- and in the other aspects of their life, for that matter. In that case, cash is no place to run unnecessary risks, no matter how small." In terms of the program'​s success and limitations, the Journal says, "The Mercedes offering, launched in 2014 and sold more widely since last year, is called a privately placed floating-​rate demand note. You generally can'​t invest unless you earn at least $​200,​000 a year ($​300,​000 if you file taxes jointly) or have $​1 million in net worth, not counting your primary residence. There'​s no public market for the securities, which are issued by Mercedes-​Benz Financial Services USA. You can withdraw your money at will and receive the proceeds back in two to three business days, according to the company.... Several other companies have issued short-​term, floating-​rate demand notes directly to the public, including Ally Financial, Caterpillar Financial Services Corp., Duke Energy, Ford Motor Credit Corp., and General Motors Financial Co."

Wells Fargo Money Market Funds published its latest "Portfolio Manager Commentary" late last week, which comments on the seasonal nature of money market fund assets. They explain, "​The end of April seems to serve as an inflexion point of sorts for the money markets. Experience has shown that it represents a turning point at which seasonal outflows from money market funds stop, or at least stabilize, followed by a gradual buildup in assets in the second half of the year, accelerating into year-​end. The first four months of 2018 seemed to be holding to this pattern; total money market assets fell from $​2,​935 billion to $​2,​877 billion, a decrease of 1.​97%. This number seems to be quite smaller than previous years. A closer examination reveals that the size of the decline is being partially masked by an inflow to prime money market funds. Those funds declined by 2% through the end of March, falling $​18 billion, before gaining $​19 billion in assets during April. Following implementation of money market reform in October 2016, most transactional deposits shifted to government money market funds. This would suggest that outflows in government funds should exceed those of prime funds, and they do. Government funds fell from $​1,​558 billion at the end of 2017 to $​1486 billion at the end of April, a decline of 4.​62%. This number also seems to be a little low in contrast to previous years. Between January 31st and March 7th, institutional government funds experienced inflows of $​47 billion, and it would appear that some of that money has stuck around." The piece continues, "The origin of funds is a mystery, though two sources are distinct possibilities. Some of it could be from the equity markets, which sold off over 10% in the two weeks that ended February 8th and then continued to trade in volatile ranges for the rest of the quarter. During February and the first week of March, nearly $​24 billion flowed out of domestic equities. Some of it could also be held in cash for anticipated tax payments or for capital expenditures anticipated over the near term, such as dividend payments and share repurchases. If these deposits are temporary, it is likely that their outflows later this year will have an offsetting effect on any seasonal inflows, smoothing out asset spikes in the short end." Wells adds, "As measured by Crane Data, prime institutional assets were up $​14 billion in the month of April. Commercial paper outstandings were also up but just back to the amount outstanding at the end of February. Contributing to the light issuance was quarter-​end for Canadian banks and fiscal year-​end for Australian banks this month. With an increase in demand not matched by an increase in supply, the money market sector experienced a contradiction on yields even as LIBOR itself continued to climb, albeit at a slower pace."

The Investment Company Institute released its latest monthly "Money Market Fund Holdings" summary (​with data as of April 27, 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 May 10 News, "May Money Fund Portfolio Holdings: Treasury Surge Ends; Repo Rebound.") The MMF Holdings release says, "The Investment Company Institute (​ICI) reports that, as of the final Friday in April, prime money market funds held 25.​4 percent of their portfolios in daily liquid assets and 41.​9 percent in weekly liquid assets, while government money market funds held 60.​1 percent of their portfolios in daily liquid assets and 77.​1 percent in weekly liquid assets." Prime DLA decreased from 27.​1% last month and Prime WLA decreased from 43.​2% last month. Govt MMFs' DLA decreased from 61.​8% last month and Govt WLA decreased from 77.​2% last month. ICI explains, "At the end of April, prime funds had a weighted average maturity (​WAM) of 28 days and a weighted average life (​WAL) of 64 days. Average WAMs and WALs are asset-​weighted. Government money market funds had a WAM of 31 days and a WAL of 89 days." Prime WAMs were down three days from last month, and WALs were down by four days. Govt WAMs were down three days from March and Govt WALs were down by three days 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 $​194.​68 billion in March to $​181.​75 billion in April. Government money market funds’ holdings attributable to the Americas declined from $​1,​781.​36 billion in March to $​1,​709.​08 billion in April." The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​181.​8 billion, or 39.​8%; Asia and Pacific at $​86.​6 billion, or 18.​9%; Europe at $​183.​2 billion, or 40.​1%; and, Other (​including Supranational) at $​5.​7 billion, or 1.​3%. The Government Money Market Funds by Region of Issuer table shows Americas at $​1.​709 trillion, or 77.​3%; Asia and Pacific at $​112.​9 billion, or 5.​1%; and Europe at $​387.​2 billion, or 17.​5%.

ICI released its latest "Money Market Fund Assets" reports yesterday, which showed the biggest increase of Prime MMFs in 2018. Their numbers show money fund assets rising for the second week in a row 3 straight weeks of tax-​driven declines. Year-​to-​date, MMF assets have decreased by $​31 billion, or -​1.​1%, but they'​ve increased by $​157 billion, or 5.​9%, over 52 weeks. ICI writes, "Total money market fund assets increased by $​6.​92 billion to $​2.​81 trillion for the week ended Wednesday, May 9, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​2.​42 billion and prime funds increased by $​6.​94 billion. Tax-​exempt money market funds increased by $​2.​39 billion." Total Government MMF assets, which include Treasury funds too, stand at $​2.​206 trillion (​78.​6% of all money funds), while Total Prime MMFs stand at $​464.​9 billion (​16.​6%). Tax Exempt MMFs total $​135.​7 billion, or 4.​8%. They explain, "Assets of retail money market funds increased by $​2.​32 billion to $​1.​02 trillion. Among retail funds, government money market fund assets increased by $​1.​17 billion to $​626.​77 billion, prime money market fund assets decreased by $​1.​18 billion to $​261.​29 billion, and tax-​exempt fund assets increased by $​2.​33 billion to $​128.​13 billion." `​Retail assets account for over a third of total assets, or 36.​2%, and Government Retail assets make up 61.​7% of all Retail MMFs. ICI'​s release adds, "Assets of institutional money market funds increased by $​4.​59 billion to $​1.​79 trillion. Among institutional funds, government money market fund assets decreased by $​3.​58 billion to $​1.​58 trillion, prime money market fund assets increased by $​8.​12 billion to $​203.​64 billion, and tax-​exempt fund assets increased by $​60 million to $​7.​57 billion." `​Institutional assets account for 63.​8% of all MMF assets, with Government Inst assets making up 88.​2% of all Institutional MMFs.

Dreyfus/​BNY Mellon posted a brief entitled, "Higher Rates and Tax Reform: Now is the Time for Short-​Term Tax-​Exempt Investing." It says, "​The market environment clearly has changed: the era of ultra-​low yields on liquid assets is over. Higher short-​term interest rates, stimulative fiscal policies and business-​friendly changes to the tax code have made tax-​exempt money market funds more attractive for individual and institutional investors seeking to maximize returns while managing tax liabilities and maintaining liquidity." The piece explains, "Investors are focusing more intently on tax-​exempt investments -- including municipal money market funds -- now that short-​term interest rates are climbing. Investors who once paid little in taxes on the meager interest earned from taxable money market funds are seeing greater tax liabilities as yields increase, even at lower corporate tax rates. For those concerned about renewed tax burdens, now could be an opportune time to reallocate their assets into tax-​exempt money market funds.... The need for tax-​exempt income may be particularly strong in high-​tax states, such as New York, New Jersey, Connecticut and California, where tax reform legislation curtailed the deductibility of state and local taxes. It makes sense that these taxpayers will seek alternative ways to manage their tax liabilities, including shifting income-​producing assets to state-​specific municipal bond and municipal money market funds. Institutional investors will also strive to maximize their after-​tax yields. Moreover, tax-​exempt money market funds offer important diversification benefits for companies' liquid assets. Highly liquid funds with short-​weighted average maturities, strong credit characteristics and attractive after-​tax yields should remain compelling alternatives for institutional investors." Finally, Dreyfus adds, "Recent tax-​exempt yield increases may be just the beginning of a longer-​term trend. VRDN issuance volumes appear poised to increase as U.​S. commercial banks convert some of their direct municipal loans to more cost-​effective structures, including VRDNs.... In today'​s new market environment, it has become increasingly clear that tax-​exempt money market funds have an important role to play in the management of liquid assets. Dreyfus is a longstanding leader in the management of money market funds, and can help you achieve highly competitive returns while managing your tax liabilities, maintaining liquidity, adding diversification and preserving capital."

Indian website MoneyControl posted the article, "Sundaram MF seeks SEBI nod for money market fund," which says, "Sundaram Mutual Fund has sought the Securities and Exchange Board of India'​s approval for launching Sundaram Money Market Fund, according to the draft offer document on SEBI. The open-​ended debt scheme will invest its entire corpus in money market instruments." The brief says the fund'​s risk is "Moderately low, plans are "Regular and direct," options are "Growth and dividend, and the exit load is "Nil." It adds that the minimum is "Rs 1,​000 and in multiples of Rs 10 thereafter and that the fund managers are "Siddharth Chaudhary and Sandeep Agarwal. The fund'​s performance benchmark is the "CRISIL Money Market Index. See also our Jan. 11 Link of the Day, "Paytm may launch Indian money fund, and see our March 28 News, "Worldwide Money Fund Assets: US Jumps in Q4, China Breaks 1.​0 Tril." According to Crane Data'​s analysis of the ICI'​s latest Worldwide money fund totals, India ranks 10th in the world in market size with $​44.​8 billion, or 0.​8% of assets as of Dec. 31, 2017.

Federated Investors writes in its latest "Month in Cash" about "Alphabet Soup." Money market CIO Deborah Cunningham says, "Get ready for some acronyms: SOFR, OBFR, OIS, FOMC, QT and MIC. Well, the last is our internal abbreviation for Month in Cash. But the others have significance for cash managers everywhere, with the big message being, they are nothing to worry about." She explains, "First is the Federal Open Market Committee (​FOMC), which gained some ground in April from a membership perspective. The Fed has had only three of seven governors for some time now, counting new Chair Jerome Powell. But President Trump nominated Richard Clarida as vice chair and Michelle Bowman as the governor representing community banks. While it is unlikely the Senate will confirm floundering nominee Marvin Goodfriend, the expectation is that the other two will be approved, possibly in time for the June FOMC meeting. June is likely to produce the next rate hike; expectations for this week'​s policy-​setting meeting are for no move.... Second, the large spread between the 3-​month London interbank offered rate (​Libor) and the Overnight Index Swap (​OIS) continues to get a lot of press, but the story remains a benign one. The widening is not due to any bad credit of European banks, but with the excess Treasury supply and repatriation of overseas cash. The excess bill supply issued by the Treasury Department and the Fed'​s quantitative taper (​QT, now $​30 billon-​a-​month) has flooded the market with short-​term Treasuries, pushing rates up. Nothing to worry about." Federated adds, "Lastly, another issue that should not be a concern is the Secured Overnight Financing Rate (​SOFR), proposed by the Fed'​s Alternative Reference Rates Committee (​ARRC) to replace Libor. It might someday, but as of now it is a risk-​free rate (​collateralized by Treasuries) and not a credit rate.... With the 3% 10-​year Treasury getting attention, remember that comes with a loss in net asset value (​NAV) for products in that area. Money market products, however, earned close to 2% in April and likely will cross that threshold without any deterioration in principal in the very near future if the Fed continues on its path. Cash is an asset class again, not just a liquidity provision."

Federal Reserve Vice Chairman for Supervision Randal Quarles spoke Friday on "Liquidity Regulation and the Size of the Fed'​s Balance Sheet." He commented on "Liquidity Regulations," saying, "Let me now back up to the time just before the financial crisis and briefly describe why liquidity regulations are necessary for banks. Banking organizations play a vital role in the economy in serving the financial needs of U.​S. households and businesses. They perform this function in part through the mechanism of maturity transformation -- that is, taking in short-​term deposits, thereby making a form of short-​term, liquid investments available to households and businesses, while providing longer-​term credit to these same entities. This role, however, makes banking firms vulnerable to the potential for rapid, broad-​based outflows of their funding (​a so-​called run), and these institutions must therefore balance the extent of their profitable maturity transformation against the associated liquidity risks. Leading up to the 2007-​09 financial crisis, some large firms were overly reliant on certain types of short-​term funding and overly confident in their ability to replenish their funding when it came due. Thus, during the crisis, some large banks did not have sufficient liquidity, and liquidity risk management at a broader set of institutions proved inadequate at anticipating and compensating for potential outflows, especially when those outflows occurred on a rapid basis." Quarles continues, "​In the wake of the crisis, a combination of regulatory reforms and stronger supervision was needed to promote increased resilience in the financial sector. With regard to liquidity, the prudential regulations and supervisory programs implemented by the U.​S. banking agencies have resulted in significant improvements in the liquidity positions and in the risk management of our largest institutions. And, working closely with other jurisdictions, we have also implemented global liquidity standards for the first time. These standards seek to limit the effect of short-​term outflows and extended overall funding mismatches, thus improving banks' liquidity resilience. One particular liquidity requirement for large banking organizations is the LCR, which the U.​S. federal banking agencies adopted in 2014. The LCR rule requires covered firms to hold sufficient high-​quality liquid assets (​HQLA) -- in terms of both quantity and quality -- to cover potential outflows over a 30-​day period of liquidity stress. The LCR rule allows firms to meet this requirement with a range of cash and securities and does not apply a haircut to reserve balances or Treasury securities based on the estimated liquidity value of those instruments in times of stress. Further, firms are required to demonstrate that they can monetize HQLA in a stress event without adversely affecting the firm'​s reputation or franchise."

U.​S. Bancorp'​s Asset Management'​s First American Funds recently posted an update on the "National Association of Insurance Commissioners (​NAIC) Policy Change Affecting Government Money Market Funds." They tell us, "Effective July 1, 2018, the NAIC will begin excluding money market funds (​MMFs) investing in certain agency securities from its U.​S. Direct Obligations/​Full Faith and Credit Exempt List for Mutual Funds. This means Government Obligations MMFs will no longer be eligible for inclusion on the list if they invest in securities issued by certain U. S. Government Agencies not considered to be backed by the Full Faith and Credit of the U.​S. Government. Examples of these include Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks." The update continues, "The First American Government Obligations Fund is impacted by this change and will no longer be eligible for inclusion on the NAIC U.​S. Direct Obligations/​Full Faith and Credit Exempt List for Mutual Funds. Treasury MMFs are not affected by this change. The following First American Funds will remain on the NAIC List of Approved Money Market Funds: First American U.​S. Treasury Money Market Fund seeks to provide maximum current income and daily liquidity by purchasing U.​S. Treasury and other money market funds that invest exclusively in such obligations. First American Treasury Obligations Fund seeks to provide maximum current income and daily liquidity by purchasing U.​S. Treasury securities and repurchase agreements collateralized by such obligations. MMFs not appearing on the U.​S. Direct Obligations / Full Faith and Credit Exempt List remain eligible investments for insurance companies. However, investments in MMFs that are not on the exempt list are subject to a risk-​based capital charge effective July 1, 2018, per NAIC guidelines." (​For more, see Crane Data'​s April 10 News, "NAIC Says Govt Agency MMFs No Longer on Full Faith and Credit List.")

A video entitled, "Invesco Sees VRDNs as '​Very Good' Short-​Term Muni Bond Strategy" interviews Mark Paris, head of municipals at Invesco. He joins Bloomberg'​s Taylor Riggs for this week'​s "Muni Moment" on "Bloomberg Markets." Paris was asked about VRDNs, or variable rate demand notes, which "recently hit a 10-​year (​yield) high." He comments, "Obviously, as the Fed is normalizing the short end of the yield curve, we'​re seeing short-​term rates move up, and that'​s the same thing for the municipal bond market. These variable rate demand notes actually reset on a weekly basis. It'​s actually very good in the short-​end strategy. Some of our shorter-​end duration funds were using that strategy because the price/ stays very stable, the rates move up as the Fed moves.... The flip side is closed end funds which issue these, and there cost of funds is going up very slowly and that could put some pressure on dividends in closed end funds.... But for the short strategies, we like the VRDNs a lot." Asked about Detroit, he adds, "​But it'​s very interesting to look at different names in the muni market and there'​s so many names to look at.... Revenue bonds do very well.... We'​re actually focused more on toll roads, water and sewer bonds. We think that'​s a very steady area of the market... You don'​t get the headline risk." Finally, when asked, "Where do you see opportunities?" Paris answers, "It definitely pays to take some credit risk here. Obviously, we'​ve had a big rate move.... High-​yield munis have outperformed.... I would say the short duration space in high yield muni is very attractive right now."

As we enter May, the Treasury Management Association of New York is preparing for its annual New York Cash Exchange conference, which will take place at the New York Hilton on May 30-​31. While Crane Data won'​t be exhibiting and our Peter Crane won'​t be speaking, we will be there on May 30 to attend several of the sessions involving money funds and to visit the host of money fund companies exhibiting. The agenda includes the following cash investing-​related sessions: Seeking to Optimize Corporate Liquidity featuring Fidelity Investments' Michael Morin; Building for the Future: Cash Investment Ideas in an Ever Changing World, featuring Estee Lauder'​s Paul Baranello, MasterCard'​s Devin Dadigan, and BlackRock'​s Kevin Fitzgerald and Frank Gianatasio; and Comparing New Investment Alternatives: Products and Strategies, featuring Treasury Strategies' Tony Carfang and Fitch Ratings' Ian Rasmussen. If we don'​t see you at the New York Cash Exchange, we'​ll also be attending the SIFMA Ops Conference AMA Roundtable in Phoenix next week (​May 7-​8) and the ICI General Membership Meeting in Washington on May 23. Finally, we hope you'​ll join us in Pittsburgh in late June for our upcoming Money Fund Symposium (​June 25-​27)!

The Wall Street Journal writes "The Biggest Banks Are Gobbling Up Deposits. Here'​s Who'​s Not." The article explains, "Last year, businesses started pulling money from their bank accounts at Fifth Third Bancorp. In response, the Cincinnati lender started offering higher interest rates to some consumers. But the bank still ended 2017 with slightly fewer deposits, the first drop in seven years. Welcome to the new world of Main Street banking, where deposits are starting to head out the door after years of growth. This month, major regional banks reported the increasing competition for deposits in their first-​quarter earnings. Some lenders, including Dallas'​s Comerica Inc. and Regions Financial Corp. of Birmingham, Ala., lost deposits compared with a year ago. Others are still adding deposits, but at a much slower pace than recent years." The Journal explains, "​The drain represents another consequence of the Federal Reserve'​s decision to raise short-​term rates, which influences the mortgage market, stocks and other corners of the economy. The higher rates now available in money-​market funds and other investments are luring clients to move their money out of bank accounts that still offer minimal interest rates.... In 2017, 10 of 22 major regional banks experienced declining U.​S. deposits, compared with only two the year before, according to a Wall Street Journal analysis of Federal Deposit Insurance Corp. data.... The deposit declines aren’​t big enough yet to hurt bank earnings, which have broadly been strong thanks to the recent corporate tax cut in the U.​S." Finally, the WSJ adds, "But the declines could mark the start of an important industry shift where deposits become less plentiful and Main Street banks do more to compete for them. Regional banks lack the national footprint of JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., which attract consumers through their ubiquitous branch networks and flashy mobile-​banking apps.... Deposits from corporate accounts have often been the cause of the broader deposit declines at regional banks. Business customers tend to be more demanding about rates, since even a small change in rates on large corporate deposits can translate into millions of dollars."

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