Daily Links Archives: August, 2018

Investment News writes, "Advisers in a pickle over low-yielding cash sweep accounts." Author Jeff Benjamin tells us, "With interest rates edging higher and stock market valuations hitting peak levels, cash management is becoming a center-stage issue for financial advisers, and one that could have fiduciary implications. While cash typically makes up only a small percentage of client portfolios, and a lot of fee-based advisers don't even charge fees on cash balances, the rising yields on some money-market funds are drawing new attention to brokerage and custodian sweep accounts, which typically pay the lowest yields on cash.... Brokerages and custodians usually establish sweep accounts linked to affiliated banks and then make money off the cash just as a bank would, mostly through lending programs. The main downside of the sweep accounts is the average yield, which Bankrate.com puts at about 25 basis points, woefully short of the average money-market fund yield of nearly 1.8%." The piece adds, "Low-yielding sweep accounts have inspired at least one company to target advisers looking for cash-management alternatives. For a fee of 2 basis points per quarter, MaxMyInterest will move any size of cash account into the highest-yielding federally insured savings account. Sweep accounts have always paid lower yields than standard money markets, but until recently most yields were low across the board so the difference was less of an issue. And the rise in interest rates, combined with record-level equity markets, is increasing the appeal of the relative safety of cash and cash-equivalents to investors. There was some recent buzz across the financial services industry when the Wall Street Journal reported that Merrill Lynch will start linking cash to bank-affiliated sweep accounts in September, instead of sweeping the cash into higher-yielding money market funds. But the challenge of navigating low-yielding in-house cash management is not a new headache for financial advisers."

BlackRock Fixed Income Product Strategist Karen Schenone posted, "Rising rates blog series: The double appeal of short-maturity bonds." She tells us, "One of the ways to navigate a rising rate environment is to reduce your exposure to bonds with greater levels of interest rate risk. For many investors, this means moving toward short-maturity bonds. In exchange for lower risk, these issues typically generate lower income than longer-maturity bonds.... The current market environment is unusual, however. A flatter yield curve means that short bonds are providing similar income to their longer-maturity counterparts -- while still reducing interest rate risk. Investors wanting to gain exposure to short-maturity bonds often do so through bond exchange traded funds (ETFs) or mutual funds, which typically hold a diversified portfolio of bonds with maturities less than five years." Schenone also says, "Note that ultra-short bonds, represented by 1- to 12-month US Treasury bills (T-bills), had very little price movement while increasing the income contribution over this time period [Dec. 2015 through June 2018]. Fixed-rate short-maturity sectors like U.S. Treasuries and credit with 1-3 years to maturity both had prices losses, but increased their income as rates went up. The clear winner over this period was floating rate notes, which had positive returns for both price and income." She adds, "The choice between ultra-short, short-term or floating rate bonds depends on your holding period and investment objectives. For a very short-term holding period, consider sticking to high-quality ultra-short maturities, such as less than one year. If you have a longer holding period (over 12 months), short-maturity fixed-rate bond ETFs can provide more income potential during rising rate periods if you can tolerate the price changes over the period. Exchange traded funds like iShares Short Treasury Bond ETF (SHV), iShares 1-3 Year Treasury Bond ETF (SHY) and iShares Short-term Corporate Bond ETF (IGSB) can provide investment options for those looking for exposure to short-maturity bonds."

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 August 24) includes Holdings information from 84 money funds (up 24 from 60 on August 17), representing $1.432 trillion (up from $1.037 billion the prior week) of the $2.961 (48.4%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.") Our latest Weekly MFPH Composition summary shows Government assets dominating the list with Treasury holdings totaling $446.9 billion (up from $358.6 billion), or 31.2%, Repurchase Agreements (Repo) totaling $434.3 billion (up from $290.4 billion) or 30.3%, and Government Agency securities totaling $350.9 billion (up from $242.9 billion), or 24.5%. Commercial Paper (CP) totaled $63.9 billion (up from $45.0 billion), or 4.5%, and Certificates of Deposit (CDs) totaled $58.4 billion (up from $46.9 billion), or 4.1%. A total of $39.7 billion or 2.8% was listed in the Other category (primarily Time Deposits) and VRDNs accounted for $38.5 billion, or 2.7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $396.5 billion (27.7% of total holdings), Federal Home Loan Bank with $241.6B (16.9%), BNP Paribas with $82.6B (5.8%), Federal Farm Credit Bank with $45.0B (3.1%), RBC with $43.3B (3.0%), Barclays with $33.5 billion (2.3%), Credit Agricole with $30.3B (2.1%), Wells Fargo with $29.8B (2.1%), Societe Generale with $29.3B (2.0%), and Natixis with $28.8B (2.0%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($137.5B), Fidelity Inv MM: Govt Port ($111.4B), BlackRock Liq FedFund ($91.5B), Wells Fargo Govt MMkt ($74.6B), BlackRock Lq T-Fund ($72.5B), Federated Govt Oblg ($66.6B), Dreyfus Govt Cash Mgmt ($65.5B), Morgan Stanley Inst Liq Govt ($51.2B), State Street Inst US Govt ($45.1B), and JP Morgan Prime ($43.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

A notice for the State Farm Money Market Fund tells us that shareholders will vote to have the fund's management outsourced to BlackRock. It says, "You are cordially invited to attend a special meeting of shareholders ... of State Farm Money Market Fund ..., a series of State Farm Mutual Fund Trust ..., which will be held on Friday, September 14, 2018 at 8:00 a.m. (Central time), at the offices of State Farm Investment Management Corp. … Bloomington, Illinois.... SFIMC, the investment adviser to the Target Fund, after a review of the nature and goals of its mutual fund advisory business, has determined to reduce the extent of its mutual fund advisory business activities. Accordingly, on May 23, 2018, SFIMC recommended, and the Board of Trustees of the Target Trust … approved, an Agreement and Plan of Reorganization with respect to the Target Fund pursuant to which the Target Fund would be reorganized ... into BlackRock Summit Cash Reserves Fund ..., a series of BlackRock Financial Institutions Series Trust, a money market mutual fund advised by BlackRock Advisors, LLC.... After considering the fees and expenses, performance, investment objectives and strategies of the Acquiring Fund and the terms and conditions of the Reorganization, including the tax consequences, the Target Board unanimously recommends that you vote in favor of the Reorganization because it believes the Reorganization is in the best interests of the Target Fund."

While we're making final preparations for next month's European Money Fund Symposium, Sept. 20-21 in London, England, we're also starting to prepare for our next "basic training" event, Money Fund University. Our 9th annual MFU returns to the Stamford Marriott Hotel in Stamford, Conn., January 17-18, 2019. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. The affordable educational conference (see the agenda here or e-mail us to request our brochure) features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. Money Fund University offers attendees a 2-day course on money market mutual funds, educating attendees on the history of money funds, the Fed, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper, CDs, CP, ABC, repo, plus portfolio construction. At our next Stamford event, we will again take a look at ultra-short bond funds and Europeans MMF regulations. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing will benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities are $3K, $4K, and $5K. A block of rooms has been reserved at the Stamford Marriott. We'd like to thank our MFU sponsors –- Dreyfus/BNY Mellon CIS, Federated Investors, Fidelity Investments, Fitch Ratings, J.P. Morgan Asset Management, TD Securities, S&P Global, and Dechert -- for their support, and we hope to see you in Stamford in January. E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details. Finally, Crane Data will be preparing the preliminary agendas for its next Bond Fund Symposium (March 25-26, 2019, at the Philadephia Intercontinental), and our "big show," Money Fund Symposium, which will be held June 24-26, 2019, at the Renaissance Boston.

The Federal Deposit Insurance Corporation released its latest "FDIC Quarterly Banking Profile," which says, "Net interest income totaled $134.1 billion, an increase of $10.7 billion (8.7 percent) from 12 months earlier and the largest annual dollar increase ever reported by the industry. More than four out of five banks (85.1 percent) reported year-over-year increases. Net interest margin (NIM) rose to 3.38 percent, up 16 basis points from a year earlier, as average asset yields grew more rapidly than average funding costs. Institutions with assets of $10 billion to $250 billion reported the largest annual increase in average funding costs (up 30 basis points). The improvement in NIM was widespread, as more than two out of three banks (70.2 percent) reported increases from a year earlier." The update continues, "Total deposits fell by $60.2 billion (0.4 percent) from the previous quarter, as deposits in both foreign offices (down $38.8 billion, or 3 percent) and domestic offices (down $21.5 billion, or 0.2 percent) declined. Domestic interest-bearing deposits rose by $13.5 billion (0.1 percent), while noninterest-bearing deposits declined by $34.9 billion (1.1 percent). Banks increased their nondeposit liabilities by $46.3 billion (2.3 percent) from the first quarter, led by Federal Home Loan Banks advances (up $30 billion, or 5.4 percent) and other liabilities (up $11.7 billion, or 3.1 percent)." A press release entitled, "FDIC-Insured Institutions Reported $60.2 Billion in Second Quarter 2018" quotes FDIC Chairman, Jelena McWilliams, "The banking industry experienced continued improvement in net interest income, noninterest income and loan performance this quarter. However, the interest-rate environment coupled with competitive lending conditions have led to heightened exposure to interest-rate, liquidity, and credit risks. The industry must continue to position itself to be resilient through economic cycles."

The Financial Times writes "Credit Suisse becomes first bank to issue debt tied to Sofr." They tell us, "Credit Suisse has become the first bank to issue debt tied to the new US interest rate chosen to replace the London Interbank Offered Rate (Libor), selling a $100m six-month certificate of deposit on Monday. The bank is the third institution overall to issue debt tied to the Secured Overnight Financing Rate (Sofr), following a $6bn floating rate note from mortgage agency Fannie Mae and a $1bn floating rate bond from the World Bank." (See our August 16 Link of the Day, "Wells on World Bank SOFR Floater.") The article explains, "The Sofr rate, drawn from transactions in the repo market, has been chosen by an industry group and set up by the Federal Reserve to shepherd a move away from Libor. Corporate issuance is seen by the industry as an important step in aiding adoption of the new rate. The Credit Suisse debt priced at 35 basis points above Sofr, according to people with knowledge of the sale. Sofr, which resets daily, stood at 1.90 per cent on Friday -- the most recent rate available from the Federal Reserve Bank of New York, which publishes it." In other news, a press release entitled, "Moody's withdraws the Aaa-mf money market fund rating of Insight Liquidity Funds plc. - ILF USD Liquidity Fund", explains, "Moody's Investors Service ... has ... withdrawn the Aaa-mf money market fund rating of Insight Liquidity Funds plc. - ILF USD Liquidity Fund.... The Fund is managed by Insight Investment Funds Management Ltd." The release explains, "Moody's has withdrawn the rating for its own business reasons. MIS's business reasons generally do not reflect any concerns about the Rated Entity's creditworthiness or the quality of its management."

The Wall Street Journal writes again on brokerage sweeps in "Merrill Lynch Joins Brigade Downplaying Money-Market Mutual Funds." Author Jason Zweig tells us, "Starting Sept. 4, Bank of America Corp.'s Merrill Lynch brokerage unit will no longer sweep its customers' cash into money-market mutual funds, moving it instead into deposits at affiliated banks. In communications distributed to its staff on Monday, the brokerage said money-market funds 'will no longer be available as a sweep choice for most new accounts.' Instead, clients' uninvested cash will be automatically routed to bank deposits. For six months, these so-called bank sweep accounts will earn a 'transitional yield' equal to that on a money-market fund; after May 2019, the yields on those deposits are likely to drop to market rates below that level. The yield on 100 large money-market mutual funds averages 1.77%, according to Crane Data of Westboro, Mass., which tracks returns on cash investments. Bank sweep accounts at brokerage firms tend to pay about 0.25% on average, according to Crane." The piece adds, "Merrill's brokers will still be able to place their customers' cash in higher-yielding money-market funds, but only by purchasing them manually. The giant firm thus joins many other major brokerages, including Morgan Stanley and Charles Schwab Corp., in potentially capturing more of the income on cash balances for themselves, rather than passing most of it through to clients. Such a move has steadily become more lucrative as the Federal Reserve raises interest rates." (See also our August 21 News, "More Insured Brokerage Sweeps Blowback: ignites, BlackRock Comment.")

Bloomberg features the article, "$1.5 Trillion in Corporate Cash Is Coming to America," which says, "The biggest U.S. asset managers are going head-to-head to win a piece of a $1.5 trillion corporate cash comeback. That's the sum companies are expected to bring onshore under the U.S. tax overhaul passed last year, according to Invesco estimates. About $400 billion has already been repatriated, according to the firm." The piece explains, "Overseas, at least one major asset manager is losing out as a result of the changes. Cisco Systems Inc. yanked 5 billion euros ($5.7 billion) from Deutsche Bank AG's asset management arm, DWS Group, in recent quarters as it repatriated profits, Bloomberg News reported on Thursday." Bloomberg's article tells us, "Halfway into the year companies are still only beginning to respond to the changes. But BlackRock Inc., JPMorgan Chase & Co. and Fidelity Investments are among asset managers racing to create new strategies for clients who want to bring overseas funds back." They quote Michael Morin of Fidelity, "Some of our clients have already completed those transactions, but the majority of our clients are still in the process." Goldman Sachs' Jason Granet comments, "Corporations that had been issuing debt in the low interest-rate environment are increasingly turning around their strategies." Finally, JPMorgan Asset Management's Ted Ufferfilge tells Bloomberg, "People are trying to think through what they want their capital structure to look like, with short-term bond funds in particular garnering attention recently."

A press release entitled, "AllianceBernstein Hires Zachary Green as Global Head of Liquidity Sales," tells us, "AllianceBernstein L.P. ('AB') ... announced Zachary Green has joined [the firm] as Global Head of Liquidity Sales. In this newly created role, Green will be responsible for overseeing the sales, marketing, product development and commercialization of AB's cash management business globally." Fixed Income CIO Douglas Peebles comments, "With nearly 40 years of history in the institutional money fund business, AB is committed to being a trusted partner and consultant to help cash managers meet their liquidity needs.... Particularly in today's volatile environment, we believe liquidity management strategies will become even more critical for investors seeking better returns and stability in their asset allocation. Zak brings more than two decades of distinct experience and track record serving the institutional market, and we're confident that our team and clients will benefit greatly from his expertise." The release tells us, “Prior to joining AB, Green worked at Western Asset Management for more than 10 years as a product specialist and client service executive, helping to oversee sales, marketing and product development for the company's $100 billion-dollar suite of liquidity products. Previously, he was managing director and head of Institutional Sales & Marketing at Reserve Management.... Green began his career at Lehman Brothers and Deutsche Bank. He holds a BS … from Cornell University." It adds, "AB, then known as Alliance Capital, launched its first money fund in 1978, and ranked among the top 15 mutual fund sponsors in the 1990's and early 2000's. In 2005, the firm sold its money fund business to Federated Investors. Over the past decade, AB began efficiently managing internal cash, and created the AB Government Money Market Portfolio (AEYXX). The firm currently manages approximately $280 billion in total fixed-income assets."

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets dipped after hitting their highest levels since 2010 last week. Prime assets continued to rise though. Money fund assets are entering one of the strongest seasonal periods of the year, so we expect flows to rebound strongly next week. But assets fell due to tax payments on the 15th. They're now up $23 billion, or 0.8%, YTD, and they've increased by $154 billion, or 5.7%, over 52 weeks. ICI writes, "Total money market fund assets decreased by $3.72 billion to $2.86 trillion for the week ended Wednesday, August 15, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $6.17 billion and prime funds increased by $2.73 billion. Tax-exempt money market funds decreased by $281 million." Total Government MMF assets, which include Treasury funds too, stand at $2.217 trillion (77.5% of all money funds), while Total Prime MMFs stand at $513.8 billion (18.0%). Tax Exempt MMFs total $129.6 billion, or 4.5%. They explain, "Assets of retail money market funds decreased by $527 million to $1.04 trillion. Among retail funds, government money market fund assets decreased by $2.86 billion to $627.93 billion, prime money market fund assets increased by $2.33 billion to $295.25 billion, and tax-exempt fund assets increased by $7 million to $121.59 billion." `Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.1% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $3.20 billion to $1.82 trillion. Among institutional funds, government money market fund assets decreased by $3.31 billion to $1.59 trillion, prime money market fund assets increased by $402 million to $218.58 billion, and tax-exempt fund assets decreased by $289 million to $8.01 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.5% of all Institutional MMFs.

We learned from Wells Fargo Securities' Daily Short Stuff that the World Bank issued the 2nd SOFR-based floater, following an inaugural offering by Fannie Mae last month. Wells' Garret Sloan and Vanessa Hubbard McMichael write, "The International Bank for Reconstruction and Development (World Bank) priced a $1.0 billion two-year floating-rate security at SOFR+22 basis points yesterday, the first SSA SOFR-linked bond. The SOFR+22 approximates a 3-month LIBOR spread of approximately -5 basis points. This is the second issuer within the past two weeks to issue a security referencing the Secured Overnight Funding Rate as its underlying index. Recall that Fannie Mae issued three floating-rate securities priced over SOFR a couple of weeks ago, a six-month at SOFR+8 basis points, a one-year at SOFR+12 basis points and an 18-month at SOFR+16 basis points." The Wells brief adds, "Some market participants are beginning to speculate that we will see an increase in usage of SOFR with corporate issuers becoming increasingly curious and interested in the rate. An article posted by Bloomberg late yesterday quoted TD Securities as commenting that, 'It's months, not years, before we see a financial or corporate,' issue a floating-rate security priced off of SOFR." A press release, entitled, "World Bank Launches Market's First SSA Secured Overnight Financing Rate (SOFR) Bond," tells us, "The World Bank ... today priced its first Secured Overnight Financing Rate (SOFR) bond. The 2-year USD-denominated benchmark bond raised USD 1 billion from investors in the Americas and Europe. This is the first SSA-issued SOFR-linked bond and represents the second transaction in the market. Proceeds of the bond will support the World Bank's global efforts to end poverty and create opportunity. This latest World Bank bond transaction responds to investor demand for high quality assets and helps develop the market for SOFR – a rate based on transactions in the U.S. Treasury repurchase market and an alternative reference rate to USD LIBOR." The release continues, "There were orders for approximately USD 1.4 billion from 27 investors representing central banks and official institutions (55.5%), and asset managers, insurance and pension funds (22.8%), and bank treasuries and corporates (21.7%). Joint lead managers for this global bond are Citi and TD Securities. The 2-year benchmark has a coupon of SOFR + 22bps, reset daily and paid quarterly with a 4-day lockout and a maturity date of August 21, 2020." The Federal Reserve Board's Randal Quarles comments, "Given its global responsibilities, the World Bank's decision to issue a SOFR note sends an important signal to market participants. SOFR is fast developing into a robust and durable reference rate that is a strong choice for a wide range of cash products." `Crane Data's latest (7/31) Money Fund Portfolio Holdings data shows that 37 money funds from 9 families, including AB, BMO, Columbia, Federated, Fidelity, Goldman Sachs, Morgan Stanley, Oppenheimer, and RBC, collectively hold $4.22 billion in FNMA (Federal National Mortgage Association) SOFR-indexed securities.

The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of July 27, 2018) Monday. 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 August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.") The ICI MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in July, prime money market funds held 25.6 percent of their portfolios in daily liquid assets and 43.0 percent in weekly liquid assets, while government money market funds held 59.2 percent of their portfolios in daily liquid assets and 77.2 percent in weekly liquid assets." Prime DLA increased from 24.0% in June, and Prime WLA also increased from 42.6% in June. Govt MMFs' DLA increased from 59.0% in June and Govt WLA increased from 76.0% last month. ICI explains, "At the end of July, prime funds had a weighted average maturity (WAM) of 31 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 29 days and a WAL of 86 days." Prime WAMs were up one day from last month, and WALs were down by one day. Govt WAMs were down three days from June and Govt WALs were down by two days from last month. Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas rose from $198.80 billion in June to $199.76 billion in July. Government money market funds' holdings attributable to the Americas declined from $1,765.16 billion in June to $1,716.62 billion in July." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $199.8 billion, or 39.8%; Asia and Pacific at $96.5 billion, or 19.2%; Europe at $200.3 billion, or 40.0%; and, Other (including Supranational) at $4.8 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.717 trillion, or 76.3%; Asia and Pacific at $128.4 billion, or 5.7%; and Europe at $399.3 billion, or 17.7%.

The Wall Street Journal writes again on bank deposits. The article, "Banks Finally Start to Pay Their Depositors," tells us, "The grim decade in which savers earned near nothing on their bank deposits is ending. That is good news for consumers and bad news for some banks. Since the Federal Reserve began gradually raising interest rates in December 2015, banks have been slow to pay depositors higher rates. With the latest rate increases, that is starting to change. Online banks are leading the way, paying nearly 2%, while big banks are only just getting meaningfully above zero. What is important, though, is that every time the Fed raises rates, a bigger portion of that increase goes to consumers. In the second quarter, the so-called deposit beta, or the portion of a rate increase that is translated into deposit costs, jumped to 44% from 28% in the first quarter, according to Keefe, Bruyette & Woods." The article continues, "One important reason deposit rates have stayed low is that after a decade of zero rates, savers now view bank accounts as ways to manage money and payments, not as a source of income. This effectively has made banks almost like technology companies, competing to offer depositors convenient websites, apps, and payment solutions." The Journal adds, "Currently, Goldman Sachs' new consumer arm, Marcus, and credit card lender Synchrony Financial are both offering a 1.83% annual percentage rate on liquid savings accounts. These kinds of rates haven't been seen since before the financial crisis. Overall deposit costs for online banks reached 1.29% in the second quarter of 2018, up from 1.11% in the first quarter, according to estimates by Credit Suisse. By comparison, deposit costs for all banks nationwide were 0.64%, up from 0.53% the prior quarter."

The Association for Financial Professionals, or AFP, an organization representing corporate treasurers, will host a webinar, entitled, "Investing in a Rising Rate Environment: Highlights from 2018 AFP Liquidity Survey" on Thursday, August 23, at 3-4pm. The description says, "Attend this webinar to learn some of the highlights from the 2018 AFP Survey as we cover Industry trends, Money Fund highlights post reform, and tactics for investing in the current environment. A focus will be on what current members are doing in this environment and how and where they may be investing their repatriated earnings as well. Learning objectives include: Learn about investing in a rising rate environment, Industry trends in short term money market portfolios, and Understand where corporates are expanding their investment options and diversifying." Speakers include: Tom Hunt, Director of Treasury Services of the Association for Financial Professionals, Pete Crane, President of Crane Data, Christine Stokes, Managing Director of State Street Global Advisors, and Lance Doherty of Pacific Life. (See more on the AFP Liquidity Survey here, and see our July 11 News, "AFP Releases 2018 Liquidity Survey: Bank Deposits, and MMFs, Decrease.") As a reminder too, next month we'll host our European Money Fund Symposium, which will take place Sept. 20-21 Hilton London Tower Bridge, and mark your calendars for our next Money Fund University, which will take place January 17-18, 2019 in Stamford, Conn.

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets moved higher for the second week in a row, and Prime balances jumped again. Money fund assets are entering one of the strongest seasonal periods of the year, so we expect inflows to remain strong throughout August. They're now up $26 billion, or 0.9%, YTD, and they've increased by $171 billion, or 6.3%, over 52 weeks. ICI writes, "Total money market fund assets increased by $12.99 billion to $2.86 trillion for the week ended Wednesday, August 8, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $4.66 billion and prime funds increased by $9.53 billion. Tax-exempt money market funds decreased by $1.20 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.223 trillion (77.6% of all money funds), while Total Prime MMFs stand at $511.1 billion (17.8%). Tax Exempt MMFs total $129.9 billion, or 4.5%. They explain, "Assets of retail money market funds increased by $5.98 billion to $1.05 trillion. Among retail funds, government money market fund assets increased by $1.79 billion to $630.80 billion, prime money market fund assets increased by $5.18 billion to $292.92 billion, and tax-exempt fund assets decreased by $990 million to $121.59 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.3% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $7.00 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $2.86 billion to $1.59 trillion, prime money market fund assets increased by $4.35 billion to $218.17 billion, and tax-exempt fund assets decreased by $207 million to $8.30 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.5% of all Institutional MMFs.

While there have not been many fund liquidations of late, we did have one in our latest issue of Money Fund Intelligence. Western Asset Tax Free Res C (LTCXX) was recently liquidated. Its Prospectus Supplement says, "The Fund's Board of Trustees has determined that it is no longer in the best interests of the Fund to continue to offer Class C shares of the Fund and has approved the liquidation and termination of all outstanding Class C shares of the Fund. The Fund will redeem all outstanding Class C shares on or about the close of business on July 9, 2018 (the "Liquidation Date"). Class C shareholders of the Fund who elect to redeem their shares prior to the Liquidation Date will be redeemed in the ordinary course at the class' net asset value per share. Each Class C shareholder who remains in the Fund will receive a liquidating distribution equal to the aggregate net asset value of the Class C shares of the Fund that such shareholder then holds on the Liquidation Date. In the interim, effective June 1, 2018, Class C shares of the Fund will be closed to new purchases, except that dividend reinvestment will be permitted until the Liquidation Date, and current Class C shareholders will be permitted to purchase additional Class C shares until July 6, 2018. Class C shareholders are encouraged to consider options that may be suitable for the reinvestment of their liquidation proceeds, including exchanging into another fund within the Legg Mason mutual fund complex. Class C shareholders should be aware that the redemption of Fund shares, including upon liquidation, is generally considered a taxable event."

Federal Reserve Bank of New York Executive VP Simon Potter spoke recently on "Confidence in the Implementation of U.S. Monetary Policy Normalization." He commented, "My remarks today will focus on the implementation of monetary policy normalization in the United States and its contribution toward maintaining stability in U.S.-dollar money markets.... Then, I will discuss the recent technical adjustment to the rate of interest paid on reserves (IOR). The Federal Reserve made the adjustment to provide greater comfort that the effective federal funds rate would remain within the target range set by the FOMC.... I will then conclude with some comments on recent developments in broader money market rates, in particular U.S.-dollar LIBOR. U.S. term money market rates are of global significance, owing to the heavy use of the dollar outside the United States and the large stock of dollar-LIBOR-linked debt issued abroad." Potter commented on, "First: overnight rates. Due to the large supply of reserves that has accompanied the Federal Reserve's expanded balance sheet, we are employing a new and innovative framework to control money market rates. Before the financial crisis, the Federal Reserve followed a well-worn playbook for monetary policy implementation that was based on keeping reserve balances scarce. Nowadays, however, reserves are no longer scarce. Our current framework relies, instead, on providing the market with two overnight investment opportunities to help steer money market rates: interest on reserves (IOR), which is the Federal Reserve's main tool to control interest rates, and the overnight reverse repurchase agreement (ON RRP) facility, a secondary tool." His speech continued, "Let's spend a few minutes exploring what drivers might have been most significant in bringing about the rise in money market rates relative to IOR. Leading into the technical adjustment, a shift in flows in the Treasury market had the effect of pushing both Treasury bill yields and repo rates higher in February and March. Before these developments, Treasury bill yields and repo rates had been well below federal funds rates." Finally, Potter said, "Taking a step back, it is hard to be definitive on the recent drivers of moves in short-term money markets. The markets have economically complex structures, and in particular, a high degree of concentration within some money market segments.... Indeed, despite a recent decline in repo rates, the effective federal funds rate has remained fairly stable at nine basis points below the top of the range."

In this past weekend's "Up and Down Wall Street" column, Randall Forsyth added a portion on fee wars and money market funds. In the segment, "Fidelity's Freebies Don't Include Money Funds," he writes, "Last week, perhaps while you were imbibing your bottled water, Fidelity Investments launched index funds with no purchase minimum and zero expenses.... But the price war hasn't spread to one sector: money-market funds. Their expense ratios remain far higher than the rock-bottom costs of index funds, since there seems to be little competition to induce issuers to provide higher yields (although Interactive Brokers Group [IBKR] touts the rates it pays on customers' cash balances). Nobody cared about money-fund yields when the Fed was pinning short-term interest rates near zero in the wake of the financial crisis (and when fund companies had to absorb these funds' expenses in order to keep their yields at zero or slightly positive). But now that the central bank has lifted its fed-funds target range to 1.75%-2%, money markets are competitive with the 1.8% dividend yield on the S&P 500. Fidelity Government Cash Reserves (FDRXX), the default cash account for Fidelity brokerage customers, yields 1.61%, after an expense ratio of 0.37% of assets. Viewed another way, expenses equal 23% of this fund's income. Well-heeled customers with $100,000 or more can earn 1.96% in Fidelity Money Market Fund - Premium Class (FZDXX), which carries an expense ratio of 0.37%, equal to 19% of its yield. There's another freebie that's relatively less advertised: U.S. Treasury securities. You can purchase them at auctions straight from Uncle Sam at TreasuryDirect.gov. And some discount brokers -- including Fidelity, Schwab, Vanguard, and E*TRADE -- also charge zip for both online purchases of Treasuries at auctions and secondary-market transactions. (Broker-assisted trades do cost something, as in the old days.) Treasury bills yield significantly more than money funds and have tax advantages. Four-week T-bills on Thursday yielded 1.881%; three-month bills, 2.007%; and six-month bills, 2.206%. And they are exempt from state and local income taxes, which is worth something to residents of California, New York, New Jersey, and other high-tax states, now limited to deducting just $10,000 in state and local taxes from their federal taxes. Interest on T-bills is paid at maturity, so the interest on a bill due in 2019 will be part of that year's income, not 2018's. Of course, individual investors might find it less convenient and profitable if they must sell their Treasury bills before maturity, perhaps to jump on an investment opportunity. In that case, the money funds' expenses would be worth paying. But to set cash aside that won't be touched for a while, Uncle Sam pays more than money funds. And that can add up to enough to purchase cases of spring water, or maybe something more pleasurable."

Federated Investors' latest "Month in Cash" brief is entitled, "Trump challenges Fed's independence." They write, "One of the defining characteristics about the Federal Reserve is that it operates independently from the rest of the U.S. government. Most politicians don't talk about it much, let alone tell it what to do publicly. Of course, President Trump is not a typical politician, and it is not surprising he recently said he was 'not thrilled' with the recent hikes because of their potential to stem economic growth. After all, he criticized former Chair Janet Yellen during his campaign (that time for keeping rates too low). Although Jerome Powell was named a Fed governor by the Obama administration, Trump nominated him to lead the central bank, and the president might think he has sway. Or maybe Trump is just saying this to the press because he knows he has no real pull." Money market CIO Deborah Cunningham adds, "With the two hikes already made this year, many cash and liquidity rates across the industry have risen, with expectations rates may continue to increase in the second half of the year. Many cash managers have been putting new dollars into money market funds, with the expectation that re-allocation will ramp up because money funds diversify liquidity management while offering competitive return. Assets in prime funds continue to grow. We kept the weighted average maturity (WAM) of our prime funds in a 30-40 day range; the range for our government and municipal funds remained at 25-35 days. The London interbank offered rate (Libor) barely moved in July, with 1-month at 2.08%; 3-month at 2.34%; and 6-month bumping up just 2 basis points to 2.52%. The Treasury curve was 1.88%, 1.97% and 2.14% for the same periods."

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets moved higher in the past week after dipping the week before, and Prime balances continue to move higher. Money fund assets remain positive on a year-to-date basis. They're now up $13 billion, or 0.5%, YTD, and they've increased by $191 billion, or 7.2%, over 52 weeks. ICI writes, "Total money market fund assets increased by $8.63 billion to $2.85 trillion for the week ended Wednesday, August 1, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $6.01 billion and prime funds increased by $5.29 billion. Tax-exempt money market funds decreased by $2.67 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.219 trillion (77.8% of all money funds), while Total Prime MMFs stand at $501.6 billion (17.6%). Tax Exempt MMFs total $131.1 billion, or 4.6%. They explain, "Assets of retail money market funds increased by $2.49 billion to $1.04 trillion. Among retail funds, government money market fund assets increased by $882 million to $629.01 billion, prime money market fund assets increased by $3.94 billion to $287.74 billion, and tax-exempt fund assets decreased by $2.33 billion to $122.58 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.5% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $6.14 billion to $1.81 trillion. Among institutional funds, government money market fund assets increased by $5.13 billion to $1.59 trillion, prime money market fund assets increased by $1.35 billion to $213.83 billion, and tax-exempt fund assets decreased by $344 million to $8.51 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.7% of all Institutional MMFs.

The Federal Reserve's latest FOMC Statement tells us, "Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles."

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 July 27) includes Holdings information from 69 money funds (down 15 from 84 on July 20), representing $1.254 trillion (down from $1. 1.413 billion on July 20) of the $2.980 (42.1%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our July 12 News, "July Money Fund Portfolio Holdings: Repo Falls, But Fed RRP Rebounds.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $468.4 billion (down from $520.6 billion on July 20), or 37.4%, Treasury debt totaling $351.3 billion (down from $385.5 billion) or 28.0%, and Government Agency securities totaling $269.1 billion (down from $309.5 billion), or 21.5%. Commercial Paper (CP) totaled $53.9 billion (down from $64.0 billion), or 4.3%, and Certificates of Deposit (CDs) totaled $46.4 billion (down from $47.0 billion), or 3.7%. A total of $32.3 billion or 2.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $32.2 billion, or 2.6%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $351.3 billion (28.0% of total holdings), Federal Home Loan Bank with $211.4B (16.9%), BNP Paribas with $74.5 billion (5.9%), Federal Farm Credit Bank with $38.0B (3.0%), RBC with $37.7B (3.0%), Wells Fargo with $30.9B (2.5%), Credit Agricole with $26.5B (2.0%), JP Morgan with $25.0B (2.0%), Societe Generale with $24.6B (2.0%), and Natixis with $23.7B (1.9%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($136.2B), Fidelity Inv MM: Govt Port ($111.7B), BlackRock Lq FedFund ($92.8B), Wells Fargo Govt MMkt ($74.8B), Dreyfus Govt Cash Mgmt ($67.6B), BlackRock Lq T-Fund ($67.2B), Morgan Stanley Inst Liq Govt ($55.8B), State Street Inst US Govt ($45.6B), JP Morgan Prime MM ($40.7B), and JP Morgan 100% US Trs MMkt ($38.1B).(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.)