Daily Links Archives: September, 2018

Federated Investors filed a Prospectus Supplement to liquidate its Federated Institutional Prime 60 Day Fund. It says, "On July 20, 2018, the Board of Trustees (the 'Board') of Money Market Obligations Trust approved a Plan of Liquidation for Federated Institutional Prime 60 Day Fund (the 'Fund') pursuant to which the Fund will be liquidated on or about September 21, 2018 (the 'Liquidation' or the 'Liquidation Date'). In approving the Liquidation, the Board determined that the liquidation of the Fund is in the best interests of the Fund and its shareholders. Accordingly, the Fund will need to position its portfolio for liquidation, which may cause the Fund to deviate from its stated investment objective and strategies. It is anticipated that the Fund's portfolio will be converted to cash prior to the Liquidation Date. Effective as of the close of business on July 24, 2018, the Fund's Service Shares and Institutional Shares will be closed to investments by new or existing shareholders. Also effective as of the close of business on July 24, 2018, the Fund's Premier Shares will be closed to investments by new investors. Effective as of the close of business on September 18, 2018, the Fund's Premier Shares will be closed to investments by existing shareholders. Any shares outstanding at the close of business on the Liquidation Date will be automatically redeemed. Such redemption shall follow the procedures set forth in the Fund's Plan of Liquidation." They add, "Dividends will continue to be declared daily up to the Liquidation Date, and final dividends will be paid with the liquidation proceeds. Any income or capital gains distributed to shareholders prior to the Liquidation Date will be subject to taxation. In addition, the Liquidation of the Fund will be a tax recognition event. All investors should consult with their tax advisor regarding the tax consequences of this Liquidation. At any time prior to the Liquidation Date, the shareholders of the Fund may redeem their shares of the Fund pursuant to the procedures set forth in the Fund's Prospectus. Exchanges between the Fund and another Federated fund are not permitted." For more, see these Crane Data News stories: "Federated on Brexit, 60-Day Max Maturity Fund; SEC's Latest N-MFP (6/27/16)," "TempCash Abandons 7-Day Max WAM Strategy; More on EU MMF Reforms (12/1/16)," "First American Exploring 60-Day Maximum Maturity, Private Funds (5/27/15)," and "SEC MMF Reform FAQs Revisited: 60-Day Max Maturity; More to Come (4/29/15)."

The Federal Reserve raised short-term interest rates from a range of 1.75-2.00% to a range of 2.00-2.25% yesterday, its 8th 1/4-point hike since Dec. 2015 and 3rd hike of 2018. The Fed's latest "FOMC statement" tells us, "Information received since the Federal Open Market Committee met in August 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 raise the target range for the federal funds rate to 2 to 2-1/4 percent. 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; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles." Watch for money market mutual fund yields to rise in coming days as funds quickly digest and reflect the new higher rate levels.

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 Sept. 21, includes Holdings information from 86 money funds (up from 76 on Sept. 14), representing $1.533 trillion (up from $1.445 trillion) of the $2.937 (52.2%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Sept. 13 News, "September MF Portfolio Holdings: Treasuries Up; Agency, Repo Down.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $551.4 billion (up from $519.9 billion on Sept. 14), or 36.0% of holdings, Treasury debt totaling $469.2 billion (up from $454.6 billion) or 30.6%, and Government Agency securities totaling $300.5 billion (up from $287.6 billion), or 19.6%. Commercial Paper (CP) totaled $71.3 billion (up from $61.4 billion), or 4.7%, and Certificates of Deposit (CDs) totaled $57.8 billion (up from $55.1 billion), or 3.8%. The Other category (primarily Time Deposits), accounted for $42.1 billion, or 2.7% and a total of $41.0 billion or 2.7% was listed in VRDNs. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $469.2 billion (30.6% of total holdings), Federal Home Loan Bank with $237.3B (15.5%), BNP Paribas with $82.5 billion (5.4%), Federal Farm Credit Bank with $43.9B (2.9%), RBC with $42.6B (2.8%), Credit Agricole with $31.0B (2.0%), Natixis with $29.8B (1.9%), Wells Fargo with $29.7B (1.9%), Nomura with $27.3B (1.8%), and Societe Generale with $26.2B (1.7%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($129.9B), Fidelity Inv MM: Govt Port ($112.7B), Goldman Sachs FS Govt ($98.6B), BlackRock Lq FedFund ($82.8B), Wells Fargo Govt MMkt ($74.5B), Federated Govt Oblg ($68.5B), BlackRock Lq T-Fund ($65.9B), Dreyfus Govt Cash Mgmt ($59.8B), Goldman Sachs FS Trs Instruments ($56.9B), and Morgan Stanley Inst Liq Govt ($52.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

Industry newsletter Fund Action writes "Money funds, passives boost August flows," which says, "Taxable money market funds took in $13.4bn last month, up from July's $12.7bn intake, according to data from Thomson Reuters Lipper. In the first quarter of 2018, money market funds lost $8.9bn, and in the second, the category shed $12.8bn. Morgan Stanley, Northern Trust Investments and State Street saw net redemptions in this category. The interest in money market funds comes at a time when investors are erring on the side of caution amid geopolitical tensions between the US and China and the Turkish lira crisis." They quote Tom Roseen of Thompson Reuters Lipper, "These little things are all adding up to be bigger things, and I think investors have been more conservative in their approach." The piece also says, "Last month, retail money funds reeled in the vast majority of money flows -- $13bn, up from $2.65bn in July, Lipper data shows." Fund Action quotes our Peter Crane, "Retail is back and that certainly explains the Vanguard, the Fidelity, the Federated pieces.... It's clear that retail investors and particularly high net-worth brokerage investors are starting to move money away from lower-yielding sweep accounts and bank deposits into the money market funds." The article adds, "The money market sweep account for Vanguard's brokerage platform -- the Vanguard Federal Money Market Fund (VMFXX) -- reeled in $2.27bn in assets last month, according to Lipper. '`Demand is largely being driven by retail investors that recognize they can once again earn a respectable yield on cash,' a Vanguard spokesperson explained."

Bloomberg writes "Looming Money-Market Shift Has Big Implications for Risk Assets," which recaps recent data on money fund yields and Prime assets. They tell us, "The world's most boring investment is about to get interesting again. When the Federal Reserve makes its forecast interest-rate increase next week, it will take the benchmark above core inflation for the first time since 2008. Money market funds, the bank-deposit alternatives that invest mainly in very short-dated securities, are already enjoying their longest streak of inflows since the global financial crisis. Positive real returns on low-risk assets could shape up as a pivotal moment in the global investment cycle. A number of gauges are now illustrating their increasing attractiveness. Among them: a 3 percent-plus yield on 10-year Treasury notes that's diminishing the relative appeal of equities.... The gap between the yield on three-month Treasury bills and the S&P 500 Index has climbed to the highest since 2008, showing how short-term money is winning more friends as riskier assets are forced to work harder to lure every dollar in this age of exuberance." The article adds, "The Sept. 25-26 Fed meeting will feature a quarterly update to the central bank's dot-plot projections for growth, inflation and the policy rate, offering a fresh outlook on the prospect for further tightening into 2019. Any validation that policy makers are ready to keep going could drive up returns on assets such as six-month Treasury bills, currently yielding 2.35 percent, the most since 2007. Again, it bodes for yet further inflows to cash."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report yesterday, which shows MMF assets fell in the latest week after hitting their highest levels since April 2010 the prior week. Prime assets continued their solid and steady rebound, while Government funds plunged. Overall assets are now up $28 billion, or 1.0%, YTD, and they've increased by $141 billion, or 5.2%, over 52 weeks. Prime assets have risen for 11 weeks in a row. ICI writes, "Total money market fund assets decreased by $17.89 billion to $2.87 trillion for the week ended Wednesday, September 19, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $22.69 billion and prime funds increased by $4.50 billion. Tax-exempt money market funds increased by $307 million." Total Government MMF assets, which include Treasury funds too, stand at $2.195 trillion (76.6% of all money funds), while Total Prime MMFs stand at $538.7 billion (18.8%). Tax Exempt MMFs total $131.4 billion, or 4.6%. They explain, "Assets of retail money market funds increased by $1.73 billion to $1.06 trillion. Among retail funds, government money market fund assets decreased by $25 million to $633.42 billion, prime money market fund assets increased by $1.56 billion to $305.69 billion, and tax-exempt fund assets increased by $196 million to $123.27 billion." Retail assets account for over a third of total assets, or 37.1%, and Government Retail assets make up 59.6% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $19.62 billion to $1.80 trillion. Among institutional funds, government money market fund assets decreased by $22.67 billion to $1.56 trillion, prime money market fund assets increased by $2.94 billion to $233.05 billion, and tax-exempt fund assets increased by $111 million to $8.08 billion." Institutional assets account for 62.9% of all MMF assets, with Government Inst assets making up 86.6% of all Institutional MMFs.

Earlier this summer, Barclays published "EU MMFs: Reform is approaching, important issues remain," which tells us, "A few months ahead of the full implementation of the MMF reform in January 2019, more clarity on the cash-equivalent status and shares cancellation policy is needed. Given the small size of the EUR-denominated CNAV MMFs and the reduction in commercial paper issuance by banks, we expect a small effect from the reform on 3m Euribor. As of the end of Q1 18, the AuM of the EU MMF industry amounted to €1.16trn.... AuM kept creeping down in Q1 18 to a level that is €54bn lower than the peak reached in Q1 17." The piece, written by Giuseppe Maraffino, says, "EU MMFs are mainly concentrated in France, Ireland and Luxembourg. As of the end of March 2018, MMFs in Ireland accounted for 44% (€485bn) of the total AuM of EU MMFs, those in France for 32% (€362bn) and those in Luxembourg 24% (€268bn). Importantly, MMFs based in Ireland and Luxembourg are constant NAV and therefore are affected by the changes introduced by the EU MMF reform, while most of the French MMFs are already floating NAV. According to data from the Institutional Money Market Funds Association (IMMFA), within the CNAV funds, AuM of the euro-denominated MMFs is about €85bn, much smaller than USD-denominated MMFs (about 330bn euro equivalent) and GBP denominated (about 220bn euro equivalent)." The Barclays piece adds, "One crucial aspect is the cash-equivalent status of MMFs that allows corporate treasuries to buy shares of MMFs for their cash management activities as an alternative to bank accounts. If MMFs lose their cash-equivalent status, there could be significant implications from an accounting perspective for some MMF investors, especially corporate treasuries, which could be forced to withdraw their cash from MMFs. Only CNAV funds maintain this status, and it is not clear yet whether low volatility CNAVs will be considered cash equivalent.... Because of negative rates in the euro area, euro-denominated MMFs have an additional problem, which stems from the fact that the reverse distribution mechanism (RDM) is no longer allowed under the reform. The RDM (a share cancellation mechanism) was introduced in mid-2015 to take into account the situation of negative money markets rates in the euro area that pushed the rates offered by the MMFs into negative territory.... While the MMF reform does not deal with such a mechanism, the ESMA expressed a negative view on its continuation under the reform. The European Commission agreed with the ESMA's view that the reverse distribution mechanism (RMS) 'is not compatible with MMF regulation.' Currently, there is a lively debate about this important issue. A final decision is likely to be taken by ESMA in the very near term, possibly ahead of the implementation of the reform for the new funds in July."

J.P. Morgan Short-Term Fixed Income's "August MMF Holdings Update" says, "Taxable money fund AUM increased $32bn in August. Prime and Treasury funds grew $30bn and $6bn, respectively, while government/agency funds fell $4bn. The growth in prime funds was split between retail and institutional funds. YTD, taxable MMF balances have increased by $34bn. Relative to normal seasonal patterns, current AUMs are about $75bn higher than what has been typical in recent years.... The higher than expected inflows this year have continued to be driven by prime funds across both the institutional and retail sectors.... We suspect the source of the institutional inflows has been tax-repatriation related as corporations repatriate cash in offshore prime funds to onshore prime funds, while retails flows have a function of higher MMF yields relative to deposits. In contrast, government funds have performed largely in line with years past." It adds, "MMFs have been active buyers of SOFR-linked floaters issued in recent weeks.... Of the $6.6bn SOFR-linked FRNs issued by Fannie Mae, Credit Suisse, and Sheffield, MMFs held $4.5bn or 68% at the end of August. The deals saw participation from a diverse set of funds across 14 different fund families, most of which are unrated by S&P. As of the end of August, only a couple of S&P-rated MMFs held SOFR-linked FRNs.... Government MMFs saw Treasury FRN holdings increase $15bn, while Treasury coupons dropped $11bn. Overall holdings of T-bills were roughly flat, with a $15bn increase among government/agency fund offset by a $16bn decline in Treasury funds. Agency and repo holdings fell $19bn and $28bn, respectively."

Bloomberg published a commentary piece entitled, "Prime Time Returns for U.S. Money-Market Funds." It explains, "More than $1 trillion of outflows in just 12 months would roil just about any segment of the global financial markets. For prime funds, a corner of the U.S. money market industry that had only $1.4 trillion of assets to begin with, it looked like a fatal blow. Yet almost two years after reaching their low point, prime funds, which buy certificates of deposit and company IOUs, are staging a surprising resurgence. They've attracted inflows for 10 consecutive weeks, the longest stretch since early 2009, according to Investment Company Institute data through Sept. 12. At $534 billion, the industry remains a fraction of what it was before sweeping changes to U.S. money markets prompted a mass exodus starting in late 2015. Yet the steady stream of cash suggests a path forward." The piece adds, "With mom-and-pop investors leading the way, the explanation for the resurgence in prime funds looks more like a simple dash for cash.... Prime funds offer higher yields than those that strictly invest in T-bills and other short-term U.S. debt.... Prime funds used to have a dollar-a-share fixed price, which gave the impression that they were just as stable as bank accounts. Now, their value can float.... The JPMorgan Prime Money Market Fund over the past year has traded in a range of $0.9999 to $1.0003. The Fidelity Prime Money Market Portfolio has traded from $1.0002 to $1.0004. Basically, for all intents and purposes, the funds' share prices haven't budged.... With prime funds proving their safety and resilience even with variable net asset values, investors may be growing comfortable putting money back in again."

Ten years ago today (Sept. 17, 2008), Crane Data featured the News article, "Reserve Primary Fund 'Breaks the Buck' Following Run on Assets," which told readers, "In just the second case of a money market mutual fund 'breaking the buck,' or dropping below the $1.00 a share level, in history, The Reserve's Primary Fund cuts its NAV to $0.97 cents on Tuesday [the prior day]. The top-ranked fund, which held $785 million in Lehman Brothers CP and MTNs, was besieged by redemptions over the past two days. Assets of the total portfolio, which is largely institutional but which includes some retail assets, declined a massive $27.3 billion Monday and Tuesday to $35.3 billion.... As we wrote Monday, several other firms have protected their investors from fallout from the Lehman Brothers bankruptcy. (The latest disclosure is from AmeriPrise's RiverSource funds, which filed an 8-K yesterday, announcing a $50 million purchase of Lehman CP.) `A total of 21 money funds to date have taken action to protect shareholders, but the privately-held Reserve was unable to arrange credit supports in time to prevent a run. Though money fund investors will undoubtedly be shocked and nervous over yesterday's events, we believe Reserve will be an anomaly. The combination of high yields, hot money and a lack of deep pockets likely will prove fatal to the first, and oldest money market mutual fund. As happened in 1994 with the liquidation of Community Bankers U.S. Government Money Market Fund at $0.96 a share, we expect money market funds to soldier on with just a single case of a fund "breaking the buck." See also, our Sept. 16 News, "Lehman Support Actions Push Money Fund Bailouts to 20 Total," which says, "We wrote yesterday about money funds' limited exposure to Lehman Brothers and about the support actions taken by investment advisors so far. Evergreen and Russell have disclosed support agreement for their funds, while some other funds have disclosed Lehman holdings and pledged to maintain their $1.00 NAVs. The vast majority of money funds appear to have no direct exposure to Lehman, though they're now answering questions on AIG, which was downgraded to A-2 but is still P-1 (short-term ratings), and WaMu. The latest crisis should bring Crane Data's tally of the number of advisors supporting their money funds over the past 13 months to 20. Besides Evergreen, money funds disclosing or showing holdings of Lehman in recent public filings include: Columbia Cash Reserves, which held $400 million, or 0.73% of its assets; Reserve Primary; and Russell Money Market Fund. All are expected to protect their funds from any threat to the $1.00 a share NAV should it become necessary."

Earlier this week, mutual fund industry news source ignites posted a video interview featuring our Peter Crane entitled, "Video: Money Fund Guru Post-Crisis: 'It's Shocking That Money Funds Survived'." ignites Associate Editor Beagan Wilcox Volz comments, "So it is the anniversary of the 2008 financial crisis, and one of the biggest issues -- if not the biggest issue -- for the asset management industry was money market funds and the Reserve Primary Fund breaking the buck in September of 2008. And as you well know, after that came two rounds of SEC reforms. I'm wondering how you think the industry has changed in the last decade. You could tell us the three biggest changes that you've seen." Crane responds, "I think it was the only time that money market funds have been mentioned on the front page of USA Today, or a president has mentioned money market funds, that week when the Reserve broke the buck. Since then, the biggest change is really the shift from prime to government -- $1.1 trillion moved from the prime general purpose funds into government funds. It's been trickling back, but most money funds now -- 73%, 75% -- are government funds. So like with a lot of crisis in general, things get safer, but they get less exciting as well. They get less yield in a little bit. So that shift from prime to government is the big change." He explains, "The second thing I'd mention is really the loss of innocence. The fact that a money fund broke the buck, really -- it's going to take a long time to repair that confidence. I mean, their record was so stellar prior to that. You just had trillions of dollars going into them, and investors expected they were money good. They were $1 per share. They thought that would always be the case, and they learned otherwise.... But the other big change wasn't directly related to the crisis, but really the Federal Reserve cutting rates in reaction to Lehman Brothers and Reserve and all the financial shock that occurred. Rates dropped from 5% to 0%, and now we're slowly climbing back. So that really whipsaw in rates, and the zero-yield environment was even a bigger negative, even a bigger impact than the regulations.... It was a long desert. I mean, it's shocking that money funds survived."

CNBC.com writes "Why money market funds won't ever be the same," which discusses the 10-year anniversary of Lehman Brothers' bankruptcy and Reserve Primary Fund's 'breaking the buck.' They explain, "Investors seeking shelter from plummeting equity markets in September 2008 learned a hard lesson: Sometimes the safe haven for your cash isn't as safe as it seems. Prior to the crisis, retail investors turned to money market funds as a way to stash cash for short-term needs and earn some yield on their savings. The perceived safety of these funds, which were designed to maintain a steady share price of $1, was upended following the bankruptcy filing by Lehman Brothers, one of Wall Street's most storied firms, 10 years ago this month. The Reserve Primary Fund, a massive money market fund, held Lehman bonds. Institutional investors yanked billions of dollars from the fund, which knocked its share price from $1 to 97 cents on Sept. 16, 2008." The piece, which shows our Crane 100 Money Fund Index over the past decade, quotes our Peter Crane, "In 2007, we had 5 percent interest rates and then for eight years, up to the end of 2015, investors were looking at rates of 0.05 percent. I used to joke that at those levels, it would take 2,000 years to double your money." CNBC tells us, "In response to the financial crisis, the Securities and Exchange Commission sought to protect retail investors from future runs on money market funds. The agency instituted two major rules to protect smaller investors and stem the flow of withdrawals in stressful periods. One regulation would require prime institutional money market funds -- which large investors tend to use -- to maintain a floating net asset value, instead of the steady $1 share price.... The other rule aims to temporarily limit withdrawals from funds amid stressful periods. For instance, so-called redemption gates allow funds' boards of directors to delay withdrawals for up to 10 days. Liquidity fees, which can be as high as 2 percent, may also be assessed against investors who want to cash out amid market turmoil." It adds, "The Crane 100 Money Fund Index, which measures the 100 largest money market funds, has an annualized seven-day current yield of 1.79 percent. The Vanguard Prime Money Market Fund (VMMXX) offers yields just over 2 percent. The national average rate on money market accounts for deposits under $100,000 is 0.13 percent as of Aug. 27, according to the Federal Deposit Insurance Corp."

U.K.-based Treasury Today posted a piece written by J.P. Morgan Asset Management entitled, "Making sense of your MMF options," which discusses European Money Market Fund Reforms. It says, "New European money market fund (MMF) regulations are opening up the MMF landscape to include some products that could leave unwary investors short on their security or liquidity requirements. Investment decisions may no longer be as obvious as they once were.... The new regulations provide two categories of money market funds: short-term MMFs and standard MMFs. The short-term MMF is still the fund that most corporate treasurers have in mind when investing their operating cash. These funds have a Weighted Average Maturity (WAM) of 60 days or less, providing a high level of short-term liquidity and security." J.P. Morgan explains, "However, treasurers also have the choice to invest in less liquid longer-dated standard MMFs, which can hold instruments out to two years and have a WAM of up to six months. The proportion of the standard MMF portfolio that matures within one day and one week may be significantly lower than a treasury manager expects." The piece explains, "Under the new regulations, the traditional Constant Net Asset Value (CNAV) fund will be replaced by Low Volatility Net Asset Value (LVNAV), Variable Net Asset Value (VNAV), and public debt Constant Net Asset Value options. These new categories can be confusing. For example, LVNAV and public debt CNAV are short-term MMFs only, but VNAVs offer short-term or standard options. It's important therefore to understand the new acronyms and regulatory jargon if you want to avoid investing in a fund that unexpectedly adds risk.” Finally, the article says, "Treasurers therefore need to have a clear understanding of their own investment needs, and they also need to look closely under the hood of every fund they are thinking of investing in to ensure it meets their needs. It's not an issue of right or wrong, it's simply one of being aware of what the underlying investments are and what the funds add to your cash strategy." (Note: European Money Fund Reforms will be the main topic at next week's European Money Fund Symposium, which takes place Sept. 20-21 in London.)

Sunday's New York Post contained a brief entitled, "Is Charles Schwab taking advantage of sweep account customers?" It contained a letter to business columnist John Crudele, which said, "Dear John: Charles Schwab is trying to pocket the spread between the higher rates for Treasury bills and the lower rate offered by Bank Sweep products. A 'valued customer' gets 15 basis points in a sweep product instead of the 1.23 percent offered by the US Treasury money fund. Yes, I receive FDIC insurance. However, this guarantee is secured by the good faith and security of the US government. I think T-bills offer a similar guarantee. Shame on Schwab! You pocket basis points against billions of dollars of customer accounts. Anonymous." He responds, "Dear Anonymous: The first thing I'm curious about is, why didn't you give your name? I only use initials in this column, so I guess you are afraid that Schwab will know which of their 'valued customers' has a gripe. So I figure you didn't complain to Schwab yourself, and you let me do your dirty work. OK, I'm up for it. Here's what Schwab had to say: 'Hi John, Thanks for contacting us and for the opportunity to respond to your reader's note regarding cash solutions at Schwab. We believe cash plays an important role in any sound portfolio and that clients should have access to a wide range of cash options,' wrote a spokesman. Then he says you have your cash in the wrong product." Schwab writes, "Clients should rarely leave money they intend to retain in cash for long periods of time in any sweep vehicle -- whether it is a sweep money market fund or a bank sweep feature. Long-term cash should typically be invested in a purchased money-market fund for liquidity or in FDIC-insured certificates of deposit.... By comparison, purchased money-market funds will generally pay higher interest yields than any sweep vehicle. Ultimately, the choice of where to put uninvested cash is up to each client." Crudele adds, "So there you are. And I guess Schwab really is pocketing the point spread between what you are invested in and what government bills are paying. Luckily for them, people often make this kind of mistake and are afraid to ask."

Bloomberg writes "Moody's Unit Sees Caution in India Money Market on IL&FS Default." The story says, "A rare default in India's corporate debt market may prompt households to scrutinize the fine print on money-market funds, which have grown in popularity over lower-yielding bank savings accounts as inflation concerns spread. IL&FS Financial Services, a unit of a infrastructure finance firm that helped fund India's longest tunnel, last month missed a payment on its short-term borrowings, according to a filing. While it settled the obligations in full within days, the default triggered a central bank rule that bans delinquent issuers from the commercial paper market for six months." It adds, "The episode is a reminder that money-market funds that invest in short-term instruments aren’t completely risk free, according to the Indian unit of Moody's Investors Service. Such funds account for about a fifth of the 23 trillion rupees ($320 billion) of industry assets, up from 15 percent four years ago, data from the Association of Mutual Funds in India show." (For more on money market funds in India, see these Crane Data News (or Link of the Day) stories: "New Sundaram Indian Money Fund (5/9/18)," "Paytm may launch Indian money fund (1/1/18)," and "Worldwide Money Fund Assets: Chinese MFs Jump Again, US Drops in Q1 (7/3/18).")

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets hitting their highest levels since April 2010 and Prime assets continuing their solid and steady rebound. Overall assets are now up $43 billion, or 1.5%, YTD, and they've increased by $154 billion, or 5.6%, over 52 weeks. ICI writes, "Total money market fund assets increased by $17.28 billion to $2.88 trillion for the week ended Wednesday, September 5, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $12.59 billion and prime funds increased by $3.95 billion. Tax-exempt money market funds increased by $740 million." Total Government MMF assets, which include Treasury funds too, stand at $2.218 trillion (77.0% of all money funds), while Total Prime MMFs stand at $531.6 billion (18.5%). Tax Exempt MMFs total $131.3 billion, or 4.6%. They explain, "Assets of retail money market funds increased by $3.84 billion to $1.06 trillion. Among retail funds, government money market fund assets increased by $1.57 billion to $632.22 billion, prime money market fund assets increased by $1.72 billion to $302.38 billion, and tax-exempt fund assets increased by $555 million to $123.56 billion." Retail assets account for over a third of total assets, or 36.7%, and Government Retail assets make up 59.7% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $13.44 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $11.02 billion to $1.59 trillion, prime money market fund assets increased by $2.23 billion to $229.18 billion, and tax-exempt fund assets increased by $185 million to $7.72 billion." Institutional assets account for 63.3% of all MMF assets, with Government Inst assets making up 87.0% of all Institutional MMFs.

Federated Investors' latest "Month in Cash: Numbers game at the Fed" tells us, "The more pressing Fed issue is this month's FOMC meeting. The markets think there is more than a 90% chance of a 25-basis-point hike, with a little over 60% likelihood of another in December. So, the market is expecting continued increases which, at 2.25-2.50% at the end of this year, would take us close to the Fed's neutral target of 2.9%. The markets still don't know what will happen with the balance sheet in 2019. There has been no guidance yet on that, which is frustrating. I expected some two meetings ago." Money market CIO Deborah Cunningham writes, "The weighted average maturity (WAM) of our government funds was very short in August. It was simply due to the relative attractiveness of yields on short-term instruments. Why go out the curve when you can get the same rate with less duration. We think the market wasn't pricing in a September move adequately until the last week of the month.... Speaking of new issuance, early last month we jumped on the chance to participate in the first sale of a security tied to the new Secured Overnight Financing Rate (SOFR) index, the one most likely to replace the London interbank offered rate (Libor). These were Fannie Mae instruments. Then in mid-August, our prime funds purchased asset-backed and financial commercial paper floaters priced with SOFR. Their spreads above overnight yields were attractive; it pays to be an early adopter." Finally, she says, "The WAM ranges for our funds were: 25-35 days for government, 25-35 for municipal and 30-40 for prime. Libor was essentially unchanged over the month, with 1-month at 2.08%, 3-month at 2.32% and 6-month at 2.53%."

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 31) includes Holdings information from 52 money funds (down 32 from August 24), representing $1.041 trillion (down from $1.432 billion the prior week) of the $2.961 (35.2%) 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 Repurchase Agreements (Repo) dominating the list with $387.9 billion (down from $434.3 billion), or 37.3%, Treasury assets totaling $342.6 billion (down from $446.9 billion) or 32.9%, and Government Agency securities totaling $197.9 billion (down from $350.9 billion), or 19.0%. Commercial Paper (CP) totaled $33.8 billion (down from $63.9 billion), or 3.2%, and Certificates of Deposit (CDs) totaled $30.1 billion (down from $58.4 billion), or 2.9%. A total of $26.6 billion or 2.6% was listed in VRDNs, and the Other category (primarily Time Deposits) accounted for $22.1 billion, or 2.1%. (Note that our mid- to late-month Weekly collections are often much larger due to a number of funds reporting twice monthly.) The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $342.6 billion (32.9% of total holdings), Federal Home Loan Bank with $157.7B (15.2%), BNP Paribas with $58.8B (5.6%), BNP Paribas with $58.8B (5.6%), Federal Farm Credit Bank with $29.5B (2.8%), RBC with $27.2 billion (2.6%), Wells Fargo with $26.3B (2.5%), Nomura with $23.6B (2.3%), Credit Agricole $22.0B (2.1%), and Natixis with $21.1B (2.0%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($135.5B), Goldman Sachs FS Govt ($97.6B), BlackRock Liq FedFund ($91.6B), Wells Fargo Govt MMkt ($76.8B), BlackRock Lq T-Fund ($71.2B), Dreyfus Govt Cash Mgmt ($65.8B), Morgan Stanley Inst Liq ($53.3B), Goldman Sachs FS Trs Instruments ($53.1B), JP Morgan Prime MM ($44.0B), and JP Morgan 100% US Trs MMkt ($40.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

A new Bloomberg bolsters our theory that repatriation-related flows will impact the short-term bond market more than the money markets. The piece, "Apple, Oracle Dump Bonds and Create $300 Billion Hole in Market," tells us, "As U.S. tax cuts prompt Apple Inc. and other tech companies to bring home their overseas cash hoards, it's leaving a void in the market for short-term corporate bonds, where those firms had invested much of the money. That's now making it more expensive for other companies to borrow. Once the biggest buyers of short-dated corporate debt, Apple along with 20 other cash-rich companies including Microsoft Corp. and Oracle Corp. have turned into sellers. While they once bought $25 billion of debt per quarter, they're now selling in $50 billion clips, leaving a $300 billion-a-year hole in the market, according to data tracked by Bank of America Corp. strategists." It adds, "The reversal is adding pressure to a market already buffeted by Federal Reserve rate hikes. Yields on corporate bonds with maturities between one and three years have jumped 0.85 percentage point this year to 3.21 percent, close to the highest in almost eight years, Bloomberg Barclays index data show." Richard Saperstein, managing director at HighTower Advisors's Treasury Partners, disagrees, saying, "That wave of money, the directional change of fund flows hasn't really kicked into gear yet.... If the flow of money accelerates further and there isn't enough absorption, spreads will widen."