The Federal Reserve Board cut interest rates for the third time in the last three months yesterday, lowering its Federal funds target rate range to 1.​50-​1.​75 percent. The Fed'​s release, entitled, "Federal Reserve issues FOMC statement," says, "Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-​month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-​based measures of inflation compensation remain low; survey-​based measures of longer-​term inflation expectations are little changed." It continues, "​Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-​1/​2 to 1-​3/​4 percent. This action supports the Committee'​s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee'​s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate." The Fed writes, "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." The statement adds, "Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-​3/​4 percent to 2 percent."

Goldman Sachs published a "Portfolio Strategy Research" piece, entitled, "Equity allocations remain elevated despite the sharp rotation from stocks to cash and bonds this year." They explain, "​US equity mutual funds and ETFs have experienced combined outflows of $​96 billion YTD. In contrast, US bond and cash funds have seen inflows of $​353 billion and $​436 billion, respectively. Although equities account for a smaller share of aggregate financial assets than a year ago (​44% vs. 46%), current equity allocation is still elevated vs. history (​81st percentile). However, cash exposures are near historical lows (​5th percentile)." Goldman'​s piece continues, "The gap between US equity fund flows relative to bond and cash funds during the past 12 months is the widest since 2008....​At the start of 4Q 2018, households, mutual funds, pension funds, and foreign investors -- who collectively hold 84% of the total equity market -- had equity allocations ranking in the 95th percentile vs. the past 30 years (​46% of financial assets)." See Bloomberg'​s article on this, "Goldman Says Rush From Stocks to Cash, Bonds Biggest Since 2008." It says, "The outflow from U.​S. equity funds this year has been the biggest since 2008, relative to the flood of money into cash and bonds, according to Goldman Sachs Group Inc. That still leaves cash exposures '​near historical lows,' according to Goldman strategists led by David Kostin. At 12%, the aggregate allocation to cash is only in the fifth percentile of the past 30 years, they calculated."

ICI recently posted a video on "2019 Fund Investment Trends." They explain, "The latest data show money market funds and bond funds are drawing strong investor interest, while equity funds are experiencing outflows. In the October 25, 2019, edition of Focus on Funds, ICI Senior Director of Industry and Financial Analysis Shelly Antoniewicz offers a quick breakdown of the trends and what'​s behind them." Antoniewicz comments, "​We'​re actually on about the same pace as where we were at this point in 2018 -- so not much difference there in terms of the aggregate amount of flows coming in." When asked about equities, she says, "​The US stock market being up almost 18 percent year-​to-​date, we'​ve actually had very modest outflows from domestic stock funds this year. And that has also bled over into US investors' desire to invest in foreign or international funds as well. So we'​ve seen outflows from international funds so far this year." On bond funds, Antoniewicz tells us, "We have extremely strong inflows into bond funds, but I don'​t know if that'​s related to what is occurring in the equity market at all. We have had sustained inflows into bond funds for the last 10 years, and we do believe that is primarily being driven by the demographics in the US." Finally, when asked about money market funds, Antoniewicz explains, "And that is where a lot of money is going. So we’​ve had over $​300 billion come in to money market funds so far this year -- equity investors, they might be looking at the equity market and saying, '​You know what, I just want to take a little pause and see how the global outlook'​s going to, you know, shake out here.' And they'​re putting more money into money market funds. We see it on the institutional side as well as on the retail side."

The SEC'​s Investor.​gov website published a press release entitled, "Beware of Spoofed Websites Offering Phony Certificates of Deposit – Investor Alert," which says, "The SEC'​s Office of Investor Education and Advocacy (​OIEA) is issuing this Investor Alert to warn investors about phony Certificates of Deposit (​CDs) promoted through internet advertising and '​spoofed' websites – websites that mimic the actual sites of legitimate financial institutions. Investors should be extremely cautious when purchasing CDs from sites found only through internet searches." It explains, "'Spoofed' websites – often using URL addresses similar to those of legitimate firms' websites, or using legitimate-​sounding names and URLs – may be used to trick investors into buying bogus CDs. Spoofed websites selling fake CDs often have red flags of fraud. They may: Offer interest rates higher than you can find at any other financial institution, with no penalties for early withdrawals; Promote only CDs and no other financial products, such as banking or brokerage accounts, loans, or commercial banking services; Require high minimum deposits, often $​200,​000 or more; Direct potential investors to wire funds to an account located outside the U.​S., or to a U.​S.-​based account that has a different name than the financial institution claiming to sell the CD; Claim that the spoofed financial institution is a Federal Deposit Insurance Corporation (​FDIC) member and that deposits are FDIC-​insured; and Identify '​clearing partners' that they claim are registered with the SEC." The SEC adds, "`​If you are considering an investment in CDs, conduct internet searches for the financial institution to see if you find any search results other than the website initially identified. Call the financial institution using a telephone number found somewhere other than the suspect website to determine the legitimacy of the investment opportunity."

A press release entitled, "Credit Suisse Money Market Fund – USD Upgraded To '​AAAf'; CHF And EUR Funds Affirmed," tells us, "S&​P Global Ratings ... raised to '​AAAf' from '​AA+​f' its fund credit quality rating (​FCQR) on Credit Suisse Money Market Fund – USD. At the same time, we affirmed our '​AAAf' FCQR on the Credit Suisse Money Market Fund – CHF and our '​AA+​f' FCQR on the Credit Suisse Money Market Fund – EUR. We also affirmed our '​S1+' fund volatility ratings (​FVRs) on all three of these Liechtenstein-​domiciled money market funds, which are managed by Credit Suisse Asset Management (​Schweiz) AG (​CSAM). Our rating actions on these FCQRs reflects our quantitative view of the money market funds' high credit quality investments, as assessed via our Fund Credit Quality matrix. We raised our FCQR on Credit Suisse Money Market Fund – USD because of CSAM'​s conservative fund management.... The '​AAAf' FCQRs on Credit Suisse Money Market Fund – USD and Credit Suisse Money Market Fund – CHF signifies that we consider the funds' portfolios to be of extremely strong credit quality. The portfolio quality of the Credit Suisse Money Market Fund – EUR, which is rated '​AA+​f', remains very strong." The release adds, "Credit Suisse Funds SICAV is an undertaking for collective investment in transferable securities (​UCITS) in accordance with the Liechtenstein (​LI) law of June 28, 2011, on undertakings for collective investment in transferable securities (​the UCITS Act, UCITSA)." In other news, ETF Stream writes, "Vanguard slashes fees across ETF and index range." The article says, "Vanguard has laid down the gauntlet to its rivals in Europe by reducing the ongoing charges for 13 ETFs and 22 index funds. The firm'​s full line-​up in the UK including ETFs, index funds and its actively managed fund range have an average ongoing charges figure (​OCF) of 0.​20%. The ETF index line-​up has an average OCF of 0.​10%.... Vanguard has also included the Vanguard Sterling Short-​Term Money Market fund in the latest round of fee cuts, falling from 0.​15% to 0.​12%."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday (​a day late due to the AFP conference in Boston). Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection. The latest cut (​with data as of Oct. 18) includes Holdings information from 69 money funds (​down 8 from three weeks ago), which represent $​1.​465 trillion (​down from $​1.​742 trillion) of the $​3.​885 trillion (​37.​7%) in total money fund assets tracked by Crane Data. Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​520.​8 billion (​down from $​656.​6 billion three weeks ago), or 35.​5%, Treasury debt totaling $​448.​9 billion (​down from $​563.​8 billion) or 30.​6%, and Government Agency securities totaling $​297.​6 billion (​up from $​296.​7 billion), or 20.​3%. Certificates of Deposit (​CDs) totaled $​75.​5 billion (​down from $​76.​9 billion), or 5.​2%, and Commercial Paper (​CP) totaled $​71.​6 billion (​down from $​82.​5 billion), or 4.​9%. A total of $​24.​1 billion or 1.​6%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​26.​9 billion, or 1.​8%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​448.​9 billion (​30.​6% of total holdings), Federal Home Loan Bank with $​208.​5B (​14.​2%), Fixed Income Clearing Co with $​78.​4B (​5.​4%), BNP Paribas with $​61.​6 billion (​4.​2%), Federal Farm Credit Bank with $​45.​3B (​3.​1%), RBC with $​39.​8B (​2.​7%), Federal Home Loan Mortgage Co with $​35.​1B (​2.​4%), JP Morgan with $​27.​7B (​1.​9%), Societe Generale with $​27.​0B (​1.​8%) and Mitsubishi UFJ Financial Group Inc with $​26.​5B (​1.​8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​146.​0B), Fidelity Inv MM: Govt Port ($​137.​2B), Goldman Sachs FS Govt ($​101.​7B), Wells Fargo Govt MMkt ($​82.​3B), JP Morgan 100% US Trs MMkt ($​69.​7B), Fidelity Inv MM: MMkt Port ($​69.​3B), Goldman Sachs FS Trs Instruments ($​59.​6B), Morgan Stanley Inst Liq Govt ($​58.​4B), JP Morgan Prime MM ($​57.​5B) and Dreyfus Govt Cash Mgmt ($​57.​0B). (​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.)

We learned from RBC'​s Mike Cloherty about a letter from Senator Elizabeth Warren to Treasury Secretary Steve Mnuchin on the Sept. 16 repo spike. It says, "I write to you in your capacity as Chair of the Financial Stability Oversight Council (​FSOC) to request information regarding the recent volatility in the short-​term lending market, the '​emergency measure' taken by the Federal Reserve Bank of New York (​New York Fed) in response to this volatility, and the two extensions announced in response to these efforts in recent weeks. While the Federal Reserve has taken the necessary action to ensure that markets continue to function, I am alarmed that it has been required to engage in money market interventions that have not been used since the 2008 financial crisis, and I write to obtain your understanding of the underlying causes of this fluctuation in the market and how you plan to mitigate them. During the week of September 16, 2019, borrowing rates for overnight repurchase agreements (​repo rates), paid by banks when they borrow money to meet their short-​term obligations, jumped from around two percent to ten percent. This sharp and abrupt spike in the repo rate caught market participants off guard, and, while it may have only affected overnight borrowers in the short term, '​if the strains last long enough it can affect the rates other businesses and consumers pay.'" It adds, "I do not question the actions of the New York Fed, but I write to seek clarity on why they were necessary, and the implications of the cause of the spikes. Some have suggested that the rate spike is related to the reduction of cash in the financial system due to quarterly tax payments deadlines coupled with Treasury auction settlements. However, these tax payments and settlements were not a surprise, and such a cash shortage would have been anticipated well before the rate spike occurred."

A press release entitled, "ICD Focuses on Socially Responsible Initiatives at AFP, and subtitled, "ICD Partners with Academy Securities, DWS and Federated to drive awareness around investing with a purpose," tells us, "ICD, the leading independent trading and investment risk management technology company, offers treasury participants at the AFP National Conference in Boston an opportunity to learn about the various ways to align investment strategy with values." Among the releases "Key Takeaways," are: Qualcomm and Jefferies discuss the power of leveraging a portal beyond investing, ESG presentations on investment philosophies from DWS & Federated, Luncheon with disabled veteran owned and operated firm, Academy Securities, and Oceana donation from ICD Foundation." It explains, "ICD'​s Tom Knight, EVP & Treasurer, will join Qualcomm and Jefferies to educate treasury on the power of technology to drive efficiency beyond trading and how technology empowers global treasury teams to diversify into funds such as ESG'​s." It adds, "ICD Portal'​s selection of investment products includes many social mission focused funds, including minority-​owned, veteran-​owned, ESG and LEAF funds. Two socially responsible fund providers, DWS and Federated, will review their approach to ESG portfolio management during in-​booth (​304) sessions at AFP. Monday'​s luncheon with Academy Securities highlights the benefits of investing in veteran owned products, highlighting the Academy Share Class money market fund. The session features General Stewart, a three-​star general who will discuss his experiences on the front-​lines in many US conflicts abroad. During the conference, for every Treasury practitioner who participates in an ICD Portal demonstration, ICD Foundation will donate $​50 to Oceana, a nonprofit dedicated to saving the world'​s oceans. In addition to helping the environment, the practitioner will receive a plush dolphin and a certificate of gratitude."

Capital Advisors Group posted its latest update, "Repo Reveals Hidden Issues in Liquidity Markets," late last week. Their new piece tells us, "Rather than dismissing September'​s repo turbulence as stemming from idiosyncratic events easily rectified by the Fed, we think that the event reveals broader vulnerabilities within the hidden plumbing of our financial system. Although not all institutional cash portfolios directly use repo, this squeeze should concern us all. We don'​t think there is a shortage of reserves per se, but we do believe that they have been rendered immobile by various financial regulations. Banks' reluctance to act as intermediate liquidity providers is further complicated by higher needs from non-​bank financial borrowers and the rising influence of MMFs. Before a long-​term solution can be found, institutional cash investors should reassess the liquidity structure in their cash portfolios and consider strategies to fund themselves in unforeseen situations." The article continues, "On the otherwise uneventful mornings of September 16 and 17, an unobtrusive part of the financial markets called repurchase agreements -- colloquially known as the repo market -- experienced these brush fires of sort when overnight interest rates briefly spiked as high as 10% from a starting point of around 2%. In response, the emergency crew, the Federal Reserve Bank of New York, sprang into action and injected liquidity into the financial system on multiple days to lower rates and calm market nerves. The Fed'​s decisive liquidity injection notwithstanding, one cannot help but wonder how the mundane repo market, often referred to as the '​plumbing' of the financial system, seized up without warning. Was it an isolated event or a symptom of something deeper and more troubling? The air of confidence exuded from Fed officials that the situation was easily contained contrasts with their cautionary measure of keeping the temporary liquidity option open beyond September quarter-​end. How should institutional cash investors process and understand this market '​anomaly' and be prepared for future unexpected liquidity events?" They add, "This paper will provide a brief recap of the September repo event and the relevant factors that caught the market off guard. We published a short blog on September 23 on this topic, and here, we plan to dig a little deeper to help chart a course of action to manage institutional cash portfolios."

Money fund assets decreased for the first time in 7 weeks, but they'​ve risen 9 weeks out of the past 11 and 23 weeks out of the past 26. ICI'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​421 billion, or 13.​8%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​595 billion, or 20.​7%, with Retail MMFs rising by $​249 billion (​23.​0%) and Inst MMFs rising by $​346 billion (​19.​3%). ICI writes, "Total money market fund assets decreased by $​1.​55 billion to $​3.​47 trillion for the week ended Wednesday, October 16, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $​10.​55 billion and prime funds increased by $​7.​13 billion. Tax-​exempt money market funds increased by $​1.​87 billion." ICI'​s weekly series shows Institutional MMFs falling $​10.​3 billion and Retail MMFs increasing $​8.​7 billion. Total Government MMF assets, including Treasury funds, were $​2.​587 trillion (​74.​6% of all money funds), while Total Prime MMFs were $​742.​8 billion (​21.​4%). Tax Exempt MMFs totaled $​138.​7 billion, 4.​0%. They explain, "Assets of retail money market funds increased by $​8.​71 billion to $​1.​33 trillion. Among retail funds, government money market fund assets increased by $​5.​13 billion to $​763.​29 billion, prime money market fund assets increased by $​2.​81 billion to $​442.​74 billion, and tax-​exempt fund assets increased by $​744 million to $​125.​90 billion." Retail assets account for over a third of total assets, or 38.​4%, and Government Retail assets make up 57.​3% of all Retail MMFs. The release adds, "Assets of institutional money market funds decreased by $​10.​27 billion to $​2.​14 trillion. Among institutional funds, government money market fund assets decreased by $​15.​67 billion to $​1.​82 trillion, prime money market fund assets increased by $​4.​31 billion to $​300.​07 billion, and tax-​exempt fund assets increased by $​1.​09 billion to $​12.​81 billion." Institutional assets accounted for 61.​6% of all MMF assets, with Government Institutional assets making up 85.​4% of all Institutional MMF totals. Earlier this month, assets tracked by Crane Data'​s Money Fund Intelligence Daily broke the $​3.​8 trillion level for the first time ever. Month-​to-​date through October 16, assets tracked by our MFID have increased by $​38.​2 billion but have dipped below the record to $​3.​797 trillion. In October so far, the Crane Institutional MF Index has increased by $​15.​8 billion to $​2.​517 trillion, while the Crane Retail MF Index rose $​19.​3 billion to $​1.​140 trillion. Prime MMFs have increased by $​24.​6 billion to $​1.​056 trillion while Govt (​including Treasury) MMFs have grown by $​10.​5 billion to $​2.​600 trillion.

The Financial Times writes that the "Fed '​repo' plan could face fund manager resistance." The article explains, "Money market funds that are among the largest holders of US Treasury bills say they are reluctant to sell them to the Federal Reserve, presenting an obstacle to the central bank as it seeks to increase the amount of cash in short-​term lending markets. The Fed announced last Friday that it would begin monthly purchases of roughly $​60bn of Treasury bills, which have a maturity of less than 12 months, in an attempt to inject money into the financial system following a cash squeeze that sent overnight '​repo' lending rates surging in September.... The problem facing managers of money market funds -- which are permitted to buy assets with no more than 13 months to maturity -- is that they would rather keep the Treasury bills now in their possession than sell them to the Fed and then go back into the market to buy debt with potentially lower yields." The FT quotes SSGA'​s Pia McCusker, "We are not going to sell them.... It'​s a short-​term gain and then I would have to replace it with something else at a much lower rate." The piece adds, "Money market funds are among the largest holders of Treasury bills, accounting for almost $​550bn at the end of August, according to data from the Investment Company Institute. Several fund managers told the Financial Times that they have no incentive to sell without a steep increase in prices -- and a corresponding fall in yields." The article also quotes JPMAM'​s John Tobin, "It makes us question where are they going to find these bills.... When the Fed is going to be a large, indiscriminate buyer in the front end, that is going to put pressure on yields."

Barron'​s writes about "The Best Income Investments for a Low-​Rate World and briefly mentions money funds and ultra-​short bond funds. The article explains, "​Given the narrow rate differential between short- and long-​term bonds, there'​s a good argument for staying short. Money-​market fund yields have fallen below 2%, as the Fed has cut short rates by a half-​percentage point this year, to a range of 1.​75% to 2%. An additional rate reductions by the central bank is likely later this year, and one more is expected in 2020. That could drop money-​fund yields to 1.​5% by early 2020." The piece comments, "Among the short-​term bond funds that offer higher yields are Pioneer Multi-​Asset Ultrashort Income (​MAFRX), which has a yield of nearly 3%, and Pimco Low Duration Income (​PFIAX), with 3.​5%. Both have large investments in mortgage securities. JPMorgan Ultra-​Short Income(​JPST) and Pimco Enhanced Short Maturity Active(​MINT) are large ETFs that yield about 2.​5% and are heavy in corporate debt." Barron'​s adds, "For more risk-​wary investors, there is the iShares 1-​3 Year Treasury Bond exchange-​traded fund (​SHY), which yields 2.​1%.... Warren Buffett favors ultrasafe Treasury bills for Berkshire Hathaway'​s cash hoard of more than $​120 billion. Investors who want to follow Buffett can buy T-​bills directly through the TreasuryDirect website, or purchase the iShares Short Treasury BondETF (​SHV), which holds Treasuries with less than a one-​year maturity. This low-​volatility fund yields about 2%. It'​s a good alternative to money-​market funds."

A press release entitled, "GSAM Transforms Digital Liquidity Management with Launch of Mosaic," tells us, "Goldman Sachs Asset Management ('​GSAM') today announced the launch of Mosaic, an investment platform provided through Goldman Sachs & Co. LLC ('​GS'), which delivers digital products, expertise, and data & execution services to treasury and investment teams of all sizes. Mosaic provides money market and short duration fund investors access to the data, products, and services needed to optimize their liquidity, resulting in improved scale, increased transparency, and efficient workflows. Mosaic builds upon GS' legacy in open-​architecture money market fund trade execution, including the GS Liquidity Solutions Portal, and is supported by the technology and expertise of Goldman Sachs." It continues, "Mosaic helps address clients' most pressing needs in managing and investing their cash. With more choices, complexities, and responsibilities facing liquidity investors, Mosaic'​s flexible design provides investment analytics, trading, settlement, and reporting capabilities that can be accessed through GS investment portals or connected to clients' existing infrastructure. Mosaic will be made available over the coming months to clients across financial services, corporates, and public institutions." Kathleen Hughes, Head of Liquidity Solutions Client Business at GSAM, comments, "​We innovate based on our clients' priorities. Those needs increasingly include simple execution, seamless digital experiences and the ability to pick and choose offerings that can be integrated with existing infrastructure to achieve better operational efficiency and investment goals.... We designed Mosaic to serve clients' needs, whether that is an enhanced and integrated dashboard, back-​end execution, or an end-​to-​end solution. Our continued investment is a reflection of our deep commitment to delivering cutting-​edge solutions to meet our clients' evolving needs for investing cash." The release explains, "The platform encompasses multiple applications for trading, reporting, and risk analysis, including the GS Liquidity Solutions Portal and the Mosaic investment portal. White-​labeled investment portal solutions are also available.... Mosaic'​s flexibility allows for connectivity with clients' treasury management systems, enterprise risk planning applications, and other enterprise or proprietary applications.... Mosaic data and execution services provide a flexible menu of investment analytics, execution, and reporting APIs and custom file integrations, allowing clients to have a holistic view of their liquidity portfolio.... An integration with Clearwater Analytics.... Platform integrations with the following treasury management system (​TMS) partners, providing connectivity to GS execution services and consolidated reporting experiences unique to Mosaic: GTreasury.... ION Treasury.... [​and] Direct security trading through connectivity to the brokerage applications of Tradeweb Markets." Christina Kopec, Global Head of Liquidity Solutions Product Strategy, adds, "​Investing cash has always been an integral component of a well-​functioning business, no matter our clients' industry.... We draw upon three decades of experience in liquidity asset management and on our firm'​s focus on risk and technology to help our clients meet the challenges of an increasingly complex market." We learned about Goldman'​s release from FundFire, which writes, "GSAM Targets Growing Inst'​l Demand for Cash with New Platform." They quote our Peter Crane, "​Years ago, we called them the transparency wars, where allowing tools to look through to underlying holdings of money funds became a competitive issue. Then various reporting and features to do reports and integrate these trading platforms with corporate treasury workstations became an issue. [Mosaic] seems to be a sort of catch all platform of technical enhancement. They'​re trying to make their investor base stickier and more reliant on Goldman Sachs, figuring that'​ll drive asset management revenue."

Fidelity Investments issued a press release entitled, "Fidelity Becomes the Only Firm That Offers Zero Commission Online Trading, Automatic Default to Higher Yielding Cash Option for New Accounts and Leading Trade Execution." It says, "Fidelity Investments, the largest online brokerage firm with 21.​8 million accounts, ... announced that it is the only firm to offer zero commissions for online U.​S. stocks, exchange traded funds (​ETFs) and option trades, automatically direct retail investors' cash into higher yielding alternatives available for new brokerage and retirement accounts, and provide industry-​leading best execution practices with zero payment for order flow for stock and ETF trades. The commission changes take effect on October 10, 2019 for individual investors and will be available on November 4, 2019 for registered investment advisors." Kathleen Murphy, president of Fidelity'​s personal investing business, comments, "​With this decision, Fidelity is taking a different path from the industry. We are providing customers unmatched value while challenging industry practices that appear to give value in one place when they are actually having customers pay in other ways.... This is why -- in addition to offering zero commissions for online trading -- we will continue to automatically offer retail investors choice for their cash at account opening and default them into the higher yielding option." The release explains under the header, "Challenging Industry Practices on Investor Cash," that, "Fidelity is the only online brokerage firm to take a customer-​first approach by automatically directing investors' cash into higher yielding alternatives available for new retail brokerage and retirement accounts.... Cash investments at Fidelity could earn 158x more than TD Ameritrade and E*​Trade, and 13x more than Charles Schwab cash sweeps (​as of Oct. 8, 2019. For accounts up to $​24,​999)." For more recent Crane Data Brokerage Sweep News, see these articles: "Brokerage Sweep Rates Continue Inching Lower; More Sweep Mentions" (​10/​1/​19), "Fidelity Cuts Sweep Rates, Robos Down Too; More on Brokerage '​Cash'" (​9/​25/​19), "Cash of the Titans Part II: Merrill Hit By Lawsuit Over Brokerage Sweeps" (​9/​3/​19), "Cash of the Titans: Schwab vs. Fidelity; MF Yields Dip Below 2.​0 Percent" (​8/​13/​19), "Fidelity Now Sweeps to Money Fund" (​8/​8/​19) and "Schwab Completes Shift from Money Funds to FDIC; LPL Changes Sweeps" (​7/​18/​19).

A press release entitled, "GTreasury Signs Connectivity Agreement with Goldman Sachs Liquidity Solutions," tells us, "GTreasury announced today that it has entered into a connectivity agreement with Goldman Sachs & Co. LLC (​GS&​Co.) and Goldman Sachs Asset Management (​GSAM) to connect the Goldman Sachs Liquidity Solutions Portal with GTreasury'​s treasury management system (​TMS). The new arrangement will create an end-​to-​end workflow for investing in money market funds, introducing on-​demand connectivity to third-​party banking and fintech services." The release explains, "The Goldman Sachs Liquidity Solutions Portal will be connected with GTreasury'​s workflow, creating a highly-​automated process that populates common client data for powerful decision making. With a single sign-​on to GTreasury, clients will be able to view the big picture of their cash positions and investments in dashboards, perform a tighter sweeping of bank accounts automatically, and enter the Goldman Sachs Liquidity Solutions Portal. Clients can then choose a money market fund from across the broad market of U.​S. and international funds and execute their trades. At client instruction, data will flow automatically back into GTreasury, informing cash, investment and accounting activities." Goldman'​s Kathleen Hughes, Global Head of Liquidity Solutions Client Business, comments, "We'​re delighted to work with the GTreasury team to connect this exciting tool with our own liquidity solutions. Greater automation and integrated information will not only save time by simplifying the process but will also give corporate treasury teams the information they need to make the best investment decisions for their needs."

As we wrote in the October issue of our Money Fund Intelligence newsletter, a recent SEC filing for the J.​P. Morgan Money Market Funds says their prospectuses are, "hereby amended to include the following to provide information on how the adviser integrates environmental, social and governance factors into each Fund'​s investment process." The filing says, "As part of its security selection strategy, the adviser also evaluates whether environmental, social and governance factors could have material negative or positive impact on the cash flows or risk profiles of many companies in the universe in which the Fund may invest. These determinations may not be conclusive and securities of issuers that may be negatively impacted by such factors may be purchased and retained by the Fund while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors." We learned of the filing from Henry Shilling of SustainableInvest.​com. While we don'​t believe this makes the JPMAM funds an "​ESG" fund, we do think this is the path most fund managers are taking, incorporating ESG principles into their credit research. One reason it that the growth of the handful of specialized ESG money funds has been dismal to date. The three funds that have launched to date have yet to bring in substantial assets and remain under $​1 billion (​or on the launchpad). BlackRock LEAF Direct (​LEDXX) is currently $​487 million while BlackRock LEAF Inst (​LEFXX) is $​146M. DWS ESG Liquidity Cap (​ESIXX) is $​234M, DWS ESG Liquidity Inst (​ESGXX) is $​171M and DWS ESG Liquidity Inst Res (​ESRXX) is $​57M. Meanwhile, State Street ESG Liquid Reserves Fund has yet to report any assets.

Federated Investors' Deborah Cunningham writes about "A September to remember" in her most recent Month in Cash Commentary. She explains, "​Investing has, and probably always will be, a mix of expectations and the unexpected. It'​s rare for cash managers to face the latter, but in mid-​September repo rates for overnight transactions using Treasury and agency collateral vaulted far above the typical levels before the Federal Reserve injected the markets with additional reserves. It was not a credit event, and we were quick to broadcast that. By now, even investors who never pay attention to repo rates have gotten the message. If you will allow a now-​overused saying, it was a case of a perfect storm with corporate tax day for the quarter hitting just as the Treasury issued a large amount (​in the $​50 billion range) of net new coupon supply, exacerbated by lower bank reserves parked at the Federal Reserve and by New York Fed staff frankly out of practice with doing daily operations." Cunningham'​s commentary continues, "​I am not blaming the Fed for this happening, but saying -- and this is a good thing -- that the liquidity space has been so stable there'​s been no need for intervention. Despite being late, the Fed'​s continuing action to support overnight trading has substantially reduced the risk of this occurring again, in our opinion." She adds, "​There were two more twists in September, both announced at the Federal Open Market Committee (​FOMC) meeting. The markets anticipated a quarter-​point lowering of the target range to 1.​75-​2%, but found Chair Jerome Powell'​s press conference rhetoric less dovish than assumed. This caused the London interbank offered rates (​Libor) in the 6 to 12-​month part of the curve to climb higher than before the cut, the futures market to suggest only one cut by year-​end and the Libor curve to slope positively. The other twist was that the Fed lowered the reverse repo program (​RRP) rate by 30 basis points. This facility is designed to give participants a safety net for overnight transactions. Since RRP started in 2016, this '​floor' has equaled the low end of the fed funds rate range; now it is 1.​70% and 5 basis points below the lower bound of that range. That is a bit of a headscratcher. Policymakers have been lowering interest paid on excess bank reserves parked at the Fed (​IOER), so it would seem this is part of their attempt to control the process. They may need to buttress daily operations with new quantitative easing at some point: call it QE-​light."

The Wall Street Journal'​s "​Intelligence Investor" column writes that "Your Stock Trades Go Free but Your Cash Is in Chains." Author Jason Zweig says, "​Freedom isn'​t free, and free trades aren'​t either. Charles Schwab Corp. shook the brokerage industry this week when it said it will cut commissions to zero on Oct. 7. Schwab'​s move, which followed a similar cut by Interactive Brokers Group Inc. and has already been matched by rivals TD Ameritrade Holding Corp. and E*​Trade Financial Corp. is likely to be copied by other big brokers. You no longer will pay a few bucks in commissions to buy or sell a security at these firms. But Schwab and other brokerage firms are in business to make money, and one way they often do that is by milking clients’ cash. When you trade for free, you still pay -- at a different tollbooth." He explains, "​Schwab can offer such cheap options partly because of how it handles investors' cash. The firm automatically sweeps idle cash not into money-​market mutual funds or other assets that could yield about 2% at today'​s rates, but into its own bank, which pays peanuts. As is typical in the brokerage business, Schwab puts clients' uninvested cash -- say, a dividend or interest payment -- into what'​s called a sweep account.... In the first half of 2019, Schwab clients moved $​58 billion into money-​market funds and other higher-​yielding choices. But most don'​t bother.... Schwab pushed $​11.​8 billion out of higher-​yielding money-​market funds into deposits at its own bank in the first half of 2019, according to the company. As of June 30, deposits at Schwab'​s bank totaled $​208 billion. This week, clients were earning between 0.​12% and 0.​55% on those balances. Schwab isn'​t alone. Across the brokerage industry, most sweep accounts pay measly rates -- sometimes as little as 0.​05% on a $​100,​000 balance." The piece adds, "This year, with the Federal Reserve lowering interest rates, sweep yields have fallen by nearly one-​third, to 0.​2%, since they peaked in March, according to Crane Data, a firm in Westboro, Mass., that tracks cash accounts. Average money-​fund yields shrank less, to 1.​8%. With rates falling, investors care less about what their cash is earning. 'A lot of the brokers are counting on this desensitivity to rates now,' says Peter Crane, president and publisher at Crane Data."

Money fund assets rose again for the fifth week in a row, the 8th week out of the past 9 and the 22nd week out of the past 24. ICI'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​415.​0 billion, or 13.​6%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​591 billion, or 20.​6%, with Retail MMFs rising by $​245 billion (​22.​9%) and Inst MMFs rising by $​346 billion (​19.​2%). ICI writes, "Total money market fund assets increased by $​20.​24 billion to $​3.​46 trillion for the week ended Wednesday, October 2, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​19.​41 billion and prime funds decreased by $​459 million. Tax-​exempt money market funds increased by $​1.​29 billion." ICI'​s weekly series shows Institutional MMFs jumping $​8.​6 billion and Retail MMFs increasing $​11.​7 billion. Total Government MMF assets, including Treasury funds, were $​2.​596 trillion (​75.​0% of all money funds), while Total Prime MMFs were $​731.​5 billion (​21.​1%). Tax Exempt MMFs totaled $​135.​3 billion, 3.​9%. They explain, "Assets of retail money market funds increased by $​11.​68 billion to $​1.​32 trillion. Among retail funds, government money market fund assets increased by $​9.​07 billion to $​756.​48 billion, prime money market fund assets increased by $​2.​21 billion to $​437.​13 billion, and tax-​exempt fund assets increased by $​409 million to $​123.​72 billion." Retail assets account for over a third of total assets, or 38.​0%, and Government Retail assets make up 57.​4% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $​8.​55 billion to $​2.​15 trillion. Among institutional funds, government money market fund assets increased by $​10.​34 billion to $​1.​84 trillion, prime money market fund assets decreased by $​2.​67 billion to $​294.​39 billion, and tax-​exempt fund assets increased by $​880 million to $​11.​60 billion." Institutional assets accounted for 62.​0% of all MMF assets, with Government Institutional assets making up 85.​7% of all Institutional MMF totals.

Wisconsin Representative Gwen Moore (​D-​WI-​4) recently filed H.​R.​4492, the "Consumer Financial Choice and Capital Markets Protection Act of 2019," the latest bill in the House of Representatives that attempts to restore the $​1.​00 NAV for all money funds. The text of the bill says, "Ms. Moore (​for herself, Mr. Stivers, Mr. Hastings, Mr. Gonzalez of Texas, Mr. Michael F. Doyle of Pennsylvania, Mr. Estes, and Mr. Mooney of West Virginia) introduced the following bill; which was referred to the Committee on Financial Services.... To protect the investment choices of investors in the United States, and for other purposes." It explains, "​This Act may be cited as the '​Consumer Financial Choice and Capital Markets Protection Act of 2019'.... Treatment of money market funds under the Investment Company Act of 1940. The Investment Company Act of 1940 (​15 U.​S.​C. 80a–​1 et seq.) is amended by adding at the end the following: SEC. 66. Money market funds. (​a) Definitions. In this section (​1) the term '​covered Federal assistance' means Federal assistance ... and (​2) the term '​Federal assistance' means -- (​A) insurance or guarantees by the Federal Deposit Insurance Corporation; (​B) transactions involving the Secretary of the Treasury; or (​C) the use of any advances from any Federal Reserve credit facility or discount window that is not part of a program or facility with broad-​based eligibility established in unusual or exigent circumstances. (​b) Election To be a stable value money market fund. -- (​1) IN GENERAL. -- Notwithstanding any other provision of this title, any open-​end investment company (​or a separate series thereof) that is a money market fund that relies on section 270.​2a–​7 of title 17, Code of Federal Regulations, may, in the prospectus included in its registration statement filed under section 8 state that the company or series has elected to compute the current price per share, for purposes of distribution or redemption and repurchase, of any redeemable security issued by the company or series by using the amortized cost method of valuation, or the penny-​rounding method of pricing, regardless of whether its shareholders are limited to natural persons, if -- (​A) the objective or principal investment strategy of the company or series is not inconsistent with the generation of income and preservation of capital through investment in short-​term, high-​quality debt securities; (​B) the board of directors of the company or series elects, on behalf of the company or series, to maintain a stable net asset value per share or stable price per share, by using the amortized cost valuation method, as defined in section 270.​2a–​7(​a) of title 17, Code of Federal Regulations (​or successor regulation), or the penny-​rounding pricing method, as defined in section 270.​2a–​7(​a) of title 17, Code of Federal Regulations (​or successor regulation), and the board of directors of the company has determined, in good faith, that -- (​i) it is in the best interests of the company or series, and its shareholders, to do so; and (​ii) the money market fund will continue to use such method or methods only as long as the board of directors believes that the resulting share price fairly reflects the market-​based net asset value per share of the company or series; and (​C) the company or series will comply with such quality, maturity, diversification, liquidity, and other requirements, including related procedural and recordkeeping requirements, as the Commission, by rule or regulation or order, may prescribe or has prescribed as necessary or appropriate in the public interest or for the protection of investors to the extent that such requirements and provisions are not inconsistent with this section." The bill text adds, "(​2) EXEMPTION FROM DEFAULT LIQUIDITY FEE REQUIREMENTS. -- Notwithstanding section 270.​2a–​7 of title 17, Code of Federal Regulations (​or successor regulation), no company or series that makes the election under paragraph (​1) shall be subject to the default liquidity fee requirements of section 270.​2a–​7(​c)(​2)(​ii) of title 17, Code of Federal Regulations (​or successor regulation). (​c) Prohibition against Federal Government bailouts of money market funds. -- Notwithstanding any other provision of law (​including regulations), covered Federal assistance may not be provided directly to any money market fund. (​d) Disclosure of the prohibition against Federal Government bailouts of money market funds. -- (​1) IN GENERAL. -- No principal underwriter of a redeemable security issued by a money market fund nor any dealer shall offer or sell any such security to any person unless the prospectus of the money market fund and any advertising or sales literature for such fund prominently discloses the prohibition against direct covered Federal assistance as described in subsection (​c). (​2) RULES, REGULATIONS, AND ORDERS. -- The Commission may, after consultation with and taking into account the views of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Department of the Treasury, adopt rules and regulations and issue orders consistent with the protection of investors, prescribing the manner in which the disclosure under this subsection shall be provided. (​e) Continuing obligation To meet requirements of this title. -- A company or series that makes an election under subsection (​b)(​1) shall remain subject to the provisions of this title and the rules and regulations of the Commission thereunder that would otherwise apply if those provisions do not conflict with the provisions of this section." For more, see our previous Crane Data News stories: "House to Vote on Stable NAV Bill" (​1/​22/​18) and "Stable NAV Bill Re-​Introduced in House; Amortized Cost for Inst Funds?" (​5/​24/​17).

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. The latest cut (​with data as of Sept. 27) includes Holdings information from 77 money funds (​the same as last week), which represent $​1.​742 trillion (​down from $​1.​898 trillion last week) of the $​3.​597 trillion (​48.​4%) in total money fund assets tracked by Crane Data. Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​656.​6 billion (​down from $​729.​5 billion the previous week), or 37.​7%, Treasury debt totaling $​563.​8 billion (​down from $​589.​2 billion) or 32.​4%, and Government Agency securities totaling $​296.​7 billion (​down from $​297.​8 billion), or 17.​0%. Commercial Paper (​CP) totaled $​82.​5 billion (​down from $​102.​2 billion), or 4.​7%, and Certificates of Deposit (​CDs) totaled $​76.​9 billion (​down from $​91.​7 billion), or 4.​4%. A total of $​35.​2 billion or 2.​0%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​30.​3 billion, or 1.​7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​563.​8 billion (​32.​4% of total holdings), Federal Home Loan Bank with $​211.​0B (​12.​1%), Fixed Income Clearing Co with $​106.​8B (​6.​1%), BNP Paribas with $​74.​5 billion (​4.​3%), RBC with $​53.​4B (​3.​1%), Federal Farm Credit Bank with $​47.​7B (​2.​7%), JP Morgan with $​38.​3B (​2.​2%), Wells Fargo with $​34.​3B (​2.​0%), Societe Generale with $​30.​7B (​1.​8%) and Mitsubishi UFJ Financial Group Inc with $​30.​7B (​1.​8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​150.​2B), Fidelity Inv MM: Govt Port ($​131.​1B), Goldman Sachs FS Govt ($​109.​4B), BlackRock Lq FedFund ($​107.​8B), Wells Fargo Govt MMkt ($​88.​0B), BlackRock Lq T-​Fund ($​72.​0B), Fidelity Inv MM: MMkt Port ($​68.​1B), Morgan Stanley Inst Liq Govt ($​62.​9B), JP Morgan 100% US Trs MMkt ($​62.​6B) and Dreyfus Govt Cash Mgmt ($​60.​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.)

Pimco recently published the article, "Steering Away From Volatile Markets: Short-​Term Bonds May Offer Value As Fed Eases." Author Jerome Schneider writes, "​Market volatility in August and September created one of the bumpiest rides for investors since the financial crisis. With lingering uncertainties over trade and economic growth, volatility is likely to persist, and investors are responding by reducing portfolio risk. Many turned to money market funds to wait out market volatility. At today'​s low yields, however, that could have a significant effect on longer-​term portfolio returns: Historically, during similar periods, many investors stayed in money market funds for much longer than a few months – typically for two years or more. Investors who can tolerate a modest step up in risk may find an attractive alternative in high quality short-​term bonds. We think short-​term bonds are likely to perform well in the coming months." He continues, "For decades, investors have turned to regulated money market funds when shifting to defense, and this time is no different. After the volatile fourth quarter in 2018, money market assets have increased by more than $​350 billion this year ... according to the `​Investment Company Institute. If history is any guide, money market assets could remain elevated for some time." The article adds, "Strategies that invest in short-​term bonds may provide a structural return advantage above money market yields because they have greater flexibility to invest in higher-​yielding securities outside the regulated money market universe of U.​S. Treasury bills and short-​term government securities. These strategies typically include bonds with slightly longer maturities and moderately higher credit risk. With this flexibility, actively managed short-​term strategies seek higher yields and the potential for capital appreciation."

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