Daily Links Archives: December, 2019

The Financial Times published the somewhat strange article, "Goldman and JPMorgan tweak repo operations to limit Basel impact." They write, "Goldman Sachs and JPMorgan have found ways to keep trading in the $1.2tn US repo market while limiting regulatory burdens, potentially easing a cash crunch at the turn of the year. Both banks are key players in the repo market, exchanging cash for high-quality collateral like US government debt -- a vital financing tool that hit trouble amid a squeeze on funding a couple of months ago, which sent borrowing rates sharply higher.... [I]n recent months Goldman has begun to mimic repo trading using derivatives known as total return swaps that carry lower capital requirements than regular repo trades, according to people familiar with the bank's shift. JPMorgan, meanwhile, has been encouraging its clients to use so-called 'sponsored repo' deals, where a clearing house sits in between trades and allows dealers to net transactions off against each other." The FT piece continues, "Analysts said that the efforts of both banks, while designed to minimise their own capital requirements, should have the effect of alleviating cash pressures in the market. Both banks have 'taken steps to be ahead of the game at year-end,' said Jeff Drobny, chief executive officer of Garda Capital Partners, a hedge fund manager.... Goldman and JPMorgan declined to comment. Each bank trades almost $200bn in the repo market each day, according to data from the Federal Reserve.... Goldman's new strategy centres on reducing secured financing like repo for non-US clients, such as hedge funds domiciled abroad, said the people.... Total return swaps offer a way for hedge funds to replicate highly leveraged Treasury investments away from the repo market. The returns tied to a Treasury are created synthetically without owning the security, allowing funds to increase potential profits without borrowing more cash via repos." The article adds, "JPMorgan's shift achieves a similar goal. Typically, the bank would source cash through the repo market from investors such as money market funds, and then lend this out to other clients such as hedge funds. Through sponsored repo, the bank's capital costs are reduced because the bank faces the Fixed Income Clearing Corporation on both sides. Another benefit is that the FICC is classed as a domestic counterparty under the GSIB rules, so trades with non-US investors can receive more favourable capital treatment. 'We believe sponsored repo cannibalises less efficient forms of repo, ultimately freeing up capital and creating more capacity for banks to provide liquidity to the fixed-income markets,' JPMorgan analysts wrote in a research report earlier this year."

A press release entitled, "PMA Expands LGIP Services into Nebraska," tells us, "PMA Financial Network, LLC, PMA Securities, LLC and Prudent Man Advisors, LLC ('PMA') are pleased to announce that as of December 2, 2019, by a vote of the Board of Trustees of the Nebraska Public Agency Investment Trust (NPAIT), the PMA team is now serving as the Administrator and Investment Advisor, in addition to Marketer (effective November 1st), of the NPAIT program.... PMA has been a leader in providing financial services to public entities since 1984 and currently serves over 2,500 local governments in 12 states. PMA has built a reputation as a trusted financial organization. NPAIT Participants will benefit by being able to take advantage of the products and services offered to PMA's public sector clients." CEO Jim Davis comments, "We are excited to expand our services into the state of Nebraska and believe that our new relationship will result in exciting growth that will benefit communities across Nebraska." The release continues, "Many of the PMA team members have extensive experience both in and with public entities, and they are ready to meet the needs of Nebraska public entities, associations and sponsors. While a number of PMA professionals will service NPAIT from a Nebraska office, Paul Kruse, PMA Senior Vice President, will be the initial contact for program, along with Dan Zomermaand, PMA Marketing Consultant." Kruse adds, "We are grateful for the confidence the Board of Trustees has placed in our PMA team, and we look forward to sharing new products and services to the Participants of the NPAIT program.... We are excited to make a difference for Nebraska communities." PMA also writes, "With the addition of NPAIT, PMA now serves a total of 13 LGIPs.... Collectively, the PMA companies are now working with over $28.6 billion total investment assets under administration."

A Prospectus Supplement filing for the Northern Institutional Funds Money Market Portfolios - Williams Capital Shares says, "Effective November 4, 2019, The Williams Capital Group, L.P. ('WCG') merged with Siebert Cisneros Shank & Co., L.L.C. and the combined firm was renamed Siebert Williams Shank & Co., LLC ('SWS'). SWS is a wholly owned subsidiary of Shank Williams Cisneros, LLC. All references to 'WCG' are hereby deleted and replaced with 'SWS'." Siebert Williams' website comments, "The merger of The Williams Capital Group, L.P. and Siebert Cisneros Shank & Co., L.L.C. closed on November 4, 2019. The combined firm, which has been renamed Siebert Williams Shank & Co., LLC (SWS) unites the complementary strengths of each firm to create a robust platform from which to serve a broad spectrum of clients across industries and asset classes. Suzanne Shank is the President and Chief Executive Officer; Christopher Williams serves as Chairman of the Board of Directors; and Henry Cisneros, the former Secretary of the Department of Housing and Urban Development (HUD), is Vice Chairman. SWS is a wholly owned subsidiary of Shank Williams Cisneros, LLC. The new organization will leverage its principals' shared passion for entrepreneurship, direct day-to-day client engagement, and records of delivering for clients, employees, and communities. Our website is currently being updated so we hope you will visit again soon to learn more about this exciting combination."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 20) includes Holdings information from 91 money funds (up 14 from a week ago), which represent $2.010 trillion (up from $1.822 trillion) of the $3.765 trillion (53.4%) in total money fund assets tracked by Crane Data. (See our latest monthly Money Fund Portfolio Holdings update here. Note that our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury debt totaling $702.0 billion (up from $617.5 billion a week ago), or 34.9%, Repurchase Agreements (Repo) totaling $697.9 billion (up from $610.6 billion) or 34.7%, and Government Agency securities totaling $382.8 billion (up from $340.4 billion), or 19.0%. Certificates of Deposit (CDs) totaled $108.7 billion (up from $94.1 billion), or 5.4%, and Commercial Paper (CP) totaled $104.9 billion (up from $86.0 billion), or 5.2%. A total of $63.1 billion or 3.1%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $40.5 billion, or 2.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $702.0 billion (33.4% of total holdings), Federal Home Loan Bank with $280.2B (13.3%), Fixed Income Clearing Co with $117.1B (5.6%), RBC with $66.1 billion (3.1%), Federal Farm Credit Bank with $59.7B (2.8%), BNP Paribas with $51.5B (2.5%), JP Morgan with $40.0B (1.9%), Credit Agricole with $37.7B (1.8%), Mitsubishi UFJ Financial Group Inc with $37.6B (1.8%) and Bank of Montreal with $37.1B (1.8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($165.8B), Fidelity Inv MM: Govt Port ($132.4B), Goldman Sachs FS Govt ($123.7B), BlackRock Lq FedFund ($115.1B), Federated Govt Oblg ($106.1B), Wells Fargo Govt MM ($88.9B), BlackRock Lq T-Fund ($77.3B), Fidelity Inv MM: MM Port ($75.4B), JPMorgan 100% US Treas MMkt ($72.7B) and Goldman Sachs FS Treas Instruments ($67.7B). (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.)

With just a month to go, we're finalizing plans for Crane's Money Fund University, which will be held January 23-24 at the Renaissance Providence Downtown Hotel. The 10th annual Money Fund University will cover the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. Money Fund University's comprehensive program is good for both beginners and experienced professionals looking for a refresher. The agenda is available online and we are still accepting registrations. (We're also willing to "comp" tickets for large Crane Data or sponsor clients, so let us know if you're interested.) Make your hotel reservations soon! Crane Data is also making plans for its fourth annual ultra-short bond fund event, Bond Fund Symposium, which will take place March 23-24, 2020 at the Hyatt Regency in Boston. Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. Registrations are now being accepted ($750) and sponsorship opportunities are available. Mark your calendars for our big show, Crane's Money Fund Symposium, which will be held June 24-26, 2020, at the Hyatt Regency Minneapolis. We're now taking registrations and the preliminary agenda will soon be available at: www.moneyfundsymposium.com. Finally, we've also set the dates and location for our next European Money Fund Symposium. It is scheduled for Sept. 17-18, 2020, in Paris, France. Let us know if you'd like more details on any of our events, and we hope to see you in Providence, Boston, Minneapolis or Paris in 2020!

A press release entitled, "Moody's Affirms Aaa-mf Rating of Federated Government Obligations Fund Following Fund Merger" tells us, "Moody's Investors Service, ("Moody's") has affirmed the Aaa-mf rating of the Federated Government Obligations Fund following its merger with the PNC Government Money Market Fund.... Federated Investors, Inc. recently acquired certain components of the PNC Capital Advisors LLC (PCA) investment management business and as a result the PNC Government Money Market Fund (PKIXX) was consolidated within the Federated Government Obligations Fund (GOIXX). The rating affirmation of the Federated Government Obligations Fund reflects Moody's expectation that the consolidated fund will continue to maintain its investment strategy and strong ability to meet the dual objectives of providing liquidity and preserving capital. The Aaa-mf rating is also supported by the funds' high scores across all key rating considerations, which include credit quality, asset profile, liquidity and market risk exposure, prior to and after the closing of the merger. The principal methodology used in this rating/analysis was Money Market Funds published in January 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology." Another release, "Moody's withdraws rating of PNC Government Money Market Fund," adds, "Moody's Investors Service, ("Moody's") has withdrawn the rating of the PNC Government Money Market Fund - Class I, previously rated Aaa-mf." It tells us, "Moody's has withdrawn the rating as a result of the acquisition of the fund by Federated Investors Inc. from The PNC Financial Services Group. The fund merged with Federated Government Obligations Fund (GOIXX). Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com." See also our Nov. 20 News, "Federated Completes $11.3B Acquisition of PNC's Money Market Funds."

Money fund assets fell in the latest week on quarterly corporate tax payments, ending just below the $3.6 trillion level. But money fund assets have still increased in 8 out of the last 10 weeks and in 30 out of the past 35 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $552 billion, or 18.1%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $591 billion, or 19.6%, with Retail MMFs rising by $215 billion (18.8%) and Inst MMFs rising by $376 billion (20.2%). ICI writes, "Total money market fund assets decreased by $19.49 billion to $3.60 trillion for the week ended Wednesday, December 18, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $11.58 billion and prime funds decreased by $7.71 billion. Tax-exempt money market funds decreased by $197 million." ICI's weekly series shows Institutional MMFs falling $24.1 billion and Retail MMFs increasing $4.6 billion. Total Government MMF assets, including Treasury funds, were $2.683 trillion (74.5% of all money funds), while Total Prime MMFs were $778.6 billion (21.6%). Tax Exempt MMFs totaled $138.0 billion, 3.8%. They explain, "Assets of retail money market funds increased by $4.61 billion to $1.36 trillion. Among retail funds, government money market fund assets increased by $3.91 billion to $770.58 billion, prime money market fund assets increased by $793 million to $462.86 billion, and tax-exempt fund assets decreased by $91 million to $125.76 billion." Retail assets account for over a third of total assets, or 37.8%, and Government Retail assets make up 56.7% of all Retail MMFs. The release adds, "Assets of institutional money market funds decreased by $24.10 billion to $2.24 trillion. Among institutional funds, government money market fund assets decreased by $15.49 billion to $1.91 trillion, prime money market fund assets decreased by $8.51 billion to $315.76 billion, and tax-exempt fund assets decreased by $106 million to $12.27 billion." Institutional assets accounted for 62.2% of all MMF assets, with Government Institutional assets making up 85.8% of all Institutional MMF totals.

Early this week, the Wall Street Journal wrote, "Rule Change Could Help Tech Firms Advance Into Banking." The piece explains, "Technology companies are moving into retail banking by offering financial products under their name. In almost every case, though, there is a partner bank behind the tech firm. Often that takes the form of a bank providing insured deposit accounts to the partner arrangement. That may be one thing that emerges from the discussions between Citigroup and Alphabet's Google, for example. It is also how fintech firms such as Betterment or Social Finance can offer deposit insurance for their offerings without being banks themselves. What exactly that means for the partner bank is complicated, however." The Journal adds, "Yes, it is a way for a bank to gather deposits and earn more fees. But not all deposits are created equal. The most economic form of deposits for a bank are 'core' deposits. These are deposits that regulators believe will mostly stick with a bank even in times of crisis. Brokered deposits, meanwhile, are considered a bigger flight risk. These are customer deposits that come into the bank via some third party and could leave en masse via that same party." In related "fin-tech" news, website The Verge writes, "Robinhood launches cash management feature a year after bungling its checking account launch." The article explains, "Robinhood has launched Cash Management, a new feature for its investing app that lets users park uninvested cash in a brokerage account where it can earn interest or be spent like cash using a special Robinhood-branded debit card.... This week’s launch follows Robinhood's attempt last year to launch no-fee checking and savings accounts and a 3 percent interest rate. The company had to take the feature back to the drawing board after the CEO of the Securities Investor Protection Corporation said he would not insure the accounts Robinhood planned to offer." It continues, "Robinhood says it moves money you put into your Cash Management account to its partner banks, which will pay the interest and provide FDIC insurance (up to a total of $1.25 million). The current Cash Management interest rate is 1.8 percent, and there are no account minimums, transfer fees, or foreign transaction fees."

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. (See our latest monthly Money Fund Portfolio Holdings here. Note that our Weekly MFPH are e-mail only and aren't available on the website.) The most recent cut (with data as of Dec. 13) includes Holdings information from 77 money funds (down 9 from two weeks ago), which represent $1.822 trillion (up from $1.725 trillion) of the $3.765 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 Treasury debt totaling $617.5 billion (up from $595.7 billion two weeks ago), or 33.9%, Repurchase Agreements (Repo) totaling $610.6 billion (up from $569.4 billion) or 33.5%, and Government Agency securities totaling $340.4 billion (up from $325.8 billion), or 18.7%. Certificates of Deposit (CDs) totaled $94.1 billion (up from $91.1 billion), or 5.2%, and Commercial Paper (CP) totaled $86.0 billion (up from $79.0 billion), or 4.7%. A total of $41.6 billion or 2.3%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $31.5 billion, or 1.7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $617.5 billion (33.9% of total holdings), Federal Home Loan Bank with $247.8B (13.6%), Fixed Income Clearing Co with $92.1B (5.1%), RBC with $57.4 billion (3.1%), BNP Paribas with $53.3B (2.9%), Federal Farm Credit Bank with $53.1B (2.9%), Mitsubishi UFJ Financial Group Inc with $35.3B (1.9%), JP Morgan with $32.8B (1.8%), Credit Agricole with $31.2B (1.7%) and Federal Home Loan Mortgage Co with $29.3B (1.6%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($161.0B), Fidelity Inv MM: Govt Port ($139.3B), Goldman Sachs FS Govt ($125.7B), BlackRock Lq FedFund ($115.7B), Wells Fargo Govt MM ($87.6B), BlackRock Lq T-Fund ($82.0B), Fidelity Inv MM: MM Port ($74.7B), JP Morgan 100% US Treas MMkt ($69.8B), Morgan Stanley Inst Liq Govt ($68.4B) and Goldman Sachs FS Treas Instruments ($67.3B). (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.)

A press release, "Two State Street Global Advisors Standard Money Market Funds Ratings Raised Following Review," tells us, "S&P Global Ratings ... raised to 'AAf' from 'AA-f' its fund credit quality ratings (FCQRs) on two funds managed by State Street Global Advisors Ltd. (SSGA): State Street EUR Liquidity Standard VNAV Fund; and State Street GBP Liquidity Standard VNAV Fund. In our view, the portfolio credit quality of the funds is very strong. At the same time, we affirmed our 'S1+' fund volatility ratings (FVRs) on these two funds. Based on our Fund Credit Quality matrix, in quantitative terms we consider these two standard money market funds to have high credit quality investments. SSGA's conservative fund management, the improved credit quality of the fund, and the application of portfolio metrics associated with the EU's Money Market Fund Regulation 2017/1131 (EUMMFR) supports the upgrade. These metrics include maximum limits on a fund's weighted-average maturity and weighted-average life and minimum daily (7.5%) and weekly (15%) liquidity requirements. These metrics were not in effect when S&P Global Ratings first assigned its FCQR to these funds in 2014. Therefore, we would have recognized these portfolios as bond funds -- in 2019, they are defined as standard money market funds under EUMMFR." It adds, "State Street EUR Liquidity Standard VNAV Fund and State Street GBP Liquidity Standard VNAV Fund are subfunds within State Street Liquidity PLC, an open-ended investment company constituted as an umbrella fund with segregated liability between subfunds authorized by the Central Bank of Ireland pursuant to the Directive relating to Undertakings for Collective Investment in Transferable Securities (UCITS2) and the EUMMFR. There are 12 subfunds within the company structure and each of them conforms to the regulatory guidelines set down in the EUMMFR. The objective of these two subfunds, as set out in the umbrella fund's prospectus, is to provide a return in excess of the fund's currency money market rates, preserve capital, and maintain a reasonable level of liquidity. Administration and depositary services continue to be provided by State Street Fund Services (Ireland) Ltd. and State Street Custodial Services (Ireland) Ltd., respectively." In other ratings news, another press release, "Moody's assigns Aaa-mf to Western Asset sponsored money market funds," tells us, "Moody's Investors Service ("Moody's") has assigned an Aaa-mf rating to each of the following Western Asset Management sub-advised money market master funds: Government Reserves Portfolio, U.S. Treasury Obligations Portfolio, and U.S. Treasury Reserves Portfolio. Rating action summary: Government Reserves Portfolio - assigned Aaa-mf, U.S. Treasury Obligations Portfolio - assigned Aaa-mf, and U.S. Treasury Reserves Portfolio - assigned Aaa-mf." Moody's writes, "The Aaa-mf ratings of each of these three master funds reflect the strong underlying credit and liquidity profiles of their portfolios and the conservative investment strategies employed in their pursuits to generate income while preserving capital and maintaining liquidity for their respective shareholders."

A press release entitled, "Drax Wins TMI Award for Best Portal Technology Solution, Using ICD tells us, "ICD, the leading independent trading and investment risk management technology company, announced ... that UK-based energy company Drax won this year's Corporate Recognition Award for Best Portal Technology Solution, using ICD Portal. The award is part of TMI magazine's 2019 Awards for Innovation & Excellence in the treasury industry." Lisa Dukes, Deputy Group Treasurer at Drax, comments, "We needed a new portal solution to improve our control environment, streamline our workflow and automate our manual processes. With ICD's portal technology and its global trade desk and account team, we could achieve straight-through processing with Reval and ensure we are applying industry best practices. In this regard, ICD acts as an extension of our team." ICD's release continues, "The integrated portal solution allows Drax to easily research, trade and report on money market funds, providing straight-through processing of data from ICD Portal into the Reval treasury management system. In addition to the solution ensuring accurate and efficient flow of trade data, Drax reports that the yield data for dividend calculation is more accurate in Reval as it is pushed directly from ICD." Karl Adams, Senior Director at ICD, adds, "Drax exemplifies the kind of treasury organization that is driving the industry forward. It is this kind of drive for excellence within treasury that can make a measurable difference across the broader finance organization. Kudos to the team."

Money fund assets jumped again in the latest week, breaking above the $3.6 trillion level for the first time since July 2009. The increase represents the 30th gain out of the past 34 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $572 billion, or 18.8%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $616 billion, or 20.5%, with Retail MMFs rising by $227 billion (20.1%) and Inst MMFs rising by $390 billion (20.8%). ICI writes, "Total money market fund assets increased by $40.11 billion to $3.62 trillion for the week ended Wednesday, December 11, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $31.03 billion and prime funds increased by $9.67 billion. Tax-exempt money market funds decreased by $596 million." ICI's weekly series shows Institutional MMFs rising $35.0 billion and Retail MMFs increasing $5.1 billion. Total Government MMF assets, including Treasury funds, were $2.695 trillion (74.5% of all money funds), while Total Prime MMFs were $786.3 billion (21.7%). Tax Exempt MMFs totaled $138.2 billion, 3.8%. They explain, "Assets of retail money market funds increased by $5.12 billion to $1.35 trillion. Among retail funds, government money market fund assets increased by $3.73 billion to $766.67 billion, prime money market fund assets increased by $1.55 billion to $462.07 billion, and tax-exempt fund assets decreased by $162 million to $125.78 billion." Retail assets account for over a third of total assets, or 37.4%, and Government Retail assets make up 56.6% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $34.99 billion to $2.26 trillion. Among institutional funds, government money market fund assets increased by $27.30 billion to $1.93 trillion, prime money market fund assets increased by $8.12 billion to $324.26 billion, and tax-exempt fund assets decreased by $434 million to $12.38 billion." Institutional assets accounted for 62.6% of all MMF assets, with Government Institutional assets making up 85.1% of all Institutional MMF totals. Crane Data's separate Money Fund Intelligence Daily series shows overall money fund assets up $57.4 billion month-to-date (through 12/11) to $3.968 trillion. (We're projecting that this series will break the $4.0 trillion level by the end of this month!) Prime MMF assets are up $15.1B MTD, while Government assets are up $42.1B.

The Bank for International Settlements' latest "BIS Quarterly Review contained an article entitled, "September stress in dollar repo markets: passing or structural?" It tells us, "The mid-September tensions in the US dollar market for repurchase agreements (repos) were highly unusual. Repo rates typically fluctuate in an intraday range of 10 basis points, or at most 20 basis points. On 17 September, the secured overnight funding rate (SOFR) - the new, repo market-based, US dollar overnight reference rate - more than doubled, and the intraday range jumped to about 700 basis points. Intraday volatility in the federal funds rate was also unusually high. The reasons for this dislocation have been extensively debated; explanations include a due date for US corporate taxes and a large settlement of US Treasury securities. Yet none of these temporary factors can fully explain the exceptional jump in repo rates." The quarterly continues, "A repo transaction is a short-term (usually overnight) collateralised loan, in which the borrower (of cash) sells a security (typically government bonds as collateral) to the lender, with a commitment to buy it back later at the same price plus interest. Repo markets redistribute liquidity between financial institutions: not only banks (as is the case with the federal funds market), but also insurance companies, asset managers, money market funds and other institutional investors. In so doing, they help other financial markets to function smoothly. Thus, any sustained disruption in this market, with daily turnover in the US market of about $1 trillion, could quickly ripple through the financial system. The freezing-up of repo markets in late 2008 was one of the most damaging aspects of the Great Financial Crisis (GFC)." The piece adds, "Concurrent with the growing role of the largest four banks in the repo market, their liquid asset holdings have become increasingly skewed towards US Treasuries, much more so than for the other, smaller banks.... Shifts in repo borrowing and lending by non-bank participants may have also played a role in the repo rate spike. Market commentary suggests that, in preceding quarters, leveraged players (eg hedge funds) were increasing their demand for Treasury repos to fund arbitrage trades between cash bonds and derivatives. Since 2017, MMFs have been lending to a broader range of repo counterparties, including hedge funds, potentially obtaining higher returns. These transactions are cleared by the Fixed Income Clearing Corporation (FICC), with a dealer sponsor (usually a bank or broker-dealer) taking on the credit risk. The resulting remarkable rise in FICC-cleared repos indirectly connected these players. During September, however, quantities dropped and rates rose, suggesting a reluctance, also on the part of MMFs, to lend into these markets.... Market intelligence suggests MMFs were concerned by potential large redemptions given strong prior inflows. Counterparty exposure limits may have contributed to the drop in quantities, as these repos now account for almost 20% of the total provided by MMFs."

Warren Howe, National Sales Director of Stable Value Markets at MetLife was recently featured on AssetTV in a video entitled, "Advantages of Stable Value." He talks about "the advantages of offering stable value as a capital preservation option in a defined contribution (DC) plan." Howe explains, "Stable Value has a lot of advantages, and it's always a good idea to have a Stable Value option in your defined contribution plan. Especially when you think about Plan Sponsors, you need to have a Capital Preservation option in the lineup. Typically, it's either going to be Stable Value, a short-term bond fund or a money market fund. When you look at the three of those, Stable Value is clearly the superior alternative in that case.... When we looked at the volatility in the market late last year, that's kind of the key thing when you think about a Stable Value fund. What does it provide? It provides a safe haven, capital preservation and a reasonable return for participants. It gives people that safe haven for investing when they see the equity markets experiencing 700 point up-and-down at any give time period." Discussing the performance history of Stable Value, Howe comments, "I always find it interesting to look at participants and how they act.... When you see a long bull market in equities people kind of forget about risk. They think that it's always going to continue to go up.... [People] chase those markets and people forget about risk a little. But ... when you bring that volatility back and people understand that there actually is risk, that's when you see those trends reverse and the dollars start to flow out of the equity markets and back into Stable Value." He adds, "There's always been the perception that Stable Value works great in a declining interest rate environment but could experience a little bit of difficulty in a rising interest rate.... I would say that's not necessarily the case. When you look at Stable Value ... it's designed specifically for the defined contribution market and part of that is it's designed to perform in all interest rate scenarios. Whether that be a declining interest rate scenario, a prolonged flat interest rate scenario or a rising rate scenario, it's going to lag the market. So on the way down, Stable Value yields will lag the market based on the crediting rate reset formula in place to provide that volatility smoothing, and on the way up it will lag a bit as well but it will track the general direction of interest rates over time.... It's a little bit of a lag based on crediting rate formula and how it applies that to smooth out that volatility. So that you don't have those periods where you have a gain and then a loss and a negative return, it's smoothing that out for you so the ride is a little bit easier."

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Tuesday, Dec. 10, and we'll be writing our normal monthly update on the Nov. 30 data for Wednesday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings, and we posted these to the website Monday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Nov. 30, 2019, includes holdings information from 1,080 money funds, representing assets of $3.992 trillion (up from $3.968 trillion last month). Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,166 billion (down from $1,204 billion), or 29.2% of all assets. Treasury holdings total $1,138 billion (up from $1,081 billion), or 28.5%, and Government Agency securities totaled $785.4 billion (down from $804.0 billion), or 19.7%. Holdings of Treasuries, Government agencies and Repo (the vast majority of which is backed by Treasuries and agencies) combined total $3.089 trillion, or 77.4% of all holdings. Commercial paper (CP) totals $362.1 billion (up from $356.0 billion), or 9.1%, and Certificates of Deposit (CDs) total $280.3 billion (up from $267.1 billion), or 7.0%. The Other category (primarily Time Deposits) totals $158.1 billion (up from $154.3 billion), or 4.0%, and VRDNs account for $101.6 billion (up from $100.8 billion last month), or 2.5%. Broken out into the SEC's more detailed categories, the CP totals were comprised of: $236.5 billion, or 5.9%, in Financial Company Commercial Paper; $62.8 billion or 1.6%, in Asset Backed Commercial Paper; and, $62.9 billion, or 1.6%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($705.5B, or 17.7%), U.S. Govt Agency Repo ($406.5B, or 10.2%) and Other Repo ($54.1B, or 1.4%). The N-MFP Holdings summary for the 213 Prime Money Market Funds shows: CP holdings of $356.4 billion (up from $350.4 billion), or 31.8%; CD holdings of $280.3 billion (up from $267.1 billion), or 25.0%; Repo holdings of $186.4 billion (down from $196.6 billion), or 16.7%; Other (primarily Time Deposits) holdings of $108.2 billion (up from $105.9 billion), or 9.7%; Treasury holdings of $118.9 billion (up from $107.1 billion), or 10.6%; Government Agency holdings of $63.7 billion (down from $71.4 billion), or 5.7%; and VRDN holdings of $5.6 billion (unchanged from last month), or 0.5%. The SEC's more detailed categories show CP in Prime MMFs made up of: $236.5 billion (up from $236.4 billion), or 21.1% in Financial Company Commercial Paper; $62.8 billion (up from $61.4 billion) or, 5.6% in Asset Backed Commercial Paper; and $57.1 billion (up from $52.7 billion), or 5.1% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($74.0 billion, or 6.6%), U.S. Govt Agency Repo ($58.3 billion, or 5.2%), and Other Repo ($54.1 billion, or 4.8%).

On Thursday, fund news source ignites published the article "UBS Eliminates Money Funds for Most Sweeps," which says, "Investors at UBS can no longer use the wirehouse's money market funds as their sweep option, according to a recent regulatory disclosure. UBS discontinued its money market funds as a sweep option effective Nov. 18, according to regulatory disclosures filed this week. Fund shares were sold last month, and their proceeds were deposited at UBS Bank, the firm's bank affiliate, one brochure states. Two money market funds used by the sweep program, the UBS RMA Government Money Market Fund and the UBS Liquid Assets Government Fund, both saw significant outflows the day the change took effect. The RMA Fund bled $4.3 billion that day, while the Liquid Assets Fund lost $1.3 billion, according to daily flow data posted on the UBS website." The piece explains, "With UBS's switch, now nearly every brokerage defaults to a bank deposit option for its sweep program, says Peter Crane, CEO of Crane Data. Edward Jones removed its money market fund as a sweep option for new brokerage accounts in February, following similar moves by Charles Schwab, Merrill Lynch and Morgan Stanley." The ignites article quotes our Peter Crane, "Brokerages, for a couple years now, have been focused on getting rid of [legacy money fund assets] and moving as much as they can into bank deposits, which are much more profitable for them.... It's pretty clear, the brokerages keep shoveling money into the banks, but investors keep moving it back into money market funds."

Money fund assets inched up in the latest week, after skyrocketing the prior week and plunging the week before that. The increase represents the 29th gain out of the past 33 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $532 billion, or 17.4%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $670 billion, or 23.0%, with Retail MMFs rising by $233 billion (20.9%) and Inst MMFs rising by $437 billion (24.4%). ICI writes, "Total money market fund assets increased by $2.37 billion to $3.58 trillion for the eight-day period ended Wednesday, December 4, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $1.31 billion and prime funds increased by $817 million. Tax-exempt money market funds increased by $242 million." ICI's weekly series shows Institutional MMFs falling $1.5 billion and Retail MMFs increasing $3.9 billion. Total Government MMF assets, including Treasury funds, were $2.664 trillion (74.4% of all money funds), while Total Prime MMFs were $776.7 billion (21.7%). Tax Exempt MMFs totaled $138.8 billion, 3.9%. They explain, "Assets of retail money market funds increased by $3.89 billion to $1.35 trillion. Among retail funds, government money market fund assets increased by $1.87 billion to $762.94 billion, prime money market fund assets increased by $1.56 billion to $460.52 billion, and tax-exempt fund assets increased by $462 million to $125.94 billion." Retail assets account for over a third of total assets, or 37.7%, and Government Retail assets make up 56.6% of all Retail MMFs. The release adds, "Assets of institutional money market funds decreased by $1.52 billion to $2.23 trillion. Among institutional funds, government money market fund assets decreased by $564 million to $1.90 trillion, prime money market fund assets decreased by $739 million to $316.14 billion, and tax-exempt fund assets decreased by $219 million to $12.81 billion." Institutional assets accounted for 62.3% of all MMF assets, with Government Institutional assets making up 85.2% of all Institutional MMF totals. Crane Data's separate Money Fund Intelligence Daily series shows overall money fund assets up $8.3 billion month-to-date (through 12/4) to $3.919 trillion. (We're projecting that this series will break the $4.0 trillion level by the end of this year!) Prime MMF assets are down $119M MTD, while Government assets are up $8.2B.

A Prospectus Supplement filing for Wells Fargo Government Money Market Fund and Wells Fargo Treasury Plus Money Market Fund tells us, "At a meeting held on November 21-22, 2019, the Board of Trustees of Wells Fargo Funds Trust unanimously approved the elimination of the Sweep Class shares of the Funds. Effective at the close of business on November 22, 2019, the Sweep Class shares of the Funds are closed to investment. The elimination of the Sweep Class shares is expected to occur on or about November 29, 2019, upon the redemption in full of all assets in the Sweep Classes. After this date, all references to Sweep Class shares in the Funds' prospectus and SAI will be removed." Wells Fargo continues to offer a Sweep class on its 100% Treasury Money Market Funds (WFA10). According to our Brokerage Sweep Intelligence publication, Wells Fargo Advisors is paying 0.05% on brokerage sweep cash balances under $1 million, versus a yield of 0.92% for the Wells Fargo 100% US Treasury Sweep money market fund. (The latter is available only to select accounts.)

As a reminder to readers, Crane's Money Fund University will be held January 23-24 at the Renaissance Providence Downtown Hotel. The 10th annual Money Fund University will cover the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. Money Fund University's comprehensive program is good for anyone -- beginners and experienced professionals looking for a refresher -- alike. The agenda is available online and we are still accepting registrations. (We're also willing to "comp" tickets for large Crane Data or sponsor clients, so let us know if you're interested.) Crane Data is also making plans for its fourth annual ultra-short bond fund event, Bond Fund Symposium, which will take place March 23-24, 2020 at the Hyatt Regency in Boston. Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. Registrations are now being accepted ($750) and sponsorship opportunities are available. Mark your calendars for our big show, Crane's Money Fund Symposium, which will be held June 24-26, 2020, at the Hyatt Regency Minneapolis. We're now taking registrations and the preliminary agenda will soon be available at: www.moneyfundsymposium.com. Finally, we've also set the dates and location for our next European Money Fund Symposium. It is scheduled for Sept. 17-18, 2020, in Paris, France. Let us know if you'd like more details on any of our events, and we hope to see you in Providence, Boston, Minneapolis or Paris in 2020!

The San Francisco Chronicle writes "Robinhood drops plan to start a bank; brokerage clients still waiting for interest on cash." The article says, "Robinhood won't be opening a bank after all. The Menlo Park brokerage firm, which made a splash offering free online stock trading popular with Millennials, said it is withdrawing its application to start a federally insured bank. The venture-backed company got in hot water almost a year ago when it advertised 'checking and savings accounts' yielding 3%, on its website." The piece explains, "The accounts were not bank accounts and were not insured by the Federal Deposit Insurance Corp.... But the [SIPC] CEO ... Steve Harbeck, said they would not be protected because his company only protects cash used to buy securities.... Robinhood quickly took down references to checking and savings accounts, saying in a blog post that its announcement 'may have caused some confusion.' Instead, it said it would offer 'cash management accounts.' In April, the company said it had applied for a bank charter with the Office of the Comptroller of the Currency." The Chronicle adds, "On Oct. 8, it announced it will begin offering a cash management program within its brokerage account and started a wait-list for the feature. It said clients' 'uninvested cash' would be moved to 'program banks that pay you 2.05% APY as of October 8, 2019.' In an email, Robinhood said the program banks are Goldman Sachs Bank, HSBC, Wells Fargo, Citibank, Bank of Baroda and U.S. Bank. 'Your uninvested cash at these program banks is eligible for FDIC insurance up to a total of $1.25 million -- or up to $250,000 per bank, subject to FDIC rules,' Robinhood said in an announcement." Finally, they write, "This feature is still not available and Robinhood would not say when it will be. Uninvested cash in client accounts now earns zero. The promised rate on its cash management account is down to 1.8% as rates in general have fallen in response to recent Federal Reserve rate cuts. Robinhood said in a statement that it is 'voluntarily' withdrawing its application for a national bank charter but wouldn't say why. It said it will 'focus on increasing participation in the financial system and challenging the industry to better serve everyone.' A spokesman said the move was unrelated to the commission cuts."

A Prospectus Supplement for Putnam Money Market Fund tells us, "All Putnam retail open-end funds, except for Putnam Diversified Income Trust, Putnam Dynamic Asset Allocation Equity Fund, George Putnam Balanced Fund, Putnam Global Income Trust, Putnam High Yield Fund, Putnam Income Fund, Putnam Mortgage Opportunities Fund, Putnam Mortgage Securities Fund and Putnam Short Term Investment Fund. Effective November 25, 2019 (the 'Effective Date'), class M shares of each fund will no longer be available for purchase. Class M shares of each fund acquired prior to the Effective Date will convert automatically to class A shares on the Effective Date."