Daily Links Archives: February, 2019

Register soon for the third annual Crane's Bond Fund Symposium, which will take place March 25-26, 2019 at the Loews Philadelphia Hotel. Our second ultra-short event last year in Los Angeles attracted over 120 bond fund managers, marketers, fixed-income issuers, investors and service providers, and we expect our Philadelphia show to be even bigger. See our latest agenda here and details below. Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for BFS is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors. Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Loews Philadelphia. We'd like to thank our sponsors -- Wells Fargo Securities, Fidelity Investments, Investortools, J.P. Morgan Asset Management, Wells Fargo Asset Management, Invesco, S&P Global Ratings, DTCC and INTL FCStone -- for their support (we're still accepting sponsors for our 2019 show). E-mail us for more details. Crane Data is also making preparations and now accepting registrations for our "big show," `Money Fund Symposium, which will be held June 24-26, 2019, at the Renaissance Boston in Boston, Mass. See the latest agenda at www.moneyfundsymposium.com and let us know if you'd like more details on sponsoring this event. We have also set the dates and location for our next European Money Fund Symposium, which is scheduled for Sept. 23-24, 2019, in Dublin, Ireland. Watch for this agenda to go live in coming weeks.... We hope to see you in Philly, Boston or Dublin in 2019!

ICI's latest "Money Market Fund Assets" report shows that money fund assets jumped for the second week in a row and for the 14th out of past 16 weeks. ICI's weekly series shows Retail MMFs declining by $1.43 billion, while Institutional MMFs gained $18.1 billion. They write, "Total money market fund assets increased by $16.64 billion to $3.08 trillion for the week ended Wednesday, Feb. 13, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $11.02 billion and prime funds increased by $8.47 billion. Tax-exempt money market funds decreased by $2.84 billion." Total Government MMF assets, including Treasury funds, stood at $2.325 trillion (75.5% of all money funds), while Total Prime MMFs reached $616.1 billion (20.0%). Tax Exempt MMFs totaled $138.3 billion, or 4.5%. ICI states, "Assets of retail money market funds decreased by $1.43 billion to $1.19 trillion. Among retail funds, government money market fund assets decreased by $2.88 billion to $694.46 billion, prime money market fund assets increased by $3.74 billion to $367.53 billion, and tax-exempt fund assets decreased by $2.28 billion to $128.68 billion." Retail assets account for over a third of total assets, or 38.7%, and Government Retail assets make up 58.3% of all Retail MMFs. The release concludes, "Assets of institutional money market funds increased by $18.07 billion to $1.89 trillion. Among institutional funds, government money market fund assets increased by $13.90 billion to $1.63 trillion, prime money market fund assets increased by $4.73 billion to $248.60 billion, and tax-exempt fund assets decreased by $563 million to $9.57 billion." Institutional assets accounted for 61.3% of all MMF assets, with Government Institutional assets making up 86.3% of all Institutional MMF totals.

Wells Fargo Money Market Fund's latest "Portfolio Manager Commentary" tells us, "Municipal money markets got off to a volatile start this year as strong initial asset inflows gave way to exceptionally large redemptions during the latter half of the month. Yields on variable-rate demand notes (VRDNs) and tender option bonds (TOBs) in the overnight and weekly space responded in dramatic fashion to the sudden swings in demand. The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index, which had closed out 2018 at 1.71% (71% of 1-week LIBOR), quickly fell to 1.28% (53% of 1-week LIBOR) as strong seasonal demand overwhelmed available supply during the first two weeks of the month (as of January 14, 2019). Yields on overnight high-grade paper fell even more dramatically, falling from roughly 1.70% to as low as 0.85% (as of January 14, 2019). However, after the initial surge in seasonal demand was satisfied, the municipal money market was left vulnerable due to the richness of tax exempt issues relative to taxable paper." Author James Randazzo adds, "Municipal money market funds would eventually experience roughly $5 billion in redemptions over the last two weeks of January, causing a sharp reversal in the direction of rates in the short end of the curve. As a result, the SIFMA Municipal Swap Index closed out the month at 1.43% (59% of 1-week LIBOR), while overnight rates spiked to as high as 1.65%, nearly double levels seen earlier in the month. In contrast, the long end of the curve was relatively stable. With strong demand for high-grade one-year paper carrying over into the new year, exerting steady downward pressure on rates, the municipal money market yield curve flattened further as rates on one-year paper fell to roughly 1.74% from 1.90% at year-end. During the month, we continued to emphasize principal preservation and liquidity by targeting our purchases in VRDNs and TOBs with daily and weekly puts."

Reuters says that "Investors' cash buildup comes at a cost." They write, "Investors sitting on a mountain of cash built up since late last year may be paying a price for playing it too safe in the first weeks of 2019. Individuals and institutions have poured tens of billions of dollars into money market funds amid the aftershock of last year's punishing losses from stocks and next-to-nothing from bonds. Ongoing turmoil from trade tensions between China and the United States, political infighting in Washington and interest rate increases from the Federal Reserve have also inspired the rush into cash. Despite those concerns, Wall Street has staged a comeback to kick off the new year ... while junk bonds produced their strongest monthly return in more than seven years. At same time, the yields on money funds stuffed with all that safe-haven cash have trickled lower. Analysts and fund managers said the stampede into cash is understandable, but safety comes with a steep opportunity cost." The article quotes PIMCO's Jerome Schneider, "Investors can penalize themselves. While money market funds offer safety, they come at a cost as they accept a lower yield." It adds, "Interest rates on cash investments, currently at around 2 percent, are hardly dazzling. But in the last year they have risen above the rate of inflation for the first time since the financial crisis, and are up from near zero over three years ago before the Fed began raising rates."

J.P. Morgan Asset Management announced that Jemma Clee has been appointed as an Executive Director and Head of Investment Specialists for Global Liquidity in Europe (EMEA), "with immediate effect." She will be responsible for "servicing existing clients and generating new business for the Global Liquidity product range with a focus on short-term fixed income solutions for corporate clients, financial institutions as well as platforms, encompassing both pooled funds and separately-managed accounts," says a press release. It continues, "Clee joins from Goldman Sachs Asset Management (GSAM) where she worked on the Global Fixed Income and Liquidity Team for 14 years, the past eight years of which she was the short-duration lead portfolio manager focused on U.K. and European clients. Based in London, Clee will report to Ted Ufferfilge, Managing Director and Global Head of Investment Specialists for the Global Liquidity business." Ufferfilge comments, "We are extremely excited Jemma has joined the team as she comes with a great deal of experience and is very familiar with our client base as well as the short-term investment landscape. Her role in servicing our clients in the EMEA region will be crucial in helping us to continue to grow and expand our presence, and ensure that short-term cash investors' needs are met by an investment manager with both the track record, experience and depth of solutions our Global Liquidity business is able to bring."

On CNBC's "Closing Bell" Thursday, host Mike Santoli interviewed TD Ameritrade CEO Tim Hockey and asked him about investor's risk appetite, industry consolidation and client cash preferences. Hockey said, "We look at our retail clients that are more self-directed. We call them empowered. They actually like to take advantage of those types of opportunities.... December did feel a little different, I would say. If you look at our investor movement index, it actually dipped down. Our cash levels bounced back up. Our margin levels dropped. That's now slowly recovering, as those more active investors get back into the market and we have that recovery." Hockey was then asked to respond to ads run by competitors that now boast about paying more for cash balances in brokerage accounts. He explained, "We have a very different view, just as most in our industry do, about what that cash is for and what clients think of it. They don't actually think about it as an investment vehicle, an asset class in and of itself. When it comes to your self-directed account, you're really saying that's my money that's there as a holding tank until I decide to make that trade.... So as a result, that money is highly sticky. It doesn't usually chase for yield. Some of it does, of course. There's some price sensitivity. As a result, it's a very careful balance for us to manage the interest-paid levels with the demand sensitivity for clients. We think we find the right balance and make sure that they've got lots of vehicles they can invest in if they do want to search for yield."

ICI's latest "Money Market Fund Assets" report shows that money fund assets rebounded from last week's losses of $13.5 billion. MMFs have now posted gains in 13 out of 15 weeks. ICI's weekly series shows Retail MMFs increasing $5.4 billion, or 0.5%, while Institutional MMFs gained $19.7 billion, or 1.1%. They write, "Total money market fund assets increased by $25.11 billion to $3.06 trillion for the week ended Wednesday, Feb. 6, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $12.74 billion and prime funds increased by $12.62 billion. Tax-exempt money market funds decreased by $248 million." Total Government MMF assets, including Treasury funds, stood at $2.314 trillion (75.6% of all money funds), while Total Prime MMFs reached $607.7 billion (19.8%). Tax Exempt MMFs totaled $141.1 billion, or 4.6%. ICI states, "Assets of retail money market funds increased by $5.42 billion to $1.19 trillion. Among retail funds, government money market fund assets increased by $1.63 billion to $697.35 billion, prime money market fund assets increased by $4.79 billion to $363.79 billion, and tax-exempt fund assets decreased by $1.00 billion to $130.95 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 58.5% of all Retail MMFs. The release concludes, "Assets of institutional money market funds increased by $19.69 billion to $1.87 trillion. Among institutional funds, government money market fund assets increased by $11.11 billion to $1.62 trillion, prime money market fund assets increased by $7.83 billion to $243.87 billion, and tax-exempt fund assets increased by $753 million to $10.14 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 86.4% of all Institutional MMF totals.

The Securities and Exchange Commission released its December "Money Market Fund Statistics" summary, which was delayed due to the Government shutdown. It shows that total money fund assets rose by $44.7 billion in December to $3.298 trillion. Prime MMFs gave up $7.5 billion to settle at $764.2 billion, while Govt & Treasury funds increased $45.8 billion to $2.384 trillion. Tax Exempt funds rose $6.5 billion to $149.7 billion. Yields rose for Prime, Government and Tax Exempt MMFs in December. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review the latest numbers below. Overall assets increased $44.7 billion, after growing $89.3 billion in November, and increasing $8.2 billion in October, $12.1 billion in September, $29.9 billion in August, and $15.2 billion in July. Total MMFs decreased by $51.8 billion in June, but increased by $45.6 billion in May and $31.0 billion in April. Over the 12 months through 12/31/18, total MMF assets increased $172.4 billion, or 5.5%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.) Of the $3.298 trillion in assets, $764.2 billion was in Prime funds, which declined by $7.5 billion after growing by $28.4 billion in November. Prime decreased $3.1 billion in October, but increased $13.9 billion in September, $31.2 billion in August and $24.3 billion in July. Prime funds represented 23.2% of total assets at the end of December. They've increased by $98.0 billion, or 14.7%, over the past 12 months, and they've increased by $213.8 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.) Government & Treasury funds totaled $2.384 trillion, or 72.3% of assets. They rose $45.8 billion in December, and were up $55.8 billion in November and up $8.3 billion in October, but down $1.9 billion in September, $1.8 billion in August, $4.4 billion in July, and $39.4 billion in June. Govt & Treas MMFs are up $59.1 billion over 12 months, or 2.5%. Tax Exempt Funds increased $6.5B to $149.7 billion, or 4.5% of all assets. The number of money funds was 370 in December, down 9 funds from the prior month. Yields for Taxable MMFs moved higher again in December, their 15th month in a row of increases. The Weighted Average Gross 7-Day Yield for Prime Funds on Dec. 31 was 2.60%, up 17 basis points from the previous month and up 1.08% from December 2017. Gross yields increased to 2.45% for Government/Treasury funds, up 0.17% from the previous month, and up 112 bps from December 2017. Tax Exempt Weighted Average Gross Yields rose to 1.76%; they've increased by 17 bps since 12/31/17. The Weighted Average Net Prime Yield was 2.42%, up 0.17% from the previous month and up 1.11% since 12/31/17. The Weighted Average Prime Expense Ratio was 0.19% in December (after sitting at 0.18% since April 30, 2018. Prime expense ratios are down by 2 bps over the past year. (Note: These averages are asset-weighted.) WALs and WAMs mostly declined in December. The average Weighted Average Life, or WAL, was 60.2 days (down 5.1 days from last month) for Prime funds, 88.3 days (up 1.3 days) for Government/Treasury funds, and 28.0 days (down 1.7 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 28.7 days (down 2.2 days from the previous month) for Prime funds, 30.6 days (unchanged) for Govt/Treasury funds, and 26.1 days (down 1.6 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 34.1% in December (up 1.7% from the previous month). Total Weekly Liquidity was 48.9% (up 0.9% from the previous month) for Prime MMFs. In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country, December 2018" table, the largest entries included: Canada with $123.3 billion, the U.S. with $92.4 billion, Japan with $83.0 billion, France with $53.8B, Australia/New Zealand with $40.2B), and the U.K. with $35.4B. Sweden ($33.4B), Switzerland ($23.9B), Germany ($23.1B), and the Netherlands ($15.6B), rounded out the top 10 countries. The gainers among the "Change in Prime MMF Bank-Related Securities, by Country" for the month included: Canada (up 20.0B), Japan (up $11.9B), the U.S. (up $9.5 billion), Switzerland (up $2.6B), Other (up $1.2B), Australia/New Zealand (up $1.1B), Singapore (up $851M), and Spain (up $703M). The `biggest drops came from Germany (down $16.5B), France (down $14.5B), the UK (down $13.9B), Sweden (down $9.7B), the Netherlands (down $8.2B), Belgium (down $4.7B), Norway (down $2.3B), and China (down $1.1B). The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $202.7B (down $66.2B from last month), while the Eurozone subset had $103.4B (down $42.8B). The Americas had $216.5 billion (up $29.7B), while Asia Pacific had $138.1 billion (up $13.3B). The "Trends in Prime MMF Portfolio Composition" chart shows that of the $764.2 billion in Prime MMF Portfolios as of Dec. 31, $245.8B (32.2%) was in CDs (down from $263.0B), $212.8B (27.9%) was in Government securities (including direct and repo) (up from $190.3B), $99.9B (13.1%) was held in Non-Financial CP and Other Short Term Securities (down from $106.6B), $149.1B (19.5%) was in Financial Company CP (down from $156.4B), and $55.2B (7.2%) was in ABCP (up from $51.9B). The Proportion of Non-Government Securities in All Taxable Funds was 17.3% at year-end, down 1.6% since November. All MMF Repo with the Federal Reserve zoomed to $39.6B in December from $2.5B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 36.0% were in maturities of 60 days and over (down from 40.7%), while 7.2% were in maturities of 180 days and over (down from 8.3%).

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Friday, Feb. 1, 2019, includes Holdings information from 64 money funds (down from 81 on Jan. 25, 2019), representing $1.132 trillion, compared to $1.411 trillion in the prior week. That represents 36.2% of the $3.124 trillion in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Jan. 11 News, "Jan. MF Portfolio Holdings: Treasuries, Repo Jump; FICC Biggest Repo.") Our latest Weekly MFPH Composition summary shows Government assets again dominated the holdings list with Repurchase Agreements (Repo) totaling $436.2 billion (a decline from $515.5 billion on Jan. 25), or 38.5% of holdings, Treasury debt totaling $374.3 billion (down from $452.1 billion), or 33.1%, and Government Agency securities totaling $204.9 billion (down from $262.9 billion), or 18.1%. Commercial Paper (CP) totaled $47.1 billion (down from $69.0 billion), or 4.2%, and Certificates of Deposit (CDs) totaled $38.8 billion (down from $50.2 billion), or 3.4%. A total of $12.7 billion or 1.1% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $17.7 billion, or 1.6%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $374.3 billion (33.1% of total holdings), Federal Home Loan Bank with $151.7B (13.4%), BNP Paribas with $49.3B (4.4%), RBC with $46.9B (4.1%), Federal Farm Credit Bank with $40.8B (3.6%), Fixed Income Clearing Co with $31.5B (2.8%), Credit Agricole with $29.4B (2.6%), HSBC with $24.1B (2.1%), Fidelity with $20.7B (1.8%), and Mitsubishi UFJ Financial Group Inc. with $20.6B (1.8%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($114.4B), Goldman Sachs FS Govt ($98.8B), BlackRock Lq FedFund ($85.2B), Wells Fargo Govt MMkt ($74.7B), BlackRock Lq T-Fund ($64.5B), Morgan Stanley Inst Liq Govt ($58.6B), Dreyfus Govt Cash Mgmt ($58.2B), Goldman Sachs FS Trs Instruments ($52.5B), Fidelity Inv MM: MMkt Port ($49.8B), and First American Govt Oblig ($42.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

A press release entitled, "Former General Electric Managing Director Matt McQuillen Joins Academy Securities" tells us, "Academy Securities, a registered broker-dealer, certified Disabled Veteran Business Enterprise (DVBE), and Minority Business Enterprise(MBE), today announced the addition of Matt McQuillen as Managing Director, Co-Head of Short-Term Liquidity. Mr. McQuillen will partner with Joseph Tarditi to run the firm's new Short-Term Liquidity desk.... Prior to joining Academy, Mr. McQuillen was Global Head of Short-Term Funding at General Electric with responsibility for the management and direct-issuance of GE Capital and GE Company's commercial paper programs." Chance Mims, CEO of Academy Securities, comments, "We are thrilled to welcome Matt to our team at Academy and pair him with Joe Tarditi. He has exceptional industry relationships and deep expertise in short-term funding that will complement Joe's expertise and will be extremely beneficial to our clients." McQuillen tells us, "I am honored and excited to join Academy and assist in its social mission. I look forward to building a best-in-class money market platform and serving the needs of investors and issuers in this space." Finally, Phil McConkey, President of Academy Securities, adds, "As Academy continues to expand its business, Matt and Joe will be vital additions to the money markets department."

The Wall Street Journal's "Intelligent Investor" column again takes a shot at lower-yielding cash options in its piece, "Raising Your Own Rates Even if the Fed Won't." Author Jason Zweig writes, "The Federal Reserve signaled on Wednesday that it will be 'patient' before raising interest rates again, but you should put your money in motion. In a few minutes and with a few clicks of a mouse, you can crank up the yield on your cash by two percentage points, often adding hundreds -- even thousands -- of dollars to your investment income annually. The only hard part is overcoming your own inertia." The Journal tells us, "The nearly $8 trillion of cash in savings deposits at commercial banks is earning interest at an average rate of 0.09%. The more than $1 trillion of cash at brokerage firms is paying investors just under 0.3% on average, estimates Peter Crane, president and publisher of Crane Data, a firm that monitors cash and other short-term investments. Meanwhile, savings accounts at online banks and short-term U.S. Treasury securities are yielding 2% to 2.5%.... In all likelihood, the only thing stopping you is you. Inertia may be the most powerful force in financial physics. Once you have cash in a bank or a brokerage account, moving it will tend to feel harder -- perhaps even 'riskier' -- than leaving it there. In what economists call 'the flypaper effect,' money tends to stick wherever it lands." Finally, Zweig adds, "Many money-market mutual funds are paying 2% and up. Although they aren't backed by the government, they hold short-term securities whose value tends to hold steady. (A money fund yielding much more than 2.5%, however, is probably taking excessive risk.) At Vanguard Group this week, taxable money-market funds were yielding between 2.31% and 2.48%, and tax-exempt money funds yielded 1.19% to 1.32%. Fidelity Investments and Charles Schwab Corp., among other firms, also offer money-market funds with attractive yields."

The Wall Street Journal writes, "World's Largest Money Market Fund Is Shrinking as It Battles Rival on Yields." They tell us, "Ant's flagship money-market fund, Tianhong Yu'e Bao, shrank by more than a third last year after Chinese regulators became concerned about its size and potential risk to the country's financial system. The fund's assets under management fell to 1.13 trillion yuan ($167 billion) at the end of 2018 from 1.69 trillion yuan in March, according to data provider Wind Information Co.... To control its size, the fund's manager imposed caps on inflows and lowered returns by reducing its holdings of hard-to-sell assets. And last year, Ant also added a dozen money-market funds from other asset managers to its online wealth-management platform to give customers other investing options. Then its rival appeared on the scene. Tencent Holdings Ltd., which owns China's other giant mobile payments network -- WeChat Pay -- last fall began offering a select group of users the opportunity to invest their spare cash in online money-market funds similar to Ant's Yu'e Bao, which translates to 'leftover treasure' in Chinese." The Journal adds, "In November, the country's central bank warned in an annual financial stability report that an unnamed large money-market fund could jeopardize the stability of the entire financial system—and society as a whole. Because so many people have invested in the fund, any problems it might have repaying investors could spark public anger and protests. Industry participants believe the People's Bank of China was referring to Ant's Tianhong Yu'e Bao fund." (For more, see our Jan. 30 News, "FT Says China'​s Ant Shrinks.")