Daily Links Archives: June, 2019

A press release entitled, "Credit Suisse issues inaugural Green Certificates of Deposit," tells us, "Credit Suisse today announces the successful inaugural issuance under its green finance framework, raising USD 200 million in proceeds in the form of green Yankee Certificates of Deposit ('YCD'). Given the growing interest from responsible and sustainability-driven investors in short-term money markets, Credit Suisse has issued green YCD in order to (re-)finance a portfolio of eligible green assets, while providing its investors with a debt instrument in the green finance space. This issuance builds on Credit Suisse's long-standing commitment to sustainable finance, exemplified by the establishment in 2017 of the Impact Advisory and Finance ('IAF') department. IAF aims to facilitate projects and initiatives that have a positive economic and social impact and generate a financial return. Reporting directly to the Chief Executive Officer, it coordinates activities across the Group. By enabling and advancing impact investing and sustainable business activities, IAF seeks to benefit wealth management, institutional and corporate clients." Marisa Drew, CEO, Impact Advisory and Finance department at Credit Suisse, comments, "Our inaugural green YCD issuance represents another exciting milestone for Credit Suisse in the green finance market and underscores our ambition to play a meaningful role in helping the world transition to a low-carbon economy. We are firmly committed to applying our expertise and innovation in the capital markets to help tackle climate change, all while helping our clients 'Generate returns. Sustainably'."

The Investment Company Institute's latest weekly "Money Market Fund Assets" shows that MMF assets rose for the 8th week in a row, increasing by $128.6 billion, or 4.2%, since April 17. Money fund assets have increased by $124 billion, or 4.1%, year-to-date, according to ICI's weekly series, rising to MMFs' highest level since February 2010. They write, "Total money market fund assets increased by $8.86 billion to $3.17 trillion for the week ended Wednesday, June 12, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $4.06 billion and prime funds increased by $5.97 billion. Tax-exempt money market funds decreased by $1.17 billion." ICI's weekly series shows Institutional MMFs rising $8.6 billion and Retail MMFs rising $0.3 billion. Total Government MMF assets, including Treasury funds, stood at $2.364 trillion (74.5% of all money funds), while Total Prime MMFs rose to $672.8 billion (21.1%). Tax Exempt MMFs totaled $134.9 billion, or 4.3%. ICI states, "Assets of retail money market funds increased by $277 million to $1.22 trillion. Among retail funds, government money market fund assets decreased by $1.10 billion to $695.67 billion, prime money market fund assets increased by $2.53 billion to $401.22 billion, and tax-exempt fund assets decreased by $1.15 billion to $125.28 billion." Retail assets account for over a third of total assets, or 38.5%, and Government Retail assets make up 56.9% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $8.58 billion to $1.95 trillion. Among institutional funds, government money market fund assets increased by $5.16 billion to $1.67 trillion, prime money market fund assets increased by $3.44 billion to $271.56 billion, and tax-exempt fund assets decreased by $16 million to $9.66 billion." Institutional assets accounted for 61.5% of all MMF assets, with Government Institutional assets making up 85.6% of all Institutional MMF totals.

A Prospectus Supplement filing for the $52 million SEI Daily Inc Trust Treasury Fund F (SEPXX) announces the "Liquidation of the Treasury Fund." It explains, "At a meeting of the Board of Trustees (the "Board") of SEI Daily Income Trust (the "Trust") held on April 23, 2019, the Board approved the liquidation of the Fund, a series of the Trust. The decision to liquidate was based on low asset levels in the Fund, which are not expected to increase in the future. Accordingly, the Fund will commence the orderly liquidation and distribution of its portfolio pursuant to a plan of liquidation approved by the Board. Each shareholder will receive its pro rata portion of the Fund's liquidation proceeds. It is currently expected that the liquidation proceeds of the Fund will be distributed to shareholders on or about June 27, 2019." SEI is the 28th largest manager of money market funds with $9.7 billion as of May 31, 2019 <b:>`_. (See also our April 9 Link of the Day, "SEI DIT Treasury Files Form N-CR.")

The Wall Street Journal's CFO Journal writes "U.S. Corporate Cash Piles Drop to Three-Year Low." They tell us, "U.S. corporate balance sheets continue to feel the impact of the 2017 U.S. tax overhaul, as companies pivot their capital allocation strategies in response to the new law. Companies funneled record amounts of cash to stock buybacks, dividends, capital spending and acquisitions last year. As a result, U.S. corporate cash holdings fell to a three-year low of $1.685 trillion in 2018, according to a report from Moody's Investors Service Inc. The drop in corporate cash hoards, the first since 2015, came as companies rushed to take advantage of lower taxes on foreign income." The piece explains, "Apple Inc., again the top cash holder, saw its cash pile drop 14% to $245 billion. Rounding up the top five were: Microsoft, Alphabet and newcomers Amazon.com and Facebook, which replaced Cisco Systems and Oracle in the top five. Combined, the five companies held $564 billion, or 33% of the total nonfinancial corporate cash balance, down from $675 billion, or 34% in 2017, according to the report, which looked at 928 U.S.-based, nonfinancial companies." The CFO Journal adds, "Many U.S. companies, particularly in the fast-growing technology sector, built up massive hoards of cash offshore as they opted to keep profits earned in foreign countries outside of the U.S. That strategy was largely motivated by U.S. tax law, which levied a 35% corporate tax, net of taxes paid in foreign jurisdictions, on money that companies chose to repatriate. But since the 2017 tax-law overhaul, which imposed a one-time tax on accumulated foreign profits, some companies have shifted tactics, bringing some or all of that money home. Companies sent $664.91 billion of their foreign earnings back to the U.S. in the form of dividend payments in 2018, up from $155.08 billion the year before, according to data from the U.S. Commerce Department."

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Tuesday, June 11, and we'll be writing our normal monthly update on the May 31 data for Friday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of May 31, 2019, includes holdings information from 1,178 money funds (nine fewer than last month), representing assets of $3.585 trillion (up from $3.502 trillion). We review the latest data, which shows that total money fund assets remained above $3.5 trillion and Prime MMF assets remained above $1.0 trillion in May. Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,178 billion (up from $1,120 billion on April 30), or 32.9% of all assets. Treasury holdings total $850.4 billion (down from $855.3B), or 23.7%, and Government Agency securities total $743.3 billion (up from $734.9 billion), or 20.7%. Commercial Paper (CP) totals $337.2 billion (up from $323.3 billion), or 9.4%, and Certificates of Deposit (CDs) total $242.9 billion (up from $237.8 billion), or 6.8%. The Other category (primarily Time Deposits) totals $129.4 billion (down from $130.2 billion), or 3.6%, and VRDNs account for $103.4 billion (up from $100.6B last month), or 2.9%. Broken out into the SEC's more detailed categories, the CP totals were comprised of: $197.0 billion, or 5.5%, in Financial Company Commercial Paper; $60.9 billion or 1.7%, in Asset Backed Commercial Paper; and, $79.4 billion, or 2.2%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($702.6B, or 19.6%), U.S. Govt Agency Repo ($434.8B, or 12.1%), and Other Repo ($40.7B, or 1.1%). The N-MFP Holdings summary for the 214 Prime Money Market Funds shows: CP holdings of $332.1 billion (up from $318.1 billion), or 32.9%; CD holdings of $242.9 billion (up from $237.8B), or 24.1%; Repo holdings of $171.9 billion (down from $172.4B), or 17.0%; Other (primarily Time Deposits) holdings of $85.2 billion (down from $86.6B), or 8.5%; Treasury holdings of $109.6 billion (down from $125.0B from last month), or 10.9%; Government Agency holdings of $60.2 billion (up from $55.1B), or 6.0%; and VRDN holdings of $6.1B (down from $6.6B), or 0.6%. The SEC's more detailed categories show CP in Prime MMFs made up of: $197.0 billion (up from $192.1 billion), or 19.5%, in Financial Company Commercial Paper; $60.9 billion, or 6.0%, in Asset Backed Commercial Paper; and, $74.2 billion, or 7.4%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($65.6B, or 6.5%), U.S. Govt Agency Repo ($65.6B, or 6.5%), and Other Repo ($40.7B, or 4.0%).

Barron's writes "Say Goodbye to Those 2% Rates on Savings." The article tells us, "Savers and investors can be forgiven if they are suffering from an extreme case of whiplash. Not long ago, they were counting on higher interest rates after years of near-zero returns on cash. Seemingly overnight, the conventional wisdom reversed. Markets are now betting that interest rates are about to fall for the first time since December 2008.... If the markets are right, rates could fall by three-quarters of a point over the next year, taking federal funds to a range of 1.5% to 1.75% from their current 2.25% to 2.5%. That would have wide-ranging consequences for stocks, bonds, and savings vehicles like money market funds." The piece adds, "Money-market funds holding short-term commercial paper and government securities would quickly yield less if the Fed cuts rates. Yields would also fall for checking and savings accounts. Retail money-market funds yield an average of 2%, according to Crane Data. Online savings accounts tend to pay a bit more. Salem Five Direct recently advertised a 2.51% yield.... BBVA Compass accounts yield 2.4%.... Those yields might edge back down to 1% in a falling-rate climate."

The Investment Company Institute's latest weekly "Money Market Fund Assets" shows that MMF assets rose for the 7th week in a row, increasing by $119.7 billion, or 3.9%, since April 17. Money fund assets have increased by $115 billion, or 3.5%, year-to-date, according to ICI's weekly series, rising to MMFs' highest level since February 2010. They write, "Total money market fund assets increased by $14.26 billion to $3.16 trillion for the week ended Wednesday, June 5, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $9.38 billion and prime funds increased by $5.66 billion <b:>`_. Tax-exempt money market funds decreased by $783 million." ICI's weekly series shows Institutional MMFs rising $8.4 billion and Retail MMFs rising $5.9 billion. Total Government MMF assets, including Treasury funds, stood at $2.360 trillion (74.6% of all money funds), while Total Prime MMFs rose to $666.8 billion (21.1%). Tax Exempt MMFs totaled $136.1 billion, or 4.3%. ICI states, "Assets of retail money market funds increased by $5.86 billion to $1.22 trillion. Among retail funds, government money market fund assets increased by $3.12 billion to $696.77 billion, prime money market fund assets increased by $3.56 billion to $398.70 billion, and tax-exempt fund assets decreased by $809 million to $126.43 billion." Retail assets account for over a third of total assets, or 38.6%, and Government Retail assets make up 57.0% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $8.40 billion to $1.94 trillion. Among institutional funds, government money market fund assets increased by $6.26 billion to $1.66 trillion, prime money market fund assets increased by $2.10 billion to $268.12 billion, and tax-exempt fund assets increased by $27 million to $9.68 billion." Institutional assets accounted for 61.4% of all MMF assets, with Government Institutional assets making up 85.7% of all Institutional MMF totals.

CNBC writes "There's a drawback to the Fed rate cuts the market so craves: It could wreck bank earnings." The article explains, "Traders are begging the Federal Reserve for several rate cuts this year to salvage an economy they see set to slow significantly because of worsening trade disputes. The market cheered this week when Fed Chairman Jerome Powell opened the door to the possibility. But if the central bank did cut rates, a group of important stocks to the market would suffer. Large-cap banks could see their earnings on a per share basis decline by 10%, on average, if the Fed lowers rates by 75 basis points, according to Bank of America Merrill Lynch." It explains, "Bank margins could take a hit if they are paying out deposit rates at a higher level than market rates. Their earnings are also hurt when the spread between short-term and long-term rates flattens, a phenomenon that could worsen if the Fed cuts.... Traders are pricing in a more than 90% chance of a September rate cut and about 60% probability of three rate cuts this year, according to the CME FedWatch tool. Bank of America's economists believe there will be three reductions by early next year. Barclays now also expects a 75 basis point cut this year."

The ASPPA (American Society of Pension Professional & Actuaries) website features the news brief, "Supremes Pass on Stable Value Suit," which says, "It's often said that 'if at first you don't succeed, try, try again.' But that didn't work for the plaintiffs in a suit challenging the use of a money market fund, rather than a stable value option. The plaintiffs here have been 'trying' since February 2016, when they, represented by the St. Louis-based litigation powerhouse Schlichter, Bogard & Denton, first challenged the $19 billion Chevron plan's decision to offer the Vanguard Prime Money Market Fund, rather than a lower-cost and better-performing stable value fund. As other, similar lawsuits have alleged, they also claimed that the plan used more expensive retail share class funds, rather than institutional shares or collective trusts." The piece explains, "In January, they had (unsuccessfully) asked the full Ninth Circuit to consider their case.... The plaintiffs argue that the Seventh and Eighth Circuits hold it is, and that the Fifth Circuit and the Ninth 'agree with the principles underlying those decisions' – and thus that the previous Chevron decision is in conflict, not only with those decisions, but with decisions in the Ninth Circuit itself. 'The panel imposed the wrong standard, an impermissibly strict standard, which the Court en banc should correct,' they argued. However, that argument proved to be unpersuasive – and so, they appealed to the U.S. Supreme Court – claiming that the Ninth Circuit's decision was at odds with decisions of the Second, Fifth, Seventh, and Eighth circuits, not to mention position of the Labor Department. However, the `nation's high court announced May 28 that they wouldn’t be reviewing the case. All of which means, of course, that the Ninth Circuit's rejection of the plaintiffs' case stands – basically a finding that the participants' assertion that Chevron acted in its own interests and Vanguard's interests rather than the participants' interests was 'entirely speculative' and 'unsupported by any facts.' The case is White v. Chevron Corp., U.S., No. 18-1271, certiorari denied 5/28/19."

Yahoo Finance writes "Secure Income for Fidelity Investors," which tells us, "With most things in life, perspective is everything, asserts mutual fund expert John Bonnanzio; here, the editor of Fidelity Monitor & Insight looks at fixed-income funds in the Fidelity family. With the average Fidelity stock fund up almost 19% this year, the 1.3% return of Fidelity Conservative Income Bond (FCONX) doesn't seem particularly alluring. Likewise, Fidelity U.S. Bond Index (FXNAX), up 2.9%, feels like another comparative laggard. While Conservative Income's performance is far from eye-catching, when this ultrashort-term bond fund is used as an alternative to a money market fund (which is how we use it in our Growth & Income and Income Model portfolios), its appeal becomes apparent, especially for income-oriented investors and those who are nervous about stocks and bonds alike." The update adds, "Between December 2016 and December 2018, the Fed raised rates seven times from 0.25% to the current 2.50%. As money market funds only hold very short-term 'paper,' their yields move in near-perfect sync with the Federal Funds target rate. During that same period, for example, the yield on Money Market (Fidelity's only 'prime' fund that's available to retail investors) rose from a bare-bones 0.54% to its current 2.23%. For the foreseeable future, however, yields on both money funds and ultrashort-term bond funds are likely staying put.... While it's the case that yields on money funds and Conservative Income -- and its tax-free counterpart Fidelity Conservative Income Municipal Bond Fund (FUEMX) -- have barely budged, further out on the yield curve fixed-income investors are hardly being paid much of a yield premium for assuming additional interest-rate risk."

AssetTV features the brief, "Is Now the Time to Step Out of Cash?" The description says, "Chris Nicholson, VP of Product Management at PGIM Investments, provides an overview of the firm's investment strategies across the global markets. Nicolson considers the outlook for the Federal Reserve and the ideal timing for adding duration to bond portfolios." Nicholson comments on the video, "Over the last year or so, it's pretty interesting actually. Flows have reversed course from what would have long been considered trend in the industry. Cash and cash substitutes have really garnered a lot of the flows.... For instance, taxable money markets, both Prime and Govt MMFs, as well as ultra-short bond funds, have garnered over $325 billion in flows over the last 12 months.... Intermediate term bond fund strategies have only gathered $28 billion in flows." He adds, "Going into last year and up until the end of the year, Dec. '18, the Fed looked like they were going to continue along their tightening policy.... That's really changed; they reversed course considerably.... Going back in history, if you look at the last 4 hiking cycles … each time where they have paused, within the next 15 months the next move ... was a cut.... Interestingly, post the last hike ... what we've noticed is that long-term interest rates, as well as short-term rates, have both fallen.... As a result, both short-term bonds and intermediate-term bonds, have outperformed cash."