Daily Links Archives: July, 2021

A release entitled, "Federated Hermes, Inc. reports second quarter 2021 earnings," tells us, "Money market assets were $429.8 billion at June 30, 2021, down $27.8 billion or 6% from $457.6 billion at June 30, 2020 and up $10.7 billion or 3% from $419.1 billion at March 31, 2021. Money market fund assets were $302.0 billion at June 30, 2021, down $42.8 billion or 12% from $344.8 billion at June 30, 2020 and up $4.8 billion or 2% from $297.2 billion at March 31, 2021.... Revenue decreased $49.7 million or 14% primarily due to an increase in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers) and a decrease in revenue due to lower average money market assets. For further information on the waivers, see 'Impact of voluntary yield related fee waivers' below. These decreases were partially offset by an increase in revenue due to higher average equity and fixed-income assets. During Q2 2021, Federated Hermes derived 83% of its revenue from long-term assets (55% from equity assets, 19% from fixed-income assets and 9% from alternative/private markets and multi-asset), 16% from money market assets, and 1% from sources other than managed assets. Operating expenses decreased $34.2 million or 13% primarily due to decreased distribution expenses predominantly resulting from higher voluntary yield-related fee waivers." Federated adds, "During the three and six months ended June 30, 2020, voluntary yield-related fee waivers totaled $19.7 million and $20.1 million, respectively. These fee waivers were largely offset by related reductions in distribution expenses of $17.7 million and $18.0 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $2.0 million and $2.1 million for the three and six months ended June 30, 2020, respectively. Short-term interest rates continued to hover near historic lows during Q2 2021 as technical factors at the front end of the yield curve kept yields on short-term government securities -- including repurchase agreements and Treasury bills -- just above zero. At their June Federal Open Market Committee meeting, the Federal Reserve increased the Reverse Repo Facility and the Interest on Excess Reserves rates by 5 basis points each, to 5 and 15 basis points, respectively. As a result, the negative impact on pre-tax income from minimum yield waivers on money market mutual funds and certain separate accounts may be approximately $38 million during Q3 2021. The amount of minimum yield waivers can vary based on a number of factors, including, among others, interest rates, yields, asset levels, asset flows and the ability of distributors to share in waivers. Any change in these factors can impact the amount and level of minimum yield waivers, including in a material way.... Federated Hermes will host an earnings conference call at 9 a.m. Eastern on July 30, 2021. Investors are invited to listen to the earnings teleconference by calling 877-407-0782 ... prior to the 9 a.m. start time. To listen online, go to the Investor Relations section and the Analyst Information tab of `FederatedHermes.com at least 15 minutes prior to register and join the call."

The Financial Times writes, "US Treasury market needs urgent reform, warn former policymakers." The article states, "The $22tn market for US government debt risks being rattled by frequent bouts of dysfunction that threaten global financial stability unless urgent reforms are made to enhance liquidity, according to a group of heavyweight former policymakers. A consortium that includes former US Treasury secretaries Timothy Geithner and Larry Summers as well as retired central bankers such as the Bank of England's Mervyn King on Wednesday proposed sweeping changes to how Treasuries are traded, regulated and backstopped by the Federal Reserve. Their [Group of 30] report, which was also backed by Bill Dudley, the former president of the New York Fed, and Axel Weber, the Bundesbank president turned UBS chair, said the reforms were needed to ensure the biggest, deepest and most essential bond market is able to function smoothly -- especially during periods of acute stress." The FT adds, "One such proposal is for the Fed to establish a permanent facility, which would allow eligible market participants to swap Treasuries for cash at a rate that discouraged frequent use when markets are functioning normally without causing stigma when used at times of stress. That would help to limit demands for market liquidity when it is most scarce, as investors would have an alternative to selling their holdings, the G30 said. The group said that the 'standing repo' facility was the 'single most important near-term measure' that policymakers should adopt. Along with another facility designed for foreign counterparties, it has recently been endorsed by the Fed. The US central bank began sketching out potential designs at its June policy-setting meeting."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of July 23, 2021) includes Holdings information from 63 money funds (down 3 funds from a week ago), which represent $1.900 trillion (down from $2.236 trillion) of the $4.949 trillion (38.4%) in total money fund assets tracked by Crane Data. (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 totaling $944.4 billion (down from $1.035 trillion a week ago), or 49.7%, Repurchase Agreements (Repo) totaling $686.5 billion (down from $815.3 billion a week ago), or 36.1% and Government Agency securities totaling $152.6 billion (down from $198.1 billion), or 8.0%. Commercial Paper (CP) totaled $44.2 billion (up from $62.1 billion), or 2.3%. Certificates of Deposit (CDs) totaled $20.5 billion (up from $44.4 billion), or 1.1%. The Other category accounted for $31.7 billion or 1.7%, while VRDNs accounted for $20.1 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $944.4 billion (49.7% of total holdings), Federal Reserve Bank of New York with $251.1B (13.2%), Federal Home Loan Bank with $59.9B (3.2%), Fixed Income Clearing Corp with $58.7B (3.1%), Federal Farm Credit Bank with $45.1B (2.4%), BNP Paribas with $40.6B (2.1%), RBC with $38.5B (2.0%), JP Morgan with $29.7B (1.6%), Barclays with $27.3B (1.4%) and Federal National Mortgage Association with $24.0B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($199.9 billion), BlackRock Lq FedFund ($178.1B), Wells Fargo Govt MM ($151.3B), Morgan Stanley Inst Liq Govt ($134.1B), Federated Hermes Govt ObI ($125.8B), BlackRock Lq T-Fund ($116.8B), BlackRock Lq Treas Tr ($109.1B), Goldman Sachs FS Treas Instruments ($95.2B), First American Govt Oblg ($87.7B) and State Street Inst US Govt ($85.3B). (See our July 13 News, "July MF Portfolio Holdings: Repo Surge Again on RRP; T-Bills Plunge" for more, and 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.)

First American Funds' "Quarterly Portfolio Manager Commentary" talks about "major factors influencing money market funds this quarter." They write, "The second quarter of 2021 continued on a positive tone with COVID-19 vaccinations gaining momentum, strong economic data and overall market optimism continuing to spread. However, front-end yields remained challenged as technical forces pushed additional cash into the system coupled with the FOMC's stimulative monetary policy. The money market industry remained flush with cash while U.S. Treasury bill and Repo levels remained entrenched at the bottom of the FOMC's fed funds rate target. The Fed made key technical adjustments to the IOER and RRP, providing five bps of rate relief as the RRP continued to absorb excess cash with the facility nearing $1 trillion by quarter end." Discussing the First American Prime Obligations Fund,the U.S. Bancorp Asset Management PMs explain, "Credit spreads remain tight, reflecting the trading ranges and yields one should expect in the current low rate environment. Considering an uncertain regulatory backdrop, a flat yield curve and a conservative approach to cash flows, the fund was positioned with strong portfolio liquidity metrics influenced by fund shareholder makeup. Management continued to employ a heightened credit outlook maintaining positions presenting minimal credit risk to the fund's investors. Under the current market conditions, the main investment objective was to maintain liquidity and judiciously and opportunistically enhance portfolio yield based on our economic, investor cash flow, credit and interest rate outlook. We believe the credit environment and relative fund yields make the sector an appropriate short-term option for investors." On the First American Government and Treasury Funds, they comment, "Treasury and government funds continued to see inflows as monetary system cash balances grew. Treasury Bill / Note supply decreases resulting from the reduction in U.S. Treasury general account pushed Government-Sponsored Enterprise (GSE) and Treasury yields to a trading range near the bottom of the FOMC's fed funds target. Management continued to focus on securing incremental long-term yield when rangebound trading opportunities arose, seeing little downside to extension, anticipating a low yield environment for the foreseeable future. Throughout the quarter, we also capitalized on opportunities in floating-rate investments that made economic sense and felt would benefit shareholders over the securities holding period. We anticipate that investment strategy will remain constant until we near the end of the Fed accommodation cycle." Finally, they state, "In the coming quarters, yields will stay depressed as the U.S. progresses through the impacts of the COVID-19 pandemic and the FOMC's commitment to easy monetary policy. It appears the yield on non-government debt has bottomed, but supply / demand imbalances resulting from excess system liquidity could push yields marginally lower. We believe that prime money market fund yields are near a floor as pre-pandemic holdings have matured and the Fed has re-established a floor on short-term yields. The institutional and retail prime obligations funds will remain reasonable short-term investment options for investors seeking higher yields on cash positions while assuming minimal credit risk. Yields in the GSE and Treasury space will remain influenced by Fed policy and Treasury bill / note supply.... Management will continue to capitalize on investment opportunities, in all asset classes and indexes, based on domestic and global economic market data as well as changes to Fed rate expectations."

The Wall Street Journal recently wrote, "Money-Market Funds Buckled in Two Crises in a Row. Regulators Look to Fix Them Again." The article comments, "The start of the Covid-19 pandemic led to a familiar wave of stress in money-market funds, which companies and consumers use like checking accounts to store their ready cash. The Federal Reserve had to step in to keep these funds operating. It was a dysfunction that wasn't meant to happen. Several rounds of reforms globally had aimed to strengthen money-market funds after they buckled during the 2008 financial crisis. Now the Financial Stability Board, which brings together regulators from around the world, has proposed another round of changes in an attempt to minimize the likelihood that central banks ever have to step in and support markets. The FSB, which is chaired by Randal Quarles, the Fed's vice-chair for supervision, is focusing on reforms that would discourage investors from pulling out cash at times of stress, or ensure the private-sector, not taxpayers, support funds in a liquidity crisis. The latter could include requiring money funds to be backed by equity capital in the way that banks are -- although similar proposals have been rejected before. To discourage investors from running, other proposals would discount the value of shares in money funds when lots of investors all want to cash them in simultaneously." The Journal piece continues, "The rush out of prime funds in March 2020 caused a crunch in short-term corporate debt. Borrowing costs in this market rose to their highest levels since 2008, according to the President's Working Group on Financial Markets, which combines the Treasury, Securities and Exchange Commission, Federal Reserve and Commodity Futures Trading Commission.... Some money-market fund managers think any fixes are bound to fail unless broader problems are addressed concerning the ease with which they can trade short-term debts. 'Money-market funds are only part of the puzzle,' said David Callahan, head of money markets at Lombard Odier Investment Managers.'" They also quote, "J. Christopher Donahue, chief executive of Federated Hermes, a major money-market fund manager, said the Fed needs to play a part. The central bank could facilitate trading by allowing lenders to swap unwanted paper from good companies at the Fed's discount window for cash at any time, without stigma. 'It will never happen that the Fed won’t have a role when market players have a crisis,” said Mr. Donahue.'"

ICI's latest weekly "Money Market Fund Assets" report shows MMFs rebounding after six weeks of declines. The release says, "Total money market fund assets1 increased by $7.16 billion to $4.49 trillion for the week ended Wednesday, July 21, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $9.22 billion and prime funds decreased by $1.09 billion. Tax-exempt money market funds decreased by $970 million." Money fund assets are up by $190 billion, or 4.4%, year-to-date in 2021. Inst MMFs are up $288 billion (10.4%), while Retail MMFs are down $99 billion (-6.5%). ICI's stats show Institutional MMFs increasing $8.5 billion and Retail MMFs decreasing $1.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.914 trillion (87.2% of all money funds), while Total Prime MMFs were $480.0 billion (10.7%). Tax Exempt MMFs totaled $92.7 billion (2.1%). Over the past 52 weeks, money fund assets have decreased by $102 billion, or -2.2%, with Retail MMFs falling by $114 billion (-7.4%) and Inst MMFs rising by $13 billion (0.4%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.) ICI explains, "Assets of retail money market funds decreased by $1.31 billion to $1.43 trillion. Among retail funds, government money market fund assets increased by $734 million to $1.12 trillion, prime money market fund assets decreased by $1.56 billion to $225.55 billion, and tax-exempt fund assets decreased by $482 million to $80.40 billion." Retail assets account for just under a third of total assets, or 31.8%, and Government Retail assets make up 78.6% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $8.47 billion to $3.06 trillion. Among institutional funds, government money market fund assets increased by $8.48 billion to $2.79 trillion, prime money market fund assets increased by $473 million to $254.43 billion, and tax-exempt fund assets decreased by $488 million to $12.33 billion." Institutional assets accounted for 68.2% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.

We continue to read and quote responses to the European Securities and Markets Authority's (ESMA's) "Consultation on EU Money Market Fund Regulation - Legislative Review." Today, we cite ICI's letter. They write, "The Investment Company Institute (ICI), including ICI Global, appreciates the opportunity to provide its views on the European Securities and Markets Authority Consultation Report on EU Money Market Fund Regulation -- Legislative Review. Individuals and institutions rely on the $8.5 trillion global money market fund industry as a low cost, efficient, transparent, cash management vehicle that offers market-based rates of return.... The reform option presented in the consultation document that has the most potential for addressing ESMA and other policymakers' concerns while preserving key characteristics of money market funds is removing the tie between money market fund liquidity and fee and gate thresholds. The regulatory tie between liquidity and fee and gate thresholds made money market funds more susceptible to financial market stress in March 2020 and would likely do so in future periods of stress. ICI's data supports the conclusion that this regulatory tie was likely a dominant trigger for redemptions as opposed to the conditions or structure of the funds. On the other hand, reforms such as swing pricing or the option to eliminate constant net asset value (CNAV) funds (i.e., require all money market funds to float their net asset values (NAVs)) are reforms with significant drawbacks, ranging from potential detrimental impacts on money market funds, their investors, and the market to regulatory, structural, and operational barriers to implement." The letter continues, "ICI and its members are committed to working with international policymakers to strengthen the money market fund industry for the benefit and further protection of investors and the performance of broader financial markets and the economy more generally. Although many of our responses are mainly based on the experiences of US money market funds during the COVID-19 crisis, we hope they will still be helpful to ESMA as it considers how best to advance toward this important policy goal." On eliminating CNAV (constant NAV) funds, ICI responds, "ICI is highly skeptical that requiring all money market funds (such as retail prime in the United States and LVNAV funds in Europe) to float their NAVs would reduce risks in any meaningful way. A floating NAV did not stop heavy redemptions in March 2020 for US institutional floating NAV prime money market funds or certain European VNAV money market funds. Indeed, the other features of these funds and the nature of the short-term funding market itself still make certain money market funds susceptible to sudden, high redemption requests. First, a floating NAV does not alter investors' views about whether money market funds are low risk-investments. Under normal conditions, the shadow prices of stable (constant) NAV money market funds and the market prices of floating NAV money market funds' portfolios generally deviate very little from $1.00. This is simply a reflection of the fact that all money market funds invest in very short-term, high-quality, fixed-income securities and the price of these securities deviates little from their amortized cost value absent a large interest rate movement or credit event. Regardless of their valuation method, money market funds continue to be exposed to interest rate and credit risk. When risk intolerant investors seek to move away from certain funds or broad sectors of the markets during future crises, the transition would continue to be potentially disruptive." Finally, they comment, "Over ten years ago, ICI developed a preliminary framework for a private liquidity facility, including how it could be structured, capitalized, governed, and operated. Our framework also described many draw-backs, limitations, and challenges to creating a private liquidity facility, including its substantial initial and ongoing costs and vast regulatory complexity. In 2014, the SEC adopted different money market fund reforms, including a floating NAV requirement for all prime and tax-exempt money market funds sold to institutional investors and new fee and gate tools for all prime and tax-exempt money market funds, including retail funds. As a result of those reforms, the prime money market fund industry, including the number of prime fund sponsors, substantially shrunk.... Today, the US prime money market fund industry is vastly more concentrated -- with total net assets of $503 billion among just 26 sponsors as of April 30, 2021. Given the significant costs and other challenges of establishing a viable liquidity facility that could provide meaningful liquidity for money market funds in stress events, ICI members have indicated that they would simply stop sponsoring money market funds if membership to a liquidity facility was required."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of July 16, 2021) includes Holdings information from 66 money funds (up 20 funds from 2 weeks ago), which represent $2.236 trillion (up from $1.743 trillion) of the $4.949 trillion (45.2%) in total money fund assets tracked by Crane Data. (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 totaling $1.035 trillion (up from $883.2 billion a week ago), or 46.3%, Repurchase Agreements (Repo) totaling $815.3 billion (up from $573.2 billion a week ago), or 36.5% and Government Agency securities totaling $198.1 billion (up from $140.6 billion), or 8.9%. Commercial Paper (CP) totaled $62.1 billion (up from $45.8 billion), or 2.8%. Certificates of Deposit (CDs) totaled $44.4 billion (up from $42.0 billion), or 2.0%. The Other category accounted for $57.7 billion or 2.6%, while VRDNs accounted for $23.6 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.035 trillion (46.3% of total holdings), Federal Reserve Bank of New York with $319.9B (14.3%), Federal Home Loan Bank with $95.0B (4.2%), Fixed Income Clearing Corp with $59.2B (2.6%), BNP Paribas with $54.9B (2.5%), Federal Farm Credit Bank with $47.4B (2.1%), RBC with $40.8B (1.8%), JP Morgan with $38.9B (1.7%), Federal National Mortgage Association with $37.5B (1.7%) and Barclays with $30.2B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($240.8 billion), BlackRock Lq FedFund ($180.2B), Wells Fargo Govt MM ($150.6B), Morgan Stanley Inst Liq Govt ($139.6B), Fidelity Inv MM: Govt Port ($132.8B), BlackRock Lq T-Fund ($118.3B), Dreyfus Govt Cash Mgmt ($113.2B), BlackRock Lq Treas Tr ($109.2B), JPMorgan 100% US Treas MMkt ($101.5B) and State Street Inst US Govt ($88.4B). (See our July 13 News, "July MF Portfolio Holdings: Repo Surge Again on RRP; T-​Bills Plunge" for more, and 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.)

Wells Fargo Money Market Funds' latest "Overview, strategy, and outlook" tells us, "The hawkish lean that came out of the mid-June Federal Reserve (Fed) meeting, discussed in greater detail in the prime section below, drew a lot of attention, but the result that was least important to most observers was the most important to the money markets: the Fed's 5-basis-poin ... tweak higher to its administered rates. The Fed moved its reverse repurchase agreement (RRP) rate from 0.00% to 0.05% and its interest on excess reserves rate from 0.10% to 0.15%. In the process, it threw a lifeline to short-term investors who were faced with investing more and more of their cash at a zero yield. We had noted the increasingly dire conditions in the money markets in our past few commentaries, with Treasury bill (T-bill) supply falling, the Treasury's cash balance shrinking, and usage of the Fed's RRP facility leaping to new records each week." They write, "In the previous period of regular RRP usage from 2013 to 2018, during which rates were first set at zero before limping ahead in a gentle liftoff, usage rarely exceeded $200 billion per day except for quarter-end reporting dates, which saw bumps as high as $474 billion. Before May 2021, RRP usage had topped $400 billion only four times.... In June 2021, the lowest amount taken was $438 billion on June 3, the average for the month was $642 billion, and usage peaked at $992 billion on June 30. The vast sums placed with the Fed through the RRP represent the excess of demand over supply in the space and bode ill for the near-term outlook. The extra cash waiting to be deployed will be quickly put to work on anything that yields more than 0.05%, making 0.05% not just the Fed's floor but also the general level for short-term government investments." Wells' PMs add, "To summarize, while the bad news is that rates are pinned to the RRP level, the good news is they're pinned at 0.05% instead of zero. Call the outlook 'dire plus 5 bps.'"

BlackRock released its largest earnings and hosted its Q2'21 earnings call last week, and money funds and fee waivers were mentioned a few times. CFO Gary Shedlin comments, "Second quarter base fee and securities lending revenue of $3.8 billion was up 27% year-over-year, primarily driven by the positive impact of market beta on average AUM and strong organic base fee growth, partially offset by higher discretionary money market fee waivers, lower securities lending revenue and strategic pricing investments over the last year. Sequentially base fee and securities lending revenue was up 5%. However, our effective fee rate was down 0.3 basis points, as strong organic base fee growth driven by our higher fee active businesses and the impact of one additional day in the current quarter were more than offset by higher discretionary money market fee waivers and the impact of divergent equity beta in the quarter." He explains, "During the second quarter, we incurred approximately $165 million of gross discretionary yield support waivers driven in part by continued strong flows into our U.S. government money market funds. While the Fed's recent technical adjustments to the IOER and RRP have modestly helped, we still expect discretionary fee waivers to persist at or around current levels for the new term. However, future levels of discretionary fee waivers may also be impacted by several additional factors, including the level of AUM and funds with existing waivers, gross yields and competitive positioning." Shedlin adds, "Finally, BlackRock's cash management platform continued to grow, generating $23 billion of net inflows in the second quarter, driven by both prime and U.S. government money market funds. Despite facing net zero returns in both the U.S. and Europe, client demand for cash strategies remained strong, given the significant liquidity in the financial system and by helping clients manage their cash, we are building broader and deeper strategic relationships."

ICI's weekly "Money Market Fund Assets" report shows MMFs falling for the sixth week in a row, a decline of $132.3 billion since June 2. Their latest release says, "Total money market fund assets decreased by $30.99 billion to $4.48 trillion for the week ended Wednesday, July 14, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $26.71 billion and prime funds decreased by $4.12 billion. Tax-exempt money market funds decreased by $167 million." Money fund assets remain up by $183 billion, or 4.2%, year-to-date in 2021. Inst MMFs are up $280 billion (10.1%), while Retail MMFs are down $97 billion (-6.4%). ICI's stats show Institutional MMFs decreasing $25.9 billion and Retail MMFs decreasing $5.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.905 trillion (87.2% of all money funds), while Total Prime MMFs were $481.1 billion (10.8%). Tax Exempt MMFs totaled $93.7 billion (2.1%). Over the past 52 weeks, money fund assets have decreased by $89 billion, or -1.9%, with Retail MMFs falling by $116 billion (-7.5%) and Inst MMFs rising by $27 billion (0.9%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.) ICI explains, "Assets of retail money market funds decreased by $5.05 billion to $1.43 trillion. Among retail funds, government money market fund assets decreased by $3.36 billion to $1.12 trillion, prime money market fund assets decreased by $1.51 billion to $227.12 billion, and tax-exempt fund assets decreased by $179 million to $80.88 billion." Retail assets account for just under a third of total assets, or 31.9%, and Government Retail assets make up 78.4% of all Retail MMFs. ICI adds, "Assets of institutional money market funds decreased by $25.94 billion to $3.05 trillion. Among institutional funds, government money market fund assets decreased by $23.35 billion to $2.78 trillion, prime money market fund assets decreased by $2.60 billion to $253.96 billion, and tax-exempt fund assets increased by $13 million to $12.81 billion." Institutional assets accounted for 68.1% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.

Another entry to the "Response form for the Consultation Paper on the EU Money Market Fund Regulation – legislative review" comes from online money market fund trading portal ICD. Their comment letter to European regulators says, "Institutional Cash Distributors (ICD), LTD is a UK-based entity providing an agnostic investment portal to institutional investors, namely treasury professionals in corporations and local authorities who use money market funds and other short-term instruments as safe, liquid investments for cash balances. Our trading platform is used by more than 400 clients across 65 industries in 43 countries. In the U.S., ICD is head-quartered in San Francisco as Institutional Cash Distributors, LLC. ICD brings together institutional investors with more than 40 fund companies offering money market products. We service over $5 trillion in money market trading annually across the UK, Europe and the U.S. It is from this vantage point that ICD offered comments to the Securities Exchange Commission in response to their Request for Comment on Potential Money Market Fund Reform Measures in the President's Working Group Report (File No. S7-01-21) and to the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) during a 21 April 2021 Virtual Stakeholder Outreach Meeting on Enhancing the Resilience of Money Market Funds. ICD was the only money market trading portal invited from the private sector to take part in that meeting." The comment explains, "From our unique vantage point today, we respond to ESMA's Consultation Report: EU Money Market Fund Regulation – legislative review. In short, ICD believes that by looking at the U.S., ESMA already has evidence that funds perform worse where reforms have been enacted for eliminating stable NAV and strengthening the tie between liquidity and suspensions or gates. In responding to ESMA, ICD has addressed select questions on these areas of reform and their impact on the resilience of money market funds, the effects on investor behavior, effects on fund managers, and the broader impacts on stability and functioning of short-term markets." It adds, "ICD supports decoupling regulatory thresholds from suspensions/gates. When the commercial paper market seized in mid-March 2020 in the U.S, prime MMFs had ample liquidity to cover significant redemptions. As redemptions outpaced purchases, however, the weekly liquid assets (WLA) of some funds were heading towards 30%. Many of our clients decided to redeem their prime MMFs because they were concerned a gate would be imposed if weekly liquidity fell below 30%. From an early March high, our client average daily balance of U.S. Prime assets on ICD Portal dropped 80% by the middle of that month. In Europe, where the fees and gates provision are less onerous, the outflows and asset rotation from our platform was not as significant, decreasing 30% over that same period. A more direct tying of fees and gates to 30% liquidity in the U.S. caused greater stress around the market liquidity crisis. Further decoupling would make it much easier for MMFs to tap into that liquidity buffer should they need to do so. If there are still concerns about liquidity, increasing liquidity buffers could help offset some of the concerns around the potential to drop below thresholds and enable funds to dip into those liquidity buffers more regularly."

Earlier this month, Fitch Ratings published the piece, "Stablecoins Could Pose New Short-Term Credit Market Risks." They explain, "The rapid growth of stablecoin issuance could, in time, have implications for the functioning of short-term credit markets, says Fitch Ratings. Potential asset contagion risks linked to the liquidation of stablecoin reserve holdings could increase pressure for tighter regulation of the nascent sector. Contagion risks are primarily associated with collateralised stablecoins, varying based on the size, liquidity and riskiness of their asset holdings, as well as the transparency and governance of the operator, among other things. Fewer risks are posed by coins that are fully backed by safe, highly liquid assets, although authorities may still be concerned if the footprint is potentially global or systemic.... [S]tablecoins that use fractional reserves or adopt higher-risk asset allocation may face a greater run risk. For instance, Tether, the largest stablecoin issuer, has disclosed that as of 31 March 2021 it held only 26.2% of its reserves in cash, fiduciary deposits, reverse repo notes and government securities, with a further 49.6% in commercial paper (CP)." The piece comments, "Tether's CP holdings amounted to USD20.3 billion as of 31 March, while its consolidated assets totalled USD41 billion, and may be rising rapidly; total assets associated with its US-dollar linked stablecoin (USDT) reached USD62.8 billion on 28 June. These figures suggest its CP holdings may be larger than those of most prime money market funds (MMF) in the US and EMEA. A sudden mass redemption of USDT could affect the stability of short-term credit markets if it occurred during a period of wider selling pressure in the CP market, particularly if associated with wider redemptions of other stablecoins that hold reserves in similar assets. Run risks were highlighted when a partially collateralised stablecoin, Iron, broke its peg in June. The Diem US-dollar stablecoin, which the Facebook-backed Diem Association plans to issue in partnership with Silvergate Bank, proposes to hold at least 80% of its reserves in low-risk short-term government securities. The remaining 20% will be held in cash, with overnight sweeps into MMFs that invest in short-term government securities with the same risk and liquidity profiles. Projects that could rapidly become systemic, such as Diem, have drawn the attention of regulators and could lead to tighter regulation of stablecoins. US regulators have also noted that entities with asset allocations similar to that disclosed by Tether may not be stable if short-term credit spreads widen significantly, as has occurred in times of financial stress in 2020 and 2007-2008. This contrasts with the way stablecoins are marketed to the public." Fitch adds, "We believe authorities are unlikely to intervene to save stablecoins in the event of a disruptive event, partly owing to moral hazard. Authorities could step in to support dealers and prime MMFs should stablecoin redemptions lead to or amplify a wider CP sell-off, pressuring market liquidity and impeding new CP issuance." See also, The Carfang Group's recent post, "Crypto Stablecoins and Prime Money Market Funds. If it walks like a duck."

"U.S. Bank Acquires PFM's Asset Management Business," says a press release published Thursday. It explains, "U.S. Bank announced today that it has entered into a definitive agreement to purchase PFM Asset Management LLC under its subsidiary, U.S. Bancorp Asset Management. PFM Asset Management will continue to operate as a separate entity. PFM Asset Management and U.S. Bancorp Asset Management had combined assets under management and assets under administration of more than $325 billion on March 31, 2021." Eric Thole, head of U.S. Bancorp Asset Management, comments, "PFM Asset Management brings a wide array of client relationships and product offerings, including local government investment pools, outsourced chief investment officer services and separately managed accounts in both fixed income and multi-asset class strategies. These services complement U.S. Bank's current book of business, and we're thrilled to have the opportunity to increase our presence nationally and solidify U.S. Bank's position as a leading provider of investment solutions." Marty Margolis, head of PFM Asset Management, adds, "This sale combines the resources of two organizations who recognize the importance of providing clients with exemplary customer service; our commitment to clients will remain a priority throughout the transition. We're also very pleased that U.S. Bank aligns with our fundamental belief in creating a diverse, inclusive and ethical culture." The release also says, "PFM's financial advisory business is not part of this acquisition and will continue to operate independently as the nation's leading independent financial advisor in terms of transactions and par amount. For the year ended Dec. 31, 2020, PFM advised on 995 overall transactions totaling more than $69.7 billion in par amount, according to Ipreo."

ICI's weekly "Money Market Fund Assets" report shows MMFs falling for the fifth week in a row, a decline of $101.3 billion since June 2. Their latest release says, "Total money market fund assets decreased by $16.39 billion to $4.51 trillion for the week ended Wednesday, July 7, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $18.08 billion and prime funds increased by $1.28 billion. Tax-exempt money market funds increased by $410 million." But money fund assets remain up by $214 billion, or 5.0%, year-to-date in 2021. Inst MMFs are up $306 billion (11.0%), while Retail MMFs are down $92 billion (-6.1%). ICI's stats show Institutional MMFs decreasing $19.5 billion and Retail MMFs increasing $3.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.932 trillion (87.2% of all money funds), while Total Prime MMFs were $485.2 billion (10.8%). Tax Exempt MMFs totaled $93.9 billion (2.1%). Over the past 52 weeks, money fund assets have decreased by $145 billion, or -3.1%, with Retail MMFs falling by $123 billion (-7.9%) and Inst MMFs falling by $22 billion (-0.7%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.) ICI explains, "Assets of retail money market funds increased by $3.15 billion to $1.43 trillion. Among retail funds, government money market fund assets increased by $2.92 billion to $1.12 trillion, prime money market fund assets were unchanged at $228.63 billion, and tax-exempt fund assets increased by $231 million to $81.06 billion." Retail assets account for just under a third of total assets, or 31.8%, and Government Retail assets make up 78.4% of all Retail MMFs. ICI adds, "Assets of institutional money market funds decreased by $19.54 billion to $3.08 trillion. Among institutional funds, government money market fund assets decreased by $21.00 billion to $2.81 trillion, prime money market fund assets increased by $1.28 billion to $256.57 billion, and tax-exempt fund assets increased by $179 million to $12.80 billion." Institutional assets accounted for 68.2% of all MMF assets, with Government Institutional assets making up 91.2% of all Institutional MMF totals.

As we mentioned in yesterday's "News," a host of comment letters have been posted in response to the European Securities and Markets Authority's (ESMA's) "Consultation on EU Money Market Fund Regulation - Legislative Review." Today, we excerpt from the Institutional Money Market Fund Association's response. They write, "The Institutional Money Market Funds Association (IMMFA) is the trade association which represents the European money market fund (MMF) industry. IMMFA's mission is to promote and support the development and integrity of the MMF industry by engaging with and informing policy makers and, amongst other things, providing a primary point of contact. IMMFA currently has 27 members, consisting primarily of asset managers but also custodial banks and other firms.... IMMFA MMFs are primarily institutional funds. IMMFA MMFs currently have EUR812bn Euro equivalent in assets under management (AUM). This number represents a 27% increase since the implementation of EU Money Market Fund Regulation (MMFR) in March 2019. At the end of the first quarter 2021, the most recent period for which a total market number is available, IMMFA AUM totalled EUR798bn, which represented 57% of the European MMF industry. The IMMFA share of total European MMFs remains fairly constant. Within the IMMFA universe of funds there are 3 main currencies: USD, GBP and EUR. USD is the largest currency, (USD501bn), followed by GBP, (GBP233bn), and lastly EUR, (EUR118bn). The split between currencies also remains fairly constant. Although the overwhelming majority of IMMFA MMFs are LVNAV or PDC-NAV, IMMFA represents all fund types and many of our members offer a range of funds." IMMFA's summary says, "We feel strongly that questions of how MMFs fared should be considered in the context of the broader ecosystem and that any proposed solutions should take this symbiosis into account, rather than isolating MMFs. The March crisis was the first test of the reforms introduced under EU MMFR. Those reforms proved instrumental in providing MMFs with the increased resilience which enabled them to pass this test. We note that MMFs continued to serve their purpose in preserving capital and providing liquidity, with no MMFs imposing gates or fees, and all IMMFA MMFs staying within their collars. Having considered the experiences of last March, we conclude that fund structure was not the overriding issue. In the consultation, ESMA singles out CNAV and LVNAV MMFs, in particular, inviting our views on their elimination, whereas the evidence shows that both VNAV (US Prime Institutional and Euro denominated Standard VNAV) and LVNAV MMFs came under strain. The crisis clearly demonstrated that there are areas of money market regulation which could be improved upon, in order to strengthen MMFs further. In particular, enabling MMFs to utilise their liquidity buffers when it is in the best interests of investors to do so, should be facilitated by the delinking of regulatory liquidity thresholds from the potential imposition of fees, gates and suspensions.... We are strongly opposed to the application of swing pricing to MMFs on the basis that it would remove the ability to offer intra-day liquidity or same day settlement, which we regard as a key component of their utility to our investor base. Additionally, swing pricing brings no incremental benefit over the use of redemption fees." They add, "Those reform options which would drive MMFs investors to seek alternatives could, in fact, be counter-productive by shifting risk elsewhere in the system into products which are significantly less transparent and regulated than MMFs. We would include the options to eliminate CNAVs and to impose swing pricing in this category.... We do not share ESMA's concerns about the role of the credit rating agencies and the use of ratings. While fund ratings are an important complementary element to the IMMFA investor base, they were not a key driver of fund behaviour.... In our view, the option of a liquidity exchange facility is extremely problematic, and we question whether this would be economically or logistically viable. With regard to stress testing and reporting, we think additional measures would not be effective tools in addressing the challenges observed in March. In conclusion, we remain committed to efforts to build on the positives of the EU Money Market Regulation and to engaging with regulators and policy makers to secure the best possible outcome for all stakeholders."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of July 2, 2021) includes Holdings information from 46 money funds (down 9 funds from a week ago), which represent $1.743 trillion (down from $1.774 trillion) of the $4.947 trillion (35.2%) in total money fund assets tracked by Crane Data. (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 totaling $883.2 billion (down from $846.5 billion a week ago), or 50.6%, Repurchase Agreements (Repo) totaling $573.2 billion (down from $561.0 billion a week ago), or 32.9% and Government Agency securities totaling $140.6 billion (down from $155.2 billion), or 8.1%. Commercial Paper (CP) totaled $45.8 billion (down from $60.0 billion), or 2.6%. Certificates of Deposit (CDs) totaled $42.0 billion (down from $50.7 billion), or 2.4%. The Other category accounted for $39.6 billion or 2.3%, while VRDNs accounted for $19.6 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $883.2 billion (50.6% of total holdings), Federal Reserve Bank of New York with $199.1B (11.4%), Federal Home Loan Bank with $65.4B (3.7%), Fixed Income Clearing Corp with $50.6B (2.9%), JP Morgan with $36.5B (2.1%), BNP Paribas with $36.3B (2.1%), Federal Farm Credit Bank with $31.5B (1.8%), RBC with $28.4B (1.6%), Federal National Mortgage Association with $28.2B (1.6%) and Barclays with $22.9B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($237.8 billion), BlackRock Lq FedFund ($174.9B), Wells Fargo Govt MM ($150.3B), Morgan Stanley Inst Liq Govt ($141.9B), BlackRock Lq T-Fund ($117.9B), Dreyfus Govt Cash Mgmt ($112.5B), BlackRock Lq Treas Tr ($108.6B), JPMorgan 100% US Treas MMkt ($104.3B), State Street Inst US Govt ($87.0B) and JPMorgan Prime MM ($76.5B). (See our June 10 News, "June MF Portfolio Holdings: Repo Skyrockets Led by RRP; T-Bills Plunge" for more, and 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 entitled, "BNY Mellon Treasury Services Launches Cross-Currency Sweeps, Automating Liquidity Management for Clients," tells us, "BNY Mellon Treasury Services clients are now able to significantly enhance the efficiency of their cash management following the introduction of cross-currency sweeps, the latest addition to the firm's rapidly expanding liquidity management product suite. Cross-currency sweeps are an automated liquidity management tool that enables clients that maintain cash in multiple currency accounts to concentrate cash into their base currency. Such sweeps can be particularly valuable in helping clients limit their exposure to foreign exchange (FX) volatility and negative interest rate-bearing currencies. Liquidity management tools like cross-currency sweeps automate what was previously a time-consuming and resource intensive process for corporate treasurers and their cash management teams. Clients without access to such solutions are obliged to move cash from non-core currency accounts into their base currency account themselves, requiring manual effort and potentially introducing market risk into the treasury and cash management functions." BNY Mellon's Greg Malosh comments, "The launch of cross-currency sweeps is an example of how we're building technology-driven automated solutions to address the cash and liquidity management needs of our clients. This marks the first in a series of improvements we're implementing over the course of the next year to deliver a full range of sophisticated and intelligent solutions, and we are excited to continue to increase our array of offerings as demand grows for liquidity services." The release adds, "In addition to this latest solution, BNY Mellon's existing liquidity management offering also includes single currency domestic, cross-border and multi-bank sweep capabilities. This comprehensive set of tools allows clients to efficiently manage counterparty risk and optimize liquidity across all providers to achieve their cash and liquidity management objectives.... BNY Mellon is currently piloting cross-currency sweeps with several clients, including fintechs, financial institutions, multinational corporates and fund administrators. Initially, the product will be available for USD, GBP, EUR, CAD and CHF, with the aim to extend the capabilities to include AUD and JPY in the near future."

Please join us later this month for our next free webinar, Money Fund Wisdom Product Training, which will take place July 20 from 2-3pm Eastern. Crane Data's Peter Crane will conduct a product training session, reviewing our Money Fund Intelligence product lineup, and he'll demo the new version of our Money Fund Wisdom database query software. Crane will also give a primer on money market mutual fund statistics and data, and will give an overview of asset, yield, expense, maturity and portfolio holdings information. (Let us know if you'd like to see a listing of our products or get a brief demo of Money Fund Wisdom beforehand too.) Also, register for AFP's upcoming webinar, "Liquidity After the Pandemic: Highlights from the 2021 AFP Liquidity Survey," which is July 13 from 3-4pm EDT and features AFP's Tom Hunt, Invesco's Laurie Brignac and Crane Data's Pete Crane. Crane Data will continue to host occasional webinars going forward, but we're thrilled to resume live events this fall with our big show, Crane's Money Fund Symposium, scheduled for Sept. 21-23, 2021, at The Loews Hotel, in Philadelphia, Pa. The latest Money Fund Symposium agenda is available and registrations are being taken. Registration is $750, and discounted hotel reservations are available. Visit the MF Symposium website for more details. We hope you'll join us in person in Philadelphia! Unfortunately, we've cancelled our European Money Fund Symposium in Paris, France. European MFS, which covers money funds domiciled in Ireland, Luxembourg, France and "offshore," had been scheduled for Oct. 21-22, 2021. But instead we'll be hosting a slimmed down (and free) virtual European Money Fund Symposium Online on Oct. 21, 2021. Our Paris European Money Fund Symposium has been rescheduled to Sept. 27-28, 2022. Watch for more details in coming months, and sorry we couldn't make this year's live event in Europe work. Let us know if you'd like more information on any of our events, and we hope to see you at an upcoming webinar, or live in Philadelphia later this year! Attendees and Crane Data subscribers can access the Powerpoints, recordings and conference materials at the bottom of our "Content" page, and see the materials from our last webinar, Asian Money Fund Symposium, in our Money Fund Webinar 2021 Download Center.

Credit Suisse's Zoltan Pozsar tells us in his latest "Global Money Dispatch," "Since the Fed raised the o/n RRP rate by 5 bps, the use of the o/n RRP facility has increased by $320 billion.... Foreign central banks moved cash from their unremunerated deposit accounts to the o/n foreign repo pool too ..., which suggests that the Fed adjusted the rate on the foreign repo pool as well, presumably to 5 basis points, such that the interest rates on the two reverse repo (RRP) facilities are aligned. So money is on the move, and the generously re-priced RRP facilities will reduce money funds' and foreign central banks' interest in Treasury bills. Others -- with hoards of non-operating deposits at banks -- will have to buy bills instead. The net impact of this will be banks losing deposits and reserves ..., which is what happens when rates on collateral-providing facilities are set above rates that are available in the bill market." He asks, "How will money funds' and central banks' reduced interest in bills play out? Not through sales. The 5 bps hike to the o/n RRP rate came as a surprise, so the bill curve shifted higher a bit more than anticipated. Bills are thus 'underwater' -- which means they can only be sold at a loss -- so money funds won't be selling them now to re-invest the proceeds in the RRP facility at a higher rate. If the rotation from bills to RRPs won't happen quickly, in real time, via sales, it will happen over time and so a bit slower as bills mature. But happen it will." Pozsar adds, "In turn, if the rotation happens through maturities as opposed to outright sales, we can figure out precisely how long it will take for the rotation to run its course, and the amounts that will be involved. In other words, we can confidently gauge how high the use of the o/n RRP could get and, on the flipside, the amount of reserves the banking system would lose to a generously re-priced RRP facility, and whether these flows would be large enough to disrupt rates market dynamics.... Looking at the weighted average maturity of government money fund holdings, the rotation will fully run its course by the end of August, so we are looking at a summer where a trillion of reserves will move from banks to the RRP facility, and where a trillion of deposits will move from deposits to bills."