News Archives: August, 2007

Will Brokerages Get Hurt By "Bankerage" Cash Sweep, ABS Arbitrages? Until 2007, "bankerage", or brokerages launching FDIC-insured deposit programs, had been a hot trend in the money markets. However, the sharp climb in money fund yields -- the Federal funds target rate rose from a record low of 1% in mid-2004 to 5.25% -- has been taking market share back from these programs. Money market funds at 5% pay almost double FDIC-insured sweeps, which average rates of 2.65%. Now comes a potential disaster on the reinvestment side. While extremely profitable for a time, bankerages are now likely facing declining values in mortgage portfolios or major issues with baskets of asset-backed securities. ABS with 2-3 year maturities, which U.S. money funds can't buy buy which European ones sometimes do, were often used to make a "safe" spread on the reinvestment proceeds of investor sweep cash. See our upcoming September Money Fund Intelligence for more.

Money Mkt Fund Assets Fall in Latest Week; Grow $77.3 Billion in July. The Investment Company Institute's latest weekly asset figures show a decrease of $13.14 to $2.764 trillion for the week ended August 29. Retail funds fell by $3.96 billion and institutional funds fell by $9.18 billion. Money funds normally see seasonal outflows at month-end and due to back-to-school spending. Separately, ICI's monthly "Trends in Mutual Fund Investing: July 2007" shows money market fund assets grew by $77.3 billion in July to a record $2.615 trillion, or 23% of all mutual fund assets. ICI tracks 565 taxable money funds with $2.209 trillion and 263 tax-free money funds with $406.2 billion. YTD, money funds have grown by $260.4 billion, or 11%. Stock funds continue to hold record low 3.5% cash levels.

WSJ "Conduits" and ABCP Primer Shows Money Funds' Risks Minimal. Today's Wall Street Journal contains an article entitled, "'Conduits' in Need of a Fix", which explains the workings of asset-backed securities (ABS) and asset-backed commercial paper (ABCP) structures and which discusses some large banks' role and exposure to the current market turmoil. The piece should ease money fund investors worries tremendously, because it discusses the prevalence of backup funding for ABCP. "Banks earn fees to set up and run the conduits. They also often agree to provide funding if a conduit can't resell its commercial paper when it matures, which is generally every 90 days." Of the $1.3 trillion in ABCP, "$1.1 trillion is backed by funding lines from banks says the article based on a Merrill Lynch estimate. (See also WSJ's "Short-Term Paper Goes on a Tear".

State Street Limited Duration Bond Fund Wrongly Called Enhanced Cash. In another case of media misinterpretation, The Boston Globe, then MutualFundWire.com, incorrectly term the State Street Limited Duration Bond strategy as "enhanced cash". The Globe says the fund, which has lost over 1/3 of its value, "was widely considered an "enhanced cash" product, an investment category usually considered very low risk". However, the description of the fund clearly states that the strategy is far beyond enhanced cash, targeting a long-term bond-like LIBOR plus 50 basis points. "For those who do not require immediate access to their assets and can tolerate some price fluctuations", says SSgA's website. The Wall Street Journal correctly describes the separately managed pool as an institutional bond fund. (The WSJ and today's Boston Globe, also discuss State Street's ABCP conduit line of credit exposure.) While two "enhanced cash" pools have seen their prices decline modestly (by 1-3%), all of the more conservative "cash-plus" funds have maintained stable NAVs.

Federated Files to Launch 13 Bps Money Market Mgmt Premier Class. Strategic Insight's SimFund Filing, which tracks new fund filings on the SEC's EDGAR system, reports that Federated Investors is preparing to launch Federated Money Market Management - Premier. The new fund will charge 0.13% in fees after waivers and will require a minimum investment of $100 million. Federated joins the list of new and pending low expense "super-premium" money funds (see Crane Data News on Wells Fargo Select and UBS Select Institutional).

Intrepid Money Market Fund Managers Backing Up Truck on ABCP Issues. In what one investor described as a "time for deep value", a number of money fund managers and large investors are taking advantage of some almost 6% yields available in the asset-backed commercial paper market. "We're comfortable with some of the ABCP issues out there and we are taking advantage. We're gunning up," said one investment manager. Many funds will only buy ABCP programs backed by big banks. Though many of course continue to worry about investor concerns and "headline risk", the still-huge ABCP yield premiums are just too tempting for some. Most are understandably shy about going on the record at this point, but we will name names and tell who's buying in the upcoming September issue of Money Fund Intelligence.

More on Recent Declines in Some Ultra-Short Bond and Bank Loan Funds. We wrote Friday about some money fund competitors being hurt by the recent mini-panic, while money funds have withstood the storm. The Wall Street Journal Sunday writes about the same topic in "Some 'Safer' Funds Miss the Mark". "Many holders have recently bailed out of ultrashort and bank-loan funds. Other investors may want to stick it out.... But they've clearly seen that investments that promise attractive yields, but still tout themselves as conservative, are almost always riskier than stalwarts like money-market funds and certificates of deposit. The piece adds, "While any significant losses from these supposedly stable funds count as something of a failure, many funds do not hold subprime mortgages at all."

Competitors Bloodied, But True Money Market Funds Remain Unscathed. Money funds have survived the recent panic in the money markets unscathed, but the same can't be said for their competition. Over the past several years, products were introduced claiming higher yields with supposedly similar risk profiles as money funds. Alas, it now appears that these were too good to be true. Bank loan funds, separately managed accounts, direct money market investments, auction-rate securities, enhanced cash, ultra-short funds, stable value funds -- almost all are having issues. Even some high-yield bank deposits are suffering from asset flight (see BankDeals on Countrywide). Meanwhile, money funds are experiencing their largest monthly and quarterly inflows in history. The WSJ reports today "Investors Flee Bank-Loan Funds; Assets Down 33% Since Late June". The article adds, "Investors have also turned tail on another typically defensive category of bond funds ... ultra-short."

ICI Releases FAQs on MMMFs, Shows Huge Weekly Money Fund Inflows. Click here for the Investment Company Institute's new "Frequently Asked Questions About Money Market Mutual Funds". For the week ended August 22, money market mutual fund assets increased by an eye-popping $75.35 billion, one of the largest weekly inflows ever, to a record $2.777 trillion. Paradoxically, money funds are benefiting from turmoil in the extendible asset-backed commercial paper market and lower rates in the Treasury and overnight repo markets. YTD, money fund assets have increased by $395.1 billion, or 16.6%. Over 52 weeks, assets have increased by a stunning $564 billion, or 25.5%. The vast majority of this week's gains occurred in Treasury and Government money funds, but Prime money market funds also saw inflows says ICI. Money fund $1.00 NAVs continue to be unharmed by the ABCP liquidity crunch, which shows signs of abating.

Money Market Funds Releasing Current Holdings to Ease Market Concerns. Several money market funds have begun listing weekly holdings in order to assuage investor fears over extendible asset-backed commercial paper. Evergreen Institutional Money Market Fund, Evergreen Money Market Fund, and Evergreen Prime Cash Management current portfolio holdings are now available online, reports today's Wall Street Journal in "Booming Money Funds Ease Up on Risky Paper" (C2). The mammouth $64 billion Columbia Cash Reserves, as well as other Columbia "Prime" funds, now also reveal August 17 holdings. Evergreen parent Wachovia purchased some extendible ABCP holdings to protect investors, while Columbia Portfolio Manager Randy Royther said yesterday on a conference call, "We are not in a situation that would dictate that type of move at this point."

Fitch Monitoring Money Mkt Fund Risks, Reaffirms AAA Ratings, Quality. Fitch Ratings just issued a statement entitled "Rated Funds Performing Well Under Liquidity Stress", which says, "Fitch is actively monitoring the impact of structured credit markets liquidity stress on the money market funds it rates. Overall, Fitch is comfortable that its ratings address the credit, interest rate and liquidity risks associated with U.S. money fund portfolios.... U.S. money market funds are managed to meet the requirements of Rule 2a-7 under the Investment Company Act of 1940." Fitch will host a conference call tomorrow on "Traditional ABCP Liquidity Facilities & Global Banks" at 11amET.

Columbia Comfortable With Fractional Extendible CP and CDO Holdings. Money market mutual fund managers have been hosting calls and releasing statements to address investor concerns over subprime, extendible and CDO exposure. Bank of America subsidiary Columbia Management weighed in yesterday, saying its indirect exposure to the subprime market is "less than 1% of total assets in money market, enhanced cash and U.S. dollar offshore funds". Columbia's exposure to extendible CP is less than 4.9% of assets, and CDO exposure is less than 2.0%. "Given that extendible CP programs ... represent a limited percentage of portfolios ... prices could experience significant downward pressure without materially affecting the stability of our net asset values," says Columbia's statement.

U.S. Money Markets Recovering, But Europe and Canada Facing Problems. The worst of the Commercial Paper Panic of '07 appears to be over in the U.S. money markets. Contrary to media reports, investors have not abandoned commercial paper, ABCP or money funds, and markets have begun differentiating between types of CP, ABCP and extendible ABCP. While spreads and problems remain, the market is alive and well. The commercial paper market's "orderly exit" feature, though not as orderly as one would like, has seen fringe issuers move to backup credit lines and funding means. The larger problems (relatively) now appear to be in Canada, which has seen a number more ABCP extensions and bank-sponsored fund bailouts (see article), and in Europe, which continues to have issues with the quality of its commercial paper and money markets.

Bloomberg Reviews Commercial Paper Market "Contagion" and Rollovers. In today's article, "Commercial Paper Roils Borrowers With $550 Billion Coming Due", Bloomberg.com discusses the state of the commercial paper market and reviews the current yield spreads and extensions of asset-backed CP to-date. "Now, asset-backed commercial paper with a maturity of 30 days or less yields 6 percent on average, and corporate borrowers pay about 5.2 percent. Investors aren't buying extendible commercial paper," says the article. (See average rates on the Federal Reserve's CP site.) While perhaps not as orderly an exit as the market would like, the article shows the winddown process of CP and why even the extendible CP is still highly rated and likely to pay investors in full.

Fidelity Will Be "Proactive in Keeping Our Money Market Funds Safe". Fidelity Investments released a statement to its money fund investors addressing recent market concerns. The company says, "Despite the recent volatility we've experienced in the credit markets, we are very comfortable with all our holdings in the money market funds.... Importantly, we have been -- and will continue to be -- proactive in keeping our money market funds safe and protecting the $1.00 net asset value (NAV), which has always been our objective when it comes to managing money market funds." It adds, "Fidelity's taxable money market funds do not own any subprime mortgage securities.... Given the rigors of SEC requirements for money market funds and our own process for evaluating credit risk, we do not feel that the turbulence in the market for subprime mortgage debt is placing any of our money market fund holdings at risk."

Evergreen Removes Some ABCP Holdings to Protect Money Market Funds. In an "Evergreen Money Market Product Update" on their website, the company says, "Recent media and industry sources have published reports related to the asset-backed commercial paper (ABCP) market and the impact of these securities on various money market investment vehicles. In managing Evergreen's money market funds, we have reduced our exposure to ABCP and eliminated certain holdings.... The ABCP securities currently in the Evergreen money market funds are backed by highly rated assets and/or supported in various credit and/or liquidity enhancement facilities. The Funds have no direct exposure to subprime holdings.... Evergreen and our parent, Wachovia Corporation, are committed to preservation of capital in the money market funds and taking appropriate action consistent with our responsibilities to our respective shareholders."

A History of Liquidity Incidents Impacting Money Market Mutual Funds. With recent hysteria and misinformation surrounding commercial paper and money funds, we wanted to review the historical record of minor problems involving these conservative investments. No individual investor has ever lost money in a money fund, and there has only been one case of an institutional fund "breaking-the-buck", or dropping below $1.00. Here is a synopsis of prior money fund bailouts: 2001 California Energy Crisis - PG&E defaults, about 10 funds buy out CP from funds (PG&E pays all principal and interest); 1998 General American Life - Funding agreements seized in bankruptcy, several funds impacted (investors paid in full); 1997 Mercury Finance - Strong Money funds bailed out over defaulted CP; 1994 Derivatives Bailouts, Orange County Bankruptcy - 20+ funds bailed out of troubled securities, since banned from money funds; 1994 Community Bankers US Govt Money Mkt Fund - first and only money fund to "break-the-buck", $100 million fund liquidated at $0.96 per dollar.

Federal Reserve Issues Statement, Cuts Discount Rate, Holds Fed Funds. The Federal Reserve cut the less important discount rate by 0.5% to 5.75%, an emergency facility for banks, and issued a statement, saying "The [Federal Reserve Open Market] Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets." The Federal funds target rate, the more important overnight rate for loans between banks and main benchmark for short-term interest rates, remains unchanged at 5.25%.

Money Fund Investors Hang Tight, Inflows Push Assets to Record Levels. The latest weekly money market mutual fund asset totals released by ICI show that investors have not only stayed with money funds through the recent extendible asset-backed commercial paper scare, but they continue to add cash. Money fund assets rose by a huge $43.67 billion to a record $2.701 trillion in the week ended August 15. Retail assets increased $8.3 billion to a record $1.066 trillion and institutional assets increased by $35.37 billion to a record $1.635 trillion. Money fund assets have increased by a stunning $505 billion, or 23%, over the past 52 weeks. Inflows continue to alleviate recent liquidity problems with mortgage-related extendible ABCP. While managers remain very concerned with the recent market gyrations, all money market funds remain intact and unscathed to-date.

Money Market Funds Are Safe Says Crane Data's Peter Crane on CNBC. Today, on CNBC's "Power Lunch", Crane Data President Peter Crane tells investors and investment professionals, "There have been no defaults, there has been no 'breaking-of-the-buck'" [declines below $1.00 a share], and there's been no trouble that would impact investors to-date." Crane says only one money market fund has ever dropped below $1.00 a share (Community Bankers U.S. Government Money Market Fund was liquidated at 96 cents on the dollar in 1994). Crane believes that money market mutual funds are in no danger of 'breaking-the-buck' and that asset-backed commercial paper, which represents about 15% of money fund holdings, has many layers of protection. "They often have bank loans, oversubscriptions and additional protections." To see the video, click here.

"2007 AFP Liquidity Survey" Shows Corp Liquidity Up, Portal Use Down. The Association of Financial Professionals (AFP) just released the results of its "2007 AFP Liquidity Survey", sponsored by Citi. Among the key findings relating to money market mutual funds: 36% of companies held larger cash balances in May 2007 than 6 months prior (45% experience no change); almost all organizations allow bank deposits and T-bills, but just 76% permit the use of money funds; 23% of companies "use an electronic, multi-family trading portal to execute" some short-term investment trades (this compares to 24% in the 2006 survey); "organizations using trading portals move an average" of 74% of money fund trades through the portal; one-third of organizations reduced auction-rate securities or variable rate demand note holdings after accounting firms "ruled that these instruments were not cash equivalents".

More Stories on Sentinel Mgmt. Cash-Plus Commodities Pool Meltdown. Since news broke yesterday morning that Sentinel Capital Management, a boutique Chicago advisor that ran commodities money, had halted redemptions in its comingled "enhanced-cash" pool, there has been a press feeding frenzy. (CNBC erroneously reported that Sentinel was a money market fund; it is not a money market pool nor a fund.) The following articles have appeared on the overly aggressive pool: Bloomberg "Cash-management fund seeks freeze on withdrawals", WSJ "Sentinel Halts Redemptions", WSJ: "Credit Tremors Crop Up in Cash Funds" (says some other "enhanced cash" and "ultra-short" funds are also being hurt), New York Times "Subprime Problems Spread Into Commercial Loans", AP "Crisis causes $1.5 billion fund to bar withdrawals", Marketwatch, and "Sentinel invested in longer-term debt securities", and USA Today "Sentinel freezes assets of $1.5B fund". (Pete Crane appeared on Bloomberg TV at 1:10pm Wednesday, and may appear on CNBC's "Power Lunch" Thursday at 12:20pm.)

CFTC Sentinel Management Pool Is NOT a Money Market Mutual Fund. CNBC reported Tuesday morning that Sentinel Management Group has asked the Commodities Futures Trading Commission (CFTC) to halted redemptions from its pooled accounts. The CNBC report erroneously identified the managed account as a money market mutual fund. It is not a money fund, and no money market mutual funds have halted redemptions, dropped in value or suffered any losses on any securities to date. Money funds do not appear to be in danger from recent market events, contrary to some reports, but we of course are watching events closely. CNBC also incorrectly labelled the Luxembourg-based AXA Libor Plus fund, which has declined in value, a money fund last Friday.

Crane Money Fund Indexes in July Show Higher Yields and Returns. Our August Money Fund Intelligence and Crane Index showed money market mutual fund and cash averages inching higher in the month ended July 31, 2007. While 1-year returns remain flat, longer-term returns continue to climb. The Crane Money Fund Average, our broadest measure of money fund performance (760 taxable funds) yielded 4.84% and 4.82% (7-day and 30-day current yields, respectively, as of July 31, 2007). For 1-month, the Crane Average returned 0.41%, for 3-mos., 1.21%, year-to-date 2.83%, 1-year 4.94%, 3-yr 3.58%, 5-yr 2.46%, and, 10-yr 3.49%. The Crane 100 Money Fund Index, an average of the 100 largest funds, returned: 0.42% (1-mo), 1.26% (3-mo), 2.92% (YTD), 5.09% (1-yr), 3.76% (3-yr), 2.61% (5-yr), and 3.66% (10-yr). The Crane Brokerage Sweep Index, which tracks the largest "bankerage" programs, returned 2.65% in July (annualized).

Commercial Paper and Money Market Seizure: Last Week in Review Money fund yields jumped on Friday in reaction to the spike in overnight Fed funds, repo and commercial paper rates. While the crisis seems to be easing, higher rates should continue working their way through funds this week, and money markets should remain on edge. Here we list links to last week's Crane Data News coverage on the Extendible ABCP Crisis of 2007: "Trouble in ABCP Market"; Bloomberg: "Tsunami Hits CP"; "Extendible ABCP Troubles Trigger"; "Money Funds May Hold Subprime Too" (WSJ).

Matrix SCS Kicks Off "Get Connected in Keystone 2007" Conference. Matrix Settlement & Clearance Services LLC (MSCS), the latest entrant in the rapidly growing online money market fund trading portal market, hosts a conference starting today in Keystone, Colorado. Monday morning, Crane Data's Peter Crane will join Matrix's Michael Rice, Dreyfus' Sue Ann Cormack, and Western Asset's John Bonczek on an "Introduction to Money Fund Portals" panel. While other portals are courting large corporate and securities lending investors, Matrix is targeting the middle market of banks and financial institutions.

Standard and Poor's Says No Downgrades on Rated Money Market Funds. S&P Director Peter Rizzo tells us, "Standard & Poor's assigns principal stability fund ratings to more than 450 money market funds globally. Of these, only a handful have any exposure to the ABCP programs that were extended this week. We are monitoring the credit market situation closely and to date have not taken any actions on any rated funds." Separately, S&P awarded AAAm ratings to UBS Select Prime, UBS Select Treasury and UBS Select Tax-Free "Master" Funds. All have Preferred, Institutional and Investor "Feeder" Funds. S&P also rated government investment pool (GIP) West Virginia Government Money Market Pool and West Virginia Money Market Pool AAAm.

Fed Liquidity Flood Pushes Money Market and CP Rates Back on Target. The Federal Reserve injected three rounds and over $35 billion in liquidity into the money markets today in an attempt to push the Federal funds rate down to its target 5.25%. Fed funds were trading around 5.5% this morning, and still remain above target. Yesterday, CP rates traded up as high as 6.01% for A2/P2 non-financial CP and 5.52% for AA nonfinancial CP. (See Federal Reserve CP page.)

Money Fund Assets See Near Record Surge in Latest Week Says ICI. Money market mutual fund assets skyrocketed this week, rising $49.3 billion to a record $2.657 trillion. The Investment Company Institute's latest weekly data show institutional assets gaining $38.13 billion to a record $1.599 trillion and retail assets gaining $11.1 billion to a record $1.058 trillion. Over 52 weeks, money funds have grown by an astounding $481 billion, or 22%. While concerns continue over a liquidity crisis in mortage-related asset-backed securities, the "flight-to-quality" assets come at a fortuitous time for money fund portfolios, helping to dilute any illiquid securities.

Peter G. Crane on "Choosing a Money Market Fund?" for GTNews.com. Crane Data LLC founder and president Peter Crane writes today on GTNews.com "Choosing a Money Market Fund: Is Yield the Only Consideration?". The article gives tips on differentiating between money market mutual funds, and mentions recent troubles, saying, "While money market funds may have exposure to mortgage- and collateralised debt obligation- (CDO-) backed asset-backed commercial paper or asset-backed securities (ABS), it is unlikely that any funds will see any losses related to recent market troubles. The odds of a fund 'breaking-the-buck', or dropping below its US$1.00 a share, remain practically nil, given money fund's strict mandates of quality and diversity."

"Money Funds May Hold Subprime Too" Says Wall Street Journal. Thursday's WSJ article names names, saying that Evergreen Institutional Money Market Fund held recently-extended Broadhollow Funding LLC debt earlier this year, according to SEC filings. The Journal also incorrectly mentions Putnam Premier Income Trust, but this is a bond fund and not a money market fund. (Putnam says they've never held Broadhollow in their money funds.) The Journal says money fund managers will likely "pay closer attention to what is backing the commercial paper they buy, demand additional compensation for investing in a particular type pf vehicle that issues some asset-backed commercial paper and call for greater transparency in the market". The article quotes several fund managers, including Schwab's Linda Klingman, Advantus' Jon Thompson, and William Blair's Jim Kaplan. The subprime problem "isn't likely to cause big losses at these funds or endanger them" adds the piece.

"Subprime 'Tsunami' Hits Asset-Backed Commercial Paper Market" Says Bloomberg. "Extendible asset-backed commercial paper yesterday carried yields of 5.75 percent to 5.95 percent, compared with 5.45 percent for asset-backed commercial paper that isn't extendible and 5.25 percent to 5.30 percent for corporate commercial paper," said the article, quoting Money Market One's Lee Epstein. Bloomberg says extendible notes "make up about 15 percent of the asset-backed" market of $1.15 trillion, "or about $172.5 billion, according to Moody's".

Extendible ABCP Troubles Trigger Rare Wall Street Journal CP Article. Today's Wall Street Journal features "Commercial Paper Shows Some Stress", one of only a handful of stories the Journal has ever run on the CP, or commercial paper, market. It discusses the recent extensions of ABCP, and estimates that "[E]xtendible asset-backed commercial paper makes up about 12% to 13%, or around $144 billion to $156 billion, of the $1.2 trillion asset-backed commercial-paper market." Fitch's AJ Santos told Dow Jones that ABCP "borrowings secured by bundles of home loans accounted for about 10% to 12% of the market in the first quarter".

Trouble in ABCP Market as Secured Liquidity Notes (SLNs) Are Extended. The meltdown in the CDO marketplace has begun impacting money market funds, though in a limited fashion. Several SLN (secured liquidity note) programs extended yesterday, including American Home Mortgage-related Broad Hollow Funding, Luminent Star Funding, and Ottimo Funding Ltd.. The Broad Hollow program extended for 4 months, and Luminent extended for 110 days. Only a handful of money funds held these securities as of recent filings, and the holdings appeared to be very minor (<2%). Some money funds have avoided extendible asset-backed commercial paper because the investor provides the liquidity. The penalty step-up in yield for extension may be some solace for any companies holding these now illiquid securities. We've also heard that several auctions for ARS (auction-rate securities) have failed in recent days. (See MFI for details.)

Are Money Market Funds Commodities? August MFI Asks Credit Suisse AM. In our August money fund "profile", Money Fund Intelligence interviews the management team of the top-ranked Credit Suisse Institutional Prime Money Market Fund. We ask, "Are money funds commodities?" CSAM Director Jack Winters tells us, "I think you should look at the experience, expertise and reputation of the portfolio managers, just to gain a level of confidence in what's going on in the fund. I think you also would be looking at the consistency of performance and the pricing structure of the portfolio. You want to look at the convenience and service features -- deadlines, ratings, etc., and the size of the fund, because the fund may be easier to use if it's large. Those are some of the remaining differentiators." This MFI also features: "Fidelity & Bankerage", "State AMT Free Funds", and our usual Money Fund News, Crane Indexes, and Performance Listings.

"Brokers Bank Perks to Lure Cash Accounts" Says Wall Street Journal. Saturday's Wall Street Journal writes about brokerages, including Fidelity, Schwab, and E*Trade, launching high-yielding checking accounts. "The new accounts differ from brokerage firms' current cash management programs, by adding higher interest rates and ATM-fee rebates. But do these perks outweigh the hassles of switching?" asks the piece. E*Trade's Max-Rate Checking pays 4.25%, Fidelity's mySmart Cash pays 3.5%, and Schwab's High Yield Investor Checking pays 4.25%. Schwab and Fidelity have no minimums (E*Trade has a $5,000); all offer ATM rebates, debit cards and unlimited checking. The WSJ adds, "[I]nvestors who are earning low rates of interest ... in their brokerage sweep accounts would be able to move that money to their higher-paying checking account. (Although they may have to take the extra step of transferring the money online or asking a representative to do it for them.)"

Fidelity Enters FDIC-Insured "Bankerage" and Launches 3.5% Checking. One of the last holdouts to offer FDIC insured deposits among brokerages, Fidelity Investments, has quietly begun offering an FDIC-insured option via third-party banks on its "Core" mySmart cash accounts. Blog BankDeals reported yesterday on the fact that Fidelity is now paying 3.5% on its mySmart Cash Account, a no-minimum, no ATM fee offering. The move follows Charles Schwab's recent 4.25% checking account offer and a number of other moves by online banks and brokerages to pay attractive, temporary "teaser" yields on checking accounts.

Money Fund Assets Continue Record Run, Breaking $2.6 Trillion Barrier. Weekly totals published by ICI show money market mutual fund assets breaking above the $2.6 trillion level for the first time ever in the week ended August 1. Money funds gained $18.13 billion this week, as institutional assets surged $15.17 billion and individual assets rose by $2.96 billion. Since June 27, money fund assets have jumped by $71 billion. Year-to-date, money fund assets have increased by $225 billion, or 9.4%, and over the past 52 weeks assets have increased by $436 billion, or 20.1%. Money fund yields also moved higher over the past week. The Crane 100 Index of the largest money market mutual funds rose from 4.98% to 5.00%.

New Dreyfus California AMT Tax Free Cash Management Fund Launches. Yesterday, Dreyfus Service Corporation began offering a tax-free institutional California no-AMT fund, Dreyfus CA AMT Tax Free Cash Management. The fund is charging a very lean (for tax-free) 20 basis points on its Institutional class. (The Administrative class will charge 30 bps, the Investor class will charge 45 bps, and the Participant class will charge 60 bps.) Fidelity recently launched Fidelity CA AMT Tax-Free MM Inst, and the launch of Schwab CA AMT Tax Free Money is imminent. (See our upcoming August Money Fund Intelligence for more on AMT tax-free funds and an interview with Dreyfus Tax-Exempt Portfolio Manager Joseph Irace.)

Oddo(h)! More French Faux-Money Market Mutual Funds Go Terminal. Bloomberg and Reuters report that French brokerage Oddo & Cie, has closed its Oddo Cash Titrisation, Oddo Cash Arbitrages, and Oddo Court Terme Dynamique funds, which held over a 1 billion in euros, due to the meltdown in the subprime mortgage market and related CDOs. The funds, which are not money market funds, but which, unlike U.S. funds, may use the term "cash" in their name, will be liquidated in "the shortest possible time frame". The Oddo funds join two AXA LIBOR-Plus strategy funds (see Crane's Friday News) as more offshore casualties of overly aggressive "cash" investing. U.S. money funds remain unharmed by events.