News Archives: April, 2017

The Investment Company Institute released its latest weekly "Money Market Mutual Fund Assets," its latest monthly "Trends in Mutual Fund Investing," and its latest "Month-End Portfolio Holdings of Taxable Money Funds" updates yesterday. The first report shows that `money fund assets rebounded in the latest week, after falling last month and the past 6 weeks in a row. ICI's other monthly report confirmed that Agency holdings fell while Repo and Treasuries moved higher in March. (See our April 12 News, "April Money Fund Portfolio Holdings: Credit Flat, Fed Repo Up Big.") We review these latest reports, as well as April month-to-date assets, below.

ICI's weekly assets report shows both overall and Prime money fund assets down slightly, but roughly flat. It says, "Total money market fund assets increased by $15.42 billion to $2.64 trillion for the week ended Wednesday, April 26, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $14.12 billion and prime funds increased by $1.70 billion. Tax-exempt money market funds decreased by $400 million." Total Government MMF assets, which include Treasury funds too, stand at $2.116 trillion (80.1% of all money funds), while Total Prime MMFs stand at $398.1 billion (15.1%). Tax Exempt MMFs total $127.8 billion, or 4.8%.

It explains, "Assets of retail money market funds decreased by $7.57 billion to $966.28 billion. Among retail funds, government money market fund assets decreased by $5.97 billion to $591.71 billion, prime money market fund assets decreased by $830 million to $251.64 billion, and tax-exempt fund assets decreased by $770 million to $122.92 billion." Retail assets account for over a third of total assets, or 36.6%, and Government Retail assets make up 61.2% of all Retail MMFs.

The release continues, "Assets of institutional money market funds increased by $22.99 billion to $1.68 trillion. Among institutional funds, government money market fund assets increased by $20.09 billion to $1.52 trillion, prime money market fund assets increased by $2.53 billion to $146.49 billion, and tax-exempt fund assets increased by $370 million to $4.89 billion." Institutional assets account for 63.4% of all MMF assets, with Government Inst assets making up 91.0% of all Institutional MMFs.

ICI's latest "Trends in Mutual Fund Investing - March 2017" shows a $17.7 billion decrease in money market fund assets in March to $2.664 trillion. The decrease follows an increase of $0.4 billion in February, $46.6 billion in January, and $6.5 billion in December. In the 12 months through March 31, money fund assets were down $94.6 billion, or -3.4%. (Month-to-date in April through 4/26/17, our Money Fund Intelligence Daily shows total assets down by $6.4 billion.)

The monthly report states, "The combined assets of the nation's mutual funds increased by $72.17 billion, or 0.4 percent, to $16.99 trillion in March, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."

It explains, "Bond funds had an inflow of $29.1 billion in March, compared with an inflow of $23.7 in February.... Money market funds had an inflow of $18.6 billion in March, compared with an inflow of $197 million in February. In March funds offered primarily to institutions had an outflow of $26.79 billion and funds offered primarily to individuals had an inflow of $8.14 billion."

The latest "Trends" shows that both Taxable MMFs and Tax-Exempt MMFs declined last month. Taxable MMFs decreased by $17.5 billion in March, after increasing $0.8 billion in February and decreasing $46.8 billion in January. Tax-Exempt MMFs decreased $0.3 billion in March, after decreasing $0.3 billion in February and adding $0.1 billion in Jan.

Over the past year through 3/31/17, Taxable MMF assets increased by $2.3 billion while Tax-Exempt funds fell by $95.5 billion. Money funds now represent 15.7% (down from 15.9% last month) of all mutual fund assets, while bond funds represent 22.2% <b:>`_. The total number of money market funds was up 1 to 420 in March, but down from 478 a year ago. (Taxable money funds have increased from 319 to 320 and Tax-exempt money funds were unchanged at 100 over the last month.)

ICI's Portfolio Holdings showed a big drop in Agencies in March and a jump in Repo and Treasuries. Repo remained the largest portfolio segment and rose by $16.6 billion, or 2.1%, to $808.1 billion or 31.9% of holdings. Repo has increased by $211.0 billion over the past 12 months, or 35.3%. Treasury Bills & Securities remained in second place among composition segments, jumping $40.9 billion, or 5.6%, to $776.3 billion, or 30.6% of holdings. Treasury holdings rose by $231.7 billion, or 42.5%, over the past year. U.S. Government Agency Securities remained in third place, but fell $49.0 billion, or -7.1%, to $643.5 billion or 25.4% of holdings. Govt Agency holdings rose by $181.8 billion, or 39.4%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased $753 million, or 0.4%, to $182.1 billion (7.2% of assets). CDs held by money funds fell by $325.7 billion, or -64.1%, over 12 months. Commercial Paper remained in fifth place and decreased $3.7B, or -3.2%, to $109.6 billion (4.3% of assets). CP plummeted by $223.8 billion, or -67.1%, over one year. Notes (including Corporate and Bank) were down by $1.1 billion, or -12.3%, to $42.8 billion (0.3% of assets), and Other holdings inched down to $28.7 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 177.0 thousand to 25.658 million, while the Number of Funds inched up by one to 320. Over the past 12 months, the number of accounts rose by 2.524 million and the number of funds declined by 17. The Average Maturity of Portfolios was 38 days in March, down 2 days from Feb. Over the past 12 months, WAMs of Taxable money funds have shortened by 1 day.

The Investment Company Institute released its "2017 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. The latest edition reports that while equity and bond fund grew strongly in 2016, money market funds had modest outflows last year. It looks at institutional and retail MMF demand, as well as recent reforms and the shift to Government MMFs. Overall, money funds assets were $2.728 trillion at year-end 2016, making up 16.7% of the $16.3 trillion in overall mutual fund assets. Retail investors held $986 billion, while institutional investors held $1.742 trillion. ICI tells us, "Businesses and other institutional investors also rely on funds. Many institutions use money market funds to manage some of their cash and other short-term assets. Nonfinancial businesses held 22 percent of their short-term assets in money market funds at year-end 2016."

On "Demand for Money Market Funds," the Fact Book says, "In 2016, investors redeemed, on net, $30 billion from money market funds. This modest topline net outflow for the year, however, masks significant shifts in flows for different types of money market funds that was spurred by the final implementation of new rules governing money market funds (see page 50). In 2016, government money market funds received $851 billion in net inflows, while prime and tax-exempt money market funds saw net redemptions of $765 billion and $116 billion, respectively."

Regarding "Recent Reforms to Money Market Funds," ICI comments, "In July 2014, the SEC adopted additional rules for money market funds. All money market funds were required to comply with the new rules by October 14, 2016. The new rules largely centered around two key reforms. First, nongovernment (prime and tax-exempt) money market funds that are sold to institutional investors must price and transact their shares to the nearest one-hundredth of a cent (i.e., float their net asset values [NAVs]). Additionally, all prime and tax-exempt money market funds, whether retail or institutional, can impose gates (i.e., temporarily halt redemptions) or redemption fees on redeeming shareholders under limited situations. A fund is required to impose redemption fees if the fund's weekly liquid assets fall below 10 percent of its total assets, unless the fund's board decides a redemption fee is not in the best interest of the fund's shareholders."

They explain, "These rules clearly had an impact on investor demand for money market funds beginning in late 2015. The changes pushed investors toward government money market funds -- those that invest principally in securities issued by the US Treasury or government agencies (or repurchase agreements backed by government securities). Institutional investors that preferred money market funds with stable $1.00 NAVs appear to have moved from prime to government money market funds. From October 2015 through October 2016, assets in prime institutional money market funds fell $814 billion.... Over the same period, assets in government institutional money market funds rose by $772 billion."

The Fact Book continues, "A similar, though muted, shift occurred in retail money market funds. From October 2015 to October 2016, assets in prime retail money market funds dropped by $262 billion ... and assets in tax-exempt money market funds -- the vast majority of which are held by retail investors -- fell $117 billion. In contrast, assets of retail government money market funds rose by $371 billion."

It tells us, "Under the new rules, prime and tax-exempt retail money market funds may continue to transact at stable $1.00 NAVs. Thus, the shift in retail money market fund assets was not related to floating the NAV. Rather, the requirement that all nongovernment money market funds (including prime and tax-exempt retail money market funds) must now be able to impose redemption fees and gates pushed retail investors toward government money market funds. Before the rule change, prime and tax-exempt money market funds were often used as "sweeps" in brokerage accounts. In a sweep arrangement, any available client funds not yet needed to pay for investments generally are moved daily into a money market fund so that the investor is fully invested at all times. Broker-dealers with sweep arrangements reportedly moved client assets from prime retail and tax-exempt money market funds to government money market funds to avoid the possibility that clients would not be able to fulfill settlement obligations for securities transactions if a gate or redemption fee were imposed on their prime or tax-exempt money market fund."

ICI describes the "Orderly Transition to Government Money Market Funds," saying, "This massive shift in assets between prime money market funds and government money market funds proceeded smoothly. Prime money market funds prepared for the October 14, 2016, deadline by investing predominantly in securities with very short maturities, which made their portfolios extremely liquid. The weighted average maturity (WAM) on prime money market funds fell from 33 days in mid-October 2015 to 14 days in early October 2016, about 10 days before the deadline.... Similarly, the weighted average life (WAL) dropped from 59 days to 24 days over the same period. With the shorter maturities, prime money market funds had ample liquidity to accommodate high levels of outflows. Prime money markets funds' WAMs and WALs increased after the October 14, 2016, deadline passed, but remained low in comparison to levels before October 2015."

They add, "As assets in government money market funds rose, those funds' demand for government securities (and repurchase agreements backed by government securities) jumped sharply. The market accommodated the increased demand for government securities in good order. From October 2015 to October 2016, the US Treasury added $480 billion to the supply of Treasury bills, in part to fund a significant increase in the Treasury's cash balance. In addition, the Federal Home Loan Banks increased their issuance of floating rate notes, which government money market funds can hold. Government money market funds also can place dollars with the Federal Reserve's overnight reverse repurchase agreement (ON RRP) facility, which allows money market funds to make collateralized overnight loans to the Federal Reserve, earning interest on those loans. In the month leading up to the October 14, 2016, deadline, the ON RRP facility expanded with an average of $464 billion in overnight lending -- this amount was about $145 billion higher than the comparable period in 2015."

Finally, ICI writes, "Unsurprisingly, the composition of assets held by taxable money market funds at the end of 2016 was vastly different than it was before the shift from prime into government funds, even though total assets of taxable money market funds were little changed. In October 2015, taxable money market funds had $2.5 trillion in assets; by year-end 2016, total assets had grown modestly to $2.6 trillion.... In October 2015, 15 percent of taxable money market funds' portfolio securities were invested in commercial paper and 55 percent was invested in government securities, including repurchase agreements backed by government securities. As of December 2016, commercial paper accounted for a much smaller proportion (4 percent) and government securities a substantially larger proportion (88 percent) of portfolio securities held by taxable money market funds. Taxable money market funds' commercial paper holdings fell $232 billion over the period and their share of the commercial paper market shrank significantly.... Despite a sizable reduction in holdings of commercial paper by money market funds, the overall commercial paper market was minimally affected over this period. Seasonally adjusted total outstanding commercial paper declined only $37 billion from $1,027 billion in October 2015 to $990 billion in December 2016, as other buyers entered the commercial paper market in place of prime money market funds."

Fitch Ratings and Citi both published briefs on the commercial paper market yesterday, so we decided to take a look at how the CP sector overall has fared of late. The answer is: surprisingly well. CP outstandings have remained almost unchanged at just below $1 trillion throughout the period when Prime money fund assets declined by $1.1 trillion. According to the Federal Reserve's Commercial Paper Outstanding numbers show CP totaling $941.5 billion at the end of 2015 vs. $884.9 billion at the end of 2016, and vs. $937.2 billion at the end of March 2017. We discuss the CP market and review the Fitch and Citi updates below.

While commercial paper totals have remained relatively stable, money market funds' investments in CP have plunged over the past 15 months. Since Crane Data began tracking Money Fund Portfolio Holdings (in late 2010), the highest level of CP held by money funds was $419.9 billion. In October 2015, just prior to the start of the big shift of assets from Prime to Government, money funds held $394.5 billion. At year-end 2015, money funds held $343.4 billion, or 36.5% of the CP market, while at year end 2016 money funds held just $123.6 billion, or 14.0% of the market. As of March 31, 2017, money fund holdings of CP rebounded to $149.7 billion, or 16.0%.

Of course the question everyone is asking is: Who stepped in to buy CP to replace money funds? We're still trying to get a better answer on this, but our best guess is "all of the above." We think intermediate, core and other (short-term and ultra-short) bond funds were the largest buyers, but other cash buyers, such as separately managed accounts, securities lending reinvestment pools, LGIPs (local government investment pools), bank STIFs (short-term investment funds), offshore money funds and others, likely took advantage of the higher rates too. (Note: Crane Data just released a "beta" version of a new Bond Fund Portfolio Holdings collection, so watch for more details on CP holdings in bond funds in coming months.)

Fitch Ratings' release, entitled, "Downward Pressure on US Commercial Paper Ratings Evident," tells us, "Downward pressure on US commercial paper (CP) ratings due to a variety of company-specific factors amid challenging conditions in certain sectors is evident, according to Fitch Ratings. This pressure is reflected in a greater number of Negative Outlooks and watches than Positive Outlooks and watches, particularly at higher rating levels (BBB/F2 and above). The possibility of a rating change is driven by the level of the Long-Term Issuer Default Rating coupled with a Positive or Negative Outlook or watch.... There are 16 potential negative actions and four potential positive actions."

They explain, "The preponderance of Negative Outlooks and watches is due to a number of factors including weak operating trends (Caterpillar, Pitney Bowes, Viacom and Xerox); high financial leverage (Dun & Bradstreet, Hubbell, Marathon Oil, Nabors and Plains All American Pipeline); mergers and acquisitions activity (DuPont, Washington Gas Light and Marathon Petroleum) and the potential effects of the bankruptcy of Westinghouse (Georgia Power, Public Service Co. of North Carolina, South Carolina Electric and Gas, and SCANA Corporation)."

Fitch tell us, "There is a linkage between long-term and short-term ratings reflecting the importance of liquidity and near-term concerns in the assessment of long-term credit profiles and to ensure the two scales do not intuitively contradict each other for a given issuer. As a result of this linkage, CP ratings with corresponding long-term ratings at certain levels will change when the long-term rating changes."

Citigroup Global Markets' Rob Crowe writes in his latest "USCP Commentary," "The USCP market ramped up week-over-week as daily volumes averaged $91.2 billion per day vs. $87.2 billion per day last week (excluding Good Friday). In tandem, total outstandings increased (+$5.3 billion), led by non-financials (+$7.6 billion). Though prime assets decreased week-over-week (-$3.0 billion), they increased month-over-month (+$2.3 billion). According to Crane Data [and the SEC's latest statistics], the weighted average [gross] yield for prime funds was 1.03% on March 31, up 12 bps from last month, and up 48 bps from the same time last year."

He continues, "In the non-financial space, Tier-2 issuers continued to find strong liquidity from accounts, borrowing 1-month and in without having to pay up out the curve. Tier-1 issuers also found excellent liquidity from accounts, borrowing 3-months with levels relatively unchanged week-over-week. Financial levels trended tighter week-over-week as demand for bank bullets remained strong out the curve. Behind weaker economic data, many accounts scaled back their perceived pace of interest rate increases, causing fixed-rate paper to look more attractive than floating. The relative lack of floating supply allowed issuers to tighten gradually. Tier-1 banks found strong liquidity in 3- to 6-months with one Tier-1 bank printing $1.5 billion in 3-months. Japanese banks were active in 6-months."

Crowe also writes, "Post money-market fund reform in the U.S., there have been signs of more elastic dollar demand from Japanese banks as reflected in the LIBOR/OIS rates. Japanese banks matter for USD LIBOR and the CD/CP market since they tend to post the highest LIBOR submissions on average. According to Citi Research's most recent Short-End Notes, "JPYUSD basis – trade idea and 2017Q2 outlook", Japanese banks have been issuing dollar denominated corporate bonds to bolster their stable dollar funding."

On European CP, Citi comments, "SSA distribution was front and center on the week as Asian accounts showed particular interest in the sector. German borrowers accompanied by Austrian borrowers accounted for the bulk of volume and were able to print in size in USD in tenors ranging from 1- to 6-months. Total outstandings decreased (-$3.6 billion), led by financials (-$4.6 billion)."

He adds, "Corporate trading continued to be mixed as issuers contributed to a maturity driven environment. Tier-1 issuers borrowed in a combination of currencies and tenors in order to tidy up their balance sheets. A slew of high-quality U.S. issuers borrowed in size in EUR. Tier-2 issuers saw swift execution but lacked depth. Several corporate issuers from various jurisdictions had intra-quarter business to fund. Trading in Financials continued at a fair pace, with enquiries for Scandinavian, Middle Eastern, German, French, and Japanese issuers. ABCP issuers borrowed in both EUR and GBP. Inventory levels finished the week at very modest levels, as investors sought assets at the front of the curve."

With now less than 2 months to go before our big show, Crane's Money Fund Symposium, which will be in Atlanta, Georgia (June 21-23), we are also preparing for our 5th Annual European Money Fund Symposium, the largest money market event in Europe. The preliminary agenda is almost ready for this year's show, which will take place Sept. 25-26 in Paris, France. See below or contact us for details. Also, if you haven't registered yet for Money Fund Symposium, you can still do so via www.moneyfundsymposium.com. (We look forward to seeing many of you in Atlanta in June or Paris in September!)

While the Agenda is still being developed for Crane's European Money Fund Symposium (so speakers and topics are subject to change), registrations are now being accepted. Last year's event in London attracted 120 attendees, sponsors and speakers -- our largest European event ever. Given pending new money fund regulations in Europe and possible plans for "repatriation" of assets, we expect our first show on the Continent in Paris to attract even more interest this year.

"European Money Fund Symposium offers European, Asian and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue," says Crane Data President Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he added.

EMFS will be held at the Renaissance Paris La Defense hotel. Book your hotel room before Monday, August 1, and receive the discounted room rate of E224. Registration for our 2017 Crane's European Money Fund Symposium is $1,000 (USD or Euro). Visit www.euromfs.com to register or contact us to request the PDF brochure, or for Sponsorship pricing and info, and for more details.

The EMFS agenda features sessions led by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane's European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" with Peter Crane of Crane Data; followed by "IMMFA Update: The State of MMFs in Europe" with Reyer Kooy and Jane Lowe of IMMFA; "French Money Fund Update & Outlook," with Thierry Darmon of Amundi, Vanessa Robert of Moody's Investors Service, and Alastair Sewell of Fitch Ratings. "Senior Portfolio Manager Perspectives," with Joe McConnell of JP Morgan AM, Jonathan Curry, of HSBC Global AM, and Deborah Cunningham of Federated Investors.

Day One also includes: "US Money Funds: Adapting to Reforms" with Federated's Cunningham and Peter Crane; "MMFs in Asia: China, Japan, and Beyond" with Andrew Paranthoiene of Standard & Poor's and Fitch Rating's Sewell; "UK, Brexit & Sterling MMF Issues" with Dennis Gepp of Federated UK, Jennifer Gillespie of Legal & General IM," and Paul Mueller of Invesco; and, "Euro and European MMFs with Rudolf Siebel of BVI and Neil Hutchison of JPMAM.

The Day Two Agenda includes: "New Regulations: Coming Soon" with John Hunt of Sullivan & Worcester LLP and Dan Morrissey of William Fry; "LVNAV and New Products Under New Regs," which will discuss the development of new products under the new regulations; and, "Ultra-Short Bond Funds & Separate Accounts," which will review the space beyond money market funds.

The afternoon of Day Two features: "Dealer Supply Outlook & New Products" with Kieran Davis of Barclays, Dan Singer of J.P. Morgan Securities, and David Hynes of Northcross Capital LLP; "Risks and Ratings: Areas of Concern and Changes" with Marc Pinto of Moody's and Alastair Sewell of Fitch Ratings; "Distribution & MMF Investor Issues" with James Finch of UBS Global AM and Jim Fuell of JP Morgan AM.

In related news, Crane Data's Money Fund Intelligence International shows assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), up 48 billion year-to-date to $779 billion as of 4/21/17. U.S. Dollar (USD) funds (156) account for over half ($412.0 billion, or 52.8%) of the total, while Euro (EUR) money funds (97) total E99 billion and Pound Sterling (GBP) funds (107) total L216. USD funds are up $14 billion, YTD, while Euro funds are up E4 billion and GBP funds are up L26B. USD MMFs yield 0.78% (7-Day) on average (4/21/17), up 62 basis points from 12/31/16. EUR MMFs yield -0.49% on average, down 30 basis points YTD, while GBP MMFs yield 0.15%, down 15 bps YTD.

Crane's latest Money Fund Intelligence International Portfolio Holdings data (as of 3/31/17) shows that European-domiciled US Dollar MMFs, on average, consist of 21% in Treasury securities, 24% in Commercial Paper (CP), 25% in Certificates of Deposit (CDs), 15% in Other securities (primarily Time Deposits), 12% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 33.8% of their portfolios maturing Overnight, 10.6% maturing in 2-7 Days, 24.7% maturing in 8-30 Days, 8.0% maturing in 31-60 Days, 8.6% maturing in 61-90 Days, 9.0% maturing in 91-180 Days, and 5.4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (32.8%), France (11.3%), Canada (10.8%), Japan (9.9%), Sweden (5.6%), Australia (5.5%), Germany (5.2%), the Netherlands (4.5%), Great Britain (3.0%), Singapore (3.0%) and China (2.4%).

The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $95.1 billion (20.8% of total assets), BNP Paribas with $14.7B (3.2%), Mitsubishi UFJ with $13.0B (2.9%), Federal Reserve Bank of New York with $11.7B (2.6%), Toronto-Dominion Bank with $11.5B (2.5%), Canadian Imperial Bank of Commerce with $9.2B (2.0%), Bank of Montreal with $8.7B (1.9%), RBC with $8.5B (1.9%), Sumitomo Mitsui Trust Bank with $8.2B (1.8%), Societe Generale with $8.0B (1.7%), National Australia Bank Ltd with $7.9B (1.7%), Wells Fargo with $7.6B (1.7%), Credit Agricole with $7.2B (1.6%), Bank of Nova Scotia with $7.1B (1.6%),`Swedbank AB <b:>`_ with $7.0B (1.5%), Rabobank with $6.8B (1.5%), Sumitomo Mitsui Banking Co with $6.6B (1.4%), Bank of America with $6.3B (1.4%), Mizuho Corporate Bank LTD with $6.2B (1.4%), and Svenska Handelsbanken with $6.1B (1.3%).

Euro MMFs tracked by Crane Data contain, on average 44% in CP, 30% in CDs, 17% in Other (primarily Time Deposits), 6% in Repo, 2% in Treasury securities and 1% in Agency securities. EUR funds have on average 21.6% of their portfolios maturing Overnight, 9.9% maturing in 2-7 Days, 15.0% maturing in 8-30 Days, 17.1% maturing in 31-60 Days, 14.6% maturing in 61-90 Days, 18.2% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.0%), Japan (13.0%), US (12.8%), Sweden (7.6%), Netherlands (6.3%), Germany (6.2%), Belgium (5.8%), United Kingdom (3.9%), Switzerland (3.0%), and China (2.6%).

The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.5B (4.6%), Credit Mutuel with E3.9B (4.0%), Rabobank with E3.8B (3.9%), Proctor & Gamble with E3.8B (3.9%), Svenska Handelsbanken with E3.5B (3.6%), Nordea Bank with E3.4B (3.5%), Credit Agricole with E3.3B (3.4%), Mitsubishi UFJ Financial Group Inc with E3.2B (3.2%), BPCE SA with E3.2B (3.2%), KBC Group NV with E2.8B (2.9%), Sumitomo Mitsui Banking Co. with E2.5B (2.6%), Societe Generale with E2.5B (2.6%), Republic of France with E2.4B (2.5%), DZ Bank AG with E2.4B (2.5%), and JP Morgan with E2.4B (2.5%).

The GBP funds tracked by MFI International contain, on average (as of 3/31/17): 43% in CDs, 22% in Other (Time Deposits), 24% in CP, 8% in Repo, 3% in Treasury, and 0% in Agency. Sterling funds have on average 20.3% of their portfolios maturing Overnight, 9.2% maturing in 2-7 Days, 14.2% maturing in 8-30 Days, 16.2% maturing in 31-60 Days, 14.8% maturing in 61-90 Days, 21.2% maturing in 91-180 Days, and 4.2% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.8%), Japan (16.0%), Great Britain (12.9%), Netherlands (8.8%), Germany (8.2%), Sweden (5.8%), Australia (5.6%), Canada (5.6%), US (4.3%), and Abu Dhabi (2.7%).

The 15 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L8.6B (5.3%), Mitsubishi UFJ Financial Group Inc. with L7.1B (4.3%), Sumitomo Mitsui Banking Co. with L6.7B (4.1%), BNP Paribas with L5.7B (3.5%), ING Bank with L5.6B (3.4%), Nordea Bank with L5.4B (3.3%), Rabobank with L5.3B (3.2%), DZ Bank AG with L5.2B (3.2%), Credit Mutuel with L4.8B (2.9%), BPCE SA with L4.3B (2.6%), National Bank of Abu Dhabi with L4.1B (2.5%), Sumitomo Mitsui Trust Bank with L4.1B (2.5%), Toronto-Dominion Bank with L4.1B (2.5%), Credit Agricole with L4.0B (2.5%), Qatar National Bank with L3.8B (2.3%), Mizuho Corporate Bank Ltd. with L3.6B (2.2%), Commonwealth Bank of Australia with L3.6B (2.2%), Standard Chartered Bank with L3.6B (2.2%), Bank of America with L3.4B (2.1%), and Dexia Group with L3.3B (2.0%).

The U.S. Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary late last week. It shows that total assets were flat (down a fraction) in March, with Prime funds gaining $12.1 billion (after gaining $24.9B in Feb.), Tax Exempt MMFs losing $0.6 billion and Government funds losing $14.5 billion. Gross yields jumped for both Taxable MMFs and Tax Exempt MMFs following the mid-month Fed hike. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review the SEC's latest recap below.

Money market fund assets decreased by $1.7 billion in March to $2.930 trillion. (The SEC's series includes some private and internal funds not reported to ICI or other reporting agencies; note that Crane Data is in the process of adding many of these to our collections.) Overall assets increased by $14.2 in February, but decreased by $41.1 billion in January and $16.6 billion in December. Over the past 12 months through 3/31/17, total MMF assets have declined by $142.7 billion, or 4.6%.

Of the $2.930 trillion in assets, $599.1 billion was in Prime funds, which increased by $12.1 billion in March. Prime MMFs increased $24.9 billion in February and $11.7 billion in Jan., but decreased $15.5 billion in December, increased $3.4 billion in Nov., and decreased by $177.4 billion in October, $293.2 billion in Sept., and $201.3 billion in August. Prime funds represented 20.5% of total assets at the end of March. They've declined by $919.0 billion the past 12 months, or 60.5%, but they've increased by $48.8 billion, or 8.9%, YTD.

Government & Treasury funds totaled $2.195 billion, or 74.9% of assets,, down $14.5 billion in March. They fell $10.1 billion in February, $53.8 billion in January and $10.2 billion in Dec., but rose $56.4 billion in November, $148.0 billion in October, $268.3 billion in Sept., and $212.0 billion in August. Govt & Treas MMFs are up $883.4 billion over 12 months (67.3%). Tax Exempt Funds decreased $0.6 billion to $135.4 billion, or 4.6% of all assets. The number of money funds is 411, unchanged from last month and down 79 from 3/31/16.

Yields were up sharply in March for Taxable MMFs. The Weighted Average Gross 7-Day Yield for Prime Funds on March 31 was 1.03%, up 12 basis points from the previous month, and almost double the 0.55% of March 2016. Gross yields increased to 0.76% for Government/Treasury funds, up 0.15% from the previous month and up 0.37% since 3/16. Tax Exempt Weighted Average Gross Yields increased 0.17% in March to 0.87%, and they've risen 54 bps since 3/31/16).

The Weighted Average Net Prime Yield was 0.80%, up 0.12% from the previous month and up 0.46% since 3/16. The Weighted Average Prime Expense Ratio was 0.23% in March (unchanged from February). Prime expense ratios have risen from 0.21% in March 2016. (Note: These averages are asset-weighted.)

WAMs shortened while WALs were mixed in March. The average Weighted Average Life, or WAL, was 59.6 days (up 1.0 day from last month) for Prime funds, 90.7 days (down 2.6 days) for Government/Treasury funds, and 23.7 days (down 2.3 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 27.4 days (down 1.9 days from the previous month) for Prime funds, 38.7 days (down 2.2 days) for Govt/Treasury funds, and 21.3 days (down 1.8 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 35.4% in March (up 3.1% from previous month). Total Weekly Liquidity was 50.3% (up 0.1%) for Prime MMFs.

In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $81.1 billion, followed by the U.S. with $56.2 billion. Sweden was third with $49.2B, followed by Japan with $47.5 billion, France ($47.4B), Australia/New Zealand with $38.8B, Germany ($26.1B) and the UK ($18.2B). The Netherlands ($16.4B) and Switzerland ($10.9B) rounded out the top 10.

The gainers among Prime MMF bank related securities for the month included: Canada (up $14.6 billion), Sweden (up $7.2B), Aust/NZ (up $3.5B), Japan (up $2.5B), the U.S. (up $2.3B), Other (up $883M), China (up $556M), Singapore (up $381M), and the Netherlands (up $37M). The biggest drops came from France (down $14.7B), Belgium (down $5.6B), the UK (down $2.4B), Norway (down $1.4B), Switzerland (down $1.2B), Spain (down $446M), and Germany (down $404M). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $186.3B (down $17.9B from last month), while the Eurozone subset had $95.3 billion (down $20.6B). The Americas had $138.3 billion (up from $121.2B), while Asian and Pacific had $97.0 billion (up from $90.1B).

Of the $593.9 billion in Prime MMF Portfolios as of March 31, $245.7B (41.4%) was in CDs (up from $244.0B), $122.9B (20.7%) was in Government securities (including direct and repo), up from $109.1B, $93.2B (15.7%) was held in Non-Financial CP and Other Short Term Securities (down from $104.0B), $100.7B (17.0%) was in Financial Company CP (up from $94.7B), and $31.5B (5.3%) was in ABCP (down from $31.9B).

The Proportion of Non-Government Securities in All Taxable Funds was 18.0% at month-end, up from 17.4% the previous month. All MMF Repo with Federal Reserve increased to $328.1B in March from $194.0B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 35.3% were in maturities of 60 days and over (down from 36.0%), while 8.8% were in maturities of 180 days and over (up from 7.0%).

Money market mutual fund assets fell on tax related declines in the latest week and fell for the sixth straight week. Since March 8, assets have fallen by $61.7 billion, or -2.3%, and year-to-date assets have fallen by $102.5 billion, or 3.8%. Prime assets fell by $3.0 billion in the latest week, which included the April 15 (18) tax deadline, but they've only declined by $843 million, or -0.2% over the past six weeks. YTD, Prime MMF assets are up by $20.1 billion, or 5.3%. Government MMF assets, meanwhile, fell $11.9 billion this week, $59.9 billion over 6 weeks, and $119.9 (-5.4%) YTD. We review the latest money fund asset totals, as well as J.P. Morgan's latest Portfolio Holdings update, below.

The Investment Company Institute's latest weekly "Money Market Mutual Fund Assets" report says, "Total money market fund assets decreased by $16.88 billion to $2.63 trillion for the week ended Wednesday, April 19, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $11.93 billion and prime funds decreased by $3.00 billion. Tax-exempt money market funds decreased by $1.94 billion." Total Government MMF assets, which include Treasury funds too stand at $2.102 trillion (80.0% of all money funds), while Total Prime MMFs stand at $396.4 billion (15.1%). Tax Exempt MMFs total $128.2 billion, or 4.9%.

The release explains, "Assets of retail money market funds decreased by $5.14 billion to $973.85 billion. Among retail funds, government money market fund assets decreased by $2.09 billion to $597.68 billion, prime money market fund assets decreased by $1.56 billion to $252.48 billion, and tax-exempt fund assets decreased by $1.49 billion to $123.69 billion." Retail assets account for over a third of total assets, or 37.0%, and Government Retail assets make up 61.4% of all Retail MMFs.

It continues, "Assets of institutional money market funds decreased by $11.74 billion to $1.65 trillion. Among institutional funds, government money market fund assets decreased by $9.85 billion to $1.50 trillion, prime money market fund assets decreased by $1.44 billion to $143.96 billion, and tax-exempt fund assets decreased by $450 million to $4.52 billion." Institutional assets account for 63.0% of all MMF assets, with Government Inst assets making up 91.0% of all Institutional MMFs.

The release adds, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website."

Crane Data's latest Money Fund Intelligence Daily, a separate data series from ICI's, shows total money fund assets down $16.2 billion in the latest week and down $21.9 billion month-to-date (through 4/19). Prime MMFs are up $1.1 billion so far in April while Govt MMFs are down $22.6 billion. Money fund assets normally fall due to tax payments on March 15 and especially on April 15, and we expect assets to remain weak next week as well as checks continue to clear.

In other news, J.P. Morgan Securities' latest "Taxable money market fund holdings update" explains, "Total taxable 2a-7 MMF AuM finished March down $22bn month-over-month. Prime fund AuM went unchanged and currently sits at $396bn. Government funds lost $22bn in AuM. Outflows from government funds are common during the first half of the year, and we do not think that March's outflows are indicative of any emerging trend in government funds."

Their update continues, "Prime fund exposures to banks increased modestly by $3bn month-over-month.... Holdings of Eurozone banks fell $15bn, while holdings of other Yankee and US banks increased $18bn. Away from banks, prime asset allocations went relatively unchanged with two exceptions.... RRP usage picked up temporarily at quarter-end as expected. Additionally, holdings of municipal VRDNs fell as SIFMA rates lost their relative yield pickup to repo and other liquid assets."

It adds, "Since MMF was finalized last October, prime-held CP/CD WALs have averaged roughly 95 days, almost 1m longer than the pre-reform average of 13m, and 1week longer than most of 2015. The post-reform extension in WALs is mostly a function of the Fed. Floaters have become a very popular way to extend on the curve while protecting against potential Fed moves."

Finally, J.P. Morgan writes, "Holdings data suggests that banks have shifted increasingly towards repo as a source for short-term funding in response to lower CP/CD demand from MMFs post-reform. As AuM left prime funds en masse banks turned to government funds for funding in the form of Treasury and agency repo. This trend is most pronounced for the Japanese, French, Canadians, and British, all of which have been historically active issuers in the USD money market."

The Bank for International Settlements' Committee on the Global Financial System published a paper on, "Repo market functioning (CGFS Papers No 59)." The Executive Summary says, "Repo markets play a key role in facilitating the flow of cash and securities around the financial system. They offer a low-risk and liquid investment for cash, as well as the efficient management of liquidity and collateral by financial and non-financial firms. A well functioning repo market also supports liquidity and price discovery in cash markets, helping to improve the efficient allocation of capital and to reduce the funding costs of firms in the real economy. However, excessive use of repos can facilitate the build-up of leverage and encourage reliance on short-term funding." (Note: Thanks to Russ Ives from Ives Associates and Garret Sloan from Wells Fargo Securities for pointing out this paper.)

The BIS explains, "The CGFS Study Group on repo market functioning was established to analyse changes in the availability and cost of repo financing, and how these affect the ability of repo markets to support the financial system, in both normal and stressed conditions. The Group focused on repo transactions backed by government bonds."

The paper tells us, "Repo markets are in a state of transition and differ across jurisdictions in terms of both their structure and their functioning. In many jurisdictions, outstanding volumes of repos have declined significantly from their pre-crisis peaks but have stabilised in recent years. Changes in headline measures of price, such as the spread with risk-free rates, have differed across jurisdictions. In some jurisdictions, there are signs of banks being less willing or able to undertake repo market intermediation, compared with the period before the crisis, and seeking opportunities (including through greater netting) to minimise the use of their balance sheet in repo activity. An emerging pattern of volatility in both prices and volumes around balance sheet reporting dates can be associated with banks in some jurisdictions contracting their repo exposure in order to "window-dress" their regulatory ratios and reduce contributions to resolution funds, taxes and fees."

It continues, "The report identifies several drivers behind these changes. Exceptionally accommodative monetary policy has played a role in providing ample central bank liquidity to the market and reducing the need for banks to trade reserves through the repo market. At the same time, central bank asset purchases have increased the reserves seeking investment in the repo market, thus putting pressure on the balance sheets of repo intermediaries, but have also reduced the quantity of high-quality collateral in many jurisdictions. The experience of the crisis and subsequent regulatory reform have combined to render banks more cautious about engaging in repo market intermediation."

The BIS study comments, "The financial stability benefits of a potential decline in the availability of repo relate to moderating the vulnerabilities that emerged in the crisis through discouraging the future build-up of institutions' leverage and reliance on short-term funding. The maturity of repos is very short, which creates liquidity risks, and the value of repo collateral can be procyclical. In periods of stress, market participants become more sensitive to perceived counterparty risk and the value of the collateral can also be affected, thus amplifying the procyclical effects of leverage."

It adds, "The channel working through the collateral value is arguably weaker in the case of repos against government securities, and in particular in jurisdictions where government bonds appreciate in value during stress. Nevertheless, a reduction in the availability of repo and a better pricing of the intermediation costs may enhance financial system resilience by acting to limit excessive leverage, a key objective of the post-crisis regulatory reform."

The study also says, "These benefits, however, must be set against the costs of a reduction in repo availability. In a number of jurisdictions, some end users have already experienced difficulties (or increased costs) placing cash in repo markets, but the significance of these costs to the real economy is hard to gauge. A contraction in intermediation capacity may also reduce the degree to which repo markets can respond to demand during future periods of stress."

It adds, "A reduction in repo market functioning might create frictions in cash and derivatives markets, and reduce the ability of financial institutions to monetise assets. The scale of the resulting costs to financial stability and the real economy in times of stress might be significant altogether, although such situations have not materialised on a substantial scale in the most recent past. Repo market adaptations might mitigate the costs to some end users, but could also introduce new risks."

Finally, the BIS paper tells us, "Given the differences in repo markets across jurisdictions and the fact that repo markets are in a state of transition, it is too soon to establish strong links between the different drivers and the observed changes in markets, or to reach clear-cut conclusions on the need for policy measures. A further study undertaken within the next two years should be able to form a clearer view of how repo market functioning has been shaped by, and adapted in response to, the various drivers identified in this report, including for example, the impact of regulations that act on the size or composition of banks' balance sheets, the treatment of collateral, permissible netting and the effects of cross-jurisdictional differences in the way repo exposures are calculated for the purpose of regulation, taxes and fees."

They write, "To the extent necessary, the future study might provide a more informed assessment of the costs and benefits of any policy action. Any such assessment should consider the wider benefits or costs of these policies for the resilience of firms and the financial system as a whole, going beyond the narrow perspective of repo markets adopted in this study."

The summary concludes, "Prior to such a review, authorities in some jurisdictions might consider mitigating the adverse effects of a reduction in repo availability via more targeted and temporary measures. These include measures to reduce the scarcity of certain collateral, as well as other policies implemented in certain jurisdictions which, though initiated with the objective of facilitating monetary policy, have nonetheless improved repo market functioning."

This month, our Money Fund Intelligence newsletter spoke with Paul Przybylski, Executive Director, Head of Global Liquidity Product Development & Strategy for J.P. Morgan Asset Management, and we also include a couple of comments from some other members of the JPMAM team. We discussed recent trends in the global money markets, including the gradual shift back into Prime money funds in 2017 and how the pending European money fund reforms will affect "offshore" cash investments. JPMAM is the 3rd largest U.S. money fund manager and the 2nd largest MMF manager globally, with over $250 billion in US assets and another $150+ billion in Europe and elsewhere. Our Q&A follows. (This interview is reprinted from the April issue of our flagship Money Fund Intelligence newsletter; e-mail info@cranedata.com to request the full issue.)

MFI: Tell us about your history and the current team at JPMAM. Przybylski: I started working in the space as Chief Operating Officer and Chief Financial Officer for the J.P. Morgan Global Liquidity business around three years ago. Prior to that, I was CFO for the Global Fixed Income & Liquidity business for four years.... Over the past three years, I was involved in various strategic projects, which included, among other things, product development and working directly with JD [John Donohue, CEO, Asset Management Americas and Head of Global Liquidity] and the team.

The current Liquidity team includes: John Tobin, Global Head of Liquidity Portfolio Management; Dave Martucci, Global Head of Managed Reserves Strategy; Paula Stibbe, Global Head of Sales across Money Market Funds, Managed Reserves, and Short Duration Strategies; Jimmie Irby, Heads of Credit Risk Administration; and, Ted Ufferfilge, Head of Global Short-Term Fixed-Income Client Portfolio Managers.

MFI: Where do you see the industry overall heading in the next two years? Donohue: I think we're well positioned for the rotation in the U.S. from 'Govie' back to credit. We're [seeing this shift] not only in our funds, but in the broader market landscape. So I think we should see positives there.... European reform is not going to be done by the end of this year, but by the time we get to December we should have a clear understanding of what we will be doing in terms of product offerings. Finally, repatriation, in general, we sense will be a 2018 event. That said, we will continue to dialogue with our clients as we move through 2017.

MFI: What is your biggest priority? Przybylski: First, we are at the six-month mark post U.S. MMF reforms. That said, we're reviewing our current product offering to ensure we are well positioned for future growth. Second, we have begun work streams on European regulatory reform, which has a target implementation date of Q4 2018. Even though there are still 16 to 18 months before we need to implement these, we know from experience that this time goes by fairly quickly. It took around 2 years to complete the Rule 2a-7 reforms in the U.S. So we're running on all cylinders in Europe from a product development strategy perspective. Third, we're focused on educating our clients with intellectual collateral with emphasis on rotating back from government funds into the credit space where applicable.... As we have the largest publicly available Institutional Prime fund and the largest government fund, it puts us in a good position to handle our clients' cash management needs.

MFI: Tell us about your recent papers on Prime MMF issues. Przybylski: We're seeing the industry begin to gradually shift back into credit and clients have become more inquisitive on credit funds and spreads. There seems to be more comfort, broadly, following reform ... clients are starting to realize that it's not as disruptive as they thought. There has been a [static] mindset for the last 8-9 years with the market sitting in a zero yield environment.... We continue to educate clients, making sure they have all the facts and really understand the details behind how floating NAV works. One of the pieces we put out focused on those operational aspects of reform in the U.S. The credit shift has begun already.... Our prime fund has gained 42% in AUM since the conversion, so some clients have been benefitting already. We want to make sure that we educate as many clients as we can so they can feel comfortable enough to move along with the wave.

MFI: What's the biggest challenge in managing cash today? Tobin: Sourcing new repo supply continues to pose challenges, given tightening constraints on dealer balance sheets and regulations such as the Supplemental Leverage Ratio. However, the market continues to innovate with its current pursuit of centrally cleared repo and increased utilization of bilateral DVP.

MFI: Are you seeing relief from any fee waivers? Przybylski: Waivers have been a broad drag across the industry for the past 8 years due to the rate environment. The initial rate hike back in December 2015 alleviated the initial pain, and with the second rate hike we were almost 90% back to pre-waiver levels. With this last rate hike the industry is [basically] in a full fee rate environment. If you look at the broad industry in the U.S., there are about $2.7 trillion dollars in Rule 2a-7 money market funds.... [Well over $1.0 trillion] of Prime assets have shifted into government type product. We originally thought that the floating NAV would be of greater concern, but as NAV volatility has remained fairly muted for the past six months, it's become clear that fees and gates were more of an issue for clients.

Equally, clients transitioned into the government space because it was a safe default option. They didn't want to deal with fees and gates; they didn't want to deal with floating NAVs, driving the government funds to the size we see today.... Reform also required the market to take significant steps to isolate Institutional clients and create clear designations to segment the product space. Clients were content taking a government yield for clarity on what was going to come next. Now that short term interest rates have increased, we're seeing clients start to realize that a 42-44 basis point spread between government and credit funds is attractive, and that a segmented portfolio can have a meaningful overall return. It's going to take time, and should continue throughout the year. But I think you're going to start seeing clients come back [to Prime] . If there are more rate hikes from the Fed, those spreads should continue to widen.

MFI: What about ultra-shorts and SMAs? Przybylski: I think a number of factors have driven our separate account growth, some of which can be attributed to the reforms.... Clients want to build a customized portfolio with a predefined set of guidelines and a pre-negotiated management fee. [But] separate accounts are more human capital intensive products that require more 'touches' as you go on. They require more account reviews and more client interaction than a mutual fund investment would.

MFI: Can you talk about repatriation? Przybylski: Repatriation is a potential event we're analyzing. Our Luxembourg offshore complex does have a [number] of U.S.-headquartered multinational clients investing in offshore dollars/products. We're performing analysis [to really understand], 'What is the impact to our clients, our Lux complex, and our overall global platform after repatriation happens?' This will be an ongoing analysis as time evolves, and as we see more clarity in the future tax reform. There are dynamics which make European reform more complicated in terms of figuring out how we should be structuring our products, since there is no "default option" like there was in the U.S.. That puts these reforms in a more challenging light, because we could end up launching all three structures [LVNAV, FNAV and Govt CNAV] for product, or we could selectively pick based on client input of what they would like us to launch. That's something we're going through right now, and what we're spending quite a lot of time educating our clients and having dialogues on, so we can understand the market demand.

Last Thursday, Treasury Strategies held its latest "Quarterly Corporate Cash Briefing," hosted by Treasury Strategies' Kevin Ruiz and Anthony Carfang, and featuring Deborah Cunningham from Federated Investors, Gregory Fayvilevich from Fitch Ratings, Michelle Price from the Association of Corporate Treasurers. The invitation for the session, entitled, "Managing Corporate Cash – More Critical Than Ever," explained, "The one thing 2017 has not been is boring. We have seen drastic political and economic changes worldwide, yet global financial markets seem to be humming along. What more is in store for us in 2017? Please join us in the largest and longest-running conversation on corporate cash decisions in the financial industry." We quote from some of the highlights below.

Carfang commented, "As we look at the numbers here at Treasury Strategies, we help our clients decipher what's going on in the marketplace. I can't help but think that the decline in reserve balances -- these are reserves that banks keep on deposit [at the Fed earning IOER, interest on excess reserves] -- have declined from a 2013-2014 period high.... It's interesting that we see the slope of that decline accelerating. `But when we look at this [decline], we actually see a similar pattern to the outflow of assets from prime money market funds."

He continued, "If we go back and check the statistics, [the reduction in] money fund holdings of bank liabilities totaled about $600 billion dollars, and the [decline in Fed reserves is] almost identical.... As banks lost funding from money funds, it actually made up that funding by withdrawing their reserve deposits from the Fed. If that's true, there would be a lot of implications.... Frankly, we're not sure, [but] we have a decline in reserve balances."

Carfang also discussed the new regulatory environment in Washington, saying, "Does that mean that money fund regulations will get rolled back in the new Congress or with the new composition at the Securities and Exchange Commission? ... That depends on you.... The regulated seem to at some point, accommodate and adapt to [new] regulations nicely, and may not be interested in having regulations rolled back. Over the last several years, banks were talking about the need to repeal Dodd Frank, and all of a sudden we have an administration that might repeal Dodd Frank and now some of the banks [aren't interested]."

He added, "The same [thing might be happening] in the money market industry.... Now as corporate treasures, ... what you need to do here is make sure your financial services providers, your banks, your fund companies, your investment banks ... understand what you need from the financial system and how financial regulation and regulatory changes have impacted you.... A lot of what we're hearing about regulatory reform will fall by the wayside because of what I referred to as regulatory capture."

Cunningham said on the call, "I think that the political risk, from a money market perspective, it's U.S.-centric, to a large degree. We've got so much change that's occurring here in the U.S. from a political perspective. The fact that we might have fiscal policy [or] stimulus to go along with what has been only monetary policy ... I think that's throwing a lot of what's happening in the U.S., from a money markets perspective and the treasury perspective, into a little bit of a funk."

Fayvilevich discussed MMF Reforms, stating, "The key point to remember about the reform is how ... more than a trillion dollars moved from prime funds to government funds. A lot of it really waited in prime funds ... until the very last minute, and the industry was able to absorb that [shift] very well with no issues. [O]nce institutional prime funds starting floating, and [after] 2 rate hikes NAV's are barely moving, our fund managers are managing liquidity very conservatively. So I think what's important to remember [is] how orderly this whole thing went ... with so much money moving around."

He added, "So prime assets [bottomed out in] early November, and since then we've seen some money come back into prime. We're seeing that in the data.... I think some of the appeal, that I mentioned, [is from] very stable products and strong management. No issues [have come] up since reform. I think that's been one of the big things for investors.... We are six months into the reform already, and investors are getting more comfortable in how prime funds are managed in this environment. Then I think the yield spread between prime and government funds has been fairly attractive for some investors."

Fayvilevich continued, "Yields spreads between prime funds and government funds features have kind of settled around the mid 30's or 30-40 basis points. So we've seen some first movers go back into prime, and I think other investors are getting more and more comfortable with these types of funds. [We] certainly [don't] expect the entire trillion dollars to come back -- some of it was structural and will remain in government -- but I think there's a broad space for [a lot of those dollars] to come back."

He added, "We're also seeing a little move into ultra-short funds. I think investors are doing a better job segmenting their cash, and keeping a little in government funds that needed liquidity, a little bit further out than prime funds maybe a little bit more in ultra-short funds. But ultra-short funds aren't as standardized as prime so a little bit more work is required there."

Cunningham told us, "Trickles are starting to come back in.... From Federated's perspective, our largest institutional prime money market floating net asset value fund ... was up about 30% in assets over the first quarter. That's also [just] a billion dollars.... Part of the problem is the ultimate size of those funds, and how they can be accommodative. Treasurers often times have a minimal investment amount [and] a maximum that they want to be in any one product.... It’s kind of re-working again, investment policies to make tiny footsteps usable and available for the practitioners who are comfortable with it. So it's a hard to get size; it will happen, but it's a slow process."

She continued, "I think the other thing [is] comparing total returns and not just yield. On a first quarter basis, it looked like on a yield spread versus the governments sector it was about a 38 basis points spread. But when you look at it on a total return basis, it was about 36 basis points. [This is] not very much movement, very little 'F' in the 'FNAV' [but] it wouldn't be a full picture unless you look at those components of performance."

The April issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Friday, features the lead story, "Battle Brews Over Bond Fund Indexing; Record Inflow in Q1," which reviews some recent pro and con articles on active management vs. indexing. BFI also includes the article, "Bond Fund Symposium Highlights: Ultra-Shorts Big," which reviews our recent inaugural bond fund conference in Boston. In addition, we recap the latest Bond Fund News, including briefs such as, "Bond Fund Yields & Returns Higher in March." BFI also includes our Crane BFI Indexes, averages and summaries of major bond fund categories. We excerpt from the latest issue below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS data spreadsheet, and watch for news about our new Bond Fund Portfolio Holdings "beta" product next month.)

Our lead Bond Fund Intelligence story says, "The debate over indexing has shifted into the bond fund space recently with a study by PIMCO defending actively-managed bond funds, and a pair of recent news stories that support passive management. We review these below, and we also discuss the latest bond fund inflows, which we believe set a record in Q1'17."

It explains, "A new PIMCO paper, entitled, "Bonds Are Different: Active versus Passive Management in 12 Points," tells us, "Opinions in the active-passive investment debate have drifted poles apart over recent years. We revisit this discussion by contrasting equity and fixed income market in the U.S. We look at performance numbers and find that, unlike their stock counterparts, active bond mutual funds and exchange-traded funds (ETF's) have largely outperformed their passive peers after fees."

The story continues, "It explains, "We offer conjectures as to why bonds are different from stocks. This may be due to the large proportion of noneconomic bond investors, the benchmark rebalancing frequency and turnover, structural tilt in fixed income space, the wide range of financial derivatives available to active bond managers, and security-level credit research and new issue concessions."

Our "BFS Highlights" article says, "Crane Data recently hosted its first Bond Fund Symposium conference in Boston. The turnout and enthusiasm of attendees confirmed what we've suspected, that the ultra-, ultra short or 'conservative' ultra-short bond fund sector is one of the hottest and fastest-​growing in the mutual fund industry. We briefly review some of the highlights from the sessions and recent news on this growing segment below. (Note: This is an expanded and slightly different version of the update that ran in Money Fund Intelligence.)"

The piece continues, "Bond Fund Symposium's Keynote, 'The Time Is Now for Short-Term Strategies,' featured PIMCO's Jerome Schneider, who gave an excellent overview of the short-​term space and PIMCO's dramatic growth in this area. (See the chart on page 2. Assets in their ultra-shorts have increased from under $4 billion before the crisis to over $18 billion currently.) He urged attendees to redouble efforts to educate investors on the benefits of ultra-short bond funds."

It continues, "The next session, 'Segmenting the Ultra-Short Bond Market,' featured Crane Data's Peter Crane, with Fidelity Investments' Michael Morin and J.P. Morgan A.M.'s Dave Martucci. Crane commented, 'The short term bond fund space is pretty large overall, you're looking at about $400 billion roughly.' But ultra-short bond funds are just a quarter of this, and 'conservative' ultra-short a quarter of ultra-short. He added, 'There are [funds] near money funds, and there are short-term funds that are doing things that are alien to money market funds.... One of our decisions early on was to launch a 'Conservative Ultra-Short' category, to in effect slice the ultra-short in two, to make a segment that is more liquid, more suited to institutional investors."

The piece adds, "Morin said, 'This is all about investor education and making sure that they understand that these funds are not money market funds. The risk profile of the asset class is very different than money market funds, and it's imperative that we, as industry practitioners, make sure that clients know what they're buying. I think the worst thing that could happen for us in this emerging field of conservative ultra-short bond funds is clients really [not] understanding ... them." (Note: Conference recordings, PPTs and the conference binder are available to attendees and subscribers here or at the bottom of our "Content" page.)

Our Bond Fund News brief on "Yields & Returns" explains, "Returns rose across all of the Crane BFI Indexes except High Yield last month, and yields moved higher for all of our averages. The BFI Total Index averaged a 1-month return of 0.12% and gained 2.98% over 12 months. The BFI 100 had a return of 0.07% in March and rose 3.63% over 1 year. The BFI Conservative Ultra-Short Index returned 0.09% and was up 1.18% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.11% and 1.62% for 12 mos. Our BFI Short-Term Index returned 0.16% and 2.27% for the month and past year. The BFI High Yield Index decreased 0.04% in March but is up 11.97% over 1 year."

Another brief, "Morningstar writes "Bond Funds Hold Their Own in the First Quarter." The article says, "The bond markets enjoyed a relatively benign opening to 2017, with many fixed-income funds enjoying modest gains after a rocky fourth quarter of 2016. Although the Fed hiked rates for only the second time in more than 10 years, all fixed-income Morningstar Categories were in positive territory over the first quarter.... The riskiest bonds outperformed sharply, with particularly strong performances coming from funds in the emerging-markets bond and emerging-markets local-currency bond categories."

Finally, a sidebar entitled, "PIMCO Biggest BF Again," explains, "The Wall Street Journal writes, "A Pimco Fund Just Became the Biggest Active Bond Fund, and It Wasn't Bill Gross's." This piece explains, "A Pacific Investment Management Co. fund is once again the largest of its kind in the world. For the first time, the bond manager claimed the crown without any help from co-founder Bill Gross. Pimco's Income Fund surpassed TCW Group Inc.'s Metropolitan West Total Return Bond Fund in March as the biggest actively managed bond fund, according to figures released Tuesday."

Last week, Federal Reserve Bank of New York Executive Vice President Simon Potter spoke on "Money Markets at a Crossroads: Policy Implementation at a Time of Structural Change," where he discussed the Fed's "new and innovative framework to control money market rates." Potter says, "Since late 2015, we have seen several significant developments in money markets that have tested this new framework. These include a profound reshaping of the money market fund industry as a result of new Securities and Exchange Commission (SEC) rules, significant shifts in cash management practices at the Treasury and large foreign reserve managers, and continued pressure on bank balance sheets due to the ongoing implementation of Basel III capital requirements. Also since that time, the Federal Open Market Committee (FOMC) has directed three 25 basis point increases in its target range for the federal funds rate."

He continues, "I will discuss these structural developments, and evaluate the continued efficacy of the Federal Reserve's policy implementation framework in light of their effects on money market competition and integration. I'll briefly review the means by which we implement policy, and the reasons why we do so differently now from before the financial crisis. I'll explain why changes in money market structure could conceivably impair the transmission of monetary policy. We will see that the impact of many of the recent structural developments were smoothed by the presence of the Federal Reserve's overnight reverse repurchase facility. Then, I will take you through some data about money market dispersion to see what effect these developments had in practice."

Potter says, "The takeaway from all this is clear: our framework remains highly effective, and has proved quite resilient, even to these significant shifts in market structure. It continues to provide the FOMC with excellent control over money market rates. Indeed, the effective federal funds rate remained within the FOMC's target range 100 percent of the time in 2016 and this has continued so far this year.... Changes in the federal funds rate continue to transmit in a predictable way to other money market rates, thereby affecting, as intended, the broad financial conditions upon which the price and quantity of private sector credit depend. However, recent evidence on dispersion in overnight and term rates suggests that we should continue to monitor the transmission of the FOMC's policy stance into money market rates carefully."

He explains, "Our current framework relies, instead, on providing the market with two overnight investment opportunities to help steer money market rates: interest on reserves (IOR) and the overnight reverse repurchase agreement (ON RRP) facility. By law, IOR is available only to depository institutions. Absent frictions, IOR should provide a floor on interest rates, since competition between banks that can acquire funds in the wholesale market at rates below IOR and earn the spread should bring these rates very close to that paid on reserves. In practice, a number of frictions have led money market rates to trade moderately below IOR. ON RRP, which is offered to a broad selection of counterparties that includes money market funds, is intended to intensify competition in money markets and enhance the transmission of IOR into other overnight money market rates. It also has proved useful as a shock absorber."

Potter also comments, "Some structural changes could reduce the ability of our operations to affect rates on other transactions within those same markets. For example, our ON RRP operations provide a floor on the repo rate offered by dealers to cash investors because of the competitive pressure the Fed's offer rate places on borrowers of funds in the repo market. If this competitive pressure were less effective, perhaps because of greater constraints on lenders' switching counterparties, changes in the ON RRP rate could become less effective in influencing repo market rates."

On "Recent Developments in Money Market Structure," he tells us, "Since 2015, my staff and I have focused on four changes in money market structure that some observers believed could have had an impact on the implementation or transmission of monetary policy. I'll discuss each of these in turn. To begin with, we are now firmly off the zero lower bound. After seven years at very low levels, the federal funds rate is now trading at 91 basis points. [T]he distribution of overnight federal funds activity is now quite distant from zero, in comparison to the period before liftoff. (Figure 3) shows a similar presentation for the triparty repo market, similarly revealing that traded rates are now consistently well above the zero bound and largely above or at the ON RRP offer rate."

Potter continues, "The second development, in October 2016, was the entry into force of new SEC rules for money market funds. These new rules require, among other things, a floating net asset value for institutional prime money market funds, provide for liquidity fees and redemption gates for prime funds, and establish more stringent rules for portfolio diversification and financial reporting for all money market funds. Many of these reforms are aimed at least in part at enhancing financial stability, and in particular at addressing the potential for runs on prime funds to intensify financial stress. They could also make prime funds, which can hold a broad spectrum of money market assets, less attractive to investors who desire an investment opportunity with a fixed net asset value or who are concerned about redemption fees or gates."

He states, "Our contacts in the money market fund industry could foresee, based on their own business plans and discussions with their clients, that these reforms would lead to a substantial shift in money market fund assets. Substantial amounts were expected to come out of prime funds and into government-only funds, which generally hold Treasury securities, repo against Treasury collateral, or similar ultra-low-risk assets. As a result, this reallocation was expected to bring about somewhat lower rates on Treasury bills and repo backed by Treasury collateral, and somewhat higher unsecured rates."

Potter informs us, "The size of the reallocation ended up being quite a bit larger than most had expected. [A]bout $1 trillion of assets had migrated from prime to government funds by late 2016. This resulted in a major reallocation of the investments held by the money market fund industry.... This reallocation had far-reaching effects on the structure of money markets, as described in a recent blog by some of my New York Fed colleagues. For example, banks that were relying on the funding by prime funds had to find other institutions that would be willing to lend to them. Government funds, which received large inflows, had to place the additional funds they had received, for example into Treasury or agency securities or into repo. Such a large change in funding flows could have created significant movements in money market interest rates."

He adds, "The good news is that the ON RRP facility served as a shock absorber for overnight rates. As shown in (Figure 6), money market funds, particularly government funds, increased their use of ON RRP during the transition. Because of the availability of ON RRP, government funds knew they would be able to temporarily place some of the new funding they received at the ON RRP facility while they were looking for new investment opportunities, and prime funds knew they would have access to a very secure and liquid overnight investment as they increased their liquidity to meet an uncertain level of redemptions. As a result of this elastic provision of a risk-free investment opportunity, overnight secured and unsecured rates were only modestly affected by these large flows, and overnight markets continued to move as intended following changes in the FOMC's target for the federal funds rate. That said, the runoff in prime fund assets did leave an imprint on term unsecured rates, although some of this has retraced recently as markets have adapted."

Finally, Potter comments, "To conclude: I continue to be greatly encouraged by the performance of our framework for policy implementation, which has provided the FOMC with excellent control over the federal funds rate and predictable pass-through of the monetary policy stance into broader money market conditions. Transaction-level dispersion measures demonstrate markets that are competitive, and suggest that the effects of policy tightening are realized as expected and intended. These markets, and our framework, have proved resilient to major shocks to the structure of money markets, including the reshaping of the money market fund industry."

Crane Data released its April Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of March 31, 2017, shows a decline in Agencies, and a jump in Repo; "credit" -- CDs and CP -- was flat. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) decreased by $11.8 billion to $2.635 trillion last month, after decreasing $18.1 billion in Feb., but increasing by $7.2 billion in Jan. and $34.7 billion in Dec. Repo remained the largest portfolio segment, followed by Treasuries and Agencies. CDs were slightly lower but remained in fourth place, followed by Commercial Paper, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us if you'd like to see a sample of our latest Portfolio Holdings Reports.)

Among all taxable money funds, Treasury securities fell $1.6 billion (-0.2%) to $753.9 billion, or 28.6% of holdings, after falling $29.3 billion in February, $37.8 billion in January, and $59.4 billion in Dec. Repurchase Agreements (repo) rose $41.6 billion (5.3%) to $833.7 billion, or 31.6% of holdings, after rising $3.3 billion in February, falling $43.6 billion in January, and rising $56.3 billion in Dec. Government Agency Debt decreased $49.3 billion (-7.3%) to $627.8 billion, or 23.8% of all holdings, after decreasing $10.7 billion in February, rising $35.3 billion in January, and falling $7.7 billion in Dec. Repo, Treasuries and Agencies in total continued to gradually retreat from December's record levels, but they still represent a massive 84.1% of all taxable holdings. Govt and Treasury MMFs lost assets and Prime MMFs increased slightly yet again last month.

CDs and CP decreased last month while Other (Time Deposits) increased slightly again. Certificates of Deposit (CDs) were down $3.3 billion (-1.9%) to $172.2 billion, or 6.5% of taxable assets, after rising $5.5 billion in February and $22.4 in January (but declining $0.2 billion in Dec). Commercial Paper (CP) was down $1.3 billion (-0.8%) to $149.7 billion, or 5.7% of holdings (after rising $10.4 billion in February and $16.9 billion in January), while Other holdings, primarily Time Deposits, rose $7.7 billion (12.1%) to $71.4 billion, or 2.7% of holdings. VRDNs held by taxable funds decreased by $5.5 billion (-17.3%) to $26.4 billion (1.0% of assets).

Prime money fund assets tracked by Crane Data rose to $543 billion (up from $532 billion last month), or 20.6% (up from 20.1%) of taxable money fund holdings' total of $2.635 trillion. Among Prime money funds, CDs represent just under a third of holdings at 31.7% (down from 33.0% a month ago), followed by Commercial Paper at 27.5% (down from 28.2%). The CP totals are comprised of: Financial Company CP, which makes up 17.4% of total holdings, Asset-Backed CP, which accounts for 5.6%, and Non-Financial Company CP, which makes up 4.5%. Prime funds also hold 1.7% in US Govt Agency Debt, 7.5% in US Treasury Debt, 8.6% in US Treasury Repo, 3.2% in Other Instruments, 10.9% in Non-Negotiable Time Deposits, 5.8% in Other Repo, 1.5% in US Government Agency Repo, and 3.0% in VRDNs.

Government money fund portfolios totaled $1.486 trillion (56.3% of all MMF assets), down from $1.496 trillion in February, while Treasury money fund assets totaled another $606 billion (23.0%) in March, down from $618 billion the prior month. Government money fund portfolios were made up of 41.6% US Govt Agency Debt, 16.0% US Government Agency Repo, 18.3% US Treasury debt, and 23.3% in US Treasury Repo. Treasury money funds were comprised of 73.0% US Treasury debt, 26.8% in US Treasury Repo, and 0.2% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.092 trillion, or almost 80% (79.4%) of all taxable money fund assets, down from 79.9% last month.

European-affiliated holdings plunged $106.5 billion in March to $363.0 billion among all taxable funds (and including repos); their share of holdings decreased to 13.8% from 17.7% the previous month. Eurozone-affiliated holdings decreased $83.8 billion to $247.1 billion in March; they now account for 9.4% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $11.2 billion to $184.8 billion (7.0% of the total). Americas related holdings increased $83.8 billion to $2.087 trillion and now represent 79.2% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which increased $42.5 billion, or 8.3%, to $555.6 billion, or 21.1% of assets; US Government Agency Repurchase Agreements (down $3.1 billion to $245.9 billion, or 9.3% of total holdings), and Other Repurchase Agreements ($32.2 billion, or 1.2% of holdings, up $2.2 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $5.4 billion to $94.8 billion, or 3.6% of assets), Asset Backed Commercial Paper (down $0.6 billion to $30.3 billion, or 1.2%), and Non-Financial Company Commercial Paper (down $6.0 billion to $24.6 billion, or 0.9%).

The 20 largest Issuers to taxable money market funds as of March 31, 2017, include: the US Treasury ($753.9 billion, or 28.6%), Federal Home Loan Bank ($456.2B, 17.3%), Federal Reserve Bank of New York ($313.6B, 11.9%), BNP Paribas ($81.2B, 3.1%), Federal Home Loan Mortgage Co. ($67.6B, 2.6%), Federal Farm Credit Bank ($67.6B, 2.6%), RBC ($62.3B, 2.4%), Wells Fargo ($52.0B, 2.0%), Nomura ($40.7B, 1.5%), Bank of America ($38.3B, 1.5%), Mitsubishi UFJ Financial Group Inc. ($37.2B, 1.4%), Federal National Mortgage Association ($35.0B, 1.3%), Bank of Montreal ($32.7B, 1.2%), Bank of Nova Scotia ($31.4B, 1.2%), Citi ($30.6B, 1.2%), Societe Generale ($28.2B, 1.1%), HSBC ($27.2B, 1.0%), JP Morgan ($24.5B, 0.9%), Toronto-Dominion Bank ($23.9B, 0.9%), and Natixis ($22.9B, 0.9%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($313.6B, 37.6%), BNP Paribas ($69.3B, 8.3%), RBC ($47.9B, 5.7%), Nomura ($40.7B, 4.9%), Wells Fargo ($40.6B, 4.9%), Bank of America ($33.7B, 4.0%), Societe Generale ($23.5B, 2.8%), Citi ($22.8B, 2.7%), Mitsubishi UFJ Financial Group Inc ($22.6B, 2.7%), and HSBC ($21.6B, 2.6%). The 10 largest Fed Repo positions among MMFs on 3/31 include: JP Morgan US Govt ($75.2B), Goldman Sachs FS Gvt ($51.9B), Fidelity Govt Cash Reserves ($48.0B), Fidelity Govt Money Market ($35.2B), Dreyfus Govt Cash Mngt ($34.9B), BlackRock Lq FedFund ($33.1B), Federated Gvt Oblg ($29.0B), Fidelity Inv MM: Govt Port ($25.7B), BlackRock Lq T-Fund ($24.3B), and Wells Fargo Gvt MMkt ($24.0B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mitsubishi UFJ Financial Group Inc. ($14.6B, 4.2%), Canadian Imperial Bank of Commerce ($14.6B, 4.2%), Toronto-Dominion Bank ($14.5B, 4.1%), RBC ($14.4B, 4.1%), Swedbank ($13.2B, 3.8%), Svenska Handelsbanken ($13.1B, 3.7%), Bank of Montreal ($12.6B, 3.6%), BNP Paribas ($11.9B, 3.4%), Wells Fargo ($11.4B, 3.2%), and Bank of Nova Scotia ($11.0B, 3.1%).

The 10 largest CD issuers include: Toronto-Dominion Bank ($12.9B, 7.5%), Bank of Montreal ($12.2B, 7.1%), Mitsubishi UFJ Financial Group Inc. ($11.6B, 6.8%), Wells Fargo ($10.8B, 6.3%), RBC ($8.8B, 5.1%), Sumitomo Mitsui Banking Co ($8.3B, 4.9%), Sumitomo Mitsui Trust Bank ($7.8B, 4.5%), Svenska Handelsbanken ($7.5B, 4.4%), Mizuho Corporate Bank Ltd ($6.0B, 3.5%), and Citi ($5.6B, 3.3%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Commonwealth Bank of Australia ($7.7B, 5.8%), Canadian Imperial Bank of Commerce ($6.5B, 4.8%), Westpac Banking Co ($6.2B, 4.6%), Bank of Nova Scotia ($6.0B, 4.5%), National Australia Bank Ltd ($5.6B, 4.2%), Credit Agricole ($5.5B, 4.1%), JP Morgan ($5.4B, 4.0%), Natixis ($5.3B, 4.0%), BNP Paribas ($4.9B, 3.7%), and RBC ($4.4B, 3.3%).

The largest increases among Issuers include: The Federal Reserve Bank of New York (up $138.0B to $313.6B), RBC (up $9.3B to $62.3B), Canadian Imperial Bank of Commerce (up $4.4B to $20.6B), Nomura (up $3.9B to $40.7B), Federal Home Loan Mortgage Co (up $3.4B to $67.6B), Svenska Handelsbanken (up $3.4B to $13.1B), Swedbank AB (up $3.0B to $13.2B), Mitsubishi UFJ Financial Group Inc (up $3.0B to $37.2B), ABN Amro Bank (up $1.9B to $11.8B), and Bank of Montreal (up $1.8B to $32.7B).

The largest decreases among Issuers of money market securities (including Repo) in March were shown by: Federal Home Loan Bank (down $49.1B to $456.2B), Credit Agricole (down $38.3B to $20.7B), BNP Paribas (down $20.1B to $81.2B), Barclays PLC (down $16.2B to $10.2B), Societe Generale (down $12.4B to $28.2B), Credit Suisse (down $7.8B to $6.5B), JP Morgan (down $6.7B to $24.5B), Deutsche Bank AG (down $4.8B to $14.8B), and Natixis (down $4.2B to $22.9B).

The United States remained the largest segment of country-affiliations; it represents 72.3% of holdings, or $1.905 trillion. Canada (6.9%, $180.5B) moved into second place ahead of France (6.1%, $161.0B) in 3rd. Japan (5.1%, $134.7B) stayed in fourth, while the United Kingdom (1.9%, $51.0B) remained in fifth place. Sweden (1.8%, $46.1B) and Australia (1.5%, $39.3B) moved ahead of Germany (1.5%, $38.3B) into sixth and seventh place. The Netherlands (1.3%, $34.8B) and Switzerland (0.5%, $13.5B) ranked ninth and tenth, respectively. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of March 31, 2017, Taxable money funds held 32.7% (up from 29.9%) of their assets in securities maturing Overnight, and another 12.8% maturing in 2-7 days (up from 14.8%). (Note that our "Overnight" is 3 days due to the weekend this month.) Thus, 45.5% in total matures in 1-7 days. Another 21.2% matures in 8-30 days, while 10.7% matures in 31-60 days. Note that over three-quarters, or 77.3% of securities, mature in 60 days or less (up from last month), the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 10.7% of taxable securities, while 8.2% matures in 91-180 days, and just 3.8% matures beyond 180 days.

Crane Data's latest Money Fund Market Share rankings show about half of U.S. money fund complexes declining in March with overall assets down moderately. Total assets decreased $24.8 billion, or -0.9%, last month. Overall assets decreased by $12.0 billion, or -0.4%, over the past 3 months, and they've increased by $64.2 billion, or 2.4% over the past 12 months through March 31. The biggest gainers in March were Dreyfus/BNY Mellon, whose MMFs rose by $5.3 billion, or 3.5%, Vanguard, whose MMFs rose by $3.2 billion, or 1.2%, and Schwab, whose MMFs rose by $1.4 billion, or 0.9%. First American, Federated, Wells Fargo, HSBC and T Rowe Price also saw assets increase slightly in March, rising by $505M, $457M, $388M, $304M, and $284M, respectively. The biggest declines were seen by BlackRock, Morgan Stanley, Goldman Sachs, SSgA and Western. (Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product, and the combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.) We review these market share totals below, and we also look at money fund yields the past month, which moved higher again.

Over the past year through March 31, 2017, Vanguard (up $82.2B) and Fidelity (up $59.7B) were the largest gainers, but JP Morgan would have been the largest gainer (up $20.6B, or 8.9%) had we adjusted for recently added Vanguard and Fidelity internal fund assets. These were followed by BlackRock (up $15.6B, or 7.0%), First American (up $6.0B, or 14.8%) and Dreyfus/BNY Mellon (up $5.3B). Vanguard, JP Morgan, Dreyfus, UBS, and Northern had the largest money fund asset increases over the past 3 months, rising by $13.4B, $8.6B, $7.8B, $4.5B and $4.0B, respectively.

Other asset gainers for the past year include: PNC (up $4.9B, or 77.9%), UBS (up $4.4B, or 11.6%), Northern (up $3.1B, or 3.4%), T Rowe Price (up $979M, or 6.4%), and American Funds (up $909M, 5.6%) The biggest decliners over 12 months include: Federated (down $28.8B, or -13.4%), Goldman Sachs (down $18.3B, or -9.4%), Wells Fargo (down $17.4B, or -15.5%), SSgA (down $16.2B, or -17.2%), Morgan Stanley (down $13.2B, or -10.1%), and Western (down $10.2B, or -23.8%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $507.9 billion, or 18.5% of all assets (down $1.1 billion in March, up $2.0 billion over 3 mos., and up $59.8B over 12 months). Vanguard is second with $265.4 billion, or 9.7% market share <b:>`_ (up 3.2B, up 13.4B, an up 82.2B), JP Morgan is third with $253.4 billion, or 9.2% market share <b:>`_ (up $56M, up $8.6B, and up $20.6B for the past 1-month, 3-mos. and 12-mos., respectively).`BlackRock ranked fourth with $238.2 billion, or 8.7% of assets <b:>`_ (down $9.9B, down $8.8B, and up $15.6B for the past 1-month, 3-mos. and 12-mos., respectively). Federated is in fifth with $186.2 billion, or 6.8% of assets (up $457M, down $9.8B, and down $28.9B).

Goldman Sachs was in sixth place with $176.6 billion, or 6.4% of assets (down $4.8B, down $22.7B, and down $18.4B), while Schwab was in seventh place with $160.7 billion, or 5.9% (up $1.4B, up $200M, and down $4.8B). Dreyfus ($157.7B, or 5.8%) was in eighth place, followed by Morgan Stanley in ninth place ($117.5B, or 4.3%), and Wells Fargo in tenth place ($95.5B, or 3.5%).

The eleventh through twentieth largest U.S. money fund managers (in order) include: Northern ($94.8B, or 3.5%), SSGA ($78.4B, or 2.9%), Invesco ($54.4B, or 2.0%), First American ($46.3B, or 1.7%), UBS ($42.8B, or 1.6%), Western ($32.7B, or 1.2%), DFA ($27.9B, or 1.0%), Deutsche ($21.6B, or 0.8%), Franklin ($19.4B, or 0.7%), and American Funds ($17.0B, or 0.6%). The 11th through 20th ranked managers are the same as last month, except Wells Fargo moved ahead of Northern. Crane Data currently tracks 66 U.S. MMF managers, the same number as last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except for JPMorgan and BlackRock moving ahead of Vanguard, and Goldman Sachs moving ahead of Federated and Vanguard, Dreyfus/BNY Mellon moving ahead of Schwab, and Northern moving ahead of Wells Fargo into 10th place.

Looking at our Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore"), the largest money market fund families include: Fidelity ($516.8 billion), JP Morgan ($412.9B), BlackRock ($358.4B), Goldman Sachs ($268.6B), and Vanguard ($265.4B). Federated ($194.2B) was sixth and Dreyfus/BNY Mellon ($179.8B) was seventh, followed by Schwab ($160.7B), Morgan Stanley ($149.3B), and Northern ($109.0B), which round out the top 10. These totals include "offshore" US Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into US dollar totals.

The April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/31/17, shows that yields inched higher or were flat in March across our Taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 739), was at 0.41% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 6 bps to 0.35%. The MFA's Gross 7-Day Yield increased to 0.82%, while the Gross 30-Day Yield was up 7 bps to 0.76%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.61% (up 13 bps) and an average 30-Day Yield of 0.55% (up 7 bps). The Crane 100 shows a Gross 7-Day Yield of 0.88% (up 13 bps), and a Gross 30-Day Yield of 0.82% (up 7 bps). For the 12 month return through 3/31/17, our Crane MF Average returned 0.18% and our Crane 100 returned 0.32%. The total number of funds, including taxable and tax-exempt, increased to 983, up 1 from last month. There are currently 739 taxable and 244 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 0.70% (up 13 bps) as of March. 31, while the Crane Govt Inst Index was 0.45% (up 13 bps) and the Treasury Inst Index was 0.43% (up 19 bps). Thus, the spread between Prime funds and Treasury funds is 27 basis points, down 2 bps from last month. The Crane Prime Retail Index yielded 0.50% (up 11 bps), while the Govt Retail Index yielded 0.14% (up 7 bps) and the Treasury Retail Index was 0.20% (up 11 bps). The Crane Tax Exempt MF Index yield increased to 0.35% (up 14 bps).

The Gross 7-Day Yields for these indexes in March were: Prime Inst 1.08% (up 14 bps), Govt Inst 0.74% (up 14 bps), Treasury Inst 0.71% (up 15 bps), Prime Retail 1.04% (up 12 bps), Govt Retail 0.67% (up 8 bps), and Treasury Retail 0.68% (up 13 bps). The Crane Tax Exempt Index increased 15 basis points to 0.84%. The Crane 100 MF Index returned on average 0.04% for 1-month, 0.12% for 3-month, 0.12% for YTD, 0.32% for 1-year, 0.15% for 3-years (annualized), 0.10% for 5-years, and 0.67% for 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

Last week, BNY Mellon's Dreyfus launched a new "podcast" series entitled, "Invested in cash," which "will feature some of the greatest minds within cash management sharing ideas, trends, changes, and opportunities across the spectrum of liquidity investing." The inaugural podcast features Patricia Larkin, Chief Investment Officer of the Dreyfus Money Market Funds. The description says, "Larkin frames the short-term fixed income market and how it is affected by rate hikes and inflation. She also discusses how investors may want to think about the market over the next several months." We excerpt from the interview below.

The podcast says, "Welcome and thank you for listening to our inaugural 'Dreyfus Podcast Series: Invested in Cash.' My name is Sue Anne Cormack. As director of sales at Dreyfus, our goal is that you find ongoing value in the ideas, trends, changes and opportunities across the spectrum of liquidity investing that we bring to you in our series of podcast. To start off our series, I'm joined by Patricia Larkin, who's the Chief Investment Officer for BNY Mellon Cash Investment Strategies, which is a division of the Dreyfus Corporation."

Cormack continues, "Patricia and her team are identified as the center of excellence for cash within the BNY Mellon organization managing approximately $200 billion dollars in assets under management. Today we will be discussing the short-term market, how it's affected by rate hikes, inflation, and how you as investors may want to think about the market over the next several months. So, thank you so much Tricia for joining us today. We're so grateful to have you here to help frame the short-term market. Would you please start with a high-level summary of the basic strategy of investing for money market funds and touch on how these funds are affected by rate hikes?"

Larkin answers, "Sure, thanks so much for having me today, Sue Ann.... Typically, a money fund can be chosen for myriad of reasons, such as diversification, liquidity, AAA or top ratings, expertise of the management company and the comfort of regulatory oversight. Our strategy starts with: 'know your customer,' and we have a dedicated sales force for this asset class. Consequently, the portfolio management team has a clear understanding of the asset flows which is an important piece of managing institutional funds."

She continues, "This allows us to look at what's going on domestically, the macroeconomic trends, if any, geopolitical issues that might be happening [around] the globe. [W]e pay close attention to the Federal Reserve Board's actions [and], most importantly, the liquidity needs of our shareholders. So, with all this in mind, we can determine how to deploy our cash, whether we are managing maturities, around maturities, rate increases or liquidity around a year-end or quarter-end. Naturally [we are] always focused on safety, liquidity, and then yield for our shareholders."

When asked about rate hikes, Larkin responds, "Interest rates will likely go up again this year. So, if the Fed is going to increase ... you will see rates on all short-term instruments going up. [For] 2a-7 funds ... some [will go up] immediately and some on a lag basis depending on type of investments in that particular portfolio. The Fed has been pretty verbal and open about policy this year -- likely rates will go up one or more times."

She states, "They have said three [hikes] for 2017; that certainly could change depending upon data as this Fed is very data dependent. We've already had one, and if the economy continues at its current growth rate or better then we certainly expect to see two.... The Fed has certainly prepared the market [for moves and they] will be well advertised, and we really feel, welcomed, as rates continue to move normalization."

Cormack also asks, "Is inflation a factor right now? And does that also have an effect on these funds?" Larkin tells her, "Certainly inflation has an effect on funds if it's on the uptick. The economy is doing well [and] inflation is not currently a factor because it's really coming in around a 2% or lower.... [T]his is one of the most important data points as they're looking at monetary policy.... So, certainly as I mentioned earlier, if rates are moving up and the economy is growing and things are moving in the right direction, one would anticipate seeing inflation moving up as well. Historically, you might see the Fed moving a little more aggressively with regards to interest rates. We don't anticipate that.... We anticipate the Fed to move twice more this year and the economy to grow at the moderate pace it has been."

Next, Cormack asks Larkin, "Can you touch on the overall outlook for the short-term markets? Are there any other major factors at play right now? How should investors interested in the money markets prepare or think about the next several months?" She explains, "We anticipate an active Fed. How the economy performs will certainly be a focal point. The new Administration and any policy changes coming out of Washington will certainly have an effect on the markets, albeit short-term or headline risk type of movements. But we certainly are keeping a close eye on the new administration and any upcoming policies."

She adds, "We remain focused and diligent in our approach to managing these 2a-7 funds.... We have a proven track record in doing so, and we ... always and continuously keep in mind safety, liquidity, and yield. As we look forward, we see ... a positive environment for this asset class. Interest rates have been as I mentioned, at historic lows. Investors certainly have a reason to be excited for the first time in a long time when thinking about money market funds as an attractive alternative for cash. So as we look forward to the next 3-6 months anticipate a lot of Fed speak, certainly movement in the upswing and rates, continued growth in the economy, and overall a healthy market."

Note: Dreyfus' next "Invested in cash" podcast will feature Peter Crane, President & CEO, Crane Data, LLC. Watch for coverage and excerpts of this next month.

The April issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Conservative Ultra-Shorts Big Draw at Bond Symposium," which recaps our recent Bond Fund Symposium conference in Boston, "J.P. Morgan's Przybylski on Prime, Rates, Repatriation," which "profiles" the Executive Director, Head of Global Liquidity Product Development & Strategy for J.P. Morgan Asset Management and, "Private Liquidity Funds Focus of SEC Paper, CAG's Pan," which reviews recent papers on this little noticed segment of the money markets. We have also updated our Money Fund Wisdom database query system with March 31, 2017, performance statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to ship Tuesday, April 11, and our April Bond Fund Intelligence is scheduled to go out Friday, April 14.

MFI's "Conservative Ultra-Shorts" lead article says, "Crane Data recently hosted its first Bond Fund Symposium conference in Boston, and the turnout and enthusiasm of attendees confirmed what many had thought, that the ultra-, ultra short or "conservative" ultra-short bond fund sector is one of the hottest and fastest-​growing in the mutual fund industry. We briefly review some of the highlights from the sessions and recent news on this growing segment below."

The piece continues, "Bond Fund Symposium'​s Keynote, "The Time Is Now for Short‐​Term Strategies," featured PIMCO's Jerome Schneider, who gave an excellent overview of the short-​term space and PIMCO's dramatic growth in this area. (Assets in their ultra-shorts have increased from under $4 billion before the crisis to over $18 billion currently.) He urged attendees to redouble efforts to educate investors on the benefits of ultra-short bond funds."

Our JPMAM profile reads, "This month, Money Fund Intelligence spoke with Paul Przybylski, Executive Director, Head of Global Liquidity Product Development & Strategy for J.P. Morgan Asset Management, and we also include a couple of comments from some other members of the JPMAM team. We discussed recent trends in the global money markets, including the gradual shift back into Prime money funds in 2017 and how the pending European money fund reforms will affect how you should think about cash investments. JPMAM is the 3rd largest U.S. money fund manager and the 2nd largest MMF manager globally with over $250 billion in US assets and another $150+ billion in Europe and elsewhere. Our Q&A follows."

MFI says, "Tell us about your history and the current team at JPMAM. Przybylski comments, "I started working in the space as Chief Operating Officer and Chief Financial Officer for the J.P. Morgan Global Liquidity business around three years ago. Prior to that, I was CFO for the Global Fixed Income & Liquidity business for four years. Over the past three years, I was involved in various strategic projects, which included, among other things, product development and working directly with JD [John Donohue, CEO, Asset Management Americas and Head of Global Liquidity] and the team."

He adds, "The current Liquidity team includes: John Tobin, Global Head of Liquidity Portfolio Management; Dave Martucci, Global Head of Managed Reserves Strategy; Paula Stibbe, Global Head of Sales across Money Market Funds, Managed Reserves, and Short Duration Strategies; Jimmie Irby, Heads of Credit Risk Administration; and, Ted Ufferfilge, Head of Global Short-Term Fixed-Income Client Portfolio Managers."

Our "Private Liquidity Funds" update explains, "Two new papers review "Private Liquidity Funds," a little noticed segment of the money markets which recent SEC Statistics estimate at over $500 billion. The SEC's paper, "Private Liquidity Funds: Characteristics and Risk Indicators," says in its "Abstract," "At the end of 2015, $534 billion in assets were held by private liquidity funds or managed in their parallel accounts that follow similar investment mandates as money market mutual funds (MMFs), but are unregistered. Limited information is publically available about these funds that are in AUM terms roughly a quarter of the size of institutional MMFs. This white paper characterizes these private liquidity funds using data from Form PF and compares them to MMFs."

It continues, "The SEC also published, "Private Funds Statistics, Second Calendar Quarter 2016," which says, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers." (Note: Crane Data believes that the majority of these funds are securities lending reinvestment cash, and these "private liquidity funds" are not the same as some new ones that are being marketed to corporate investors.)"

In a sidebar, we discuss, "JP Morgan, BlackRock Say Time to Come Back to Prime," saying, "J.​P. Morgan Asset Management and BlackRock published briefs urging investors to reconsider Prime money market funds. JPM's lead piece, entitled, "Capitalizing on the prime opportunity," and subtitled, "A fresh look at the case for prime money market funds (MMFs)," explains, "​SEC amendments to Rule 2a-7 have spurred growing demand for government MMFs, resulting in a move away from prime MMFs. However, growing confidence in the operational stability of prime funds -- along with increasingly attractive spreads — is gearing up to entice investors back again."

Our April MFI XLS, with March 31, 2017, data, shows total assets decreased $25.2 billion in March to $2.741 trillion after increasing $51.5 billion in February, and decreasing $38.6 billion in January. Our broad Crane Money Fund Average 7-Day Yield was up 12 bps to 0.41% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 13 bps to 0.61% (7-day).

On a Gross Yield Basis (before expenses were taken out), the Crane MFA rose 0.11% to 0.81% and the Crane 100 rose 12 bps to 0.88%. Charged Expenses averaged 0.40% and 0.27% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 33 days (down 2 days from last month) and for the Crane 100 was 35 days (down 2 days from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

While most recent articles on money funds are still dwelling on the negatives and the past (see Bloomberg's 6-months late piece, "Almost a Decade Later, U.S. Money Markets Are Yet to Recover"), a couple of recent ones have finally discovered the good news -- rising yields and funds now returning over 1%. Over the weekend, both Investment News and Barron's wrote about the growing number of funds yielding 1.0% or higher. IN featured "As Fed raises interest rates, money funds increase yields, some to more than 1%," while Barron's wrote, "Where to Find Safe Yields Above 1%." We quote from these two articles, and review the latest top-yielding funds and averages, below.

The Investment News John Waggoner article says, "Thanks to the Federal Reserve's recent interest-rate hikes, some money market funds are doing things they haven't done in a decade: Paying 1% interest. Your clients won't get rich on their money fund holdings, but at least they'll get more than zero."

It explains, "According to Crane Data, four institutional money funds and three retail money funds now pay 1% or more. The highest-yielding money fund, Fidelity Investments Money Market (FNSXX), now yields 1.06%, while Morgan Stanley Institutional Liquid MMP (MPUXX), now yields 1.05%."

The piece tells us, "Investors have $2.65 trillion in money market funds, according to the Investment Company Institute, the funds' trade group. Yields hovered near or at zero until December 2015, when the Fed pushed rates from zero to 0.25%. Many of those zero yields were subsidized by fee waivers from the fund sponsors, and in some variable annuity and retirement accounts, yields fell below zero."

It adds, "The majority of money funds are well below 1%, says Peter Crane, president of Crane Data: The 100 largest money funds yield an average of 0.60%. Those yields should rise slightly as they digest the Fed's March 16th rate hike. The typical money fund has an average weighted maturity of about 35 days, meaning it takes a bit more than a month for money funds to feel the full effect of rising rates."

Investment News also comments, "Several banks are offering money market accounts with yields of 1% or more, according to Bankrate.com. While national average yields on bank money market accounts are a subterranean 0.11%, top-yielding accounts pay an average 1.15%.... Obviously, no one is going to get rich on current rates. At 2.3%, it will take 31 years to double your money.... On the other hand, earning 1% is better than earning nothing. A client with $100,000 in cash could now get $1,200 to $2,300 income from money funds or bank CDs. That's better than zero, and worth at least a few nice dinners out."

The Barron's article, which we mentioned in a recent "Link of the Day," tells us, "Banks, money-market funds, and short-term bond funds are starting to yield real money now that the Fed has hiked interest rates again. Now that the Federal Reserve has hiked interest rates three times in the past 16 months -- including twice in the past four months -- the interest that investors can earn on their cash is starting to get real."

It explains, "There are now plenty of options for earning safe yields above 1% for investors who hunt around. The best interest rates are most readily available from banks, but there are some high-minimum money-market funds, such as Fidelity Money Market Portfolio (ticker: FMPXX), that yield above 1%." "They are going to get more company in next couple of months," they quote our Peter Crane. "Things look better for cash investors than they have in a decade."

Barron's Amey Stone writes, "For investors, a money-market fund makes more sense as a place to stash "dry powder" that can be readily deployed. Yield gains, however, have trailed Fed rate hikes. The largest money funds have an average yield of 0.6%, just 10 basis points (or 0.1 percentage point) more than before the Fed's mid-March 25-basis-point rate hike. Many funds hold 30-day securities, and the rate hike is just two weeks old. "Ten more basis points will come through," Crane says. "Whether we ever get the other five is unclear." Fund companies have used recent rate hikes to restore fees that were waived to keep money-fund yields from going negative when rates were near zero."

The piece adds, "Still, many money-market funds meant for individual investors are getting close to the 1% threshold. Vanguard Prime Money Market fund (VMMXX) has a 0.87% yield. Its tax-exempt cousin, Vanguard Municipal Money Market fund (VMSXX), has a yield of 0.7%, which is more than 1% on a tax-equivalent basis for many. The next Fed rate hike could come as soon as June, and Crane thinks that short-term debt markets will start to price it in ahead of time."

Finally, they write, "Until then, investors willing to take slightly more risk can easily find yields well above 1% among ultrashort bond funds. Pimco Enhanced Short Maturity Active exchange-traded fund (MINT) is a popular choice. It has returned 2.25% in the past year and has a 1.36% yield. It holds a lot of floating-rate instruments, so the yield should keep pace with Fed rate hikes, says Jerome Schneider, who heads short-term portfolio management at Pimco.... Unlike money-market funds, the net asset values of ultrashort funds float, which means that loss of principal is a possibility. They are safe and liquid, but there is a lot of variation in strategies and risk levels, warns Roger Merritt, who heads the funds-rating group at Fitch Ratings."

Crane Data's Money Fund Intelligence Daily currently shows 17 funds (out of 903 total) yielding 1.00% or higher (as of 4/4), while 118 funds are still yielding 0.00% or 0.01%. The average money fund is yielding 0.61% (Crane 100) or 0.42% (Crane MF Average), depending on which average you look at (larger funds or a broader all taxable). See our "Highest-Yielding Money Market Funds table above or on our homepage for the top-yielding funds. (Note: These lists exclude repeated share classes and restricted or internal funds.)

HSBC Global Asset Management published a video interview on "Money Market Fund Reform in Europe" yesterday, which featured Hugo Parry-Wingfield, EMEA Head of Liquidity Product, interviewing Jonathan Curry, Global CIO Liquidity. Parry-Wingfield introduces the segment, saying, "Welcome to the discussion we're going to have on money market fund reform in Europe. Jonathan, we've been hearing a lot about ... regulatory reform for money funds in Europe for a long time now. Where have we actually got to and what is actually happening?"

Curry answers, "The good news is that we are reaching the end of the road after 6 or so years of discussing this. We have what we would describe as a few procedural steps to go, which is a full vote in the European Parliament, a full vote in the Council of Ministers, and then finally putting [it] onto the statute book. So we're reaching the end of the road. We expect that to be done by the second quarter of this year."

Parry-Wingfield says, "There's clearly a lot of detail in the new regulations. I think it runs to over 90 pages in fact.... What should investors be thinking about? What would we highlight as some of the key areas?" Curry tells him, "There's a number of areas that I think are worth highlighting to users of the funds. Firstly, we would break the reform down into two key parts. One would be the structural changes. The other would be the changes to the investment risk constraints that money market funds would have to follow post the implementation of reform. By far the most significant are the structural changes, and the most significant of those is the creation of a new style, or new type of money fund in Europe, which is known as the low volatility NAV, or LVNAV product."

He explains, "So the reason why this is significant is that it's a new type of fund, but it's also an effort by the regulators in Europe to find a compromise position so that there are money market funds in Europe that continue to invest in credit that investors will continue to want to use, whilst addressing some of the key concerns of the regulatory community. So that's what the LVNAV really is."

Curry also says, "The LVNAV itself, to an end user ... not a lot will change. The majority of our investors are in constant net asset value prime money market funds. For those investors, what they're used to, is a fund where the price remains at a constant of 1.00 unless it moves out of a 50 basis point, or 1/2 a percent, collar, plus or minus around that 1.00."

He comments, "So the most important thing to know about the LVNAV is that the main change is that that collar has been narrowed to 20 basis points. Outside of that, from a user perspective, really not a lot has changed, and that's the most significant point to make. Our view is the LVNAV is a very good alternative to today's CNAV prime funds. For those investors that want to continue to invest in a fund that has credit, the yield pickup that that has against investing in government assets. So that's probably the main change."

Curry adds, "Another area I would highlight, more a point of clarification ... is the fact of fund ratings. Our funds, and the majority of funds similar to ours in the market, are rated today AAA, by one of the major ratings agencies or more, and that's been an area where it was possible that that would no longer be a feature of the product after regulation. The good news from an investor standpoint is that money funds will still continue to be able to be rated. For many of our investors, that's important, and we understand that. These are the two areas I would highlight in terms of structural."

He states, "On the reinvestment side, the investment risk side, really, we are for all intents and purposes already compliant with the regulation using our own internal investment guidelines. So from a risk perspective, and therefore from a return perspective, we wouldn't expect to see any meaningful change for the investor in LVNAV funds."

Parry-Wingfield also asks, "These new regulations apply to European domiciled funds, including HSBC's global liquidity fund range. There's also been regulatory reform already taken place in the US. In October of last year, the SEC went live effectively with new regulation.... There are some similarities. But what would you highlight as the key differences between the two sets of regulations? Because they're clearly not the same."

Curry responds, "That's right. They're definitely not [the same] in a number of key areas. The most significant ones are as follows: Our investors ... are all institutional investors in our money market funds here in Europe. [US investors] are not able to access a CNAV prime fund any more, and the alternative that they have is a variable net asset value fund. That's a very different outcome to what we are going to see in Europe with the LVNAV product, which I just referenced. So unlike the VNAV product, we would not expect the price of the LVNAV fund to change. So quite a significant difference there between what the US regulators, the SEC, adopted, and what the European regulators are going to adopt."

He adds, "The other area I would say is probably around liquidity fees and redemption gates. These are mechanisms that are there to protect investors and are actually in our funds already today and have been for a while, in the case of gates since they were launched, and also in many of our peers' similar money market funds here in Europe. So the concepts are not new to the European investor, and how the European regulation treats them is also different to how the US regulation treats them. So some of the questions that US investors had, we don't think will apply in Europe, partly because of the comfort that already exists with European investors and the different way the regulations treats those mechanisms here in Europe."

Curry is asked, "What are the next steps? It's still to be absolutely finalized... When will it actually start to apply?" He comments, "We expect the procedural steps that still need to take place be completed by the end of the second quarter. Clearly, things can change with the European regulatory process. But that's what we expect today. There will then be an 18-month implementation period for existing money market funds, and for any new funds that are created post-implementation, they will have 12 months to comply.... If we're right about end of second quarter, then for existing funds, you're looking towards the end of 2018 for the funds to need to comply with the regulation."

Finally, Parry-Wingfield queries, "How is HSBC preparing for these changes and how are we planning to engage our clients in that regard?" Curry tells him, "In a number of ways, really. We've been holding a number of events in different locations around Europe over recent weeks, talking to investors, explaining the regulations, explaining the impact we see ... so they have a better understanding of the choices they would need to make. We've also put the information out in a thought piece as well.... We'll continue to keep our investors informed as we go along this process."

Bloomberg writes "Money Markets' $1 Trillion Exodus Is Having Far-Reaching Effects," which discusses some of the impacts of last year's massive Prime to Government shift. It says, "Regulators' effort to stamp out risk in the $2.6 trillion U.S. money-fund industry is creating unintended ripple effects across financial markets, with far-reaching consequences for companies and investors." We review this article, as well as recent posts by Federated and Citi on the Fed and Repo markets, respectively, below.

The piece explains, "Far less cash than anticipated has returned to the higher-yielding slice of the money-fund world, after the overhaul that took effect in October led to a $1 trillion exodus from what are known as prime funds. They've been the principal buyers of the commercial paper that companies and both foreign and domestic banks have sold for decades to obtain short-term U.S. dollar- denominated financing."

Bloomberg tells us, "By squelching demand from prime funds, commercial-paper rates relative to other money-market securities have risen, and are now at the highest levels since the financial crisis, causing borrowers to seek new sources of funding like the short-term securities lending market. Investors are also feeling the pinch -- most money funds are stuck with Treasury bills offering paltry rates. What's more, the massive shift toward funds that can only buy the safest U.S. debt has created the potential for a bottleneck if Congress is unable to resolve long-simmering disputes related to the nation's debt ceiling."

They add, "The changes included institutional prime funds abandoning the long-held tradition of having asset values locked at $1-per-share. Holdings in prime funds fell to a record low $373 billion after the reforms went into effect in October, ICI data show. Since the implementation deadline, total prime fund assets have only rebounded by about $25 billion. Most of the prime outflows ended up in government-only funds, which were exempt from the changes."

The article also says, "Among foreign institutions, Japanese banks' exposure to prime funds fell to $44.9 billion in February from $174.6 billion in October 2014, while French banks' exposure dropped to $62.1 billion from $165.2 billion, Securities & Exchange Commission data show. Prime funds slashed U.S. bank holdings to $53.9 billion from $233.2 billion. As an alternative, non-U.S. banks have gained about $140 billion of funding via repurchase agreements with government money funds, according to the BIS. Ninety-day commercial-paper rates are about 1 percent, compared with 0.9 percent for similar-maturity repos."

"Wherever you have those big dollars moving around, they themselves are a risk," said Peter Crane, president of Westborough, Massachusetts-based Crane Data LLC. "You put a bunch of 800-pound gorillas in a room, and if all of a sudden everyone wants to get out, they are going to break down a wall."

Finally, Bloomberg writes, "One silver lining for prime funds is the widening gap between yields on the two types of funds, which could eventually lure back more cash. But even if some money returns, it will only be a fraction of what was lost, because some investors, including sweep accounts, are required to place their cash in money funds with a constant net asset value. Other fund companies, such as Fidelity Investments, which converted their institutional prime money markets to government-only, are unlikely to revert.

In other news, Federated Investors' Deborah Cunningham writes "Month in Cash: Inflection point in Fed policy?" She comments, "If you could predict swings in the markets, you would, of course, be very rich. But inflection points only get determined after the fact. For cash managers, the crucial question these days is whether or not the Federal Reserve has shifted monetary policy. Does the Fed still view its rate hikes as normalization -- raising rates from extraordinary accommodation -- or as tightening, i.e., adjusting rates to check inflation?"

Cunningham continues, "We are taking the position that March was the tipping point for policymakers (save Minneapolis Fed's Neel Kashkari), when their mindset changed from keeping the economy on life support to shepherding it to prosperity. This is not just because the Federal Open Market Committee (FOMC) voted to raise rates by 25 basis points to a range of 0.75-1% at its mid-March meeting, but because its summary of economic projections and Chair Janet Yellen's press conference suggested two more hikes could come in 2017. And in the weeks since the FOMC meeting, some Fed officials are leaving the door open for even more moves if economic conditions don't surprise to the negative. That's a far cry from the last two years, when the Fed led the markets to expect multiple hikes, only to offer one each year."

She also says, "However things turn out, money fund managers should have a clear path to reacting to them. Supply of issuance should not be a problem. The U.S. reached its legal borrowing limit in March, although the U.S. Treasury says it could employ extraordinary measures into autumn if needed to avoid an actual debt-ceiling crisis. The Treasury has been good about communicating to the market, and the Fed's management of the federal funds range (with reverse repo and interest on excess reserves as bounds) has been working well, with the benchmark rate itself in the mid-80s. The London interbank offered rate (Libor) continued to rise over March."

Finally, Citi's Steve Kang writes "CCIT: The brave new world for tri-party repo?" He explains, "In January the DTCC announced it would expand its GCF repo clearing service to the tri-party repo market under a Centrally Cleared Institutional Tri-party (CCIT) Service, which is currently pending regulatory approval. Last week a Bloomberg report on CCIT appeared to trigger a widening move in swap spreads and OIS/Tsy spreads, likely in anticipation of structural richening of repo due to the introduction of CCIT. However, we argue that the effect on the repo market from the existing proposal is likely to be minimal due to the limited scope of participants and the limited balance sheet benefits for dealers. While there is potential for a larger impact on the repo market if the scope of the clearing platform broadens, we do not expect it to happen this year."

Kang tells us, "Eligible cash lenders will be required to obtain Tier-2 CCIT membership and open a tri-party account with CCIT. It is important to note that new CCIT membership is only for non-dealer cash lenders and NOT for non-dealer cash borrowers. The current proposal also excludes RIC lenders. This, in particular, excludes 2a7 money market funds, mutual funds, hedge funds, REITs and certain sec lenders. The largest non-RIC cash lenders include corporate accounts and separately managed accounts."

He adds, "The market size of tri-party -- excluding Fed and GCF -- with Fedwire eligible collateral (USTs and Agency MBS) is around $1.2tn. Out of this, 2a7 lends (RIC) around half of those transactions (around $600bn). This gives us an upper bound of around $600bn for the tri-party that could be done in the CCIT platform. However, there are other RICs that are excluded from CCIT, such as asset managers and certain securities lending agents, who are likely to be a large part of this market. We therefore expect a much smaller subset of eligible tri-party repo for CCIT."

Today, we include more coverage from our recent Bond Fund Symposium conference, which took place in Boston March 23-24. We review the session on Regulations below, which discusses pending liquidity and portfolio disclosure mandates for ultra-short bond funds and also mentions money market funds. Watch for more BFS coverage in the upcoming issues of our Bond Fund Intelligence and Money Fund Intelligence newsletters. (Mark your calendars too for next year's event, which will be March 22-23, 2018, in Newport Beach, Calif. The session recordings, Powerpoints and full conference binder are available to attendees and Crane Data subscribers here.)

Bond Fund Symposium's "Regulatory Update" segment featured Stephen Cohen, a Partner at Dechert LLP, and John Hunt, a Partner at Sullivan & Worcester LLP. Cohen's intro explained, "[We'll] cover recent regulation issues facing the bond fund industry, cover new rules and proposals from the SEC, SEC orders, and [provide an] update on ... litigation as it affects bonds and other money funds." The biggest changes are the "new rules adopted by the SEC relating to liquidity risk management and swing pricing."

He commented on the SEC's "new liquidity risk management program," "In late 2014, early 2015, SEC Chair White announced a new rulemaking initiative impacting the investment management industry. It covered a lot of ground including liquidity risk management, rules on derivatives and form modernization." The "SEC did push this for other funds and it is in fact formed to some extent by their experience with money market funds" and it "will impact the way bond funds in particular are managed with a lot more regulatory scrutiny on the liquidity they have in portfolios."

Cohen explained, "The new rule is Rule 22e-4 under the Investment Company Act of 1940. The purpose of the rule overall is to improve and formalize liquidity risk management programs and reduce the risk associated with large shareholder redemptions, that could impact a fund ability to meet redemptions.... There are several components of a liquidity risk management program under the rule. First is just an overall assessment of a funds liquidity looking at the strategy of the fund ... assessing the need for liquidity in a portfolio."

He added, "The most controversial part is funds will have to classify each and every investment that they make. Bucketed into 1 of 4 categories, highly liquid (securities that can be converted to cash in 3 days), moderately liquid, less liquid and illiquid ... a tremendous undertaking at least initially to get an operational system in place to classify each and every investment that a fund holds into one of these four categories and monitor it at least on a monthly basis.... Another key component of the liquidity risk management rule is the idea funds will have to set a highly liquid investment minimum.... The SEC finally codified a limit that has always been in place at least informally through guidance, a 15% limit on illiquid investments, they defined the term illiquid investments."

On Reporting Modernization, Cohen stated that it "will impact bond funds" and that, "Reporting modernization covers 4 key areas: one is the new adoption of a Form N-PORT. This is a form that all funds, all investment companies except for money market funds. Money market funds of course have Form N-MFP that they file monthly. N-PORT is a form that all funds including bond funds will have to report to the SEC on a monthly basis. It's going to require funds to provide portfolio wide and portfolio level holdings information ... including very detailed information about maturity, yield, etc." They must "file within 30 days of month end and reported quarterly publically on a 60 day lag."

On the "Third Avenue Focused Credit Fund," Hunt told us, "[They] went back to SEC and get an exceptive order essentially to stop the process of liquidation and to be able to do an orderly liquidation of the fund.... This is a very important situation or case especially in light of the liquidity rule.... The liquidity rule is looking at something more long term and the question is whether or not the liquidity rule had been in place would the fund still not have gotten in to the same situation?"

The pair was asked to comment on Ultra Short Bond Funds in particular, and Cohen responded, "Ultra Short-Term Bond Funds have been the focus of SEC staff scrutiny in light of money market fund reforms. In essence, the SEC disclosure staff responsible for reviewing new products has been carefully reviewing short-term bond fund disclosures to ensure that these funds are not trying to market themselves as money market funds, without the need to value with a floating NAV out to four decimal places and without fees and gates. The message from the staff is that if you offer a short-term bond fund that tries to say we do everything in Rule 2a-7, but without the basis point pricing and fees and gates, that is a problem."

Finally, Cohen commented about a panel he did recently with the SEC's Sarah ten Siethoff, "They've actually stopped some funds from launching funds that look too much like money market funds, or at least made them change their disclosures or strategies. She [said] the SEC is beginning the process [of] MMF exam priorities [in] 2017 ... implementation of 2a-7 [to] focus on things they can't see in filings, including stress testing and making sure funds are compliant with ... procedures around fees and gates, [and] more education." Crane asked Cohen, "Is it true we shouldn't count on the anti-regulatory trend in Washington to slow the SEC down?" He answered, "That's right the SEC is still going, working and enforcing rules."

The compliance dates for the Liquidity Risk Management Program are: Fund groups over $1 billion, December 1, 2018; Fund groups less than $1 billion, June 1, 2019. The disclosure requirement begin June 1, 2017 for liquidity and managing redemptions. The compliance dates for Form N-Port include: Fund groups over $1 billion, June 1, 2018, and fund groups less than $1 billion, June 1, 2019.

Once again, Crane Data is also making preparations for our "big show," `Money Fund Symposium, which will be held June 21-23, 2017, at the Atlanta Hyatt Regency. The agenda is now set and registrations are being taken, and we encourage attendees to make hotel reservations soon. We're also now taking registrations for our next European Money Fund Symposium, which will be Sept. 25-26, 2017, in Paris, France. Finally, watch for more details on our next Money Fund University, which will be in Boston, Jan. 19-20, 2018, in coming months. We hope to see you at one of our events in 2017 or 2018!