News Archives: September, 2017

The Investment Company Institute released its latest "Money Market Fund Assets" and its monthly "Trends in Mutual Fund Investing" reports yesterday. The former shows that Prime money market funds declined after rising for seven weeks in a row, while the latter confirms the huge jump in overall assets in August. Prime MMFs have risen for 13 weeks out of the past 15, and the 17 weeks out of the past 21. They've increased by almost $36.6 billion, or 9.0%, over the past 20 weeks, and $72.6 billion, or 19.6%, year-to-date. We review these releases, and also look at ICI's latest Portfolio Composition trends, below.

ICI writes, "Total money market fund assets increased by $16.10 billion to $2.74 trillion for the week ended Wednesday, September 27, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $18.00 billion and prime funds decreased by $1.34 billion. Tax-exempt money market funds decreased by $567 million." Total Government MMF assets, which include Treasury funds too, stand at $2.170 trillion (79.2% of all money funds), while Total Prime MMFs stand at $443.2 billion (16.2%). Tax Exempt MMFs total $127.7 billion, or 4.7%.

They explain, "Assets of retail money market funds increased by $11.28 billion to $984.16 billion. Among retail funds, government money market fund assets increased by $11.13 billion to $600.37 billion, prime money market fund assets increased by $512 million to $261.89 billion, and tax-exempt fund assets decreased by $365 million to $121.90 billion." Retail assets account for over a third of total assets, or 35.9%, and Government Retail assets make up 61.0% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $4.82 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $6.87 billion to $1.57 trillion, prime money market fund assets decreased by $1.85 billion to $181.33 billion, and tax-exempt fund assets decreased by $202 million to $5.76 billion." Institutional assets account for 64.1% of all MMF assets, with Government Inst assets making up 89.3% of all Institutional MMFs.

ICI's "Trends in Mutual Fund Investing - August 2017" shows a $71.8 billion increase in money market fund assets in August to $2.719 trillion. The increase follows a $13.6 billion increased in July, a $20.9 billion decrease in June, a $12.6 billion increase in May, a $24.0 billion decrease in April, a $17.7 billion decrease in March, a $0.4 billion dollar increase in February, and a $46.6 billion increase in January. In the 12 months through August 31, money fund assets were down $5.8 billion, or -0.2%.

The monthly report states, "The combined assets of the nation's mutual funds increased by $113.14 billion, or 0.6 percent, to $17.82 trillion in August, 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 $20.34 billion in August, compared with an inflow of $20.43 billion in July.... Money market funds had an inflow of $70.67 billion in August, compared with an inflow of $12.78 billion in July. In August funds offered primarily to institutions had an inflow of $58.64 billion and funds offered primarily to individuals had an inflow of $12.03 billion."

The latest "Trends" shows that Taxable MMFs gained assets last month, while Tax Exempt MMFs declined. Taxable MMFs increased by $73.5 billion in August, after increasing $11.9 billion in July, decreasing $20.3 billion in June, and increasing $11.3 billion in May. Tax-Exempt MMFs decreased $1.7 billion in August, after increasing $1.7 billion in July, decreasing $0.6 billion in June, and increasing $1.5 billion in May. Over the past year through 8/31/17, Taxable MMF assets increased by $17.4 billion while Tax-Exempt funds fell by $23.2 billion.

Money funds now represent 15.3% (up from 14.9% last month) of all mutual fund assets, while bond funds represent 22.3%, according to ICI. The total number of money market funds decreased by 2 to 410 in August, down from 427 a year ago. (Taxable money funds fell by two to 314 and Tax-exempt money funds fell by 15 to 96 over the last month.)

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed last month's drops in Treasuries and Agencies, and a jump in Repo in August. Repo remained the largest portfolio segment, up $73.1 billion, or 8.5%, to $931.0 billion or 35.9% of holdings. Repo has increased by $200.8 billion over the past 12 months, or 27.5%. (See our Sept. 13 News, "Sept. Money Fund Portfolio Holdings: Repo Rebounds, Treasuries Drop.")

Treasury Bills & Securities remained in second place among composition segments; they fell by $37.2 billion, or 5.6%, to $622.2 billion, or 24.0% of holdings. Treasury holdings have risen by $6.4 billion, or 1.0%, over the past year. U.S. Government Agency Securities remained in third place; they fell by $22.6 billion, or 8.3% to $664.1 billion or 25.6% of holdings. Govt Agency holdings have risen by $55.7 billion, or 9.2%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased $13.2 billion, or 7.0%, to $202.2 billion (7.8% of assets). CDs held by money funds have fallen by $174.2 billion, or 46.3%, over 12 months. Commercial Paper remained in fifth place, increasing $15.2B, or 11.9%, to $142.7 billion (5.5% of assets). CP has declined by $41.4 billion, or 22.5%, over one year. Notes (including Corporate and Bank) were down by $349 million, or 4.4%, to $7.6 billion (0.3% of assets), and Other holdings dipped to $10.3 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 91.3 thousand to 26.179 million, while the Number of Funds declined by two to 314. Over the past 12 months, the number of accounts rose by 2.265 million and the number of funds declined by 2. The Average Maturity of Portfolios was 32 days in August, the same level as July. Over the past 12 months, WAMs of Taxable money funds have shortened by 3 days.

The Investment Company Institute released its "Worldwide Regulated Open-End Fund Assets and Flows Second Quarter 2017" Wednesday. The latest data collection on mutual funds in other countries (as well as the U.S.) shows that money fund assets globally rose by $172.2 billion, or 3.3%, in Q2'17, led by a huge jump in Chinese money funds. U.S. money funds fell while Irish MMFs rose. MMF assets worldwide have increased by $333.7 billion, or 6.7%, the past 12 months. China, Ireland and Luxembourg showed the biggest asset increases in Q2'17, while China, Japan, Luxembourg, France and Ireland showed the largest increases over 12 months. The U.S. and Belgium posted the largest declines over the past year. We review the latest `Worldwide MMF totals below.

ICI's release says, "Worldwide regulated open-end fund assets increased 4.7 percent to $44.78 trillion at the end of the second quarter of 2017, excluding funds of funds. Worldwide net cash inflow to all funds was $609 billion in the second quarter, compared with $615 billion of net inflows in the first quarter of 2017."

It explains, "The Investment Company Institute compiles worldwide open-end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the second quarter of 2017 contains statistics from 47 jurisdictions."

ICI tells us, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the second quarter of 2017. For example, on a US dollar–denominated basis, fund assets in Europe increased by 7.4 percent in the second quarter, compared with an increase of 0.6 percent on a euro-denominated basis."

It explains, "On a US dollar–denominated basis, equity fund assets increased by 4.5 percent to $19.37 trillion at the end of the second quarter of 2017. Bond fund assets increased by 4.6 percent to $9.78 trillion in the second quarter. Balanced/mixed fund assets increased by 4.8 percent to $5.93 trillion in the second quarter, while money market fund assets increased by 3.4 percent globally to $5.33 trillion."

ICI writes, "At the end of the second quarter of 2017, 43 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 22 percent and the asset share of balanced/mixed funds was 13 percent. Money market fund assets represented 12 percent of the worldwide total. By region, 51 percent of worldwide assets were in the Americas in the second quarter of 2017, 36 percent were in Europe, and 13 percent were in Africa and the Asia-Pacific regions."

The release adds, "Net sales of regulated open-end funds worldwide were $609 billion in the second quarter of 2017. Flows into equity funds worldwide were $124 billion in the second quarter, after experiencing $173 billion of net inflows in the first quarter of 2017. `Globally, bond funds posted an inflow of $219 billion in the second quarter of 2017, after recording an inflow of $270 billion in the first quarter.... Money market funds worldwide experienced an inflow of $126 billion in the second quarter of 2017 after registering an inflow of $30 billion in the first quarter of 2017."

According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. maintained its position as the largest money fund market in Q2'17 with $2.633 trillion, though it dipped below half -- 49.4% -- of all global MMF assets for the first time ever. U.S. MMF assets decreased by $31.0 billion in Q2'17 and decreased by $58.8B in the 12 months through June 30, 2017. China remained in second place among countries overall, as assets jumped in the latest quarter and past year. China saw assets increase $167.6 billion (up 28.6%) in Q2 to $752.9 billion (14.1% of worldwide assets). Over the last 12 months through June 30, 2017, Chinese MMF assets have risen by $121.0 billion, or 19.2%.

Ireland remained third among these country rankings, ending Q2 with $539.1 billion (10.1% of worldwide assets). Dublin-based MMFs were up $23.1B for the quarter, or 4.5%, and up $28.8B, or 5.6%, over the last 12 months. France remained in fourth place with $399.9 billion (7.5% of worldwide assets). Assets here decreased $4.9 billion, or -1.2%, in Q2, and were up $40.0 billion, or 11.1%, over one year. Luxembourg was in fifth place with $370.6B, or 7.0% of the total, up $7.6 billion in Q2 (2.1%) and up $57.6B (18.4%) over 12 months.

Japan remained in sixth place, rising by $4.0 billion to $111.9 billion, after skyrocketing last quarter. (We assume this is a reclassification of some sort.) Korea, now the 7th ranked country, saw MMF assets fall $9.4 billion, or -8.8%, to $97.0 billion (1.8% of total) in Q2 and rise $3.6 billion (3.9%) for the year. Brazil remained in 8th place; assets decreased $5.2 billion, or -6.0%, to $81.5 billion (1.5% of total assets) in Q2. They've increased $10.8 billion (15.2%) over the previous 12 months.

ICI's statistics show Mexico in 9th place with $56.4B, or 1.1% of total, up $4.2B (8.0%) in Q2 and up $995M (1.8%) for the year. India was in 10th place, increasing $5.0 billion, or 10.3%, to $53.4 billion (1.0% of total assets) in Q2 and increasing $17.3 billion (47.7%) over the previous 12 months. (Note also that ICI's data no longer includes money fund figures for Australia, but they would rank as the sixth largest market at $322 billion, their level of two years ago, if they were still included. Australia's MMF assets were shifted into the "Other" category two years ago.)

Taiwan ($27.6B, up $371M and down $2.1B over the quarter and year, respectively), the United Kingdom ($25.3B, up $2.7B and up $18.7B), South Africa ($23.1B, up $757M and up $4.4B), Switzerland ($22.8B, up $4.1B and up $2.6B), and Chile ($21.6B, down $499M and up $5.5B) ranked 11th through 15th, respectively. Sweden, Canada, Norway, Poland and Spain round out the 20 largest countries with money market mutual funds.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have primarily domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data, or if you'd like to see our MFI International product. (Note: The full, final European Money Fund Symposium conference binder will be sent out to attendees later today; it was great to see you all in Paris!)

Fitch published a press release entitled, "Fitch Launches 'MMF Compare' Interactive Money Fund Comparison Tool," as well as one entitled, "Fitch: Transition is Main Rating Challenge in EU MMF Reform." The former tells us, "Fitch Ratings has launched 'MMF Compare', a new European money market fund (MMF) interactive comparison tool to provide investor education and help promote more informed investment decision-making in the run-up to European MMF reform implementation in July 2018." We quote from the release, and also cite some comments from Fed Chair Janet Yellen, below. (Note: Thanks to the attendees, speakers and sponsors for our fifth annual European Money Fund Symposium, which concluded in Paris yesterday. Watch for the final binder and conference materials to be sent out on Friday, and mark your calendars for next year's show, Sept. 24-25, 2018, in London.)

Alastair Sewell, Head of EMEA and APAC Fund Ratings at Fitch, comments, "MMF Compare allows investors to select a particular Fitch-rated fund and benchmark its portfolio credit, market and liquidity risk attributes against its rated peer group. It covers in total about half a trillion euros equivalent assets under management across 50 Fitch-rated MMFs."

The release explains, "The portfolio metrics in 'MMF Compare' are derived from Fitch's MMF rating surveillance process. Fitch receives regular portfolio holdings data from fund administrators and managers, which it cleans, standardises and enriches in accordance with a globally consistent rating methodology. These data serve as the basis for calculating key portfolio credit, market and liquidity risk metrics that Fitch uses when rating MMFs."

It adds, "To coincide with today's launch of 'MMF Compare', Fitch has also published 'European MMF Reform -- What Investors Need to Know,' a concise summary of Fitch's views on European MMF reform, including the responses to the most commonly asked investor questions on European money market fund reform." Sewell says, "Understanding the new fund types and the likely implications of European MMF Reform will be important priorities for MMF investors."

Fitch writes, "The "prime" constant net asset value (CNAV) MMFs commonly used by corporate and public-sector treasurers will no longer exist in their current form. Instead, investors will need to choose between four different MMF types, including two new variants: the low volatility net asset value (LVNAV) MMF and the public-debt CNAV MMF. The report addresses the following nine questions: What do the MMF reforms change for investors? Will the reforms change Fitch's rating approach? How does liquidity risk factor in the reforms? How does Fitch's rating approach differ from the reforms? Are there differences in rating agency methodologies? How do reform-driven liquidity fees and redemption gates work? Will we see significant reform-driven MMF asset flows, similar to the US? How will the reforms affect competition in the industry?"

Fitch's second release tells us, "The main risk posed to ratings from European money market fund reforms comes from unexpected disruption during the transition process, Fitch Ratings says. However we expect fund managers to take steps to mitigate such risks, including strengthening liquidity during the transition. The new rules will not change our approach to rating MMFs and therefore should not directly affect ratings, unless a fund's underlying credit, market or liquidity risks increase."

In other news, Federal Reserve Chair Janet Yellen spoke yesterday on "Inflation, Uncertainty, and Monetary Policy." She discussed uncertainty over inflation and said, "How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock."

Yellen commented, "But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession."

She continued, "Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent."

Finally, Yellen added, "To conclude, standard empirical analyses support the FOMC's outlook that, with gradual adjustments in monetary policy, inflation will stabilize at around the FOMC's 2 percent objective over the next few years, accompanied by some further strengthening in labor market conditions. But the outlook is uncertain, reflecting, among other things, the inherent imprecision in our estimates of labor utilization, inflation expectations, and other factors. As a result, we will need to carefully monitor the incoming data and, as warranted, adjust our assessments of the outlook and the appropriate stance of monetary policy. But in making these adjustments, our longer-run objectives will remain unchanged--to promote maximum employment and 2 percent inflation."

This month Bond Fund Intelligence "profiles" the Payden Global Low Duration Bond Fund, and interviews Payden & Rygel Managing Principal Mary Beth Syal, Senior VP Larry Manis and VP Amy Marshall. The three discuss "going global" in the short-term space, the benefits of low duration, and a number of other timely bond market topics. Our Q&A follows. (Note: This "profile" is reprinted from the September issue of BFI. Contact us if you'd like to see the full issue, or if you'd like to see our new Bond Fund Portfolio Holdings product.)

BFI: Tell us a little bit about your history. Syal: Payden & Rygel has been a pioneer during its 34 year history, and one area in particular is global fixed income investing. Our very first mutual fund was the Payden Global Fixed Income Fund in 1992, as a way to allow our clients to gain exposure to the opportunities we saw outside the US. The firm has always had a global focus. The Global Low Duration Fund launched in 1996.

Our mandate is to invest in instruments in the developed and emerging markets seeking to capture alpha from a diverse source of opportunities globally, within an average duration of 1.5 to 2.5 years. The idea is to capture the return available from the global opportunity set but in a lower volatility way. I've been at Payden & Rygel for 26 years and it has been exciting to see how global markets have changed over that time. Amy has been on the team at Payden for six years and Larry for three, both coming with New York capital markets experience.

BFI: Tell us more about Global Low Duration and your short-term funds. Syal: Payden has both a US fund complex as well as Dublin-based UCITs. The options range from very short liquidity oriented portfolios to the Global Low Duration Fund which is more of a "low duration plus" offering. The UCITs mirror the US fund offerings, and are available in multiple currencies.

Marshall: The Limited Maturity Fund has a 3-month benchmark, and is thought of as a step out from a money market fund in that "enhanced cash" space. The Low Duration and Global Low Duration Funds both have 1-3 year benchmarks, but the Global Low Duration Fund has a greater risk tolerance and higher expected return that comes from investing in a wider universe of securities globally. The Fund is US-dollar denominated but we use non-US dollar denominated securities either hedged or unhedged depending on our FX view.

Syal: So you can think of the Global Low Duration as more of a 'plus' type strategy, and it will have greater exposure to emerging markets that are primarily USD denominated. It will have a greater allocation to high yield corporates, and there is the opportunity to express currency views either by buying non-dollar bonds or through open currency positions.... There is an expectation for higher returns in this fund versus our Low Duration Fund, given its modestly higher risk profile.

BFI: How did these funds come about? Syal: Our mutual funds really have been developed to provide an extension of what we do on the separate account side. Payden manages $115 billion in AUM <b:>`_ with the mutual fund complex in the US representing $7.5 billion, and the UCITs $3.5 billion. The strategies are those that we provide to our separately managed account clients, with the benefit of a comingled vehicle for administrative ease. Many investors desire a greater return on their short-term liquidity and our suite of short term funds provides the ability to tier that liquidity according to their time horizon.

Money fund reform was a catalyst for investors to revisit their liquidity requirements. We've seen an increase in interest in our Limited Maturity Fund as investors move out of VNAV money market funds that might have gates and fees. As investors evaluated their liquidity post Financial Crisis, they saw that they could invest with a slightly longer maturity and earn an attractive return with a modest amount of interest rate risk. Finally, the Fed has helped a little because they've raised rates.... Now you're rewarded to take those additional risks.

A low duration portfolio provides many benefits. If you think interest rates are going up, the opportunity to roll over maturities at those higher yields is there. If you think inflation is going to pick up, you can have price protection by owning shorter maturities vs. longer maturities. So we think it's quite an attractive way to invest right now.

BFI: What are the big challenges for these funds? Negative or rising rates? Manis: I would argue the points that you raised are actually positives for Low Duration and Global Low Duration in general. As the opportunities outside of the U.S. diminished with a negative rate environment, we were able to take position our holdings to get pretty attractive yields on our funds.... Most of the issues that would be concerning for a traditional long-term fixed income investor would be solved with a low duration fund.

BFI: What can and can't you buy? Syal: Because we use the term "global" in the fund name, we must have a minimum of 40% invested in non-US domiciled issuers. That does not mean they have to be denominated in a currency other than the dollar. An example of this is US dollar issuance from a German corporation like Daimler or a country such as Sweden.

Marshall: Our sector allocation is environmentally driven, so it changes over time. Right now, we have a bias towards investment grade corporates. But really the universe of products that we can invest in includes: structured products, emerging markets, high yield, municipals, foreign governments & agencies, and money market securities. The Global Low Duration Fund can have up to 35% in high yield, but we're rarely at that limit. Right now, the fund has about 5%.... So it depends on relative valuation amongst the sectors whether or not we'll have a larger allocation. We use derivatives, interest rate futures, and options too, to either hedge the portfolio or generate alpha.

BFI: Any countries you like or don't like? Manis: The U.S. is definitely safer these days. Our general view, which ties into the overweight to corporates, is that US economy is on solid footing will move along nicely over time. We didn’t get overly exuberant after the elections. We kind of held our ground with our growth forecast and stayed there throughout the year. But we think that's supportive of corporates, and supportive generally of USD fixed income.... So we are buying mostly USD denominated assets.

Syal: More recently, our view on Europe has improved and we are beginning to see signs of growth. Negative interest rates are unsustainable for longer periods of time and we would expect interest rates there to rise to reflect the improving economic picture. The emerging markets story that we like right now is to identify countries that are internally generating economic growth and are not relying on commodity prices for growth.

BFI: How about your overall outlook? Syal: The benefit of the Global Low Duration Fund is the ability to take advantage of a world of market sectors.... We are growth optimists, and think that the additional yield from global credit sectors such as emerging markets and corporate bonds will produce attractive positive returns. It's an ideal place to invest for a balance between income/yield and price volatility. That's really what we're trying to do, to maximize that return per unit of risk.

State Street Global Advisors recently published "A Shifting Cash Landscape," which surveys investors on the pending European Union Money Fund Reforms. It says, "The deadlines have been announced: the European Union's money market fund (MMF) reform will go into effect on 21 July 2018 for new funds, and on 21 January 2019 for existing funds. The EU reform reshapes the money fund landscape. Investors will need to study the new rules, identify fund types that meet their needs, and review their Investment Policy Statement (IPS). They will need to assess whether their internal systems can handle net asset value (NAV) variations. Many will need to upgrade accounting software -- unless they plan to allocate cash exclusively to more conservative public debt constant NAV funds." (Note: We'd like to welcome those of you attending our European Money Fund Symposium, which begins today, to Paris, France. We look forward to a number of discussions, including one with SSGA's Yeng Butler, involving European money market funds, and we hope you enjoy the show!)

The study explains, "SSGA conducted a survey of nearly 100 investors in the second quarter of 2017 and the responses suggest that many are not yet feeling the deadline pressure. Of the survey participants, 79% indicated that they either have not considered the reform in any great detail or that they see no urgency in doing so. While 93% of participants reported familiarity with the reform, many may not actually be fully aware of its intricacies. For instance, investors expressed a strong preference for the Low Volatility NAV (LVNAV) fund class, despite the fact that this category carries the attributes with which they most frequently express "concern" -- that is, liquidity-based gates and fees. Conversely, variable NAV (VNAV) prime funds were a less popular option, with only 31% planning to allocate to them, even though VNAV funds do not carry the aforementioned mandatory gates and fees."

SSGA writes, "This is a major financial reform, with significant implications for how investors invest in cash assets. The purpose of this paper is to help investors prepare for the forthcoming transition. Specifically, this paper: presents an overview of money fund reform; offers a to-do list to complete in advance of the deadlines; and provides information that can aid investors in deciding which cash solutions to pursue. SSGA encourages investors to educate themselves as early as possible, to ensure that they are best placed to invest in the most suitable funds.... The survey was presented online to SSGA cash clients in Europe during Q2 of 2017, and completed by 99 senior cash decision makers, primarily headquartered in Great Britain."

The survey queried 69% corporate investors, 23% financial investors and 8% government investors. Fifty percent said that the changes were "Kind of ... significant to cash management," 82% won't be looking for an alternative to money funds, and it says 51% of respondents are equally concerned about gates and fees vs. NAV pricing. Thirty nine percent were more concerned with liquidity gates and redemption fees, while 10% were more concerned with NAV pricing.

The report states, "We believe the reform will achieve its primary goal of reinforcing money market stability and forestalling future asset runs. It introduces or strengthens fund requirements for diversification, transparency and liquidity. And it mandates that all fund sponsors conduct risk analysis and diligently analyse the credit quality of their investments -- a practice long undertaken by more rigorous sponsors. From an investment perspective, SSGA is confident that the reform is a positive development. Specifically the reform: preserves the attributes that make MMFs the top destination for cash; an emphasis on liquidity and principal preservation, with a secondary opportunity to earn yield."

They add, "In SSGA's survey, 91% of respondents indicated an intention to continue allocating to money funds; enables managers in eligible fund categories to continue investing in instruments long held by money funds -- such as asset-backed commercial paper (ABCP), certificates of deposit (CDs), floating rate notes and other high-quality short-term securities; maintains the pre-reform maturity and asset-life constraints; continues to allow money funds to pay for outside credit ratings (with additional disclosures to shareholders).

State Street says, "Naturally, this added stability comes at a cost. The changes are significant. No fund segment remains untouched. Reform increases the complexity of money fund options and complicates decision-making for cash investors in the near term. It boosts the number of fund segments to four: a government category (Public Debt CNAV), two prime options (Low Volatility NAV and Short-Term Variable NAV) and a short-term bond category (Standard VNAV)."

They tell us, "[T]he reform forces institutional investors to choose between: a. Short-Term or Standard VNAV funds that are not subject to liquidity-based fees and gates; b. LVNAV funds that seek to maintain a constant NAV, but that carry gate and fee constraints if minimum liquidity or redemptions breach certain thresholds; and/or c. Public Debt CNAV funds that trade at a constant share price, but that also carry gates and fees. Simply put, EU money fund investors must accept either variable NAVs or the potential for liquidity-based gate and fee constraints. This contrasts with the U.S., where post-reform government MMFs feature constant NAVs and remain free of gates and fees."

The survey comments, "For operating cash, we believe LVNAV funds offer potential advantages that make them an appealing option for cash investors. The segment is expected to most closely resemble pre-reform constant NAV prime funds, trading with a stable NAV calculated to two decimal places under normal market conditions. Further, the reform stipulates elevated liquidity and diversification requirements that render this segment safer and more liquid than VNAV. Though lower liquidity requirements may enable VNAV funds to offer a few basis points of additional yield, we do not believe the spread will make up for the added stability, convenience and safety built into the LVNAV parameters. Of course, LVNAV funds will carry liquidity-based fees and gates."

Finally, SSGA adds, "For core and strategic cash with an investment horizon of greater than 6 months, we think investors should consider Standard VNAV funds. This segment offers a highly conservative option and is regulated by the European Securities and Markets Authority (ESMA). Standard VNAV funds offer the potential for greater yield within a risk profile acceptable for many cash investors' core and strategic cash segments."

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") yesterday. Among the 4 tables it includes on money market mutual funds, the Second Quarter, 2017 edition shows that the Household Sector remains the largest investor segment; assets here fell in Q2 after rising in Q1. The next largest segments, Funding Corporations (primarily Securities Lending money) and Nonfinancial Corporate Businesses, also saw assets decline in the second quarter. State & Local Governments, Private Pension Funds, Nonfinancial Noncorporate Business and State & Local Govt Retirement all saw assets rise slightly in Q2, while the Rest of World and Life Insurance Companies categories saw assets inch lower in the latest quarter. Over the past 12 months, Nonfinancial Corporate Businesses and Life Insurance Companies showed big decreases, while Funding Corporations and State & Local Govt Retirement holdings increased over the past year. We review the latest Fed Z.1 numbers, and we also review the ICI's latest money fund numbers, which show that the gains in Prime MMFs continue, below.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows total assets decreasing by $31 billion, or -1.2%, in the second quarter to $2.633 trillion. Over the year through June 30, 2017, assets are down $69 billion, or -2.6%. The largest segment, the Household sector, totals $977 trillion, or 37.1% of assets. The Household Sector decreased by $21 billion, or 2.1%, in the quarter, after decreasing $25 billion in Q1'17 and increasing $50 billion in Q4'16. Over the past 12 months through June 30, Household assets are down $9 billion, or 0.9%.

Funding Corporations, which became the second largest segment last quarter according to the Fed's data series, held $522 billion, or 19.8% of the total. Securities lending reinvestment assets in money funds decreased $8 billion in the quarter, or -1.6%, but they've increased by $59 billion over the past year, or 12.7%. Nonfinancial Corporate Businesses remained the third largest investor segment with $463 billion, or 17.6% of money fund shares. They fell by $6 billion, or 1.3%, in the latest quarter after plunging in Q1'17 (down $114 billion). Corporate money fund holdings decreased $114 billion, or 19.8%, over the previous 12 months.

The fourth largest segment, State and Local Governments held 7.0% of money fund assets ($184 billion) -- up $1 billion, or 0.5%, for the quarter, and up $4 billion, or 2.2%, for the year. Private Pension Funds, which held $151 billion (5.7%), remained in 5th place. Rest Of The World category was the sixth largest segment in market share among investor segments with 4.0%, or $105 billion, while Nonfin Noncorp Business held $100 billion (3.8%), State and Local Government Retirement Funds held $73 billion (2.8%), Life Insurance Companies held $43 billion (1.6%), and Property-Casualty Insurance held $16 billion (0.6%), according to the Fed's Z.1 breakout.

The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $1.541 trillion, or 58.5%. Debt securities includes: Open market paper ($125 billion, or 4.7%; we assume this is CP), Treasury securities ($624 billion, or 23.7%), Agency and GSE backed securities ($643 billion, or 24.4%), Municipal securities ($142 billion, or 5.4%), and Corporate and foreign bonds ($7 billion, or 0.3%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($894 billion, or 34.0%) and Time and savings deposits ($177 billion, or 6.7%). Money funds also hold minor positions in Foreign deposits ($3 billion, or 0.1%), Miscellaneous assets ($3 billion, or 0.1%), and Checkable deposits and currency ($15 billion, 0.6%). Note: The Fed also recently added a new breakout line to this table which lists "Variable Annuity Money Funds;" they currently total $35 billion, up $1 billion in the quarter.

During Q2, Treasury Securities (down $116 billion), Municipal Securities (down $12 billion), Time and Savings Deposits (down $2 billion), and Agency- and GSE-Backed Securities (down $1 billion), showed decreases. Security Repurchase Agreements (up $86 billion), Open market paper (up $15 billion), and Checkable Deposits and Currency (up $1 billion) showed gains.

Over the 12 months through 6/30/17, Time and Savings Deposits (down $249B), Open Market Paper (down $148B), and Municipal Securities (down $72B) all showed big declines due to the massive shift from Prime and Tax-Exempt money funds to Government MMFs. Security Repurchase Agreements (up $253B), Treasury Securities (up $106B) and Agency- and GSE-Backed Securities (up $77B) all showed big gains over the 12 months through Q2'17.

In other news, the Investment Company Institute's latest "Money Market Fund Assets" report show Prime money market funds rising for the 7th week in a row, the 13th week in the past 14, and the 17th week in the past 20 (up $41.0, or 10.2%). They've now increased by $72.6 billion, or 19.5%, year-to-date.

ICI writes, "Total money market fund assets decreased by $14.57 billion to $2.72 trillion for the week ended Wednesday, September 20, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $16.69 billion and prime funds increased by $2.05 billion. Tax-exempt money market funds increased by $76 million." Total Government MMF assets, which include Treasury funds too, stand at $2.152 trillion (79.0% of all money funds), while Total Prime MMFs stand at $444.6 billion (16.3%). Tax Exempt MMFs total $128.2 billion, or 4.7%.

They explain, "Assets of retail money market funds increased by $1.87 billion to $972.88 billion. Among retail funds, government money market fund assets increased by $1.06 billion to $589.24 billion, prime money market fund assets increased by $890 million to $261.38 billion, and tax-exempt fund assets decreased by $81 million to $122.26 billion." Retail assets account for over a third of total assets, or 35.7%, and Government Retail assets make up 60.6% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $16.44 billion to $1.75 trillion. Among institutional funds, government money market fund assets decreased by $17.75 billion to $1.56 trillion, prime money market fund assets increased by $1.16 billion to $183.18 billion, and tax-exempt fund assets increased by $157 million to $5.96 billion." Institutional assets account for 64.3% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

The U.S. Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary Wednesday. It shows that total money fund assets were up $71.2 billion in August to $2.988 trillion, with Prime funds increasing for the 8th month in a row. Prime MMFs gained $16.8 billion (after gaining $9.5 billion in July, $4.0 billion in June and $2.5 billion in May) to $641.7 billion. Government money funds increased by $56.8 billion, while Tax Exempt MMFs fell by $2.4 billion. Gross yields inched higher for Prime and Govt MMFs, but decreased again for Tax Exempt MMFs. 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 their latest numbers below.

Overall assets increased by $71.2 billion in August and $19.9 billion in July, but decreased by $23.7 in June. They increased $3.8 billion in May and decreased by $12.7 billion in April. Over the past 12 months through 8/31/17, total MMF assets have declined by $5.1 billion, or 0.2%. (Note that the SEC's series includes some private and internal money funds not reported to ICI or others, but Crane Data has added many of these to our collections.)

Of the $2.988 trillion in assets, $624.9 billion was in Prime funds, which increased by $16.8 billion in August. Prime MMFs increased $9.5 billion in July, $4.0 billion in June, $2.5 billion in May, $9.8 billion in April, $12.1 billion in March, $24.9 billion in February, and $11.7 billion in Jan. But they decreased $15.5 billion in December, increased $3.4 billion in Nov., and decreased by $177.4 billion in October. Prime funds represented 21.5% of total assets at the end of August. They've increased by $91.4 billion, or 16.6%, YTD. But they've declined by $391.4 billion the past 12 months, or -37.9%, and by $1.108 trillion over the past 2 years.

Government & Treasury funds totaled $2.214 billion, or 74.0% of assets,, up $56.8 billion in August, their second monthly increase in a row and third this year. They were up $8.0 billion in July, down $26.9 in June, up $0.4 billion in May, and down $19.9 billion in April, $14.5 billion in March, $10.1 billion in February, $53.8 billion in January and $10.2 billion in Dec. But Govt MMFs rose $56.4 billion in November, and $148.0 billion in October. Govt & Treas MMFs are up $412.4 billion over 12 months (22.9%). Tax Exempt Funds decreased $2.4 billion to $133.0 billion, or 4.5% of all assets. The number of money funds is 406, the same number as last month but down 37 from 8/31/16.

Yields were up again in August for Taxable MMFs. The Weighted Average Gross 7-Day Yield for Prime Funds on August 31 was 1.28%, up one basis point from the previous month, and more than double the 0.57% of August 2016. Gross yields increased to 1.07% for Government/Treasury funds, up 0.01% from the previous month and up 0.66% since 8/16. Tax Exempt Weighted Average Gross Yields decreased 0.02% in August to 0.86%, but they've increased by 26 bps since 8/31/16.

The Weighted Average Net Prime Yield was 1.06%, up 0.01% from the previous month and up 0.71% since 8/16. The Weighted Average Prime Expense Ratio was 0.22% in August (unchanged from the previous month). Prime expense ratios have remained flat over the past year. (Note: These averages are asset-weighted.)

WALs and WAMs were up mixed in August, down for Prime and Govt funds, but up for Tax Exempt funds. The average Weighted Average Life, or WAL, was 64.0 days (down 1.1 days from last month) for Prime funds, 86.7 days (down 0.4 days) for Government/Treasury funds, and 29.1 days (up 5.6 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 30.6 days (down 0.6 days from the previous month) for Prime funds, 31.5 days (down 0.8 days) for Govt/Treasury funds, and 26.2 days (up 5.5 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 31.5% in August (down 0.6% from previous month). Total Weekly Liquidity was 49.1% (down 0.5%) for Prime MMFs.

In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $76.9 billion, followed by France with $64.9 billion, the U.S. with $61.4 billion, Japan with $48.5B, then Sweden ($43.4B), Australia/New Zealand ($38.7B), the Netherlands ($31.5B), and Germany ($28.4B). The UK ($26.0B) and Switzerland ($12.9B) rounded out the top 10.

The gainers among Prime MMF bank related securities for the month included: France (up $8.3B), the Netherlands (up $7.3B), Sweden (up $4.3B), Australia/New Zealand (up $2.2B), Switzerland (up $1.8B), Norway (up $1.7B), Germany (up $1.4 billion), China (up $821M), the U.S. (up $446M), the U.K. (up $256M), Japan (up $233M), and Belgium (up $213M). The biggest drops came from Canada (down $2.5B), Singapore(down $814M), Other (down $21M), and Spain (down $7M). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $236.2B (up $25.4B from last month), while the Eurozone subset had $137.6 billion (up $17.1B). The Americas had $139.0 billion (down from $140.8B), while Asian and Pacific had $100.5 billion (up from $98.3B).

Of the $641.1 billion in Prime MMF Portfolios as of August 31, $271.3B (42.3%) was in CDs (up from $255.8B), $117.6B (18.3%) was in Government securities (including direct and repo), down from $136.5B, $92.3B (14.4%) was held in Non-Financial CP and Other Short Term Securities (up from $88.5B), $118.8B (18.5%) was in Financial Company CP (up from $103.9B), and $41.2B (6.4%) was in ABCP (up from $37.7B).

The Proportion of Non-Government Securities in All Taxable Funds was 18.5% at month-end, up from 17.5% the previous month. All MMF Repo with Federal Reserve increased to $200.0B in August from $189.7B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 38.6% were in maturities of 60 days and over (up from 38.3%), while 10.1% were in maturities of 180 days and over (down from 10.3%).

Back in June, we reviewed the "2017 J.P. Morgan Global Liquidity Investment PeerView" survey, which interviewed almost 400 global CIO and treasurers about their cash investment preferences. (See our June 6 News, "JPMAM Investment PeerView Survey Says Money Funds Gain on Deposits.") After another read, however, we realized that we'd missed a number of important points. Also, given that the survey addresses a number of topics involving European money market funds and corporate investors (and we'll be in Paris early next week hosting our European Money Fund Symposium), we thought it would be timely to quote some more of the work.

The Peerview report tells us, "Stable NAV money market funds continue to be the most permissible investment, followed by bank obligations, U.S. Treasuries, floating NAV MMFs, commercial paper and U.S. government agency securities. Insurance companies tend to allow more investments to be permissible compared with other industries. The vast majority of respondents prefer rated money market funds over non-rated funds, which are permitted by only 6% of survey participants' investment policies."

It explains, "With an increase across all three regions, one in five respondents globally permit the usage of ultra-short/short-term bond funds, up 54% from 2015. Over 10% of respondents' policies allow for exchange traded funds (ETFs). Permissibility is most often reported by asset managers (36%) and insurers (48%). Among Asia Pacific participants, most of whom are China-based, the percentage of firms permitting wealth management products has fallen significantly, from 40% in 2015 to 18% in 2017. Firms with larger cash balances tend to have more flexibility in allowing riskier securities to be permissible. Nearly one-third of firms with USD 5 billion-plus in cash permit asset-backed securities, and almost one-quarter allow mortgage-backed securities."

J.P. Morgan A.M. writes, "In an evolving regulatory environment, nearly half (46%) of respondents plan to change their investment policy in the next six to 12 months. That is up from 38% in 2015.... More than half of all Europe participants intend to change their investment policies, the highest percentage among all regions, most likely driven by upcoming MMF reform. Only 33% of Asia Pacific participants plan to change their investment policies, which could be reflective of attractive USD bank deposit rates and fewer regulatory pressures in the region in comparison with Europe and the Americas."

They continue, "In terms of investment type, intended policy changes are focused on adding stable and floating NAV MMF and ultra-short/short-term bond funds. Asia Pacific firms are significantly more likely to intend to make changes to stable NAV money market funds, non-rated money market funds, exchange traded funds, bank obligations and high yield bonds compared with companies in Europe and the Americas."

The survey explains, "In Asia Pacific, firms have traditionally used bank deposits. Notably, though, Asia Pacific firms intend to add stable NAV money market funds (53%), bank obligations (24%) and traditional repo (16%) at a higher rate than their Americas and Europe counterparts. This could be a sign of the developments in the China market. Globally the survey showed a modest increase in the number of firms that intend to add commercial paper, asset-backed securities, traditional/non-traditional repo and corporate debt, suggesting a slight increase in appetite for moderately riskier assets."

It says, "With a 44% allocation to MMFs in 2017 vs. 30% in 2015, liquidity investors demonstrate a continued and substantial commitment to both stable NAV and floating NAV MMFs. The share of cash allocated to bank obligations has fallen significantly, from 47% in 2015 to 27% in 2017. Respondents reported a larger allocation to MMFs than to bank obligations (44% vs. 27%), which likely reflects at least in part a move by banks to drive non-operating deposits off balance sheet to comply with Basel III regulations. The survey showed a 50% global increase in floating NAV allocation since 2015, with a 200% increase among Americas respondents, as new SEC rules require institutional prime and municipal MMFs to float their NAV."

JPMAM's report states, "Firms with less than USD 500 million in cash have over half (53%) of their cash invested in money market funds. Peers with assets of USD 5 billion or more have more diversified allocations.... Overall, most firms plan to stay the course with their allocations based on next year's market outlook, although they are making changes at the margin.... Looking to capitalize on the current yield opportunity and anticipating what is likely to be an environment of slowly rising rates, respondents reported a net increase in expected allocations to stable NAV, floating NAV and ultra-short/short-term bond funds. The survey finds that many participants have already amended their investment policies to permit FNAV funds, and many also intend to increase their allocation to FNAV funds."

They comment, "Our results have identified fairly consistent trends over the last few years -- a steady increase in the use of MMFs and ultra-short/short-duration bond funds and a decline in the percentage of firms decreasing their use of bank obligations (from 22% in 2015 to 12% in 2017). This suggests that much of the Basel III-induced movement of cash may have already occurred.... If bank deposit rates lag other money market investments, money market funds are by far the most popular choice for moving cash, selected by nearly two-thirds of respondents. That feedback is consistent across all regions, cash balances and industry types."

On the new types of European money funds, JPMAM writes, "There is no clear preference among the four structures for short-term money market fund investments, but more than a third of investors said they need more time and/or information before making a decision (particularly European respondents–44%).... Examining the four structures, European respondents are significantly more likely than their Americas or Asia Pacific peers to prefer a prime/credit-style low volatility NAV money market fund with liquidity-based fee/gating provisions. Among Americas survey participants, the most popular choice (25%) was a government MMF."

They tells us, "Among survey participants who are considering these four new money market fund structures, 43% ranked risk of a liquidity fee/gate as the most important factor in their decision-making. The percentages were highest for asset managers (68%) and insurers (61%).... Only 37% of U.S.-based investors are currently invested in a prime money market fund, down from 63% in 2015. A majority (61%) transitioned assets from a prime MMF to a government MMF because of the SEC Rule 2a-7 changes that went into effect in October 2016."

The Peerview survey explains, "When those U.S.-based investors who transitioned assets from a prime MMF (floating NAV, fees/gates) to a government MMF (stable NAV, no fees/gates) were asked to rank the importance of factors that would impact their decision to move assets back into prime funds, 50% cited comfort level with FNAV and gates/fees as the most important consideration. When U.S.-based investors were asked how much excess yield a prime MMF would have to pay before they would consider investing in one, 36% of participants in the 2017 survey said that yield would not be a factor in their decision-making. That is down significantly from 2015, when over 54% said excess yield would not be a factor. Nearly half of respondents would find an excess yield of between 15 basis points (bps) and 50bps to be a compelling factor."

It adds, "Since our last survey was conducted, in 2015, most respondents have not revised their investment policies in order to mitigate the impact of negative interest rates on euro and/or sterling-denominated investments. However, there were some changes of note: 35% of European respondents, and 30% of companies with USD 5 billion-plus in cash assets, changed their policies to allow increased credit risk. The survey reports significant increases overall in credit risk, interest rate risk and the use of currency swaps since 2015."

Finally, they write, "General corporate purposes ranked as the top factor influencing a decision to repatriate assets, by both region and cash balance. Among companies with a cash balance of less than USD 500 million, 39% cited general corporate purposes as the most important factor, the same percentage as the other three factors combined.... We could see money in motion in the coming quarters and years. Employment of repatriated assets was fairly evenly split among the primary choices for repatriated assets (keep in cash, eliminate or pay down debt, capital expenditures, M&A investment, pay dividend and/or repurchase stock), both regionally and by cash balance."

The Investment Company Institute released its latest monthly "Money Market Fund Holdings" summary (with data as of August 31, 2017) yesterday. This release reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in August, prime money market funds held 27.3 percent of their portfolios in daily liquid assets and 43.1 percent in weekly liquid assets, while government money market funds held 57.1 percent of their portfolios in daily liquid assets and 75.7 percent in weekly liquid assets." Prime DLA decreased from 29.2% last month and Prime WLA increased from 42.7% last month. We review the ICI's latest Holdings update, as well as recent Portfolio Holdings commentary from J.P. Morgan Securities, below.

ICI explains, "At the end of August, prime funds had a weighted average maturity (WAM) of 33 days and a weighted average life (WAL) of 73 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 31 days and a WAL of 87 days." Prime WAMs were down one day from the prior month, and WALs were down one day. Govt WAMs and WALs both decreased by 1 day from last month.

Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $174.32 billion in July to $170.19 billion in August. Government money market funds' holdings attributable to the Americas rose from $1,686.38 billion in July to $1,687.96 billion in August." (See too Crane Data's Sept. 13 News, "Sept. Money Fund Portfolio Holdings: Repo Rebounds, Treasuries Drop.")

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $170.2 billion, or 39.1%; Asia and Pacific at $85.7 billion, or 19.7%; Europe at $177.0 billion, or 40.6%; and, Other (including Supranational) at $2.5 billion, or 0.7%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.688 trillion, or 78.4%; Asia and Pacific at $108.2 billion, or 5.0%; and Europe at $353.5 billion, or 16.4%.

In related news, J.P. Morgan Securities' U.S. Fixed Income Markets' latest "Short Duration Strategy Weekly," also comments on the latest set of money fund portfolio holdings. They write, "Total taxable money fund AUM increased by $73bn or 3% in August, driven predominately by inflows into government MMFs. Month-over-month, government MMF assets rose by $56bn, while prime fund assets rose by $17bn. Given the time of year, it's common for MMFs to experience inflows. That being said, we note that the recent surge has been notable relative to this time in prior years and could be driven in part by some very large corporate bond deals that took place this summer."

Their update on "Taxable MMF holdings for August" continues, "As expected, government MMFs actively avoided Treasury bills that matured in October.... Over the course of August, exposure to October bills decreased by $16.5bn, as debt ceiling concerns led funds to reduce their exposures to bills that are most at risk of a technical default. Instead, they piled into surrounding maturities, with exposure to September and November bills increasing by $38bn and $58bn respectively."

J.P. Morgan tells us, "As of August month-end, government MMFs held $219bn of Treasury bills. Of this amount, approximately 80% mature inside of 3 months (i.e., November and in) and 20% beyond 3 months (i.e, December and out).... With the Fed potentially in play in December, we suspect MMFs may choose to stay short duration ahead of the Fed meeting, which should keep a lid on yields on short-dated bills, such as cash management and 1-month bills, even as we are anticipating $170bn of net new bill supply in 4Q17."

They explain, "Within government MMFs, repo ex-Fed RRP continues to comprise a significant portion of holdings. This asset class has seen the greatest growth in government MMFs, increasing by $338bn year-to-date.... In contrast, there have been reductions in Treasury bill (-$38bn) and Treasury coupons/FRN holdings (-$134bn). Meanwhile, Agency holdings have been fairly stable this year."

J.P. Morgan adds, "Foreign banks seem to be driving the growth in repo this year, particularly the French banks.... This growth now places the French banks as among the biggest repo counterparties in the money markets. Indeed, of the top 6 repo counterparties with MMFs, three of them are French banks."

Finally, they write, "As for prime MMFs, portfolio allocations were largely unchanged month-over-month.... Balances to foreign banks increased slightly, offset by small declines in Fed RRP. Again, the increase in foreign bank exposure was predominately driven by banks domiciled in France, in the form of CP/CDs, followed by banks domiciled in Netherlands and Belgium."

There haven't been a lot of fund mergers and liquidations over the past few months, but minor changes continue to trickle in. (See our August 25 and August 1 Links of the Day, "Western Latest to Merge Primes" and "Dreyfus Liquidating AMT-​Free MMF.") The most recent tweaks come from Fidelity and Dreyfus, who are both making slight changes this month to trim their fund lineups. Fidelity is merging its $2.6 billion Retirement Government Money Market Portfolio (FGMXX) and its $8.8 billion Retirement Government Money Market II Portfolio (FRTXX) into the $67.2 billion Fidelity Government Money Market Fund (SPAXX), and Dreyfus is converting a number of its Agency, Administrative, Classic and Participant share classes into existing Institutional, Hamilton, and Investor shares. We review these changes, and we also summarize our most recent "offshore" money fund statistics and MFI International Portfolio Holdings (which were released on Friday), below.

The Supplement to the Retirement Government Money Market II Portfolio (formerly Retirement Money Market Portfolio) Summary Prospectus says, "The Board of Trustees of Fidelity Money Market Trust and Fidelity Hereford Street Trust has unanimously approved an Agreement and Plan of Reorganization ("Agreement") between Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio (together, the "Acquired Funds"), each a series of Fidelity Money Market Trust, and Fidelity Government Money Market Fund, a series of Fidelity Hereford Street Trust. Substantially similar to each Acquired Fund, the Fidelity Government Money Market Fund seeks as high a level of current income as is consistent with preservation of capital and liquidity."

It explains, "The Agreement provides for the transfer of all of the assets and the assumption of all of the liabilities of each of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio in exchange for shares of Fidelity Government Money Market Fund (Retail Class) equal in value to the respective net assets of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio. After the exchange, Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio will distribute the Fidelity Government Money Market Fund shares to its shareholders pro rata, in liquidation of Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio."

Fidelity adds, "The Reorganization, which does not require shareholder approval, is expected to take place on or about September 22, 2017. The Reorganization is expected to be a tax-free transaction. This means that neither Retirement Government Money Market Portfolio and Retirement Government Money Market II Portfolio nor their shareholders will recognize any gain or loss as a direct result of the Reorganization."

A filing on recent Dreyfus changes tells us, "Effective on or about September 8, 2017 (the "Effective Date"), each fund will issue to each holder of the class of shares designated in the chart below as Converted Shares, in exchange for said Converted Shares, shares of the same fund designated as Surviving Shares having an aggregate net asset value equal to the aggregate net asset value of the shareholder's Converted Shares. Thereafter, each fund will no longer offer its Converted Shares. Each fund reserves the right to no longer offer and terminate its Converted Shares as separately designated classes of shares of the fund prior to the Effective Date if there are no holders of, or assets in, such Converted Shares."

It lists the changes: Dreyfus Cash Management Agency and Participant will convert into Institutional and Investor shares; Dreyfus Institutional Preferred Money Market Fund Administrative shares will convert into Hamilton shares; Dreyfus Government Securities and Govt Cash Management Agency shares will convert into Institutional shares; Dreyfus Institutional Preferred Government Money Market Fund Agency and Classic shares will convert into Hamilton and Premier shares; Dreyfus Institutional Treasury and Agency Cash Advantage Fund Agency and Classic shares will convert into Hamilton and Premier shares; Dreyfus Treasury Securities Cash Management Agency shares will convert into Institutional shares; Dreyfus Treasury & Agency Cash Management Agency and Premier shares will convert into Institutional and Investor shares; Dreyfus AMT-Free Tax Exempt Cash Management Admin and Participant shares will convert into Inst and Investor shares; Dreyfus AMT-Free Municipal Cash Management Plus Admin and Participant shares will convert into Inst and Investor shares; and, Dreyfus AMT-Free New York Municipal Cash Management Admin shares will convert into Inst shares.

In other news, Crane Data's latest MFI 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 $101 billion year-to-date to $832 billion as of 9/14/17. U.S. Dollar (USD) funds (152) account for over half ($432.3 billion, or 51.9%) of the total, while Euro (EUR) money funds (93) total E89.7 billion and Pound Sterling (GBP) funds (106) total L224.8. USD funds are up $34 billion, YTD, while Euro funds are down E5 billion and GBP funds are up L35B. USD MMFs yield 0.99% (7-Day) on average (9/14/17), up 83 basis points from 12/31/16. EUR MMFs yield -0.50% on average, down 31 basis points YTD, while GBP MMFs yield 0.12%, down 16 bps YTD.

Crane's latest MFI International Money Fund Portfolio Holdings data (as of 8/31/17) shows that European-domiciled US Dollar MMFs, on average, consist of 15% in Treasury securities, 23% in Commercial Paper (CP), 24% in Certificates of Deposit (CDs), 18% in Other securities (primarily Time Deposits), 17% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 35.0% of their portfolios maturing Overnight, 12.3% maturing in 2-7 Days, 18.7% maturing in 8-30 Days, 9.8% maturing in 31-60 Days, 9.4% maturing in 61-90 Days, 11.4% maturing in 91-180 Days, and 3.4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (25.9%), France (14.6%), Japan (10.1%), Canada (9.7%), Sweden (5.9%), the Netherlands (5.9%), Germany (5.2%), Australia (5.1%), UK (4.4%), Singapore (2.6%), and China (2.6%).

The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $66.2 billion (14.7% of total assets), BNP Paribas with $17.9B (4.0%), Credit Agricole with $13.9B (3.1%), Toronto-Dominion Bank with $11.9B (2.7%), Mitsubishi UFJ with $9.9B (2.2%), Federal Reserve Bank of New York with $9.7B (2.1%), Societe Generale with $8.4B (1.9%), DnB NOR Bank ASA with $8.3B (1.8%), Wells Fargo with $7.8B (1.7%), Mizuho Corporate Bank Ltd with $7.7B (1.7%), Sumitomo Mitsui Banking Co with $7.6B (1.7%), Swedbank AB with $7.5B (1.7%), RBC with $7.3B (1.6%), National Australia Bank with $7.1B (1.6%), Bank of Nova Scotia with $7.0B (1.6%), Canadian Imperial Bank of Commerce with $6.9B (1.5%), ING Bank with $6.8B (1.5%), Natixis with $6.8B (1.5%), KBC Group with $6.8B (1.5%), and Rabobank with $6.8B (1.5%).

Euro MMFs tracked by Crane Data contain, on average 38% in CP, 29% in CDs, 23% in Other (primarily Time Deposits), 8% in Repo, 1% in Treasury securities and 1% in Agency securities. EUR funds have on average 24.0% of their portfolios maturing Overnight, 9.0% maturing in 2-7 Days, 19.5% maturing in 8-30 Days, 16.2% maturing in 31-60 Days, 12.2% maturing in 61-90 Days, 15.9% maturing in 91-180 Days and 3.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (27.5%), Japan (14.6%), US (12.9%), Sweden (7.8%), Netherlands (7.2%), Belgium (6.9%), Switzerland (6.5%), Germany (3.9%), and China (3.0%).

The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.5B (5.8%), Rabobank with E3.2B (4.1%), Svenska Handelsbanken with E3.1B (3.9%), Credit Agricole with E2.8B (3.6%), Sumitomo Mitsui Banking Co. with E2.7B (3.4%), Proctor & Gamble with E2.6B (3.3%), KBC Group NV with E2.6B (3.3%), Credit Mutuel with E2.5B (3.1%), Agence Central de Organismes de Securite Sociale with E2.5B (3.1%), Nordea Bank with E2.5B (3.1%), Mitsubishi UFJ Financial Group Inc with E2.5B (3.1%), UBS AG with E2.4B (3.1%), Dexia Group with E2.3B (2.9%), Societe Generale with E2.2B (2.8%), and BPCE SA with E2.2B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 8/31/17): 42% in CDs, 24% in Other (Time Deposits), 19% in CP, 11% in Repo, 3% in Treasury, and 1% in Agency. Sterling funds have on average 27.0% of their portfolios maturing Overnight, 7.1% maturing in 2-7 Days, 14.4% maturing in 8-30 Days, 13.5% maturing in 31-60 Days, 16.0% maturing in 61-90 Days, 17.3% maturing in 91-180 Days, and 4.6% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (19.1%), France (17.8%), United Kingdom (14.4%), Netherlands (7.5%), Sweden (6.5%), Germany (5.8%), US (5.4%), Canada (4.4%), Australia (3.7%), and Singapore (3.0%).

The 15 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L10.4B (6.2%), Mitsubishi UFJ Financial Group Inc. with L8.5B (5.1%), Sumitomo Mitsui Banking Co. with L7.1B (4.3%), ING Bank with L6.3B (3.8%), Credit Agricole with L6.0B (3.6%), Nordea Bank with L6.0B (3.6%), Rabobank with L5.7B (3.4%), Mizuho Corporate Bank Ltd. with L5.7B (3.4%), Bank of America with L5.7B (3.4%), BPCE SA with L5.6B (3.4%), BNP Paribas with L5.5B (3.3%), Credit Mutuel with L5.0B (3.0%), Sumitomo Mitsui Trust Bank with L5.0B (3.0%), Svenska Handelsbanken with L4.4B (2.6%), DZ Bank AG with L3.8B (2.3%), Standard Chartered Bank with L3.2B (1.9%), Erste Abwicklungsanstalt with L3.2B (1.9%), Oversea-Chinese Banking Co. with L3.2B (1.9%), Bank of Nova Scotia with L3.0B (1.8%), and Nationwide Building Society with L2.8B (1.7%).

The September issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Friday, features the lead story, "ICI vs. Bank of England: Debate Over Bond Fund Runs," which reviews a study and rebuttal on the susceptibility of bond funds to runs. BFI also includes the "profile" article, "Payden Global Low Duration: Talk w/Syal, Manis, Marshall," with Payden & Rygel Managing Principal Mary Beth Syal. In addition, we recap the latest Bond Fund News, which includes briefs on mixed yields and higher returns in August, continued inflows and more. BFI also includes our Crane BFI Indexes, averages and summaries of major bond fund categories. We excerpt from the September 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 our latest Bond Fund Portfolio Holdings data next week.)

Our lead Bond Fund Intelligence story says, "The Bank of England published a study recently entitled, "Simulating stress across the financial system: the resilience of corporate bond markets and the role of investment funds," which explains, "The paper that follows seeks to model how the aggregate behaviour of several sectors within the system of market-based finance, including investment funds and dealers, could interact to spread and amplify stress in corporate bond markets. That focus stems from the growing importance of bond markets to the financing of the economy, alongside the rapid growth in holdings of such bonds in fund structures."

It continues, "The BoE writes, "The stress simulation indicates that, under a severe but plausible set of assumptions regarding market participant behaviours, investor redemptions can result in material increases in spreads in the corporate bond market and, in the extreme, in corporate bond market dislocation, threatening the stability of financial markets and institutions. While such market dislocation is a 'tail risk', the probability of it crystallising could increase, especially if the potential demand for liquidity, including that arising from the investment fund sector, continues to grow relative to the supply of liquidity by dealers and other investors."

The piece explains, "ICI wrote a response, "Simulating a Crisis." Economist Sean Collins explains, "The Bank of England (BoE) recently published a paper detailing results from a simulation intended to "stress-test" open-end investment funds. The paper suggests that under "severe but plausible" assumptions, investors could redeem so heavily from open-end investment funds (e.g., mutual funds or UCITS funds) during a period of market stress that they could cause "dislocations" in corporate bond markets."

ICI adds, "As we have pointed out before, the hypothesis that investors in stock or bond funds might redeem heavily during a market downturn -- thus destabilizing financial markets -- is an old one, dating back to the '20s. We've also noted that there isn't much evidence of this, and that there is a fair bit of evidence against it."

The latest BFI also says, "This month Bond Fund Intelligence "profiles" the Payden Global Low Duration Bond Fund, and interviews Payden & Riegle's Managing Principal Mary Beth Syal, Senior VP Larry Manis and VP Amy Marshall. The three discuss "going global" in the short-term space, and also address the benefits of low duration, as well as a number of topics. Our Q&A follows."

BFI says, "Tell us a little bit about your history." Syal answers, "Payden & Rygel is pioneer in a lot of different things, but one of these was global fixed income investing. Our very first mutual fund was our Global Fixed Income Fund in 1992. There was only, as far as we knew, one other global fixed income fund at that time. But we were a pioneer in looking at global opportunities as being an important element to a fixed income portfolio, so we've always had a global focus."

She continues, "Then we started the Global Low Duration in 1996, couple of years after the first one but part of the second wave. I've been at Payden & Rygel for 26 years and have been steeped in the short duration investment process philosophy for a very long time.... You've got a group of analysts and research folks that are focused on both the advanced economies as well as the emerging economies. We use the resources of the firm broadly when we are looking at the short maturity part of those markets." (Watch for more excerpts of this article later this month, or ask us to see the full issue of BFI.)

Our Bond Fund News includes a brief entitled, "Yields Mixed in August; Returns Up." It says, "Yields dipped most of our Crane BFI Indexes last month, except for the ultra-short segments. Returns were again higher for most market sectors. The BFI Total Index averaged a 1-month return of 0.57% and gained 2.15% over 12 months. The BFI 100 had a return of 0.59% in August and rose 2.68% over 1 year. The BFI Conservative Ultra-Short Index returned 0.17% and was up 1.16% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.20% and 1.61% for 12 mos. Our BFI Short-Term Index returned 0.27% and 1.84% for the month and past year. The BFI High Yield Index increased 0.16% in August and is up 7.20% over 1 year."

The new issue also includes a News brief entitled, "Schwab Liquidates BFs." It tells us, "A statement entitled, "Liquidation of Schwab Short-Term Bond Market Fund (SWBDX) and Schwab Total Bond Market Fund (SWLBX)" says, "At a meeting held on April 19, 2017, based on a recommendation by Charles Schwab Investment Management, Inc. (CSIM), the Board of Trustees reconsidered its previous decision regarding the reorganization of Schwab Short-Term Bond Market Fund into Schwab Short-Term Bond Index Fund and the reorganization of Schwab Total Bond Market Fund into Schwab U.S. Aggregate Bond Index Fund and approved the liquidation of each of the Schwab Short-Term Bond Market Fund and Schwab Total Bond Market Fund."

Finally, the September issue of BFI also includes a sidebar, "Bond Inflows Keep Coming." It says, "ICI's "Combined Estimated Long-Term Fund Flows and ETF Net Issuance" as of Sept. 13 tells us, "Bond funds had estimated inflows of $6.46 billion for the week, compared to estimated inflows of $5.35 billion during the previous week. Taxable bond funds saw estimated inflows of $5.93 billion, and municipal bond funds had estimated inflows of $527 million." Over the past 5 weeks through 9/13, bond funds and ETFs have seen almost $31.0 billion in inflows vs. $38.0 billion in inflows over the prior 5-weeks."

The Wall Street Journal featured an article entitled, "Meet Earth's Largest Money-Market Fund." Subtitled, "Alibaba Spinoff Yu'e Bao has accrued 370 million account holders and $211 billion in assets in just four years. As its model is replicated, the government is enforcing new regulations," It says, "In just four years, a money-market fund created by an affiliate of China's Alibaba Group Holding Ltd. has become the world's largest, providing millions of the country's savers a high-returning place to park their money. Now, it is facing pressure from regulators to slow down." We excerpt from the Journal's piece below. (See also our Sept. 6 News, "FT Says Chinese Issue New Rules on Money Funds, and note that our upcoming European Money Fund Symposium (Sept. 25-26 in Paris) will feature a segment on "MMFs in Asia: China and Japan.")

The WSJ writes, "Fueled by contributions from some 370 million account holders, the fund, known as Yu'e Bao -- which means "leftover treasure" -- has grown rapidly to manage $211 billion in assets. It is more than twice the size of the next largest money-market fund, a U.S. dollar liquidity fund managed by J.P. Morgan Asset Management, according to data from Morningstar Inc. Yu'e Bao's assets doubled in the past year alone, and the fund now makes up a quarter of China's money-market mutual fund industry."

Note: Crane Data shows the largest U.S. money fund portfolios as: JPMorgan US Govt MM Agency (OGAXX) at $139.8 billion (as of 8/31/17); Fidelity Govt Cash Reserves (FDRXX) at $134.0B; Fidelity Inv MM: Govt Port I (FIGXX) at $99.7B; Vanguard Prime MMF (VMMXX) at $96.8B; and Goldman Sachs FS Govt Admin (FOAXX) at $88.4B.

The article continues, "Its ascent has been an accidental byproduct of a sharp shift among Chinese consumers toward mobile payments. Yu'e Bao draws its funds from users of Alipay, an electronic-payments platform used by roughly a third of China's population to make purchases on Alibaba's e-commerce sites and to pay for everything from cinema tickets to household bills. In some ways, Yu'e Bao's surge to prominence shows how diverse and dominant Alibaba and its affiliates have become in recent years."

The Journal tells us, "Ant set up Yu'e Bao as a place for Alipay users to park idle cash sitting in virtual wallets they control with their smartphones. The company never intended, or expected, Yu'e Bao to become as large as it did so quickly, according to a person familiar with the matter. Attracted by the fund's generous returns -- Yu'e Bao's investments currently produce a 7-day annualized yield of 4.02% -- some investors have been sending chunks of their monthly paychecks to it, another reason for its growth. A year ago, the fund's yield was 2.3%, according to Tianhong Asset Management Co., an Ant subsidiary that manages the fund."

They add, "Yu'e Bao's short-term yield dwarfs the 1.5% interest rate on one-year Chinese bank deposits and even beats the 3.6% yield on 10-year Chinese government bonds. The fund invests most of its money in certificates of deposits issued by Chinese state-owned or state-supported banks. It also holds government bonds, bank-issued bonds and commercial paper. Data reviewed by The Wall Street Journal indicates Tianhong boosted Yu'e Bao's returns in recent years by increasing its allocation of funds to financial instruments with longer maturities.... About 40% of Yu'e Bao's investments mature in under 60 days, versus over 60% four years ago, according to Tianhong's reports."

The WSJ article explains, "China's money-market fund industry has swelled in recent years, partly because of loose regulation. The first Chinese money-market fund was launched in 2003, and similar funds for years were marketed mainly to wealthy individuals and institutions. Following the formation of Yu'e Bao, which lets people open accounts with as little as 1 yuan ($0.15), the industry has grown exponentially as other similar funds have sprouted up to attract retail investors' money."

It states, "The surge is making Chinese regulators nervous. In March, China's securities regulator called for "significantly stronger" risk controls at money-market funds to "prevent systemic risks caused by large-scale redemptions.... In early September, regulators issued new liquidity rules requiring money-market funds to boost their holdings of higher-quality assets, such as short-term debt securities, that carry top credit ratings. The regulator also labeled money-market funds as "systemically significant" and instructed them to curb their exposure to individual financial institutions. The new rules take effect on Oct 1."

The piece also says, "Alipay already limits the amount of money some customers can withdraw from Yu'e Bao into their bank accounts to the equivalent of about $7,758 a day. Tianhong added it will continue to keep "liquidity management as a top priority" and has made adjustments to its portfolio holdings this year. The manager is also taking steps to limit the fund's growth. In May, Yu'e Bao imposed a 250,000 yuan limit on the size of individual accounts, down from 1 million yuan. Three months later, it reduced the account limit sharply again, to 100,000 yuan. The limits apply only to newer account holders."

It adds, "Yu'e Bao is facing growing competition from rivals that have copied its approach. Users of Alipay now have the option of placing their cash in money-market funds managed by outside investment firms that earn higher returns. Tencent Holdings Ltd., the Chinese social-media giant that owns popular messaging platform WeChat, is starting a new fund that allows users to earn interest of as high as 4.29% on cash balances in their accounts."

Finally, the Journal writes, "Chinese money-market funds held assets totaling $827 billion at the end of June, compared with $56 billion four years ago, according to Wind Information Co., a data provider. Money-market funds now account for over half of China's $1.6 trillion mutual-fund industry, according to the Asset Management Association of China. Investors continue to pile in. In July alone, another $114 billion flowed into Chinese money-market funds, according to government data."

Crane Data released its September Money Fund Portfolio Holdings Tuesday, and our latest collection of taxable money market securities, with data as of August 31, 2017, shows a strong rebound in Repo (after a big drop last month), but a drop in Treasuries and Agencies. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) increased by $58.6 billion to $2.751 trillion last month, after increasing $61.5 billion in July and decreasing $60.8 billion in June. Repo remained the largest portfolio segment, while Agencies narrowly beat out Treasuries for the number two spot. CDs 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, Repurchase Agreements (repo) increased $65.1 billion (7.3%) to $963.9 billion, or 35.0% of holdings, after falling $55.6 billion in July but rising $12.4 billion in June, $83.7 billion in May, and $24.6 billion in April. Treasury securities fell $32.7 billion (-4.8%) to $645.5 billion, or 23.5% of holdings, after rising $36.7 billion in July, and falling $31.4 billion in June. Government Agency Debt decreased $11.2 billion (-1.7%) to $665.8 billion, or 24.2% of all holdings, after increasing $48.4 billion in July and decreasing $1.7 billion in June. Repo, Treasuries and Agencies total $2.275 trillion, representing a massive 82.7% of all taxable holdings.

CDs and CPs increased slightly last month, along with Other (mainly Time Deposits) securities. Certificates of Deposit (CDs) increased $3.4 billion (2.0%) to $177.9 billion, or 6.5% of taxable assets, after increasing $13.6 billion in July, but decreasing $19.5 billion in June. Commercial Paper (CP) was up $16.2 billion (9.7%) to $182.9 billion, or 6.6% of holdings (after increasing $8.0 billion in July but decreasing $0.5 billion in June). Other holdings, primarily Time Deposits, rose by $18.5 billion (21.1%) to $106.3 billion, or 3.9% of holdings. VRDNs held by taxable funds decreased by $0.7 billion (-7.3%) to $8.7 billion (0.3% of assets).

Prime money fund assets tracked by Crane Data increased to $610 billion (up from $593 billion last month), or 22.2% (up from 22.0%) of taxable money fund holdings' total of $2.751 trillion. Among Prime money funds, CDs represent just under a third of holdings at 29.2% (down from 29.4% a month ago), followed by Commercial Paper at 29.9% (up from 28.1%). The CP totals are comprised of: Financial Company CP, which makes up 18.4% of total holdings, Asset-Backed CP, which accounts for 6.7%, and Non-Financial Company CP, which makes up 4.8%. Prime funds also hold 3.5% in US Govt Agency Debt, 7.4% in US Treasury Debt, 6.0% in US Treasury Repo, 1.5% in Other Instruments, 13.8% in Non-Negotiable Time Deposits, 4.5% in Other Repo, 0.9% in US Government Agency Repo, and 1.1% in VRDNs.

Government money fund portfolios totaled $1.497 trillion (54.4% of all MMF assets), up from $1.468 trillion in July, while Treasury money fund assets totaled another $644 billion (23.4%), up from $631 billion the prior month. Government money fund portfolios were made up of 43.1% US Govt Agency Debt, 19.2% US Government Agency Repo, 11.5% US Treasury debt, and 26.0% in US Treasury Repo. Treasury money funds were comprised of 66.6% US Treasury debt, 33.3% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.141 trillion, or 77.8% of all taxable money fund assets, down from 78.0% last month.

European-affiliated holdings increased $49.0 billion in August to $592.2 billion among all taxable funds (and including repos); their share of holdings increased to 21.5% from 20.2% the previous month. Eurozone-affiliated holdings increased $32.8 billion to $401.4 billion in August; they account for 14.6% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $11.4 billion to $217.8 billion (7.9% of the total). Americas related holdings decreased $1.8 billion to $1.940 trillion and now represent 70.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which increased $46.3 billion, or 7.8%, to $641.2 billion, or 23.3% of assets; US Government Agency Repurchase Agreements (up $17.8 billion to $293.4 billion, or 10.7% of total holdings), and Other Repurchase Agreements ($29.3 billion, or 1.1% of holdings, up $1.1 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $11.9 billion to $112.4 billion, or 4.1% of assets), Asset Backed Commercial Paper (up $4.2 billion to $40.9 billion, or 1.5%), and Non-Financial Company Commercial Paper (up $0.1 billion to $29.6 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of August 31, 2017, include: the US Treasury ($645.5 billion, or 23.5%), Federal Home Loan Bank ($524.5B, 19.1%), Federal Reserve Bank of New York ($201.0B, 7.3%), BNP Paribas ($119.1B, 4.3%), Credit Agricole ($69.3B, 2.5%), RBC ($63.5B, 2.3%), Federal Farm Credit Bank ($62.9B, 2.3%), Wells Fargo ($59.0B, 2.1%), Nomura ($55.3B, 2.0%), Societe Generale ($46.2B, 1.7%), Federal Home Loan Mortgage Co. ($45.4B, 1.6%), HSBC ($40.3B, 1.5%), Mitsubishi UFJ Financial Group Inc. ($39.0B, 1.4%), Barclays PLC ($37.9B, 1.4%), JP Morgan ($34.9B, 1.3%), Bank of America ($33.9B, 1.2%), Bank of Nova Scotia ($33.8B, 1.2%), ING Bank ($32.9B, 1.2%), Natixis ($32.5B, 1.2%), and Citi ($32.1B, 1.2%).

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 ($201.0B, 20.9%), BNP Paribas ($103.8B, 10.8%), Nomura ($55.3B, 5.7%), Credit Agricole ($53.5B, 5.5%), RBC ($48.0B, 5.0%), Wells Fargo ($46.8B, 4.9%), Societe Generale ($42.0B, 4.4%), HSBC ($34.9B, 3.6%), Bank of America ($29.1B, 3.0%), and Barclays PLC ($28.6B, 3.0%).

The 10 largest Fed Repo positions among MMFs on 8/31 include: JP Morgan US Govt ($17.0B in Fed Repo), Fidelity Cash Central Fund ($13.9B), Northern Trust Trs MMkt ($13.0B), Goldman Sachs FS Gvt ($9.6B), Fidelity Inv MM: Govt Port ($8.9B), Fidelity Inv MM: Treasury Port ($8.9B), BlackRock Lq FedFund ($8.8B), Northern Inst Gvt Select ($8.3B), Vanguard Fed MMkt ($8.3B),and Wells Fargo Gvt MMkt ($7.9B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($15.9B, 3.9%), RBC ($15.5B, 3.8%), BNP Paribas ($15.4B, 3.8%), Mitsubishi UFJ Financial Group Inc. ($14.9B, 3.7%), Toronto-Dominion Bank ($14.5B, 3.6%), Bank of Montreal ($13.5, 3.3%), ING Bank ($13.1B, 3.2%), Canadian Imperial Bank of Commerce ($12.4B, 3.1%), Skandinaviska Enskilda Banken AB ($12.2B, 3.0%), and Wells Fargo ($12.2B, 3.0%).

The 10 largest CD issuers include: Bank of Montreal ($12.9B, 7.3%), Toronto-Dominion Bank ($12.5B, 7.1%), Wells Fargo ($12.1B, 6.8%), Mitsubishi UFJ Financial Group Inc ($10.8B, 6.1%), Sumitomo Mitsui Banking Co ($10.1B, 5.7%), RBC ($9.8B, 5.5%), Sumitomo Mitsui Trust Bank ($7.4B, 4.2%), Landesbank Baden-Wurttemberg ($7.4B, 4.2%), Canadian Imperial Bank of Commerce ($6.5B, 3.7%) and Citi ($6.1B, 3.4%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Bank of Nova Scotia ($7.4B, 4.7%), Commonwealth Bank of Australia ($7.4B, 4.7%), Westpac Banking Co ($7.1B, 4.5%), JP Morgan ($6.8B, 4.3%), BNP Paribas ($6.6B, 4.2%), Credit Agricole ($6.2B, 3.9%), National Australia Bank Ltd ($5.8B, 3.6%), RBC ($5.4B, 3.4%) Canadian Imperial Bank of Commerce ($5.1B, 3.2%), and DnB NOR Bank ASA ($4.9B, 3.1%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $16.9B to $201.0B), BNP Paribas (up $10.0B to $119.1B), Credit Agricole (up $8.7B to $69.3B), Wells Fargo (up $5.6B to $59.0B), Credit Suisse (up $5.0B to $24.6B), Nomura (up $4.9B to $55.3B), Barclays PLC (up $4.8B to $37.9B), Fixed Income Clearing Co (up $4.5B to $9.7B), ING Bank (up $4.5B to $32.9B), and UBS AG (up $4.3B to $9.1B).

The largest decreases among Issuers of money market securities (including Repo) in August were shown by: the US Treasury (down $32.7B to $645.5B), HSBC (down $5.4B to $40.3B), Deutsche Bank AG (down $4.7B to $12.5B), Federal Home Loan Bank (down $4.6B to $524.5B), Federal Home Loan Mortgage Co (down $3.9B to $45.4B), Goldman Sachs (down $2.1B to $16.1B), Toronto-Dominion Bank (down $2.0B to $28.7B), Federal National Mortgage Association (down $1.8B to $28.3B), Citi (down $0.9B to $32.1B), and JPMorgan (down $0.9B to $34.9B).

The United States remained the largest segment of country-affiliations; it represents 63.7% of holdings, or $1.752 trillion. France (10.3%, $284.4B) remained in second place ahead of Canada (6.8%, $187.4B) in 3rd. Japan (5.9%, $163.4B) stayed in fourth, while the United Kingdom (3.6%, $98.4B) remained in fifth place. The Netherlands (2.1%, $58.0B) remained in sixth place ahead of Germany (1.7%, $46.3B), while Sweden (1.5%, $42.3B) inched ahead of Australia (1.5%, $41.2B). Switzerland (1.3%, $36.0B) ranked tenth. (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 August 31, 2017, Taxable money funds held 33.8% (up from 31.4%) of their assets in securities maturing Overnight, and another 16.2% maturing in 2-7 days (up from 14.1%). Thus, 50.0% in total matures in 1-7 days. Another 20.7% matures in 8-30 days, while 8.2% matures in 31-60 days. Note that over three-quarters, or 78.8% of securities, mature in 60 days or less (down slightly 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 9.8% of taxable securities, while 9.4% matures in 91-180 days, and just 2.0% matures beyond 181 days.

The Central Bank of Ireland released its latest "Money Market Fund Statistics" for Q2 2017. Its summary says, "The net asset value of Irish money market funds (MMFs) fell to E472.4 billion at end-June 2017, from E482.6 billion at end-March 2017.... Across sectors, central government and bank debt saw the largest quarter-on-quarter reductions in their holdings: E11.1 billion and E13.9 billion respectively. Central government debt security holdings have decreased by 35 per cent since end-December 2016." We review their latest statistics, and also quote from a Dow Jones article on European Treasurers, below. (Note: Just two weeks to go until Crane's European Money Fund Symposium, which will take place Sept. 25-26 in Paris and which will discuss issues involving Irish, French and European money market funds in depth. We're still accepting registrations!)

The Irish Central Bank writes, "The net asset value (NAV) of MMFs resident in Ireland at end-June 2017 was E472.4 billion, down from E482.6 billion at end-March 2017. Despite positive net transactions of E8.9 billion, negative revaluations of E19.1 billion drove a E11.2 billion decrease in NAV over the quarter. Total debt securities held by MMFs at end-June 2017 amounted to E350 billion, 9 per cent lower than the previous quarter. The decrease consisted of E19 billion in net sales of debt securities and a E14 billion negative revaluation."

They tell us, "The decrease was driven by holdings of US debt securities: they account for 84 per cent of net sales and 36 per cent of negative revaluations. The trend of net sales and negative revaluations of debt securities was consistent across most issuer countries. The most notable exception was France, which had a E1.6 billion increase in holdings of its debt securities despite negative revaluations of E1.4 billion. The increase was driven by E4.7 billion in purchases of French bank debt."

The report continues, "Across sectors, central government and bank debt saw the largest reductions in their holdings: E11.1 billion and E13.9 billion respectively. Central government securities have seen a 35 per cent decrease in their holdings since end-December 2016, standing at €40.4 billion at end-June 2017. The residual maturity of outstanding debt changed across maturity buckets. Net sales and negative revaluations of debt were concentrated in debt with residual maturity of less than one month and residual maturity between 3 to 6 months. The net impact is a minor shortening of the average maturity."

It adds, "The stock of negative yielding debt decreased by E6 billion to E54 billion at end-June 2017. However, as a percentage of the total stock of debt it only declined by less than 0.2 per cent.... Nearly all negative yielding debt is euro denominated, and correspondingly the overwhelming majority of euro denominated debt is negative yielding."

Finally, the Central Bank of Ireland comments, "The British Pound retained its status as the currency with the largest share of NAV.... Net inflows of E7.2 billion exceeded negative revaluations of E6 billion, leading sterling denominated MMF equity to reach a net NAV of E210 billion. MMF equity denominated in USD experienced a negative revaluation of E13 billion, to stand at E189 billion at end Q2. Money Market funds statistics are collected on the basis of monthly security by security reporting. The reporting population is comprised of those money market funds resident and authorised in Ireland."

In related news, Dow Jones Newswires writes about, "A European Treasurer's Mission: Losing the Least Amount of Money When Storing Cash." The article, featured on Fox Business' website, says, "Claire Bechaux doesn't have a lot of options. The treasurer of Veolia Environnement SA can only store limited amounts of money in bank deposits without having to pay for it. So, she is forced to park around two-thirds of the French environmental services company's cash in European money-market funds."

The piece explains, "Since December 2016, returns on investments in money-market funds have been negative. Investors and companies like Veolia use money-market funds as an alternative to bank deposits because they can quickly be converted into cash. European banks no longer want to hold as much corporate cash, and negative interest rates and regulatory changes make it less attractive for banks to accept large corporate deposits. This presents treasurers and finance chiefs with a daunting task: to lose the least amount possible when storing cash."

It tells us, "Company holdings of constant net asset value euro funds in Europe rose to EUR209.4 billion ($252 billion) at the end of 2016, from EUR139.3 billion at the end of 2012, according to the Institutional Money Market Fund Association. In France -- a big market for variable net asset value funds -- corporate holdings rose to EUR95 billion in the first quarter of 2017, compared with EUR72 billion in the first quarter of 2016, according to the AFG asset management association."

Dow Jones writes, "Overall, holdings of European money-market funds stood at EUR1.21 trillion at the end of March, according to the European Central Bank, an increase compared with previous quarters. Still, total holdings are slightly below their March 2009 peak of EUR1.32 trillion. Changes to European money-market funds, kicking in next year and 2019, could further dent returns, as they prescribe mandatory liquidity fees as well as redemption hurdles. But, the changes are expected to be less dramatic than the reforms that went into effect in the U.S. in October 2016."

The article adds, "Similar to other companies, Veolia's first priority for its cash investments isn't yield, but liquidity, coupled with security. Longer-term investments with a higher risk profile therefore don't serve as alternatives. This is also the case for Royal Dutch Shell PLC. The company held most of its cash -- $24 billion at the end of June -- in European money-market funds denominated in U.S. dollars. A small proportion sat in sterling and euro-funds."

Crane Data's latest Money Fund Market Share rankings show assets in U.S. money fund complexes were up sharply in August, as overall assets increased by $68.7 billion, or 2.4%. Total assets have increased by $81.0 billion, or 2.9%, over the past 3 months. They've increased by $247.4 billion, or 9.3%, over the past 12 months through August 31, but note that our asset totals have been inflated by the addition of a number of funds. (Crane Data added batches of previously untracked funds in December, February and April. These funds, which total over $200 billion, include a number of internal funds that we hadn't been aware of prior to disclosures of the SEC's Form N-MFP.) The biggest gainers in August were Fidelity, whose MMFs rose by $16.0 billion, or 3.0%, BlackRock, whose MMFs rose by $9.8 billion, or 3.8%, and Federated, whose MMFs rose by $6.8 billion, or 3.8%.

Goldman, Wells Fargo, and JPMorgan also saw assets jump in August, rising by $6.3B, $6.0B, and $5.0B, respectively. The only declines among the 25 largest managers were seen by Western, Dreyfus and Invesco. (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 were up slightly in August.

Over the past year through August 31, 2017, Fidelity (up $96.8B), Vanguard (up $85.5B), BlackRock (up $25.7B), and T Rowe Price (up $25.0B) were the largest gainers, but Dreyfus (up $20.4B, or 13.2%) would have been the largest gainers had we adjusted for the previous addition of internal fund assets. These were followed by Prudential (up $14.0B, or 2248.0%), Columbia (up $12.6B, or 808.6%), Northern (up $9.3B, or 10.1%) and First American (up $5.5B, or 12.7%).

Fidelity, Dreyfus, Columbia, and BlackRock had the largest money fund asset increases over the past 3 months, rising by $25.0B, $16.6B, $13.2B, and $11.5B, respectively. (Note: Columbia rose by $13.2 billion, but their totals were driven by the addition of the $13.4 billion Columbia Short Term Cash Fund last month to our collections.) The biggest decliners over 12 months include: Federated (down $17.1B, or -8.5%), Western (down $17.0B, or -39.8), Goldman Sachs (down $16.8B, or -9.0%), Wells Fargo (down $15.6B, or -13.6%), and Morgan Stanley (down $15.2B, or -11.2%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $553.2 billion, or 19.1% of all assets. It was up $16.0 billion in August, up $25.0 billion over 3 mos., and up $96.8B over 12 months. Vanguard is second with $278.3 billion, or 9.6% market share (up $4.6B, up $2.8B, and up $85.5B), while BlackRock is third with $270.1 billion, or 9.3% market share (up $5.0B, down $10.4B, and up $4.6B for the past 1-month, 3-mos. and 12-mos., respectively). JP Morgan ranked fourth with $248.4 billion, or 8.6% of assets (up $5.0B, down $10.4B, and up $4.6B for the past 1-month, 3-mos. and 12-mos., respectively), while Federated was ranked fifth with $185.8 billion, or 6.4% of assets (down $6.8B, up $2.7B, and down $17.2B).

Dreyfus was in sixth place with $175.0 billion, or 6.0% of assets (down $688M, up $16.6B, and up $20.4B), while Goldman Sachs was in seventh place with $169.8 billion, or 5.9% (up $6.3B, down $2.9B, and down $16.8B). Schwab ($156.0B, or 5.4%) was in eighth place, followed by Morgan Stanley in ninth place ($116.9B, or 4.0%) and Northern in tenth place ($101.0B, or 3.5%).

The eleventh through twentieth largest U.S. money fund managers (in order) include: Wells Fargo ($99.3B, or 3.4%), SSGA ($80.6B, or 2.8%), Invesco ($64.3B, or 2.2%), First American ($48.9B, or 1.7%), UBS ($42.6B, or 1.5%), T Rowe Price ($40.2B, or 1.4%), DFA ($26.2B, or 0.9%), Western ($25.7B, or 0.9%), Franklin ($20.6B, or 0.7%), and Deutsche ($20.0B, or 0.7%). The 11th through 20th ranked managers are the same as last month, except UBS moved ahead of T Rowe Price. 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 JPMorgan moves ahead of Vanguard and BlackRock, BlackRock moves ahead of Vanguard, Goldman Sachs moves ahead of Federated and Dreyfus, and SSgA moves ahead of Wells Fargo.

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 ($562.2 billion), JP Morgan ($414.7B), BlackRock ($397.4B), Vanguard ($278.3B), and Goldman Sachs ($266.1B). Dreyfus/BNY Mellon ($200.4B) was sixth and Federated ($194.3B) was in seventh, followed by Schwab ($156.0B), Morgan Stanley ($152.2B), and Northern ($129.3B), 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 August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/31/17, shows that yields were up slightly in August across our Taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 750), was up 1 bps to 0.69% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 4 bps to 0.68%. The MFA's Gross 7-Day Yield increased 3 bps to 1.15%, while the Gross 30-Day Yield was up 6 bps to 1.14%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.86% (unchanged) and an average 30-Day Yield of 0.86% (up 3 bps). The Crane 100 shows a Gross 7-Day Yield of 1.17% (up 3 bps), and a Gross 30-Day Yield of 1.16% (up 5 bps). For the 12 month return through 8/31/17, our Crane MF Average returned 0.37% and our Crane 100 returned 0.52%. The total number of funds, including taxable and tax-exempt, decreased to 976, down 8 from last month. There are currently 750 taxable and 226 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 0.97% (up 1 bp) as of August 31, while the Crane Govt Inst Index was 0.73% (down 1 bp) and the Treasury Inst Index was 0.75% (unchanged). Thus, the spread between Prime funds and Treasury funds is 22 basis points, up 1 bp from last month, while the spread between Prime funds and Govt funds is 24 basis points, up 2 bps from last month. The Crane Prime Retail Index yielded 0.78% (up 3 bps), while the Govt Retail Index yielded 0.44% (up 6 bps) and the Treasury Retail Index was 0.48% (up 8 bps). The Crane Tax Exempt MF Index yield decreased to 0.35% (down 2 bps).

Gross 7-Day Yields for these indexes in August were: Prime Inst 1.35% (up 5 bps), Govt Inst 1.06% (up 2 bps), Treasury Inst 1.07% (up 1 bp), Prime Retail 1.32% (up 4 bps), Govt Retail 1.08% (up 6 bps), and Treasury Retail 1.05% (down 1 bps). The Crane Tax Exempt Index decreased 2 basis points to 0.85%. The Crane 100 MF Index returned on average 0.07% for 1-month, 0.20% for 3-month, 0.42% for YTD, 0.52% for 1-year, 0.23% for 3-years (annualized), 0.15% for 5-years, and 0.49% for 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The September issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Treasury Funds Dodge Debt Ceiling Again; Reviewing Risks," which discusses the narrow avoidance of a technical Treasury default, "European MMF Reforms & Comment Letters to ESMA," which reviews pending regulatory changes for offshore funds, and, "10 Year Anniversary of Start of Subprime Liquidity Crisis," which looks back at the start of the financial crisis and its impact on money funds a decade ago. We have also updated our Money Fund Wisdom database with August 31, 2017, statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our Sept. Money Fund Portfolio Holdings are scheduled to ship Tuesday, Sept. 12, and our Sept. Bond Fund Intelligence is scheduled to go out Friday, Sept. 15.

MFI's "Treasury Funds Dodge Bullet" article says, "While the danger of a technical default on U.S. Treasury bills may have passed for now, we think it's still worth looking at commentary on the subject over the past month. Though it likely won't be an issue again until December, the issues raised stress the need to examine risk, and steps to diffuse them, in the Government fund space (which is much bigger than it was). As they did in 2011, these fleeting concerns may prevent future dangers, but also may end up benefitting Prime MMFs."

The piece continues, "Federated's Sue Hill comments, 'Ultimately, we do not believe the Treasury will be forced into technical default. Treasury Secretary Steven Mnuchin and congressional leaders have pledged to take whatever steps are necessary to raise the debt ceiling. But we understand investors may be concerned by headlines. We expect either a short-term deal that pushes the issue off for a few months or a longer-​term agreement. But short-term markets have begun to reflect concern, with early October Treasury bill yield 10-15 basis points higher than surrounding maturities.'"

She adds, "W​e have been shying away from Treasury coupon-bearing securities that mature within this period: not because we believe they will default, but because we understand our shareholders may perceive a risk in those holdings. It is only prudent to do contingency planning. We have found most of our client concerns are liquidity and price volatility."

Our European update reads, "This month, Money Fund Intelligence reviews pending European Money Market Fund Reforms, and features replies to the European Securities and Markets Authority's (ESMA's) recent technical paper the implementation of these reforms. Irish law firm Dillon Eustace recently published a brief review of the reforms, entitled, "Ireland: A Guide To Money Market Funds Under The MMFR." We review this paper and quote from several comment letters to ESMA below. (Note: Our European Money Fund Symposium, which takes place Sept. 25-​26 at The Renaissance Paris La Defense Hotel in Paris, France, will discuss these issues in-depth. We hope to see many of you there!"

Dillon Eustace's paper states, "After protracted negotiations, the Council and the European Parliament reached political agreement on the final text of the Regulation on MMFs (​the "​MMFR") in November 2016.... ​MMFs in the EU manage assets of approximately E1 trillion representing approximately 15% of the EU's fund industry. As of 31 May 2017, Irish domiciled MMFs had assets ... of approximately E486.5 billion reflecting Ireland's status as the leading European domicile for MMFs."

It continues, "​`The Council formally adopted the MMFR on 16 May 2017 following the Parliament's approval of the agreed text on 5 April 2017 <b:>`_. The MMFR entered into on 20 July 2017 ... will become effective from 21 July 2018.... [E]xisting UCITS and AIFs that meet the definition of an MMF under the MMFR will have 18 months (i.e. by 21 January 2019) to comply with the requirements of the MMFR and submit an application to their national competent authority for authorisation under the MMFR."

The paper tells us, "The purpose of this briefing is to summarise and clarify the: Key elements of the MMFR i.e. scope; types of MMFs; investment policy requirements regarding eligible assets, diversification, concentration and credit quality; risk management requirements regarding portfolio rules (such as WAM, WAL and liquidity buckets), MMF credit ratings, know your customer and stress testing; valuation and dealing requirements; specific requirements for Public Debt CNAV MMFs and LVNAV MMFs; external support; transparency and reporting requirements; and, Next steps in the implementation of the MMFR."

Our "Subprime Crisis" piece says, "We've been writing and talking a little bit over the past month about the start of the Subprime Liquidity Crisis, which began in August and September 2007. (​See our August 11 News and August 8 Link of the Day, "10 Years Ago: Subprime Liquidity Crisis Began in Money Markets With ABCP Extensions.") Below, we take a look back at what, in retrospect, became the biggest challenge to the viability of the money fund industry in its almost 50 year history, and we also quote some of Fed Chair Janet Yellen's comments on the crisis."

The piece continues, "Though money funds were on top of the world going into the fall of 2007, things were about to change in a very bad way. In August 2007, we featured the stories: "Evergreen Removes Some ABCP Holdings to Protect Money Market Funds <i:https://cranedata.com/archives/all-articles/939/>`_" (8/20/07), "Columbia Comfortable With Fractional Extendible CP and CDO Holdings" (8/22), and "CFTC Sentinel Management Pool Is NOT a Money Market Mutual Fund" (8/14). (Note that these archives are still available to subscribers here.)"

In a sidebar, "Western Merges Primes," we write, "A new Prospectus Supplement filing for Western Asset Institutional Cash Reserves Inst (CARXX) tells us, "The Board of Trustees, on behalf of Western Asset Institutional Cash Reserves (​the "Target Fund"), has approved a reorganization pursuant to which the Target Fund's assets would be acquired, and its liabilities would be assumed, by Western Asset Institutional Liquid Reserves (​the "Acquiring Fund"), a series of the Trust, in exchange for shares of the Acquiring Fund."

Our Sept. MFI XLS, with August 31, 2017, data, shows total assets increased $68.7 billion in August to $2.897 trillion after increasing $32.6 billion in July, decreasing $20.2 billion in June, and increasing $20.3 billion in May and $68.9 billion in April. (Note that we added $67.3 billion in new funds in April.) Our broad Crane Money Fund Average 7-Day Yield was up 1 bp to 0.69% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was unchanged at 0.86% (7-day).

On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 0.02% to 1.15% and the Crane 100 rose 2 bps to 1.17%. Charged Expenses averaged 0.46% and 0.31% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 31 days (unchanged from last month) and for the Crane 100 was 31 days (down 1 day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Though it may have to wait another quarter to be relevant given the news of a possible 3-month extension of the debt ceiling, we continue to quote from commentary on the topic. (Nothing is official yet, but but see Reuters' "Traders see U.S. debt ceiling risks shift to December".) Wells Fargo Money Market Funds' latest Portfolio Manager Commentary, entitled, "Frequently asked questions: The debt ceiling discusses the issue in depth. Its "Debt-ceiling FAQ," explains, "While we have faced a debt-ceiling crisis many times since the onslaught of the financial crisis -- six to be exact -- this time around seems especially urgent for two specific and intertwined reasons: the coincidence of the U.S. budget's fiscal year-end and the Treasury hitting the debt ceiling after exhausting extraordinary measures and legislative and executive branches of government that can't seem to play nicely with each other, let alone amongst themselves!"

They tell us, "Any discussion should be prefaced by our belief that the likelihood of one or multiple technical defaults due to a protracted debt-ceiling debate is remote; that in the unlikely event there should be a technical default, it will be short lived; and that upon resolution, investors and funds are likely to be unaffected. We further believe that, given evidence of preplanning, the Federal Reserve (Fed) would be prepared to step into the markets in order to calm them and ensure smooth and orderly functioning of the government markets.... In terms of current events, past experience shows us that when push comes to shove, legislators will raise the debt ceiling in order to avoid a default."

Wells asks, "What impact, if any, does a prolonged debate on raising the limit have on the money markets? Prior to the debt-ceiling-suspension era, the money markets reacted to the debt ceiling once per episode -- when the debt outstanding approached the limit, cash approached zero, and extraordinary measures approached exhaustion. Leading up to that time, the Treasury typically reduced Treasury bill (T-bill) issuance, resulting in a relative shortage of T-bills, driving their yields lower. At the same time, as the market assessed the likelihood of nonpayment on particular Treasury securities, those instruments generally sold off. The specific securities deemed at risk were generally T-bills maturing in the several weeks after the drop-dead date, as well as Treasury notes and bonds, both those maturing in the same time period and those with interest payments due in that window."

They state, "The rates on other money market instruments, including government-sponsored enterprise (GSE) discount notes, were generally little changed, as they would be unaffected by a payment delay on Treasury securities. As a result, at least in the threatened maturity window, GSE securities were considered to be of higher credit quality and often traded through similar-maturity Treasuries at lower yields. When Congress changed its approach to raising the debt limit in 2013 by suspending it until a future date rather than merely raising it to a certain amount, it complicated and extended the impact on the money markets."

Wells' Q&A comments, "The money markets now react twice to a debt-ceiling episode, once as the Treasury reduces T-bill issuance to run its cash balance down as the end of the debt-ceiling suspension period approaches and then again months later as the real binding deadline, the drop-dead date, nears. The early reaction phase is due solely to the decline in T-bill supply, with none of the default concerns present, as extraordinary measures have not even begun to be used. This early T-bill drawdown was caused by the practice of suspending the debt limit and was magnified by the Treasury's large cash balance.... The later market reaction phase, as the drop-dead date approaches, includes the angst that accompanies flirtation with default and is similar to episodes before Congress changed its approach to include a debt-ceiling suspension."

It says, "If we get to the point that the Treasury has exhausted all extraordinary measures, explored any further measures, and simply run out of cash to pay the government's bills, then it is likely it would have to default. But what is meant by "default"? The most likely answer is that it would mean a temporary delay in payments that come due -- in this case, the payment of maturities and interest on Treasury securities. This is widely termed a technical default.... So, the bottom line is that we have no reason to expect the government will default on its obligations in the sense we traditionally know. The worst-case scenario is that it may have to delay a payment or two for a very short period of time, but the payment likely will be made."

Wells update asks, "What would happen to defaulted Treasury securities? Would they be transferable? The transcripts of the Fed's 2011 debt-ceiling conference call show widespread support for Fed operations treating "defaulted Treasury securities in the same manner as nondefaulted securities ..." for purposes of "... outright purchases, rollovers, securities lending, repos, and discount window lending." This treatment would be the case so long as the default reflected a political impasse and not any underlying inability of the U.S. to pay, with the understanding that it reflected only a short delay in payment."

Regarding Repos, they tell us, "From an operational standpoint, defaulted Treasury securities, the specific issues that had suffered missed or delayed payments, would still be eligible for inclusion as collateral in repo transactions so long as they remained in Fedwire, the Treasury transaction settlement system. As a practical matter, lenders might be reluctant to accept such tainted securities as collateral unless higher haircuts, or margins, were offered. In addition, it's possible that lenders also could refuse to accept Treasury securities at risk of default as collateral, even if the Treasury had not yet missed a payment on any security. Because there is no cross-default provision for Treasury securities the vast majority of Treasury securities could continue to be used to collateralize repo transactions, at least operationally."

It adds, "While the plumbing of the repo market thus likely would be unimpaired by a default and remain functional, the outlook for repo market conditions is less certain. A U.S. government default, even a temporary, technical one, could be highly destabilizing for the broader financial markets. Normal cash lenders in the repo market could well decide to remain more liquid than usual, preferring either to leave cash uninvested or to place it in the Fed's reverse repo program, which would provide the added layer of security that comes from having the Fed as the counterparty. With market participants faced with vast uncertainty, repo market rates could move substantially higher."

They also ask, "How would a default affect the Wells Fargo Money Market Funds? We believe any impact of a payment delay would have a minimal and transitory effect on the Wells Fargo government, Treasury, and Treasury-plus funds (collectively, the government funds). For some time now, the government funds have been managed with a focus on liquidity and principal preservation. Our funds' current liquidity levels exceed the minimum U.S. Securities and Exchange Commission (SEC) required levels, and we believe the funds' maturity structure should help minimize the effects of any short-term price volatility that may be caused by these potential credit events. The funds also could seek to increase liquidity by increasing cash balances, should it become necessary."

Wells continues, "It is unlikely any type of payment delay by the Treasury will affect our funds investing primarily in corporate and municipal obligations. Our past experience with these markets in times of debt-ceiling crises has been that they continue to function as usual; with a relatively smaller allocation to these types of assets in the post-reform environment, any asset pressures should be relatively more muted than in the past. As of the time of this writing, none of the Wells Fargo prime or municipal money market funds hold Treasury securities."

They also ask, "If the U.S. government were to default, would money market funds be required to sell defaulted securities? Not necessarily. Under SEC Rule 2a-7, a fund is not automatically required to dispose of a security that is in default. A fund may continue to hold a defaulted security if the fund's board of trustees deems it would be in the best interest of the fund's shareholders. For example, such a decision may be made under a hypothetical scenario in which a fund's board believes any payment delay would be imminently resolved and an affected fund would receive its full maturity principal and interest; under these circumstances, a board may find it is not in the best interests of the fund or its shareholders to sell a delayed security, especially if such a forced sale would lead to a trading loss for the fund and adversely affect the net asset value (NAV)."

The Wells piece concludes, "With the end of September less than a month away, and the relative silence in the news cycle over this current event, it's not always easy to remember that the rate on which the Treasury will run out of money is still an unknown. At the last update, Treasury Secretary Mnuchin estimated it would be September 30. His bias, though, is to try and get the limit raised prior to the actual date it will run out of money; Street estimates, on the other hand, fairly consistently place the actual hard deadline in the beginning to middle of October. So, where the deadline will actually fall still remains to be seen, though as we progress through the month, we are likely to gain more clarity."

It adds, "In the meantime, it is not out of the realm of possibility, given the current political climate, that we will experience high drama around this exercise and that market volatility could increase as a result. This is a situation about which we are acutely aware and constantly monitoring, and we are managing the funds with the goal of minimizing volatility and preserving principal while maintaining liquidity for our shareholders. One thing is for sure: As long as a debt ceiling exists, we are likely to revisit this scenario at some future date!"

Yesterday, the Financial Times posted the article, "China regulators target 'systemic risk' from money-market funds," which discusses new regulations on the rapidly-growing Chinese money market fund industry. The article explains, "China will impose tighter regulation on "systemically important" money-market mutual funds, potentially forcing Ant Financial's popular fund to de-risk its portfolio and reduce yields for investors." We quote from this article below, and we also review some filings on fee "recapture," which was featured in a recent ignites.com article. (Note: Our upcoming European Money Fund Symposium, which will be held Sept. 25-26 in Paris, will feature a segment on "MMFs in Asia: China and Japan," and will discuss money funds outside the U.S. in-depth.)

The FT says, "MMFs have exploded in popularity in recent years, as Chinese investors seek high-yielding alternatives to bank deposits. Total assets reached Rmb5.48tn ($848bn) at the end of June, according to data from Wind Information. But analysts warn that even as Chinese investors shift en masse from bank deposits to MMFs, the funds are not subject to the same capital and liquidity regulations as banks."

It explains, "The China Securities Regulatory Commission issued rules late on Friday that required MMFs to limit exposure to any single borrower and to assets with lower credit ratings. The agency also said that it may, in partnership with the People's Bank of China, apply additional regulations to funds "designated as systemically important"."

The Financial Times writes, "Though the agency did not provide a definition of the term, Ant Financial's Yu'E Bao fund is all but certain to earn this designation. With Rmb1.4tn in assets, Yu'E Bao comprised more than a quarter of total Chinese MMF assets at the end of June. Ant Financial is the finance affiliate of e-commerce giant Alibaba Group."

They quote a recent Fitch Ratings report, "The high asset concentration in a few asset managers in China raises risks in the money market, as large or sudden asset reallocations by these large funds could affect market liquidity or pricing dynamics." The FT states, "Liquidity is a particular concern. MMFs hold 57 per cent of their assets in deposits or other cash-like instruments. The rest is held in bonds, which offer higher yields but can be difficult to sell in times of market stress. Most MMF assets are linked to commercial banks."

The piece also comments, "The rules force diversification on MMFs by limiting the amount of exposure these can have to a single institution. MMFs must not hold cash deposits, bonds or other assets from a single bank worth more than 10 per cent of that bank's net assets. Assets from a single institution must not exceed 2 per cent of an MMF's net assets. The rules also forbid MMFs from holding more than 10 per cent of assets in instruments issued by banks or companies with a credit rating below triple A."

It adds, "In recent months, Yu'E Bao has twice reduced the maximum amount that a single investor can hold. The current limit is Rmb100,000, down from Rmb1m in April. Regulators in developed countries have also sought to tighten regulation on money market funds in recent years.... Though they focus on the safety of MMFs, the latest rules are in line with regulators' recent focus on risks from banks' increasing reliance on money-market funding rather than customer deposits. That includes borrowing from MMFs as well as other banks. The CSRC's latest rules take effect in October."

In other news, mutual fund news website ignites.com wrote "Money Funds Steer Clear of Chance to Claw Back Lost Revenue" last month, which discussed the possibility of fund managers "recapturing" waived fees. It says, "After years of waiving portions of their fees to stay competitive, many sponsors of retail taxable money funds have been allowed by recovering interest rates to cut back on using such measures to attract investors. But continued margin and fee pressures are keeping the largest providers from enacting clawbacks that could help recoup the fees they gave up in years of waivers, analysts say."

They write, "Sponsors initially instituted the temporary fee cuts so funds could maintain a $1-per-share net asset value and keep yields attractive to investors. These waivers hit their peak in 2014, with shops forgoing $6.3 billion in revenue.... Seeing provisions for clawbacks spelled out in shareholder disclosures is "not uncommon," says Joan Ohlbaum Swirsky, counsel at Stradley Ronon."

The ignites piece tells us, "And arrangements vary by provider. For example, disclosures for certain Oppenheimer and T. Rowe Price funds state that the firm can recapture fees to make up for waivers dating back three fiscal years, while particular Invesco and RBC funds have the ability to recoup expenses from the past 12 months, their respective prospectuses show. But using those provisions can prove unpopular with shareholders."

It adds, "Larger complexes that choose to recoup fees may find that doing so is more easily said than done, since any attempts to recapture fees may have a noticeable impact on expense ratios, says Peter Crane, president and CEO at Crane Data.... In 2015, Schwab, whose large retail asset base allowed it to offer some of the largest fee waivers in the industry, joined Vanguard in swearing off money fund clawbacks for good, [ignites] reported."

They quote, "The industry is just super fee-sensitive," and most providers are merely grateful to see positive yields, Crane says. "`I think that anyone who is thinking about recapturing is likely so happy to see full fee levels that they're just going to call it a day there," he says." Note: Crane Data is only aware of one fund that is actually recapturing fees. (See the fee table for the JNL/WMC Government Money Market Fund.)

On Friday, BlackRock published an update on the debt ceiling and its possible impact on money market funds, entitled, "Raise the Roof? The Return of the Debt Ceiling." Their description says, "With the U.S. government facing a deadline in late September/early October to raise the debt ceiling or face a possible default/downgrade, BlackRock Global Cash Management has prepared the attached paper discussing our latest thoughts and insights on the issue. We also discuss the associated impacts on the liquidity markets and your cash investments with us." (See also our August 30 News, "Treasury Default, Debt Ceiling Concerns Loom; Problem for Govt MMFs?")

The report explains, "Without legislative action the U.S. government could experience a technical default and/or sovereign ratings downgrade. Complicating matters is the threat of a government shutdown at the end of the fiscal year, September 30, due to Congressional division over approved budget bills that authorize federal spending. The debt limit and government shutdown are distinct and separate issues but are being linked together as a function of timing."

It tells us, "Despite the recent political turmoil over the debt ceiling, Congress has always acted in time and protected the full faith and credit of the United States. Today, Congress is facing the challenge to raise both the debt limit authority and pass the fiscal year budget with just 12 Congressional working days scheduled for September. In spite of these demands, BlackRock's view remains that both issues will be resolved in a timely manner."

BlackRock writes, "Debt ceiling episodes typically have had the largest impact on the U.S. Treasury Bill ("T-Bill") market. So far, anxiety regarding the current debt ceiling showdown has been contained to T-Bills with October 2017 maturities. Based on the timelines discussed above, we believe the market has deemed October T-Bill maturities to be the most vulnerable to potential technical default and delayed payment risks."

They state, "As a result, the T-Bill curve is currently inverted for October maturities with yields on these issues trading approximately 10-20 bps higher than T-Bills maturing around these October dates. In our opinion, this dynamic represents risk aversion on the part of market participants and expectations that a resolution is likely to be fraught with political risks."

BlackRock's paper tells us, "In past debt ceiling episodes, T-Bill market anxiety appeared roughly a month prior to the X-Date. However, relative to this episode, October T-Bill maturities began underperforming in July as we believe market participants appeared to begin factoring in Congress's recent inability to pass legislation, a more concentrated government money market fund footprint and more restrictive balance sheet environment for banks and broker/dealers."

It explains, "In previous cycles, T-Bill outstandings declined into debt ceiling dates in order for the U.S. Treasury to comply with statutory borrowing limits and provide headroom for Treasury coupon settlements.... Shortly after the debt ceiling is resolved, the U.S. Treasury is expected to materially increase T-Bill net issuance to replenish its operating account towards its targeted size of $350-$500 billion. The rebound in T-Bill issuance could total $350 billion in the 4th quarter according to the U.S. Treasury's quarterly refunding announcement and could place upward pressure on front-end Treasuries and repurchase agreement rates."

On a possible ratings downgrade, they comment, "A number of the major ratings agencies have published reports on the potential for delayed payment on U.S. debt as a result of the debt ceiling. In our opinion, Fitch Ratings appears to be taking the most assertive stance stating that hitting the X-date may not be compatible with the current "AAA" rating on the sovereign, even if prioritization of payment may avoid a default. Moody's Investor Services ("Moody’s") analysis is focused specifically on the risk of default on U.S. government debt obligations. If the X-Date is crossed, Moody's expects the government would opt for prioritization of interest payments, which would not be explicitly viewed as a default and is therefore unlikely to have an immediate impact on the current "Aaa" rating of the U.S. government."

The piece adds, "Although it may seem like deja vu to be discussing and managing the debt ceiling and associated political log-jam once again this fall, this episode is shaping up to be somewhat different from the 2011, 2013 and 2015 events in large part because of the turmoil within the current administration in Washington and severely divided state of Congress. BlackRock takes the view that legislative risks around debt ceiling episodes should be respected and factored into portfolio strategies. To that end, BlackRock re-formed the Debt Ceiling Task force, first launched in 2011, to centrally coordinate firm-wide management and contingency planning around debt ceiling impasses."

Finally, they say, "Additionally, BlackRock's Government Money Market Fund platform has taken the following steps: Materially reduced the platform's exposure to very early October T-Bill maturities; Managed down exposure reductions to mid-October Treasury securities; Rebalanced Treasury collateral exposure, within our repurchase agreement transactions, that we deem vulnerable to potential delayed principal payment in the event the X-Date is crossed. While these planning initiatives are consistent with our approach to liquidity, BlackRock remains confident that a default on Treasury debt obligations by the U.S. Treasury is a very low probability outcome. We continue to closely monitor the situation for updates and seek to manage our exposures in a conservative manner. We will continue to keep you informed as the situation unfolds."

Money fund assets fell hard this week after rising for five straight weeks, but Prime MMFs rose for the 11th week straight, we learned from the Investment Company Institute's" latest report. Government money funds fell sharply into month-end. Meanwhile, Prime MMFs rose for the 17th week in the past 19 (up $45.5, or 11.5%). (Last week they showed their biggest inflows of 2017.) They've now increased by $64.4 billion, or 17.1%, year-to-date. We review the latest asset flows below, and we also look at a recent newsletter from Public Trust Advisors, which manages a number of LGIPs, or local government investment pools.

ICI writes, "Total money market fund assets decreased by $19.73 billion to $2.72 trillion for the week ended Wednesday, August 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $19.70 billion and prime funds increased by $1.04 billion. Tax-exempt money market funds decreased by $1.07 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.145 trillion (79.0% of all money funds), while Total Prime MMFs stand at $442.0 billion (16.3%). Tax Exempt MMFs total $128.7 billion, or 4.7%.

They explain, "Assets of retail money market funds decreased by $1.18 billion to $968.23 billion. Among retail funds, government money market fund assets decreased by $738 million to $586.94 billion, prime money market fund assets increased by $620 million to $258.58 billion, and tax-exempt fund assets decreased by $1.06 billion to $122.71 billion." Retail assets account for over a third of total assets, or 35.6%, and Government Retail assets make up 60.6% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $18.55 billion to $1.75 trillion. Among institutional funds, government money market fund assets decreased by $18.96 billion to $1.56 trillion, prime money market fund assets increased by $423 million to $183.38 billion, and tax-exempt fund assets decreased by $8 million to $5.96 billion." Institutional assets account for 64.4% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

It explains, "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." Note: Crane Data also publishes a daily money fund assets series via our Money Fund Intelligence Daily product, and a monthly asset series via our MFI XLS.

In other news, we stumbled across a newsletter for the New York Cooperative Liquid Asset Securities System (NYCLASS) entitled, "The Investor." It explains, "This month's NYCLASS newsletter features a Q&A interview by Emmie Madison, Content Writer for Public Trust Advisors, LLC (Public Trust), with Portfolio Managers Neil Waud and Randy Palomba. Public Trust is the Investment Advior/Administrator for NYCLASS. We discussed their experience, the economic landscape, and managing local government funds."

The article asks, "How long have you been with Public Trust, and overall how long have you been managing portfolios?" Waud answers, "I have been with Public Trust since the very beginning, and I have been investing cash since 2000." Palomba adds, "I'm also fortunate enough to have been with Public Trust since inception, and I've been investing cash in the public sector for over 30 years now."

It continues, "Q: What is your overall strategy on investing on behalf of governmental entities? Neil: The safety of public funds is always the primary objective when developing our investment strategy. An emphasis on high quality securities, diversification, and the minimization of volatility helps ensure our clients' portfolios maintain an appropriate balance of safety and liquidity throughout market cycles. Randy: Safety! Safety of principal and liquidity of funds. These are taxpayer dollars we are investing. It is extremely important to ensure these funds are invested safely and in compliance with governing legislation as well as the clients' investment policies."

The piece asks, "Do you have anything you want NYCLASS Participants to know about how their investments are being managed?" Waud responds, "Prudent investment management mandates a thorough credit analysis of the counterparties we lend to and strict adherence to our clients' liquidity needs. Having met these requirements, we then focus on maximizing investment returns. While we work in a competitive landscape, at the end of the day we need to be mindful of the old axiom: "it is the return of your principal not the return on your principal that matters most to our Participants."

The Investor continues, "Q: We've seen some changes in the market this past year. What is your take on the current market? Neil: Since the November election, we have seen a shift in market sentiment. The initial optimism of deregulation, tax reform, and fiscal stimulus in Washington driving growth and inflation metrics higher has given way to the reality of a polarized political process that will take some time to unravel. For the past eight years, the U.S. economy has experienced relatively steady but unspectacular growth. While sufficient enough to tighten the labor market to pre-crisis levels, the growth has not translated into rising inflation. While the stock market continues to press towards new highs, inflation will likely need to rise for interest rates to push higher."

It adds, "Randy: I'm happy to see the Federal Reserve begin to raise interest rates. I'm not convinced that the Fed will be as aggressive as its dot plot suggests. I've been doing this long enough to see interest rates go from double digits in the 1980s to practically zero for most of the last ten years. I hope we can see interest rates at levels that make sense for the earnings to once again become a budget item for local governments. The earnings on excess cash can be important to providing additional resources for governmental entities ultimately benefitting the taxpayers."

Finally, the newsletter asks, "So, what are your expectations for the next Federal Open Market Committee (FOMC) meeting in September?" Waud comments, "The July FOMC meeting didn't really tip its hand regarding another rate hike this year simply noting that inflation was still below its 2% target rate. However, the post-meeting statement did say the normalization of its balance sheet will begin "relatively" soon. I agree with most, interpreting this to mean that the Fed's longer-term holdings will be addressed at the September meeting. `As far as the next rate hike is concerned, inflation will likely need to rise for this to occur this year. If it happens at all, the December meeting makes the most sense at this point."

Palomba adds, "I believe the FOMC will announce the start of the balance sheet normalization process. I also think that it will keep the Fed funds target rate unchanged until we see some indication that inflation is heading back toward 2%. The FOMC has accomplished one objective by raising rates from the nearly zero level we experienced for several years. I'm not convinced the U.S. economy is ready for a two year Treasury yielding 5%. However, I know that finance managers and savers would welcome that investment return."