News Archives: December, 2018

A new working paper from the SEC's Division of Economic and Risk Analysis (DERA) examines, "The Effect of NAV Flotation on the Management of Prime Money Fund Portfolios." Written by the U.S. Securities and Exchange Commission's Su Li and Wei Liu, along with the University of Pennsylvania's David Musto, the paper's "Abstract" explains, "The October, 2016 money-fund reform obliged institutional prime funds to start floating their Net Asset Values (NAVs), whereas retail prime funds could continue with stable NAVs. We use this contrast to assess the effect of NAV flotation on fund management. We find that institutional funds reduced their interest-rate, liquidity and credit risk around the reform, contributing to lower yields and NAVs, and less volatile NAVs, but by all measures, their relative risk taking was approximately back to where it was well before the reform by the end of 2017."

It continues, "Prime funds adjusted to their shrinkage largely through transaction sizes, but also somewhat through the number of securities per issuer they invested in, and to a small extent through the number of issuers they invested in. Transaction-size shrinkage harms transaction quality, though the quality of a fund's transactions relates more strongly to the size of its fund complex than to the size of the transactions themselves."

The Working Paper says, "In October, 2016, the final piece of money-fund reform took effect. This ended a long process of reflection, design, commentary and redesign that dated largely to the money-fund turmoil following the September, 2008 bankruptcy of Lehman Brothers. It also began a new era for money funds, one where large sectors of the industry would start marking their portfolios to market, i.e. would 'float' their Net Asset Values (NAVs).... In this paper we document the effect of this flotation on funds' portfolios by contrasting the portfolio management of institutional and retail funds, and by tracking this contrast from the year before the onset of the reform through the year after."

The authors tell us, "Our main finding is that, once the effects specific to the transition subside after a few months, NAV flotation does not affect risk-taking by money funds. Tracking the complete set of relevant money funds that operate from the beginning of 2015 through the end of 2017, we find that the relative risk taking of funds that become floating-NAV funds in 2016, compared to those that remain stable-NAV funds, is approximately the same at the end as it was at the beginning. This is apparent along all the key dimensions of portfolio risk: interest-rate risk, liquidity risk (measured two different ways) and credit risk (measured two different ways). We also find that both the relative level and relative volatility of the NAVs of the floating- vs. stable-NAV funds is approximately the same at the end as at the beginning. There is an effect on risk-taking and NAVs right around October 2016, but this effect is transitory and no longer evident by December 2017."

They write, "Besides the onset of flotation, funds also had to adapt to asset shrinkage across the reform. We investigate this adaptation, and find that the biggest effect was on transaction size. Funds shrank the principal amount of their purchases, while to a smaller extent they shrank the number of securities they purchased per issuer, and to an even smaller extent shrank the number of issuers they invested with. We find that smaller transactions execute at worse prices, i.e. lower yields, but that the transaction quality of a trade relates more strongly to the size of the complex of the fund making the trade than to the size of the trade itself."

Li, Liu and Musto state, "Among the targets of the reform was the resilience of money funds to market stress, and in particular to the risk of panic withdrawals. Money funds are not banks, but they share some features of banks that expose them to the risk of panics that resemble bank runs. Money funds compete with banks for accounts, and indeed were designed for this competition in the 1970s, when they offered.... This potential for a run became reality after the bankruptcy of Lehman Brothers."

The paper adds, "The details of what happened just after Lehman Brothers are key to the subsequent reform.... Reflection on this episode has identified two key reasons why these share classes were particularly vulnerable. One is that institutional accounts are larger and overseen by professionals, so there is a larger reward from redeeming at prices above market value, and a better chance that the investor will spot the opportunity and move quickly. The other is that prime funds invest in asset classes where credit risk, such as with Lehman, can depress market values. So the stable $1 quoted NAV imparted relatively more bank-run risk to these share classes, and this helps explain why the reform singled out institutional prime, along with institutional tax-free, share classes for the floating NAV, while allowing the retail share classes to continue, subject to limits, with the stable $1 quoted NAV."

The DERA work asks, "How should this flotation affect institutional funds, relative to retail funds? Should one expect more risk-taking, or less? There are really two questions here: how should the impending onset of flotation affect institutional vs retail funds, and how should the shift to flotation affect the funds in the longer run? Regarding the impending onset, it was widely reported in the days leading up to the October 14th, 2016 effective date of the reform that prime funds, and especially institutional prime funds, were scaling back risk out of concern for what might transpire when the day came. The analysis in this paper can shed light on the shape and extent of this anticipatory effect, but the focus is more on the latter question, the effect of flotation once the effects specific to the transition have played out."

It comments, "Flotation could encourage more risk-taking, by the logic of bank-run theory. That is, flotation means that redeeming when the NAV is below $1 no longer affects the wealth of those who don't redeem, so the incentive to join a run is weaker, so the threat posed by low NAVs to fund stability is diminished, so the managers could be less averse to risking low NAVs. On the other hand, the floating NAVs could encourage less risk taking, to the extent that the money-fund investor base liked money funds the way they were, when NAVs didn't fluctuate, and so will vote with their feet for funds that minimize fluctuation."

The authors also tell us, "Our analysis of the reform has three parts. The first part takes the highest-level view, looking at the transition of the industry through the reform, and documenting which choices were made for which funds, and how the relative yields and NAVs of money funds evolved. This analysis pays particular attention to those money funds that remained prime funds over our sample period, 2015 through 2017, and focuses on the evolution of the difference between retail and institutional funds. The second part uses data on the securities purchased by the funds to explore the relative risk taking of institutional vs. retail funds, and the implications of this risk-taking for NAVs. The third part asks how funds have handled their asset shrinkage through the reform."

Finally, the piece concludes, "This paper documents the effect on money-fund portfolio management of the NAV flotation introduced for institutional, but not retail, prime funds by the October, 2016 reform. This analysis focuses primarily on those funds that remained prime funds from January, 2015 to December, 2017. Our main finding is that the net effect, over the three years, is small. There was an effect in the months around and just after the reform took effect, generally in the direction of less risk-taking by institutional funds, but this difference faded through 2017, leaving the relative risk-taking of institutional and retail funds about where it started, on all the dimensions we explore. These dimensions include the interest-rate, liquidity and credit risk of the portfolios, and the volatility of the funds' NAVs. The funds' gross yields follow a similar pattern, with institutional funds earning less than retail funds during the period of reduced risk-taking, but earning the same by the end."

It adds, "The prime category shrank during the sample period, in particular the institutional prime category. Many funds ceased being prime funds, most often by converting to government funds or liquidating. Despite these departures, the funds that remained also shrank. This shrinkage may have played a role in the small magnitude of the effect of reform on institutional-fund management, since the investors most averse to NAV volatility would intuitively be the ones most likely to have left those funds. While the reform does not appear to have ultimately affected risk-taking, funds still did have to adapt to the shrinkage.... These influences of transaction, fund and complex size on transaction quality may help explain which funds persisted as prime money funds."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" and its latest monthly "Trends in Mutual Fund Investing" reports yesterday. The former shows MMF assets jumping again in the latest week, while the latter shows an $80.4 billion increase in money market fund assets in November to $2.965 trillion. This follows a $21.4 billion increase in October, a $3.4 billion decrease in Sept., and a $31.6 billion increase in August. In the 12 months through Nov. 30, money fund assets have increased by $169.8 billion, or 6.1%. (Month-to-date in December through 12/26, assets have increased by $69.4 billion, with $19.9 billion of this from Prime MMFs, according to our MFI Daily.) ICI also released its latest Portfolio Holdings totals, which show another jump in Repo and Treasuries in November. We review ICI's Assets, Trends and latest Portfolio Composition statistics below.

Overall assets are now up $201 billion, or 7.1%, YTD in 2018, and they've increased by $197 billion, or 6.9%, over 52 weeks. Retail MMFs have increased by $130 billion, or 12.9%, while Inst MMFs are up just $40, or 2.2%, YTD. Over 52 weeks, Retail money funds have gained $138 billion, or 13.7%, while Inst money funds are up $51 billion, or 2.8%. We review the latest asset figures below. The latest asset totals show MMFs rising sharply again, the 9th week of gains out of the past 10. Government, Prime and Tax Exempt MMFs all increased, led by huge Retail inflows.

ICI writes, "Total money market fund assets increased by $30.28 billion to $3.04 trillion for the week ended Wednesday, December 26, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $23.33 billion and prime funds increased by $5.78 billion. Tax-exempt money market funds increased by $1.17 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.329 trillion (76.6% of all money funds), while Total Prime MMFs stand at $565.3 billion (18.6%). Tax Exempt MMFs total $144.7 billion, or 4.8%.

They explain, "Assets of retail money market funds increased by $28.01 billion to $1.17 trillion. Among retail funds, government money market fund assets increased by $20.53 billion to $694.26 billion, prime money market fund assets increased by $5.95 billion to $341.43 billion, and tax-exempt fund assets increased by $1.54 billion to $136.41 billion." Retail assets account for over a third of total assets, or 38.6%, and Government Retail assets make up 59.2% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $2.27 billion to $1.87 trillion. Among institutional funds, government money market fund assets increased by $2.81 billion to $1.63 trillion, prime money market fund assets decreased by $166 million to $223.83 billion, and tax-exempt fund assets decreased by $374 million to $8.26 billion." Institutional assets account for 61.4% of all MMF assets, with Government Inst assets making up 87.6% of all Institutional MMFs.

The monthly "Trends" report states, "The combined assets of the nation’s mutual funds increased by $219.55 billion, or 1.2 percent, to $18.66 trillion in November, 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 outflow of $25.97 billion in November, compared with an outflow of $31.59 billion in October.... Money market funds had an inflow of $77.23 billion in November, compared with an inflow of $18.09 billion in October. In November funds offered primarily to institutions had an inflow of $58.34 billion and funds offered primarily to individuals had an inflow of $18.89 billion."

The latest "Trends" shows that both Taxable and Tax Exempt MMFs gained assets last month. Taxable MMFs increased by $75.7 billion in November to $2.826 trillion, after increasing $18.4 billion in October, decreasing $3.8 billion in September, and increasing by $32.0 billion in August. Tax-Exempt MMFs increased $4.7 billion in November to $138.9 billion. Over the past year through 11/30/18, Taxable MMF assets increased by $159.5 billion (6.0%) while Tax-Exempt funds rose by $10.3 billion over the past year (8.0%). Bond fund assets decreased by $16.8 billion in November to $4.087 trillion; they've risen by $51.0 billion (1.2%) over the past year. (Bond ETF assets increased by $15.0 billion to $614.1 billion; they're up $66.4 billion over 12 months.)

Money funds represent 15.9% of all mutual fund assets (up from 15.7% the previous month), while bond funds account for 21.9%, according to ICI. The total number of money market funds fell 13 to 368 in November, and is down from 391 a year ago. (BlackRock's BIF Money Fund series liquidated last month.) Taxable money funds decreased 10 to 287 funds, and tax-exempt money funds decreased by 3 to 81 funds over the last month.

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed yet another jump in Repo and Treasuries in November. Repurchase Agreements remained in first place among composition segments; they increased by $34.5 billion, or 3.7%, to $977.4 billion, or 34.6% of holdings. Repo holdings have risen by $73.0 billion, or 8.1%, over the past year. (For more, see our December 13 News, "Dec. MF Portfolio Holdings Break 3.0 Tril; T-Bills Up, Repo Breaks 1.0T.")

Treasuries rose by $20.9 billion, or 2.7%, to $804.5 billion, or 28.5% of holdings. Treasury securities have increased by $102.7 billion over the past 12 months, or 14.6%. U.S. Government Agency securities were the third largest segment; they fell by $10.7 billion, or -1.7%, to $619.9 billion, or 21.9% of holdings. Agency holdings have fallen by $56.6 billion, or -8.4%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they decreased $1.3 billion, or -0.6%, to $205.3 billion (7.3% of assets). CDs held by money funds have fallen by $12.6 billion, or -5.8%, over 12 months. Commercial Paper remained in fifth place, increasing $573 million, or 0.3%, to $192.1 billion (6.8% of assets). CP has increased by $45.8 billion, or 31.3%, over one year. Notes (including Corporate and Bank) were down by $569 million, or -7.2%, to $7.4 billion (0.3% of assets), and Other holdings increased to $19.6 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 278.0 thousand to 32.863 million, while the Number of Funds fell by 10 to 287. Over the past 12 months, the number of accounts rose by 6.284 million and the number of funds decreased by 21. The Average Maturity of Portfolios was 31 days in November, down 1 day from Oct. Over the past 12 months, WAMs of Taxable money funds have increased by 1 day.

Money fund yields again surged higher following the Fed's 9th quarter-point rate hike a week ago (12/19), bringing our broader all taxable Crane Money Fund Average above the 2.0% level for the first time since May 2008. The Crane Money Fund Average, a simple average of all taxable money market funds (655) tracked by Crane Data, rose 7 basis points over the past week to 2.01% as of Tuesday, Dec. 24. Our more concentrated Crane 100 Money Fund Index, which tracks the 100 largest taxable MMFs, broke over 2.0% in late October (w/the Fed's last hike); it rose 8 basis points over the past week (through 12/24) to 2.17%. Yields for the Crane Money Fund Average have increased from 1.69% on 9/30/18, from 0.92% on Dec. 31, 2017 and from 0.26% on Dec. 31, 2016. We briefly discuss recent yields, and we also review the latest European money market fund manager to announce their regulatory conversion plans, BNP Paribas, below. (See our Dec. 20 News, "Fed Hikes Ninth Time to Range of 2.25-2.5 Percent; MMF Yields Moving.")

Money market fund yields, brokerage sweep and bank deposit yields should all continue higher over the next several weeks. Yields on the Crane 100 have moved up from 1.88% at the start of October, up from 1.12% at the start of 2018, up from 0.43% at the start of 2017, and up from 0.06% at the start of 2016. Prime Institutional MFs now (as of 12/24/18) yield 2.18% on average, while Government Inst MFs yield 2.09%, a spread of a mere 9 basis points. (Treasury Inst MFs yield 2.05%.) Prime Retail MFs yield 2.08% vs. 1.77% for Govt Retail MFs (a much more generous spread of 31 bps). Tax Exempt MFs average a 7-day yield of 1.23% currently. (See our Money Fund Intelligence Daily for the latest yields and averages.)

The top-yielding money funds currently are beginning to pay annualized rates of 2.50% and higher. Internal (not available to outside investors) fund Fidelity Money Market Central Fund (FID03) is yielding 2.59%, while DWS ESG Liquidity Cap (ESIXX) yields 2.55%. Northern Instit Prime Oblig Svc (NPCXX) is yielding 2.54% as of Tuesday (12/24), while Goldman Sachs FS MM Inst (FSMXX) is yielding 2.50%. Dreyfus Cash Mgmt Institutional (DICXX) yields 2.49%, and Federated Inst Prime Obligs IS (POIXX) yields 2.48%. Retail funds Fidelity Inv MM: MM Port Inst (FNSXX) and Vanguard Prime MMF Adm (VMRXX) both yield 2.46%.

Crane Data's latest Brokerage Sweep Intelligence shows a couple of brokerages increasing the rates they pay on parked cash in FDIC insured accounts. Fidelity raised rates on balances of $1 to under $100K to 0.37%, and they increased rates on balances of $100K and higher to 0.79%. UBS also bumped rates higher across the board. Our Crane Brokerage Sweep Index for accounts of $100K now averages 0.29%, up from 0.27% the previous week. (Let us know if you'd like to see a copy of our most recent Brokerage Sweep Intelligence report.)

In other news, BNP Paribas is the latest money fund manager to announce lineup changes in preparation for pending European Money Fund Reforms. A Notice to Shareholders for the Luxembourg-domiciled BNP Paribas Insticash fund family, says, "Following the Extraordinary General Meeting held on 19 December 2018 announcing the changes made in the Articles of Association of the Company, we hereby inform you of the changes which will be incorporated in the next version of the Prospectus of the Company dated January 2019 and which will be effective on 14 January 2019."

They explain, "The Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds, which will enter into force on 21 January 2019, introduces a new segmentation of European money market funds ('MMF') which can be either Public Debt Constant Net Asset Value (Public Debt CNAV), Low Volatility Net Asset Value (LVNAV) or Variable Net Asset Value (VNAV) MMFs. Such different types of MMFs are subject to i) different investment guidelines that could lead to a difference in yields as well as ii) different operational set-ups that could, in some cases, be more adapted to your needs."

BNP continues, "Each sub-fund of the Company will invest in eligible money market instruments, deposits with credit institutions, financial derivative instruments (such as interest rate swaps, hereinafter 'IRS'), repurchase agreements and reverse repurchase agreements, units or shares of other MMF as detailed in the Prospectus, in the limit and as permitted by the Regulation. As a consequence, the Prospectus is amended in order to implement the Regulation at the Company's level (I), while the sub-funds currently existing within the Company will be either renamed or will transfer a part of their assets into newly created sub-funds to comply with the Regulation (II)."

Regarding the fund "BNP Paribas InstiCash Money 3M EUR," they write, "This sub-fund will be renamed 'BNP Paribas InstiCash EUR 3M Standard VNAV' and its investment objective and policy will be adapted as follows in order to comply with the Regulation.... To achieve the best possible return in EUR in line with prevailing money market rates, over a 3-month period while aiming to preserve capital consistent with such rates and to maintain a high degree of liquidity and diversification; the 3-month period corresponds to the recommended investment horizon of the sub-fund.... The sub-fund is a standard variable net asset value money market fund as defined by Regulation 2017/1131."

The notice also comments on the, "Splitting of 'BNP Paribas InstiCash EUR, BNP Paribas InstiCash GBP and BNP Paribas InstiCash USD.'" It tell us, "In order to comply with the Regulation, the Board of Directors decides, in accordance with the provisions of Article 32 of the Articles of Association of the Company and the Chapter 8 of the Luxembourg Law of 17 December 2010 concerning UCI (the Law), to split the Splitting Sub-funds with (i) the merger of the Merging Shares into the Receiving Sub-funds and (ii) to maintain the Non-Merging Shares into the Splitting Sub-funds which are renamed and transformed."

It adds, "The Split will be effective on Monday 14 January 2019.... The splitting of assets described in the table above has been decided in order to ensure a smooth transition to the new regulatory framework and to offer the well-diversified existing shareholders the flexibility to opt for the solution that best meet their needs. As a result of these operations, Stable NAV shares with daily distribution will remain in the existing sub-funds which are transformed and renamed as LVNAV sub-funds, whereas all other shares will be transferred in the newly created Short Term VNAV sub-funds."

Note: European money market funds are not available to U.S. investors. But let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks these funds.

This past year saw a continuation and acceleration of the money fund yield and asset recovery that began following the end of the zero rate era and regulatory reforms of 2016. Money fund managers benefited from higher yields driven by a series of Fed rate hikes, the gradual recovery of Prime fund assets and negative returns in bonds and stocks for the first time in a decade. It was the fourth straight year that rates moved higher, and the first in over 8 years that yields moved over the 2.0 percent level. We've selected the most important news stories of the year 2018 below, and some that represent some of the major trends over the past year.

Crane Data's Top 10 Stories of 2018 include (in chronological order): "More Opposition to and Coverage of Stable NAV Bill; Bank Group Balks" (1/18/18); "Schwab Money Market Fund Liquidates, Shift to Bank Deposits Continues" (5/29/18); "JPM Securities' Outlook on Bills, Repatriation, Deposits, MMF Inflows" (6/26/18); "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV" (9/5/18); "Sept. BFI Profile: Fidelity Conservative Income Bond Fund Breaks $10 Bil" (9/25/18); "Wells Fargo MMFs Look Back at Global Financial Crisis, Changes Since" (10/12/18); "Invesco Buying OppenheimerFunds; DWS ESG, Northern's RAVI Advertise" (10/22/18); "Crane 100 Money Fund Index Hits 2.0 Percent; ICI's Trends for Sept." (10/31/18); "WSJ Says Cash Is a Star in Rocky Year; Weekly Holdings; ICI Annual" (12/6/18); and, finally, "Fed Hikes Ninth Time to Range of 2.25-2.5 Percent; MMF Yields Moving" (12/20/18).

While regulatory changes in the U.S. didn't play a big role in 2018, there was movement in Congress to overturn some of the 2016 regulatory changes. Our Jan. 18 story, "More Opposition to and Coverage of Stable NAV Bill; Bank Group Balks (1/18/18)," explained, "Since our Jan. 12 News update, "Stable NAV MMF Bill Stalls," we've seen two more mentions of H.R. 2319, the bill to bring back the $1.00 NAV for Prime Institutional money funds. In the first, Politico Pro writes "Investment Companies Fight Effort to Undo Fund Rules." They comment, "ICI is lobbying to preserve money market fund regulations enacted in 2014, as the House Financial Services Committee prepares to vote on bipartisan legislation that would roll back the regulations. ICI told senior lawmakers in a letter Friday that it opposes the House bill, citing "substantial and costly operational changes" that had been undertaken and its view that markets had adjusted to the regulatory overhaul." (The bill remains stalled and is not expected to pass, though there remains a slim chance of passage.)

Another big issue in 2018 was brokerages shifting money fund assets to bank deposits. Our May 29 piece, "Schwab Money Market Fund Liquidates, Shift to Bank Deposits Continues (5/29/18)," comments, "Charles Schwab liquidated its Schwab Money Market Fund late last week as the brokerage continues to shift large amounts of money market fund "sweep" assets into bank deposits. Schwab MMF (SWMXX) saw its assets decline to zero on Friday, from $15.4 billion two years ago and $7.3 billion on April 30, 2018. Schwab is the 8th largest manager of money market mutual funds with $138.8 billion in assets as of April 30, 2018. The brokerages' money fund assets declined by $4.1 billion in April, by $16.9 billion over 3 months, and by $17.5 billion, or 11.2%, over the past 12 months. Year-to-date, Schwab has shifted at least $32 billion in money fund sweep assets into bank deposits." (See also our Feb. 16 News, "Schwab Changes Brokerage Cash Sweep, Adds Bank, Cuts Money Funds," and also our Jan. 4 News, "Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump.")

A late June story, "JPM Securities' Outlook on Bills, Repatriation, Deposits, MMF Inflows (6/26/18)," hit on several of the major themes of 2018 -- growing Treasury bill supply and the potential for bank deposit cash to move back into money market funds. We wrote, "J.P. Morgan Securities writes in a recent "Short-Term Fixed Income: Mid-Year Outlook," "Though 3m Libor-OIS has retraced to more normalized levels since hitting a high in early April, pressures remain that will likely continue to favor elevated Libor-OIS levels in the near term. First, seasonal funding needs on the part of Treasury will likely prompt net bill issuance to increase again later this year. Currently, our Treasury strategists estimate net bill outstandings will grow by [about] $290bn in 2H18."

The passage of European Money Fund Reforms was another big theme of '18. Our piece, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV (9/5/18)," explains, "JP Morgan Securities published a paper entitled, "European Money Market Reform: CNAV, LVNAV and VNAV," that "summarise[s] the main elements of the pending European Money Market Reform which will mostly impact short term European money market funds." It says, "The European Money Market reform (Regulation (EU) 2017/1131) is a set of regulations for Money Market Funds (MMFs) established, managed or marketed in the European Union. The reform applies to collective investment undertakings that 1) require or are authorised as UCITS or AIF, 2) invest in short term assets 3) preserve the value of the investment or offer returns in line with money market rates. It has become effective for new funds on 21st July 2018 and will apply to existing funds on 21st January 2019." We excerpt from this update below, and we also quote the first European money fund manager to be fully compliant with the new reforms, Aviva Investors."

For more on European Money Market Fund Reforms, see these recent Crane Data News stories: SSGA Podcast on European Money Fund Reforms Discusses PM Strategies (8/29), Goldman on Repatriation, European Reforms; Federated Plans; Assets (8/24), BlackRock Details European Money Fund Reform Plans; Love the LVNAV (8/17), SEC Shows Private Liquidity Funds Up in Q4; HSBC's European MF Plans (8/14), Morgan Stanley European MMF Reform Plans; Offshore Port Composition (7/17), JPMAM European MMFs Plan for Nov 2018 Conversion; MF Assets Plunge (3/16), and JP Morgan To Offer All European Fund Options; ICI MMF Holdings Update (11/16/17).

Another important trend in 2018 was the continued growth and popularity of ultra-short and "conservative" ultra-short bond funds. We wrote in our, "Sept. BFI Profile: Fidelity Conservative Income Bond Fund Breaks $10 Bil (9/25/18)," "This month, Bond Fund Intelligence interviews Fidelity Investments Portfolio Manager Julian Potenza, who along with Rob Galusza, runs Fidelity Conservative Income Bond Fund. Fidelity "CIB" as it's referred to, is one of the pioneers in the "Conservative" Ultra-Short Bond Fund space, and recently passed the $10 billion milestone. We discuss the fund's strategies, its success, and a number of issues in the shortest segment of the ultra-short term bond fund market. (Note: This profile is reprinted from the Sept. issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set.)"

Though it's been 10 years since the depths of the 2007-2008 Subprime Liquidity Crisis or "Great Recession," we continue to feel the effects. In October, we featured the News, "Wells Fargo MMFs Look Back at Global Financial Crisis, Changes Since (10/12/18)." It said, "Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" looks back at the financial crisis and what has changed in the decade since. Jeff Weaver, et. al., write "'Surveying [what's left of] the landscape,' That's how we titled the overview section of our September monthly commentary published 10 years ago. September 2008 was a seminal moment in the money markets. Following months of stresses in various sectors of the financial markets, the crisis hit home with a vengeance when Lehman Brothers declared bankruptcy on Monday, September 15, 2008. In its wake, a run began on money market funds, culminating with the Reserve Primary Fund, the nation's first and oldest money market fund, breaking its one-dollar net asset value (NAV), becoming only the second to do so since the Community Bankers money market fund in 1994. What began as a credit crisis quickly transformed into a crisis of liquidity and confidence, with markets seizing up and issuers unable to roll their maturities."

On Oct. 22, we wrote, "Invesco Buying OppenheimerFunds; DWS ESG, Northern's RAVI Advertise (10/22/18)," which discussed the phenomenon of consolidation (or lack thereof) and the first ESG money fund. We wrote, "A press release entitled, "Invesco announces Combination with OppenheimerFunds," tells us, "Invesco Ltd. (IVZ) ... announced a combination with OppenheimerFunds, a strategic partnership with Massachusetts Mutual Life Insurance Company (MassMutual) and a $1.2 billion common stock buyback program." Invesco is the 13th largest manager of money funds with $57.8 billion, while Oppenheimer is the 29th largest manager with $8.0 billion. A combined Invesco/OppenheimerFunds would still rank 13th (below SSGA) with $65.8 billion. We review this deal, as well as a couple of recent advertisements from money funds and ultra-short bond funds, below.

In our piece, "Crane 100 Money Fund Index Hits 2.0 Percent; ICI's Trends for Sept. (10/31/18)," we explained, "Money fund yields moved higher in October following the Fed's 8th quarter-point rate hike at the end of September, bringing our Crane 100 Money Fund Index up to the 2.0% level for the first time in 10 years. (Our Crane 100 MF Index measures the average yield of the 100 largest taxable money market funds.) Yields have moved up from 1.88% at the start of October and up from 1.12% at the start of 2018 and 0.43% at the start of 2017. We briefly discuss recent yields, and we also review the ICI's latest Trends and Portfolio Composition releases. Our broad Crane Money Fund Average, a simple average of 692 taxable money market mutual funds, currently yields 1.82%, up from 1.69% on 9/30/18, and up from 0.92% on Dec. 31, 2017 and 0.26% on Dec. 31, 2016."

Then, towards the end of 2018, we penned, "WSJ Says Cash Is a Star in Rocky Year; Weekly Holdings; ICI Annual (12/6/18)." Our www.cranedata.com News said, "The Wall Street Journal writes "Cash Is a Star in Rocky Year for Global Markets," which says, "In a year of anemic returns and wild gyrations across most markets, cash is a star. U.S. cash and cash equivalents are on track to be some of the best-performing assets in 2018, enticing money managers struggling with a rare synchronized downturn in stocks, commodities and bond markets. Rising returns on cash make it more appealing for investors to move out of other investments, risking a turning point for markets as the global economy shows signs of slowing and the Federal Reserve slowly normalizes interest rates."

Finally, we again wrote about rising rates in, "Fed Hikes Ninth Time to Range of 2.25-2.5 Percent; MMF Yields Moving (12/20/18)." It said, "The Federal Reserve raised short-term interest rates from a range of 2.00-2.25% to a range of 2.25-2.50% yesterday, their 9th 1/4-point hike since December 2015 and 4th hike of 2018. Money market fund yields, which have inched higher in recent days, should again move upwards over the next several weeks. Our Crane 100 Money Fund Index is now at 2.10%, up 4 basis points from 11/30/18 and up 23 bps since 9/30/18. This average of the largest money fund yields (net, annualized) is up from 1.12% at the start of 2018, 0.43% at the start of 2017, and 0.06% at the start of 2016. Brokerage sweep rates and bank deposit rates should also continue to inch higher in coming days and weeks. The Crane 100 should move above 2.25% by mid-January, and the highest-yielding money funds should break well over 2.50% and approach 2.75% by next month."

For more 2018 (and soon 2019) News (and prior years going back to 2006), see Crane Data's News Archives. We'll continue to provide daily updates on the money fund marketplace in the coming year, so keep reading our News and Link of the Day commentaries in 2019. (Watch for our Bond Fund Intelligence News website to launch at some point in the coming months too.) Thanks to our readers, subscribers and supporters; we wish you all the best in the coming year. Happy New Year!

This month, BFI interviews Tracey Keenan, Portfolio Manager for Short Duration Strategies at GMO. GMO, also known as Grantham, Mayo, & van Otterloo, is a Boston-based institutional investment manager, which manages both mutual funds and separate accounts. We discuss their short-term strategies, and a number of other fixed-income topics, in our Q&A below. (Note: This profile is reprinted from the December issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set, which was published Friday.)

BFI: Tell us about your history. Keenan: I've been at GMO since 2002, and GMO has been investing in short term bonds as part of their asset allocation strategies for many years.... In 2014, we started to expand our cash investing to more customizable solutions with dedicated internal portfolio managers.

BFI: Tell us about your strategies? Keenan: We invest in U.S. and non-U.S. governments and agencies, all currency hedged. We focus on high-quality liquid assets, so we really want minimal currency exposure, and tend to run one-year maximum weighted duration with a two-year max maturity. What we found coming out of money market reform in 2016 was that there was a supply and demand issue around Treasury bills because of the [huge demand from] government money market funds. We were basically competing with the government-only money market funds in the same space with limited supply. So there was a lot of supply and demand dynamics in the market that we didn't really need to compete with. We decided to try and focus outside of that money market space, while maintaining the same liquidity and capital preservation as the govt-only money markets.

BFI: How are you positioned? Keenan: We try to move dynamically.... Right now, we own more floaters than fixed rate notes, so more on the Treasuries floater side and the Federal Home Loan Bank floater side.... Then we do have an allocation to Japanese yen bills, currency hedged. As the basis has continued to stay negative this year, [during] quarter-end or the year-end turn, that position became much more attractive. So being a dollar lender into calendar effect issues in the space ... has been good for us. It's good to be able to move dynamically when those conditions in the market are changing.

BFI: Is there anything you don't own or you're avoiding? Keenan: We don't invest in any credit in the portfolio or any asset-backed securities. We've kept our strategy strictly focused on U.S. and non-U.S. governments and agencies.... We try to keep internal constraints on what the risk and the diversity in the strategy is, because we feel that liquidity and preservation of capital is still what's most important to us. While we want to be well-diversified, we don't want to take any credit risk with the cash that we're managing.

We've done pretty well [this year].... A lot of the short-duration bond funds have been hurt this year with their longer duration with rates selling off. We keep it pretty clean. We're investment grade or higher, so it's essentially the G10. Our duration is really short; it's inside of a quarter of a year. We just want to be able to be positioned to capture the Fed hiking cycle. The Fed has indicated that they may be close to the end of their cycle, but we're not sure where that that neutral rate lies. So we want to keep it short while the Fed continues to hike rates. [But] we'll re-evaluate that once we know for sure when the Fed is going to be done.

BFI: Do you have any sector or diversity limits? Keenan: Right now we don't in the strategy, but we do look at how quickly we could liquidate.... So in that Japanese yen bill trade for example, there [may be] timing delays between the U.S. open [or if] Asia is closed for the day. We want to make sure that we still have enough of the strategy to be able to liquidate T-0.... That's really what we're looking at -- being well diversified there and not having all of our eggs in one basket.

BFI: What are the other big, liquid "bill" markets? Keenan: We look at ... anything that has safety, liquidity and preservation of capital, something that's well supported by the government. Germany would be an area that we would look at, but the ECB is still involved in their quantitative easing program.... We'd be looking at more opportunities like that -- higher credit quality government markets like Germany, possibly France, and the U.K. But there's just not the availability of bills ... as there are in the U.S. and Japan.

BFI: Who are the investors in the funds? Keenan: Right now, we are more institutional. So we're concentrating the strategy in our traditional client space.... We're always looking for ways to help our clients around the world. So we work closely with our asset allocation team, working with clients and making sure that we can offer customizable cash solutions to them. One really interesting thing that we've seen in the ultra-short space or in the cash space this year is this phenomenon, which I know you've seen before, called 'inside-out' and 'outside-in.'

So we've seen money market investors who have their operating cash in a money market or custodial sweep, now looking for more yield with similar liquidity to their govt-only money funds. Then you have the short duration bond fund investors, who have really gotten hurt this year performance-wise, that are looking to bring some of that [in]. They're willing to forgo that higher yield to make sure that they have that preservation of capital. So we've seen this migration into this ultra-short space from investors on both side of the cash spectrum.

BFI: What about your Fed outlook? Keenan: We're following what the Fed's been saying closely, because it's really important to how we're investing. We're not exactly sure where the neutral rate is going to actually end up resting. While the Fed is still in play, we're still positioned to capture higher rates with an allocation to floating over fixed.... We also continue to be a dollar lender while borrowing still remains so expensive. We expect the Fed to over communicate, as they have done in the past, and in 2019 they're set to have press conferences after every single meeting.

I think Powell potentially got caught off guard [by market reactions]. I'm not sure he's used to having every word he changes in his statement having that kind of market impact. I think he's going to really be conscious of his language going forward, because two words make a huge difference in the cash space. The other big news is the curve inversion. Now you have the short end (2s/5s, 3s/5s) inverted. We're following that and trying to understand the implications on the business cycle and where we are, though that's still outside of the space that we're investing in. So again we are really conscious of the Fed and when they will be done with their hiking cycle.

BFI: What is your biggest challenge? Keenan: I think the biggest challenge in the ultra-short space is that there needs to be more disclosure around what the funds are invested in, because the space is really broad and not well defined. That requires working with clients and making sure they understand what's in their portfolio or strategy. I think there is the availability of assets in the space. There's plenty out there, and the Treasury is set to increase issuance.... Going into the end of 2018 [and] definitely in 2019, the Treasury has some bills to pay. So we'll be looking for more issuance there, which will move rates higher. We think that we're well positioned for higher rates going into 2019.

BFI: What about the future? Keenan: This year, there has been so much attention given to the cash space. I think after years of earning zero on cash, investors were forced out on the curve to get any sort of yield. So I do think that clients will be [bringing] some of their allocations back into cash, specifically [cash] above their operating cash for that yield enhancement with safety, liquidity, preservation of capital. Getting that extra yield and being able to have that safety and liquidity in cash I think will be really important to investors in 2019.

To sum everything up, what we're looking to do here is provide our clients with customizable solutions around their cash investing and make sure that they have that liquidity and preservation of capital by keeping the investments in U.S. government and non-U.S. government [securities], all currency hedged. So what's really important to us is the quality of the investments in the cash that we're running.

Last week and early this week, we featured two "Link of the Day" briefs on Robinhood, a "fin-tech" brokerage (but not a bank) that announced an ill-defined "Checking&Savings" account with an outrageously high 3% yield. (See "Robinhood Stealing Millennial's Cash" and "SIPC Concerns About Robinhood.") Since their splash, however, the company has withdrawn the offer after a barrage of regulatory scrutiny and media criticism. Forbes.com, which has been leading the coverage, tells us in their latest update, "Robinhood's Misstep A Cautionary Tale For Other Fintechs," that, "With the Federal Reserve in interest rate raising mode and with most traditional banks still offering low rates on their checking and savings products, the fintechs are trying to respond. But sometimes those efforts to give consumers a better return on their money can backfire, hurting the reputation of the entire sector."

They explain, "That was the case for mobile trading app Robinhood, which last week garnered a lot of attention when announcing checking and savings products that came with an interest rate of 3%.... Touting the full protection of the Securities Investor Protection Corporation, or SIPC, Robinhood stood out as an innovator that was blowing past traditional banks. But the glory was short-lived. It quickly had to retreat, removing all mention of its checking and savings accounts after its products ran afoul of regulators with president and CEO of SIPC Stephen Harbeck saying he had 'serious concerns.' The misstep, says at least one rival, serves as a cautionary tale for other fintechs that want to disrupt the traditional banking industry but move too quickly to get ahead of the competition."

In a blog entry entitled, "A Letter From Our Founders," Baiju Bhatt and Vlad Tenev write, "We're excited and humbled by the response to yesterday's announcement of Robinhood's cash management program launching in 2019. However, we realize the announcement may have caused some confusion. As a licensed broker-dealer, we're highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program, and we're revamping our marketing materials, including the name."

It adds, "Our promise is unwavering -- we always put our customers first -- whether it's deciding which features to build, keeping your cash and securities protected, or offering products that allow everyone to participate in and benefit from the financial system. Stay tuned for updates."

Investors' Business Daily covered the news in "Robinhood's New 'Checking & Savings' Bounced In Embarrassing Snafu," which says, "The Robinhood app is rebranding its new checking and savings service after a brokerage industry group said it does not insure such accounts and warned of risks to investors. On Friday, the Securities Investor Protection Corp. (SIPC) pushed back on Robinhood's claim that its new, no-fee checking and savings service will be SIPC insured."

They continue, "SIPC CEO Stephen Harbeck told Bloomberg his member-funded nonprofit only protects money used for the purchase of securities. It doesn't insure checking and savings accounts. Late Friday, Robinhood issued a mea culpa that "the announcement may have caused some confusion." It also promised to revamp and rebrand the new service, which launched with fanfare a day earlier. Now it has yanked the webpage promoting the "Robinhood Checking & Savings" product with its industry-beating 3% annual interest rate. In its place is a "Cash Management" webpage, with a terse "coming soon" message."

Bloomberg updated its coverage with "The fintech way: Robinhood Checking moved fast and broke." The commentary explains, "On Thursday, Robinhood Financial LLC announced a new product called 'Robinhood Checking & Savings,' which would allow anyone to open a deposit account with no-fee ATM access, a debit card, insurance from the Securities Investor Protection Corp. and a 3% interest rate. Robinhood is not a bank, so it can't issue checking or savings accounts, and anyway the SIPC doesn't insure checking and savings accounts, so it was all a bit weird. I assumed, perhaps foolishly, that Robinhood, uh, has some lawyers, and that they had thought about this and figured out a way to do it legally."

This piece states, "For instance, Robinhood can't issue a 'checking account,' or a 'savings account,' since those are things only banks can do, but 'checking & savings' is technically neither of those things and so perhaps it falls into a gray area. 'A magic ampersand,' I called it. Well, no. By Friday afternoon the head of the SIPC had told reporters that SIPC would not insure the accounts, and had reported Robinhood to the Securities and Exchange Commission. And by Friday evening Robinhood Checking & Savings was no more."

In other news, the Investment Company Institute's latest weekly "Money Market Fund Assets" report shows an increase in money fund assets this week after a huge jump last week. (Money funds saw big outflows on 12/4, then giant inflows 12/6, around the Bush Memorial Holiday.) The prior week showed ICI's MMF series with its biggest gain in over 10 years as funds broke above the $3.0 trillion level for the first time since early 2010. MMF assets have increased noticeably in 8 of the last 9 weeks. Retail assets jumped in the latest week while Inst assets declined. Overall assets are now up $171 billion, or 6.0%, YTD, and they've increased by $189 billion, or 6.7%, over 52 weeks. Retail MMFs have increased by $130 billion, or 12.9%, while Inst MMFs are up $40 billion, or 2.2%, YTD. Over 52 weeks, Retail money funds have gained $138 billion, or 13.7%, while Inst money funds are up $51 billion, or 2.8%.

ICI writes, "Total money market fund assets increased by $5.60 billion to $3.01 trillion for the week ended Wednesday, December 19, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $6.72 billion and prime funds decreased by $2.88 billion. Tax-exempt money market funds increased by $1.75 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.305 trillion (76.6% of all money funds), while Total Prime MMFs stand at $559.5 billion (18.6%). Tax Exempt MMFs total $143.5 billion, or 4.8%.

They explain, "Assets of retail money market funds increased by $16.09 billion to $1.14 trillion. Among retail funds, government money market fund assets increased by $9.66 billion to $673.73 billion, prime money market fund assets increased by $4.80 billion to $335.48 billion, and tax-exempt fund assets increased by $1.63 billion to $134.87 billion." Retail assets account for over a third of total assets, or 38.0%, and Government Retail assets make up 58.9% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $10.49 billion to $1.86 trillion. Among institutional funds, government money market fund assets decreased by $2.94 billion to $1.63 trillion, prime money market fund assets decreased by $7.68 billion to $223.99 billion, and tax-exempt fund assets increased by $125 million to $8.64 billion." Institutional assets account for 62.0% of all MMF assets, with Government Inst assets making up 87.5% of all Institutional MMFs.

The Federal Reserve raised short-term interest rates from a range of 2.00-2.25% to a range of 2.25-2.50% yesterday, their 9th 1/4-point hike since December 2015 and 4th hike of 2018. Money market fund yields, which have inched higher in recent days, should again move upwards over the next several weeks. Our Crane 100 Money Fund Index is now at 2.10%, up 4 basis points from 11/30/18 and up 23 bps since 9/30/18. This average of the largest money fund yields (net, annualized) is up from 1.12% at the start of 2018, 0.43% at the start of 2017, and 0.06% at the start of 2016. Brokerage sweep rates and bank deposit rates should also continue to inch higher in coming days and weeks. The Crane 100 should move above 2.25% by mid-January, and the highest-yielding money funds should break well over 2.50% and approach 2.75% by next month.

The Wall Street Journal in "Fed Raises Rates, but Signals Slightly Milder Path of Future Increases," writes, "The Federal Reserve nudged up short-term interest rates for the fourth time this year, defying pressure from President Trump, but suggested it could slow the pace of increases next year in the face of new headwinds. Fed officials voted unanimously Wednesday on the increase, which will bring the benchmark federal-funds rate to a range between 2.25% and 2.5%, the ninth such rise since December 2015. They also indicated they think they won't need to raise rates as much next year as they had anticipated three months ago."

The latest "FOMC statement" explains, "Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance."

It continues, "Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. The Committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook."

The Fed summarizes, "In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2 1/2 percent. (See also the "dot plot" release, "Federal Reserve Board and Federal Open Market Committee release economic projections from the December 18-19 FOMC meeting.")

They add, "In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."

In other news, the Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of Nov. 30, 2018) Tuesday. This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See also Crane Data's Dec. 13 News, "Dec. MF Portfolio Holdings Break 3.0 Tril; T-Bills Up, Repo Breaks 1.0T.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in November, prime money market funds held 28.5 percent of their portfolios in daily liquid assets and 41.6 percent in weekly liquid assets, while government money market funds held 61.0 percent of their portfolios in daily liquid assets and 78.9 percent in weekly liquid assets." Prime DLA increased from 24.1%, and Prime WLA decreased from 43.3% in October. Govt MMFs' DLA decreased from 61.4% in Oct. and Govt WLA increased from 78.1% last month.

ICI explains, "At the end of November, prime funds had a weighted average maturity (WAM) of 32 days and a weighted average life (WAL) of 71 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 up two days from last month, and WALs were up four days. Govt WAMs were down one day from Oct., and Govt WALs were down two days from last month.

Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $212.05 billion in October to $226.86 billion in November. Government money market funds’ holdings attributable to the Americas rose from $1,729.35 billion in October to $1,779.61 billion in November."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $226.9 billion, or 41.3%; Asia and Pacific at $109.5 billion, or 19.9%; Europe at $209.3 billion, or 38.1%; and, Other (including Supranational) at $4.1 billion, or 0.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.780 trillion, or 78.4%; Asia and Pacific at $122.9 billion, or 5.4%; and Europe at $361.2 billion, or 15.9%.

The Investment Company Institute released its "Worldwide Regulated Open-Fund Assets and Flows, Third Quarter 2018" yesterday. The most recent data collection on mutual funds in other countries (as well as the U.S.) shows that money fund assets globally rose by $16.9 billion, or 0.3%, in Q3'18, led by big gains in U.S. and Chinese money funds. Money fund assets in the Ireland, India, France and Korea fell. MMF assets worldwide have increased by $260.1 billion, or 4.5%, the past 12 months, and money funds in Asia surpassed money funds in Europe for the first time ever. We review the latest Worldwide Money Market Fund totals, below.

ICI's release says, "Worldwide regulated open-end fund assets increased 1.3 percent to $50.09 trillion at the end of the third quarter of 2018, excluding funds of funds. Worldwide net cash inflow to all funds was $178 billion in the third quarter, compared with $197 billion of net inflows in the second quarter of 2018. 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 third quarter of 2018 contains statistics from 47 jurisdictions."

On the data series' conversion into U.S. dollars, it explains, "The growth rate of total regulated open-end fund assets reported in US dollars was reduced by US dollar appreciation over the third quarter of 2018. For example, on a US dollar-denominated basis, fund assets in Europe decreased by 0.6 percent in the third quarter, compared with an increase of 0.2 percent on a euro-denominated basis."

ICI continues, "On a US dollar-denominated basis, equity fund assets increased by 2.8 percent to $22.73 trillion at the end of the third quarter of 2018. Bond fund assets were essentially unchanged at $10.25 trillion in the third quarter. Balanced/mixed fund assets increased by 0.1 percent to $6.26 trillion in the third quarter, while money market fund assets increased by 0.3 percent globally to $5.98 trillion."

The release writes, "At the end of the third quarter of 2018, 45 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 20 percent and the asset share of balanced/mixed funds was 13 percent. Money market fund assets represented 12 percent of the worldwide total."

It adds, "Net sales of regulated open-end funds worldwide were $178 billion in the third quarter of 2018. Flows into equity funds worldwide were $91 billion in the third quarter, after experiencing $25 billion of net inflows in the second quarter of 2018. Globally, bond funds posted an inflow of $91 billion in the third quarter of 2018, after recording an inflow of $72 billion in the second quarter..... Money market funds worldwide experienced an outflow of $53 billion in the third quarter of 2018 after registering an inflow of $36 billion in the second quarter of 2018."

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 Q3'18 with $2.864 trillion, or 47.9% of all global MMF assets. U.S. MMF assets increased by $43.0 billion (1.5%) in Q3'18 and increased by $115.8B (4.2%) in the 12 months through Sept. 30, 2018. China remained in second place among countries overall, as assets rebounded from the prior quarter in the latest quarter. China saw assets increase $37.0 billion (3.2%) in Q3 to $1.202 trillion (20.1% of worldwide assets). Over the 12 months through Sept. 30, 2018, Chinese MMF assets have risen by $253.5 billion, or 26.7%.

Ireland remained third among these country rankings, ending Q3 with $555.4 billion (9.3% of worldwide assets). Dublin-based MMFs were down $13.6B for the quarter, or -2.4%, and down $5.0B, or -0.9%, over the last 12 months. France remained in fourth place with $393.4 billion (6.6% of worldwide assets). Assets here decreased $12.2 billion, or -3.0%, in Q2, and were down $40.7 billion, or -9.4%, over one year. Luxembourg was in fifth place with $360.0B, or 6.0% of the total, up $2.7 billion in Q3 (0.8%) and down $24.8B (-6.4%) over 12 months.

Japan remained in sixth place with $103.3 billion (1.7%); assets there dropped $3.7 billion (-3.5%) in Q3 and $6.4 billion (-5.8%) over 12 months. Korea, the 7th ranked country, saw MMF assets fall $12.1 billion, or -12.8%, in Q3 to $83.0 billion (1.4% of the world's total MMF assets); they've fallen $11.1 billion (-11.8%) for the year. Brazil remained in 8th place, as assets decreased $3.4 billion, or -4.5%, to $71.3 billion (1.2% of total assets) in Q3. They have decreased $12.1 billion (-14.5%) over the previous 12 months.

ICI's statistics show Mexico moving up to 9th place with $61.3B, or 1.0% of total, up $5.2B (9.3%) in Q3 and up $1.4B (2.4%) for the year. India fell to 10th place, decreasing $12.4 billion, or -18.6%, to $54.5 billion (0.9% of total assets) in Q3 and increasing $14 million (0.0%) over the previous 12 months. (Note that ICI's data no longer includes money fund figures for Australia. Australia's MMF assets, which had been one of the largest markets in the world, were mysteriously shifted into the "Other" category several years ago.)

The United Kingdom ($26.9B, down $2.5B and up $7M over the quarter and year, respectively) still ranks ahead of Chinese Tapei ($23.8B, down $366M and down $2.0B) in 11th and 12th place. South Africa ($23.5B, up $1.2B and up $234M), Canada ($20.6B, up $459M and up $750M), and Switzerland ($20.5B, down $955M and down $3.6B) rank 13th through 15th, respectively. Sweden, Chile (which fell from the top 15), Poland, Norway and Germany round out the 20 largest countries with money market mutual funds.

ICI's quarterly series shows money fund assets in the Americas total $3.001 trillion, up $39.6 billion in Q3, while Asia and Pacific money funds surpassed Europe money funds for the first time, rising $8.2 billion to $1.474 trillion. Europe saw its money funds decline by $32.1 billion in Q3'18 to $1.441 trillion, while Africa saw its money funds rise $1.2 billion to $23.5 billion.

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.

Crane Data's latest MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), flat overall year-to-date in 2018. Through 12/13/18, MFII assets are down $2 billion to $828 billion. Offshore USD money funds are up $15 billion YTD, continuing to defy predictions of repatriation-related outflows. Euro funds are still feeling the pain of negative rates and pending European MMF reforms; they're down E5 billion YTD. GBP funds are down L7B. U.S. Dollar (USD) money funds (174) account for over half ($441 billion, or 53.2%) of this "European" money fund total, while Euro (EUR) money funds (100) total E93 billion (11.3%) and Pound Sterling (GBP) funds (104) total L211 billion (25.5%). We summarize our "offshore" money fund assets, as well as our latest Money Fund Intelligence International Portfolio Holdings totals, below.

USD MMFs yield 2.16% (7-Day) on average (as of 12/14/18), up from 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.48 on average, up from -0.55% on 12/29/17 and -0.49% on 12/30/16, while GBP MMFs yield 0.63%, up from 0.24% at the end of 2017 and 0.19% at the end of 2016. (See our latest MFI International for more on the "offshore" money fund marketplace.)

Crane's latest MFI International Money Fund Portfolio Holdings, with data (as of 11/30/18), show that European-domiciled US Dollar MMFs, on average, consist of 26% in Commercial Paper (CP), 21% in Certificates of Deposit (CDs), 15% in Treasury securities, 21% in Repurchase Agreements (Repo), 15% in Other securities (primarily Time Deposits), and 2% in Government Agency securities. USD funds have on average 35.8% of their portfolios maturing Overnight, 9.5% maturing in 2-7 Days, 17.5% maturing in 8-30 Days, 13.8% maturing in 31-60 Days, 11.0% maturing in 61-90 Days, 8.8% maturing in 91-180 Days, and 3.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (25.7%), France (16.3%), Japan (10.9%), Canada (10.6%), United Kingdom (6.5%), Germany (5.2%), Sweden (5.0%), Australia (3.6%), The Netherlands (3.5%), Switzerland (2.6%), Singapore (2.6%), and China (2.2%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $72.1 billion (14.9% of total assets), BNP Paribas with $27.0B (5.6%), Credit Agricole with $15.6B (3.2%), Mitsubishi UFJ Financial Group Inc with $15.6B (3.2%), Barclays PLC with $13.6B (2.8%), Wells Fargo with $13.1B (2.7%), Mizuho Corporate Bank Ltd with $13.0B (2.7%), Toronto-Dominion Bank with $11.9B (2.5%), Societe Generale with $11.0B (2.3%), and Bank of Nova Scotia with $10.2B (2.1%).

Euro MMFs tracked by Crane Data contain, on average 45% in CP, 25% in CDs, 21% in Other (primarily Time Deposits), 8% in Repo, 0% in Agency securities, and 1% in Treasuries. EUR funds have on average 24.2% of their portfolios maturing Overnight, 7.1% maturing in 2-7 Days, 13.5% maturing in 8-30 Days, 22.7% maturing in 31-60 Days, 15.7% maturing in 61-90 Days, 13.3% maturing in 91-180 Days and 3.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.6%), Japan (15.7%), the US (9.8%), Sweden (7.2%), Netherlands (6.5%), Germany (6.2%), U.K. (4.7%), China (3.4%), Switzerland (3.0%) and Belgium (2.8%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E5.8B (6.6%), BNP Paribas with E4.0B (4.6%), Mizuho Corporate Bank Ltd with E3.6B (4.1%), Svenska Handelsbanken with E3.0B (3.4%), Credit Mutuel with E2.6B (3.0%), Nordea Bank with E2.6B (2.9%), Procter & Gamble Co with E2.6B (2.9%), Sumitomo Mitsui Trust Bank with E2.5B (2.9%), BPCE with E2.4B (2.8%) and ING Bank with E2.4B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 11/30/18): 34% in CDs, 28% in Other (Time Deposits), 22% in CP, 10% in Repo, 5% in Treasury, and 1% in Agency. Sterling funds have on average 23.5% of their portfolios maturing Overnight, 6.8% maturing in 2-7 Days, 12.0% maturing in 8-30 Days, 21.7% maturing in 31-60 Days, 20.2% maturing in 61-90 Days, 12.9% maturing in 91-180 Days, and 3.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.7%), Japan (16.0%), United Kingdom (13.7%), Canada (9.7%), Netherlands (7.5%), Australia (6.5%), Germany (5.8%), United States (5.0%), Sweden (4.7%), and Singapore (2.6%).

The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L7.7B (6.1%), Mizuho Corporate Bank Ltd with E5.3B (4.2%), BNP Paribas with L4.8B (3.8%), Sumitomo Mitsui Trust Bank with L4.5B (3.6%), Mitsubishi UFJ Financial Group with L4.3B (3.4%), BPCE SA with L4.2B (3.3%), Credit Agricole L4.2B (3.3%), Toronto-Dominion Bank with L4.0B (3.2%), Nordea Bank with L3.7B (3.0%) and ING Bank with E3.1B (2.5%).

In other news, ICI published a brief entitled, "Understanding Interest Rate Risk in Bond Funds." They say, "For investors in bond funds, one significant concern is interest rate risk. In general, interest rate risk reflects the possibility that the value of a bond will change when prevailing interest rates rise or fall. The value of a bond generally moves in the opposite direction from interest rates: for example, when interest rates rise, prices for fixed-rate bonds will fall. Because bond funds are made up of a collection of individual bonds, bond fund investors should expect an increase in the level of interest rates to have a negative impact on the value of their investment."

The piece asks, "Why does this matter? Long-term interest rates reached their lowest recorded levels in July 2016 and were on a steady upward trend until early December. Rates dipped recently, but that could be short-lived if global trade tensions ease and the outlook for economic growth remains robust. Investors should be aware of the effects rising interest rates could have on their bond fund investments."

They explain, "Interest rate risk is commonly measured by duration -- the degree of sensitivity of a bond's price to rate movements. If interest rates were to change tomorrow, duration (commonly expressed in years) tells us how much the price of a bond should change in the opposite direction.... In general, the longer a bond's remaining maturity, the higher its duration will be and the more its price will change as interest rates change."

Finally, ICI adds, "Duration in a bond fund is generally determined by taking the weighted average of the durations of all the bonds the fund holds in its portfolio. For a bond fund with a duration of four years, a 1 percentage point increase in interest rates alone would be expected to lower the overall net asset value of the fund by 4 percent."

The December issue of our Bond Fund Intelligence, which was sent out to subscribers Friday afternoon, features the lead story, "Mixed Year for Bond Funds; Short, Ultra Only Havens," which reviews funds' lackluster performance and declining flows in 2018, and the profile, "GMO's Tracey Keenan Talks Short Duration Strategies," our latest Portfolio Manager interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields rose again in November and returns rebounded from losses in Oct. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings dataset, and mark your calendars our 3rd annual Bond Fund Symposium, which will take place March 25-26, 2019 in Philadelphia.)

The lead BFI story says, "Bond fund returns bounced back in November after an ugly October, but outflows continued for the second month in a row. Our BFI Total Index (an average of 632 funds) shows bond funds declined in 5 of 11 months so far in 2018 with an average return of -0.54% year-to-date. In 2018 so far, only Short-Term, Ultra-Short, Conservative Ultra-Short and Muni funds show positive returns."

It continues, "Meanwhile, while bond funds eked out a tiny gain in assets in November (after a big decline in October), asset flows for bond funds have turned decidedly negative after years of strong inflows. Thus, while there remains a little time left in the year, 2018 will likely go down as a mixed year at best. We show the latest monthly flow data below, and we show monthly returns on page 4."

Our "Fund Profile" says, "This month, BFI interviews Tracey Keenan, Portfolio Manager for Short Duration Strategies at GMO. GMO, also known as Grantham, Mayo, & van Otterloo, is a Boston-based institutional investment manager, which manages both mutual funds and separate accounts. We discuss their short-term strategies, and a number of other fixed-income topics, in our Q&A below."

BFI asks Keenan to, "Tell us about your history." She responds, "I've been at GMO since 2002, and GMO has been investing in short term bonds as part of their asset allocation strategies for many years.... In 2014, we started to expand our cash investing to more customizable solutions with dedicated internal portfolio managers."

BFI also says, "Tell us about your strategies." Keenan comments, "We invest in U.S. and non-U.S. governments and agencies, all currency hedged. We focus on high-quality liquid assets, so we really want minimal currency exposure, and tend to run one-year maximum weighted duration with a two-year max maturity."

She adds, "What we found coming out of money market reform in 2016 was that there was a supply and demand issue around Treasury bills because of the [huge demand from] government money market funds. We were basically competing with the government-only money market funds in the same space with limited supply. So there was a lot of supply and demand dynamics in the market that we didn’t really need to compete with. We decided to try and focus outside of that money market space, while maintaining." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)

Our Bond Fund News includes the brief, "Yields Rise Again, Returns Rebound in November." It explains, "Bond fund yields rose again and returns rebounded last month. The BFI Total Index returned 0.23% for 1-month and -0.14% over 12 months. The BFI 100 returned 0.24% in November and -0.27% over 1 year. The BFI Conservative Ultra-Short Index returned 0.17% over 1 month and 1.69% over 1-year; the BFI Ultra-Short Index averaged 0.15% in Nov. and 1.39% over 12 mos. BFI Short-Term returned 0.12% and 0.58%, and BFI Intm-Term Index returned 0.41% and -1.11% for 1-mo and 1-year. BFI's Long-Term Index returned 0.27% in Nov. and -2.13% for 1-year; BFI's High Yield Index returned -0.67% in Nov. and 0.21% over 1-year."

Another brief, entitled, "BlackRock Blogs 'How the pros use bond ETFs,' which says, "Rising rates and market uncertainty have many people taking a second look at their bond portfolios -- not just sector exposures but the vehicles they use to gain those exposures. More and more, `investors are moving away from individual bonds and turning to exchange trade funds (ETFs) for their simplicity, low cost and diversification. Large institutional investors have been big adopters of bond ETFs. As Greenwich Associates found in their new report, 60% of institutions in the U.S. and Europe have increased their use of bond ETFs in the past three years, with an average allocation of 18% to their fixed income portfolios."

A third News brief, "WSJ Writes, 'Now Loan Investors Are Heading for the Exits.' They explain, "Investors have pulled $5.4 billion from loan-focused mutual funds since mid- October, including $4.1 billion in the past three weeks alone, according to data from Lipper. That's quite the turnaround: Investors had poured nearly $12 billion into loan-focused mutual funds in the year up to mid-October, even as they withdrew more than $22 billion from high-yield bond funds, according to Lipper."

Finally, a sidebar entitled, "Vanguard Breaks $1 Trillion in Bond Funds," comments, "The latest 'Family Rankings' in our Bond Fund Intelligence XLS show Vanguard breaking $1 trillion in bond fund assets for the first time ever. The funds tracked by BFI XLS for the top bond fund manager total $1.010 trillion, up $52.5 billion, or 33.8% over the past 12 months. Vanguard represents over one-third (33.8%) of the $2.986 trillion in bond funds and bond ETF assets in BFI XLS. (Note: Crane Data continues to expand its collection of bond funds, so these numbers may not represent all funds managed and may be inflated by the addition of new funds.)"

Finally, it adds, "BlackRock ranks a distant number 2 in our ranking with $314.4 billion. They've seen assets grow by $13.4 billion, or 4.5%, and represent 10.5% of bond fund assets. PIMCO ranks No. 3 with $267.9 billion (9.0%), while Fidelity ranks No. 4 with $223.4 billion (7.5%). American Funds, JPMorgan, MetWest, DFA, T Rowe and DoubleLine round out the list of the 10 largest bond fund managers."

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows a huge jump in money fund assets after a big drop last week. (Money funds saw big outflows last Tuesday, 12/4 ahead of the sudden Bush Memorial Holiday, but had even larger inflows on 12/6.) ICI's latest asset series shows MMFs with their biggest gain in over 10 years, breaking above the $3.0 trillion level for the first time since early 2010, and the 7th week of strong gains in the past 8. Government, Prime and Tax Exempt MMFs all increased. Overall assets are now up $165 billion, or 5.8%, YTD, and they've increased by $162 billion, or 5.7%, over 52 weeks. Retail MMFs have increased by $114 billion, or 11.3%, while Inst MMFs are up $51 billion, or 2.8%, YTD. Over 52 weeks, Retail money funds have gained $127 billion, or 12.7%, while Inst money funds are up $35 billion, or 1.9%.

ICI writes, "Total money market fund assets increased by $93.50 billion to $3.00 trillion for the eight-day period ended Wednesday, December 12, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $81.83 billion and prime funds increased by $10.14 billion. Tax-exempt money market funds increased by $1.53 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.299 trillion (76.6% of all money funds), while Total Prime MMFs stand at $562.4 billion (18.7%). Tax Exempt MMFs total $141.8 billion, or 4.7%.

They explain, "Assets of retail money market funds increased by $11.47 billion to $1.13 trillion. Among retail funds, government money market fund assets increased by $5.78 billion to $664.07 billion, prime money market fund assets increased by $4.22 billion to $330.68 billion, and tax-exempt fund assets increased by $1.47 billion to $133.24 billion." Retail assets account for over a third of total assets, or 37.6%, and Government Retail assets make up 58.9% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $82.03 billion to $1.87 trillion. Among institutional funds, government money market fund assets increased by $76.05 billion to $1.63 trillion, prime money market fund assets increased by $5.92 billion to $231.67 billion, and tax-exempt fund assets increased by $63 million to $8.51 billion." Institutional assets account for 62.4% of all MMF assets, with Government Inst assets making up 87.2% of all Institutional MMFs.

In other news, UBS Asset Management is the latest money fund manager to weigh in on European Money Market Fund Regulation with the paper, "We've got answers." They explain, "In January 2019 new rules governing European Money Market Funds will come into force. These rules will have implications for the structures and features of money market funds (MMFs). We at UBS Asset Management understand that the regulation can cause uncertainty. We have prepared this document to help you understand how the proposed changes impact your investments with us."

UBS asks, "Q. What is this regulation? The official title is Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds, published in the Official Journal of the European Union on 30 June 2017 and entered into force on 20 July 2017. Q. Who does it apply to? The change to regulation applies to all MMFs established or sold in the EU and applies directly in every member state, without needing to be brought into law locally."

They write, "Q. When do MMFs have to comply with the new regulation? Existing funds are required to be compliant by 21 January 2019. Any funds launched after July 2018 were required to be compliant at launch. Q. What does the regulation focus on? The regulation focuses on three main areas: The creation of new sub-categories under Short Term MMFs. Increased liquidity and diversification requirements (applies to all types of MMFs). Implementation of potential redemption fees and gates when the liquidity level of the fund falls below certain minimum thresholds."

UBS's update continues, "Q. What are the different categories of MMFs? As defined by the European Securities and Markets Association (ESMA), MMFs are currently divided into two main categories: Short Term MMFs - These funds are required to adhere to more conservative investment rules than Standard MMFs. The new regulation introduces three sub categories of Short Term MMFs: Public Debt Constant NAV (CNAV), Low Volatility NAV (LVNAV) and Variable NAV (VNAV)."

The other category, they tell us, is: "Standard MMFs - Funds that fall into this category are subject to less restrictive investment rules (such as liquidity requirements) than Short Term MMFs. They must be variably priced and are, therefore, all categorized as Standard VNAV MMFs."

UBS adds, "Q. What do the changes mean to investors? If you are investing in: UBS (Irl) Select Money Market Fund - US Treasury, the fund will continue to be priced using amortized cost accounting for the full portfolio and operate with a constant NAV. It will be categorised as a Public Debt Constant NAV (CNAV) fund. UBS (Irl) Select Money Market Funds (USD, GBP and EUR), these funds will be categorised as Low Volatility NAV (LVNAV) funds."

They explain, "In a normal market environment, units will continue to price at 1 USD/GBP/EUR per unit so long as the shadow market NAV does not deviate by more than 20 basis points (bps). In the unlikely event that the shadow NAV does deviate by more than 20 bps the fund will convert to a Short Term VNAV fund. UBS (Lux) Money Market Funds (USD, GBP, EUR, CHF and AUD), these funds will remain Variable NAV (VNAV) funds."

Finally, they comment, "Q. Will investors have to move to a new fund once the new regulation is fully implemented? No. Your investment will roll in to the new structure automatically with no impact to your unit holdings, value of your units or the way you currently trade the fund. Q. When will UBS Asset Management comply with the regulation? We intend to be compliant with the EMEA Money Market Fund regulation on/or about 14 January 2019 (subject to change)."

Crane Data released its December Money Fund Portfolio Holdings Wednesday, and our most recent collection of taxable money market securities, with data as of Nov. 30, 2018, shows big increases in Treasuries, Repo and CDs. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $41.7 billion to $3.026 trillion last month, after increasing $61.0 billion in Oct., decreasing by $13.3 billion in Sept. and decreasing $24.1 billion in August. Repo continued to be the largest portfolio segment, breaking over $1.0 in total for the first time, followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, 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 to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) rose $18.1 billion (1.8%) to $1.001 trillion, or 33.1% of holdings, after rising $17.3 billion in Oct. and $16.0 billion in Sept., but falling $11.3 billion in August. Treasury securities rose $33.5 billion (4.0%) to $863.1 billion, or 28.5% of holdings, after rising $21.7 billion in Oct., falling $29.6 billion in Sept., and rising $22.1 billion in August. Government Agency Debt fell by $8.3 billion (-1.3%) to $634.9 billion, or 21.0% of all holdings, after rising $4.4 billion in Oct., falling $11.5 billion in Sept., falling $24.9 billion in August and rising by $0.9 billion in July. Repo, Treasuries and Agencies total $2.499 trillion, representing a massive 82.6% of all taxable holdings.

Money funds' holdings of CDs increased, and CP and Other (mainly Time Deposits) holding inched lower in November. Commercial Paper (CP) was down $1.7 billion (-0.7%) to $238.4 billion, or 7.9% of holdings, after rising $0.7 billion in Oct., rising $6.1 billion in Sept., and falling $3.2 billion in August. Certificates of Deposits (CDs) rose by $4.1 billion (2.1%) to $196.6 billion, or 6.5% of taxable assets (after rising $15.1 billion in Oct., rising $3.6 billion in Sept., and falling $7.6 billion in August). Other holdings, primarily Time Deposits, fell by $4.0 billion (-4.5%) to $84.4 billion, or 2.8% of holdings. VRDNs increased by $0.0B (0.3%) to $7.8 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately later Thursday.)

Prime money fund assets tracked by Crane Data rose to $748 billion (up from $726 billion last month), or 24.7% (the same as last month) of taxable money fund total taxable holdings of $3.026 trillion. Among Prime money funds, CDs represent over a quarter of holdings at 26.3% (down from 26.5% a month ago), while Commercial Paper accounted for 31.9% (down from 33.0%). The CP totals are comprised of: Financial Company CP, which makes up 20.4% of total holdings, Asset-Backed CP, which accounts for 6.8%, and Non-Financial Company CP, which makes up 4.7%. Prime funds also hold 3.8% in US Govt Agency Debt, 9.8% in US Treasury Debt, 5.2% in US Treasury Repo, 1.6% in Other Instruments, 8.3% in Non-Negotiable Time Deposits, 9.8% in Other Repo, 5.5% in US Government Agency Repo, and 0.8% in VRDNs.

Government money fund portfolios totaled $1.559 trillion (51.5% of all MMF assets), down from $1.542 trillion in Oct., while Treasury money fund assets totaled another $719 billion (23.8%), up from $717 billion the prior month. Government money fund portfolios were made up of 38.9% US Govt Agency Debt, 19.7% US Government Agency Repo, 19.3% US Treasury debt, and 21.9% in US Treasury Repo. Treasury money funds were comprised of 67.9% US Treasury debt, 32.0% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.278 trillion, or 75.3% of all taxable money fund assets.

European-affiliated holdings declined by $30.1 billion in Nov. to $648.3 billion among all taxable funds (and including repos); their share of holdings fell to 21.4% from 21.7% the previous month. Eurozone-affiliated holdings fell $30.0 billion to $409.5 billion in November; they account for 13.5% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $6.8 billion to $268.9 billion (8.9% of the total). Americas related holdings rose $65.9 billion to $2.108 trillion and now represent 69.7% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $24.6 billion, or 4.2%, to $610.8 billion, or 20.2% of assets); US Government Agency Repurchase Agreements (down $10.7 billion, or -3.0%, to $348.7 billion, or 11.5% of total holdings), and Other Repurchase Agreements (up $4.2 billion from last month to $41.4 billion, or 1.4% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $1.9 billion to $152.2 billion, or 5.0% of assets), Asset Backed Commercial Paper (up $3.4 billion to $50.9 billion, or 1.7%), and Non-Financial Company Commercial Paper (down $7.0 billion to $35.3 billion, or 1.2%).

The 20 largest Issuers to taxable money market funds as of Nov. 30, 2018, include: the US Treasury ($863.1 billion, or 28.5%), Federal Home Loan Bank ($502.6B, 16.6%), RBC ($113.3B, 3.7%), BNP Paribas ($111.0B, 3.7%), Fixed Income Clearing Co ($83.9B, 2.8%), Federal Farm Credit Bank ($79.6B, 2.6%), Wells Fargo ($65.7B, 2.2%), Barclays ($64.5B, 2.1%), Credit Agricole ($63.5B, 2.1%), Mitsubishi UFJ Financial Group Inc ($54.4B, 1.8%), JP Morgan ($54.2B, 1.8%), HSBC ($47.4B, 1.6%), Natixis ($45.7B, 1.5%), Societe Generale ($45.4B, 1.5%), Mizuho Corporate Bank Ltd ($41.1B, 1.4%), Bank of Montreal ($38.5B, 1.3%), Bank of America ($38.1B, 1.3%), Sumitomo Mitsui Banking Co ($37.9B, 1.3%), Nomura ($32.9B, 1.1%), and Toronto-Dominion Bank ($32.8B, 1.1%).

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: BNP Paribas ($101.0B, 10.1%), RBC ($91.7B, 9.1%), Fixed Income Clearing Co ($83.9B, 8.4%), Wells Fargo ($54.4B, 5.4%), Barclays PLC ($54.1B, 5.4%), Credit Agricole ($50.3B, 5.0%), JP Morgan ($43.2B, 4.3%), HSBC ($39.2B, 3.9%), Mitsubishi UFJ Financial Group Inc ($38.8B, 3.9%) and Societe Generale ($37.6B, 3.8%). Fed Repo positions among MMFs on 11/30/18 include: Franklin IFT US Govt MM ($2.3B), State Street Inst US Govt ($0.1B) and Western Asset Inst Govt ($0.0B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($23.2B, 5.2%), RBC ($21.7B, 4.9%), Mizuho Corporate Bank Ltd ($17.6B, 3.9%), Australia & New Zealand Banking Group Ltd ($15.9B, 3.6%), Mitsubishi UFJ Financial Group Inc. ($15.6B, 3.5%), Sumitomo Mitsui Banking Co ($15.2B, 3.4%), Bank of Montreal ($13.7B, 3.1%), Credit Agricole ($13.2B, 3.0%), Bank of Nova Scotia ($12.9B, 2.9%) and Canadian Imperial Bank of Commerce ($12.7B, 2.8%).

The 10 largest CD issuers include: Bank of Montreal ($13.3B, 6.8%), Mitsubishi UFJ Financial Group Inc ($11.6B, 5.9%), Wells Fargo ($11.1B, 5.7%), Mizuho Corporate Bank Ltd ($11.1B, 5.6%), Sumitomo Mitsui Banking Co ($10.9B, 5.5%), RBC ($10.6B, 5.4%), Svenska Handelsbanken ($10.0B, 5.1%), Toronto-Dominion Bank ($8.6B, 4.4%), KBC Group NV ($7.9B, 4.0%) and Sumitomo Mitsui Trust Bank ($7.7B, 3.9%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($13.6B, 6.7%), JPMorgan ($10.9B, 5.3%), RBC ($10.6B, 5.2%), Bank of Nova Scotia ($8.9B, 4.4%), UBS AG ($8.0B, 3.9%), Credit Suisse ($7.7B, 3.8%), Westpac Banking Co ($6.8B, 3.3%), Canadian Imperial Bank of Commerce ($6.5B, 3.2%), Toyota ($6.4B, 3.1%) and BayernLB ($6.3B, 3.1%).

The largest increases among Issuers include: US Treasury (up $33.5B to $863.1B), Bank of Montreal (up $13.3B to $38.5B), RBC (up $11.0B to $113.3B), Fixed Income Clearing Co (up $9.8B to $83.9B), Mizuho Corporate Bank Ltd (up $5.7B to $41.1B), Societe Generale (up $5.2B to $45.4B), Federal Farm Credit Bank (up $4.6B to $79.6B), Barclays PLC (up $3.9B to $64.5B), Wells Fargo (up $3.5B to $65.7B), and Natixis (up $3.1B to $45.7B).

The largest decreases among Issuers of money market securities (including Repo) in Nov. were shown by: BNP Paribas (down $28.9B to $111.0B), Federal Home Loan Bank (down $11.4B to $502.6B), ING Bank (down $6.5B to $30.6B), Sumitomo Mitsui Banking Co (down $6.4B to $37.9B), Credit Agricole (down $5.3B to $63.5B), DNB ASA (down $2.2B to $9.9B), Swedbank AB (down $1.6B to $10.1B), Federal National Mortgage Association (down $1.1B to $18.0B), Lloyds Banking Group (down $0.9B to $12.5B), and RBS (down $0.9B to $13.8B).

The United States remained the largest segment of country-affiliations; it represents 61.1% of holdings, or $1.850 trillion. France (9.2%, $278.1B) remained in the No. 2 spot and Canada (8.5%, $257.3B) remained No. 3. Japan (7.0%, $212.3B) stayed in fourth place, while the United Kingdom (4.9%, $146.7B) remained in fifth place. Germany (2.2%, $65.2B) remained ahead of the Netherlands (1.7%, $51.9B), while Sweden (1.4%, $42.9B) remained in 8th place. Finally, Australia (1.4%, $42.5B) moved ahead of Switzerland (1.3%, $38.9B) to rank 9th and 10th. (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 Nov. 30, 2018, Taxable money funds held 33.4% (down from 34.5%) of their assets in securities maturing Overnight, and another 15.6% maturing in 2-7 days (up from 13.8% last month). Thus, 49.0% in total matures in 1-7 days. Another 20.7% matures in 8-30 days, while 11.5% matures in 31-60 days. Note that over three-quarters, or 81.1% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 10.6% of taxable securities, while 7.0% matures in 91-180 days, and just 1.4% matures beyond 181 days.

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published today (Wednesday), and we'll be writing our normal monthly update on the November 30 data tonight for Thursday's News. But we've also been generating a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of November 30, includes holdings information from 1,193 money funds (down from 1,224 on Oct. 31), representing $3.242 trillion (up from $3.191 trillion). We review the latest data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows that Repurchase Agreement (Repo) holdings in money market funds totaling $1,019.3 billion (up from $1,001.5 billion on Oct. 31, their first month over $1 trillion), or 31.4% of all assets. Treasury holdings total $880.6 billion (up from $846.0 billion) or 27.2%, and Government Agency securities total $656.2 billion (down from $665.3 billion), or 20.2%. Commercial Paper (CP) totals $250.2 billion (up from $250.0 billion), or 7.7%, and Certificates of Deposit (CDs) total $200.2 billion (up from $195.9 billion), or 6.2%. The Other category (primarily Time Deposits) totals $128.4 billion or 4.0%, and VRDNs account for $107.2 billion, or 3.3%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $156.4 billion, or 4.8%, in Financial Company Commercial Paper; $51.3 billion or 1.6%, in Asset Backed Commercial Paper; and, $42.4 billion, or 1.3%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($624.8B, or 19.3%), U.S. Govt Agency Repo ($352.5B, or 10.9%), and Other Repo ($42.0B, or 1.3%).

The N-MFP Holdings summary for the 216 Prime Money Market Funds shows: CP holdings of $245.5 billion (the same as $245.5 billion Oct. 31), or 32.0%; CD holdings of $200.2B (up from $195.9B) or 26.1%; Repo holdings of $124.4B (up from $121.4B), or 16.2%; Other (primarily Time Deposits) holdings of $84.8B (down from $88.0B), or 11.0%; Treasury holdings of $77.1B (up from $50.9B), or 10.0%; Government Agency holdings of $29.6B or 3.9%; and VRDN holdings of $6.7B, or 0.9%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $156.4 billion, or 20.4%, in Financial Company Commercial Paper; $51.3 billion, or 6.7%, in Asset Backed Commercial Paper; and, $37.8 billion, or 4.9%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($42.0B, or 5.5%), U.S. Govt Agency Repo ($41.5B, or 5.4%), and Other Repo ($40.8B, or 5.3%).

In other news J.P. Morgan's "Short-Term Market Outlook and Strategy" discusses last week's asset outflow anomaly in the section "What happened to the repo markets?" They write, "US liquidity markets were thrown into a whirlwind this week as a result of the unexpected market closures on Wednesday. The unanticipated holiday led to a series of events which made it difficult to operate in the funding markets. This was most evident in the repo market, where overnight rates jumped 4bp on Tuesday and another 7bp on Thursday." (See our December MFI article, "Asset Whiplash from Wed..")

JPM continues, "Among those events, most notable was the decrease in government MMF balances. On 12/4, the day before the market close on Wednesday, shareholders withdrew about $50bn from government MMFs, making this the single biggest day of outflow since MMF reform.... Given that MMFs were closed on Wednesday, corporates likely wanted their cash on hand to manage any potential liquidity needs they might have that day. Indeed, using Good Friday as a comparison, we find that corporates often withdraw cash the day before a market holiday. And since most of their corporate money resides with government MMFs, it was obvious that these funds were going to be most impacted with redemptions."

They tell us, "This matters of course as government MMFs invest a substantial amount in repo. As of October month-end, they held $866bn in repo exposures, comprising about 38% of their portfolio. Generally, redemptions out of government funds mean there is less cash to lend to dealers. The confluence of these factors ultimately meant repo participants had to scramble to finance their collateral longs on Tuesday given the unexpected turn of events. It did not help that primary dealer balance sheets were already pretty heavy with collateral.... Tacking on the hangover from month-end, the unexpected market closures resulted in some pretty substantial dislocations in the repo markets."

Finally, the brief adds, "That said, we do not expect repo rates to remain elevated as we head into next week. Using Good Friday as a comparison again, we've generally found that institutional investors tend to allocate their cash back into MMFs the day after the holiday. To this end, we did see flows move back into government MMFs on Thursday and will likely make their way back into the repo markets."

Finally, this weekend The Wall Street Journal wrote, "Where to Put Your Money in 2019," and featured a brief segment entitled, "Cash, anyone?" They said, "Even the C-word -- cash -- is making a comeback for recommended asset allocations.... Goldman Sachs strategists, in their outlook for 2019, mentioned the idea of including cash as a reasonable alternative to stocks for the first time in several years. The theory: As the Fed continues to raise rates, parking cash in money-market funds and other similar ultrashort and ultrasafe vehicles could earn investors as much as 3%. In comparison, Goldman Sachs strategists figure the stock market's return on a risk-adjusted basis may be as little as 0.5% in 2019."

They quote financial planner Linda Erickson, "This is the first time I can remember in 10 or 12 years that cash has been a viable asset category." The Journal says, "But in today's volatile equity markets, she is pulling out 2% every quarter from gains in her clients' accounts and holding that as what she refers to as 'strategic cash'.... [S]he is quick to point out that the yield she can collect by investing that cash in ultra-short-term securities is roughly equivalent to the dividend yield on stocks in the S&P 500 index."

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Third Quarter, 2018 edition shows that Total MMF Assets increased by $46 billion to $2.867 trillion in Q3. The Household Sector saw assets move higher; it remained the largest investor segment with $1.614 trillion. The next largest segment, Nonfinancial Corporate Businesses also saw assets increase in the third quarter, as did Funding Corporations' (which we believe is primarily securities lending reinvestment cash) holdings of money funds. We review the latest Z.1 stats below.

The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show assets inching higher for the Rest of the World and Nonfinancial Noncorporate Business categories in Q3 2018. Property-Casualty Insurance, Life Insurance Companies, Private Pension Funds and State & Local Govt Retirements all saw assets fall slightly in Q3. Over the past 12 months, the Household Sector, Funding Corporations and Nonfinancial Corporate Businesses showed increases in assets, while the State and Local Government Retirement, Life Insurance Companies and Private Pension Funds categories showed decreases.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $46 billion, or 1.6%, in the third quarter to $2.867 trillion. Over the year through Sept. 30, 2018, assets were up $116 billion, or 4.2%. The largest segment, the Household sector, totals $1.614 trillion, or 56.3% of assets. The Household Sector increased by $28 billion, or 1.8%, in the quarter, after increasing $15 billion in Q2'18. Over the past 12 months through Q3'18, Household assets were up $63 billion, or 4.1%.

Nonfinancial Corporate Businesses, the second largest segment according to the Fed's data series, held $479 billion, or 16.7% of the total. Assets here rose by $8 billion in the quarter, or 1.6%, and they've increased by $17 billion, or 3.8%, over the past year. Funding Corporations were the third largest investor segment with $273 billion, or 9.5% of money fund shares. They rose by $22 billion, or 8.9%, in the latest quarter. Funding Corporations have increased by $35 billion, or 14.7%, over the previous 12 months.

The fourth largest segment, Private Pension Funds held 5.4% of money fund assets ($154 billion) -- down $1 billion, or -0.3%, for the quarter, and down $3 billion, or -1.7%, for the year. Nonfinancial Noncorporate Businesses, which held $110 billion (3.8%), were in 5th place. The Rest Of The World category remained in sixth place in market share among investor segments with 3.4%, or $97 billion, while Life Insurance Companies held $45 billion (1.6%), State and Local Government Retirement Funds held $50 billion (1.7%), State and Local Governments held $24 billion (0.8%) and Property-Casualty Insurance held $21 billion (0.7%), and 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 $1.724 trillion, or 60.1% of the total. Debt securities includes: Open market paper ($195 billion, or 6.8%; we assume this is CP), Treasury securities ($767 billion, or 26.8%), Agency and GSE backed securities ($621 billion, or 21.7%), Municipal securities ($131 billion, or 4.6%), and Corporate and foreign bonds ($9 billion, or 0.3%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($920 billion, or 32.1%) and Time and savings deposits ($195 billion, or 6.8%). Money funds also hold minor positions in Foreign deposits ($2 billion, or 0.1%), Miscellaneous assets ($7 billion, or 0.3%), and Checkable deposits and currency ($19 billion, 0.7%). Note: The Fed also lists "Variable Annuity Money Funds;" they currently total $32 billion in the quarter.

During Q3, Debt Securities were up $14 billion. This subtotal included: Open Market Paper (up $21 billion), Treasury Securities (up $114 billion), Agency- and GSE-backed Securities (down $42 billion), Municipal Securities (down $5 billion), and Corporate and Foreign Bonds (up $2 billion). In the third quarter of 2018, Security Repurchase Agreements were up $11 billion, Foreign Deposits were down $1 billion, Checkable Deposits and Currency were up $4 billion, Time and Savings Deposits were up $18 billion, and Miscellaneous Assets were unchanged.

Over the 12 months through 9/30/18, Debt Securities were up $128B, which included Open Market Paper up $57B, Treasury Securities up $114B, Agencies down $46B, Municipal Securities (up $5B), and Corporate and Foreign Bonds (up $2B). Foreign Deposits were down $3B, Checkable Deposits and Currency were down $17B, Time and Savings Deposits were down $4B, Securities repurchase agreements were up $11B, and Miscellaneous Assets were up $1B.

Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. A statement entitled, "Release Highlights Second Quarter 2018," tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."

Crane Data's latest Money Fund Market Share rankings show assets were higher again for most U.S. money fund complexes in November. Money fund assets rose by $79.4 billion, or 2.5%, last month to $3.170 trillion, and assets have risen by $100.6 billion, or 3.3%, over the past 3 months. They have increased by $187.5 billion, or 6.3%, over the past 12 months through Nov. 30, 2018. The biggest increases among the 25 largest managers last month were seen by Fidelity, JPMorgan, Morgan Stanley, Federated and Schwab, who increased assets by $14.2 billion, $14.0B, $10.3B, $9.7B, and $8.4B, respectively. We review the latest market share totals below, and we also look at money fund yields in November.

The only noticeable declines in assets among the largest complexes in November were seen by BlackRock, whose MMFs fell by $5.1 billion, or -1.8% (their BIF money funds were liquidated), Goldman Sachs, whose MMFs fell by $1.3 billion, or -0.7%, and T Rowe Price, whose MMFs fell by $342 million. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.

Over the past year through Nov. 30, 2018, Fidelity (up $74.4B, or 13.1%), Vanguard (up $45.9B, or 16.0%), JP Morgan (up $38.7B, or 15.0%), Goldman Sachs (up $31.6B, or 18.6%), Federated (up $30.9B, or 16.3%) and UBS (up $12.4B, or 28.0%) were the largest gainers. These complexes were followed by First American (up $9.0B, or 18.4%), Northern (up $4.9B, or 4.7%), and Franklin (up $3.5B, or 17.3%).

Fidelity, JPMorgan, Vanguard, Federated and Morgan Stanley had the largest money fund asset increases over the past 3 months, rising by $37.4B, $26.4B, $18.8B, $16.8B, and $6.5B, respectively. The biggest decliners over 3 months include: BlackRock (down $10.6B, or -3.6%), DWS (down $5.8B, or -20.2%), T Rowe Price (down $5.1B, or -14.3%), Wells Fargo (down $4.2B, or -3.7%), and DFA (down $2.1B, or -9.3%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $643.3 billion, or 20.3% of all assets. They were up $14.2 billion in November, up $37.4 billion over 3 mos., and up $74.4B over 12 months. Vanguard ranked second with $332.8 billion, or 10.5% market share (up $6.3B, up $18.8B, and up $45.9B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $295.8 billion, or 9.3% market share (up $14.0B, up $26.4B, and up $38.7B). BlackRock ranked fourth with $280.0 billion, or 8.8% of assets (down $5.1B, down $10.6B, and down $695M for the past 1-month, 3-mos. and 12-mos., while Federated remained in fifth with $220.3 billion, or 7.0% of assets (up $9.7B, up $16.8B, and up $30.9B).

Goldman Sachs remained in sixth place with $201.1 billion, or 6.3% of assets (down $1.3B, up $1.3B, and up $31.6B), while Dreyfus held seventh place with $169.6 billion, or 5.3% (up $7.3B, down $1.8B, and down $6.4B). Schwab ($137.6B, or 4.3%) was in eighth place (up $8.4, up $9.2B and down $20.8B), followed by Northern, who moved up to ninth place ($109.9B, or 3.5%, up $3.9B, up $3.9B, and up $4.9B). Wells Fargo fell to tenth place ($108.4B, or 3.4%, up $2.0B, down $4.2B, and down $2.6B).

The eleventh through twentieth largest U.S. money fund managers (in order) include: Morgan Stanley ($107.2B, or 3.4%), SSgA ($84.0B, or 2.6%), Invesco ($61.0B, or 1.9%), First American ($58.3B, or 1.8%), UBS ($56.5B, or 1.8%), T Rowe Price ($30.9B, or 1.0%), Franklin ($23.6B, or 0.7%), Western ($23.0B, or 0.7%), DWS ($22.7B, or 0.7%), and DFA ($20.8, or 0.7%). Crane Data currently tracks 70 U.S. MMF managers, down one from last month. (TD liquidated its money funds this past 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 and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, and Morgan Stanley moves ahead of Wells, Northern and Schwab. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($652.6 billion), J.P. Morgan ($451.6B), BlackRock ($420.1B), Vanguard ($332.8B), and Goldman Sachs ($305.0B). Federated ($229.3B) was sixth and Dreyfus/BNY Mellon ($185.0B) was in seventh, followed by Morgan Stanley ($139.5B), Schwab ($137.6B), and Northern ($134.8B), 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 December issue of our Money Fund Intelligence and MFI XLS, with data as of 11/30/18, shows that yields were up again in November across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 753), was up 8 bps to 1.88% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 10 bps to 1.86%. The MFA's Gross 7-Day Yield increased 7 bps to 2.32%, while the Gross 30-Day Yield rose 8 bps to 2.30%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 2.06% (up 5 bps) and an average 30-Day Yield of 2.04% (up 6 bps). The Crane 100 shows a Gross 7-Day Yield of 2.33% (up 5 bps), and a Gross 30-Day Yield of 2.31% (up 6 bps). For the 12 month return through 11/30/18, our Crane MF Average returned 1.38% and our Crane 100 returned 1.55%. The total number of funds, including taxable and tax-exempt, was down 30 funds to 944. There are currently 753 taxable and 191 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 2.07% (up 7 bps) as of Nov. 30, while the Crane Govt Inst Index was 1.95% (up 7 bps) and the Treasury Inst Index was 1.96% (up 7 bps). Thus, the spread between Prime funds and Treasury funds is 11 basis points, the same as last month, while the spread between Prime funds and Govt funds is 12 basis points, the same as last month. The Crane Prime Retail Index yielded 1.93% (up 9 bps), while the Govt Retail Index yielded 1.64% (up 10 bps) and the Treasury Retail Index was 1.71% (up 8 bps). The Crane Tax Exempt MF Index yield rose in November to 1.24% (up 10 bps).

Gross 7-Day Yields for these indexes in November were: Prime Inst 2.46% (up 7 bps), Govt Inst 2.25% (up 7 bps), Treasury Inst 2.27% (up 6 bps), Prime Retail 2.45% (up 8 bps), Govt Retail 2.25% (up 6 bps), and Treasury Retail 2.28% (up 6 bps). The Crane Tax Exempt Index increased 8 basis points to 1.73%. The Crane 100 MF Index returned on average 0.16% over 1-month, 0.47% over 3-months, 1.45% YTD, 1.55% over the past 1-year, 0.81% over 3-years (annualized), 0.49% over 5-years, and 0.30% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers on Friday, features the articles: "Money Funds Beat Bond Funds; First Time in Decade," which looks at returns and asset flows of bonds vs. MMFs; "JPMorgan Live w/European Reform Lineup; New VNAVs," a review of JPMAM's new VNAV fund ratings; and, "Asset Whiplash from Wed.; WAMs at Record Lows in '18," which reviews a huge drop then spike in assets this week, and fund WAMs. We've also updated our Money Fund Wisdom database with Nov. 30 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to ship on Tuesday, December 11, and our Dec. Bond Fund Intelligence is scheduled to go out Friday, December 14.

MFI's "MFs Beat Bond Funds" article says, "While money funds have slowly but surely been enjoying the benefits of higher rates since the end of 2015, it hasn't been until late in 2018 that they've started to benefit from pain in the bond and stock markets. Money funds will likely outperform both bond funds and stock funds in 2018, and many strategists are calling for cash to look even better in 2019."

It continues, "Through Nov. 30, 2018, money funds have returned 1.45% year-to-date and 1.55% over 1-​year, as measured by our Crane 100 Money Fund Index, versus bond fund returns of -0.70% YTD and -0.36% over 12 months, as measured by our Crane 100 Bond Fund Index. ​Our broader Crane Money Fund Average shows returns of 1.29% YTD and 1.38% over 1-​year vs. the Crane BFI Total Index, which shows returns -0.64% and -0.29%, respectively. (Note that our bond fund return numbers aren’t complete, so our preliminary estimates.)"

Our "JPM European Update" reads, "Last weekend, J.P. Morgan became the first major manager of European money market funds become fully compliant with the new European Money Fund Reforms, which go live on Jan. 21, 2019. J.P. Morgan Global Liquidity posted a brief, 'Important announcement for Global Liquidity clients: European Money Market Fund Regulations,' which tells us, 'J.P. Morgan Global Liquidity's implementation of the European Money Market Funds Regulations is now complete on the Luxembourg domiciled Global Liquidity funds. J.P. Morgan Global Liquidity is committed to ensuring that investors have the best experience."

It adds, "As a global leader in the liquidity space, J.P. Morgan Asset Management's Global Liquidity group manages USD 597.6 billion in asset under management (​as of 30 Sept., 2018). The team is made up of 132 dedicated global liquidity professionals with 21 average years of portfolio management and credit research industry experience in 7 countries and 5 global service centers ensuring 24 hour coverage."

MFI's "Shortest Ever" piece says, "Though the Federal Reserve may slow or stop raising interest rates in 2019, money market funds continue to stay super short and liquid. Weighted average maturities, or WAMs, of taxable money funds hit a record low in November. The average WAM for our Crane Money Fund Average, the simple average of the 753 taxable money funds tracked by Crane Data, inched down to 27 days, the lowest level since we started tracking funds in 2006.

It tells us, "Money fund WAMs used to be much longer too, since the SEC reduced the maximum WAM funds could have from 120 days to 90 days in the early 1990's and again reduced the maximum from 90 days to 60 days in 2011."

Also, MFI includes a sidebar, "American Funds Files to Launch Internal MMF," which says "Capital Research and Management Company, manager of the American Funds filed to launch Capital Group Central Cash, an internal money market fund open only to other funds in the American Funds Group. The filing says, 'The fund is an institutional money market fund. The net asset value of the fund'​s shares will 'float,' fluctuating with changes in the value of the fund's portfolio securities. Shares of the fund are primarily purchased by other funds and investment vehicles managed by the fund's investment adviser and its affiliates and are not available to the public."

Our December MFI XLS, with Nov. 30, 2018, data, shows total assets rising $64.3 billion in November to $3.171 trillion, after increasing $34.5 billion in October, $1.6 billion in Sept., and $29.2 billion in August. Our broad Crane Money Fund Average 7-Day Yield rose 8 bps to 1.88% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 5 bps to 2.06% (its highest level since Oct. 2008).

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 7 bps to 2.32% and the Crane 100 rose to 2.33%. Charged Expenses averaged 0.43% (down 2 bps) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 27 and 29 days, respectively (down 1 day). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

The Wall Street Journal writes "Cash Is a Star in Rocky Year for Global Markets," which says, "In a year of anemic returns and wild gyrations across most markets, cash is a star. U.S. cash and cash equivalents are on track to be some of the best-performing assets in 2018, enticing money managers struggling with a rare synchronized downturn in stocks, commodities and bond markets. Rising returns on cash make it more appealing for investors to move out of other investments, risking a turning point for markets as the global economy shows signs of slowing and the Federal Reserve slowly normalizes interest rates." We quote from the Journal and take a look at how cash has done below, and we also review our latest Weekly Portfolio Holdings data.

The Journal tells us, "One popular cash proxy -- the S&P U.S. Treasury Bill 3-6 Month Index, which measures the performance of U.S. Treasury bills maturing within three to six months -- has returned 1.7% so far this year. That comes against a background of lower and even negative returns on most assets this year, including global stocks, high-yield and investment-grade corporate bonds, long-term government debt and a range of commodities."

It adds, "There appears to be room to add more to cash positions: Fund managers' cash levels stood at 4.7% in November -- slightly above the average of the past 10 years, but below the 5.1% levels reached in September and October, according to Bank of America Merrill Lynch."

Finally, they write, "For most of the past decade, holding cash or cash-like instruments such as certificates of deposit or short-dated Treasury bills has failed to pay off. A person who invested $100 in the S&P 500 about 10 years ago would have about $396 by now, compared with roughly $104.50 on the same investment in cash."

Crane Data's December Money Fund Intelligence will be out Friday morning with our 11/30/18 data (we'll also have a story on money funds vs. bond funds). But through 10/31/18, money funds have returned 0.46% year-to-date and 1.30% over 1-year, as measured by our Crane 100 Money Fund Index, versus bond fund returns of -0.84% YTD and -0.56% over 12 months, as measured by our Crane 100 Bond Fund Index. (Our broader Crane Money Fund Average shows returns of 1.14% YTD and 1.28% over 1-year vs. the Crane BFI Total Index shows returns -0.73% and -0.45%, respectively.)

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Nov. 30, includes Holdings information from 59 money funds (down from 73 on Nov. 23), representing $1.127 trillion (down from $1.158 trillion) of the $2.984T (37.8%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Nov. 13 News, "Nov. MF Portfolio Holdings: Treasury, Repo, CDs Up; Fed Repo Near Zero.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $429.1 billion (down from $431.4 billion on Nov. 23), or 38.1% of holdings, Treasury debt totaling $356.7 billion (down from $357.7 billion) or 31.7%, and Government Agency securities totaling $222.8 billion (down from $223.4 billion), or 19.8%. Commercial Paper (CP) totaled $46.6 billion (down from $56.1 billion), or 4.1%, and Certificates of Deposit (CDs) totaled $39.0 billion (down from $40.5 billion), or 3.5%. A total of $16.7 billion or 1.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $16.0 billion, or 1.4%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $356.7 billion (31.7% of total holdings), Federal Home Loan Bank with $168.3B (14.9%), RBC with $46.2 billion (4.1%), BNP Paribas with $45.0B (4.0%), Federal Farm Credit Bank with $39.3B (3.5%), Credit Agricole with $31.6B (2.8%), HSBC with $24.5B (2.2%), Wells Fargo with $24.2B (2.1%), Societe Generale with $24.0B (2.1%), and Fixed Income Clearing Co with $22.0B (2.0%).

The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($118.1B), Goldman Sachs FS Govt ($99.1B), BlackRock Lq FedFund ($83.3B), Wells Fargo Govt MMkt ($70.5B), BlackRock Lq T-Fund ($70.3B), Goldman Sachs FS Trs Instruments ($58.4B), Dreyfus Govt Cash Mgmt ($56.6B), Morgan Stanley Inst Liq Govt ($51.7B), State Street Inst US Govt ($45.4B), and Fidelity Inv MM: MMkt Port ($42.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

Finally, the ICI released its "Annual Report to Members" last week. Though it had little on money market funds, it did have one mention of fund data. The publication quotes Chief Economist Sean Collins, "One of the biggest challenges we face is collecting increasing amounts of data. The SEC [Securities and Exchange Commission] is going to be collecting more new data through data reports called N-PORT and N-CEN. It's going to be a massive amount of data on all kinds of things that the SEC never had access to previously -- such as funds' monthly portfolio holdings, various risk metrics, liquidity measures. And the SEC is gearing up to analyze and use all these data in its regulatory work."

He adds, "I believe it would be very important for us to have access to the same information so that we can conduct our own research and analysis, verify what the government may produce in terms of summary statistics, help interpret the data, or help provide information to the fund industry and the public about trends in the industry. Historically, this has been of immense importance to our members, and it stands to grow even more important."

Collins explains, "The SEC collection of Form N-MFP data on money market funds is an excellent example of how our research serves the interests of our members in a similar way. Members voluntarily supplied the data to us on the same basis as they gave them to the SEC, and that was really important for us, because it allowed us to do analysis, push back on inappropriate aspects of rules that the SEC was putting in place for money funds, and challenge the notion that the money market fund industry poses financial stability concerns. We hope members will see the value of a similar arrangement with respect to N-PORT data."

Over this past weekend, J.P. Morgan became the first major manager of European money market funds become fully compliant with the new European Money Fund Reforms, which go live on Jan. 21, 2019. J.P. Morgan Global Liquidity posted a brief, "Important announcement for Global Liquidity clients: European Money Market Fund Regulations," which tells us, "J.P. Morgan Global Liquidity's implementation of the European Money Market Funds Regulations is now complete on the Luxembourg domiciled Global Liquidity funds. J.P. Morgan Global Liquidity is committed to ensuring that investors have the best experience. Please reach out to us if we can be of any assistance." (NOTE: Crane Data is closed Wednesday, 12/5, due to the National Day of Mourning honoring President George H. W. Bush. Our News, Link of the Day, and MFI Daily publication will be back tomorrow.)

It adds, "As a global leader in the liquidity space, J.P. Morgan Asset Management's Global Liquidity group manages USD 597.6 billion in asset under management (as of 30 September, 2018). The team is made up of 132 dedicated global liquidity professionals with 21 average years of portfolio management and credit research industry experience in 7 countries and 5 global service centers ensuring 24 hour coverage.... J.P. Morgan Asset Management, with assets under management of USD 1.72 trillion (as of 30 September, 2018), is a global leader in investment management. J.P. Morgan Asset Management's clients include institutions, retail investors and high-net worth individuals in every major market throughout the world."

A related press release, entitled, "Four J.P. Morgan Asset Management Money Market Funds Assigned 'AAAm' Ratings," tells us, "S&P Global Ratings today assigned 'AAAm' principal stability fund ratings (PSFRs) to four Luxembourg-domiciled short-term variable net asset value (VNAV) money market funds sponsored by J.P. Morgan Asset Management (Europe) S.A.R.L (JPMAM). The four VNAV subfunds are part of JPMorgan Liquidity Funds, a Société d'Investissement à Capital Variable structure that also qualifies as an Undertaking for Collective Investments in Transferable Securities (UCITS)."

It explains, "The PSFRs reflect our view of the creditworthiness of the funds' investments and counterparties, their investments' maturity structure, and management's ability and policies to maintain the funds' net asset value. The 'AAAm' demonstrates extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit risk. 'AAAm' is the highest PSFR assigned by S&P Global Ratings."

S&P's statement continues, "The four short-term VNAV funds assigned 'AAAm' PSFRs are: JPMorgan Liquidity Funds – EUR Liquidity VNAV Fund; JPMorgan Liquidity Funds – GBP Liquidity VNAV Fund; JPMorgan Liquidity Funds – USD Liquidity VNAV Fund; and, JPMorgan Liquidity Funds – USD Treasury VNAV Fund. The subfunds, which launch today, are part of JPMAM's expanded money market fund product range domiciled in Luxembourg reflective of EU money market fund regulations (Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on Money Market Funds)."

It says, "Within its Luxembourg liquidity funds, JPMAM offers eight credit subfunds across Australian dollars, euro, pound sterling, Singapore dollars, and U.S. dollars. Three of the funds assigned PSFRs today fall into the credit category--EUR Liquidity VNAV Fund, GBP Liquidity VNAV Fund, and USD Liquidity VNAV Fund. The USD Treasury VNAV is a government subfund among five other government subfunds offered in either pound sterling or U.S. dollars."

S&P Global writes, "The subfunds will be managed within JPMAM's global liquidity business, which manages approximately US$600 billion in liquidity and short-duration assets. In our view, as part of a global organization, the global liquidity team is a highly experienced group of investment professionals who incorporate a risk-controlled and value-oriented approach to cash and short-duration fixed-income management. Money market investment practices are conservative, in our view, and supported by rigorous investment research and sound risk management infrastructure reflective of an asset manager overseeing liquidity assets for institutional clients."

They add, "The investment objective of the subfunds is to achieve a return in the reference currency in line with prevailing money market rates while aiming to preserve capital consistent with such rates and maintain a high degree of liquidity. To achieve this objective, the funds will seek to invest in a variety of money market instruments, including asset-backed commercial paper, deposits with credit institutions, and reverse repurchase agreements within a maturity of 397 days, which meets our PSFR final maturity threshold."

Finally, the release comments, "An S&P Global Ratings' PSFR, also known as a "money market fund rating," is a forward-looking opinion about a fixed-income fund's capacity to maintain stable principal and to limit exposure to principal losses due to credit risk. We will monitor the portfolios on a weekly basis as part of our surveillance practices."

For more, see Crane Data's Sept. 5 News, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV," as well as JPMAM's "Proposed fund transition plan: European Money Market Fund Regulations," and "European Money Market Fund Reform Resource Centre."

Kiplinger's Personal Finance's John Waggoner writes on "6 Ways to Improve Your Yield on Cash," which gives a general overview of strategies and tips for retail liquidity investors. The article tells us, "Yields on most savings vehicles, such as bank deposit accounts and money market mutual funds, track the Federal Reserve's federal funds rate. For seven miserable years, from 2008 to 2015, the fed funds rate was tantamount to zero -- and that's about what you got from your savings. As the Fed has raised its benchmark rate, savings rates have risen with it." They quote CFP Jonathan Pond, "This is a huge revelation to my clients.... They are actually earning money on cash."

The piece says, "Although interest rates on savings are still low, they have caught up with inflation and beat the dividend yield of Standard & Poor's 500-stock index. And although cash may not yet be king when it comes to yields, it's important to remember that the income it generates comes with little or no risk -- providing a bit of respite from volatile stock and bond markets."

Kiplinger's explains, "Don't be discouraged if yields on your bank's savings account and money market deposit account are still at rock-bottom. The national average savings account yields a miserly 0.09%, and the average MMDA pays just 0.20%, according to Bankrate.com. But you can find higher yields by shopping around -- particularly at online banks and credit unions, which have lower overhead than traditional banks and can afford to pay a bit more."

On money market mutual funds, they write, "These mutual funds invest in short-term, high-quality securities, such as certificates of deposit and Treasury bills. Unlike other mutual funds, whose share prices vary daily, money funds keep their share price constant at $1 and pay interest by issuing new shares or fractions of shares. A money fund's yield equals its earnings minus expenses, and it closely tracks short-term interest rates. The funds' average 30-day yield is currently 1.82%, according to iMoneyNet. Most let you write checks on your account."

The primer explains, "Choose funds with low expenses, because anything you pay for fund management comes out of your yield. A favorite: Vanguard Prime Money Market Fund (symbol VMMXX), which charges just 0.16% a year in expenses and currently yields 2.21%. Savers in higher tax brackets should consider tax-free money funds, which invest in extremely short-term municipal IOUs. Because the interest is free from federal income taxes, the yields offered by tax-free money funds are lower than the yields of taxable money funds."

Kiplinger's also discusses CDs, saying, "If you want a bit more interest than you can earn from MMDAs, savings accounts and money funds, consider certificates of deposit. In return for a higher interest rate, you agree to keep your money on deposit for a set amount of time. Typically, the bank will charge three months' interest for early withdrawals from CDs with maturities of one year, and six months' interest for withdrawing from CDs with longer maturities.... Usually, the longer the maturity, the higher the rate. Be careful when choosing maturities."

Finally, they add on ultra-short bond funds, "These funds usually invest in securities that mature within one year. Typical ultrashort funds yield a bit more than money market funds. Unlike with money funds, the share prices of ultrashort funds can and do fluctuate. If you can't stand the thought of losing money, an ultrashort fund isn't for you. Nonetheless, we like Vanguard Ultra-Short-Term Bond (VUBFX)."

In other news, PIMCO posted new blog entry entitled, "Packing for the Holidays: Reducing Risk with Short-Term Bonds." Authors Jerome Schneider, Tina Adatia, and Kenneth Chambers, write "[I]nvestors concerned about rising rates or sudden equity market drops may want to consider lowering risk in their portfolios as part of their preparation for the holiday season. In an aging economic expansion, when changing liquidity conditions and costs can lead to more market volatility, a short-term bond strategy can provide balance for investors: a defensive approach that reduces interest rate risk while tapping into diversified sources of yield at the front end of the bond market."

They comment, "Rising interest rates are a fixture of late-cycle markets. Over the next 12 months, interest rates are likely to grind higher, particularly in the U.S., where economic growth remains above trend. PIMCO forecasts three additional policy rate hikes from the Federal Reserve by the end of 2019.... Short-term bond strategies have low duration, typically one year or less, and therefore can help reduce a portfolio's sensitivity to interest rate changes as the Fed gradually raises rates.... [S]hort-term portfolios can be positioned to benefit from rising rates and higher yields as benchmark rates continue to increase."

This piece too warns about CDs, saying, "CDs are time deposits, requiring specified investment periods, or 'lock-ins,' of anywhere from a month to several years, and withdrawing early usually results in penalties or forfeiting interest earned. We think this can create drawbacks for investors. Depending on the strategy, investors in short-term bonds may have more ready access to their assets."

It adds, "In today’s market, this can mean the flexibility to reinvest as interest rates rise and when prices for other assets, including equities, become attractive -- the very reason that many investors today may be holding high cash and short-term allocations. Furthermore, national average CD rates as of mid-November ranged from 0.56% for one year to 1.20% for five years, according to the FDIC, which are still lower than the fed funds rate and prevailing short-term benchmarks. Actively managed short-term bond strategies can invest in a broader universe of securities and thus aim for higher returns than traditional cash vehicles."