News Archives: April, 2018

Federated Investors, the 5th largest manager of money market funds with over $200 billion in US MMF assets, released its Q1'18 earnings late last week and hosted its earnings call on Friday. Federated Chief Executive Officer and President Chris Donahue, who will keynote our Money Fund Symposium this summer in Pittsburgh (June 25-27), says, "Total money market assets increased slightly from year-end with growth in separate accounts of just under $4 billion offsetting a decrease in money market fund assets of about $3 billion. Our money market mutual fund market share at the end of the quarter was 7.3%, compared to year-end 7.4%." (See Seeking Alpha's Earnings Call Transcript here.)

He explains, "Prime money fund assets increased about 5% in the first quarter to over $30 billion. Assets in our Prime Private Liquidity Fund increased to $730 million in the first quarter, up from about $530 million at year-end. This product and our Prime Collective Fund had just over $1 billion in combined assets at quarter-end up from $845 million at the end of last year. These products preserve the use of amortized cost accounting and do not have the burden of redemption fee and gate provisions."

Donahue continues, "Taking a look now at our most recent asset totals as of April 25, managed assets were approximately $386 billion, including $261 billion in money markets, $64 billion in equities, and $62 billion in fixed income. Money market mutual fund assets were $175 billion. In the institutional channel, RFP and related activity continues to be solid and increased over last year ... with interest in ... high yield, core [and] low duration for fixed income. We began the first quarter with about $65 million in wins that are yet to fund. Total SMA assets ended the quarter [are] at $25.1 billion."

CFO Tom Donahue says, "Revenue was down $9.6 million, compared to Q1 of last year, due to the adoption of the revenue recognition standard, which I mentioned decreased revenue by $8.6 million. A $6.8 million decrease due to a change in a customer relationship that occurred during Q1 2017 and changes in the mix of average money market assets ... impacted revenue by $4.7 million. These decreases were partially offset by an increase of $4.4 million in revenue from higher average equity assets, an increase of $4.3 million due to lower money fund minimum yield waivers and an increase of $1.9 million from higher fixed income assets.... The decrease from Q1 of 2017 was also due to the adoption of the revenue recognition standard, which reduced expenses by $8.7 million, as well as a decrease of $8.6 million in distribution expense, due to changes in the mix of average money market fund assets. The previously discussed change in a customer relationship reduced expenses by $5.3 million."

During the call's Q&A session, Federated was asked about competitive fee waivers in the money fund space (and Goldman cutting fees by 3-5 bps). Chris Donahue responds, "Yes, the pressure is constant and from my experience for decades has never really relented. If you look at our funds on a gross basis, and then of course on a net basis, they are very, very competitive in the industry. So what others are doing for their fees, I really can't address. But we look very, very closely at these numbers pretty much every day to see what the world is doing, and on a gross and net basis we're very, very comfortable with where we are, and [are] well aware ... of what is needed to maintain and enhance our money market business."

They were also asked, Will ultrashort funds will go out of favor as rates go higher? MM CIO Debbie Cunningham comments, "I think at this point like what we’re seeing is a rebound off of what's been a very long and unusually low rate environment -- zero for the short-end.... The ultrashort products were able to capture a pretty nice spread over that zero-rate environment for the better part of the last 10 years.... What we're also working with in today's rising rate environment is a Fed that is telegraphing in a very specific and well-processed way what their intentions are. The dot plot didn't exist in the last rising rate environment that we were in."

She adds, "So, I think both of those things are continuing to keep Ultrashort Funds in favor. In addition, when you look at our own Ultrashort products, they are [in] the very short-end of the spectrum.... If you look at money market funds prior to the last two re-writes of Rule 2a-7, the Ultrashort Funds look a lot like those did then, which were constant NAV product. Now, obviously, they are mark-to-market products that they are not constant NAV. But their movement has been not huge, and the spread over the cash and liquidity products has been substantial enough to keep customers comfortable [with] a good portion of their strategy [or] liquidity bucket positions."

Federated was also asked about "rate sensitivity and money fund customer behavior," and whether they are seeing retail money move from banks to funds. Cunningham answers, "Yes, we're starting to see faster growth. Let me [qualify that] by saying we are starting to see faster growth in funds than in the deposit market. So, if you looked at most recent statistics, the deposit market grew through I think it was February 2018 over the last year at a pace of 2.8%. The fund industry, the money market fund industry to a seven funds grew 6.5%.... The money fund dollars are [still] smaller because it is half of $2.6 trillion base versus half of $10 trillion base for the deposit market. Nonetheless, the percentage growth is finally in the favor of the funds. Specifically, from our own clients' perspective, we are seeing retail customers back into those products and out of deposit products, some into the government funds."

She adds, "Usually, the first quarter [sees] a very large outflow quarter from an industry standpoint, and although it was down some, it was not a huge amount this first quarter, compared to others. But the institutional prime sector is actually the fastest-growing sector.... So, rather than going into the direct market at this point it seems to be taking the path of going into that prime institutional market."

They were also asked about repatriation flows. Chris Donahue tells us, "Right out of the box we had several large clients that make deposits of meaningful amounts. So, we've seen some of it already." But Cunningham adds, "To date I would characterize it as being very short lived. So, what Chris is referencing, certain companies [had] large blocks coming in and remaining for a short period of time and going back out. Presumably those were firms that sort of had a hint as to what was going to happen from a repatriation perspective and knew ... how they were going to use that cash once it came back into the U.S., whether they were paying a special dividend, buying back stock [etc.]. They had a specific use for that cash and it sat in liquidity products, money market funds for a short period of time only."

She continues, "In speaking with clients that have not confirmed any amounts from a repatriation perspective but have every intention of doing so, it seems as though there is quite a lot on the table for reviewing just exactly how they do want to use it, whether it is better off staying where it is for some portion of it, whether they need it for a certain purpose, or whether it can be used more for general balance sheet purposes once it's back in the U.S. I think ... at least 80% of [companies] that could potentially be impacted by repatriation are still in that mode at this point." (Note: Federated also files its latest "10-Q Quarterly Report" with the SEC on Friday.)

The Investment Company Institute released its latest "Money Market Fund Assets" and its monthly "Trends in Mutual Fund Investing" reports yesterday. Their numbers show money fund assets inching lower in the latest week (after a big drop due to taxes the previous week); they also confirm that assets declined sharply in March. Year-to-date, MMF assets have decreased by $46 billion, or -1.6%, but they've increased by $150 billion, or 5.7%, over 52 weeks. We review the latest assets, and ICI's Trends and latest Portfolio Composition statistics, which show a jump in Treasury holdings in March, below.

ICI writes, "Total money market fund assets decreased by $1.30 billion to $2.79 trillion for the week ended Wednesday, April 25, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $1.33 billion and prime funds decreased by $782 million. Tax-exempt money market funds increased by $817 million." Total Government MMF assets, which include Treasury funds too, stand at $2.206 trillion (79.0% of all money funds), while Total Prime MMFs stand at $455.0 billion (16.3%). Tax Exempt MMFs total $130.8 billion, or 4.7%.

They explain, "Assets of retail money market funds decreased by $229 million to $1.01 trillion. Among retail funds, government money market fund assets increased by $29 million to $622.46 billion, prime money market fund assets decreased by $846 million to $260.20 billion, and tax-exempt fund assets increased by $589 million to $123.81 billion." Retail assets account for over a third of total assets, or 36.0%, and Government Retail assets make up 61.8% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $1.07 billion to $1.79 trillion. Among institutional funds, government money market fund assets decreased by $1.36 billion to $1.58 trillion, prime money market fund assets increased by $64 million to $194.79 billion, and tax-exempt fund assets increased by $228 million to $6.95 billion." Institutional assets account for 64.0% of all MMF assets, with Government Inst assets making up 88.7% of all Institutional MMFs.

The latest monthly "Trends in Mutual Fund Investing" report from ICI confirm a big drop in money fund assets in March, following a jump in February and a big drop in January. ICI's "March 2018 - Trends" shows a $50.1 billion decrease in money market fund assets in March to $2.793 trillion. This follows a $37.5 billion increase in February, and a $51.0 billion decrease in January. In the 12 months through March 31, money fund assets have increased by $128.7 billion, or 4.8%. (Month-to-date through April 26, MMF assets are flat, down a mere $1.4 billion, according to Crane Data's Money Fund Intelligence Daily.)

ICI's monthly report states, "The combined assets of the nation’s mutual funds decreased by $194.70 billion, or 1.0 percent, to $18.67 trillion in March, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."

It explains, "Bond funds had an inflow of $11.62 billion in March, compared with an inflow of $126 million in February.... Money market funds had an outflow of $52.15 billion in March, compared with an inflow of $41.87 billion in February. In March funds offered primarily to institutions had an outflow of $49.73 billion and funds offered primarily to individuals had an outflow of $2.42 billion."

The latest "Trends" shows that both Taxable and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $47.4 billion in March to $2.660 trillion, after increasing in February and decreasing in January. Tax-Exempt MMFs decreased $2.9 billion in March to $133.1 billion. Over the past year through 3/31/18, Taxable MMF assets increased by $125.4 billion (4.9%) while Tax-Exempt funds rose by $3.3 billion over the past year (2.5%). Bond fund assets increased by $24.9 billion in March to $4.095 trillion; they rose by $318.2 billion (8.4%) over the past year.

Money funds now represent 15.0% (down from 15.2% the previous month) of all mutual fund assets, while bond funds represent 21.9%, according to ICI. The total number of money market funds increased by 1 to 382 in March, down from 420 a year ago. (Taxable money funds remained flat with 298 funds. Tax-exempt money funds increased by one to 84 over the last month.)

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed a surge in Treasuries and drop in CDs in everything else in March. Treasuries became the largest portfolio segment; they were up $79.4 billion, or 9.9%, to $879.2 billion or 33.1% of holdings. Treasury Bills & Securities have increased by $138.2 billion over the past 12 months, or 18.6%. (See our April 11 News, "April Money Fund Portfolio Holdings: Treasury Now Biggest; Repo Down.")

Repurchase Agreements fell to second place among composition segments; they declined by $85.5 billion, or -9.8%, to $783.0 billion, or 29.4% of holdings. Repo holdings have fallen by $25.0 billion, or -3.1%, over the past year. U.S. Government Agency Securities remained in third place; they fell by $56.6 billion, or -8.1%, to $643.7 billion, or 24.2% of holdings. Agency holdings have fallen by $53 million, or 0.0%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they decreased $22.0 billion, or -11.4%, to $172.1 billion (6.5% of assets). CDs held by money funds have fallen by $10.0 billion, or -5.5%, over 12 months. Commercial Paper remained in fifth place, decreasing $14.1B, or -8.4%, to $154.4 billion (5.8% of assets). CP has increased by $45.3 billion, or 41.5%, over one year. Notes (including Corporate and Bank) were down by $707 million, or -10.2%, to $6.2 billion (0.2% of assets), and Other holdings increased to $10.9 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 136.5 thousand to 31.221 million, while the Number of Funds was unchanged at 298. Over the past 12 months, the number of accounts rose by 5.644 million and the number of funds decreased by 22. The Average Maturity of Portfolios was 33 days in March, up 2 days from February. Over the past 12 months, WAMs of Taxable money funds have shortened by 5 days.

In its latest weekly "Short-Term Fixed Income," J.P. Morgan Securities published a segment entitled, "Short-Term Bond Funds: When cash is king" that suggests that ultra-short bond funds are gaining assets at the expense of money market funds and longer-term bond funds so far in 2018. Authors Alex Roever, Teresa Ho, Ryan Lessing explain, "The ongoing rise in short-term interest rates and the related bear-flattening continue to focus attention on investments in the front end of the yield curve. Not only are short-term yields growing more attractive, the lower duration reduces exposure to rising rates, bolstering relative total returns. Consequently, mutual fund and MMF flows data suggest money continues to flow into the low duration space."

They tell us, "In the case of bond funds we believe the flows represent primarily retail money mixed with limited corporate/institutional interest. Although a significant fraction of large corporate cash portfolios are invested in similar low-duration styles as the ultrashort and short-term bond funds, most of this corporate cash is held in privately administered SMAs where flows and holdings are not publicly available. In the case of MMF, we note that balances are running higher than would normally be expected this time of year, and we expect this reflects higher demand from both institutional and retail customers."

The JPM piece says, "With the overall yield curve bear flattening, total returns have suffered, and along with weaker returns have come an overall drop in demand for IG credit. However, the very front end of the curve has been something of an exception. Although short-term yields are rising and credit spreads widening modestly, the front end is outperforming the rest of the curve, with total returns in some categories managing to stay positive. And, with HG corporate yields now at 3.1%, a 9-year high, the yields on low-duration bond funds remain high relative to MMF and even high yielding bank deposits."

It continues, "That said, the yield advantage relative to MMF has eroded over the past year as money market rates have risen. Even so, the relatively high yields continue to attract flows into the front end -- mainly into ultrashort funds -- even as interest has flagged further out the curve."

Roever and co-authors comment, "But even in the short duration space, interest rate risk matters.... [T]he relative total returns and Sharpe ratios for ultrashort and short-term mutual funds by style, [show] that ultrashorts have generally outperformed similar short-term funds over the past year on both an absolute and risk adjusted basis. As is often the case, bond mutual fund flows have followed performance with inflows into short term bond funds stalling even as the non-government ultrashort short funds have continued to grow."

They state, "The keys to the outperformance of the credit sensitive ultrashort funds are evident in their holdings data.... First, credit sensitive funds benefit versus government funds because of their exposure to corporate credit and securitized products, which contribute spread to the returns. Second, the average duration of the ultrashorts is about a year and a half shorter than the short-term funds, which reduces exposure to rising yields. And finally, the ultrashorts hold significantly more floating rate notes which increase in yield and better hold their value as interest rates rise."

The Short-Term Fixed Income piece also says, "Clearly, the rising rate environment has helped ultrashort funds relative to longer maturity alternatives, and we suspect this will remain the case over the medium term. Aside from higher rates the other major focus in the front end has been implications of tax reform on repatriated corporate cash holdings."

It continues, "In general, we don't think the major corporate cash holders involved in repatriation are major investors in ultrashort or short-term bond funds. However, we know that many of them invest via privately administered SMA using similar strategies and generating similar returns. We also know that many of the large corporates use both MMF and MMF-style liquidity SMAs to manage their more liquid cash. Fitch Ratings estimates these corporate SMAs account for over $400bn in AUM."

The paper says, "We believe that in the wake of tax reform most of the large corporates with large offshore balances have put a hold on new short-term bond purchases. Instead they have focused on building liquidity for potential share buybacks and dividends. While in this holding pattern we believe corporate cash (from bond maturities, cash from operations, and from offshore MMF) has found its way into either MMF or into money market instruments within SMAs."

It adds, "Consequently, we note that although US based MMF balances are lower YTD, there is a seasonality to MMF flows. Relative to the average over 2013-2017 period cumulative net outflows from USD MMF are running about $50bn less, suggesting more money is staying in MMF, either because yields are higher or because corporates are using the MMF as a half-way house between the fixed income market and future payments to shareholders."

Finally, JPM writes, "Looking ahead, it may be several more months before future corporate flows to shareholders ramp-up. Possibly this could disrupt the normal late-year seasonal inflow pattern, and result in net outflows in late-2018. This would subsequently reduce demand for a variety of MMF instruments. Given that we expect another surge in T-bill supply in 4Q18, a late year shift to outflows from MMFs could contribute to upward pressure on the short-term rate complex." (For more on ultra-short bond funds, see Crane Data's latest `Bond Fund Intelligence newsletter, BFI XLS spreadsheet, and Bond Fund Portfolio Holdings data set. Let us know if you'd like to see the latest issue or files.)

DTCC Data Services released a statement entitled, "DTCC Now Offers Enhanced CP CD Data Service." It explains, "Three years ago, DTCC launched a solution that provided money market security participants with greater transparency into Commercial Paper (CP) and Institutional Certificates of Deposit (CD), a historically opaque segment of the financial markets. Since then, DTCC's CP and Institutional CD Data Service has been used by firms to help research, trading, strategy, and portfolio managers better understand activity of short term money market instruments." We review their statement and service below, and we also discuss Crane Data's latest Weekly Money Fund Portfolio Holdings data set.

DTCC explains, "As more clients have subscribed to the service, we have heard feedback from users looking for even greater insights into the market. To meet this need, DTCC is offering an enhanced version of our CP and Institutional CD Data Service that not only gives clients the same critical understanding of liquidity and valuation of the market but also provides additional issue and maturity data points. The new issue data elements may help clients answer important questions around characteristics of issuers and more easily compare them to peers, while the maturity enhancements may help users better understand when new issues have come to market and begun to settle, as well as their maturity horizon."

The description of the "Commercial Paper and Institutional Certificates of Deposit Data Service" tells us, "DTCC's Commercial Paper (CP) and Institutional Certificates of Deposit (CD) Data Service provides a single, daily feed of anonymized CP and CD secondary settlement transactions data–excluding primary IPA to dealer–to enhance analysis of this enormous market."

It continues, "The amount of outstanding money market instruments (MMIs) on deposit at DTC is approximately $3.1 trillion, with commercial paper (CP) and institutional certificates of deposit (CD) representing approximately $1.2 trillion and $1.0 trillion, respectively. For the first time, DTCC is providing daily anonymized CP and institutional CD secondary settlement transactions data, excluding primary IPA to dealer, which enables consumers to create benchmarks and indices and analyze trade volumes and rates."

They write, "DTCC's CP/Institutional CD Data Service brings together in a single, streamlined data set a variety of common fields, including but not limited to security ID, security description, product type, issuer name, settlement date, maturity date, principal amount, settlement amount, interest rate and interest rate type."

Finally, the DTCC adds, "The service also offers an enhanced data feed that provides six additional fields: Country code, Sector, Term length (short or long), Duration from issuance to maturity, Calendar days from current date to maturity, and First settlement date of the CUSIP."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of April 20) includes Holdings information from 90 money funds (up 23 from 4/13), representing $1.560 trillion (up from $1.172 trillion on 4/13) of the $2.967 (52.6%) in total money fund assets tracked by Crane Data. (For our monthly Holdings recap, see our April 11 News, "April Money Fund Portfolio Holdings: Treasury Now Biggest; Repo Down.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $542.3 billion (up from $390.6 billion a week ago), or 34.8%, Treasury debt totaling $507.0 billion (up from $393.9 billion) or 32.5%, and Government Agency securities totaling $327.9 billion (up from $247.7 billion), or 21.0%. Commercial Paper (CP) totaled $60.5 billion (up from $47.8 billion), or 3.9%, and Certificates of Deposit (CDs) totaled $45.0 billion (up from $37.8 billion), or 2.9%. A total of $38.2 billion or 2.4%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $39.1 billion, or 2.5%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $507.0 billion (32.5% of total holdings), Federal Home Loan Bank with $259.6B (16.6%), BNP Paribas with $85.8 billion (5.5%), Federal Farm Credit Bank with $48.3B (3.1%), RBC with $40.2B (2.6%), Credit Agricole with $33.8B (2.2%), Wells Fargo with $31.5B (2.0%), HSBC with $29.5B (1.9%), Natixis with $28.7B (1.8%), and Sumitomo Mitsui Banking Co with $24.3B (1.6%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($129.6B), Fidelity Inv MM: Govt Port ($103.6B), Goldman Sachs FS Govt ($95.2B), BlackRock Lq FedFund ($93.8B), Federated Govt Oblg ($78.1B), Wells Fargo Govt MMkt ($68.2B), BlackRock Lq T-Fund ($67.0B), Dreyfus Govt Cash Mgmt ($64.2B), State Street Inst US Govt ($56.3B), and Morgan Stanley Inst Liq Govt ($55.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Preparations are well underway for Crane's Money Fund Symposium, the largest gathering of money market fund managers and cash investors in the world. Our next "big show" will take place June 25-27, 2018 at The Westin Convention Center, in Pittsburgh, Pa. The latest agenda, which we review below, is now available and registrations are being taken. Our Symposium last summer in Atlanta attracted over 550 attendees, and we expect another robust turnout for our 10th annual event in Pittsburgh this summer. The conference lineup will feature a keynote from Federated Investors' President & CEO Chris Donahue, as well as a 'who's who' of the money market mutual fund industry.

Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are also now available. We review the full agenda, as well as the rest of Crane Data's 2018 conference calendar, below.

Our June 25 Opening (afternoon) Agenda kicks off with a "Welcome to Money Fund Symposium 2018" from Peter Crane, President of Crane Data. Then our keynote talk features Federated Investors' President & Chief Executive Officer Chris Donahue, who will discuss "Money Funds: Getting Back to Business." The rest of the Day One agenda includes: "Global & European Money Market Funds," with Reyer Kooy of IMMFA and Alastair Sewell of Fitch Ratings; "Ultra-Short Bond Funds, SMAs & Alt-Cash," with Dave Martucci of J.P. Morgan Asset Management, Michael Morin of Fidelity Investments, and Peter Yi of Northern Trust AM; and, a "Major Money Fund Issues 2018" panel moderated by Peter Crane and featuring Jason Granet of Goldman Sachs A.M., Tracy Hopkins of BNY Mellon Cash Investment Strategies, and Jeff Weaver of Wells Fargo Funds. (The opening day's refreshments will be sponsored by Fidelity and the opening evening's reception will be sponsored by Bank of America Merrill Lynch.)

Day 2 of Money Fund Symposium 2018 begins with "Strategists Speak '18: Rates, Repo & Alt-Cash," which features Mark Cabana of Bank of America Merrill Lynch, Joseph Abate of Barclays, and Alex Roever of J.P. Morgan Securities. This session is followed by: a panel entitled, "Senior Portfolio Manager Perspectives," including Laurie Brignac of Invesco, Dave Walczak of UBS Asset Mgmt, and John Tobin of J.P. Morgan A.M.; a session on "Government and Treasury Money Fund Issues," featuring Geoff Gibbs of Deutsche Funds and Sue Hill of Federated; and, a "Muni & Tax Exempt Money Fund Update" with Justin Schwartz of Vanguard, John Vetter of Fidelity, and Sean Saroya of J.P. Morgan Securities. (Day 2's breakfast is sponsored by J.P. Morgan Securities and the coffee break is sponsored by Wells Fargo.)

The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply & Alternate Buyers," including Stewart Cutler of Barclays, Joseph Johnson of Goldman Sachs and Rob Crowe of Citi Global Markets; "Treasury, Agency & Fed Repo Issuance, with Priya Misra of TD Securities, Dave Messerly of the FHLBanks - Office of Finance, and Josh Frost of the Federal Reserve Bank of NY; a presentation on "FDIC Insured Options & Sweep Issues" with Kevin Bannerton of Total Bank Solutions and Eric Lansky of StoneCastle Cash Management; and, a segment on "Portals, Info & Tech Update: Data, Software," with ` Fred Berretta <p:>`_ of Cachematrix, Greg Fortuna of State Street Fund Connect, and Tory Hazard of ICD. (The Day 2 break is sponsored by Invesco and the reception is sponsored by Barclays.)

The third day of Symposium (after a Federated-sponsored breakfast) features the sessions: "State of the Money Fund Industry" with Peter Crane of Crane Data and Deborah Cunningham of Federated Investors; "Regulatory Issues: Repo, SEC Sweeps, European," with Steve Cohen of Dechert, Sharon Pichler of the SEC, and Todd Zerenga of Perkins Coie LLP; and, "Corporate Investment & Washington Issues," with Tony Carfang from Treasury Strategies and Tom Hunt from AFP. Finally, the last session, entitled, "Ratings Agency Roundtable: Criteria, Risks," with Robert Callagy from Moody's Investors Service, Greg Fayvilevich from Fitch Ratings, and Guyna Johnson from S&P Global Ratings. (The coffee break is sponsored by First American Funds.)

We hope you'll join us in Pittsburgh this June! We'd like to encourage attendees, speakers and sponsors to register and make hotel reservations ASAP. E-mail us at info@cranedata.com to request the full brochure, or click here to see the latest.

In other conference news, thanks to those who attended last month's Crane's Bond Fund Symposium in Los Angeles. Our next Bond Fund Symposium is scheduled for March 21-22, 2019, in Philadelphia. Note: Crane Data Subscribers and attendees have access to the BFS conference binder materials, including Powerpoints, recordings and attendee lists. See the bottom of our "Content Center" for a listing of available conference materials or visit our Bond Fund Symposium 2018 Download Center.

Also, mark your calendars for Crane's 6th annual "offshore" money fund event, European Money Fund Symposium, which will be held in London, England, September 20-21, 2018. This website (www.euromfs.com) is now taking registrations and the preliminary agenda will be released soon. (Contact us to inquire about sponsoring or speaking.)

Finally, our next Money Fund University "basic training" event is scheduled for Jan. 24-25, 2019, in Stamford, Conn. Watch www.cranedata.com for more details on these events, and please let us know if you have any questions or feedback on our growing conference business.

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary Friday. It shows that total money fund assets fell by $48.2 billion in March to $3.074 trillion, with most of the decline coming from Government & Treasury funds. Prime MMF assets fell by $3.4 billion to $663.2 billion (after falling by $2.8 billion in February, rising by $3.2 billion in January, and falling $13.6 billion in December). Government money funds decreased by $41.7 billion, while Tax Exempt MMFs fell by $3.1 billion. Gross yields jumped for all types of money funds as the Federal Reserve hiked rates for the first time in 2018 in March. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

Overall assets decreased by $48.2 billion in March, after increasing $40.7 billion in February, decreasing by $44.3 billion in January, and increasing by $45.2 billion in December. Total MMFs increased by $55.4 billion in November, $46.2 billion in September, and $71.2 billion in August. Over the 12 months through 3/31/18, total MMF assets increased $144.1 billion, or 4.9%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data also now tracks many of these.)

Of the $3.074 trillion in assets, $663.2 billion was in Prime funds, which decreased by $3.4 billion in March. Prime MMFs decreased by $2.8 billion in February, increased by $3.2 billion in January, decreased by $13.6 billion in December, and increased by $14.3 billion in November. Prime funds represented 21.6% of total assets at the end of March. They've increased by $64.0 billion, or 10.7%, over the past 12 months. But they've decreased by $855.0 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.)

Government & Treasury funds totaled $2.273 billion, or 74.0% of assets,. They were down $41.7 billion in March, but up $44.9 billion in February. Govt MMFs were down $54.7 billion in January, but up by $57.3 billion in December and $40.8 billion in November. Govt & Treas MMFs are up $78.3 billion over 12 months (3.6%). Tax Exempt Funds decreased $3.1B to $137.1 billion, or 4.5% of all assets. The number of money funds is 379, the same number as last month but 32 fewer than 3/31/17.

Yields jumped again in March, after jumping in December and inching higher in January and February. The Weighted Average Gross 7-Day Yield for Prime Funds on March 31 was 1.86%, up 23 basis points from the previous month and up 0.83% from March 2017. Gross yields increased to 1.69% for Government/Treasury funds, up 0.24% from the previous month, and up from 0.76% in March 2017. Tax Exempt Weighted Average Gross Yields rose 30 bps in March to 1.46%; they've increased by 59 bps since 3/31/17.

The Weighted Average Net Prime Yield was 1.67%, up 0.23% from the previous month and up 0.87% since 3/31/17. The Weighted Average Prime Expense Ratio was 0.19% in March (down one bp from the previous month). Prime expense ratios are down by 4 bps over the past year. (Note: These averages are asset-weighted.)

WALs and WAMs were higher across all categories in March. The average Weighted Average Life, or WAL, was 62.0 days (up 2.7 days from last month) for Prime funds, 91.1 days (up 1.0 days) for Government/Treasury funds, and 25.6 days (up 0.4 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 29.8 days (up 3.3 days from the previous month) for Prime funds, 33.7 days (up 2.4 days) for Govt/Treasury funds, and 23.6 days (up 0.5 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 31.5% in March (up 1.0% from previous month). Total Weekly Liquidity was 49.1% (down 1.5%) for Prime MMFs.

In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $90.3 billion, followed by the US with $67.9 billion, Japan with $53.1B, France ($50.3B), and Australia/New Zealand with $39.9B. The UK ($37.8B), Sweden ($32.9B), Germany ($30.2B), the Netherlands ($29.0B) and Switzerland ($18.1B) rounded out the top 10 countries.

The gainers among Prime MMF bank related securities for the month included: the U.S. (up $4.1B), Germany (up $3.0B), the UK (up $2.4B), Canada (up $1.0B), China (up $726M), Singapore (up $707M), and Aust/NZ (up $637M). The biggest drops came from France (down $13.2B), Sweden (down $7.2B), Switzerland (down $5.9B), Belgium (down $5.5B), the Netherlands (down $4.1B), Japan (down $2.1B), Norway (down $2.0B), Other (down $619M), and Spain (down $261M). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $213.6B (down $32.9B from last month), while the Eurozone subset had $115.3B billion (down $20.2B). The Americas had $158.8 billion (down $5.1B), while Asian and Pacific had $106.8 billion (down $0.6B).

Of the $655.7 billion in Prime MMF Portfolios as of March 31, $222.9B (34.0%) was in CDs (down from $256.6B), $161.9B (24.7%) was in Government securities (including direct and repo), up from $123.7B, $99.0B (15.1%) was held in Non-Financial CP and Other Short Term Securities (down from $104.0B), $132.0B (20.1%) was in Financial Company CP (down from $143.6B), and $39.9B (6.1%) was in ABCP (down from $40.2B). The Proportion of Non-Government Securities in All Taxable Funds was 17.0% at month-end, down from 18.2% the previous month. All MMF Repo with Federal Reserve dropped to $22.6B in March (the lowest level in years) from $30.9B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 40.7% were in maturities of 60 days and over (up from 36.2%), while 7.6% were in maturities of 180 days and over (down from 8.3%).

Money market mutual fund assets plunged, likely due to the April 17 (or 18) income tax payment date. The Investment Company Institute's latest "Money Market Fund Assets" report shows that year-to-date, MMF assets have decreased by $44 billion, or -1.6%. Over 52 weeks they've increased by $167 billion, or 6.4%. ICI's numbers show the declines concentrated in Government and Institutional funds, though Prime and retail money funds declined too. We review the latest asset totals, and we also quote from a recent speech from Federal Reserve Governor Lael Brainard. (Note: Thanks to those who attended our session or stopped by our booth at this week's New England AFP Annual Conference in Boston! Let us know if you want a copy of Peter Crane's Powerpoint, "Money Funds: Past, Present and Future.")

ICI writes, "Total money market fund assets decreased by $33.35 billion to $2.79 trillion for the week ended Wednesday, April 18, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $28.58 billion and prime funds decreased by $2.31 billion. Tax-exempt money market funds decreased by $2.46 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.208 trillion (79.0% of all money funds), while Total Prime MMFs stand at $455.8 billion (16.3%). Tax Exempt MMFs total $130.0 billion, or 4.7%.

They explain, "Assets of retail money market funds decreased by $4.60 billion to $1.01 trillion. Among retail funds, government money market fund assets decreased by $1.11 billion to $622.43 billion, prime money market fund assets decreased by $1.02 billion to $261.04 billion, and tax-exempt fund assets decreased by $2.47 billion to $123.22 billion." Retail assets account for over a third of total assets, or 36.0%, and Government Retail assets make up 61.8% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $28.74 billion to $1.79 trillion. Among institutional funds, government money market fund assets decreased by $27.46 billion to $1.59 trillion, prime money market fund assets decreased by $1.29 billion to $194.72 billion, and tax-exempt fund assets increased by $6 million to $6.72 billion." Institutional assets account for 64.0% of all MMF assets, with Government Inst assets making up 88.7% of all Institutional MMFs.

In other news, Federal Reserve Governor Lael Brainard spoke yesterday on "Safeguarding Financial Resilience through the Cycle" at the Global Finance Forum in Washington. She says, "It is a good moment to take stock of the cyclical position of the economy and the health of the banking system. In many respects, where we are today is the mirror image of where we were just a decade ago.... While this progress is heartening, we cannot afford to be complacent. If we have learned anything from the past, it is that we must be especially vigilant about the health of our financial system in good times, when potential vulnerabilities may be building."

Brainard explains, "While we have made important progress in our regulatory framework, we still have not implemented a few key elements. The list of remaining items is short but important and well anticipated. First, we are close to finalizing the net stable funding ratio, or NSFR. This significant liquidity regulation is important to ensure that large banking firms maintain a stable funding profile over a one-year horizon. It will serve as a natural complement to our existing liquidity coverage ratio, which helps ensure firms can withstand liquidity strains over a 30-day time horizon. And by most estimates, our large complex banking institutions are in a position to meet the expected requirements with little adjustment."

She continues, "Second, we need to finalize Dodd-Frank Act limits on large counterparty exposures. These limits will reduce the chances that outsized exposures, particularly between large financial institutions, could spread financial distress and undermine financial stability as we witnessed during the last financial crisis. Moreover, these large exposure limits will effectively update the traditional bank lending limits that proved useful for well over 100 years for today's challenges, by recognizing the many ways in which banks and their affiliates take on credit exposure beyond directly extending loans."

The Fed Governor tells us, "I also support moving forward with minimum haircuts for securities financing transactions (SFTs) on a marketwide basis to counter the growth of volatile funding structures outside the banking sector. International agreement on a regulatory framework for minimum SFT haircuts was reached by financial regulators in 2015, and it is important to follow through on this work plan. While current market practices in this area may well exhibit much better risk management than pre-crisis, past experience suggests we cannot rely on prudent practices to remain in place as competitive and cyclical pressures build. Regulatory minimum haircuts calibrated to be appropriate through the cycle could help ensure that repo, securities lending, and securities margin lending and related markets do not become a source of instability in periods of financial stress through fire sales and run-type behavior."

She comments, "History and experience show that stable economic growth is aided by strong regulatory buffers that bolster the resilience of our large banking organizations and help reduce the severity of downturns. At a time when cyclical pressures are building, and asset valuations are stretched, we should be calling for large banking organizations to safeguard the capital and liquidity buffers they have built over the past few years.... Although I believe it is too early today to reassess the calibration of existing capital and liquidity buffers because they have yet to be tested through a full economic cycle, I look forward to efforts that are planned in future years in the international standard-setting bodies to assess the framework quantitatively."

Brainard also says, "We continue to assess the overall vulnerabilities in the U.S. financial system to be moderate by historical standards in great measure because post-crisis reforms have strengthened the regulatory and supervisory framework for the largest U.S. banking firms. The crisis revealed a stark weakness in the capital and liquidity positions of many of our large banking organizations that left many of them incapable of dealing with financial stress and necessitated unprecedented government intervention. A primary focus of post-crisis financial reform has been strengthening capital and liquidity buffers at large banking institutions, which has bolstered the safety and soundness of these institutions and reduced systemic risk more broadly."

Finally, she adds, "In terms of liquidity, not only do our largest firms now have the right kind and amount of liquidity calibrated to their funding needs and to their likely run risk in stressed conditions, but they also are required to know where it is at all times and to ensure it is positioned or readily accessible where it is most likely to be needed in resolution. Prior to the crisis, many of the largest firms did not even have a good handle on where their liquidity was positioned. For example, our largest banking firms have increased their holdings of high quality liquid assets from 12 percent of assets in 2011 to 20 percent of assets in 2017, and they have reduced their reliance on short-term wholesale funding from 37 percent of liabilities in 2011 to 25 percent of liabilities in 2017. This, combined with critical reforms to money market funds and other vital short-term funding markets, have reduced the vulnerabilities in the financial system associated with liquidity mismatch and maturity transformation."

Wells Fargo Asset Management published a paper entitled, "Tax Reform - Overseas Cash and Repatriation Implications," we learned from a new Wells Tweet. They explain, "Prior to 2018, the United States' relatively high corporate tax rate incented many domestic companies with international operations to locate foreign subsidiaries in tax-haven countries and delay U.S. tax payments. Under the pre-reform tax code, these foreign subsidiaries were subject to the same 35% maximum federal statutory corporate tax rate as their domestic counterparts, with income taxes being levied on those profits when foreign cash was repatriated, or returned, to the United States. Foreign subsidiary income that remained overseas was recorded with a deferred tax liability on parent financial statements, but no cash was paid out for U.S. taxes. The foreign subsidiary typically paid taxes to the country of domicile at the prevailing overseas tax rate, resulting in an overall lower U.S. effective corporate tax rate -- currently estimated at 18.6%. To offset double taxation, the corporation claimed a foreign tax credit when cash was repatriated to the U.S., so the total taxes owed to the U.S. were net of foreign taxes already paid."

The Wells piece says, "In the face of high barriers to repatriation, overseas cash balances have accumulated since the last repatriation holiday in 2004 because cash has not been needed for general corporate purposes, such as domestic acquisitions, capital investments, or dividend payments, due in large part to easy and relatively cheap access to capital markets. Estimates show that untaxed overseas cash and cash equivalents total approximately $1.022 trillion."

It explains, "The information technology ($671 billion) and health care ($151 billion) sectors account for 80% of total S&P 500 Index untaxed overseas cash, and the top 20 companies with the most overseas cash account for $835 billion, or 82%, of total S&P 500 Index overseas cash. In examining the investments of those 20 companies, about 36% of the overseas cash is invested in corporate notes and bonds, with another 29% invested in U.S. Treasury and agency securities."

Wells tells us, "This new approach means that U.S. companies will no longer owe U.S. taxes on income earned abroad, while the income earned in the U.S. by foreign companies will face U.S. taxes. While future foreign earnings will generally not be subject to U.S. taxes, foreign earnings prior to 2018 -- those not yet brought back to the U.S. and therefore not yet taxed -- will not escape taxation, as this corporate tax overhaul comes with a one-time tax on prior income currently stranded overseas. The new law taxes all prior earnings at 15.5% on earnings held overseas in liquid investments and at 8% on earnings that have been reinvested in more permanent assets such as property or equipment. And since the tax is levied whether or not the earnings are repatriated, companies are free to leave or move the money as it suits them."

They explain, "The question occupying most observers is what will happen with all of the overseas cash under the new tax law and its deemed repatriation tax? A good starting point is to examine corporate behavior following the last repatriation holiday. In 2004, Congress passed the American Jobs Creation Act of 2004; it provided a repatriation holiday for overseas earnings of multinational companies by excluding 85% of repatriated earnings from taxation, provided certain capital expenditure measures were met."

Wells writes, "In practice, repatriated earnings in the year following enactment exceeded most expectations, running at about 40% of overseas earnings and totaling about $300 billion, a five-fold increase from the previous five-year average. With an average effective tax rate of 5.25%, it was clear this was an attractive proposition. However, uses intended by the legislation did not materialize. Although expressly prohibited, the vast majority of repatriated earnings -- 92% of every dollar -- went to share repurchases and, to a lesser extent, dividends in the guise of capital that had been 'freed up' by repatriation; less than 1% was invested in capital expenditures."

The paper continues, "Because this time around is not like the last repatriation, we think the impact to U.S. markets will be minimal, primarily because taxation of foreign profits will occur whether or not the cash is actually repatriated into the U.S., and the changes to the tax structure are permanent. With companies having easy access to capital markets in the past 13 years, there seems to be very little impetus to bring money home to make more capital investments. To the extent the taxation frees up cash to come home, it is likely corporate behavior will mirror the past and they will reward shareholders through share repurchases or special dividends."

It comments, "So what becomes of the cash holdings overseas? In analyzing the potential impact of these flows on the U.S. money markets, it is important to remember that the holders of offshore cash are sophisticated money managers themselves, with access to generally all the investment options abroad that they would have in the U.S. Put another way, the money is already largely invested in the short-term securities the holders want to own, and it seems likely it will end up in those same investment categories after it is moved. If that is how it plays out, it seems any impact on the money markets will be obscured by whatever other supply and demand factors are moving around the vast money markets."

Wells states, "That said, while the overseas money has been sitting and growing since 2004, the U.S. money markets have changed significantly over the past several years. The regulatory changes for money market funds (MMFs) that took effect in 2016 made prime MMFs less appealing to large institutional investors -- the same types of companies as the potential repatriators -- pushing about $1 trillion from prime MMFs to government MMFs. To the extent some of the overseas money is currently invested in prime-type instruments and the companies want to park the money temporarily in the U.S. pending further deployment, it may end up in government MMFs, resulting in slightly less demand for prime instruments and greater demand for government securities."

The piece adds, "One thing that seems to be certain is that cash balances will shrink. The one-time deemed repatriation tax must be paid and we know it will total 15.5% of the approximately $1 trillion in cash trapped overseas. And then there is the tax due on profits that have been reinvested, the amount of which is not known. A simple Google search reveals estimates of total foreign untaxed profits ranging from $1.6 trillion to $2.1 trillion, which would mean an additional 8% tax on a base ranging from $600 billion to $1.1 trillion. How companies choose to pay this roughly $250 billion tax bill, whether through corporate earnings, domestic or international cash balances, or a combination, remains to be seen and will ultimately drive the amount by which foreign balances shrink."

Finally, Wells writes, "And as to the timing of those flows, corporations may opt to pay the balance due either up front or in eight installments, so the timing also is uncertain. While many multinational companies have been some of the largest investors in fixed-income securities in recent years, in the future, their sophisticated investment staffs likely will continue to invest firm money in similar securities, albeit in a reduced capacity. With the Federal Reserve seemingly intent on continuing to raise the benchmark lending rate, this could mean more attractive all-in yields in the future."

Charles Schwab reported its latest quarterly earnings yesterday, and its earnings release, entitled, "Schwab Reports Record Quarterly Net Income briefly discusses money funds and the brokerages' continued shift of sweep assets into bank accounts. Schwab is the 8th largest manager of money market mutual funds with $142.9 billion in assets as of March 31, 2018. The brokerages' money fund assets declined by $8.9 billion in March, by $18.5 billion in the first quarter, and by $17.8 billion, or 11.1%, over the past 12 months. We review their earnings release, and also the latest brokerage sweep rates, below. (See 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.")

CEO Walt Bettinger says, "[W]e initiated a 'Sweep Tower' for uninvested cash, offering eligible clients extended FDIC insurance of up to $500,000. (A footnote here says, "Bank Sweep deposits are held at one or more FDIC-insured banks that are affiliated with Charles Schwab & Co., Inc. Funds deposited at Affiliated Banks are insured, in aggregate, up to $250,000 per Affiliated Bank, per depositor, for each account ownership category, by the Federal Deposit Insurance Corporation.) This enhancement broadens Schwab's range of cash solutions for our clients, which provide smart features, competitive yields, and transparency that helps investors make informed decisions."

CFO Peter Crawford comments, "We've achieved another quarter of record financial performance, driven in part by sustained business momentum, higher interest rates, and lower corporate taxes. Net interest revenue grew 26% to a record $1.3 billion due to larger client cash sweep balances as well as the impact of the Fed's 2017 and March 2018 rate hikes -- our net interest margin expanded to 2.12%, up from 1.87% a year earlier. Asset management and administration fees increased 3% to $851 million due to growing balances in advised solutions, equity and bond funds, and ETFs, partially offset by lower money market fund revenue as a result of bulk transfers and 2017 fee cuts."

He adds, "During the first quarter, we actively utilized available capital to further our client cash strategy. As part of this process, we transferred approximately $25 billion from sweep money market funds to bank sweep and paid off $15 billion in Federal Home Loan Bank advances. The net effect of these moves and client activity lifted our consolidated balance sheet assets to $248 billion at quarter-end. We still anticipate crossing the $250 billion threshold in the first half of 2018."

The release shows Schwab's bank deposits totaling $190.2 billion as of March 31, up from $166.9 billion a year earlier. It also shows Schwab with average client assets of $156.4 billion in money funds during the first quarter, with revenue of $182 million on this total and an average fee of 0.47%. This compares to average client MMF assets of $162.8 billion a year earlier with revenues of $231 million in Q1'17 and an average fee of 0.58%. There were no fee waivers this quarter vs. fee waivers of $8 million a year ago.

According to our Brokerage Sweep Intelligence report, Schwab is currently paying 0.15% on balances up to $1 million and 0.5% on balances over. This is up from 0.12% on all tiers earlier this year and up from 0.xx% at the end of 2017. (Yields on Schwab taxable money market funds range from 1.05% to 1.74% currently, as of 3/31/18.) The average rate for brokerage sweep account balances of $100K is currently 0.17%, up from 0.12% earlier this year and 0.07% towards the end of 2017 (11/30/17).

In other news, J.P. Morgan Securities' latest "Taxable money market fund holdings update," which was published Friday, comments, "Taxable money fund AUM fell $50bn in March. Government/Agency funds fell $32bn, Treasury funds shrank $8bn, and prime funds declined $7bn. After February's unusual inflows, MMF outflows in March were roughly in line with past years.... Balances have recovered post-quarter end, however, rising $37bn in April month to date."

It continues, "We suspect that corporations are building liquidity in their portfolios in response to tax reform and directing their free cash flow and proceeds from bond maturities into MMFs, contributing to the unusual flows we've seen this year. MMF yield have also become increasingly attractive given the rising rate environment."

JPM's Alex Roever, Teresa Ho, and Ryan Lessing tell us, "Government/Agency funds continued to see growth in Treasury holdings, especially in bills, amidst continuing heavy supply, while substantially reducing their exposure to Agencies and repo.... Treasury-only funds slightly increased their Treasury coupon and FRN holdings, but actually reduced their bill holdings slightly. Across both types of funds, total bill holdings increased by $37bn, suggesting that these funds took down a much smaller portion of the net bill supply than in February."

They explain, "Prime funds also saw growth in their Treasury holdings, which rose $29bn or 66% month over month, and a substantial rotation away from banks, corporates, and Agencies.... With bills now yielding above Fed funds, they represent an attractive way for prime funds to meet their liquidity requirements. The decline in bank exposure was concentrated in European banks, and was especially pronounced in time deposits, as is typical at quarter-end, though bank CP and CD holdings also fell."

J.P. Morgan's update says, "Repo balances with MMFs behaved somewhat unusually in March. Typically, dealer repo balances have fallen sharply at quarter-ends as Yankee banks pull back for regulatory reasons, and RRP usage has risen. This time, however, RRP usage by MMFs actually fell $8bn to $23bn, the lowest level since at least December 2014.... Repo ex-RRP fell $81bn, as MMFs rotated their repo exposures into Treasury holdings and/or reduced their repo exposures to meet outflows."

Finally, they add, "The weighted average life of bank CP/CD held by prime MMFs rose 4 days to 94 days, led by Australian banks, whose WALs rose 6 days to 154 days.... Australian and Canadian banks continue to have the longest WALs at 148 and 120 days, respectively. We estimate that allocations to floating rate instruments in prime funds also rose slightly, from 27.2% of holdings in February to 27.7%."

Crane Data's 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), rising in April after falling in March. Offshore US Dollar MMFs have been rising and falling in waves since December 2017; they had been up sharply in January but fell in February and March. Last year, assets of all 3 currencies combined increased by $100 billion, or 13.7%, to $831 billion. Year-to-date in 2017 (through 4/12/18), MFII assets are up $28.7 billion to $859.5 billion, but USD assets are flat. U.S. Dollar (USD) funds (158) account for about half ($425 billion, or 49.5%) of the total, while Euro (EUR) money funds (98) total E95 billion and Pound Sterling (GBP) funds (110) total L228 billion. USD funds are up a mere $239 million, YTD, and were up $27B in 2017. Many are watching these totals closely for signs of possible "repatriation" of US dollar assets held in Europe, but the data don't show any substantial outflows so far.

Euro funds are down E3 billion YTD but were up E3B in 2017, while GBP funds are up L4B YTD after rising L29B in 2017. USD MMFs yield 1.60% (7-Day) on average (as of 4/12/18), up from 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.49 on average, up from -0.55% on 12/29/17 and -0.49% on 12/30/16, while GBP MMFs yield 0.35%, up from 0.24% at the end of 2017 and 0.19% at the end of 2016. We review our latest MFI International Portfolio Holdings statistics, and also review ICI's latest MMF Holdings report, below.

Crane's latest MFI International Money Fund Portfolio Holdings, with data (as of 3/31/18), shows that European-domiciled US Dollar MMFs, on average, consist of 22% in Treasury securities, 29% in Commercial Paper (CP), 20% in Certificates of Deposit (CDs), 11% in Other securities (primarily Time Deposits), 15% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 28.1% of their portfolios maturing Overnight, 14.3% maturing in 2-7 Days, 25.9% maturing in 8-30 Days, 8.2% maturing in 31-60 Days, 10.8% maturing in 61-90 Days, 10.5% maturing in 91-180 Days, and 2.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (31.8%), France (12.9%), Canada (10.4%), Japan (9.5%), United Kingdom (5.4%), The Netherlands (5.0%), Germany (4.9%), Australia (4.6%), Sweden (4.0%), Singapore (3.1%), China (2.3%) and Switzerland (1.8%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $95.7 billion (21.8% of total assets), BNP Paribas with $23.2B (5.3%), Wells Fargo with $11.4B (2.6%), Toronto-Dominion Bank with $11.1B (2.5%), Societe Generale with $10.5B (2.4%), Mitsubishi UFJ Financial Group Inc with $10.3B (2.4%), Bank of Nova Scotia with $9.9B (2.2%), Barclays PLC with $9.9B (2.2%), RBC with $8.5B (1.9%), Sumitomo Mitsui Banking Co with $8.0B (1.8%), and ING Bank with $7.7B (1.8%).

Euro MMFs tracked by Crane Data contain, on average 48% in CP, 27% in CDs, 17% in Other (primarily Time Deposits), 7% in Repo, 0% in Treasuries and 1% in Agency securities. EUR funds have on average 1.8% of their portfolios maturing Overnight, 27.8% maturing in 2-7 Days, 15.2% maturing in 8-30 Days, 14.2% maturing in 31-60 Days, 21.8% maturing in 61-90 Days, 14.8% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (25.8%), Japan (15.9%), The Netherlands (9.2%), US (9.0%), Belgium (6.9%), Sweden (6.7%), Germany (5.6%), Switzerland (5.2%), China (3.8%), and the United Kingdom (3.3%).

The 10 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.7B (5.2%), Rabobank with E3.5B (3.9%), ING Bank with E3.4B (3.8%), Credit Agricole with E3.4B (3.7%), Svenska Handelsbanken with E3.3B (3.6%), Mizuho Corporate Bank Ltd with E3.2B (3.6%), Credit Mutuel with E3.2B (3.5%), Mitsubishi UFJ Financial Group with E3.2B (3.5%), Sumitomo Mitsui Banking Co with E2.7B (3.0%), and Dexia Group with E2.7B (2.9%).

The GBP funds tracked by MFI International contain, on average (as of 3/31/18): 39% in CDs, 24% in Other (Time Deposits), 27% in CP, 7% in Repo, 2% in Treasury, and 1% in Agency. Sterling funds have on average 3.4% of their portfolios maturing Overnight, 26.1% maturing in 2-7 Days, 17.1% maturing in 8-30 Days, 27.0% maturing in 31-60 Days, 13.6% maturing in 61-90 Days, 9.5% maturing in 91-180 Days, and 3.3% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (20.0%), Japan (16.6%), United Kingdom (11.2%), The Netherlands (10.2%), Canada (7.5%), Germany (4.9%), the US (4.8%), Sweden (4.7%), Australia (3.9%), and Singapore (3.5%).

The 10 Largest Issuers to "offshore" GBP money funds include: Sumitomo Mitsui Trust Bank with L5.5B (4.5%), Mitsubishi UFJ Financial Group Inc. with L5.4B (4.4%), BPCE SA with L4.7B (3.8%), BNP Paribas with L4.4B (3.6%), Toronto-Dominion Bank with L4.4B (3.5%), Rabobank with L4.3B (3.5%), ING Bank with L3.8B (3.1%), UK Treasury with L3.7B (3.0%), Sumitomo Mitsui Banking Co. with L3.7B (3.0%), and Agence Central de Organismes de Securite Sociale with L3.6B (2.9%).

In other news, the Investment Company Institute released its latest monthly "Money Market Fund Holdings" summary (with data as of March 30, 2018) Friday. 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 April 11 News, "April Money Fund Portfolio Holdings: Treasury Now Biggest; Repo Down.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in March, prime money market funds held 27.1 percent of their portfolios in daily liquid assets and 43.1 percent in weekly liquid assets, while government money market funds held 61.9 percent of their portfolios in daily liquid assets and 77.2 percent in weekly liquid assets." Prime DLA increased from 23.4% last month and Prime WLA decreased from 44.7% last month. Govt MMFs' DLA decreased from 57.8% last month and Govt WLA increased from 76.6% last month.

ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 31 days and a weighted average life (WAL) of 68 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 34 days and a WAL of 92 days." Prime WAMs were up four days from last month, and WALs were up by two days. Govt WAMs were up three days from February and Govt WALs were up by one day 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 $184.80 billion in February to $194.68 billion in March. Government money market funds' holdings attributable to the Americas declined from $1,785.29 billion in February to $1,781.36 billion in March."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $194.7 billion, or 43.4%; Asia and Pacific at $87.9 billion, or 19.6%; Europe at $162.5 billion, or 36.2%; and, Other (including Supranational) at $3.9 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.781 trillion, or 80.9%; Asia and Pacific at $96.4 billion, or 4.4%; and Europe at $317.6 billion, or 14.4%.

The April issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Friday morning, features the lead story, "Worldwide Bond Fund Assets Break Over $10 Trillion," which reviews the latest statistics on bond funds outside the U.S., and the profile, "BFS Highlights: Schneider, Martucci on Big Shortening," which reviews the keynote and some other sessions from our recent Bond Fund Symposium conference. Also, we recap the latest Bond Fund News, including the continued move higher in yields and a host of filings for new fixed-income ETFs. BFI also includes our Crane BFI Indexes, which showed increases in March in most sectors except high-yield funds. We excerpt from the latest BFI below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS, and watch for our next Bond Fund Portfolio Holdings data set next Friday.

Our lead "Worldwide" BFI story says, "The Investment Company Institute released its "Worldwide Regulated Open-​End Fund Assets and Flows Fourth Quarter 2017" late last month, and the latest data collection on mutual funds in other countries (as well as the U.​S.) shows that global bond fund assets rose by $196.9 billion, or 1.9%, in Q4'17, led by jumps in bond funds domiciled in the U.S., Luxembourg and Ireland. Worldwide bond fund assets broke over the $10 trillion level for the first time ever to total $10.373 billion, and have increased by $1.163 trillion, or 12.6%, the past 12 months."

It continues, "The U.S., Luxembourg, Ireland, China Sweden and the U.K. showed the biggest asset increases in Q4'17. Over 12 months, the US, Luxembourg, Ireland, Brazil, Canada, China and France showed the largest increases. Brazil and the Netherlands posted the largest declines in the past quarter, while Japan, Australia and Korea were among the only losers the past year."

ICI's release says, "On a US dollar–denominated basis ... bond fund assets increased by 1.9 percent to $10.37 trillion in the fourth quarter. Balanced/mixed fund assets increased by 3.0 percent to $6.42 trillion in the fourth quarter, while money market fund assets increased by 3.1 percent globally to $5.90 trillion."

Our BFS Highlights piece says, "This month, BFI recaps and excerpts from our recent Bond Fund Symposium conference, which took place in Los Angeles March 22-23 and focused on the ultra-short bond fund market. We review our 'Keynote Discussion: Ultra-Shorts vs. SMAs,' which featured PIMCO's Jerome Schneider and J.P. Morgan Asset Management's Dave Martucci, as well as several other sessions. The keynote discussed a number of issues impacting ultra-short bond funds and separately managed accounts, and forecast that the next wave of growth for ultra-shorts is likely to be 'outside-in' (from longer-term bonds) instead of 'inside-out.'" (See too our April 3 News, "More Bond Fund Symposium Highlights: Schneider and Martucci Keynote.")

Schneider commented, "This is clearly a growing segment of the marketplace. [T]he purpose of these discussions for the past year or two has focus[ed] on offering products, offering solutions to clients that help fill various risk factors.... The evolution of Pete's franchise is simply an acknowledgement that investors are moving around in there thinking more about ... ways to manage capital."

He continued, "PIMCO's presence in the front-end market has been pervasive for almost 40 years. We launched our first ultrashort bond fund 30 years ago. The PIMCO Short Term fund is almost 31 years old now.... PIMCO is really focused on active management, that's no secret.... Our forte has really been managing risk attributes ... and balanc[ing] income with capital preservation. Our strategies include mutual funds and separate accounts. But ... over the past few years we've had an emerging ETF platform that's really been a focus of growth in terms of the $200 plus billion we manage on the front end."

A Bond Fund News brief entitled, "Yields Continue Higher in March," explains, "All bond fund categories showed increases in yields and most showed positive returns last month. Yields rose for all types of funds in March. The BFI Total Index averaged a 1-month return of 0.26% and the 12-month gain rose to 2.06%. The BFI 100 returned 0.29% in March and 1.95% over 1 year. The BFI Conservative Ultra-Short Index returned 0.08% over 1 month and 1.24% over 1-year; the BFI Ultra-Short Index averaged 0.11% in March and 1.10% over 12 mos. Our BFI Short-Term Index returned 0.14% and 0.92%, and our BFI Intm-Term Index returned 0.43% and 1.43% for the month and year. The BFI Long-Term Index returned 0.54% in March and 2.40% for 1 year; the BFI High Yield Index returned -0.37% in March and 3.43% for 1 year."

Another brief, entitled, "PGIM Launches Ultra-Short Bond ETF," mentions a press release entitled, "PGIM Investments enters the active ETF market with fixed income strategy." It says, "PGIM Investments has entered the exchange traded fund space with the launch of PGIM Ultra Short Bond ETF (PULS). The fund is a diversified, fixed income, actively managed ETF that aims to deliver current income and capital appreciation with a focus on managing risk."

Yet another brief comments on the Reuters article, "Fund industry defends bond ETFs to U.S. regulators." It tells us, "A fund industry trade group representative on Monday disputed the idea that bond exchange-traded funds (ETFs) might fail to hold up under stress, telling U.S. securities regulators he knows of no convincing evidence to suggest such funds' liquidity is a problem. The remarks by Investment Company Institute Chief Economist Sean Collins come as some top investors question the resiliency of debt funds, which are often cheap to trade but hold corporate bonds that are difficult to buy and sell, even in normal markets."

A sidebar entitled, "BIS on Risks of Passive," explains, "MarketWatch writes, "Are investors getting more risk with passive bond funds than they bargained for? BIS asks." They ask, "Are popular exchange-traded funds and other passive mutual funds designed to track benchmark bond indexes inadvertently putting investors at risk? The Bank for International Settlements makes the argument that so-called passively run bond funds, which track an index, may be exposing investors in those funds to more debt than they are aware of. The BIS says that the issue lies with indexes that these funds attempt to replicate."

They quote the BIS report, "As passive bond funds mechanically replicate the index weights in their portfolios, their growth will generate demand for the debt of the larger, and potentially more leveraged, issuers. From a financial stability perspective, there is a concern that this can act procyclically and encourage aggregate leverage."

S&P Global Ratings published a release entitled, "Comparing Trends In The U.S. ABCP And ABS Markets: Both Sectors Expected To Grow In 2018." They tell us, "As macroeconomic factors improve and regulatory uncertainty subsides, the U.S. asset-backed commercial paper (ABCP) and asset-backed securities (ABS) sectors should continue to pick up steam this year, according to a report published today by S&P Global Ratings, "Comparing Trends In The U.S. ABCP And ABS Markets: Both Poised For Growth In 2018."

The release explains, "S&P Global Ratings expects ABCP outstanding to grow moderately to between $240 billion-$250 billion in 2018, while the forecast for total ABS issuance is between $225 billion-$250 billion. These expectations follow a trend of steady growth in both sectors since 2015. In December 2017, total commitment and invested amounts for S&P Global Ratings-rated ABCP conduits rose 9% and 2.5%, to $283.7 billion and $207.4 billion, respectively, from $259.7 billion and $202.4 billion in December 2015. By comparison, U.S. ABS issuance rose 25% to $229 billion in December 2017 from $183 billion in December 2015."

S&P continues, "The report published today looks at key trends since 2015 for various asset types funded in the ABCP conduits, including auto loans and leases, credit card receivables, trade receivables, and student loans, among other commercial and consumer assets. According to the report, auto and trade receivables have continued to be the staple assets funded, as large auto issuers typically rely on ABCP conduits as an essential alternative or sole source of funding. Newer assets, including personal loans and mobile handsets, have also increased in recent years. However, student loans, credit cards, and mortgages have been negatively impacted by the macroeconomic factors specific to their industry, thus representing a smaller percentage of assets funded in the conduits in 2017 compared with two years before."

They write, "According to the report, higher consumer lending in recent years has benefited the consumer sector in general, and this momentum is expected to continue in 2018. The positive trends in the ABS sector are expected to benefit the ABCP sector as well. In addition, the Federal Reserve's interest rate hikes accompanied by a normal (or steeper upward-sloping) yield curve will likely make short-term borrowing more attractive compared to costlier long-term loans, which should benefit the short-term ABCP sector. A higher interest-rate environment generally incentivizes issuers to fund assets through the lower-cost funding that ABCP offers."

Finally, S&P adds, "Unlike ABS, ABCP is unique because it offers investors the flexibility of "atypical paper" by offering different maturities, floating-rate notes, and other options via redeemable features, which can create efficiencies for banks to address their liquidity coverage ratio. As current pricing levels for ABCP have reached pre-crisis levels, this sector continues to offer a unique product to investors, as well as an alternative capital market-based funding source for banks. Thus, as the overall securitization market has evolved since the financial crisis, the ABCP sector will remain a viable funding source to fuel economic growth."

In other news, yesterday's Bond Buyer featured the article, "Banks, broker-dealers accused of widespread fraud and collusion over VRDO rate resets." It says, "Eight Wall Street and regional banks and broker-dealers have been accused in a whistleblower suit of 'widespread fraud and collusion' in connection with remarketing the variable rate demand obligations of state and local issuers in Illinois. The suit was filed by `Edelweiss Fund LLC on behalf of Illinois under the Illinois False Claims Act in the Circuit Court of Cook County Ill., against JPMorgan Chase & Co, Citigroup, Inc., Bank of America Corp., Barclays PLC, Morgan Stanley, William Blair & Co., BMO Financial Group, and Fifth Third Bancorp. It claims the firms used a 'Robo Resetting' device to fraudulently impose 'artificially high interest rates' on the VRDOs so they would not have to be remarketed."

The article tells us, "As a result, these firms collected tens of millions of dollars of remarketing fees each year from issuers in Illinois, without really providing remarketing services, the suit claims. The banks also collected fees from issuers for serving as liquidity providers for the VRDOs, when such services were rarely, if ever, needed, the suit claims. The high rates the firms allegedly set ensured the VRDOs would remain as holdings of tax-exempt money market funds, some of which were owned or managed by these firms, according to the suit."

It states, "Several municipal market participants, asked generally about the potential for abuse in setting VRDO rates before the suit was made public, said they would be surprised to see wrongdoing. VRDO rates must be reset at a level necessary to market them at par. Also VRDO rates are transparent. Remarketing agents report rate resets to the Municipal Securities Rulemaking Board's Short-Term Obligation Rate Transparency (SHORT) System and MSRB makes them available on its EMMA website."

The Bond Buyer comments, "In addition, five of the firms charged in this whistleblower suit were among the top 10 nationally ranked remarketing agents in each year during the four-and-a-half-year period that the forensic analysis was conducted, according to Thomson Reuters' data. These firms included JP Morgan, Citi, Bank of America Merrill Lynch, Morgan Stanley, and Barclays. The other top rated RMA was Wells Fargo.... The Securities and Exchange Commission would not comment on whether they are investigating these firms or VRDO remarketing practices."

They explain, "VRDOs are tax-exempt, variable rate bonds that are nominally long-term with 20- or 30-year maturities, but are considered short-term because their interest rates are reset periodically, typically weekly. They contain a 'put' feature that allows investors to tender them back to tender agents or remarketing agents. The RMAs will then market the VRDOs at a par rate that is 100% of the face value of the security as well as accrued interest. According to the MSRB, the interest rates can be determined at reset dates in one of three ways: by the remarketing agent, according to a formula, or at the highest allowable interest rate as specified in the VRDO documents. However, rate reset data published by the MSRB show the vast majority of rates are reset by remarketing agents."

The piece adds, "VRDOs are treated as short-term low risk, high liquidity, tax-free investments and are typically held by tax-exempt money market funds. They meet the Securities and Exchange Commission’s strict regulatory requirements for the types of securities that MMFs can hold. VRDOs are usually secured by letters of credit or standby purchase agreements from highly-rated commercial banks that require the banks to purchase the VRDOs if holders exercise their put rights and the VRDOs cannot be remarketed. The issuers pay fees for the LOCs, which provide credit enhancement and liquidity, and for standby purchase agreements, which just provide liquidity."

Note: Crane Data's latest Money Fund Portfolio Holdings show a total of $76.7 billion in VRDNs (Variable Rate Demand Notes) held by money market funds, or 2.5% of the total $3.059 trillion in assets. (This is from the "Form N-MFP" version of our 3/31/18 holdings data.)

Crane Data released its April Money Fund Portfolio Holdings Tuesday, and our most recent collection of taxable money market securities, with data as of March 31, 2018, shows another jump in Treasuries and another big drop in Repo and Agencies. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) decreased by $105.0 billion to $2.862 trillion last month, after increasing $70.6 billion in February, $3.2 billion in January, and $37.2 billion in December. Treasuries became the largest portfolio segment, surpassing Repo for the first time ever. Repo, which dropped for the third month straight, fell to No. 2, followed by Agencies. CP remained a distant 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 Money Fund Portfolio Holdings reports.)

Among all taxable money funds, Treasury securities jumped $95.3 billion (11.3%) to $938.5 billion, or 32.8% of holdings, after jumping $104.6 billion in Feb., falling $1.5 billion in Jan., and rising $3.8 billion in December. Repurchase Agreements (repo) dropped $89.6 billion (-9.9%) to $817.2 billion, or 28.6% of holdings, after dropping $21.9 billion in February and $80.9 billion in January. But Repo jumped $70.5 billion in December. Government Agency Debt declined $58.1 billion (-8.2%) to $654.5 billion, or 22.9% of all holdings, after falling $9.4 billion in February, rising $25.3 billion in January and $21.5 billion in December. Repo, Treasuries and Agencies total $2.410 trillion, representing a massive 84.2% of all taxable holdings.

CP, CDs and Other (mainly Time Deposits) securities all declined in the third month of the year. Commercial Paper (CP) was down $16.2 billion (-7.4%) to $202.0 billion, or 7.1% of holdings (after rising $6.5 billion in February and $23.1 billion in January, but decreasing $8.1 billion in December). Certificates of Deposits (CDs) fell by $6.7 billion (-3.9%) to $167.3 billion, or 5.8% of taxable assets (after falling $9.5 billion in Feb., increasing $13.3 billion in January, and decreasing $23.4 billion in December). Other holdings, primarily Time Deposits, dropped by $30.0 billion (-29.1%) to $73.2 billion, or 2.6% of holdings. VRDNs held by taxable funds increased by $0.3 billion (3.6%) to $8.7 billion (0.3% of assets).

Prime money fund assets tracked by Crane Data fell to $636 billion (down from $649 billion last month), or 22.2% (up from 21.9%) of taxable money fund holdings' total of $2.861 trillion. Among Prime money funds, CDs represent under a third of holdings at 26.3% (down from 26.8% a month ago), followed by Commercial Paper at 31.8% (down from 33.6%). The CP totals are comprised of: Financial Company CP, which makes up 20.1% of total holdings, Asset-Backed CP, which accounts for 6.3%, and Non-Financial Company CP, which makes up 8.3%. Prime funds also hold 3.6% in US Govt Agency Debt, 11.6% in US Treasury Debt, 4.2% in US Treasury Repo, 1.7% in Other Instruments, 8.3% in Non-Negotiable Time Deposits, 5.5% in Other Repo, 4.6% in US Government Agency Repo, and 1.1% in VRDNs.

Government money fund portfolios totaled $1.546 trillion (54.0% of all MMF assets), down from $1.601 trillion in February, while Treasury money fund assets totaled another $679 billion (23.7%), down from $717 billion the prior month. Government money fund portfolios were made up of 40.8% US Govt Agency Debt, 16.4% US Government Agency Repo, 23.2% US Treasury debt, and 19.4% in US Treasury Repo. Treasury money funds were comprised of 74.5% US Treasury debt, 25.4% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.225 trillion, or 77.8% of all taxable money fund assets, down from 78.2% last month.

European-affiliated holdings fell $106.3 billion in March to $550.6 billion among all taxable funds (and including repos); their share of holdings fell to 19.2% from 22.1% the previous month. Eurozone-affiliated holdings fell $77.3 billion to $341.0 billion in March; they account for 11.9% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $18.7 billion to $216.6 billion (7.6% of the total). Americas related holdings rose $20.4 billion to $2.093 trillion and now represent 73.2% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $35.9 billion, or -6.7%, to $498.7 billion, or 17.4% of assets; US Government Agency Repurchase Agreements (down $55.5 billion to $283.2 billion, or 9.9% of total holdings), and Other Repurchase Agreements ($35.4 billion, or 1.2% of holdings, up $1.7 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $11.4 billion to $127.7 billion, or 4.5% of assets), Asset Backed Commercial Paper (up $0.3 billion to $39.9 billion, or 1.4%), and Non-Financial Company Commercial Paper (down $5.1 billion to $34.4 billion, or 1.2%).

The 20 largest Issuers to taxable money market funds as of March 31, 2018, include: the US Treasury ($938.5 billion, or 32.8%), Federal Home Loan Bank ($520.5B, 18.2%), BNP Paribas ($132.3B, 4.6%), RBC ($86.8B, 3.0%), Federal Farm Credit Bank ($77.9B, 2.7%), Wells Fargo ($58.4B, 2.0%), HSBC ($57.3B, 2.0%), Barclays PLC ($51.5B, 1.8%), Sumitomo Mitsui Banking Co ($38.5B, 1.3%), Mitsubishi UFJ Financial Group Inc ($37.0B, 1.3%), Societe Generale ($36.3B, 1.3%), Bank of America ($35.7B, 1.2%), JP Morgan ($35.7B, 1.2%), Nomura ($35.0B, 1.2%), Bank of Nova Scotia ($34.9B, 1.2%), Federal Home Loan Mortgage Co ($34.0B, 1.2%), Bank of Montreal ($31.6B, 1.1%), Natixis ($31.2B, 1.1%), Citi ( $31.2B, 1.1%) and ING Bank ($30.5B, 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 ($121.3B, 14.8%), RBC ($67.8B, 8.3%), HSBC ($50.1B, 6.1%), Wells Fargo ($44.0B, 5.4%), Barclays PLC ($40.4B, 4.9%), Nomura ($35.0B, 4.3%), Bank of America ($31.5B, 3.8%), Societe Generale ($30.3B, 3.7%), JP Morgan ($28.0B, 3.4%) and Sumitomo Mitsui Banking Co ($27.4B, 3.4%).

The 10 largest Fed Repo positions among MMFs on 3/31/18 include: Fidelity Cash Central Fund ($5.5B in Fed Repo), Franklin IFT US Govt MM ($3.1B), Schwab Govt MMkt ($2.3B), Morgan Stanley Inst Liq Govt Sec ($1.8B), Northern Inst Govt Select ($1.8B), Fidelity Sec Lending Cash Central ($1.7B), Northern Trust Trs MMkt ($1.3B), First American Govt Oblg ($1.0B), Dreyfus Inst Pref Govt ($0.9B), and Dreyfus Govt Cash Mmgt ($0.7B). Fed repo dropped to its lowest level since April 2016 and its fifth lowest level on record ($55.0B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($19.1B, 5.1%), Toronto-Dominion Bank ($15.3B, 4.1%), Wells Fargo ($14.4B, 3.8%), Bank of Nova Scotia ($14.3B, 3.8%), Mitsubishi UFJ Financial Group Inc. ($12.8B, 3.4%), Canadian Imperial Bank of Commerce ($12.5B, 3.3%), Australia & New Zealand Banking Group Ltd ($12.4, 3.3%), Bank of Montreal ($12.1, 3.2%), Credit Suisse ($11.8B, 3.2%) and Svenska Handelsbanken ($11.4B, 3.0%).

The 10 largest CD issuers include: Wells Fargo ($14.3B, 8.6%), Bank of Montreal ($11.5B, 6.9%), RBC ($11.4, 6.8%), Svenska Handelsbanken ($9.8B, 5.9%), Sumitomo Mitsui Banking Co ($8.3B, 5.0%), Mitsubishi UFJ Financial Group Inc ($7.6B, 4.6%), Sumitomo Mitsui Trust Bank ($7.3B, 4.4%), Canadian Imperial Bank of Commerce ($7.0B, 4.2%), Mizuho Corporate Bank Ltd ($6.6B, 4.0%) and Citi ($6.1B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Credit Suisse ($8.7B, 5.1%), Toronto-Dominion Bank ($8.6B, 5.0%), Commonwealth Bank of Australia ($8.5B, 5.0%), Bank of Nova Scotia ($7.9B, 4.6%), JPMorgan ($7.7B, 4.5%), RBC ($6.7B, 3.9%), Australia & New Zealand Banking Group Ltd ($6.3B, 3.7%), National Australia Bank Ltd ($6.3B, 3.7%), Westpac Banking Co ($5.5B, 3.2%), and Societe Generale ($5.4B, 3.1%).

The largest increases among Issuers include: US Treasury (up $95.3B to $938.5B), BNP Paribas (up $8.9B to $132.3B), HSBC (up $6.9B to $57.3B), RBC (up $5.7B to $86.8B), Bank of Montreal (up $4.9B to $31.6B), Bank of America (up $2.4B to $35.7B), Fixed Income Clearing Co (up $2.4B to $23.7B), Federal Farm Credit Bank (up $2.2B to $77.9B), National Australia Bank Ltd (up $1.1B to $11.0B), and RBS (up $0.9B to $10.8B).

The largest decreases among Issuers of money market securities (including Repo) in March were shown by: Federal Home Loan Bank (down $52.1B to $520.5), Credit Agricole (down $43.3B to $25.2B), Credit Suisse (down $18.7B to $14.9B), Societe Generale (down $13.1B to $36.3B), Goldman Sachs (down $9.1B to $14.7B), Federal Reserve Bank of New York (down $8.4B to $22.6B), Natixis (down $7.6B to $31.2B), Deutsche Bank AG (down $7.5B to $13.3B), Nomura (down $6.8B to $35.0B), and Mizuho Corporate Bank Ltd (down $6.6B to $14.7B).

The United States remained the largest segment of country-affiliations; it represents 65.5% of holdings, or $1.873 trillion. France (8.2%, $234.6B) remained in the No. 2 spot and Canada (7.7%, $220.0B) remained No. 3. Japan (5.6%, $160.9B) stayed in fourth place, while the United Kingdom (4.8%, $138.4B) remained in fifth place. The Netherlands (1.9%, $55.1B) remained ahead of Germany (1.6%, $45.7B) in sixth and seventh place, respectively. Australia (1.5%, $41.8B) and Sweden (1.1%, $32.7B) moved ahead of Switzerland (0.9%, $25.0B) to rank 8th, 9th and 10th place. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of March 31, 2018, Taxable money funds held 28.6% (down from 31.2%) of their assets in securities maturing Overnight, and another 15.0% maturing in 2-7 days (up from 14.6%). Thus, 43.6% in total matures in 1-7 days. Another 27.3% matures in 8-30 days, while 8.6% matures in 31-60 days. Note that over three-quarters, or 79.5% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 11.1% of taxable securities, while 8.2% matures in 91-180 days, and just 1.2% matures beyond 181 days.

Wells Fargo Asset Management posted a "Product Alert" with the title, "NAIC policy change affects Wells Fargo Government Money Market Fund." It says, "Effective July 1, 2018, the National Association of Insurance Commissioners (NAIC) will no longer allow money market funds that invest in securities issued by certain U.S. government agencies to be eligible for listing on the NAIC U.S. Direct Obligations/Full Faith and Credit Exempt List for mutual funds. This change in policy affects the Wells Fargo Government Money Market Fund, which will no longer be eligible for inclusion on this list."

Wells' update tells us, "The following Wells Fargo Money Market Funds will continue to maintain their NAIC U.S. Direct Obligations/Full Faith and Credit Exempt designation: Wells Fargo 100% Treasury Money Market Fund, and Wells Fargo Treasury Plus Money Market Fund. Please note there are no restrictions on the types of money market funds that insurance companies can purchase. The NAIC mutual fund list identifies the funds that are exempt from a risk-based capital charge. Thus, money market funds that do not appear on the list can still be held by insurance companies, but will be assessed the following risk-based capital charge: Life companies: 0.40%, and Property & Casualty companies: 0.30%."

The NAIC's latest "Money Market Mutual Fund List," which is as of April 2018, includes 286 money market funds from 26 managers, including Government and Treasury fund offerings from AB, BlackRock, BMO, Cavanal Hill, Deutsche, Dreyfus, Federated, Fidelity, First American, Goldman, HSBC, Invesco, JPMorgan, Morgan Stanley, Northern, PFM, PIF, PNC, RBC, SEI, SSGA, TD, UBS, Wells Fargo, Western and Wilmington. (Note: The list still includes Government funds that invest in government agencies.)

A note on the list explains, "Please refer to Part Six, Section 2 (b) (i) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office for requirements relating to the U.S. Direct Obligations/Full Faith and Credit Exempt List. Please refer to Part Two, Section 4 (c) (i - ii) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office for more information on what the NAIC deems to be U.S. Government Obligations."

A Memorandum from the NAIC, the National Association of Insurance Commissioners, entitled, "Re: Staff Report on Errors Made in Placing Mutual Funds on the U.S. Direct Obligations/Full Faith and Credit Exempt List and Proposals to Address the Errors." It describes the issue, saying, "The Securities Valuation Office (SVO) added approximately 40 funds to the List that do not qualify to be on it. The added funds invest in obligation of government sponsored enterprises (GSOs) as defined in Part Two, Section 4(c)(ii) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual). The list is limited to funds that invest 100% of total assets in direct and full faith and credit obligations of the U.S. government or collateralized repurchase agreements comprised of such obligations at all times."

It continues, "The SVO has established that insurer investment in the added funds is approximately $6 billion.... Although the SVO can reverse the errors by not renewing the non-compliant funds, the SVO recommends that the Task Force consider expanding the list to include the issuers/securities identified in Part Two, Section 4(c)(ii) of the P&P Manual, Attachment One reproduces the sections of the P&P Manual discussed in this memorandum."

As we understand the issue, the NAIC held a meeting on Feb. 8, 2018, and a task force decided to remove any funds holdings Government agency securities from its list. The policy on the "U.S. Direct Obligations/Full Faith and Credit Exempt List" has not changed, but the policy has previously been erroneously "misinterpreted".

The move appears to include all of the major Government agency issuers. The largest issuers among Govt MMFs tracked by Crane Data include: Federal Home Loan Bank ($542.8 billion), US Treasury ($297.1B), Federal Farm Credit Bank $75.6B), Federal Home Loan Mortgage Co $40.4B), Federal Reserve Bank of New York ($20.9B) and Federal National Mortgage Association ($18.9B).

For more on the NAIC and money market funds, see our June 15, 2016 News, "NAIC Reconsidering Changes to Prime MMFs Says JPM; BlackRock Letter," and our April 18, 2016 News, "NAIC Eliminates Class 1 Status for Prime Money Funds; American Update."

Finally, note that in our March 19 News, "MMF Assets Break 2.85 Tril; Fed Z.1: Sec Lending, Businesses Increase," we wrote, "Life Insurance Companies held $42 billion (1.5%) [in money market funds], and Property-Casualty Insurance held $19 billion (0.7%), according to the Fed's Z.1 breakout."

Crane Data's latest Money Fund Market Share rankings show assets fell for most U.S. money fund complexes in March. Money fund assets overall fell by $52.4 billion, or -1.8% last month, and assets have also decreased by $52.4 billion, or -1.7%, over the past 3 months. They've increased by $219.2 billion, or 8.0%, over the past 12 months through March 31, 2018, but note that our asset totals have been inflated slightly by the addition of a number of funds (mainly in April 2017). The biggest losers in March were J.P. Morgan, whose MMFs fell by $24.5 billion, or -9.0%, BlackRock, whose MMFs fell by $20.0 billion, or -6.7%, and Schwab, whose MMFs fell by $9.2 billion, or -6.1%.

Wells Fargo, Dreyfus, Western, Northern and Deutsche also saw assets decrease in March, falling by $6.4B, $4.1B, $2.6B, $2.2B, and $2.2B, respectively. Increases among the 25 largest managers were seen by Goldman Sachs, Vanguard, Morgan Stanley, UBS and Federated. (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.) We review these market share totals below, and we also look at money fund yields the past month, which continued higher in March.

Over the past year through March 31, 2018, Fidelity (up $63.4B, or 12.4%), BlackRock (up $41.1B, or 17.2%), Vanguard (up $26.7B, or 9.9%), T. Rowe Price (up $16.0B, or 98.7%), Federated (up $14.1B, or 7.6%), Columbia (up $13.7B, or 1356%) and Prudential (up $13.6B, or 2371%) were the largest gainers. These 1-year gainers were followed by Dreyfus (up $12.2B, or 7.7%), SSGA (up $12.0B, or 15.3%), Northern (up $11.2B, or 11.8%), Invesco (up $9.2B, or 17.0%) and Wells Fargo (up $8.8B, or 9.2%).

Vanguard, SSGA, Goldman, Franklin, UBS and Invesco had the largest money fund asset increases over the past 3 months, rising by $13.8B, $8.8B, $4.8B, $2.9B, $2.4B, and $1.9 respectively. The biggest decliners over 12 months include: Schwab (down $18.3B, or -11.3%), Western (down $8.6B, or -26.2%), J.P. Morgan (down $5.4B, or -2.1%), Morgan Stanley (down $2.6B, or -2.2%), and Franklin (down $1.9B, or -8.0%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $574.3 billion, or 19.3% of all assets. It was up $495 million in March, down $1.5 billion over 3 mos., and up $63.4B over 12 months. Vanguard moved into second with $296.4 billion, or 10.0% market share (up $3.2B, up $13.8B, and up $26.7B for the past 1-month, 3-mos. and 12-mos., respectively), while BlackRock fell to third with $279.3 billion, or 9.4% market share (down $20.0B, down $17.6B, and up $41.1B). JP Morgan ranked fourth with $248.9 billion, or 8.4% of assets (down $24.5B, down $4.5B, and down $5.4B for the past 1-month, 3-mos. and 12-mos., respectively), while Federated was ranked fifth with $200.4 billion, or 6.7% of assets (up $1.7B, down $726M, and up $14.1B).

Goldman Sachs moved up to sixth place with $184.4 billion, or 6.2% of assets (up $12.7B, up $4.8B, and up $7.7B), while Dreyfus fell to seventh place with $169.9 billion, or 5.7% (down $4.1B, down $12.6B, and up $12.2B). Schwab ($142.6B, or 4.8%) was in eighth place, followed by Morgan Stanley in ninth place ($114.9B, or 3.9%) and Northern in tenth place ($106.0B, or 3.6%).

The eleventh through twentieth largest U.S. money fund managers (in order) include: Wells Fargo ($104.3B, or 3.5%), SSgA ($90.3B, or 3.0%), Invesco ($63.6B, or 2.1%), First American ($50.0B, or 1.7%), UBS ($45.4B, or 1.5%), T Rowe Price ($32.3B, or 1.1%), DFA ($27.9B, or 0.9%), Deutsche ($24.5B, or 0.8%), Western ($24.1B, or 0.8%), and Franklin ($22.1B, or 0.7%). The 11th through 20th ranked managers are the same as last month, except Northern moved back ahead of Wells. Crane Data currently tracks 66 U.S. MMF managers, the same number as last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except BlackRock and JPMorgan moved ahead of Vanguard, and Goldman Sachs moves ahead of Federated. 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 ($583.3 billion), BlackRock ($416.5B), J.P. Morgan ($405.7B), Vanguard ($296.4B), and Goldman Sachs ($281.6B). Federated ($208.4B) was sixth and Dreyfus/BNY Mellon ($191.2B) was in seventh, followed by Morgan Stanley ($150.4B), Schwab ($142.6B), and Northern ($134.3B), which round out the top 10. These totals include "offshore" US Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into US dollar totals.

The April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/31/18, shows that yields were up again in March across all of our Crane Money Fund Indexes (except Tax Exempt). The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 764), was up 21 bps to 1.27% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 13 bps to 1.16%. The MFA's Gross 7-Day Yield increased 21 bps to 1.71%, while the Gross 30-Day Yield was up 12 bps to 1.58%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.47% (up 23 bps) and an average 30-Day Yield of 1.36% (up 15 bps). The Crane 100 shows a Gross 7-Day Yield of 1.75% (up 23 bps), and a Gross 30-Day Yield of 1.61% (up 14 bps). For the 12 month return through 3/31/18, our Crane MF Average returned 0.73% and our Crane 100 returned 0.92%. The total number of funds, including taxable and tax-exempt, was up 6 funds to 963. There are currently 764 taxable and 199 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 1.52% (up 21 bps) as of March 31, while the Crane Govt Inst Index was 1.35% (up 23 bps) and the Treasury Inst Index was 1.36% (up 19 bps). Thus, the spread between Prime funds and Treasury funds is 16 basis points, up 2 bps from last month, while the spread between Prime funds and Govt funds is 17 basis points, down 3 bps from last month. The Crane Prime Retail Index yielded 1.33% (up 22 bps), while the Govt Retail Index yielded 0.97% (up 18 bps) and the Treasury Retail Index was 1.07% (up 20 bps). The Crane Tax Exempt MF Index yield rose in March to 0.95% (up 32 bps).

Gross 7-Day Yields for these indexes in March were: Prime Inst 1.89% (up 21 bps), Govt Inst 1.66% (up 23 bps), Treasury Inst 1.67% (up 20 bps), Prime Retail 1.87% (up 22 bps), Govt Retail 1.60% (up 18 bps), and Treasury Retail 1.65% (up 20 bps). The Crane Tax Exempt Index increased 32 basis points to 1.47%. The Crane 100 MF Index returned on average 0.11% for 1-month, 0.30% for 3-month, 0.30% for YTD, 0.92% for 1-year, 0.44% for 3-years (annualized), 0.27% for 5-years, and 0.32% for 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The April issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Fed Hikes Again; MMF Yields Climb to 1.5%, Top MFs Hit 2%," which discusses the steady climb in MMF yields; "A Look at the New J.P. Morgan Inst Tax-Free MMF," which interviews JPMAM's Nick Rabiecki, Greg Dabrowski, and Paul Przybylski; and, "Bond Fund Symposium in LA: Ultra-Short Gets Even Hotter," which reviews highlights from our recent bond fund conference. We've also updated our Money Fund Wisdom database with March 31, 2018, statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to ship on Tuesday, April 10, and our April Bond Fund Intelligence is scheduled to go out Friday, April 13.

MFI's "Fed Hikes" article says, "Money fund yields jumped over the past month rising by 23 bps to 1.47% on average (as measured by our Crane 100). Our broader Crane MF Average rose 21 bps to 1.27%. The top-yielding MMFs are poised to break the 2% level over the next couple of days, the first time a money fund has yielded 2.0% since October 2008. While repatriation, Libor, and a number of other topics have been on money fund professionals’ mind of late, we think higher yields will soon become the story of 2018."

Our lead piece continues, "As expected, on March 14 the Federal Reserve raised short-term interest rates 1/4-point to the range of 1.5% to 1.75%, their sixth increase since December 2015 and first of 2018. The hike, along with higher T-bill and Libor-linked rates, is pushing money market fund rates higher."

MFI's latest Profile reads, "This month, MFI interviews several members of J.P. Morgan Asset Management's Tax Exempt Money Market Fund team. We speak with Portfolio Managers Nick Rabiecki and Greg Dabrowski, as well as Global Head of Product Strategy and Development Paul Przybylski, and discuss the tax-exempt MMF segment and the recent launch of J.P. Morgan Inst Tax-Free Money Market Fund."

MFI asks, "How long has JPMorgan been running cash? Tell us about your history. Rabiecki responds, "J.P. Morgan launched their first money market fund in 1987. Currently, J.P. Morgan Asset Management has approximately $1.7 trillion in AUM, around 30% of which is in our Global Liquidity strategy. I'm the head of the Municipal Liquidity trading desk within Global Liquidity, which currently has approximately $20 billion in AUM. I have more than 30 years of experience in the industry and have been at JPMAM for almost 25 years."

Dabrowski says, "I am a portfolio manager and trader on the Municipal Liquidity trading desk. I've been at JPMAM for 8 years and have been in the Global Liquidity business for more than 5 years. Together, Nick and I have over 30 years of combined experience managing municipal money market funds at JPMAM. Some of the funds in our municipal fund lineup even predate our employment."

MFI asks, "What's the biggest challenge in the municipal market today?" Rabiecki answers, "The biggest challenge we see is that supply has been limited by the historically low interest rates of the last decade. This low rate environment has encouraged municipal issuers to utilize the bond market for much of their issuance as opposed to issuing short-dated or variable rate debt. This, coupled with some regulatory restrictions with regards to tax-exempt issuance, have combined to reduce the supply available for purchase."

Our "BFS Recap" article says, "Our 2nd annual Bond Fund Symposium, which was held in Los Angeles recently, brought together fund professionals focused on the red-hot conservative ultra-short bond space. (Just don't call it, 'enhanced cash.') We review some of the highlights below. (Watch for more coverage in our April Bond Fund Intelligence too.)"

It continues, "The opening 'State of the Bond Fund Marketplace' session, featuring Crane Data's Peter Crane and the Investment Company Institute's Sean Collins, set the stage for the day and a half event. Crane commented, "We're going to talk primarily about ultra short issues, but we're going to discuss bond fund issues in general and try to address a number of hot topics in the overall market."

He adds, "Bond funds in general seem like a tale of two industries ... the best of times, the worst of times. We're going to talk about flows, which have been absolutely gigantic and magnificent. But at the same time, we're going to talk about trends of passive versus active and expense ratios and fees being crushed and compressed. And, of course, looming higher rates pose a threat to all of that."

Our April MFI XLS, with March 31, 2018, data, shows total assets decreased $52.6 billion in March to $2.975 trillion, after increasing $37.2 billion in February, decreasing $54.3 billion in January, and increasing $57.9 billion in December. Our broad Crane Money Fund Average 7-Day Yield was up 21 basis points to 1.27% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 23 bps to 1.47%.

On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 21 bps to 1.71% and the Crane 100 rose 23 bps to 1.75%. Charged Expenses averaged 0.45% and 0.28% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 were both 31 days (up 2 days from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

While technically a true "money market" ETF doesn't exist yet, there continues to be activity and interest in the shortest and safest segment of the fixed-income ETF market, particularly in the "collateral" segment. We learned at our Bond Fund Symposium last month that Invesco recently received an SEC "no-action" letter which allows its Powershares Treasury Collateral Portfolio (CLTL) to receive favorable "haircut" treatment as collateral for exchanges. The SEC's letter, entitled, "Re: Invesco PowerShares Capital Management LLC - Net Capital Treatment of PowerShares Treasury Collateral Portfolio," explains, "In your March 1, 2018 letter on behalf of Invesco PowerShares Capital Management LLC, you request written assurance that the staff of the Division of Trading and Markets of the U.S. Securities and Exchange Commission will not recommend enforcement action to the Commission under section 15(c) of the Securities Exchange Act of 1934 and Rule l5c3-1 thereunder. In particular, you request that the Division not recommend enforcement action if broker-dealers with positions in the PowerShares Treasury Collateral Portfolio ('CLTL') apply the haircut deduction in paragraph (c)(2)(vi)(D)(l) of Rule l5c3-1 (currently 2%) for the portion of the position eligible for redemption and the highest haircut deduction in paragraph (c)(2)(vi)(A) of Rule 15c3-l (currently 6%) for the portion of the position not eligible for redemption." (See our Feb. 6, 2017 News, "New Invesco Treasury Collateral ETF.")

Justo Gonzalez, Invesco's Head of Liquidity Credit Research, tells us, "This is groundbreaking in the collateral pledge area." ETFs previously had been lumped together with a 15% haircut, but the request asked the SEC to "look through" to the underlying investments. He adds, "A custody bank was asking for [the product].... We're targeting uncleared -- like FCMs (futures commission merchants) -- and cleared -- like CME and central counterparties -- channels." He emphasizes that it's not a money fund and not a cash equivalent but it should hold interest beyond the collateral demand. The ETF has an expense ratio of 8 bps and a current yield to maturity of 1.84%. (See Invesco's fund info here and see its ETF.com Award for "Best New U.S. Fixed-Income ETF" here.)

The original request, written by Morgan, Lewis & Bockius LLP's Mark Fitterman, explains, "On behalf of our client Invesco PowerShares Capital Management LLC, we are writing to request assurance that the staff of the Division of Trading and Markets of the Securities and Exchange Commission will not recommend enforcement action to the Commission under Section 15(c) of the Securities Exchange Act of 1934, and Rule 15c3-1 thereunder ('Net Capital Rule'), if broker-dealers with long and short positions in the PowerShares Treasury Collateral Portfolio ('CLTL'), an exchange traded fund ('ETF') whose portfolio consists solely of cash and/or U.S. Treasury fixed rate bills, notes and bonds with a remaining term to final maturity of 12 months or less, take a haircut deduction under paragraph (c)(2)(vi)(D)(1) of Rule 15c3-1 (currently 2%) of the greater of the market value of the broker-dealer's long or short position, for the portion of the position eligible for redemption {currently in increments of 10,000 shares, such as 10,000 shares, 20,000 shares, etc.), and the highest haircut deduction in paragraph (c)(2}(vi)(A) of Rule 15c3-1 (currently 6%) of the greater of the market value of the broker-dealer's long or short position, for the portion of the position not eligible for redemption (currently less than 10,000 shares)."

He explains, "CLTL is an ETF developed to serve as an efficient collateral pledge to cover margin requirements or non-margin collateral. It seeks investment results that generally correspond (before fees and expenses) to the price and yield of the ICE U.S. Treasury Short Term Bond Index. It generally invests at least 80% of its total assets in the components of the Underlying Index, which is designed to measure the performance of U.S. Treasury Obligations with a maximum remaining term to maturity of 12 months. It invests only in cash and/or U.S. Treasury fixed rate bills, notes and bonds with a remaining term to final maturity of 12 months or less."

The request continues, "CLTL is an open-end management investment company registered under the Investment Company Act of 1940. CLTL offers and redeems shares only with Authorized Participants and only in creation unit size (in increments of 10,000 shares). CLTL offers and redeems shares on the same day (if creation or redemption orders are received before 12:00 p.m. Eastern time) or the next business day (if creation or redemption orders are received on or after 12:00 p.m. Eastern time) at the net asset value ('NAV') next calculated in creation units of 10,000 shares in exchange for the deposit or delivery of a basket of securities and/or cash. The Bank of New York Mellon, the fund's custodian, calculates CLTL's NAV twice per business day."

It adds, "Because CLTL was created, among other things, to offer an efficient collateral pledge to cover margin requirements or non-margin collateral, applying a normal ETF net capital haircut of 10-15% would make CLTL uncompetitive for this purpose compared to other possible pledge vehicles, such as Treasury securities with a maturity of less than 12 months (which currently carry a maximum haircut of 1.0%) or money market funds (which, as noted above, currently carry a haircut of 2%). However, since CLTL tracks the ICE U.S. Treasury Short Term Bond Index, and the underlying index consists of cash and/or U.S. Treasury fixed rate bills, notes and bonds with a remaining term to final maturity of 12 months or less, CLTL is expected to deliver similar market and risk attributes as direct investments in Treasury securities that comprise the underlying index. As a result, we believe that a haircut closer to the haircut currently applicable to short-term Treasury securities would better reflect the market risk and liquidity associated with CLTL."

The SEC's response, written by Michael Macchiaroli of the Division of Trading and Markets, tells us, "Pursuant to Rule l5c3-l, a broker-dealer computing its net capital is required to deduct the percentages specified in paragraphs (c)(2)(vi) and (vii) of the rule (or the deductions set forth in Appendix A to Rule l5c3-l) from the market value of all securities, money market instruments, or options in the proprietary or other accounts of the broker-dealer."

It explains, "Although CLTL is not a money market fund (which has a haircut of 2%), you represent that this ETF shares certain characteristics of a money market fund, because it meets certain of Rule 2a-7's conditions applicable to money market funds. In particular, you represent that: (1) CLTL is an open-end management investment company registered under the 1940 Act that issues redeemable securities at net asset value; (2) that the CLTL portfolio consists solely of cash and/or U.S. Treasury fixed rate bills, notes and bonds with a remaining term to final maturity of 12 months or less; and (3) that the U.S. government securities comprising the portfolio are all eligible securities under paragraph (a)(11) of Rule 2a-7."

The SEC writes, "CLTL's share price on the secondary market has fluctuated by less than 2% since the ETF began trading in January 2017.... Finally, as stated above, there are currently approximately only 50 authorized participants, who can redeem shares of CLTL in 10,000 share increments.... `Based on the facts and representations set forth in your letter (and without necessarily agreeing with your conclusions and analysis), Division staff will not recommend enforcement action to the Commission under section 15 of the Exchange Act and Rule 15c3-1 thereunder if broker-dealers take the haircut deduction in paragraph (c)(2)(vi)(D)(l) of Rule l5c3-l (currently 2%) on the greater of the market value of the portion of the broker-dealer's long or short position in units of CLTL shares eligible for redemption."

They add, "In addition, based on your representation that CLTL is an ETF that only holds cash and/or U.S. Treasury fixed rate bills, notes and bonds (and without necessarily agreeing with your conclusions and analysis), Division staff will not recommend enforcement action to the Commission under section 15 of the Exchange Act and Rule 15c3-1 thereunder if broker-dealers take the highest haircut deduction in paragraph (c)(2)(vi)(A) of Rule 15c3-l (currently 6%) on the greater of the market value of the portion of the broker-dealer's long or short position in units of CLTL shares not eligible for redemption."

For more on "cash-like" ETFs, see these Crane Data News stories (or see our Bond Fund Intelligence product, which tracks ETFs): BlackRock Collateral Trust ETF to Own Govt MMFs (5/4/16), TT on Goldman 0-1 Year ETF (10/28/16), New Goldman Treasury Cash ETF (9/19/16), Invesco ETF of Govt MMFs (7/1/16), and ETF Trends on Short-Term Bond ETFs (4/1/14).

Citi writes on "Potential new VRDO supply and its impact on tax-exempt money markets" in a new "Short Duration Strategy" piece. Authors Vikram Rai, Jack Muller and Loretta Bu explain, "Money market funds (MMFs) have been through a rough patch with a long period of ultra-low short rates, which challenged profitability and unfriendly regulations (for e.g. money market reform). Now, with higher short-term rates, the profitability of this industry is less of a worry. In fact, ever since the financial crisis, we have never been as optimistic about the future of this industry as we are now." We review their latest update below, and we also summarize our most recent Weekly Money Fund Portfolio Holdings.

They tell us, "Tax-exempt MMFs, much like prime funds, witnessed a sharp shrinkage in assets due to money fund reform. However, supply in the tax-exempt MMF sector has also shrunk due to reduced VRDO and TOB issuance and thus SIFMA has generally traded rich vs. taxable money market rates such as Libor. But, we see the potential for more VRDO supply this year and while this could cause some volatility in the SIFMA resets, we definitely view it as a positive for the tax-exempt MMF industry. We discuss."

Rai and colleagues say, "As we noted, tax-exempt MMFs faced a more unique problem, that of diminishing investible paper since VRDO and TOBs outstandings, which form a large portion of supply in this sector, have been shrinking. As a result, the SIFMA index was stuck in low single digits for a very long time ... and this further reduced demand from crossover buyers of VRDOs. However, the VRDO supply patterns might finally change this year."

They comment, "At present, US commercial banks, in aggregate, hold about $180 billion in municipal loans (via direct placements) on their balance sheets. Many directly placed loans have a formulaic Libor (or other) index rate language that automatically applies a multiplier based on the changes in the top corporate tax rate.... Given the increased cost associated with directly placed loans, issuers would likely consider more cost effective methods of financing. While converting directly placed loans to fixed rate bonds is a possibility, it is more likely that issuers look for more cost effective variable rate financing to replace these loans."

Citi states, "Of these alternatives, we view LOC backed VRDOs as the most viable option and that is why we expect some directly placed loans to be converted to VRDOs. Even if 25% of the outstanding directly placed loans are converted to VRDOs, it will amount to $45 billion in new supply."

The brief continues, "Municipal investors are well aware of the seasonality in the SIFMA index around tax time. Money market funds and especially tax-exempt money market funds witness outflows around tax season as investors tend to sell their near cash alternatives in order to pay their tax bill.... After the tax deadline, the resets tend to drop slightly but the levels around May 15th still tend to be much higher vs. March 15th. Essentially, we see that the SIFMA index stays elevated about 1 month before and one month after the tax deadline. Thus, given that tax-exempt MMFs are the biggest buyers of short-term tax-exempt paper, new VRDO supply would see better demand when these funds are NOT witnessing outflows."

It tells us, "If we look at the supply demand equation, we find that the aggregate AUM for tax-exempt MMFs is about $134 billion and crossover investors (taxable and non 2a-7 buyers) account for almost half (45%) of the overall demand for short-term tax-exempt products. Thus, given that crossover investors such as prime funds are not equipped to pass on the benefit of tax-exemption to their investors, they become interested in VRDOs only when rates on SIFMA based products are at least in the same territory as comparable taxable rates (for instance, 1wk or even 1m Libor)."

Citi also says, "[I]f the new VRDO supply comes at a slow and steady pace, we expect that demand from tax-exempt MMFs will grow to meet this supply and SIFMA rates (and ratios) will witness a measured increase. By our estimates, additional VRDO supply at a monthly average of $2-$4 billion is unlikely to cause the dreaded reset spiral as this amount can be absorbed by the traditional investor base. This number would have been higher in the pre-MMF reform period as prime funds then had the nimbleness and the capacity to take advantage of any cheapening in the market. On the other hand, if the new supply is large and lumpy, the SIFMA reset is likely to rise until the yield ratios become attractive enough to entice crossover demand."

Finally, they ask, "So, would new VRDO supply bode well for the tax-exempt money market?" Citi's piece answers, "Undoubtedly, after all, there is no story without supply! The shrinking universe of investible paper in the tax-exempt money market space had led to a vicious feedback loop of lower tax-exempt money market rates and shrinking tax-exempt MMF assets. Increases in supply will likely lead to a commensurate increase in SIFMA resets and serve to break this vicious feedback loop. Even if the new supply is large and lumpy, the spike in SIFMA resets will be temporary as we expect that with a flat yield curve and generally higher effective rates post TCJA, there is more than enough demand for short-term paper from the traditional municipal investor base."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (which was thinner than usual with data as of March 30) includes Holdings information from 61 money funds (down 15 from 3/23), representing $979.4 trillion (down from $1.404 trillion on 3/23) of the $2.967 (33.0%) in total money fund assets tracked by Crane Data. (For our monthly Holdings recap, see our March 12 News, "March Money Fund Portfolio Holdings: Treasuries Jump, Repo, CD Down.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $298.1 billion (down from $458.2 billion a month ago), or 30.4%, Treasury debt totaling $352.8 billion (down from $503.7 billion) or 36.0%, and Government Agency securities totaling $211.7 billion (down from $293.0 billion), or 21.6%. Commercial Paper (CP) totaled $38.3 billion (down from $51.2 billion), or 3.9%, and Certificates of Deposit (CDs) totaled $31.9 billion (down from $37.7 billion), or 3.3%. A total of $19.7 billion or 2.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $26.9 billion, or 2.7%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $352.8 billion, Federal Home Loan Bank with $167.3B, BNP Paribas with $48.3 billion, Federal Farm Credit Bank with $31.4B, RBC with $26.0B, Nomura with $21.1B, Sumitomo Mitsui Banking Co with $19.5B, Wells Fargo with $17.3B, HSBC with $17.0B, and Natixis with $15.8B.

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($126.5B), Fidelity Inv MM: Govt Port ($100.6B), Goldman Sachs FS Govt ($93.9B), Wells Fargo Govt MMkt ($72.4B), Dreyfus Govt Cash Mgmt ($63.8B), Goldman Sachs FS Trs Instruments ($53.5B), Morgan Stanley Inst Liq Govt ($44.0B), JP Morgan Prime MM ($37.6B), Dreyfus Treas Sec Cash Mg ($35.0B), JP Morgan 100% US Trs MMkt ($34.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

We again excerpt from our recent Bond Fund Symposium conference, which took place in Los Angeles March 22-23 and focused on the conservative ultra-short bond fund market, below. Today, we quote from the session, "Keynote Discussion: Ultra-Shorts vs. SMAs," which featured PIMCO Managing Director Jerome Schneider and J.P. Morgan Asset Management PM and Head of Managed Reserves Dave Martucci. The two discussed a number of issues impacting ultra-short bond funds and separately managed accounts, and agreed that the next wave of growth for ultra-shorts is likely to be 'outside-in' (from longer-term bonds) and not 'inside-out'. (Note: The Powerpoints and recordings for Bond Fund Symposium are available to attendees and subscribers at our BFS 18 Download Center. Also, mark your calendars too for next year's event, which will be March 21-22, 2019, in Philadelphia.) Watch for more BFS coverage too in the upcoming issue of our Bond Fund Intelligence and in our next Money Fund Intelligence newsletter.

Schneider commented, "This is clearly a growing segment of the marketplace. The notion of liquidity management and capital preservation is something that's been ... on people's minds over the past 10 years, and it's taken a long time for people to actually think about how it should be articulated. We all work with different clients in different ways.... So the purpose of these discussions for the past year or two has focus[ed] on offering products, offering solutions to clients that help fill various risk factors.... The evolution of Pete's franchise is simply an acknowledgement that investors are moving around in there thinking more about ... ways to manage capital."

He continued, "PIMCO's presence in the front-end market has been pervasive for almost 40 years. We launched our first ultrashort bond fund 30 years ago. The PIMCO Short Term fund is almost 31 years old now.... I have been at PIMCO almost 10 years now.... PIMCO is really focused on active management, that's no secret.... We think there's a place for money market funds within the liquidity universe, but really our forte has really been managing risk attributes ... and balanc[ing] income with capital preservation. Our strategies include mutual funds and separate accounts. But ... over the past few years we've had an emerging ETF platform that's really been a focus of growth in terms of the $200 plus billion dollars we manage on the front end."

Martucci told host and moderator Pete Crane, "Thanks again for bringing focus to this area.... Your approach to separating the conservative ultra-short from the ultra-short, I think that's been very beneficial.... There's a much broader range of investors that invest in the space." On his background, he said, "I've been at J.P. Morgan 18 years ... managing money, SMAs and mutual funds, as well as out the curve [in the] immediate bond funds space. Traditionally J.P. Morgan global liquidity has been known for its money market fund business which is the largest in the world across the globe."

He added, "What we really tried to do when we launched the Managed Reserves platform was take the best practices from our money market expertise and build that out into the ultra-short space. Post crisis there was an opportunity for clients wanting a little more yield, and we felt that we had that expertise and really grabbed onto that opportunity.... [Our] platform has grown in the ultra-short space, we call managed reserves, to around $65 billion. We have mutual funds, SMAs and most recently we launched an ETF.... Now with rates [rising] it seems like a very attractive place and making cash more relevant for all of us."

Schneider also told us, "No matter what we think about the risk factors of being in the short-term space, there are hazards within [it]. I think as practitioners, we all need to be cognizant of the fact that it's our collective responsibility to understand that even though we might be managing short duration portfolios -- a year, 2 years, 5 years, whatever -- it doesn't mean there's any less risk.... When you do get 'left tail' events, it is our responsibility to help explain to investors, preserve that capital and steer clear of it. So, the danger we collectively run into is one whereby one bad apple spoils the cart. We have to collectively be vigilant especially in times like these where things seem relatively okay."

He stated, "At PIMCO, what we've done is clearly incorporated our macroeconomic views, our top down views, of how the world is evolving.... What we call the 'new neutral' ... drives our ultimate investment process, even for managing short duration cash. [We] then incorporate ... bottoms up [analysis].... The goal here is to try to preserve capital and do so in a lower volatility state of the world. That's typically where we try to find opportunity sets and incentivize clients to move out the curve from money market funds, or ... try to get what we call 'core bond' investors."

When asked about their keys to success, Schneider added, "Well it takes hard work; it takes teamwork.... Our team [has] had great stability over the past 10 years, and my hats off to them.... At the same time there isn't necessarily pressure to produce huge amounts of 'alpha,' although we do pretty well in that regard.... At the end of the day, if your clients can't get the liquidity, if there's not capital, then it really doesn't matter at all. The goal here is to create a suite of opportunity sets that have evolved over the years."

He also said, "If you're talking to an institution or a corporate treasurer, they don't really care about inflation, to be fair. They care about capital preservation, because they're worried about losing their jobs if they don't have liquidity. [But] if you're talking to a retail investor, or pension, or somebody who's focused on longer term retirement it resonates very soundly.... If they can simply make sure that they have a dollar of purchasing power a year from now, that's an important prospect. It's something that frankly these ultra-short funds, short-term funds, and low duration funds do pretty well, provided they mitigate their interest rate effects."

Martucci told the LA audience, "I would say that the opportunity right now is in the front end with Libor kind of spiking and with 3-month Libor well over 2% and core CPI well below 2%.... I think the next increase in demand that we're going to see in the ultra-short space [will be] coming down the curve. Historically, it's been coming out the curve ... money market funds getting zero percent or no return."

Schneider added, "I couldn't agree more that we are actually seeing a lot more interest coming in the curve than going out the curve at this point in time.... The danger that we highlight here is one whereby those investors who have become more complacent have been focusing on that income. [People] are waking up to the fact [that] rates recalibrated 100 basis points over the past six months.... People who are worried about higher rates are now differentiating themselves because how they differentiate themselves and reduce their interest rate risk and shelter themselves actually matters."

On active vs. passive, Martucci states, "J.P. Morgan, especially in the short end of the curve, [has] always been an active manager and we kind of pride ourselves on that. [O]ne of our biggest differentiators is our rigorous credit process and all the resources that that we have in the front end. I think that's very important when you're talking about principle preservation with a very low volatility.... We encourage our clients not to take on a credit type index in the front end of the curve.... When you really want to focus on principal preservation, you don't want to think about tracking an index and be forced into a specific purchase.... We really think that the front end of the curve in particular should be a place for active management. It is very important and I think a differentiator for both Jerome and myself. I think we can still continue to add value in that space."

When asked about his outlook, Martucci said, "I think we're seeing some opportunities being created here in the front end. I think what we're trying to understand right now is really the effects of this repatriation flow or expectation of this repatriation flow from short term credit buyers, typically corporate cash, versus the potential flow coming down the curve. This I think is the next big flow that we'll see, and [it could] overwhelm. When you look at it from an overvaluation perspective, we've had a big move in the front end of the curve already ... which is creating an opportunity."

He added, "We are very confident that corporate fundamentals should continue given the stimulus from tax reform and just the trajectory of the economy.... I think clients have to be aware of some curve steepening even from one to three year part of the curve. We're really sticking short, very positive on credit. To be quite frank there are opportunities ... in the front end when you can get a return of anywhere from 230 to 250 on six month paper investment grade. That seems to be a very attractive place to kind of hide out and let some of the stuff play out over the next six months."

Finally, when asked about separately managed accounts, Martucci commented, "We tried to go to with menu options on the SMAs. But the benefit of the SMAs, and why it's growing so much, is the customization aspect that we can deliver to clients.... Of [our] $65 billion, I would say roughly $50 billion is in SMAs. A typical client is going to be a corporate cash type client ... where really they just want a return in excess of a money market fund [of about] 20 to 40 basis points.... We've seen success there, and then most recently J.P. Morgan as a whole is starting to launch the ETF business. Given the success that Jerome and his team have had with MINT, we've seen that as an opportunity to grow."

Money market mutual fund assets rose slightly for the second week in a row, after falling sharply in mid-March. The Investment Company Institute's latest "Money Market Fund Assets" report shows that year-to-date, MMF assets have decreased by $13 billion, or -0.5%. Over 52 weeks they've increased by $175 billion, or 6.6%. ICI's numbers also show Prime money market fund assets decreased after two weeks of increases, while Govt MMF assets jumped for the second week in a row. We review the latest weekly asset totals below, and we also summarize last week's Weekly Money Fund Portfolio Holdings data set and quote from a WSJ article on LIBOR and Prime MMFs.

ICI writes, "Total money market fund assets increased by $3.89 billion to $2.83 trillion for the week ended Wednesday, March 28, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $10.06 billion and prime funds decreased by $4.57 billion. Tax-exempt money market funds decreased by $1.60 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.242 trillion (79.3% of all money funds), while Total Prime MMFs stand at $453.3 billion (16.0%). Tax Exempt MMFs total $133.8 billion, or 4.7%.

They explain, "Assets of retail money market funds decreased by $4.60 billion to $1.01 trillion. Among retail funds, government money market fund assets decreased by $1.53 billion to $618.83 billion, prime money market fund assets decreased by $1.84 billion to $262.32 billion, and tax-exempt fund assets decreased by $1.23 billion to $127.10 billion." Retail assets account for over a third of total assets, or 35.6%, and Government Retail assets make up 61.4% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $8.49 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $11.59 billion to $1.62 trillion, prime money market fund assets decreased by $2.73 billion to $190.94 billion, and tax-exempt fund assets decreased by $366 million to $6.66 billion." Institutional assets account for 64.4% of all MMF assets, with Government Inst assets making up 89.1% of all Institutional MMFs.

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary last week. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of March 23) includes Holdings information from 76 money funds (up 9 from 2/23), representing $1.404 trillion (down from $1.584 trillion on 2/23) of the $2.967 (47.3%) in total money fund assets tracked by Crane Data. (For our monthly Holdings recap, see our March 12 News, "March Money Fund Portfolio Holdings: Treasuries Jump, Repo, CD Down.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $458.2 billion (down from $590.0 billion a month ago), or 32.6%, Treasury debt totaling $503.7 billion (up from $475.3 billion) or 35.9%, and Government Agency securities totaling $293.0 billion (down from $329.6 billion), or 20.9%. Commercial Paper (CP) totaled $51.2 billion (down from $62.6 billion), or 3.6%, and Certificates of Deposit (CDs) totaled $37.7 billion (down from $45.7 billion), or 2.7%. A total of $27.9 billion or 2.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $32.3 billion, or 2.3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $503.7 billion, Federal Home Loan Bank with $231.9B, BNP Paribas with $62.6 billion, Federal Farm Credit Bank with $38.3B, RBC with $34.5B, Wells Fargo with $30.5B, Credit Agricole with $28.1B, Societe Generale with $27.4B, HSBC with $23.8B, and Nomura with $23.3B.

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($126.8B), Fidelity Inv MM: Govt Port ($105.9B), BlackRock Lq FedFund ($96.9B), Goldman Sachs FS Govt ($90.9B), Wells Fargo Govt MMkt ($76.3B), Blackrock Lq T-Fund ($71.6B), Dreyfus Govt Cash Mgmt ($62.5B), State Street Inst US Govt ($53.3B), Goldman Sachs FS Trs Instruments ($52.3B), and Morgan Stanley Inst Liq Govt ($46.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Finally, The Wall Street Journal wrote again on LIBOR in "Banking System Alarm Bell That Doesn’t Signal Danger." This time they mentioned money market funds, saying, "A crisis-era red light is flashing and provoking old fears about banks. But the world has changed a lot since 2008: this signal no longer means banks are struggling to find cash. The basic cost of money lent between banks has seen a sharp rise over recent weeks. In the U.S., the cost to borrow over three months has risen much faster than the Federal Reserve has raised interest rates."

It explains, "Libor, this measure of how much banks charge to lend to each other, is the rate that shot-up during the crisis when a complete failure of trust between banks froze the money markets. It is the rate that found infamy when banks were shown to have been manipulating it too. However, there are several prongs to Libor’s recent rise: one is underlying interest rate raises; another is an expected flood of U.S. treasury-bill selling. Then there is the cost of short-term borrowing in commercial paper markets, which is where people get worried because banks use these for some of their funding."

The Journal adds, "Some point to the shrinking investor base for so-called prime money-market funds, which are key buyers of commercial paper. Total prime fund assets have fallen by $1 trillion since the end of 2015, when a regulatory change sparked outflows. All that cash went into money-market funds that only invest in government-backed paper. However, outflow isn’t as damaging as it seems. Prime money funds haven’t made their biggest cuts in holdings of commercial paper. Instead they’ve pulled much more out of certificates of deposit, a kind of tradable deposit from banks, credit card companies and others that is often covered by Federal deposit insurance."