News Archives: June, 2019

Crane Data's latest MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD and Euro remain down year-to-date, though they've recently trimmed their losses. Through 6/13/19, overall MFII assets are down $7.7 billion to $828.0 billion. (They rose $15.2 billion in 2018.) Offshore USD money funds are down $4.5 billion YTD (they rose $28.8B last year). Euro funds are still feeling the pain of negative rates and recent European MMF reforms; they're down E8.1 billion YTD (following 2 flat years). GBP funds are up, however, by L7.8 billion. U.S. Dollar (USD) money funds (175) account for over half ($449.5 billion, or 53.8%) of this "European" money fund total, while Euro (EUR) money funds (76) total E90.9 billion (10.9%) and Pound Sterling (GBP) funds (103) total L217.2 billion (26.0%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.

Offshore USD MMFs yield 2.27% (7-Day) on average (as of 6/13/19), up from 2.29% on 12/31/18, 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.50 on average, compared to -0.49% at year-end 2018, -0.55% on 12/29/17 and -0.49% on 12/30/16. Meanwhile, GBP MMFs yielded 0.66%, up from 0.64% on 12/31/18, from 0.24% at the end of 2017 and 0.19% at the end of 2016. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's MFII Portfolio Holdings, with data (as of 5/31/19), show that European-domiciled US Dollar MMFs, on average, consist of 29% in Commercial Paper (CP), 22% in Repurchase Agreements (Repo), 22% in Certificates of Deposit (CDs), 12% in Other securities (primarily Time Deposits), 14% in Treasury securities and 1% in Government Agency securities.

USD funds have on average 36.4% of their portfolios maturing Overnight, 8.6% maturing in 2-7 Days, 16.9% maturing in 8-30 Days, 13.0% maturing in 31-60 Days, 10.9% maturing in 61-90 Days, 11.1% maturing in 91-180 Days and 3.0% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (25.6%), France (15.5%), Japan (11.6%), Canada (10.5%), the United Kingdom (8.0%), Germany (6.1%), Sweden (4.2%), the Netherlands (4.1%), Australia (2.8%), Switzerland (2.8%), China (2.1%), Singapore (2.1%), Belgium (1.4%) and Norway (1.2%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $66.8 billion (13.8% of total assets), BNP Paribas with $20.0B (4.1%), Barclays PLC with $18.4B (3.8%), Mitsubishi UFJ Financial Group Inc with $15.1B (3.1%), Wells Fargo with $14.4B (3.0%), Sumitomo Mitsui Banking Co with $12.7B (2.6%), Credit Agricole with $12.7B (2.6%), Toronto-Dominion Bank with $12.6B (2.6%), Bank of Nova Scotia with $12.3B (2.5%) and Mizuho Corporate Bank with $12.1B (2.5%).

Euro MMFs tracked by Crane Data contain, on average 50% in CP, 21% in CDs, 21% in Other (primarily Time Deposits), 7% in Repo, 0% in Agency securities and 1% in Treasuries. EUR funds have on average 25.2% of their portfolios maturing Overnight, 7.0% maturing in 2-7 Days, 17.2% maturing in 8-30 Days, 17.2% maturing in 31-60 Days, 14.9% maturing in 61-90 Days, 15.8% maturing in 91-180 Days and 2.7% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (32.1%), Japan (13.2%), the US (11.2%), Germany (9.3%), Sweden (6.6%), the U.K. (4.5%), the Netherlands (4.2%), Canada (3.6%), Belgium (2.8%), Switzerland (2.8%), Finland (2.3%) China (2.2%) and Austria (1.4%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.2B (7.3%), BNP Paribas with E4.3B (5.0%), Mizuho Corporate Bank Ltd with E3.1B (3.7%), Mitsubishi UFJ Financial Group with E3.1B (3.6%), BPCE with E2.9B (3.4%), Procter & Gamble Co. with E2.8B (3.2%), Credit Mutuel with E2.6B (3.1%), Societe Generale with E2.6B (3.0%), ING Bank with E2.5B (2.9%), and Svenska Handelsbanken with E2.5B (2.9%).

The GBP funds tracked by MFI International contain, on average (as of 5/31/19): 34% in CDs, 26% in Other (Time Deposits), 26% in CP, 11% in Repo, 2% in Treasury and 1% in Agency. Sterling funds have on average 23.9% of their portfolios maturing Overnight, 11.2% maturing in 2-7 Days, 12.0% maturing in 8-30 Days, 19.7% maturing in 31-60 Days, 14.7% maturing in 61-90 Days, 13.5% maturing in 91-180 Days and 5.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (20.9%), Japan (18.1%), the United Kingdom (11.6%), Canada (9.9%), Sweden (5.9%), Germany (5.4%), United States (5.2%), Australia (5.0%), the Netherlands (4.7%), Singapore (3.1%), China (2.6%) and Finland (1.5%).

The 10 Largest Issuers to "offshore" GBP money funds include: Credit Agricole with L6.4B (4.8%), Mizuho Corporate Bank Ltd with L6.3B (4.7%), BNP Paribas with L6.1B (4.5%), Sumitomo Mitsui Trust Bank with L5.7B (4.2%), Mitsubishi UFJ Financial Group with L5.2B (3.9%), BPCE SA with L5.2B (3.9%), Nordea Bank with L4.5B (3.4%), Sumitomo Mitsui Banking Co with L4.5B (3.3%), Standard Chartered Bank with L3.7B (2.7%) and the UK Treasury with L3.6B (2.7%).

In related news, Treasury Today features the article, "It's an MMF Jim, but not as we know it: what regulatory change really means for treasurers," which discusses European money market funds post-reform. The piece says, "The US and European market authorities have changed how money markets are regulated.... The required switch to fund formats that use variable rates as their key measure present very little difference for the typical investor, says Natalie Cross, Senior Client Portfolio Manager, Invesco. The LVNAV funds that most CNAV investors migrated into, do however establish new coping mechanisms in the event of market instability or a credit default with a fund."

It continues, "So, whilst coming out the other side of change delivers products that 'look and feel largely the same as before', the efforts of the authorities bestows more structure on a largely willing market, says Cross.... The unwritten 'agreement' that a bank would bail out its failing fund has possibly led to a somewhat gung-ho investor attitude that MMFs are failproof. The nature of MMF portfolios tends to make them highly resilient to stress, but failproof they are not. Removing the perception that some funds are different from others, from that support standpoint, levels the playing field between bank and non-bank providers, says Cross."

Finally, Treasury Today writes, "The impact in Europe has been more low-key, as expected, says Cross who describes the transition into reform here as 'seamless'. The most notable outcome in Europe has been the outlawing of the reverse distribution mechanism, the regulators no longer permitting funds to offset losses generated by negative euro interest rates."

The June issue of our Bond Fund Intelligence, which was sent out to subscribers Friday morning, features the lead story, "Low Duration Bond Funds See Steady Growth Says JPM," which discusses the continued strength in Ultra-Short Bond Fund inflows; as well as our profile, "Morgan Stanley Ultra Short Income's Kolk & Wachs," which interviews managers of one of the fastest growing Conservative Ultra-Short Bond Funds. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which again show lower bond fund yields and higher returns in May. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

Our lead story says, "Ultra-Short and particularly Conservative Ultra-Short Bond Funds continue to grow faster than all other Bond Fund categories, rising by 14.2% and 46.2%, respectively, compared to 6.6% for our BFI Total Index (all bond funds) in the 12-months ending May 31, 2019. (ETFs also continue to grow at a blistering pace, rising 36.2% over the past year.) J.P. Morgan Securities recently wrote on the rapid growth in the short end in a "Low duration bond fund update." We quote from their publication and we review the ultra-short and short-term sectors below.

It continues, "JPM's Alex Roever, Teresa Ho and Ryan Lessing write, 'This year has seen very strong demand in the front-end, with MMF inflows well above what has been typical in past years. Low duration bond funds, too, have seen steady growth. We estimate total AUM across short-term and ultrashort mutual funds and ETFs registered $691bn as of 4/30/19, up $32bn year to date and $114bn year over year.... Both ultrashort funds (those with a portfolio duration between 0.5 and 1.5 years), and short-term funds (with a longer duration of 1.5 to 3.5 years) have seen growth lately, with balances rising by $13bn and $19bn, respectively over the last 4 months. This represents something of a revitalization for short-term funds, which were relatively flat for most of 2018 as investors flocked to ultrashorts."

They explain, "In both the short-term and ultrashort space, the riskier multi-sector and credit styles have had higher returns than conservative credit and government funds, benefiting from both higher yields and tightening spreads. In addition to being more volatile from month to month, short-term funds continue to show more variation in returns between different funds."

Our "Morgan Stanley" interview says, "This month, we interview Morgan Stanley Investment Management's CIO & Co-Head of Global Liquidity Jonas Kolk and Global Head of Liquidity Products Scott Wachs. We discuss MSIM's Ultra Short Income Fund, which recently broke above $15 billion in assets and had its 3-year anniversary, and talk about the fund's history, its investment strategies and a number of other topics in the 'beyond cash' space. Our Q&A follows. (Note: We published some of this interview in our June Money Fund Intelligence, but this version contains some additional quotes.)

BFI says, "Tell us about your history." Kolk answers, "Given our history and some of the dynamics that we've gone through from a regulatory, and rate, standpoint, we viewed the ultra-short bond space as really a natural addition to our business. We thought that the conservative ultra-short space was a perfect opportunity to leverage our core capabilities and naturally extend our product line."

Our Bond Fund News includes the brief "Yields Lower, Returns Up Again in May." It explains, "Bond fund yields were lower (again) for most categories except Intm-Term and High-Yield. The BFI Total Index returned 0.81% for 1-month and 4.67% over 12 months. The BFI 100 returned 0.91% in May and 5.32% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.27% over 1 month and 2.53% over 1-year; the BFI Ultra-Short Index averaged 0.26% in May and 2.56% over 12 mos. BFI Short-Term returned 0.60% and 3.67%, and BFI Intm-Term Index returned 1.38% and 5.64% for 1-mo and 1-year. BFI's Long-Term Index returned 1.85% in May and 6.84% for 1-yr; our High Yield Index returned -0.7% in May and 4.36% over 1-yr."

Another News brief quotes, "Bloomberg's 'No debt is short enough to ease bond buyers' recession fears.'" It states, "`Short-termism is taking on a whole new meaning in the U.S. bond market. Debt investors can't get enough of securities with less than 12 months to maturity, thanks to an increasingly uncertain outlook for interest rates and global growth. ETFs that invest in ultra-short bonds attracted a record $4.1 billion last week, data compiled by Bloomberg show."

A third News update, "BlackRock Blogs 'Income is Back in Bond Returns,'" quotes, "`Coupon income historically has contributed the lion's share of total returns across global fixed income markets. Yet declining yields this year elevated the role of capital appreciation in generating returns. Price appreciation made up roughly three-quarters of U.S. Treasury returns in the first quarter, we estimate. We see carry, or income, reasserting itself as the key driver of returns in bond markets in the quarters ahead, taking back the reins from price appreciation."

A fourth News brief is: "Morningstar Writes 'High-Flying High Yield, for Now.'" They comment, "`High-yield bond funds are in the news once more given this year's terrific performance run. From Jan. 1, 2019, through May 29, 2019, the high-yield bond Morningstar Category posted a 7.3% median return, while the ICE Bank of America-Merrill Lynch U.S. High Yield Index returned 7.8%. For comparison, the Bloomberg Barclays U.S. Aggregate Bond Index -- the common proxy for investment-grade intermediate-term bond funds—returned 4.3% over the same period."

Finally, a sidebar entitled, "Flows Keep Coming in '19," explains, "Bond fund inflows continued over the latest week and month, though they appear to be slowing. ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' with data as of June 5, says, 'Bond funds had estimated inflows of $4.66 billion for the week, compared to estimated inflows of $3.03 billion during the previous week. Taxable bond funds saw estimated inflows of $3.23 billion, and municipal bond funds had estimated inflows of $1.43 billion.' Over the past 5 weeks, bond fund flows have totaled $21.5 billion."

It adds, "Their latest 'Trends in Mutual Fund Investing - April 2019' shows bond fund assets rising by $49.2 billion, or 1.2%, to a total of $4.319 trillion in April. Over the past 12 months through 4/30/19, bond fund assets have increased by $237.2 billion, or 5.8%. The number of bond funds fell by 7 in April to 2,155 and was up 24 from a year ago."

Fidelity Investments recently posted a "Fixed Income Quarterly Perspectives" video where, according to the site, "Portfolio managers Julian Potenza and Maura Walsh discuss fixed income market performance in the first quarter 2019 and the impact on money market flows." Money Market Portfolio Manager Walsh comments, "We've seen a significant shift in expectations for further rate increases by the Fed in a relatively short period of time. At their December meeting, the Fed forecasted two rate hikes in 2019, and by their March meeting, the Fed forecast showed no rate hikes in 2019." We quote from the video, and also excerpt from recent Portfolio Manager commentary from Wells Fargo Funds and from PGIM, below.

Fidelity's Walsh explains, "We closely watch the Fed funds futures market to monitor and market expectations of future Fed moves.... The Fed funds futures curve at the end of September 2018 ... shows the market was pricing in two further rate hikes by the Fed in 2019, in line with the Fed's December forecast.... The Fed funds futures curve as of the end of December of 2018 ... shows a shift in expectations from additional rate hikes to a Fed on hold. The markets expectation as to where the Fed funds rate would be at the end of 2019 was well below the Fed's forecasts."

She continues, "The Fed funds futures curve as at the end of March this year [saw] expectations for the future Fed funds rate move lower again, signaling that the market expects a lower Fed funds rate than the March Fed forecast.... The futures market is currently pricing in over a 50 percent chance that the Fed will lower rates by year end. (Note: This video is dated 5/24, and expectations for a rate cut have increased noticeable since then. Google says, "The fed funds futures market is pointing to a nearly 70% chance of a rate cut in July and about 60% probability of three rate cuts this year, according to the CME FedWatch tool.")

Walsh tells us, "Even though the Fed may not raise rates again this year, money market funds are an attractive investment option for shareholders that value the stability, liquidity and return they provide, especially given the flat yield curve. Government money market fund averages are currently yielding around 2 percent. While Prime category averages are yielding around two and a quarter percent."

She says, "Flows into money market funds have been steady over the past year or so, as they are an appealing option when compared to bank products. This chart compares the yields of both bank money market deposit accounts ... and bank savings accounts ... to a yield of a broad index of taxable money market funds.... The shaded area represents the midpoint of the Fed funds target range."

Walsh comments, "As the Fed raised rates, money market funds pass through the rate hikes relatively quickly with average yields above 2 percent at this past quarter end. Bank yields, however, which are administered rates set by the individual bank, are typically much slower to respond to an increase in short term interest rates and on average were yielding below a quarter of a percent as of the end of March. With money market fund yields well above those of bank products the flows into money market funds over the past year or so have been solid industry-wide."

Finally, the Fidelity PM adds, "Taxable money market fund assets under management increased by approximately $220 billion over the last 15 months, to a nearly $2.9 trillion at the end of the first quarter.... Asset growth was driven primarily by robust flows into prime money market funds. Prime Retail fund assets ... grew by 43 percent from $267 billion to $379 billion while Prime Institutional fund assets ... grew by 33 percent, from $189 billion to $243 billion. The asset flows on the government side were led by retail funds ... which increased by 12 percent to $639 billion. Institutional government fund growth ... was virtually unchanged over the period with assets under management ending the quarter at $1.63 trillion. So clearly the short end of the curve is resonating with investors, given the growth we're seeing in money market assets under management."

Wells Fargo Money Market Funds, in their latest "Overview, strategy, and outlook," tells us, "Government money market yields fell in May because, much like the effects on a teenager hanging with the wrong crowd, all the influences were negative. First, on May 1, the Federal Reserve (Fed) made another technical adjustment to Interest on Excess Reserves, cutting the rate by 0.05% to try to nudge the federal funds effective rate back down near the middle of the Fed's target range. Although these technical adjustments are not meant to signal any intent about the future path of interest rates, they do have a real and pretty immediate impact on money market rates."

They write, "The second factor weighing on yields was the ongoing reduction of Treasury bill (T-bill) supply, continuing the usual seasonal contraction that follows the mid-April tax date. T-bill supply has fallen by $126 billion since then, with further reductions to come as the second quarter continues."

The Wells piece states, "The last major influence on rates has been a robust Treasury market rally all along the curve, as the bond market continues to predict interest rate cuts by the Fed. This has affected the money markets in two ways. First, with cuts now expected by the market as soon as this year, money market rates have begun to reflect the anticipated lower rates. In addition to this direct effect, the fact that you have to go out about 20 years to find a Treasury security that can out-yield money market instruments has enticed some investors into the space, boosting demand and therefore pushing yields down."

Finally, Wells comments, "All these negative factors so far make 2019 the opposite of the halcyon days of 2018, when booming T-bill supply and a steadily hiking Fed helped yields march higher. Although the Fed professes patience on rates, surprises on the U.S. economy or any of a number of geopolitical issues could encourage it to move sooner than it intends."

Crane Data released its June Money Fund Portfolio Holdings Tuesday, and our most recent collection of taxable money market securities, with data as of May 31, 2019, shows another big jump in Repo and CP, and another drop in Treasuries. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $77.2 billion to $3.383 trillion last month, after increasing $88.9 billion in April, decreasing by $8.2 billion in March and increasing by $89.8 billion in February. (Note that the April figures were inflated by the addition of massive $108 billion American Funds Central Cash Fund to our collections.) Repo continued to be the largest portfolio segment -- it broke $1.1 trillion last month -- followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) rose by $57.2 billion (5.2%) to $1.16 3trillion, or 34.4% of holdings, after increasing $87.4 billion in April, decreasing by $61.6 billion in March and increasing $0.9 billion in February. Treasury securities fell by $7.6 billion (-0.9%) to $839.6 billion, or 24.8% of holdings, after decreasing $111.0 billion in April, increasing by $54.4 billion in March and increasing by $69.6 billion in February. Government Agency Debt moved higher by $8.6 billion (1.2%), to $724.2 billion, or 21.4% of holdings, after increasing $48.6 billion in April, increasing $5.6 billion in March and decreasing $0.1 billion in February. Repo, Treasuries and Agencies totaled $2.727 trillion, representing a massive 80.6% of all taxable holdings.

Money funds' holdings of CP jumped again in May, and CDs and Other (mainly Time Deposits) holdings also rose. Commercial Paper (CP) increased $14.0 billion (4.5%) to $323.3 billion, or 9.6% of holdings, after rising $46.8 billion in April, rising $5.2 billion in March and rising $13.2 billion in February. Certificates of Deposit (CDs) rose by $4.8 billion (2.1%) to $238.3 billion, or 7.0% of taxable assets, after rising $10.9 billion in April, falling $5.9 billion in March and rising $6.7 billion in February. Other holdings, primarily Time Deposits, increased $0.4 billion (0.5%) to $86.7 billion, or 2.6% of holdings, after rising $5.9 billion in April, falling $5.8 billion in March and falling $0.5 billion in February. VRDNs moved up to $8.1 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)

Prime money fund assets tracked by Crane Data increased $5 billion to $984 billion, or 29.1% of taxable money funds' $3.383 trillion total. Among Prime money funds, CDs represent almost a quarter of holdings at 24.2% (up from 23.8% a month ago), while Commercial Paper accounted for 32.8% (up from 31.6%). The CP totals are comprised of: Financial Company CP, which makes up 18.7% of total holdings, Asset-Backed CP, which accounts for 6.7%, and Non-Financial Company CP, which makes up 7.4%. Prime funds also hold 6.1% in US Govt Agency Debt, 10.7% in US Treasury Debt, 6.4% in US Treasury Repo, 1.2% in Other Instruments, 6.0% in Non-Negotiable Time Deposits, 4.0% in Other Repo, 6.6% in US Government Agency Repo, and 0.6% in VRDNs.

Government money fund portfolios totaled $1.632 trillion (48.2% of all MMF assets), up $36 billion from $1.599 trillion in April, while Treasury money fund assets totaled another $767 billion (22.7%), up from $728 billion the prior month. Government money fund portfolios were made up of 40.7% US Govt Agency Debt, 21.8% US Government Agency Repo, 13.5% US Treasury debt, and 23.7% in US Treasury Repo. Treasury money funds were comprised of 67.1% US Treasury debt, 32.8% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.399 trillion, or 70.9% of all taxable money fund assets.

European-affiliated holdings (including repo) rose by $2.5 billion in May to $686.7 billion; their share of holdings fell to 20.3% from last month's 20.7%. Eurozone-affiliated holdings fell to $447.2 billion from last month's $438.1 billion; they account for 13.2% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $9.9 billion to $307.1 billion (9.1% of the total). Americas related holdings rose $65.3 billion to $2.387 trillion and now represent 70.6% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $77.6 billion, or 12.5%, to $700.8 billion, or 20.7% of assets); US Government Agency Repurchase Agreements (down $18.7 billion, or -4.2%, to $422.5 billion, or 12.5% of total holdings), and Other Repurchase Agreements (down $1.7 billion from last month to $39.9 billion, or 1.2% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $1.9 billion to $184.3 billion, or 5.4% of assets), Asset Backed Commercial Paper (up $3.2 billion to $66.4 billion, or 2.0%), and Non-Financial Company Commercial Paper (up $8.9 billion to $72.6 billion, or 2.1%).

The 20 largest Issuers to taxable money market funds as of May 31, 2019, include: the US Treasury ($839.6 billion, or 24.8%), Federal Home Loan Bank ($552.8B, 16.3%), Fixed Income Clearing Co ($164.2B, 4.9%), BNP Paribas ($132.7B, 3.9%), RBC ($114.2B, 3.4%), JP Morgan ($95.2B, 2.8%), Federal Farm Credit Bank ($85.3B, 2.5%), Wells Fargo ($67.8B, 2.0%), Barclays ($65.8B, 1.9%), Credit Agricole ($63.6B, 1.9%), Federal Home Loan Mortgage Co ($62.3B, 1.8%), Mitsubishi UFJ Financial Group Inc ($60.9B, 1.8%), Societe Generale ($52.8B, 1.6%), Sumitomo Mitsui Banking Co ($48.3B, 1.4%), Mizuho Corporate Bank Ltd ($47.5B, 1.4%), HSBC ($46.6B, 1.4%), Natixis ($46.0B, 1.4%), Citi ($41.8B, 1.2%), Toronto-Dominion Bank ($39.6B, 1.2%) and Bank of Nova Scotia ($39.0B, 1.2%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($164.2B, 14.1%), BNP Paribas ($122.6B, 10.5%), RBC ($88.9B, 7.6%), JP Morgan ($79.1B, 6.8%), Wells Fargo ($57.1B, 4.9%), Barclays PLC ($55.8B, 4.8%), Credit Agricole ($44.4B, 3.8%), Societe Generale ($42.3B, 3.6%), HSBC ($39.7B, 3.4%) and Mitsubishi UFJ Financial Group Inc ($37.8B, 3.2%). Fed Repo positions among MMFs on 5/31/19 remained near zero with only Franklin IFT US Govt MM ($0.9B) and Western Asset Inst Govt ($0.0B) showing small holdings.

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($27.9B, 5.2%), RBC ($25.3B, 4.7%), Mitsubishi UFJ Financial Group ($23.2B, 4.3%), Credit Suisse ($21.5B, 4.0%), Sumitomo Mitsui Banking Co ($20.6B, 3.8%), Mizuho Corporate Bank Ltd ($20.3B, 3.8%), Credit Agricole ($19.3B, 3.6%), Bank of Nova Scotia ($18.3B, 3.4%), Bank of Montreal ($16.8B, 3.1%) and JP Morgan ($16.1B, 3.0%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking ($16.7B, 7.0%), Mitsubishi UFJ Financial Group ($15.1B, 6.4%), Bank of Montreal ($13.9B, 5.9%), Mizuho Corporate Bank ($12.9B, 5.4%), Svenska Handelsbanken ($12.0B, 5.0%), Bank of Nova Scotia ($10.6B, 4.5%), Wells Fargo ($10.5B, 4.4%), Sumitomo Mitsui Trust Bank ($9.8B, 4.1%), Canadian Imperial Bank of Commerce ($9.0B, 3.8%) and Natixis ($8.7B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($17.5B, 6.7%), JPMorgan ($15.9B, 6.1%), RBC ($14.7B, 5.6%), Credit Suisse ($12.9B, 4.9%), Societe Generale ($8.9B, 3.4%), Mitsubishi UFJ Financial Group ($7.9B, 3.0%), National Australia Bank Ltd ($7.6B, 2.9%), Bank of Nova Scotia ($7.6B, 2.9%), Toyota ($7.4B, 2.8%) and Bank Nederlandse Gemeenten ($6.9B, 2.6%).

The largest increases among Issuers include: Fixed Income Clearing Co (up $52.5B to $164.2B), Federal Home Loan Mortgage Co (up $7.6B to $62.3B), RBC (up $7.3B to $114.2B), Credit Agricole (up $5.9B to $63.6B), Citi (up $4.6B to $41.8B), Societe Generale (up $4.5B to $52.8B), Nomura (up $4.2B to $34.2B), Mizuho Corporate Bank Ltd (up $3.7B to $47.5B), HSBC (up $3.5B to $46.6B), Toronto-Dominion Bank (up $2.2B to $39.6B) and Bank of Montreal (up $1.9B to $38.9B).

The largest decreases among Issuers of money market securities (including Repo) in May were shown by: the US Treasury (down $7.6B to $839.6B), Goldman Sachs (down $6.0B to $23.6B), BNP Paribas (down $5.6B to $132.7B), Credit Suisse (down $5.2B to $32.9B), Sumitomo Mitsui Banking Co (down $5.0B to $48.3B), JP Morgan (down $2.5B to $95.2B), Skandinaviska Enskilda Banken AB (down $1.5B to $8.5B), Bank of Nova Scotia (down $1.3B to $39.0B), Nordea Bank (down $0.9B to $9.0B) and Bank of America (down $0.6B to $38.1B).

The United States remained the largest segment of country-affiliations; it represents 62.2% of holdings, or $2.103 trillion. France (9.4%, $317.8B) remained in the No. 2 spot, and Canada (8.4%, $283.6B) was third. Japan (7.3%, $246.2B) occupied fourth place. The United Kingdom (4.3%, $144.6B) remained in fifth place. Germany (2.0%, $66.8B) was in sixth place, followed by The Netherlands (1.7%, $56.1B), Switzerland (1.3%, $42.8B), Australia (1.2%, $38.8B) and Sweden (1.1%, $38.1B). (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 May 31, 2019, Taxable money funds held 35.2% (up from 34.5%) of their assets in securities maturing Overnight, and another 16.5% maturing in 2-7 days (up from 15.4% last month). Thus, 51.7% in total matures in 1-7 days. Another 19.5% matures in 8-30 days, while 12.1% matures in 31-60 days. Note that over three-quarters, or 83.33% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.6% of taxable securities, while 6.4% matures in 91-180 days, and just 1.8% matures beyond 181 days.

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the First Quarter 2019 edition shows that Total MMF Assets increased by $41 billion to $3.079 trillion in Q1. The Household Sector, by far the largest investor segment with $1.824 trillion, saw assets increase in Q1, as did the next largest segments, Nonfinancial Corporate Businesses and Funding Corporations' (primarily securities lending reinvestment cash). Time and Savings Deposits showed the largest gains among money fund assets.

The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show slight asset increases for Nonfinancial Noncorporate Business, Property-Casualty Insurance and the Rest of the World categories in Q1 2019. Life Insurance Companies, State & Local Govt Retirements and Private Pension Funds saw assets fall slightly in Q1, and State & Local Govt MMF holdings were flat. Over the past 12 months, the Household Sector, Funding Corporations, Nonfinancial Corporate Businesses, Rest of the World, Nonfinancial Noncorporate Businesses, Life Insurance and Property Casualty Insurance showed asset increases, while the State and Local Government Retirement, Private Pension Funds and State & Local Govt categories showed decreases.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $41 billion, or 1.4%, in the first quarter to $3.079 trillion. Over the year through March 31, 2019, assets were up $286 billion, or 10.2%. The largest segment, the Household sector, totals $1.824 trillion, or 59.2% of assets. The Household Sector increased by $26 billion, or 1.4%, in the quarter, after increasing $117 billion in Q4'18. Over the past 12 months through Q1'19, Household assets were up $230 billion, or 14.4%.

Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $473 billion, or 15.3% of the total. Assets here rose by $6 billion in the quarter, or 1.4%, and they've increased by $16 billion, or 3.4%, over the past year. Funding Corporations were the third-largest investor segment with $274 billion, or 8.9% of money fund shares. They rose by $10 billion, or 3.7%, in the latest quarter. Funding Corporations have increased by $24 billion, or 9.4%, over the previous 12 months.

The fourth-largest segment, Private Pension Funds held 4.9% of money fund assets ($152 billion), down by $1 billion (-0.4%) for the quarter, and down $3 billion, or -1.9%, for the year. Nonfinancial Noncorporate Businesses, which held $108 billion (3.5%), were in 5th place. The Rest of The World category remained in sixth place in market share among investor segments with 3.4%, or $106 billion, while Life Insurance Companies held $48 billion (1.6%), State and Local Government Retirement Funds held $48 billion (1.6%), Property-Casualty Insurance held $24 billion (0.8%), and State and Local Governments held $20 billion (0.6%) according to the Fed's Z.1 breakout.

The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $1.895 trillion, or 61.5% of the total. Debt securities includes: Open market paper ($216 billion, or 7.0%; we assume this is CP), Treasury securities ($880 billion, or 28.6%), Agency and GSE-backed securities ($656 billion, or 21.3%), Municipal securities ($135 billion, or 4.4%), and Corporate and foreign bonds ($9 billion, or 0.3%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($980 billion, or 31.8%) and Time and savings deposits ($226 billion, or 7.3%). Money funds also hold minor positions in Foreign deposits ($2 billion, or 0.0%), Miscellaneous assets ($9 billion, or 0.3%), and Checkable deposits and currency ($-32 billion, -1.0%). Note: The Fed also lists "Variable Annuity Money Funds;" they currently total $35 billion.

During Q1, Debt Securities were up $33 billion. This subtotal included: Open Market Paper (up $23 billion), Treasury Securities (up $6 billion), Agency- and GSE-backed Securities (up $11 billion), Corporate and Foreign Bonds (up $9 billion) and Municipal Securities (down $8 billion). In the first quarter of 2019, Security Repurchase Agreements were down $39 billion, Foreign Deposits were flat, Checkable Deposits and Currency were up $12 billion, Time and Savings Deposits were up $35 billion, and Miscellaneous Assets were up $1 billion.

Over the 12 months through 3/31/19, Debt Securities were up $73B, which included Open Market Paper up $57B, Treasury Securities down $1B, Agencies up $12B, Municipal Securities (up $3B), and Corporate and Foreign Bonds (up $1B). Foreign Deposits were flat, Checkable Deposits and Currency were down $42B, Time and Savings Deposits were up $54B, Securities repurchase agreements were up $198B, and Miscellaneous Assets were up $3B.

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

Crane Data's latest Money Fund Market Share rankings show assets were up sharply for most U.S. money fund complexes in May. Money fund assets increased by $91.1 billion, or 2.6%, last month to $3.510 trillion. Assets have climbed by $208.9 billion, or 6.3%, over the past 3 months, and they have increased by $452.0 billion, or 14.8%, over the past 12 months through May 31, 2019. The biggest increases among the 25 largest managers last month were seen by BlackRock, Goldman Sachs, Fidelity, Federated, Wells Fargo and Invesco, which increased assets by $16.7 billion, $16.2B, $15.1B, $9.9B, $9.7B and $8.4B respectively. We review the latest market share totals below, and we also look at money fund yields in May.

The only declines in assets among the largest complexes in May were seen by JP Morgan, whose MMF assets dropped by $6.3 billion, or -2.0%, and Northern, which declined $1.1 billion, or -1.0%. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.

Over the past year through May 31, 2019, American Funds (up $113.0B, or 680.9%; these were inflated by the addition last month of the $108 billion American Funds Central Cash Fund though), Fidelity (up $92.9B, or 15.8%), Vanguard (up $75.1B, or 24.2%), Federated (up $62.7B, or 32.7%), Schwab (up $24.3B, or 17.7%), Goldman Sachs (up $23.0B, or 12.4%) and JP Morgan (up $21.2B, or 7.5%) were the largest gainers. These complexes were followed by Northern (up $14.1B, or 14.2%), First American (up $13.2B, or 25.5%), UBS (up $12.6B, or 27.8%) and Wells Fargo (up $11.8B, or 10.8%).

American Funds, Vanguard, Fidelity, Federated, Invesco and BlackRock had the largest money fund asset increases over the past 3 months, rising by $111.5B, $24.5B, $16.8B, $14.4B, $8.9B and $8.0B, respectively. The only decliners over 3 months were: Northern (down $2.2B, or -1.9%), T Rowe Price (down $1.5B, or -4.3%), Western (down $1.3B, or -5.8%), DWS (down $708M, or -3.1%) and DFA (down $173M, or -0.8%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $680.2 billion, or 19.4% of all assets. That was up $15.1 billion in May, up $16.8 billion over 3 mos., and up $92.9B over 12 months. Vanguard ranked second with $385.7 billion, or 11.0% market share (up $2.7B, up $24.5B, and up $75.1B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $304.7 billion, or 8.7% market share (down $6.3B, up $2.6B, and up $21.2B). BlackRock ranked fourth with $293.6 billion, or 8.4% of assets (up $16.7B, up $8.0B, and down $5.5B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $254.5 billion, or 7.3% of assets (up $9.9B, up $14.4B, and up $62.7B).

Goldman Sachs remained in sixth place with $208.4 billion, or 5.9% of assets (up $16.2 billion, up $9.9B and up $23.0B), while Dreyfus held on to seventh place with $162.1 billion, or 4.6% (up $3.9B, up $2.3B and down $3.3B). Schwab ($161.4B, or 4.6%) was in eighth place (up $5.3B, up $5.5B and up $24.3B), followed by American Funds, which jumped up to ninth place the previous month with the launch of a massive new internal money fund ($129.6B, or 3.7%, down $1M, up $111.5B and up $113.0B). Wells jumped up to 10th place ($121.3B, or 3.5%; up $9.7B, up $5.8B and up $11.8B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Morgan Stanley ($118.8B, or 3.4%), Northern ($113.2B, or 3.2%), SSgA ($92.0B, or 2.6%), Invesco ($68.5B, or 2.0%), First American ($64.8B, or 1.8%), UBS ($57.9B, or 1.6%), T Rowe Price ($34.2B, or 1.0%), Franklin ($23.0B, or 0.7%), DWS ($22.0B, or 0.6%) and DFA ($21.7B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, one fewer than last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, and Morgan Stanley and Northern move ahead of American Funds. 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 ($688.7 billion), J.P. Morgan ($453.6B), BlackRock ($440.6B), Vanguard ($385.7B) and Goldman Sachs ($314.2B). Federated ($264.3B) was sixth, Dreyfus/BNY Mellon ($180.5B) was in seventh, followed by Schwab ($161.4B), Morgan Stanley ($153.0B) and Northern ($137.7B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The June issue of our Money Fund Intelligence and MFI XLS, with data as of 5/31/19, shows lower yield in May across most of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 748), fell 4 basis points to 2.07% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 2 to 2.08%. The MFA's Gross 7-Day Yield decreased to 2.49%, while the Gross 30-Day Yield inched lower 2 bps to 2.50%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 2.22% (down 5 bps) and an average 30-Day Yield that decreased to 2.23%. The Crane 100 shows a Gross 7-Day Yield of 2.48% (down 5 bps), and a Gross 30-Day Yield of 2.49%. For the 1-year return through 5/31/19, our Crane MF Average returned 1.87% and our Crane 100 returned 2.04%. The total number of funds, including taxable and tax-exempt, increased by 1 to 933. There are currently 748 taxable, up by 1, and 185 tax-exempt money funds, unchanged.

Our Prime Institutional MF Index (7-day) yielded 2.28% (down by 3) as of May 31 while the Crane Govt Inst Index was 2.15% (down 4 bps) and the Treasury Inst Index was 2.11% (down 5 bps). Thus, the spread between Prime funds and Treasury funds is 17 basis points, while the spread between Prime funds and Govt funds is 13 basis points. The Crane Prime Retail Index yielded 2.10% (down 5 basis points), while the Govt Retail Index was 1.85% (down 4 bps) and the Treasury Retail Index was 1.86% (down 4 bps). The Crane Tax Exempt MF Index yield had a big drop in May to 1.09% (down 64 bps).

Gross 7-Day Yields for these indexes in May were: Prime Inst 2.60% (down 4 bps), Govt Inst 2.45% (down 4 bps), Treasury Inst 2.42% (down 5 bps), Prime Retail 2.60% (down 5 bps), Govt Retail 2.45% (down 3 bps) and Treasury Retail 2.44% (down 4 bps). The Crane Tax Exempt Index decreased 67 basis points to 1.55%. The Crane 100 MF Index returned on average 0.19% over 1-month, 0.57% over 3-months, 0.92% YTD, 2.04% over the past 1-year, 1.16% over 3-years (annualized), 0.72% over 5-years, and 0.39% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The June issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Consolidation's Slow March Resumes in Cash Space," which reviews recent mergers and changes among money fund families; "Morgan Stanley Ultra Short Income Fund's Kolk & Wachs," a profile of MSIM's conservative ultra-short bond fund offering; and, "Fin-Tech Invasion Targets Low Bank Deposit Rates," which looks at new entrants challenging the savings and "cash" space. We've also updated our Money Fund Wisdom database with May 31 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 June Money Fund Portfolio Holdings are scheduled to ship on Tuesday, June 11, and our June Bond Fund Intelligence is scheduled to go out Friday, June 14.

MFI's "Consolidation," article says, "Consolidation and changes continue to slowly spread through the money fund space. As we've written, change paused following the adoption of Money Fund Reforms in October 2016 and the end of the zero rate environment. Last year, we saw some fund liquidations, particularly 'sweep' money funds. But we've seen a little pickup of late in the form of a couple of bigger deals. (See our Nov. 2018 MFI, "Money Fund Consolidation & Liquidations, Slight Return.")

It continues, "The latest involves a deal for Federated to buy PNC's fund assets, and the one before this was the Invesco and Oppenheimer funds merger, which was just completed. We review these latest changes, and list the liquidations and mergers over the past decade."

Our Morgan Stanley profile reads, "This month, we interview Morgan Stanley Investment Management CIO & Co-Head of Global Liquidity Jonas Kolk and Global Head of Liquidity Products Scott Wachs. We discuss MSIM's Ultra Short Income Fund, which recently broke above $15 billion in assets and had its 3-year anniversary, and talk about the fund's history, its investment strategies and a number of other topics in the near-cash and 'beyond cash' space. Our Q&A follows. (Note: We'll be publishing more of this interview in our upcoming June Bond Fund Intelligence too.)

MFI says, "Tell us about the Firm's history. Kolk responds, "We were one of the first in the money market business, launching our first fund in 1975. Given our history and some of the dynamics that we've gone through from a regulatory, and rate, standpoint, we viewed the ultra-short bond space as really a natural addition to our business. We thought that the conservative ultra-short space was a perfect opportunity to leverage our core capabilities and extend our product line."

Wachs says of MS Ultra Short Income, "The fund itself is by design a very, very conservative fund on the conservative end of the ultra-short fund spectrum. It's focus and objectives are very familiar to conservative liquidity investors, namely capital preservation, liquidity and yield. But we think the fund is very differentiated in the space for a number of reasons. One is the high credit quality of the portfolio. The investments in our fund are limited to high-quality money market instruments. Ninety-five percent of the portfolio holdings must be rated A1-P1, which is of course the highest rating for short-term obligations."

Our "Fin-Tech" update says, "In May, Investment News featured the article, 'Fintechs find new focus helping clients with cash management.' Subtitled, 'Robo-advisers, lenders and stock trading apps are all launching high-​yield savings accounts,' it explains that, 'Cash management is suddenly one of the hottest trends in financial technology. Since Wealthfront launched Federal Deposit Insurance Corp.-insured high-yield savings accounts in February, the digital adviser said clients have deposited more than $1 billion, generating $2.5 million in interest. With that success, Wealthfront is increasing interest rates on the cash accounts to 2.29%."

The latest MFI also includes the News Brief, "MMF Assets Break $3.5 Trillion," which says, "Assets jumped in May, rising $91.1 billion to $3.511 trillion according to Crane Data. ICI's latest stats show that MMF assets rose for the 7th week in a row, increasing by $119.7 billion, or 3.9%, since April 17. Money fund assets have increased by $115 billion, or 3.8%, year-​to-​date. Over 52 weeks, ICI's money fund asset series has increased by $285 billion, or 9.9%, with Retail MMFs rising by $192 billion (18.6%) and Inst MMFs rising by $93 billion (5.0%)."

Our June MFI XLS, with May 31, 2019, data, shows total assets rose by $91.1 billion in May to $3.511 trillion, after rising $105.7 billion in April (this included the addition of the $108 billion American Funds Central Cash Fund), falling $10.2 billion in March and gaining $56.4 billion in February. Our broad Crane Money Fund Average 7-Day Yield fell to 2.07% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 2.22%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 3 basis points to 2.49% and the Crane 100 fell to 2.48%. Charged Expenses averaged 0.42% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 30 and 31 days, respectively (up one bp and unchanged, respectively). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

PIMCO released a new video entitled, "Quick Takes: Can De Risking Portfolios Support Returns Too?" The description says, "For investors looking to earn income and de-risk portfolios, short-term investments may be an attractive opportunity. Portfolio manager Jerome Schneider discusses why an allocation to the asset class should be more than an afterthought." They also recently published the paper, "How to Overcome the Structural Bias in Cash and Short-Term Investing," which tells us how "behavioral science can help identify biases that result in poor investment decisions." We review both below.

The video says, "My name is Jerome Schneider head a short term portfolio strategies here at PIMCO. For investors, the past few months have been quite volatile and as a result many investors are looking to de-risk their portfolios. We've seen an increase of over $300 billion of assets specifically into traditional money market funds as a result over the past year. In fact, the curve has flattened tremendously between the 2-year and the 10-year note. What investors don't understand is that they actually might stay in these money market fund strategies much longer than they've typically expected."

He explains, "So for investors looking to earn a little bit more income, the front end of the yield curve offers traditional opportunities that we haven't seen for quite a while, simply because they're taking less interest rate risk than the longer into the yield curve but earning approximately the same yield. The current environment has created a unique opportunity for the short term universe -- significantly higher yield potential than just three years ago, with considerably less duration risk, than the longer end of the yield curve. Investors need to be focused on active management possibilities for that de-risking portfolio."

Schneider continues, "Traditionally investors have simply looked at the yield and sought to achieve some type of de-risked return. But really the focus of the opportunity these days is on total return. The composition of income, plus opportunities for capital appreciation along the way. That total return produces incremental opportunities. So for us, active management is a clear differentiator for investors who want to be thinking about preserving liquidity, maintaining capital preservation, defending themselves against market volatility and also having some income along the way."

He adds, "So at this point in time, these strategies are effectively not just an afterthought, but an actual active allocation to your portfolio strategy. Given the flat yield curve, given the opportunity for total return, this is an opportunity in the uncertain environment that is potentially ahead of us."

The "Structural Bias in Cash" paper tells us, "Behavioral scientists are skilled at analyzing why we make mistakes, and financial and investment decisions have been a ripe field to till. The challenge lies in overcoming our biases that result in poor decisions, particularly in today's late economic cycle environment with moderate economic growth, dramatic bouts of market volatility, and low long-term interest rates. Jerome Schneider, head of PIMCO's short-term portfolio management team, and Jan Faller, portfolio risk manager, discuss in the following Q&A some key biases and share their thoughts on one area where they believe individual and institutional investors can improve: managing their cash and liquidity."

The Q&A asks, "Jerome, how does behavioral science apply to investing?" He responds, "Schneider: Some of the most basic premises of investing are steeped in biases that are innate in human nature, and this is what makes behavioral science such a fascinating field to us. As investment managers, we could discuss dozens of biases, but among the most prevalent for investors are status quo bias, loss-aversion bias, and confirmation bias. All can be hazardous to a portfolio and to reaching investment objectives."

Schneider continues, "We believe the awareness of these biases and the insights that behavioral science can provide have a highly useful purpose amid current high valuations for many assets and the maturing economic expansion. As active investment managers, we should not only be aware of and address our own biases, but also consider those prevalent in the marketplace. In this way, we can be more cognizant of the biases that may limit investment performance, and by doing so we believe we can provide a valuable service to clients."

Faller comments, "PIMCO incorporates behavioral finance into its investment and risk management processes – particularly the concept of loss aversion, meaning that the psychic pain of losses can lead investors to make poor risk/return decisions that put their investment objectives at risk. Daniel Kahneman, a 2002 Nobel laureate, and colleague Amos Tversky were the first to document this human bias, and Richard Thaler, a 2017 Nobel laureate, contributed to advancing our understanding of its applications."

Schneider adds, "Within short-term portfolio management specifically, we aim to limit bias, including loss aversion, through our team-based approach. Each member of the short-term investment team brings different views and experiences – often in sectors beyond the cash and short-term management space. Along with input from our analytics group, the team approach allows us to routinely challenge market norms and adjust portfolios as needed. Our risk management group also plays an important role by asking questions of portfolio managers in an effort to improve objectivity and help discover potential biases in portfolio positioning."

He also comments, "In short-term investing, we aim not only to preserve clients' capital but also to limit volatility, and we believe addressing biases like loss aversion can help us achieve both goals.... A good example is the bias to considering only one choice when managing liquidity, when in fact there are many strategies that have track records in managing short-term assets. The world has more opportunities than it did during the last recessionary period, and yet investors continue to allocate to traditional money market funds and Treasury bills as a psychological default. Money market funds held more than $3 trillion at the end of March, according to Bloomberg, the highest level in about a decade – and back then, investors were putting money in these funds in the wake of the global financial crisis."

Schneider tells us, "When it comes to portfolio liquidity, we appreciate that vehicles such as money market funds can be appealing to invest one's cash and wait out market turbulence. However, investors may want to consider that the return on these funds generally comes mainly from yield − often below benchmark rates − rather than from a combination of yield and capital appreciation, and also that both the loss-aversion and status quo biases can result in leaving assets in such vehicles for long periods."

Finally, PIMCO says, "We believe it is critical for investors to approach cash and short-term investments as a true structural allocation instead of an afterthought or default reaction. This process begins with considering how much liquidity is actually needed over various horizons and how much risk an investor can tolerate.... Tiering liquidity can enable investors to target assets that best match a given investment horizon and risk tolerance, and help investors overcome the status quo and structural biases that could be detrimental to their investment goals."

J.P. Morgan Securities' latest "Short-Term Fixed Income" weekly includes a "Non-financial CP update," which discusses a rebound in non-financial commercial paper. They write, "Since the beginning of the year, total US commercial paper outstandings have increased by $74bn, with the vast majority of the increase coming from non-financial companies.... Somewhat surprisingly, this year's growth in non-financial CP followed a year where we saw large reductions in corporate CP outstandings." We excerpt from their comments, and also quote from Federated's latest monthly commentary, below.

The Non-financial CP update explains, "Coming into 2019, we had anticipated the downward pressure on corporate balances would continue as corporations with offshore cash would likely continue to rely on it as a source of liquidity rather than borrow in the CP market. M&A was also expected to slow. Ratings downgrade pressure as a result of rising leverage would have also limited supply, particularly given the late stage in the economic cycle. Yet, this clearly did not turn out to be the case as we saw nonfinancial CP outstandings grow to a record high of $345bn a couple weeks ago."

It continues, "Notably, a look at the top 20 non-financial issuers whose CP balances saw the most growth year-to-date reveals that the growth was broad-based across a range of issuers as opposed to being concentrated in a few.... In fact, based on DTCC data, we estimate there are 270 non-financial issuers that currently have non-zero outstandings in the CP market versus 258 at the start of the year, with Tier 2 issuers comprising much of the difference. This suggests to us that more corporations are increasingly tapping the CP market as a source of funding, which makes sense given the relative cost of issuing CP versus accessing other parts of the capital markets."

Among the 20 issuers with the largest YTD increases, JPM lists: Exxon, United Health, IBM, Walt Disney, Cisco, TOTAL, DowDuPont, Sanofi, Nestle, BASF, Anheuser-Busch, General Dynamics, Philip Morris, Dominion, NextEra, Schlumberger, Archer-Daniels, CenterPoint, Mondelez and EssilorLuxotica.

Authors Alex Roever, Teresa Ho and Ryan Lessing state, "Indeed, a Tier 1 and Tier 2 issuer can issue 3m CP at a yield of ~2.45% (3mL − 5bp) and ~2.75% (3mL + 25bp), while access to their bank facilities could cost north of 75bp above 3mL. Alternatively, non-financial companies can access the term debt markets, but yields along the curve have generally been north of 3% (though that is coming down as Fed expectations have pushed rates lower and the curve flatter)."

They add, "Also boosting non-financial CP balances higher has been the demand for nonfinancial paper. With a flat money markets curve and technicals pushing spreads tighter, finding yield has become increasingly difficult. However, with the stickiness that generally comes with non-financial CP yields, this sector has remained relatively cheap compared to other asset classes. Indeed, a look at Tier 1 non-financial yields shows that an investor can still pick up 3-6bp over Treasury bills as the latter asset class has been much quicker to rally on the back of reduced supply and changes in Fed expectations.... Likewise, yields of Tier 2 non-financial CP remain about 20bp higher than other credit-based issuers of similar maturity."

Finally, JPM says, "Perhaps it's not surprising then that prime MMFs have more than doubled their nonfinancial CP balances YTD, from $22bn as of December 2018 to $57bn as of April 2019. As investors continue to assess the probability of Fed cuts later this year, nonfinancial CP, much like repo, could be useful in helping investors stay liquid and pick up yield at the same time, particularly as the maturity of non-financial CP tends to be less than three months."

In other news, Federated Investors' Deborah Cunningham writes that "Investors shouldn't go looking for trouble" in her latest "Month in Cash" column, saying, "Investors are overreacting to the flattening of the short end of the yield curve." She tells us, "{L]ately, you can make a strong case that investors at the short end of the yield curve are not using common sense. In May the yield curve flattened, briefly twisted (3-month and 1-year Treasury yields dipping below 1-month) and then flattened again, but with the 1-year lower. These days, it appears that the 1-year is joining the larger inversion out the curve."

She continues, "Perhaps irrational is too strong a word, but recent investor behavior is -- to use financial jargon instead of academic textbooks -- overdone. The flattener is simply not justified by the domestic economic data that, while moderating, is still strong. We are among the many who think the U.S. is not likely headed to a recession anytime soon. While significant, all of the geopolitical issues circling, such as trade conflicts, central bank easing and Brexit, hardly justify this overreaction. Nor does the likelihood of the Federal Reserve being on hold for the remainder of 2019. The issue seems to be a case of investing via group think."

Federated's Liquidity CIO explains, "But some investors may be overthinking. One of the reasons for the recent flattening is a misread, in our view, of a very technical maneuver by the Federal Reserve that investors shouldn't be tracking anyway: interest on excessive reserves (IOER). The story goes like this: by cutting the interest the Fed pays banks on the money they keep in their Fed accounts, policymakers have surreptitiously lowered rates."

She tells us, "People seem to have forgotten that the Fed has lowered IOER twice within the last six months without any market consternation. The only difference is that they were raising the fed funds target rate at the time. With rates on hold, the market seems to be perceiving the reduction as a proxy for a rate cut -- the easing that so many have already forecast. But the fact is that the Fed tightened IOER to give it more control over monetary policy from a federal funds perspective, and also to incentivize banks to move funds into the marketplace. It isn't easing."

Cunningham says, "The good news for cash managers is that money market funds remain attractive in this environment. That's especially the case when compared to Treasuries and bank deposits, whose rates are falling and weren't great to begin with."

Finally, she adds, "In contrast, flows continue to be positive into all three money fund categories (government, tax free and prime). Prime money funds have benefited because their reference rate, the London interbank offered rate, has not inverted. Media outlets have written that high-net-worth families have a significantly higher percentage of money in cash. In short, liquidity products are a solid option, even though rates are steady and look to be that way for some time."

Back in October 2018, we wrote about Invesco making a deal to take over Oppenheimer's money market funds. (See our Oct 22 News, "Invesco Buying OppenheimerFunds.) While the full integration has yet to take place, the official merger date of 5/24/19 has passed, and the Oppenheimer funds have been renamed Invesco Oppenheimer. We review the merger and changes below, and we also discuss changes to the Dreyfus/BNY Mellon funds which take effect Monday, June 3.

The original press release on the purchase, entitled, "Invesco announces Combination with OppenheimerFunds," told us, "Invesco Ltd. (IVZ) ... announced a combination with OppenheimerFunds, a strategic partnership with Massachusetts Mutual Life Insurance Company (MassMutual) and a $1.2 billion common stock buyback program."

It quoted Invesco President and CEO Martin Flanagan, "The combination with OppenheimerFunds and the strategic partnership with MassMutual will meaningfully enhance our ability to meet client needs, accelerate growth and strengthen our business over the long term.... This is a compelling, highly strategic and accretive transaction for Invesco that will help us achieve a number of objectives: enhance our leadership in the US and global markets, deliver the outcomes clients seek, broaden our relevance among top clients, deliver strong financial results and continue attracting the best talent in the industry."

He added, "We have long held OppenheimerFunds' people and strong investment performance track record in high regard.... OppenheimerFunds' culture and commitment to high-conviction investing complement our own, and the combination will create significant opportunities for the talented professionals of both companies."

A filing for the funds says, "In connection with the Transaction, it is anticipated that certain of the investment personnel associated with the Oppenheimer mutual fund business, as well as other Oppenheimer personnel, would transition to Invesco at closing. As a result, Invesco is anticipating that the current portfolio management teams associated with each Oppenheimer Fund will continue to manage the corresponding Acquiring Fund. Combining the Oppenheimer Funds and the Invesco family of funds onto a single operating platform will create a larger fund family that offers a broad range of equity, fixed-income, alternative and other investment options."

The money market fund changes include: Oppenheimer Government Cash Reserves, Class A, C and R are now Invesco Oppenheimer Government Cash Reserves Fund Class A, C and R. The fund also has new Class R6 and Class Y shares. Oppenheimer Government Money Market Fund Class A and Y will merge into Invesco Oppenheimer Government Money Market Fund Class Y. The new fund will also have Class C, Class R, Class R6 and Invesco Cash Reserve shares.

Oppenheimer Institutional Government Money Market Fund Class E and L will convert into Invesco Oppenheimer Institutional Government Money Market Fund Institutional shares. The Class P shares will become Private Investment Class shares. Finally, Oppenheimer Ultra-Short Duration Fund Class A, I and Y will become Invesco Oppenheimer Ultra-Short Duration Fund A, R6 and Y. Note that the CUSIPs have changed on all these funds too.

Prior to the merger, Invesco was the 15th largest manager of money funds with $60.1 billion, while Oppenheimer was the 31st largest manager with $7.9 billion. `The combined Invesco/OppenheimerFunds should rank 14th (below SSGA) with $68.0 billion. (See the pending June issue of our Money Fund Intelligence XLS for the updated funds and statistics.)

In other fund name change news, we wrote in our March 5, 2019 News, "BNY Keeps Dreyfus Name on Money Funds; Brokerage Sweep Rates Flat which said, "BNY Mellon Investment Management announced ... that its money market funds will keep the Dreyfus name, but that it is "rebranding the Dreyfus retail business and long-term mutual funds in the U.S. to align with the BNY Mellon Investment Management brand, effective on or about June 3, as part of a larger global brand initiative."

The original release, entitled, "BNY Mellon Investment Management to Rebrand Dreyfus ... Money Market Funds to Retain Dreyfus Name," stated, "This rebrand will more clearly reinforce for investors BNY Mellon Investment Management's reputation and position as one of the world's largest investment managers. To reflect the strong heritage of Dreyfus in cash management strategies, the Dreyfus brand will be retained on money market funds."

On Monday, the Dreyfus fund complex will be known as "Dreyfus Cash Investment Strategies;" the fund distributor will be "BNY Mellon Securities Corporation;" and the fund adviser will be "BNY Mellon Investment Adviser, Inc." Dreyfus is the 7th largest manager of money market funds with $158.2 billion as of April 30.