News Archives: December, 2020

The Investment Company Institute (ICI) released its latest weekly "Money Market Fund Assets" report, as well as its monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for November 2020 yesterday. The first release shows money fund assets falling in the latest week, their 18th decrease in the past 22 weeks. Assets have fallen $492 billion since May 20, when they were at a record $4.789 trillion (after rising $1.1 trillion in March and April 2020). ICI shows money fund assets up a still massive $665 billion, or 18.3%, year-to-date in 2020 (and over the past 52 weeks), with Inst MMFs up $510 billion (22.5%) and Retail MMFs up $156 billion (11.4%). Though 2020 saw a massive cash buildup due to the coronavirus shutdown, the percentage gain on the year likely will lag that of 2019's slightly -- up 18.3% this year vs. an increase of 19.2% last year. The dollar gain is bigger though -- up $665 billion vs. $584 billion increase in 2019 -- and the biggest since 2008's $685 billion. (Note: Happy New Year!)

ICI says, "Total money market fund assets decreased by $23.09 billion to $4.30 trillion for the week ended Tuesday, December 29.... Among taxable money market funds, government funds decreased by $16.99 billion and prime funds decreased by $5.56 billion. Tax-exempt money market funds decreased by $542 million." ICI's stats show Institutional MMFs decreasing $24.3 billion and Retail MMFs increasing $1.2 billion. Total Government MMF assets, including Treasury funds, were $3.651 trillion (85.0% of all money funds), while Total Prime MMFs were $539.8 billion (12.6%). Tax Exempt MMFs totaled $105.9 billion (2.5%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)

They explain, "Assets of retail money market funds increased by $1.23 billion to $1.53 trillion. Among retail funds, government money market fund assets increased by $3.04 billion to $1.15 trillion, prime money market fund assets decreased by $1.32 billion to $278.88 billion, and tax-exempt fund assets decreased by $491 million to $94.94 billion. Retail assets account for just over a third of total assets, or 35.5%, and Government Retail assets make up 75.5% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds decreased by $24.32 billion to $2.77 trillion. Among institutional funds, government money market fund assets decreased by $20.03 billion to $2.50 trillion, prime money market fund assets decreased by $4.24 billion to $260.94 billion, and tax-exempt fund assets decreased by $51 million to $10.98 billion. Institutional assets, which broke below the $3.0 trillion level for the first time since April 22 at the end of August, accounted for 64.5% of all MMF assets, with Government Institutional assets making up 90.2% of all Institutional MMF totals.

Their monthly Trends report shows that money fund assets decreased from $4.357 trillion in October to $4.345 trillion in November, after decreasing $47.6 billion in October, $118.4 billion in September and $56.7 billion in August, $55.4 billion in July and $133.5 billion in June. Prior to this, assets increased $31.8 billion in May, $399.4 billion in April and $690.6 in March. For the 12 months through Nov. 30, 2020, money fund assets have increased by a massive $779.6 billion, or 21.9%. (Month-to-date in December, MMF assets have decreased by $18.6 billion through 12/30, according to our MFI Daily.)

ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds increased by $1.46 trillion, or 6.7 percent, to $23.28 trillion in November, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $42.86 billion in November, compared with an inflow of $44.96 billion in October ... Money market funds had an outflow of $11.65 billion in November, compared with an outflow of $47.68 billion in October. In November funds offered primarily to institutions had an outflow of $7.95 billion and funds offered primarily to individuals had an outflow of $3.70 billion."

ICI's latest statistics show that both Taxable MMFs and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $8.0 billion in November to $4.237 trillion. Tax-Exempt MMFs decreased $3.7 billion to $108.2 billion. Taxable MMF assets increased year-over-year by $809.7 trillion (23.6%), while Tax-Exempt funds fell by $30.1 billion over the past year (-21.8%). Bond fund assets increased by $119.8 billion in November (2.4%) to $5.122 trillion (they broke above the $5.0 trillion level the prior month); they've risen by $467.9 billion (10.1%) over the past year.

Money funds represent 18.7% of all mutual fund assets (down 1.3% from the previous month), while bond funds account for 22.0%, according to ICI. The total number of money market funds was 345, down two from the month prior and down from 363 a year ago. Taxable money funds numbered 270 funds, and tax-exempt money funds numbered 75 funds.

ICI's "Month-End Portfolio Holdings" confirms a jump in Repo holdings, but decreases in most other sectors last month. Treasury holdings in Taxable money funds remain the largest composition segment (since surpassing Repo in April). Treasury holdings increased by $10.7 billion, or 0.5%, to $2.239 trillion, or 52.9% of holdings. Treasury securities have increased by $1.198 trillion, or 115.2%, over the past 12 months. (See our December 10 News, "December MF Portfolio Holdings: Repo Retakes $1 Trillion, Agencies Drop.")

Repurchase Agreements were in second place among composition segments; they increased by $68.6 billion, or 7.1%, to $1.028 trillion, or 24.3% of holdings. Repo holdings have dropped $88.9 billion, or -8.0%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $22.1 billion, or -3.3%, to $646.6 billion, or 15.3% of holdings. Agency holdings have fallen by $69.6 billion, or -9.7%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they decreased by $4.5 billion, or -2.4%, to $184.2 billion (4.3% of assets). CDs held by money funds shrunk by $105.7 billion, or -36.5%, over 12 months. Commercial Paper remained in fifth place, down $4.8 million, or -2.8%, to $165.3 billion (3.9% of assets). CP has decreased by $80.3 billion, or -32.7%, over one year. Other holdings decreased to $30.6 billion (0.7% of assets), while Notes (including Corporate and Bank) were up to $6.7 billion (0.2% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 40.319 million, while the Number of Funds was unchanged at 270. Over the past 12 months, the number of accounts rose by 3.363 million and the number of funds decreased by 13. The Average Maturity of Portfolios was 45 days, unchanged from October. Over the past 12 months, WAMs of Taxable money have increased by seven.

Last week, we covered the "Report of the President's Working Group on Financial Markets" and new "Overview of Recent Events and Potential Reform Options for Money Market Funds." (See our Dec. 24 News, "PWG Paper Discusses Potential Reform Options for Money Market Funds.") Today, we highlight more, in particular the discussion of potential money market reform options. The PWG writes, "An assessment of the effectiveness of reform options in achieving these goals should take into account: (a) how each option would address MMF structural vulnerabilities and contribute to the overarching goals; (b) the effect of each option on short-term funding markets and the MMF sector more broadly, including through its effects on the resilience, functioning, and stability of short-term funding markets, as well as whether the reform option would trigger the growth of existing investment strategies and products, or the development of new strategies and products, that could either exacerbate or mitigate market vulnerabilities; and (c) potential drawbacks, limitations, or challenges specific to each reform option. The reform options considered in this report seek to achieve the goals in different ways. For example, some are intended to address the liquidity-related stresses that were evident in March 2020, while others also touch on potential credit-related concerns. This menu of options reflects the possibility that future financial stress events may affect the liquidity of short-term investments, their credit quality, or both."

A section entitled, "How the reform options would seek to achieve the goals," tells us they would, "Internalize liquidity costs of investors' redemptions, particularly in stress periods. Some options would impose a cost on redeeming investors that rises as liquidity stress increases to reflect the costs of redemptions for the fund. These options, particularly swing pricing and the MBR [minimum balance at risk], could reduce or eliminate first-mover advantages for redeeming investors and protect investors who do not redeem."

They may also, "Decouple regulatory thresholds from consequences such as gates, fees, or a sudden drop in NAV. Some options, such as those that revise fee and gate thresholds or introduce the floating NAV for retail prime and tax-exempt MMFs, could eliminate or diminish the importance of thresholds (such as 30 percent WLA or an NAV of $0.995) that may spur investor redemptions. By diminishing the importance of thresholds, these options could also give MMFs greater flexibility, for example, to tap their own liquid assets to meet redemptions."

Reforms might, "Improve MMFs' ability to use available liquidity in times of stress. In March 2020, some prime and tax-exempt MMFs may have avoided using their liquid assets to meet redemptions. Options such as countercyclical WLA requirements or revisions to fee and gate thresholds could make MMFs more comfortable in deploying their liquid assets in times of stress." They could also "Commit private resources ex ante to enable MMFs to withstand liquidity stress or a credit crisis. When prime and tax-exempt MMFs have encountered serious strains, official sector interventions have followed quickly. Options such as capital buffers, explicit sponsor support, and the LEB could provide committed private resources to supply liquidity or absorb losses and thus reduce the likelihood that official sector support would be needed to calm markets."

Other options include to: "Further improve liquidity and portfolio risk management. Changes to liquidity management requirements could include raising required liquid-asset buffers. Other options could motivate more conservative risk management by explicitly making fund sponsors or others responsible for absorbing any heightened liquidity needs or losses in their MMFs." Or to: "Clarify that MMF investors, rather than taxpayers, bear market risks. Government support has repeatedly provided emergency liquidity to prime and tax-exempt funds and also has obscured the risks of liquidity and credit shocks for MMFs. Some options, such as the floating NAV for retail prime and tax-exempt MMFs, swing pricing, and the MBR could make risks to investors more apparent."

Discussing the "Effects on the short-term funding markets," the report comments, "The reform options are intended to reduce the structural vulnerabilities of MMFs, which could make them a more stable source of short-term funding for financial institutions, businesses, and state and local governments. This would improve the stability and resilience of short-term funding markets."

It continues, "At the same time, some of the reform options would likely diminish the size of prime and tax-exempt MMFs, which would also affect the functioning of short-term funding markets. A shrinkage of MMFs could reduce the supply of short-term funding for financial institutions, businesses, and state and local governments. Making prime and tax-exempt MMFs less desirable as cash-management vehicles also could cause investors to move to less regulated and less transparent mutualized cash-management vehicles that are also susceptible to runs that cause stress in short-term funding markets."

The PWG explains, "A reduction in the size of prime and tax-exempt MMFs may not necessarily be inappropriate if, for example, the growth of these funds has reflected in part the effects of implicit taxpayer subsidies and other externalities (that is, broader economic costs of runs that are not borne by investors or the funds). In addition, if these MMFs remain run prone, a reduction in the size of the industry could mitigate the effects of future runs from these funds on short-term funding markets."

It tells us, "The aftermath of the 2014 MMF reforms provides a precedent for the consequences of a substantial reduction in the size of prime and tax-exempt funds, although a future experience could differ. In the year before the October 2016 implementation deadline for those reforms, aggregate prime MMF assets shrank by $1.2 trillion (69%) and tax-exempt MMF assets declined about $120 billion (47%). Nonetheless, to the extent that spreads for instruments held by these MMFs were affected, they generally widened only temporarily, and investor migration to other mutualized cash-management vehicles was largely limited to shifts to government MMFs. (Over the next three years, prime MMFs regained about half of the 2015-2016 decline.)"

The report emphasizes, "These considerations are important, because some of the reform options could reduce the size of the prime and tax-exempt fund sectors by: Reducing attractiveness of prime and tax-exempt MMFs for investors. The costs associated with some options, such as capital buffers and LEB membership, may reduce the funds' yields. The MBR would limit the liquidity of their shares in some circumstances. The floating NAV requirement and swing pricing would make NAVs more volatile and MMF shares less cash-like. And investors may view some policies, such as swing pricing and the MBR, as unfamiliar, restrictive, and complicated."

It also discusses, "Increasing costs associated with MMF sponsorship. Some options, such as the introduction of capital buffers, required LEB membership, and explicit sponsor support, could raise operating costs for sponsors. Other options, such as swing pricing and MBR, may also have sizable implementation costs. Increased costs and operational complexity could lead to increased concentration and a reduction in the overall size of the MMF industry."

Finally, the report adds that, "Evaluation of the reform options also should take into account potential drawbacks, limitations, and challenges of each option, such as implementation challenges or limits on an option's ability to achieve the desired goals. The report discusses these considerations for each option below." (For more coverage, see the FT's "Money market funds need reform to prevent runs, US regulators say" and Cadwalader's "President's Working Group Reviews COVID-19 Impact on Money Market Funds.")

Western Asset recently hosted a webinar entitled, "The Fed and Liquidity Markets – Is This Time Different?" The discussion features Western's John Bellows, Kevin Kennedy and Matt Jones, with the three focusing on short-term investments and "how the Fed shaped its response to the Covid-related economic downturn." On navigating current market conditions, Kennedy comments, "Obviously there are multiple forces which will lead towards rates moving a bit lower next year rather than higher. For the front end of the market, there will be a decline in Treasury bill issuance of ... significance. Early in the year, there will be a drop in the Treasury general account in order to pay for the new stimulus, which is now roughly about $900 billion.... That, along with the fact that the Fed is continuing to purchase $120 billion of securities on a monthly basis, leads to a technical situation in the front end of the market, which leads towards rates being a little bit lower than they were in 2020. That will lead towards rates such as SOFR, the Fed funds effective, perhaps LIBOR to a certain extent -- all of these rates moving a touch lower next year.... Also, there will be a bit of a decline as far as issuance on the part of both commercial paper and CD issuers next year. So that is certainly a challenge, but there is room for optimism."

He continues, "The Fed is in a situation where they are not comfortable with rates being consistently towards the lower end of their targeted range, which is zero to 25 basis points. They do have tools at their disposal to make sure that we do have rates remaining above zero.... The tools they have at their disposal include perhaps raising the rate on reverse repo where money market funds and the GSEs and banks can invest directly with the Fed and perhaps get higher rates. So, at some point they may move that rate from zero to five basis points. The Fed may also adjust IOER, interest on excess reserves, higher. Right now, it's 10 basis points and that might move to 15 basis points. They may want to keep that type of corridor. The Fed will be there certainly monitoring rates if they do start to flirt with that zero lower bound."

Discussing issuance, Kennedy says, "Even though bill issuance will decline, bill issuance last year increased by $2.5 trillion [and] Treasury note issuance increased by $1.4 trillion. There is already a huge increase in Treasury supply that's taken place last year [and] over years prior, and this coming year there will still be the need for a great deal of funding. Even though the Fed is not going to focus on Treasury bills to raise those funds, they will continue to raise the Treasury notes, and that will probably more than offset the decline in bill issuance. A continued increase in debt outstanding will lead to financing rates that will remain positive, so that is something that works towards rates staying above that zero lower bound.... I think we'll see more issuance from the commercial paper side, from bank product, and eventually we'll see rates perhaps even under some modest upward pressure at some point during the middle of next year."

Bellows comments, "If you think about the tools and the things [the Fed] rolled out in March, a lot of those were just the same that they had done in the previous crisis. There were some new ones, there were some red lines that were crossed. But they just used what they had done previously.... So, I think there's this real kind of ratchet effect in terms of, once they've introduced something it's now available to be reintroduced again. I just want to say that I think it's a big deal, and I think that suggests more Fed support for credit markets, for money markets ... than was there previously. Again, because they have crossed those red lines, there is a ratchet effect in the way that these programs are rolled out the next time after having been introduced.... So, I think that kind of Fed involvement in credit markets is going to be there."

He adds, "It's worth mentioning that money market mutual funds got kind of a special place in this. It was one of the first parts of the market that was backstopped with the liquidity facility where the Fed was making loans to banks that had bought assets from money market funds. And it continues to be singled out. A lot of the ... facilities are ending. Secretary Mnuchin ended the corporate facility, or will end it at the end of the year. But he singled out the money market fund facility to keep going another three months. He said he was doing that out of an 'abundance of caution.' So, the point here is that the Fed's involved, along with Treasury, in supporting these markets -- money funds maybe more than others."

Regarding the LIBOR and SOFR transition, Kennedy says, "On the money market side, we are seeing a much higher percentage of SOFR floaters issued relative to LIBOR-based. There are still LIBOR floaters being issued, we expect to continue to see that. I think that investors, including ourselves, will be somewhat less willing to buy any LIBOR floaters with a maturity on December of next year when it's expected regulators ... suggest or demand, certainly, that there be no more LIBOR related transactions or issuance. Several months ago, the GSEs stopped issuing LIBOR-based floaters. It's all SOFR at this point, though there could be some other indices, prime for instance, or bills."

He continues, "Money markets are getting used to it. There is certainly a basis swap element to it when you're trying to overlay some sort of credit component to SOFR. I think the investors are getting used to that, even though that's far from finalized.... We don't see much change except as far as percentage of our floating rate positions in LIBOR; they're much less, but they're still extremely liquid. We anticipate that LIBOR-based floaters will continue to be liquid until, say, the middle, or toward the end of next year. We're not shying away from them at this point, they do offer a greater relative value ... LIBOR will be around for a while. SOFR is getting a lot more attention as the months progress, especially as we get into the middle of next year. We think SOFR will have gone a long way towards representing an extremely high percentage of money market floating rate securities that are in the marketplace."

When asked, "Where do active fixed income managers find opportunities now?" Bellows answers, "One of the observations that we've made in our investment committees that Kevin and I are both on is, there's a pretty optimistic outlook in terms of the combination of above trend growth and accommodative policy, that's the good news. The bad news is a lot of the markets already reflect this and prices are already quite high, so spreads are tight, especially in front end corporates, for instance. We certainly recognize that challenge, and markets are forward looking they've kind of gotten ahead of that, and it's a challenge."

He continues, "One of the things to be really thoughtful about in terms of front end corporates is they now have this kind of uniquely high Sharpe ratio.... First of all, there is some risk premium there, just corporate risk premium or corporate credit spreads, and so you do need to earn a little bit more by being exposed to US corporate credit. The thing that's changed this year is I think they also have this backstop from the Fed. And as I said, I do think that there's an expectation that even if the facilities expire in December, that those backstops have now been established and could be redeployed if needed.... That means you're going to have a little bit less volatility, both because those backstops are available, but also because investors know those backstops are available.... Obviously, some of that's already reflected the level of spreads. We continue to think that is an opportunity."

Bellows also says, "I think it's a fairly compelling opportunity. It's an argument for maintaining exposure to a little bit of yield products in the front end of the yield curve. Whether that's in corporate credit or maybe even some structured credit, you know, having that combination of out yielding in potential total return from the yield, together with the lower volatility because of the backstops, I think it's compelling. I don't want to minimize the question because it's a really good one. Spreads are tight, that makes everybody's job harder. But I do think that thinking through the Sharpe ratio implications of what's happened suggests that there's still a case for further involvement."

Jones adds, "We have to talk about Prime money market funds. If you go back to March and April, the Financial Stability Board and agencies and regulators around the world are focused on many of the key market issues. Prime money market funds for a time there in March and April were in the spotlight, as some of the SEC's 2a-7 regulation introduced back in 2016 actually became part of the conversation. But again ... it wasn't about credit.... It was about liquidity. We firmly believe there's a place for Prime money market funds. But what are your thoughts around the future of prime investment moving forward?"

Kennedy answers, "March drew a lot of attention to money market funds. I think that you can make the argument certainly that there was a little bit too much attention.... All markets were basically frozen. I think money market funds had a disproportionate share of attention, but that's my personal view. It's obvious that after March money funds had to respond, perhaps ... in deference to what the regulators might be looking towards and what they might look to ask from Prime money market funds down the road as far as new types of regulations."

He explains, "Across the Prime fund space, we did what we think made our client base comfortable, which was increase our liquidity percentages. So, in our liquidity buckets, we might have run that close to 40% before March, certainly that became closer to 50%.... Also, when we're looking further out the curve, we were more inclined to buy securities that were eligible for the MMLF, the Money Market Liquidity Facility, and we think that added another layer of comfort to our client base. And certainly, as John said, those programs that are in place in this quarter of the fixed income markets ... that's something that also supports Prime money market funds, which I think is something that continues to make them attractive and a very good investment option."

Kennedy continues, "Probably overwhelmingly the most important thing in the marketplace today is the strength of the financial institutions that really make up the securities that we're buying into Prime money market funds.... That's the case for funds, that's the case for U.S. banks, financial institutions here in the U.S. and overseas.... This was certainly forced upon them by the regulators, but they certainly have much more in the way of capital. They've certainly moved away from more risky types of leverage-based enterprises.... I think at the onset of the crisis, there was a view that there would inevitably be some downgrades to some of the banks, if only because of a shift in the macro view and to a certain extent that did happen. There have been some modest downgrades, some negative outlooks. But really the underlying strong level of these institutions' capital bases has really offset those concerns."

Finally, Bellows adds, "As I said, I think the Money Market Fund facility has been distinguished as a really important one and Mnuchin singled it out.... Currently extending through March, it wouldn't surprise me if there's another three months as well. But I think the more important takeaway is that the Fed has demonstrated they do not want these markets to fail and they're going to continue to find ways to support them. And I certainly think that goes for money funds, but I think that can be said more broadly for credit markets."

With the coming of the New Year, Crane Data is ramping up preparations for its 2021 conference calendar. We'll be doing virtual events in January (Money Fund University on Jan. 21-22) and in March (Bond Fund Symposium, March 25-26). But we hope to return to live events by June. Crane's Money Fund Symposium, the largest gathering of money market fund managers and cash investors in the world, will take place June 23-25, 2021 at The Loews Philadelphia, in Philadelphia, Pa. The preliminary agenda is now available and registrations are now being taken. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. We review our preliminary agenda, as well as Crane Data's other 2021 conferences, below.

Our MF Symposium Agenda kicks off on Wednesday, June 23 with a keynote on "MMFs Adapting to Regulations, Tech & ESG" with Tom Callahan of BlackRock, Deborah Cunningham of Federated Investors and Peter Crane of Crane Data. The rest of the Day 1 Agenda includes: "Treasury Issuance & Repo Update," with Mark Cabana of BofA Securities, Dina Marchioni of Federal Reserve Bank of New York and Tom Katzenbach of the U.S. Treasury; a "Corporate Investor MF Discussion" with Tom Hunt of AFP; and, a "Major Money Fund Issues 2021" panel with moderator Ed Baldry of EPBComms, Tracy Hopkins of Dreyfus/BNY Mellon CIS, Rob Sabatino of UBS Asset Management, Jeff Weaver of Wells Fargo Asset Management. (The evening's reception is sponsored by Bank of America.)

Day 2 of Money Fund Symposium 2021 begins with "The State of the Money Fund Industry," which features Peter Crane, Michael Morin of Fidelity Investments and Peter Yi of Northern Trust Asset Management; followed by a "Senior Portfolio Manager Perspectives" panel, including Linda Klingman of Charles Schwab I.M. and Nafis Smith of Vanguard. Next up is "Government & Treasury Money Fund Issues," with Joseph Abate of Barclays as moderator, Adam Ackermann of J.P. Morgan Asset Management and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya of J.P. Morgan Securities.

The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply, New Securities & CP" with moderator, Jeff Plotnik of U.S. Bancorp Asset Mgmt, Robe Crowe of Citi Global Markets, John Kodweis of J.P. Morgan and Stewart Cutler of Barclays; "Ratings Focus: Governance, Global & LGIPs" with Robert Callagy of Moody's Investors Service, Greg Fayvilevich of Fitch Ratings, and Michael Masih of S&P Global Ratings; "Ultra-Short, ETFs & Alt-Cash Update," with Alex Roever of JPM and Laurie Brignac of Invesco. The day's wrap-up presentation is "Brokerage Sweeps, Bank Deposits & Fin-Tech" involving Chris Melin of Ameriprise Financial and Kevin Bannerton of Total Bank Solutions. (The Day 2 reception is sponsored by Barclays.)

The third day of the Symposium features the sessions: "Strategists Speak '20: Fed & Rates, Repo & SOFR" with Priya Misra of TD Securities and Garret Sloan of Wells Fargo Securities; "European, ESG & ETF Issues," with Brenden Carroll of Dechert LLP and Jonathan Curry of HSBC Global A.M.; "FICC Repo & Agency Roundtable" with Kyle Lynch of FHLBanks Office of Finance. Peter Crane wraps up the conference with the session "Money Fund Statistics & Disclosures.

Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are available. We hope you'll join us in Philadelphia this June! We'll of course be watching the coronavirus and vaccine rollout, and will adjust plans if travel bans are still in place come late spring. Note that some of our speakers have yet to confirm their participation, and the agenda is still in the process of being finalized, so watch for tweaks in coming weeks. E-mail us at info@cranedata.com to request the full brochure.)

We're also making final preparations for Crane's Money Fund University, which will be held online, January 21-22, 2021. Our Money Fund University (Online) will cover the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds.

Money Fund University's comprehensive program is good for both beginners and experienced professionals looking for a refresher. The latest agenda is available online and we are still accepting registrations ($250). (We're also willing to "comp" tickets for large Crane Data or sponsor clients, so let us know if you're interested.)

We're also getting ready for our next Crane's Bond Fund Symposium (Online), which will be held March 25-26. (Click here to see the agenda.) Bond Fund Symposium is the only conference devoted entirely to bond mutual funds, bringing together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers. The majority of the content is aimed at the growing ultra-short and conservative ultra-short bond fund marketplace.

Crane Data, which recently celebrated the sixth anniversary of its Bond Fund Intelligence publication and BFI XLS bond fund information service and benchmarks, continues to expand its fixed income fund offerings with the recent launch of Bond Fund Wisdom product and Bond Fund Portfolio Holdings dataset. Bond Fund Symposium offers attendees a concentrated and affordable educational experience, as well as an excellent networking venue. Registration for Bond Fund Symposium is $250. Our mission is to deliver the best possible conference content at an affordable price to bond fund professionals and investors.

Finally, we've also set the dates and location for our next European Money Fund Symposium. It is scheduled for Oct. 21-22, 2021, in Paris, France. Let us know if you'd like more details on any of our events, and we hope to see you virtually in Q1, and live in Philadelphia and Paris later in 2021. Happy New Year!

The President's Working Group on Financial Markets, which includes the Secretary of the Treasury, the Chair of the Board of Governors of the Federal Reserve, the Chairman of the SEC, and the Chairman of the CFTC, published a "Report of the President's Working Group on Financial Markets, Overview of Recent Events and Potential Reform Options for Money Market Funds." The paper reviews the coronavirus crisis in March and lists a number of possible regulatory changes for money market funds. It explains, "In March 2020, short-term funding markets came under sharp stress amid growing economic concerns related to the COVID-19 pandemic and an overall flight to liquidity and quality among investors. Instruments underlying these markets include short-term U.S. Treasury securities, short-term agency securities, short-term municipal securities, commercial paper ('CP'), and negotiable certificates of deposit issued by domestic and foreign banks ('NCDs'). Money market funds ('MMFs') are significant participants in these markets, facilitating investment by a broad range of individuals and institutions in the relevant short-term instruments. Because these short-term instruments tend to have relatively stable values and MMFs offer daily redemptions, investors in MMFs often expect to receive immediate liquidity with limited price volatility. However, in times of stress, these expectations may not match market conditions, causing investors to seek to liquidate their positions in MMFs. These investor actions, which are motivated by both the expectation-market condition mismatch and the structural vulnerabilities of MMFs, can amplify market stress more generally."

The PWG continues, "The economic and public policy considerations raised by this dynamic among investors, MMFs, and short-term funding markets are multi-faceted and significant. The orderly functioning of short-term funding markets is essential to the performance of broader financial markets and our economy more generally. It is the role of financial regulators to identify and address market activities that have the potential to impair that orderly functioning. Crafters of public policy and financial regulation also must recognize that the broad availability of short-term funding is critical to short-term funding markets and, for many decades, prime and tax-exempt MMFs have been an important source of demand in these markets although their market share has decreased and assets shifted toward government MMFs in the past decade. In addition, the participation of retail investors in MMFs raises considerations of fairness and consumer confidence, particularly in times of unanticipated stress, that can affect regulatory and public policy responses."

They explain, "These dynamics and policy considerations were brought into stark relief in March 2020. While government MMFs saw significant inflows during this time, the prime and tax-exempt MMF sectors faced significant outflows and increasingly illiquid markets for the funds' assets. As a result, prime and tax-exempt MMFs experienced, and began to contribute to, general stress in short-term funding markets in March 2020. For example, as pressures on prime and tax-exempt MMFs worsened, two MMF sponsors intervened to provide support to their funds. It did not appear that these funds had idiosyncratic holdings or were otherwise distinct from similar funds and, accordingly, it was reasonable to conclude that other MMFs could need similar support in the near term. These events occurred despite multiple reform efforts over the past decade to make MMFs more resilient to credit and liquidity stresses and, as a result, less susceptible to redemption-driven runs. When the Federal Reserve quickly took action in mid-March by establishing, with Treasury approval, the Money Market Mutual Fund Liquidity Facility ('MMLF') and other facilities to support short-term funding markets generally and MMFs specifically, prime and tax-exempt MMF outflows subsided and short-term funding market conditions improved."

The report tells us, "Prime and tax-exempt MMFs have been supported by official sector intervention twice over the past twelve years. In September 2008, there was a run on certain types of MMFs after the failure of Lehman Brothers caused a large prime MMF that held Lehman Brothers short-term instruments to sustain losses and 'break the buck.' During that time, prime MMFs experienced significant redemptions that contributed to dislocations in short-term funding markets, while government MMFs experienced net inflows. Ultimately, the run on prime MMFs abated after announcements of a Treasury guarantee program for MMFs and a Federal Reserve facility designed to provide liquidity to MMFs. Subsequently, the Securities and Exchange Commission ('SEC') adopted reforms (in 2010 and 2014) that were designed to address the structural vulnerabilities that became apparent in 2008."

The PWG comments, "Because prime and tax-exempt MMFs again have shown structural vulnerabilities that can create or transmit stress in short-term funding markets, it is incumbent upon financial regulators to examine the events of March 2020 closely, and in particular the role, operation, and regulatory framework for these MMFs, with a view toward potential improvements. In addition, absent regulatory reform or other action that alters market expectations, these prior official sector interventions may have the consequence of solidifying the perception among investors, fund sponsors, and other market participants that similar support will be provided in future periods of stress."

They add, "With that history and context, this report by the President's Working Group on Financial Markets ('PWG') begins the important process of review and assessment. After providing background on MMFs and prior reforms, the report discusses events in certain short-term funding markets in March 2020, focusing on MMFs. The report then discusses various measures that policy makers could consider to improve the resilience of MMFs and broader short-term funding markets. This report is meant to facilitate discussion. The PWG is not endorsing any given measure at this time."

The section on "Potential Policy Measures to Increase the Resilience of Prime and Tax-Exempt Money Market Funds," states, "While many of the post-2008 MMF reforms added stability to MMFs, the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt MMFs will lead to or exacerbate stresses in short-term funding markets. The following discussion sets forth potential policy measures that could address the risks prime and tax-exempt MMFs pose to short-term funding markets."

It explains, "These potential policy measures differ in terms of the scope and breadth of regulatory changes they would require. For example, many of the potential reforms would apply only to prime and tax-exempt MMFs, while reforms such as swing pricing could apply to mutual funds more generally. Moreover, some potential reforms would involve targeted amendments to SEC rules, which relevant MMFs could likely implement fairly quickly, while others would involve longer-term structural changes or may require coordinated action by multiple agencies. The different measures are not necessarily mutually exclusive, nor are they equally effective at mitigating the vulnerabilities of prime and tax-exempt MMFs. Policy makers could combine certain measures within a single set of reforms. Some policy measures listed below have been raised for consideration previously, including in the PWG's October 2010 report on MMF reform options and the FSOC's 2012 proposed recommendations on MMF reform, and warrant renewed consideration in light of recent MMF stresses."

The PWG report tells us, "This report focuses on reform measures for MMFs only. It is important to recognize MMFs' role in the market events in March 2020 and to examine measures that would address concerns and structural vulnerabilities specific to MMFs. Although they are beyond the scope of this report, and as discussed generally above, there were other stresses in short-term funding markets in March 2020 that may have contributed to the pressure on MMFs."

It says, "As discussed in more detail below, the potential policy measures for prime and tax-exempt MMFs explored in this report are: Removal of Tie between MMF Liquidity and Fee and Gate Thresholds; Reform of Conditions for Imposing Redemption Gates; Minimum Balance at Risk ('MBR'); Money Market Fund Liquidity Management Changes; Countercyclical Weekly Liquid Asset Requirements; Floating NAVs for All Prime and Tax-Exempt Money Market Funds; Swing Pricing Requirement; Capital Buffer Requirements; Require Liquidity Exchange Bank ('LEB') Membership; and New Requirements Governing Sponsor Support."

Finally, the report asks, "As a threshold matter, it should be recognized that the various policy reforms, individually and in combination, should be evaluated in terms of their ability to effectively advance the overarching goals of reform. That is: First, would they effectively address the MMF structural vulnerabilities that contributed to stress in short-term funding markets? Second, would they improve the resilience and functioning of short-term funding markets? Third, would they reduce the likelihood that official sector interventions and taxpayer support will be needed to halt future MMF runs or address stresses in short-term funding markets more generally?"

The SEC comments on the report and requests feedback in a post entitled, "Staff Statement on the President's Working Group Report on Money Market Funds." Dalia Blass, Director of the Division of Investment Management (who is retiring soon), writes, "The President's Working Group on Financial Markets ('PWG') has studied the effects of the COVID-19 pandemic on the short-term funding markets and, in particular, on money market funds.... The Report discusses various reform measures that policy makers could consider to improve the resilience of prime and tax-exempt money market funds and broader short-term funding markets. As noted in the Report, many of the measures discussed could be implemented by the Commission under its existing statutory authority, while others may require longer-term structural changes and coordinated action by multiple agencies. The Report does not endorse specific recommendations for future reforms. Instead, it is meant to provide context and facilitate discussion by outlining potential reform options."

The statement adds, "Feedback backed by data where feasible would be helpful to the Division in evaluating what, if any, recommendations the Division might make to the Commission in this area. Specifically, the Division believes that feedback on the expected effectiveness of the measures identified in the Report (both individually and in combination) in: (1) addressing money market funds' structural vulnerabilities that can both cause them to come under stress and contribute to stress in short-term funding markets; (2) improving the resilience and functioning of short-term funding markets; and (3) reducing the likelihood that official sector interventions will be needed to prevent or halt future money market fund runs, and/or to address stresses in short-term funding markets more generally would be particularly helpful. The Division is also interested in feedback on other topics stakeholders believe are relevant to further money market fund reform, including other approaches for improving the resilience of money market funds and short-term funding markets generally. If you would like to let the Division know your views, we are providing an email box as a convenient method for you to communicate with the Division. We encourage you to communicate through the following address: IM_MMFPWG@sec.gov and insert 'PWG MMF' in the subject line. The Division anticipates making submissions public."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $18.7 billion in November to $4.808 trillion, the first increase in the last six months. (Month-to-date in December through 12/21, assets have decreased by $15.6 billion according to our MFI Daily.) The SEC shows that Prime MMFs fell by $5.8 billion in November to $956.2 billion, Govt & Treasury funds rose by $27.7 billion to $3.735 trillion and Tax Exempt funds decreased $3.2 billion to $116.4 billion. Yields inched lower again in November. 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.

November's overall asset increase follows declines of $73.6 billion in October, $117.8 billion in September, $57.0 billion in August, $66.4 billion in July and $127.3 billion in June. Prior to this, we saw increases of $31.0 billion in May, $461.6 billion in April and $704.8 billion in March. Over the 12 months through 11/30/20, total MMF assets have increased by an incredible $824.2 billion, or 20.7%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these in its collections.)

The SEC's stats show that of the $4.808 trillion in assets, $956.2 billion was in Prime funds, down $5.8 billion in November. This follows decreases of $30.7 billion in October, $145.6 billion in September (when Vanguard converted its massive Prime MMF to Govt) and $7.1 billion in August. Earlier this year, we saw increases of $16.4 billion in July, $21.3 billion in June, $50.6 billion in May and $105.2 billion in April. Prime funds saw decreases of $124.5 billion in March and $13.9 billion in February. Prime funds represented 19.9% of total assets at the end of November. They've decreased by $165.8 billion, or -14.8%, over the past 12 months.

Government & Treasury funds total $3.735 trillion, or 77.7% of assets. They increased $27.7 billion in November, after decreasing $41.4 billion in October, rising $35.3 billion in September and falling $49.3 billion in August and $42.6 billion in July. They plummeted $145.1 billion in June, fell $18.6 billion in May, and skyrocketed $347.3 billion in April and $838.3 billion in March. Government & Treasury funds increased $32.0 billion in February, but fell $31.4 billion in January. Govt & Treasury MMFs are up a staggering $1.017 trillion over 12 months, or 37.4%. Tax Exempt Funds decreased $3.2 billion to $116.4 billion, or 2.4% of all assets. The number of money funds was 348 in November, down three from the previous month, and down 17 funds from a year earlier.

Yields for Taxable MMFs were lower again in November. Steady declines over the past 20 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on November 30 was 0.16%, down one basis point from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.20%, down one basis point. Gross yields were 0.14% for Government Funds, down two basis points from last month. Gross yields for Treasury Funds were also down two basis points at 0.14%. Gross Yields for Muni Institutional MMFs were down a basis point to 0.15% in November. Gross Yields for Muni Retail funds were down two basis points at 0.20% in November.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.10%, unchanged from the previous month and down 1.65% since 11/30/19. The Average Net Yield for Prime Retail Funds was 0.03%, unchanged from the previous month and down 1.62% since 11/30/19. Net yields were 0.02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.01%. Net Yields for Muni Institutional MMFs were unchanged from October at 0.07%. Net Yields for Muni Retail funds were down a basis point at 0.02% in November. (Note: These averages are asset-weighted.)

WALs and WAMs were predominantly down in November. The average Weighted Average Life, or WAL, was 56.6 days (down 3.8 days from last month) for Prime Institutional funds, and 53.2 days for Prime Retail funds (down 6.1 days). Government fund WALs averaged 99.0 days (down 2.1 days) while Treasury fund WALs averaged 97.8 days (unchanged). Muni Institutional fund WALs were 16.6 days (down 1.6 days), and Muni Retail MMF WALs averaged 29.0 days (down 3.3 days).

The Weighted Average Maturity, or WAM, was 39.4 days (down 2.3 days from the previous month) for Prime Institutional funds, 45.5 days (down 5.6 days from the previous month) for Prime Retail funds, 43.5 days (down 0.9 days) for Government funds, and 48.0 days (up 1.1 days) for Treasury funds. Muni Inst WAMs were down 1.9 days to 15.8 days, while Muni Retail WAMs decreased 3.4 days to 27.5 days.

Total Daily Liquid Assets for Prime Institutional funds were 55.1% in November (up 1.5% from the previous month), and DLA for Prime Retail funds was 39.3% (up 2.1% from previous month) as a percent of total assets. The average DLA was 65.9% for Govt MMFs and 95.3% for Treasury MMFs. Total Weekly Liquid Assets was 67.0% (up 1.4% from the previous month) for Prime Institutional MMFs, and 50.4% (up 1.2% from the previous month) for Prime Retail funds. Average WLA was 79.1% for Govt MMFs and 99.0% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for November 2020," the largest entries included: Canada with $107.3 billion, France with $87.5 billion, Japan with $81.8 billion, the U.S. with $71.3B, Germany with $36.7B, the Netherlands with 32.0B, the U.K. with $30.0B, Aust/NZ with $22.4B and Switzerland with $18.2B. The biggest gainers among the "Prime MMF Holdings by Country" were: Canada (up $13.6 billion), the U.S. (up $7.4B), France (up $5.2B), Aust/NZ (up $3.8B) and the Netherlands (up $2.0B). The biggest decreases were: the U.K. (down $5.2B), Japan (down $4.5B), Switzerland (down $3.6B) and Germany (down $2.2B).

The SEC's "`Prime Holdings of Bank-Related Securities by Major Region" table shows Europe had $85.1B (down $5.6B from last month), the Eurozone subset had $165.1B (up $5.6B). The Americas had $179.0 billion (up $20.9B), while Asia Pacific had $115.7B (down $1.4B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $963.0B billion in Prime MMF Portfolios as of November 30, $410.9B (42.7%) was in Government & Treasury securities (direct and repo) (down from $419.2B), $220.7B (22.9%) was in CDs and Time Deposits (up from $215.9B), $150.0B (15.6%) was in Financial Company CP (up from $141.2B), $134.7B (14.0%) was held in Non-Financial CP and Other securities (down from $135.0B), and $46.7B (4.8%) was in ABCP (down from $48.8B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $169.0 billion, Canada with $132.8 billion, France with $211.6 billion, the U.K. with $83.9 billion, Germany with $19.6 billion, Japan with $135.1 billion and Other with $45.2 billion. All MMF Repo with the Federal Reserve was unchanged in November at $0.0 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.0%, Prime Retail MMFs with 2.8%, Muni Inst MMFs with 3.1%, Muni Retail MMFs with 5.7%, Govt MMFs with 14.3% and Treasury MMFs with 12.5%.

The Investment Company Institute published a release, "Worldwide Regulated Open-Fund Assets and Flows, Third Quarter 2020," which shows that money fund assets globally fell by $92.0 billion, or -1.1%, in Q3'20 to $8.068 trillion. The decrease was driven by a big drop in U.S. money funds, as the massive cash buildup in early 2020 was spent down. MMF assets worldwide have increased by $1.442 trillion, or 21.8%, the past 12 months, and money funds in the U.S. now represent 54.6% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)

ICI's release says, "Worldwide regulated open-end fund assets increased during the third quarter of 2020 by 5.6 percent to $56.91 trillion at the end of the quarter, excluding funds of funds. Worldwide net cash inflow to all funds was $292 billion in the third quarter, compared with $910 billion of net inflows in the second quarter of 2020. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the third quarter of 2020 contains statistics from 46 jurisdictions."

It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the third quarter of 2020. For example, on a US dollar–denominated basis, fund assets in Europe increased by 7.4 percent in the third quarter, compared with an increase of 2.7 percent on a euro-denominated basis."

ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets increased by 7.6 percent to $24.59 trillion at the end of the third quarter of 2020. Bond fund assets increased by 5.1 percent to $12.22 trillion in the third quarter. Balanced/mixed fund assets increased by 7.7 percent to $6.99 trillion in the third quarter.... Money market fund assets decreased by 1.1 percent globally to $8.07 trillion."

The release also tells us, "At the end of the third quarter of 2020, 43 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 21 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 14 percent of the worldwide total."

ICI adds, "Net sales of regulated open-end funds worldwide were $292 billion in the third quarter of 2020. Flows out of equity funds worldwide were $31 billion in the third quarter, after experiencing $2 billion of net outflows in the second quarter of 2020. Globally, bond funds posted an inflow of $325 billion in the third quarter of 2020, after recording an inflow of $307 billion in the second quarter.... Money market funds worldwide experienced an outflow of $196 billion in the third quarter of 2020 after registering an inflow of $486 billion in the second quarter of 2020."

According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. sustained its position as the largest money fund market in Q3'20 with $4.404 trillion, or 60.3% of all global MMF assets. U.S. MMF assets decreased by $230.3 billion (-5.0%) in Q3'20 and increased by $963.2 billion (28.0%) in the 12 months through Sept. 30, 2020. China remained in second place among countries overall. China saw assets flat, up just $2.1 billion (0.2%) in Q3, to $1.074 trillion (13.3% of worldwide assets). Over the 12 months through Sept. 30, 2020, Chinese MMF assets have risen by $83.7 billion, or 8.5%.

Ireland remained third among country rankings, ending Q3 with $688.1 billion (8.5% of worldwide assets). Dublin-based MMFs were up $14.3B for the quarter, or 2.1%, and up $88.3B, or 14.7%, over the last 12 months. Luxembourg remained in fourth place with $517.2 billion (6.4% of worldwide assets). Assets there increased $36.0 billion, or 7.5%, in Q3, and were up $126.1 billion, or 32.2%, over one year. France was in fifth place with $427.4B, or 5.3% of the total, up $67.8 billion in Q3 (18.9%) and up $59.0B (16.0%) over 12 months.

Australia was listed in sixth place with $273.6 billion, or 3.4% of worldwide assets. Its MMFs decreased by $700 million, or -0.3%, in Q3. Japan was in seventh place with $117.8 billion (1.5%); assets there rose $3.8 billion (3.3%) in Q3 and increased by $13.3 billion (12.7%) over 12 months. Korea, the 8th ranked country, saw MMF assets increase $3.3 billion, or 2.9%, in Q3'20 to $116.1 billion (1.4% of the world's total MMF assets); they've risen $29.8 billion (34.5%) for the year. Brazil was in 9th place, assets increased $9.4 billion, or 11.6%, to $90.4 billion (1.1% of total assets) in Q3. They've increased $9.5 billion (11.7%) over the previous 12 months. ICI's statistics show Mexico in 10th place with $60.2B, or 0.7% of total assets, up $1.7B (2.9%) in Q3 and down $4.9 million (-7.5%) for the year.

India was in 11th place, decreasing $5.4 billion, or -8.2%, to $59.9 billion (0.7% of total assets) in Q3 and decreasing $3.9 billion (-6.1%) over the previous 12 months. Chinese Taipei ($33.5B, up $3.2B and up $8.7B over the quarter and year, respectively) ranked 12th ahead of the Canada ($32.8B, up $966M and up $8.2B). The U.K. ($27.9B, up $878M and up $1.7B) and South Africa ($25.5B up $1.2B and up $1.4B), rank 13th through 15th, respectively. Chili, Switzerland, Norway, Argentina and Belgium round out the 20 largest countries with money market mutual funds.

ICI's quarterly series shows money fund assets in the Americas total $4.625 trillion, down $217.7 billion in Q3. Asian MMFs increased by $7.1 billion to $1.686 trillion, and Europe saw its money funds increase by $117.5 billion in Q3'20 to $1.732 trillion. Africa saw its money funds increase $1.2B to $25.5 billion.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data.

Last week, Fitch Ratings, hosted webinar entitled, "LGIP and Public Sector Short-Term Markets Update," which followed the publication of their latest "Local Government Investment Pools: Q320" quarterly scorecard. The webinar featured Fitch's Greg Fayvilevich, JP Morgan's Ron Flynn and PFM's Marty Margolis, and topics included the differences between LGIPs and MMFs, the huge jump in LGIP assets and a number of other issues. The "Local Government Investment Pools" publication explains, "Fitch Ratings' two local government investment pool (LGIP) indices experienced asset declines during the third quarter (3Q20), in line with the usual seasonal slowdown in tax collections during the summer months. However, the decline in assets was relatively muted in 3Q20compared to the third quarter in prior years, possibly attributable to the funding provided by the CARES Act and an increase in municipal debt issuances. Over the past three years, the average third-quarter decline in assets was approximately 3.8% for both indices combined, materially larger than the 0.2% decline in 3Q20." (Note: Thanks again to those who attended our Money Fund Wisdom Demo & Training last week! For those that missed it, see the replay here, and download the Powerpoint from our Webinar page here.)

The dashboard continues, "The downward trend in net yields continued through the third quarter, although at a slower pace than during the first half of the year. Both Fitch LGIP indices ended 3Q20 with the lowest average net yields since Fitch started compiling the data in 2016, as pool managers were forced to reinvest maturing securities at lower yields. The Fitch Liquidity LGIP Index ended the period with an average net yield of 0.16% (down from 2.09% in September 2019). The Fitch Short-Term LGIP Index ended the period with an average net yield of 0.88% (compared with 2.21% in September 2019)."

It explains, "To mitigate the downward trend in yields, managers continued investing slightly farther out the maturity curve. The weighted average maturity (WAM) of the Fitch Liquidity LGIP Index increased to 45 days (up one day from last quarter and still higher than money funds at 41 days) and the duration of the Fitch Short-Term LGIP Index ticked up higher to 1.29 years (up from 1.28 years at the end of 2Q20). Both metrics have increased in each of the past four quarters as yields have fallen."

Fitch's update adds, "Thus far, Fitch-rated LGIPs have navigated through this economic downturn relatively unscathed, with no material unexpected redemptions or significant credit deterioration. However, given remaining economic and market uncertainty, LGIPs continue to maintain elevated levels of liquidity."

During the webinar, Fayvilevich begins, "The Liquidity LGIPs, which are a bit like prime money funds ... follow pretty much all of the money fund rules around liquidity and WAM and WAL and those kinds of metrics. They do not have to have a floating NAV; in fact, they have stable NAVs, and no fees and gates. Those are kind of the big differences and I think one of the draws for these products for those that can invest in them. "

He continues, "The other type of LGIP that we have is what we call the Short Term LGIP. Those are more like short term bond funds. There's quite a bit of variation there, some are very short, some can go longer.... They can invest in three-to-five-year ABS, they tend to buy more, longer dated securities. On the credit quality side, they tend to remain higher quality."

Fayvilevich explains, "We've been tracking these indexes or these assets over the last couple of years.... You can see clear growth in both indices.... [On a] combined basis, we are currently tracking $348 billion in AUM as of September. That's up $67 billion over the last year.... So, that's about a 24% increase this year, or the last 12 months. That's actually significantly higher than the prior two years. Between September 2018 and September 2019, these assets grew $34 billion, or 14%, and it was the same 14% growth the prior year from September 2017 to September 2018, about $30 billion. So, this year is almost double the growth rate of prior years."

He comments, "LGIPs typically have a little bit more flexibility in terms of liquidity relative to money funds because their asset flows are more seasonal and more predictable. They tend to not have the same kind of surprises and big redemptions as money funds do, as we've seen earlier this year in the money fund space."

On asset allocation, Fayvilevich says, "The last thing I want to mention is the asset allocations .... Liquidity LGIPs ... between June and September, we've seen a decline in the 'Other' category ... primarily ... money market funds and bank deposits. Earlier this year with the volatility, we saw a big increase in that category with LGIPs keeping money in bank deposits and government money funds for safety. Now we're seeing some decreases in that category and that money has been going into Treasuries and to CDs, so it has come back into credit instruments. For Short Term LGIPs, similarly we've seen a decrease in the Other category, again bank deposits and money funds, and some increases in Government Agencies, generally longer durations hitting the trends that we've discussed."

Discussing the "drivers of growth," PFM's Margolis comments, "The trends that Greg described are certainly trends that we've seen in our LGIP business around the country. I would say we saw growth in the past couple of years of 10 or 15%. As Greg described, we've seen growth just this calendar year, I would say, of 20 to 40%. The growth has had some pattern, and it's had some staying power. I think both the pattern and the staying power are kind of interesting. It's been across both the credit and government flavors, if you will, in the liquid space. And in some respects, it's been contrary to the experience [of] institutional money market funds, which led the Fed to step into the marketplace here in March."

He continues, "[If] you try to interpret the growth that we've had this year, I would say there are maybe three factors. In February and March, I think there was an unmistakable flight to quality and safety, and actually, LGIPs stand up really well to those concerns. I've been around this business a long time and we had the same experience, which was unexpected, in 2008 and 2009. When the markets froze up and investors got worried, they didn't take money out of LGIPs, for the most part they put money into LGIPs. And we saw the same thing early this spring up."

Margolis adds, "I think the second thing was the heightened concern and focus on liquidity.... You can trace that back to market uncertainty in the spring. You can draw lines to the CARES Act, which we know provided billions of dollars to state and local governments that needed a temporary place to be invested with not a lot of certainty as to the cash flow drawdown requirements. And I know in our LGIPs, we saw ample deposits of money that we know to be CARES money for that reason.... And I think the work from home environment has put extra burdens on public funds managers. It's created challenges. And, LGIPs are ... I think one of the less challenging ways [operationally], to invest money, so we've benefited from that."

Lastly, he explains, "The third thing I would cite is the rate environment. We all know that LGIP rates lag the market. And while we all say we're sophisticated, the truth of the matter is that for many public funds investors, particularly smaller ones that are in the market periodically, the yields that were posted on LGIPs through the late spring and summer and into the fall look on their face to be very attractive.... As I say, they lag the market on the way down the creek, they lag the market on the way up. There was some benefit that we received from that. And I think there was some benefit from the fact that banks are much less competitive, equally for high-cost public funds deposits."

Finally, see the press release, "Fitch Rates Georgia Fund 1 Local Government Investment Pool 'AAAf'/'S1'," which says, "Fitch Ratings has assigned a 'AAAf' International Fund Credit Quality Rating (FCQR) and a 'S1' Fund Market Risk Sensitivity Rating (MRSR) to Georgia Fund 1, a local government investment pool managed by the Ofce of the State Treasurer (OST) of Georgia. As of Nov. 30, 2020, the pool had approximately $22.6 billion in invested securities."

The Investment Company Institute and its ICI Global subsidiary published the press release, "UCITS Weathered COVID-19 Market Crisis Well," and the paper, "Experiences of European Markets, UCITS, and European ETFs During the COVID-19 Crisis." The paper's Introduction says, "The European Union has the second-largest regulated fund industry in the world with €10.1 trillion of total net assets in Undertakings for Collective Investment in Transferable Securities (commonly referred to as UCITS) as of September 30, 2020. During the stressed period in March, the experiences of EU markets and UCITS (including money market funds) were similar to those in the United States. This paper will explore in greater detail the unfolding of the pandemic in Europe (including governmental responses), the EU market reaction to the pandemic and to government interventions, the experience of UCITS and their investors, and UCITS' use of liquidity management tools during the stressed period."

In the section on "UCITS Money Market Funds," they write, "UCITS money market funds are used by both institutional and retail investors to manage liquidity. At the end of February 2020, just before the COVID-19 crisis hit markets with full force, net assets in UCITS money market funds domiciled in the European Union totaled €1.3 trillion -- with 44 percent domiciled in Ireland, 26 percent in France, 25 percent in Luxembourg, and the remainder in the United Kingdom and other EU countries. Based on data from Morningstar, 47 percent of total net assets in UCITS money market funds were in institutional share classes; 53 percent were in retail share classes."

The paper continues, "UCITS money market funds are classified into four different categories, each with specific regulatory requirements, based on their assets and treatment of their NAV: public debt constant NAV (CNAV) money market funds, low volatility NAV (LVNAV) money market funds, short-term variable NAV (VNAV) money market funds, and standard VNAV money market funds. Public debt CNAV and LVNAV money market funds are primarily used by institutional investors." (Note: Crane Data tracks these funds in its Money Fund Intelligence International product. Let us know if you'd like to see the latest.)

ICI comments, "Like US money market fund investors, European investors sought to protect or build liquidity in March. [T]he net assets of UCITS money market funds that are domiciled in Ireland, Luxembourg, the United Kingdom, and France ... total 1,076 billion, or 84 percent of the EU market, at the end of February. By the end of March, total net assets fell to €1,009 billion as outflows from LVNAV money market funds denominated in US dollars and French VNAV funds -- which are predominantly denominated in euros and sold to French residents -- were only partly offset by inflows to public debt CNAV funds. In March, LVNAV funds denominated in US dollars had outflows of €83 billion or 28 percent of their February month-end assets, and French VNAV funds had outflows of €53 billion or 16 percent of their February assets. In contrast, public debt CNAV funds experienced inflows of €63 billion, or 65 percent of their February assets."

They add, "During the first week of March, UCITS money market funds domiciled in Ireland, Luxembourg, the United Kingdom, and France saw outflows of €18 billion, or 1.7 percent of their February month-end assets, which primarily reflected outflows from sterling- and euro-denominated LVNAV funds.... During the second week of March, UCITS money market funds experienced inflows of €20 billion, or 1.9 percent of previous month-end assets, most of which was attributable to sterling and euro LVNAV money market funds, which had inflows of €23 billion, or 7.6 percent of their February assets. The significant inflows into sterling and euro LVNAV funds were driven by gains from derivatives margins."

The section tells us, "In the third and fourth weeks of March, outflows from UCITS money market funds totaled €96 billion, or 9.0 percent of their February assets.... For sterling and euro LVNAV funds, the gains from derivatives in the prior week reversed, which resulted in outflows of €41 billion. At the same time, LVNAV funds denominated in US dollars and French VNAV funds had outflows of €69 billion and €39 billion, respectively. In contrast, public debt CNAV funds had inflows of €55 billion during this period."

Lastly, it explains, "Outflows from LVNAV funds denominated in US dollars likely were related to inflows into public debt CNAV funds, which are primarily denominated in US dollars. In the United States, net assets shifted from prime money market funds, which have floating NAVs and the ability to invest in short-term high-quality corporate securities, to government money market funds, which have a constant NAV and primarily hold US Treasury securities. In the same way, some investors in dollar-denominated UCITS money market funds likely shifted from LVNAV funds, which have exposure to short-term corporate credits, into public debt CNAV funds. As financial markets began stabilizing toward the end of March and into April following monetary and fiscal interventions, UCITS money market funds, in aggregate, experienced inflows in each week." (See also our Crane Data News, "European Fund Association EFAMA Comments on Crisis; First Stress Test" (12/2/20), and "ICI: Prime Didn'​t Cause Crisis; N-​MFP Holdings: Treasuries Still Half" (11/10/20).)

In a separate release, ICI says, "Retirement Assets Total $33.1 Trillion in Third Quarter 2020." Accompanying data tables show that money funds held in retirement accounts total $582 billion, or 13% of the total $4.404 trillion in money funds. MMFs represent just 2.0% of the total $22.154 trillion of mutual funds in retirement accounts. The release says, "Total US retirement assets were $33.1 trillion as of September 30, 2020, up 4.0 percent from June 30, 2020. Retirement assets accounted for 34 percent of all household financial assets in the United States at the end of September 2020."

It continues, "Assets in individual retirement accounts (IRAs) totaled $11.3 trillion at the end of the third quarter of 2020, an increase of 5.1 percent from the end of the second quarter 2020. Defined contribution (DC) plan assets were $9.3 trillion at the end of the third quarter, up 4.4 percent from June 30, 2020. Government defined benefit (DB) plans -- including federal, state, and local government plans -- held $6.7 trillion in assets as of the end of September 2020, a 3.8 percent increase from the end of September 2020. Private-sector DB plans held $3.4 trillion in assets at the end of the third quarter of 2020, and annuity reserves outside of retirement accounts accounted for another $2.4 trillion."

The ICI tables also show money funds accounting for $393 billion, or 8%, of the $4.925 trillion in IRA mutual fund assets and $189 billion, or 4%, of the $5.143 trillion in defined contribution plan holdings. Among the DC plan holdings, $127 billion is in money fund assets, making up 3% of the total $4.016 trillion in 401(k) plan mutual fund assets. Money funds saw $16 billion of inflows in Q3'20 into retirement accounts vs. outflows of $96 billion for all long-term funds. Money funds in non-retirement account variable annuities totaled just $29 billion, or 2% of the $1.291 trillion of mutual funds in these VAs.

Finally, ICI's weekly "Money Market Fund Assets" report shows that money fund assets plunged in the latest week, the 17th decrease in the past 20 weeks. Assets have fallen $500 billion since May 20, when they were at a record $4.789 trillion. ICI says, "Total money market fund assets decreased by $54.40 billion to $4.29 trillion for the week ended Wednesday, December 16.... Among taxable money market funds, government funds decreased by $39.39 billion and prime funds decreased by $15.26 billion. Tax-exempt money market funds increased by $250 million." ICI's stats show Institutional MMFs decreasing $53.6 billion and Retail MMFs decreasing $776 million. Total Government MMF assets, including Treasury funds, were $3.633 trillion (84.7% of all money funds), while Total Prime MMFs were $547.3 billion (12.8%). Tax Exempt MMFs totaled $108.5 billion (2.5%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data.)

ICI shows money fund assets up a still massive $657 billion, or 18.1%, year-to-date in 2020, with Inst MMFs up $505 billion (22.3%) and Retail MMFs up $152 billion (11.1%). Over the past 52 weeks, ICI's money fund asset series has increased by $689 billion, or 19.6%, with Retail MMFs rising by $163 billion (12.2%) and Inst MMFs rising by $526 billion (24.2%). (Crane Data's separate and broader Money Fund Intelligence Daily data series shows total MF assets are down $38.8 billion in December, as of 12/16, to $4.680 trillion.)

They explain, "Assets of retail money market funds decreased by $776 million to $1.52 trillion. Among retail funds, government money market fund assets increased by $1.74 billion to $1.14 trillion, prime money market fund assets decreased by $1.83 billion to $282.53 billion, and tax-exempt fund assets decreased by $688 million to $96.23 billion. Retail assets account for just over a third of total assets, or 35.5%, and Government Retail assets make up 75.2% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds decreased by $53.62 million to $2.77 trillion. Among institutional funds, government money market fund assets decreased by $41.13 billion to $2.49 trillion, prime money market fund assets decreased by $13.43 billion to $264.77 billion, and tax-exempt fund assets increased by $938 million to $12.24 billion. Institutional assets, which broke below the $3.0 trillion level for the first time since April 22 at the end of August, accounted for 64.5% of all MMF assets, with Government Institutional assets making up 90.0% of all Institutional MMF totals.

A record-shattering and turbulent year, 2020 made it hard to sum its events up in just ten stories. This past year saw money fund assets skyrocket to a record $5 trillion as investors made a "dash for cash" following the Covid-19 shutdowns across the globe. Yields returned to zero in 2020 after a series of emergency cuts made by the Fed, their second straight year of decline. The tumultuous year showcased continued liquidations and consolidations, particularly in the Prime space, and, despite a growing industry consensus that money market funds weathered the storm well, talk about looming reforms in the space. We've selected some of the most important news stories of 2020 below to represent the major trends over the past year. (Note: Thanks to those who attended our Money Fund Wisdom Demo & Training yesterday! We hope you found it worthwhile. For those that missed it, you can see the replay here, and watch for the Powerpoint to be posted to our Webinar page tomorrow.)

Crane Data's Top 10 Stories of 2020 include (in chronological order): "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations" (2/20/20); "Fed MMMF Liquidity Facility Adds CDs, VRDNs; OCC Revises STIF Rules" (3/24/20); "Money Fund Assets Break $5.0 Trillion; Crane Featured in Ignites Piece" (4/30/20); "Yields Inch Towards Zero, Outflows; T Rowe Waivers; Weekly Holdings" (5/27/20); "Worldwide MF Assets Hit $7.7 Trillion in Q1; U.S., Chinese MMFs Surge" (6/24/20); "Federated Hermes Files to Enter "Social" or "Impact" Money Fund Space" (8/19/20); "Vanguard Prime Money Market Fund Going Government; ICI's July Trends" (8/28/20); "FDIC: Deposits Gain Record $2.4 Trillion YTD; Yields Close in on Zero" (9/1/20); "ICI's Stevens Keynotes Crane Event, Says Money Funds Didn't Drive Crisis" (10/29/20); and, finally, "European MFS Online: IMMFA's Iommi Says MMFs Resilient During Crisis" (11/23/20).

Early in 2020, we reported on the continued liquidations and consolidations in the MMF space. Our Feb. 20 story, "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations," explains, "Last year, we saw Federated take over PNC's fund business and Invesco absorb OppenheimerFunds, and now it appears we'll see more fund consolidation in 2020. A press release entitled, 'Franklin Templeton to Acquire Legg Mason, Creating $1.5 Trillion AUM Global Investment Manager,' tells us, 'Franklin Resources ... operating as Franklin Templeton ... announced that it has entered into a definitive agreement to acquire Legg Mason, Inc.... The acquisition of Legg Mason and its multiple investment affiliates ... will establish Franklin Templeton as one of the world's largest independent, specialized global investment managers with a combined $1.5 trillion in assets.... The combined footprint of the organization will significantly deepen Franklin Templeton's presence in key geographies and create an expansive investment platform that is well balanced between institutional and retail client AUM.'" (See also, "Sweeps Big Part of Morgan Stanley, E*Trade Purchase; Rates Flat Again.")

Among the hottest topics of 2020 was the Fed and Treasury rescue of the economy (and money markets) during the March Madness of the total global shutdown. Our March 24 piece, "Fed MMMF Liquidity Facility Adds CDs, VRDNs; OCC Revises STIF Rules," comments, "The Federal Reserve pulled out all the stops to support the money markets Monday, as its Money Market Mutual Fund Liquidity Facility, announced March 18, reached full force and was expanded to include almost all major asset classes owned by MMFs (CDs and VRDNs were the keys adds over the weekend. The move appears to be ratcheting down the level of danger in the money markets substantially, though we're not out of the woods yet. Prime outflows have decreased for 5 days in a row and weekly liquid assets increased noticeably Monday. The recently posted 'Money Market Mutual Fund Liquidity Facility FAQs' explains, 'How will this program support money market mutual funds (MMMFs)? In the days prior to the initiation of the program, some MMMFs experienced significant demands for redemptions by investors. Under ordinary circumstances, they would have been able to meet those demands by selling assets. Recently, however, many money markets have become extremely illiquid due to uncertainty related to the coronavirus outbreak. Pursuant to Section 13(3) of the Federal Reserve Act, and with prior approval of the Secretary of the Treasury, the Board of Governors of the Federal Reserve System (Board) authorized the Federal Reserve Bank of Boston (FRBB) to establish the MMLF. In addition, the Secretary of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion of credit protection to FRBB. The MMLF will assist MMMFs in meeting demands for redemptions by households and other investors, enhancing overall market functioning and the provision of credit to households, businesses and municipalities.'"

An April story, "Money Fund Assets Break $5.0 Trillion; Crane Featured in Ignites Piece," hit on another major theme of early 2020 -- massive asset inflows into MMFs. We wrote, "Money market mutual fund assets broke the $5.0 trillion level for the first time ever on Tuesday, April 27, according to Crane Data's Money Fund Intelligence Daily publication. Money fund assets continued to rise sharply in April, up an enormous $432.9 billion month-to-date through April 28 to $5.023 trillion, after a breathtaking increase of $624.9 billion in March. In March and April combined, money fund assets have risen by an eye-popping $1.058 trillion! Government funds jumped $349.4 billion MTD in April to $3.870 trillion (after a surge of $790.4 billion in March), Prime funds saw assets rise $76.4 billion, retaking the $1.0 trillion level early this week, to $1.012 trillion in April through 4/28 (after falling $159.6 billion in March). Tax-Exempt assets increased $7.1 billion to $141.0 billion MTD (after falling $5.8 billion in March)." (See also, "MMF Assets Up $1 Trillion YTD; Deposits Up $1T Too; Ultra-Shorts Plunge.")

Our piece "Yields Inch Towards Zero, Outflows; T Rowe Waivers; Weekly Holdings" explains, "Money market fund yields once again inched lower in the latest week with our flagship Crane 100 down 3 basis points (through Friday, May 22) to 0.16%. The Crane 100 MF Index fell below the 1.0% level in mid-March and below the 0.5% level in late March, and is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. While a number of money funds have already hit the zero floor, most continue to show some yield. According to our Money Fund Intelligence Daily, as of Friday, 5/22, 393 funds (out of 852 total) yielded 0.00% or 0.01% with assets of $1.316 trillion, or 25.7% of the total. There were 156 funds yielding between 0.02% and 0.10%, totaling $992.1B, or 19.4% of assets; 173 funds yielded between 0.11% and 0.25% with $1.647 trillion, or 32.2% of assets; 101 funds yielded between 0.26% and 0.50% with $837.5 billion in assets, or 16.4%; 24 funds yielded between 0.51% and 0.99% with $325.7 billion in assets or 6.4%; no funds yield over 1.00%." (See also, "Northern Liquidating Prime Obligs; NY Fed on PDCF; Weekly Port Holds" and "Northern Drops Other Prime Shoe, Exits Muni Too; MFI Intl Holdings.")

We covered the record breaking Global MMF asset totals in our June 24 piece, "Worldwide MF Assets Hit $7.7 Trillion in Q1; U.S., Chinese MMFs Surge." It comments, "The Investment Company Institute's latest 'Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2020' release shows that money fund assets globally rose by $750.6 billion, or 10.8%, in Q1'20 to a record $7.688 trillion. The increase was driven by big gains in U.S. and China- based money funds. MMF assets worldwide have increased by $1.611 trillion, or 26.5%, the past 12 months, and money funds in the U.S. now represent 56.4% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)."

In August, we wrote an update on the "Social" or "Impact" space, which was big again in 2020 (like in 2019). Our News piece, "Federated Hermes Files to Enter "Social" or "Impact" Money Fund Space, said, "Last week, the Board of Federated Hermes Government Obligations Tax-Managed Fund voted to convert it into a 'Social' or 'Impact' money market fund, we learned from mutual fund news source ignites and from a Prospectus Supplement filing. The ignites article, '$7.5B Federated Hermes Fund Adds Diversity Target for Trading,' explains, 'The $7.5 billion Federated Hermes Government Obligations Tax-Managed Fund will 'generally seek' to direct trades to women-, minority- and veteran-owned broker-dealers starting on Oct. 1.... The change applies to all three of the fund's share classes. Several other government money funds have also adopted similar trading policies in recent years.' Federated's fund will become the third 'social' money fund, joining Goldman Sachs and Dreyfus in offering funds that attempt to drive trading business through minority brokerages; it also joins a number of ESG money market funds focused on environmental investment screens."

On August 28, we covered the biggest of the Prime exits in, "Vanguard Prime Money Market Fund Going Government; ICI's July Trends." The article states, "Vanguard Group, the second largest manager of money market mutual funds with $482.3 billion, announced that it is converting its $125.3 billion Vanguard Prime Money Market Fund into a Government MMF, the third major exit from the Prime space since the coronavirus shutdown froze the commercial paper market in March and the first Prime Retail fund to convert since Money Market Fund Reforms went into effect in 2016. Their release, 'Vanguard Announces Changes to Money Market Fund Lineup,' tells us, 'Vanguard today announced the following changes to its taxable money market fund lineup: Vanguard Prime Money Market Fund will be reorganized into a government money market fund and renamed Vanguard Cash Reserves Federal Money Market Fund.... Vanguard Treasury Money Market Fund has reopened to new investors.'"

Our article, "FDIC: Deposits Gain Record $2.4 Trillion YTD; Yields Close in on Zero," highlights the huge $2+ trillion jump in bank deposits early this year. We write, "The Federal Deposit Insurance Corporation published its latest 'Quarterly Banking Profile' last week (see the release here), which reviews Q2 statistics on the banking industry in the U.S and shows a huge jump in deposits and drop in bank net interest margins. It states, 'Net interest income was $131.5 billion in second quarter 2020, down $7.6 billion (5.4 percent) from a year ago. This marks the third consecutive quarter that net interest income declined on a year-over-year basis. Most of the decline was driven by the three largest institutions, as less than half (42.2 percent) of all banks reported lower net interest income from a year ago. The average net interest margin (NIM) for the banking industry declined below the 3 percent level, or down 58 basis points from a year ago to 2.81 percent.'"

In October, our piece, "ICI's Stevens Keynotes Crane Event, Says Money Funds Didn't Drive Crisis," explains, "On Tuesday, we hosted our latest virtual event, 'Crane's Money Fund Symposium Online,' which featured a series of presentations and discussions on money market mutual fund topics. The Keynote speech, entitled, 'Covid's Impact on Money Markets,' was given by Investment Company Institute President & CEO Paul Schott Stevens, and included a preview of an upcoming 'Report of the COVID-19 Market Impact Working Group on Money Markets.' We quote from Stevens' comments below. (Watch for more coverage next week and in our November MFI, and thanks again to our attendees, excellent speakers and sponsors! If you missed it, the recording is available here or via Crane Data's Webinar page." (See also, "BlackRock's Novick, AMF's Cazenave Talk Runs, Regs at SEC Roundtable" and "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ."

Finally, we gave an update on European MMFs in our late November article, "European MFS Online: IMMFA's Iommi Says MMFs Resilient During Crisis." We write, "Crane Data hosted its most recent virtual event, European Money Fund Symposium Online Thursday, which featured a series of discussions on European and 'offshore' money market mutual fund topics. During our 'Major Issues in European MMFs' panel, Veronica Iommi of the Institutional Money Market Funds Association gave a 'brief 2020 update on money market funds in Europe from IMMFA's perspective with a focus on the impact of the covid-19 pandemic [and] our role as a voice to the industry.' We quote from her remarks below. (Thanks again to our EMFS Online attendees, speakers and sponsors! The replay is available here in case you missed it.)"

Iommi explained, "IMMFA is the Institutional Money Market Funds Association, originally formed 20 years ago. It's the only trade association in Europe dedicated to money market funds. Our core objective is to promote and support the development and integrity of the money market funds industry. We do this by engaging with policymakers and regulators, educating investors, providing regular data on members funds and overarching all of this, providing a centralized point of contact information and expertise for relevant stakeholders. Our members comprise full members, which are fund managers who manage at least one fund meeting the IMMFA criteria, and associate members which provide services to IMMFA managers or funds such as fund administrators or rating agencies." (See also, "ICI Ops on RDM, Negative Yields; N-MFP Holdings: Treasuries Still Half").

For more 2020 (and soon 2021) News (and prior years going back to 2006), see Crane Data's News Archives. We'll continue to provide daily updates on the money fund marketplace in the coming year, so keep reading our News and Link of the Day commentaries in 2021. Let us know if you need web access (unlimited access is for subscribers only), or if you'd like to see our latest Money Fund Intelligence or Bond Fund Intelligence newsletters, or our MFI Daily publication. Thanks to all of our readers and subscribers for your support in 2020, and we wish you all the best in the coming year. Merry Christmas and Happy New Year!

The SEC recently released its quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows overall Liquidity fund assets were up in the latest reported quarter (Q1'20) to $585 billion (up from $578 billion in Q4'19). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Second Calendar Quarter 2018 through First Calendar Quarter 2020 as reported by Form PF filers." Note: Crane Data believes many of these liquidity funds are securities lending reinvestment pools and other short-term investment funds.

The tables in the SEC's "Private Funds Statistics: First Calendar Quarter 2020," with the most recent data available, show 105 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), down three from the last quarter and down 12 from a year ago. (There are 64 Liquidity Funds and 41 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 36 Liquidity Fund advisers and 21 Section 3 Liquidity Fund advisers, or 57 advisers in total, down one from last quarter (down four from a year ago).

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $585 billion, up $7 billion from Q4'19 and up $12 billion from a year ago (Q1'19). Of this total, $296 billion is in normal Liquidity Funds while $289 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $594 billion, up $11 billion from Q4'19 and up $2 billion from a year ago (Q1'19). Of this total, $300 billion is in normal Liquidity Funds while $294 billion is in Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $72 billion is held by Private Funds (24.9%), $61 billion is held by Unknown Non-U.S. Investors (21.0%), $76 billion is held by Other (26.2%), $12 billion is held by SEC-Registered Investment Companies (4.3%), $10 billion is held by Insurance Companies (3.5%) and $4 billion is held by Non-U.S. Individuals (1.5%).

The tables also show that 75.5% of Section 3 Liquidity Funds have a liquidation period of one day, $274 billion of these funds may suspend redemptions, and $239 billion of these funds may have gates (out of a total of $513 billion). WAMs average a short 29 days (42 days when weighted by assets), WALs are 58 days (77 days when asset-weighted), and 7-Day Gross Yields average 0.75% (0.5% asset-weighted). Daily Liquid Assets average about 51% (51% asset-weighted) while Weekly Liquid Assets average about 64% (65% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (46.3%) are fully compliant with Rule 2a-7.

In other news, ICI released its latest monthly "Money Market Fund Holdings" summary yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our December 10 News, "December MF Portfolio Holdings: Repo Retakes $1 Tril., Agencies Drop.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in November, prime money market funds held 38.8 percent of their portfolios in daily liquid assets and 51.7 percent in weekly liquid assets, while government money market funds held 75.1 percent of their portfolios in daily liquid assets and 84.6 percent in weekly liquid assets." Prime DLA was up from 37.9% in October, and Prime WLA increased from 50.9%. Govt MMFs' DLA increased from 74.4% in October and Govt WLA increased from 84.4% from the previous month.

ICI explains, "At the end of November, prime funds had a weighted average maturity (WAM) of 43 days and a weighted average life (WAL) of 58 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 45 days and a WAL of 99 days." Prime WAMs were down five days from the previous month, while WALs were down four days from the previous month. Govt WAMs were unchanged, while Govt WALs were down two days from October.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $277.24 billion in October to $268.37 billion in November. Government money market funds' holdings attributable to the Americas rose from $3,209.56 billion in October to $3,249.75 billion in November." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $268.4 billion, or 47.3%; Asia and Pacific at $91.7 billion, or 16.2%; Europe at $201.1 billion, or 35.5%; and, Other (including Supranational) at $5.6 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.250 trillion, or 870%; Asia and Pacific at $126.7 billion, or 3.4%; Europe at $339.5 billion, 9.1%, and Other (Including Supranational) at $18.8 billion, or 0.5%."

Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of December 11) includes Holdings information from 77 money funds (up 5 from two weeks ago), which represent $2.106 trillion (up from $2.078 trillion) of the $4.711 trillion (44.7%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.182 trillion (up from $1.141 trillion two weeks ago), or 56.1%, Repurchase Agreements (Repo) totaling $485.9 billion (down from $488.0 billion two weeks ago), or 23.1% and Government Agency securities totaling $247.5 billion (down from $269.9 billion), or 11.8%. Commercial Paper (CP) totaled $68.5 billion (up from $56.7 billion), or 3.3%, and Certificates of Deposit (CDs) totaled $54.5 billion (up from $53.9 billion), or 2.6%. The Other category accounted for $38.6 billion or 1.8%, while VRDNs accounted for $29.3 billion, or 1.4%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.185 trillion (56.3% of total holdings), Federal Home Loan Bank with $124.3B (5.9%), BNP Paribas with $68.9B (3.3%), Fixed Income Clearing Corp with $62.6 (3.0%), Federal Farm Credit Bank with $49.8B (2.4%), Federal National Mortgage Association with $43.7B (2.1%), RBC with $40.5B (1.9%), Mitsubishi UFJ Financial Group Inc with $30.0B (1.4%), JP Morgan with $28.7B (1.4%) and Federal Home Loan Mortgage Corp with $27.7B (1.3%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($194.9 billion), Goldman Sachs FS Govt ($164.7B), Wells Fargo Govt MM ($141.5B), Fidelity Inv MM: Govt Port ($141.1B), BlackRock Lq T-Fund ($108.7B), Morgan Stanley Inst Liq Govt ($96.2B), JP Morgan 100% US Treas MMkt ($91.3B), Goldman Sachs FS Treas Instruments ($82.4B), First American Govt Oblg ($80.6B) and Dreyfus Govt Cash Mgmt ($72.4B). (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.)

Northern Funds exited the Prime Institutional money fund space earlier this year, and it has now filed to exit the Prime Retail and Municipal segments as well. A press release from the 11th largest money fund manager with $168.3 billion (99.7% of which is Government), entitled, "Northern Trust Asset Management Announces Changes to Money Market Mutual Fund Suite," tells us, "Northern Trust Asset Management, which oversees $339 billion in liquidity and short-duration strategies globally as of Sept. 30, 2020, announced the following changes to its suite of money market mutual funds: The Northern Funds - Municipal Money Market Fund (NOMXX) and the Northern Institutional Funds - Municipal Portfolio (NMUXX) will both close to new investors on or about Jan. 11, 2021 [and liquidate] on or about Feb. 12, 2021; and, A proposed merger of the Northern Funds Money Market Fund (NORXX) into the Northern Funds - U.S. Government Money Market Fund (NOGXX), subject to shareholder approval. These fund lineup changes highlight a thoughtful progression by Northern Trust Asset Management to exit the prime and municipal money market mutual fund space, a process that began back in May 2020 with the closure of the institutional prime money market mutual fund, the Northern Institutional Funds - Prime Obligations Portfolio."

Northern's Jen Hoffenkamp comments, "Given our strongly held, long-term views on interest rates, coupled with shifting investor preferences and the potential for continued regulatory changes, appropriate action was needed with our money market mutual fund offering.... Our investment strategies are rooted in the foundational belief that investors should be compensated for the risks they take, and we are committed to delivering investment products and solutions that fit our investor-centric approach."

The release explains, "Northern Trust Asset Management anticipates that U.S. interest rates will remain anchored near zero for the foreseeable future. In a continued low interest rate environment, investors in municipal and prime money market mutual funds earn yields comparable to government money market funds."

Peter Yi adds, "In our opinion, the risk/reward profile for these investors has become misaligned.... Our view is that the constraints limiting municipal and prime money market mutual funds today will not improve significantly over time. The money market mutual fund landscape has fundamentally changed." The release states, "Generally, prime and municipal money market mutual funds have declined in assets, while government money market mutual funds have grown as they seek to preserve the principal stability and liquidity that investors value. 'Investor preferences have changed, but their liquidity needs remain the same,' Hoffenkamp said."

Northern adds, "For the foreseeable future, Northern Trust Asset Management views government money market mutual funds as the optimal solution for investors' operational cash needs. For intermediate (six-to-12-month) liquidity needs, the firm encourages clients to consider a cash segmentation strategy to take advantage of the value ultra-short fixed income products can provide."

Finally, they write, "While these changes affect prime and municipal money market mutual funds, Northern Trust Asset Management will continue to deliver these cash strategies to clients through customized solutions and other fund product types. Northern Trust Asset Management has helped liquidity investors navigate the ever-evolving liquidity landscape for more than 40 years. As one of the largest global cash managers, with a full liquidity suite serving individual and institutional investors, the firm offers a range of strategies, from municipal, prime and government cash management to ultra-short fixed income strategies."

For more on this latest news, see the Prospectus Supplement filing for the $232 million Northern Money Market Fund (NORXX), the filing for the $113 million Northern Municipal Money Market Fund (NOMXX) and the filing for the $184 million Northern Institutional Muni Money Market (NMUXX). For more on Prime and Municipal money fund exits this year, see these Crane Data News stories: Dreyfus Consolidates Money Funds, Sticks w/Prime; OFR Annual Report (11/19/20), BMO Liquidating Inst Prime MMF (11/17/20), SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ (9/28/20), Fidelity to Liquidate Prime Instit Money Funds; Cites Investor Behavior (6/22/20) and Northern Liquidating Prime Obligs; NY Fed on PDCF; Weekly Port Holds (5/20/20).

In other news, Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds moved higher over the past month. They broke above the $1.0 trillion for the first time ever three months ago, hitting a record $1.056 trillion in August. These U.S.-style funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, have increased by $28.1 billion over the last 30 days (when translated into dollars) and they're up by $158.8 billion (18.1%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are down $481 million over the last 30 days but are up $24.5 billion YTD to $519.0 billion. Euro funds are up E15.0 billion over the past month, and YTD they're up E51.6 billion to E150.3 billion. GBP money funds have risen by L8.3 billion over 30 days, and are up by L32.5 billion YTD to L257.4B. U.S. Dollar (USD) money funds (191) account for half (50.1%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.1% and Pound Sterling (GBP) funds (115) total 30.2%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below.

Offshore USD MMFs yield 0.05% (7-Day) on average (as of 12/11/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.65% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.02%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (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 December MFII Portfolio Holdings, with data as of 11/30/20, show that European-domiciled US Dollar MMFs, on average, consist of 22.1% in Commercial Paper (CP), 15.0% in Certificates of Deposit (CDs), 17.6% in Repo, 32.3% in Treasury securities, 11.7% in Other securities (primarily Time Deposits) and 1.3% in Government Agency securities. USD funds have on average 33.5% of their portfolios maturing Overnight, 6.7% maturing in 2-7 Days, 12.9% maturing in 8-30 Days, 12.6% maturing in 31-60 Days, 12.6% maturing in 61-90 Days, 17.4% maturing in 91-180 Days and 4.3% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (42.5%), France (12.7%), Japan (8.1%), Canada (7.3%), Germany (5.0%), Sweden (4.2%), the U.K.(4.2%), the Netherlands (3.6%), Belgium (2.3%), Australia (2.2%), Switzerland (1.9%), Norway (1.3%), Singapore (1.1%) and Abu Dhabi (1.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $181.7 billion (32.3% of total assets), Fixed Income Clearing Corp with $21.4B (3.8%), BNP Paribas with $18.3B (3.3%), Barclays PLC with $14.2B (2.5%), Mizuho Corporate Bank Ltd with $13.5B (2.4%), Credit Agricole with $13.0B (2.3%), Mitsubishi UFJ Financial Group Inc. with $12.5B (2.2%), RBC with $11.5B (2.1%), JP Morgan with $11.0B (2.0%) and Societe Generale with $10.6B (1.9%).

Euro MMFs tracked by Crane Data contain, on average 39.7% in CP, 17.9% in CDs, 23.7% in Other (primarily Time Deposits), 13.4% in Repo, 5.2% in Treasuries and 0.1% in Agency securities. EUR funds have on average 32.2% of their portfolios maturing Overnight, 6.9% maturing in 2-7 Days, 8.9% maturing in 8-30 Days, 18.7% maturing in 31-60 Days, 13.4% maturing in 61-90 Days, 13.6% maturing in 91-180 Days and 6.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (36.4%), Japan (11.0%), the U.S. (9.4%), Germany (7.8%), Sweden (5.0%), Belgium. (4.1%), the U.K. (3.6%), Switzerland (3.6%), China (3.5%), Canada (3.4%), the Netherlands (2.3%), Supranational (2.0%) and Austria (1.8%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E8.3B (6.2%), BNP Paribas with E7.1B (5.3%), BPCE SA with E6.1B (4.5%), Societe Generale with E5.7B (4.2%), Republic of France with E5.6B (4.1%), Citi with E4.7B (3.5%), Mizuho Corporate Bank Ltd with E4.3B (3.2%), Credit Mutuel with E4.2B (3.1%), Mitsubishi UFJ FInancial Group with E3.7B (2.8%) and Sumitomo Mitsui Banking Corp with E3.6B (2.7%).

The GBP funds tracked by MFI International contain, on average (as of 11/30/20): 33.4% in CDs, 19.4% in CP, 23.2% in Other (Time Deposits), 21.8% in Repo, 1.9% in Treasury and 0.3% in Agency. Sterling funds have on average 38.9% of their portfolios maturing Overnight, 9.8% maturing in 2-7 Days, 5.8% maturing in 8-30 Days, 12.7% maturing in 31-60 Days, 12.2% maturing in 61-90 Days, 15.6% maturing in 91-180 Days and 5.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (20.3%), the U.K. (18.6%), Japan (17.1%), Canada (9.7%), the U.S. (5.0%), Sweden (4.4%), the Netherlands (4.2%), Germany (4.1%), Australia (2.8%), Spain (2.6%) and Abu Dhabi (2.4%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L17.7B (8.3%), Mizuho Corporate Bank Ltd with L11.0B (5.1%), BNP Paribas with L10.4B (4.9%), Mitsubishi UFJ Financial Group Inc with L10.0B (4.7%), Barclays PLC with L8.4B (3.9%), RBC with L8.3B (3.9%), Sumitomo Mitsui Banking Corp with L8.0B (3.7%), BPCE SA with L7.4B (3.4%), Agence Central de Organismes de Securite Social with L7.3B (3.4%) and Credit Agricole with L6.9B (3.2%).

The December issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "Bond Funds Break $5.0 Trillion & Bond ETFs Hit $1.0 Trillion," which looks at the latest record levels of bond funds and bond ETFs, and "Fitch's Sewell, Northern's Farrell on S-T European BFs," the two discuss low yields, credit quality and liquidity. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields fell and returns jumped in November. 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 Bond Funds Break $5.0 Trillion piece reads, "Bond funds continued to see strong inflows in November, with a brief minor dip at month-end Oct. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $22.57 billion for the week, compared to estimated inflows of $13.93 billion during the previous week [and inflows of $17.1 billion the week before that]. Taxable bond funds saw estimated inflows of $20.76 billion, and municipal bond funds had estimated inflows of $1.81 billion.' Over the past 5 weeks, bond funds and ETFs have seen inflows of $68.9 billion."

It continues, "Their latest 'Trends in Mutual Fund Investing – October 2020' shows bond fund assets rose $34.0 billion, 0.7%, to $5.002 trillion in October, after rising $30.2 billion in September. Over the 12 months through 10/31/20, bond fund assets have increased by $386.2B, or 8.4%. The number of funds rose by one in October to 2,129, down 28 over a year."

Our European Bond Funds article explains, "Fitch Ratings recently hosted a webinar entitled, 'European Short-Term Bond Funds – Risks and Perspective in the Current Low Yield Environment,' which features comments from Fitch's Alastair Sewell and Northern Trust AM's Dan Farrell. The two discussed the short-term European bond fund market, the 'current low yield environment' and 'funds' credit quality and liquidity.' We quote some of the highlights below."

Sewell explains, "With rates where they are, with pressures on yields, it seems very natural that many investors would be considering some kind of allocation to short or ultra short duration bond funds ... compared with ... a short term money market fund. Implicit in this is an increase in risk appetite. These ultra short bond funds will typically take more risk than a short term money market fund, so there is an implicit acceptance of increased risk here. Which perhaps points to a stabilization in the wider macro landscape and the wider market dynamics."

Farrell agrees, "It makes sense with the low interest rate environment [and] corresponds to what we're seeing within our own business. We've seen a lot more interest and a lot more flow into our ultra short strategies since May, and from a variety of different investors. There seems to be a growing acceptance that central banks will keep rates at these low levels for the foreseeable future.... So, I think the long interest rate environment, alongside the potential increase in regulations on money funds resulting in potential further yield compression, will no doubt continue this trend going forward."

Our Bond Fund News includes the brief, "Returns Jump, Yields Plunge in Nov." It says, "Bond fund yields were lower while returns surged last month. Our BFI Total Index returned 1.41% over 1-month and 4.88% over 12 months. The BFI 100 rose 1.42% in Nov. and rose 5.82% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.07% over 1-mo and 1.49% over 1-yr; Ultra-Shorts averaged 0.29% in Nov. and 1.80% over 12 mos. Short-Term returned 0.68% and 3.70%, and Intm-Term jumped 1.32% last month and 6.92% over 1-year. BFI's Long-Term Index surged 2.01% in Nov. and 9.16% for the year. Our High Yield Index skyrocketed 3.10% last month but is up 4.53% over 1-year."

In another News brief, we quote Morningstar's, "With Yields So Low, Where Do You Go?" They tell us, 'The collapse of yields across the fixed-income market has meant that core-bond fund managers investing in U.S. Treasuries, agency mortgages, and corporate credit have fewer tools at their disposal when seeking to generate a high level of income. Looking at the median SEC yield of a group of distinct intermediate core bond Morningstar Category strategies illustrates this fact vividly.'"

In a third News update, Pensions & Investments writes, "Derivatives a big part of suddenly popular bond ETFs." They explain, "From index futures and ETF options to total return swaps, many of the largest and most liquid equity exchange-traded funds are supported by a swath of derivatives and a ready market for borrowing ETF shares. These features allow market makers to hedge risk with precision, investors to buy or sell protection, and speculators to leverage their exposures. Now, a similar ecosystem for fixed-income ETFs is rapidly emerging, thanks to a flood of assets and an overt endorsement of ETFs by their inclusion in the Federal Reserve's Secondary Market Corporate Credit Facility."

Finally, BFI features the sidebar, "DoubleLine's Sherman Talks," which tells us, "SSGA hosted a webinar, 'Talking Performance with Jeffrey Sherman,' which featured the DoubleLine Deputy Chief Investment Officer discussing current events' impact on the bond market and 'performance drivers and detractors.'"

Sherman explains, "Obviously, we have the most exposure to U.S. Treasuries just given that we're trying to run an intermediate term bond fund here.... The next highest would be in investor grade corporate bonds, although we are significantly underweight ... as we have been for many years.... If you take the comparable duration of the Treasury market, you just really don't get paid a lot for that incremental risk."

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") Thursday. Among the 4 tables it includes on money market mutual funds, the Third Quarter 2020 edition shows that Total MMF Assets decreased by $228 billion to $4.408 trillion in Q3'20. The Household Sector, by far the largest investor segment with $2.463 trillion, saw assets plunge in Q3, after a massive buildup in the first half of 2020. The second largest segment, Nonfinancial Corporate Businesses, also saw a sharp drop in assets, as did Life Insurance Companies. (Note: Please join us next week for our last webinar of the year, Money Fund Wisdom Demo & Training, Dec. 16 from 1-2pmET. We'll review money market mutual fund information and statistics and we'll give an overview of and training on Crane Data's product lineup.)

The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show asset decreases in MMF holdings for the Other Financial Business (formerly Funding Corps) and Rest of the World category in Q3 2020. Private Pension Funds, Nonfinancial Noncorporate Business, State & Local Government Retirement and Property-Casualty Insurance all saw small assets decreases in Q3. The only segment to increase over the last quarter was State & Local Govts . Over the past 12 months, the Nonfinancial Corporate Businesses, Household Sector and Other Financial Business showed the biggest asset increases. Every category with the exception of Property-Casualty Insurance saw increases over the past year.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets decreased by $228 billion, or -4.9%, in the third quarter to $4.408 trillion. Over the year assets were up $966 billion, or 28.0%. The largest segment, the Household sector, totals $2.463 trillion, or 55.9% of assets. The Household Sector fell by $153 billion, or -5.8%, in the quarter, after increasing $197 billion in Q2'20. Over the past 12 months through Q3'20, Household assets were up $390 billion, or 18.8%.

Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $927 billion, or 21.0% of the total. Assets here fell by $35 billion in the quarter, or -3.6%, and they've increased by $399 billion, or 75.4%, over the past year. Other Financial Business was the third-largest investor segment with $412 billion, or 9.3% of money fund shares. They fell by $8 billion, or -1.9%, in the latest quarter. Other Financial Business has increased by $97 billion, or 31.0%, over the previous 12 months.

The fourth-largest segment, Private Pension Funds , held $163 billion (3.7%). The Rest of the World, was in 5th place, it held 3.6% of money fund assets ($157 billion), down by $8 billion (-4.9%) for the quarter, and up $34 billion, or 28.0%. The Nonfinancial Noncorporate Business remained sixth place in market share among investor segments with 2.8%, or $124 billion, while Life Insurance Companies held $75 billion (1.7%), State and Local Governments held $32 billion (0.7%), State and Local Government Retirement Funds held $31 billion (0.7%) and Property-Casualty Insurance held $24 billion (0.5%) 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 $3.291 trillion, or 74.6% of the total. Debt securities includes: Open market paper ($178 billion, or 4.0%; we assume this is CP), Treasury securities ($2.275 trillion, or 51.6%), Agency and GSE-backed securities ($700 billion, or 15.9%), Municipal securities ($121 billion, or 2.8%) and Corporate and foreign bonds ($16 billion, or 0.4%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($997 billion, or 22.6% of total assets) and Time and savings deposits ($180 billion, or 4.1%). Money funds also hold minor positions in Miscellaneous assets ($15 billion, or 0.3%), Foreign deposits ($1 billion, 0.0%) and Checkable deposits and currency (-$76 billion, -1.7%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $44 billion.

During Q3, Debt Securities were down $254 billion. This subtotal included: Open Market Paper (down $41 billion), Treasury Securities (down $75 billion), Agency- and GSE-backed Securities (down $126 billion), Corporate and Foreign Bonds (up $4 billion) and Municipal Securities (down $15 billion). In the third quarter of 2020, Security Repurchase Agreements were up $91 billion, Foreign Deposits were down $1 billon, Checkable Deposits and Currency were down $31 billion, Time and Savings Deposits were down by $35 billion, and Miscellaneous Assets were up $2 billion.

Over the 12 months through 9/30/20, Debt Securities were up $1.261 trillion, which included Open Market Paper down $64B, Treasury Securities up $1.330T, Agencies up $4B, Municipal Securities (down $9), and Corporate and Foreign Bonds (unchanged). Foreign Deposits were down $3B, Checkable Deposits and Currency were down $46B, Time and Savings Deposits were down $75B, Securities repurchase agreements were down $175B and Miscellaneous Assets were up $5B.

Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "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 released its December Money Fund Portfolio Holdings Wednesday, and our most recent collection, with data as of November 30, 2020, shows a big jump in repo and an increase in every category except Agencies, CDs and VRDNs last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $86.6 billion to $4.711 trillion last month, after decreasing $148.0 billion in October, $94.3 billion in September and $12.7 billion in August. Treasury securities remained the largest portfolio segment, followed by Repo, 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, Treasury securities increased by $19.0 billion (0.8%) to $2.440 trillion, or 51.8% of holdings, after decreasing $39.8 billion in October and $6.3 billion in September. Repurchase Agreements (repo) increased by $92.0 billion (9.3%) to $1.076 trillion, or 22.8% of holdings, after decreasing $58.4 billion in October and $6.7 billion in September. Government Agency Debt decreased by $30.2 billion (-4.2%) to $686.3 billion, or 14.6% of holdings, after decreasing $50.5 billion in October and $28.1 billion in September. Repo, Treasuries and Agencies totaled $4.203 trillion, representing a massive 89.2% of all taxable holdings.

Money funds' holdings of CP and Other (mainly Time Deposits) rose in November, while VRDNs and CDs saw assets decrease. Commercial Paper (CP) increased $8.5 billion (3.8%) to $230.7 billion, or 4.9% of holdings, after decreasing $9.7 billion in October and $11.6 billion in September. Certificates of Deposit (CDs) fell by $11.4 billion (-7.7%) to $136.4 billion, or 2.9% of taxable assets, after decreasing $8.4 billion in October and $20.8 billion in September. Other holdings, primarily Time Deposits, increased $9.4 billion (8.3%) to $122.4 billion, or 2.6% of holdings, after increasing $18.4 billion in November but decreasing $21.0 billion in September. VRDNs decreased to $19.1 billion, or 0.4% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Thursday.)

Prime money fund assets tracked by Crane Data increased $2.0 billion to $950.0 billion, or 20.2% of taxable money funds' $4.711 trillion total. Among Prime money funds, CDs represent 14.4% (down from 15.6% a month ago), while Commercial Paper accounted for 24.3% (up from 23.4%). The CP totals are comprised of: Financial Company CP, which makes up 15.6% of total holdings, Asset-Backed CP, which accounts for 4.8%, and Non-Financial Company CP, which makes up 3.9%. Prime funds also hold 5.7% in US Govt Agency Debt, 26.7% in US Treasury Debt, 4.1% in US Treasury Repo, 0.5% in Other Instruments, 8.8% in Non-Negotiable Time Deposits, 5.4% in Other Repo, 5.9% in US Government Agency Repo and 1.0% in VRDNs.

Government money fund portfolios totaled $2.592 trillion (55.0% of all MMF assets), up $60.0 billion from $2.532 trillion in October, while Treasury money fund assets totaled another $1.169 trillion (24.8%), up from $1.145 trillion the prior month. Government money fund portfolios were made up of 24.4% US Govt Agency Debt, 13.5% US Government Agency Repo, 47.1% US Treasury debt, 14.6% in US Treasury Repo, 0.2% in VRDNs, 0.1% in Other Instruments and 0.1% in Investment Company . Treasury money funds were comprised of 82.7% US Treasury Debt and 17.3% in US Treasury Repo. Government and Treasury funds combined now total $3.761 trillion, or 79.8% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $19.9 billion in November to $650.5 billion; their share of holdings rose to 13.8% from last month's 13.6%. Eurozone-affiliated holdings rose to $463.8 billion from last month's $449.7 billion; they account for 9.9% of overall taxable money fund holdings. Asia & Pacific related holdings increased $12.2 billion to $234.1 billion (5.0% of the total). Americas related holdings rose $54.0 billion to $3.822 trillion and now represent 81.1% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $68.0 billion, or 12.3%, to $619.6 billion, or 13.2% of assets); US Government Agency Repurchase Agreements (up $22.7 billion, or 5.9%, to $405.2 billion, or 8.6% of total holdings), and Other Repurchase Agreements (up $1.3 billion, or 2.6%, from last month to $51.3 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $8.7 billion to $148.2 billion, or 3.1% of assets), Asset Backed Commercial Paper (down $2.0 billion to $45.8 billion, or 1.0%), and Non-Financial Company Commercial Paper (up $1.8 billion to $36.8 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of Nov. 30, 2020, include: the US Treasury ($2,441.4 billion, or 51.8%), Federal Home Loan Bank ($413.7B, 8.8%), Fixed Income Clearing Co ($148.2B, 3.1%), BNP Paribas ($140.1B, 3.0%), Federal National Mortgage Association ($102.9B, 2.2%), RBC ($98.9B, 2.1%), Federal Farm Credit Bank ($97.9B, 2.1%), JP Morgan ($74.7B, 1.6%), Federal Home Loan Mortgage Co ($68.7B, 1.5%), Barclays ($66.1B, 1.4%), Credit Agricole ($65.5B, 1.4%), Mitsubishi UFJ Financial Group Inc ($60.0B, 1.3%), Citi ($56.3B, 1.2%), Societe Generale ($52.2B, 1.1%), Sumitomo Mitsui Banking Co ($51.3B, 1.1%), Bank of America ($40.8B, 0.9%), Bank of Montreal ($38.3B, 0.8%), Toronto-Dominion Bank ($37.6B, 0.8%), Canadian Imperial Bank of Commerce ($34.3B, 0.7%) and Mizuho Corporate Bank Ltd ($32.5B, 0.7%).

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 Corp ($148.2B, 13.8%), BNP Paribas ($125.6B, 11.7%), RBC ($77.8B, 7.2%), JP Morgan ($64.7B, 6.0%), Barclays PLC ($55.8B, 5.2%), Credit Agricole ($49.4B, 4.6%), Citi ($47.8B, 4.4%), Mitsubishi UFJ Financial Group Inc ($46.1B, 4.3%), Societe Generale ($39.9B, 3.7%) and Bank of America ($38.1B, 3.5%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($22.6B, 5.2%), RBC ($21.1B, 4.9%), Mizuho Corporate Bank Ltd ($20.7B, 4.8%), Sumitomo Mitsui Banking Corp ($17.0B, 3.9%), Credit Agricole ($16.2B, 3.7%), Bank of Montreal ($15.2B, 3.5%), BNP Paribas ($14.6B, 3.4%), Mitsubishi UFJ Financial Group Inc ($13.9B, 3.2%), Sumitomo Mitsui Trust Bank ($13.7B, 3.2%) and Credit Suisse ($12.9B, 3.0%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($14.1B, 10.3%), Bank of Montreal ($13.1B, 9.6%), Toronto-Dominion Bank ($9.1B, 6.7%), Mizuho Corporate Bank Ltd ($8.5B, 6.3%), Mitsubishi UFJ Financial Group Inc ($8.4B, 6.1%), Sumitomo Mitsui Trust Bank ($7.4B, 5.4%), Canadian Imperial Bank of Commerce ($7.4B, 5.4%), Credit Suisse ($6.0B, 4.4%), RBC ($5.6B, 4.1%) and Landesbank Baden-Wurttemberg ($4.6B, 3.4%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($12.0B, 5.9%), Societe Generale ($11.3B, 5.5%), RBC ($10.1B, 4.9%), JP Morgan $9.9B, 4.9%), BPCE SA ($7.9B, 3.9%), BNP Paribas ($7.6B, 3.8%), Citi ($7.5B, 3.7%), NRW.Bank ($7.3B, 3.6%), Credit Suisse ($6.9B, 3.4%) and UBS AG ($5.6B, 2.8%).

The largest increases among Issuers include: Fixed Income Clearing Corp (up $51.2B to $148.2B), US Treasury (up $20.2B to $2,441.4B), RBC (up $7.8B to $98.9B), Nomura (up $6.7B to $30.9B), Canadian Imperial Bank of Commerce (up $6.2B to $34.3B), Barclays PLC (up $5.9B to $66.1B), Mizuho Corporate Bank Ltd (up $4.6B to $32.5B), Sumitomo Mitsui Banking Corp (up $4.3B to $51.3B), Bank of Montreal (up $4.1B to $38.3B) and Credit Agricole (up $3.1B to $65.5B).

The largest decreases among Issuers of money market securities (including Repo) in November were shown by: Federal Home Loan Bank (down $17.1B to $413.7B), JP Morgan (down $11.8B to $74.7B), Bank of America (down $5.6B to $40.8B), Federal Home Loan Mortgage Corp (down $5.1B to $68.7B), UBS AG (down $2.6B to $8.3B), Sumitomo Mitsui Trust Bank (down $1.8B to $18.9B), Deutsche Bank AG (down $1.8B to $11.1B), Bank of Nova Scotia (down $1.4B to $17.9B), HSBC (down $0.9B to $20.2B) and Credit Suisse (down $0.9B to $19.8B).

The United States remained the largest segment of country-affiliations; it represents 76.0% of holdings, or $3.582 trillion. France (6.6%, $309.6B) was number two, and Canada (5.1%, $239.7B) was third. Japan (4.7%, $222.8B) occupied fourth place. The United Kingdom (2.4%, $114.7B) remained in fifth place. the Netherlands (1.2%, $57.2B) was in sixth place, followed by Germany (1.2%, $56.7B), Sweden (0.6%, $29.0B), Switzerland (0.6%, $28.8B) and Australia (0.6%, $27.9B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Nov. 30, 2020, Taxable money funds held 37.9% (up from 33.7%) of their assets in securities maturing Overnight, and another 8.6% maturing in 2-7 days (down from 11.6% last month). Thus, 46.6% in total matures in 1-7 days. Another 11.7% matures in 8-30 days, while 13.8% matures in 31-60 days. Note that close to three-quarters, or 72.1% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 10.4% of taxable securities, while 15.0% matures in 91-180 days, and just 2.5% matures beyond 181 days.

As we mentioned in yesterday's "Link of the Day," the ICI published a white paper entitled, "Reverse Distribution Mechanism and Negative Yields: Considerations and Recommended Practices," which reviews theoretical options for money market funds to operate in a negative yield environment. The paper says, "CNAV money market funds are exploring several actions to mitigate the pressure of negative yields [including] fee waivers and/or soft closures ... contributing a fund sponsor's own capital ... converting from a CNAV money market fund to a floating NAV ... [and a] Reverse Distribution Mechanism (RDM).... The working group identified RDM as the most operationally feasible alternative should a CNAV money market fund have to apply negative yield quickly. This paper provides details on RDM and highlights recommended practices for successful implementation of RDM, should it become necessary."

ICI explains, "RDM distributes a CNAV money market fund's negative yield by cancelling shares in shareholder accounts. It offsets the daily negative yield accrued (i.e., a decline in the fund's net assets) by reducing the number of fund shares outstanding. This process allows the fund to maintain a constant NAV per share, typically $1.00. The fund allocates the reduction in shares outstanding pro rata across all eligible shareholder accounts by posting a share redemption/cancellation transaction to each shareholder's account based on the daily negative yield factor per share. To ensure they apply reductions to all eligible shareholders, funds and intermediaries must post share cancellations to their respective systems daily. Shares included in the RDM calculation are determined using the same criteria used to distribute positive income."

They continue, "It is anticipated that funds would make the daily negative yield factor per share available around the same time of day as other positive income factors per share (also known as daily accrual factors). Members of the RDM Feasibility Working Group indicated that, should they need to implement RDM, they plan to apply their share cancellation transactions each day prior to the initiation of their nightly processing cycles."

The paper tells us, "Whatever share cancellation alternative that funds choose to manage negative yield situations for a CNAV money market fund, they should consider proactively communicating their intention to their intermediary partners. In addition to assisting counterparties in their preparations, transparency will help ensure consistent accounting for negative yield when it is necessary. For instance, fund accounting for share cancellation (e.g., RDM) differs from fund accounting for reductions in accrued dividends (e.g., negative yield accrual). To maintain accurate fund accounting and reporting, all parties must pursue the alternative determined by the fund."

It adds, "In addition to the various back-office considerations described in this playbook, discussions are ongoing regarding approaches to clarify shareholder and fund tax reporting, as well as the effects of RDM on fund financial statements delivered to shareholders and filed with the SEC. ICI will provide its members with information about decisions made in these two important areas through its regular memo distribution process."

For more on negative yields and the reverse distribution mechanism, see these Crane Data News articles: "More from Mini Fund Symposium: Dechert's Cohen on ESG, RDM, Reforms" (9/2/20), "N-MFP Holdings: Treasuries Half; JPM, Ignites on RDM, Negative Rates" (6/9/20), "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill" (1/22/19) and "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds" (11/1/18). (Let us know if you'd like to see our Money Fund Intelligence International too, which tracks Euro MMFs with negative yields.)

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our normal monthly update on the November 30 data for Thursday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.)

Our new N-MFP summary, with data as of Nov. 30, 2020, includes holdings information from 1,073 money funds (up four from last month), representing assets of $4.878 trillion (up $80 billion). Prime MMFs now total $963.0 billion, or 19.7% of the total, up from $960.1 billion a month ago. We review the new N-MFP data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.459 trillion (up from $2.443 trillion), or a massive 50.4% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $1.080 trillion (up from $997.6 billion), or 22.1% of all assets, and Government Agency securities totaled $706.4 billion (down from $730.0 billion), or 14.5%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.245 trillion, or a stunning 87.0% of all holdings.

Commercial paper (CP) totals $239.9 billion (up from $230.8 billion), or 4.9% of all holdings, and Certificates of Deposit (CDs) total $136.9 billion (down from $148.5 billion), 2.8%. The Other category (primarily Time Deposits) totals $168.5 billion (up from $157.1 billion), or 3.5%, and VRDNs account for $88.5 billion (down from $91.3 billion last month), or 1.8% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $150.0 billion, or 3.1%, in Financial Company Commercial Paper; $48.6 billion or 0.9%, in Asset Backed Commercial Paper; and, $44.0 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($625.3B, or 12.8%), U.S. Govt Agency Repo ($403.0B, or 8.3%) and Other Repo ($51.3B, or 1.1%).

The N-MFP Holdings summary for the 208 Prime Money Market Funds shows: Treasury holdings of $259.4 billion (down from $271.8 billion), or 26.9%; CP holdings of $234.6 billion (up from $225.7 billion), or 24.4%; Repo holdings of $147.8 billion (up from $138.4 billion), or 15.3%; CD holdings of $136.9 billion (down from $148.5 billion), or 14.2%; Other (primarily Time Deposits) holdings of $118.3 billion (up from $105.2 billion), or 12.3%; Government Agency holdings of $55.1 billion (down from $59.0 billion), or 5.7% and VRDN holdings of $10.9 billion (down from $11.6 billion), or 1.1%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $150.0 billion (down from $141.2 billion), or 15.6%, in Financial Company Commercial Paper; $45.9 billion (down from $47.9 billion), or 4.8%, in Asset Backed Commercial Paper; and $38.8 billion (down from $36.6 billion), or 4.0%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($40.4 billion, or 4.2%), U.S. Govt Agency Repo ($56.1 billion, or 5.8%), and Other Repo ($51.3 billion, or 5.3%).

Crane Data's latest Money Fund Market Share rankings show assets were mixed among the largest U.S. money fund complexes in November. Money market fund assets decreased $21.9 billion, or -0.5%, last month to $4.720 trillion. Assets have fallen by $195.5 billion, or -3.9%, over the past 3 months, but they've increased by $764.5 billion, or 19.5%, over the past 12 months through Nov. 30, 2020. The biggest increases among the 25 largest managers last month were seen by Goldman Sachs, BlackRock, First American, Fidelity and SSGA, which grew assets by $21.5 billion, $20.0B, $6.2B, $4.8B and $4.0B, respectively. The largest declines in assets in November were seen by Federated Hermes, Wells Fargo, American Funds, Dreyfus/BNY Mellon and Schwab, which decreased by $19.7 billion, $14.6B, $10.1B, $8.5B and $4.5B, respectively. 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 the latest market share totals below, and we also look at money fund yields in November.

Over the past year through Nov. 30, 2020, BlackRock (up $110.0B, or 32.6%), Fidelity (up $104.5B, or 13.3%), Vanguard (up $85.6B, or 21.0%), Wells Fargo (up $78.3B, or 60.3%), Morgan Stanley (up $71.6B, or 53.5%), Goldman Sachs (up $58.0B, or 24.0%) and JP Morgan (up $51.5B, or 14.7%) were the largest gainers. These complexes were followed by First American (up $48.2B, or 69.4%), Northern (up $43.6B, or 35.2%) and Federated Hermes (up $25.8B, or 8.4%). BlackRock, First American, Morgan Stanley and Vanguard had the only asset increases over the past 3 months, rising by $44.4B, $15.4B, $10.1B and $1.3B, respectively. The largest decliners over 3 months included: Goldman Sachs (down $52.0B, or -12.5%), Federated Hermes (down $31.0B, or -8.2%), Northern (down $23.1B, or -12.2%), Dreyfus/BNY Mellon (down $15.3B, or -7.5%) and Schwab (down $14.7B, or -7.3%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $900.4 billion, or 19.1% of all assets. Fidelity was up $4.8 billion in November, down $12.2 billion over 3 mos., but up $104.5B over 12 months. Vanguard ranked second with $488.9 billion, or 10.4% market share (down $2.7B, up $1.3B and up $85.6B for the past 1-month, 3-mos. and 12-mos., respectively). BlackRock was third with $462.7 billion, or 9.8% market share (up $20.0B, up $44.4B and up $110.0B). JP Morgan ranked fourth with $408.4 billion, or 8.7% of assets (down $4.4B, down $43.2B and up $51.5B for the past 1-month, 3-mos. and 12-mos.), while Federated Hermes took fifth place with $346.3 billion, or 7.3% of assets (down $19.7B, down $31.0B and up $25.8B).

Goldman Sachs was in sixth place with $313.4 billion, or 6.6% of assets (up $21.5 billion, down $52.0B and up $58.0B), while Wells Fargo was in seventh place with $209.8 billion, or 4.4% (down $14.6B, down $7.5B and up $78.3B). Morgan Stanley ($208.1B, or 4.4%) was in eighth place (up $168M, up $10.1B and up $71.6B), followed by Dreyfus/BNY Mellon ($186.2B, or 3.9%, down $8.5B, down $15.3B and up $27.4B). Schwab was in 10th place ($179.6B, or 3.8%; down $4.5B, down $14.7B and down $19.0B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($168.3B, or 3.6%), American Funds ($147.2B, or 3.1%), SSGA ($129.7B, or 2.7%), First American ($117.5B, or 2.5%), Invesco ($64.0B, or 1.4%), UBS ($60.1B, or 1.3%), T Rowe Price ($38.7B, or 0.8%), HSBC ($38.4B, or 0.8%), Western ($31.8B, or 0.7%) and DWS ($30.2B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, the same 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 appear as Fidelity, BlackRock, JP Morgan, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Wells Fargo, Dreyfus/BNY Mellon and Northern. 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 ($911.3 billion), BlackRock ($659.0B), JP Morgan ($615.4B), Vanguard ($488.9B) and Goldman Sachs ($443.1B). Federated Hermes ($356.6B) was sixth, Morgan Stanley ($254.9B) was in seventh, followed by Wells Fargo ($210.8B), Dreyfus/BNY Mellon ($206.5B) and Northern ($193.7B) 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 December issue of our Money Fund Intelligence and MFI XLS, with data as of 11/30/20, shows that yields were largely unchanged in November for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 746), was flat at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also unchanged at 0.02%. The MFA's Gross 7-Day Yield was unchanged at 0.17%, the Gross 30-Day Yield was also unchanged at 0.17%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unch.) and an average 30-Day Yield that was unchanged at 0.03%. The Crane 100 shows a Gross 7-Day Yield of 0.18% (unch.), and a Gross 30-Day Yield of 0.18% (unch). Our Prime Institutional MF Index (7-day) yielded 0.05% (unch.) as of November 30, while the Crane Govt Inst Index and Treasury Inst Index were both unchanged at 0.02%. Thus, the spread between Prime funds and Treasury funds is 3 basis points, and the spread between Prime funds and Govt funds is 3 basis point. The Crane Prime Retail Index yielded 0.02% (unch.), while the Govt Retail Index was 0.01% (unch.), the Treasury Retail Index was 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.01% (unch.) in November.

Gross 7-Day Yields for these indexes in November were: Prime Inst 0.22% (unch.), Govt Inst 0.16% (unch.) Treasury Inst 0.16% (unch.), Prime Retail 0.23% (unch.), Govt Retail 0.14% (unch.) and Treasury Retail 0.16% (unch. from the previous month). The Crane Tax Exempt Index was unchanged at 0.20%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.01% over 3-months, 0.38% YTD, 0.54% over the past 1-year, 1.49% over 3-years (annualized), 1.15% over 5-years, and 0.70% over 10-years.

The total number of funds, including taxable and tax-exempt, was up three at 927. There are currently 746 taxable funds, up five from the previous month, and 181 tax-exempt money funds (down two from the previous month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "FSB, IOSCO, OFR Comment on March Money Market Turmoil," which follows recent discussions on future money fund regulations; "IMMFA's Iommi Says MMFs Resilient at European MFS," which highlights a talk from IMMFA's Secretary General; and, "Dreyfus Consolidates MMFs, Sticks With Prime; Impact," which covers Dreyfus's recent changes to its product lineup. We've also updated our Money Fund Wisdom database with November 30 statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to ship on Wednesday, December 9, and our December Bond Fund Intelligence is scheduled to go out Monday, December 14.

MFI's lead article says, "Over the past month, the discussion over possible future money market fund regulations continued in the U.S. but also spread overseas, with the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), and the U.S. Treasury's Office of Financial Research (OFR) all weighing in. We also heard comments from the Boston Fed and others on possible changes. We review the latest thoughts below."

It continues, "The Financial Stability Board, 'an international body that monitors and makes recommendations about the global financial system,' published a ‘Holistic Review of the March Market Turmoil.' The report tells us, 'The breadth and dynamics of the economic shock and related liquidity stress in March were unprecedented. As in previous cases, the shock caused a fundamental repricing of risk and a heightened demand for safe assets. However, the stress also led to large and persistent imbalances in the demand for, and supply of, liquidity needed to support intermediation. On the demand side, non-financial corporates attempted to tap capital markets; demand for US dollar liquidity increased from foreign borrowers; non-government money market funds (MMFs) experienced significant outflows; and some open-ended funds also experienced redemptions. On the supply side, reductions in risk appetite, regulatory constraints and operational challenges may have reduced dealers’ capacity to intermediate ... in some core funding markets.'"

Our latest "Profile" piece reads, "Crane Data’s recent European Money Fund Symposium Online, which featured a series of discussions on European and 'offshore' money market mutual funds, included a 'Major Issues in European MMFs' segment with Veronica Iommi of the Institutional Money Market Funds Association. She gave a 'brief 2020 update on money market funds in Europe’ from IMMFA's perspective, with a 'focus on the impact of the covid-19 pandemic [and] our role as a voice to the industry.' We quote from her remarks below."

Iommi says, "IMMFA funds specifically are triple-A rated and primarily low volatility funds known as LVNAV.... As we've heard from the previous speakers, the money market funds universe in Europe consists of the variable, VNAV, part and the constant net asset value, or essentially the LVNAV part. The VNAV industry is ... predominantly French funds, but also includes funds in places such as Switzerland.... The other large share consists of IMMFA money market funds ... 95% of these ... are low volatility LVNAV funds with some public debt CNAV funds. Both types ... have constant net asset value as opposed to the variable net asset value. With regard to IMMFA money market funds, US Dollar funds are the largest, followed by Sterling and Euro. But what you will see is that both VNAV and LVNAV sectors have grown steadily over recent years."

Her slides show "Total assets under management reaching over E828 billion, having peaked in July at E890 billion," and the investor base for money market funds. She states, "Perhaps unsurprisingly, the UK accounts for a very high percentage of IMMFA funds’ distribution, 44%.... Sterling market money market funds ... account for around one third of IMMFA funds. A third of a third is sold into the rest of Europe. And here we break out just the larger areas of distribution, which include 12% sold into Benelux and 4% into Ireland.... Approximately 25% of funds are sold outside the EU."

The "Dreyfus Consolidates" article tells readers, "BNY Mellon's Dreyfus money fund complex announced a series of changes to its product lineup, but most notably indicated that it's sticking with Prime funds in its offerings. A press release entitled, Dreyfus Cash Investment Strategies to Optimize Money Market Fund Range' tells us, 'Dreyfus Cash Investment Strategies (Dreyfus CIS), a BNY Mellon Investment Management firm with $254bn in assets under management, ... announced that it will be optimizing its suite of money market funds to meet the evolving needs of cash investors. The enhancements to Dreyfus CIS' money market fund range over the next several months will result in: A streamlined product offering of 19 funds across three fund families to provide investment choice across all major money market asset classes; A uniform pricing structure within each fund family to improve client navigation, as well as reduced management fees in four retail funds and one institutional fund; and, Broader investor eligibility through lower investment minimums in many fund share classes.'"

It quotes, "Stephanie Pierce, CEO of ETF, Index, and Cash Investment Strategies at BNY Mellon Investment Management, comments, 'For nearly 50 years, as markets and client needs have changed, Dreyfus CIS has met the cash management needs and preferences of investors.... As part of BNY Mellon, Dreyfus CIS offers clients deep investment expertise, resilient infrastructure, and a record of strong financial stewardship across the entire cash spectrum. Streamlining our money market fund range is part of our ongoing commitment to providing clients with the professional money management and competitive market returns they expect from us.'"

The latest MFI also includes the News piece, "MF Yields Tie Record Lows of 2013," which says, "Money fund yields hit record lows last month. Our flagship Crane 100 declined by 0.01% to 0.02% in Nov., tying the all-time lows of 2013."

A second news brief entitled, "SEC Statistics: Assets, Yields Lower," writes, "The Securities & Exchange Commission's latest 'Money Market Fund Statistics' summary shows that total money fund assets dropped by $73.6 billion in October to $4.789 trillion, the fifth decrease in a row. The SEC shows that Prime MMFs fell by $30.7 billion in October to $962.0 billion, Govt & Treasury funds dropped by $41.4 billion to $3.706 trillion and Tax Exempt funds decreased $1.5 billion to $119.6 billion. Yields inched lower again in October."

A third news brief, "SEC Publishes MMF & CP Primer" explains, "The SEC also published, 'Primer: Money Market Funds and the Commercial Paper Market,' last month, which reviews commercial paper, money market funds and the events of March 2020. Authored by Viktoria Baklanova, Isaac Kuznits and Trevor Tatum, the paper explains, 'Commercial paper (CP) is unsecured, short-term debt issued for a specified amount to be paid at a specified date. CPs are issued at a discount, with minimum denominations of $100,000 and terms normally ranging from 1 to 270 days. Total U.S. CP outstanding was at $1,007 billion at the end of June 2020, down by $37 billion since the end of 2019 .... This is around one half of $2.2 trillion, the all-time high in CP outstanding reached in July 2007.'"

Our December MFI XLS, with November 30 data, shows total assets fell by $11.7 billion in November to $4.723 trillion, after decreasing $46.8 billion in October, $121.2 billion in September, $42.3 billion in August, $44.2 billion in July and $113.0 billion in June. Assets increased $31.6 billion in May, $417.9 billion in April and $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield is at 0.02%, our Crane 100 Money Fund Index (the 100 largest taxable funds) also sits at 0.02%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 0.17% while the Crane 100 was 0.18%. Charged Expenses averaged 0.15% for both the Crane MFA and Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 11/30.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 41 (unch.) and 44 days (down a day) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

It's been a little over two years since DWS/Deutsche launched the first "ESG" money market fund, and a year since Dreyfus launched its "Impact" or Social MMF and Mischler Financial moved into the institutional cash space. (See our Sept. 7, 2018 Crane Data News, "DWS ESG Liquidity Goes Live; Federated Explains Prime Private Fund; our Nov. 21, 2019 News, "Dreyfus Launches 'Impact' or Diversity Government Money Market Fund;" and our Dec. 5, 2019 News, "Mischler Financial Joins "​Impact" or Social Money Market Investing Wave.") Since then, ESG money funds (including BlackRock LEAF, DWS ESG Liquidity, Morgan Stanley Inst Liq ESG MMP, State Street ESG Liq Res and UBS Select ESG Prime Inst Fund) have grown to $6.9 billion, while Social MMFs (including Federated Hermes Govt Ob Tax-Mgd, Dreyfus Govt Sec Cash and Goldman Sachs FS Fed Instr) now total $16.7 billion. (Most of the latter group were fund conversions and not new fund launches.) While we're expecting more news (and webinars) on this front in coming days, we wanted to update you on several minor stories from this week involving ESG and social cash investing.

First, a press release tells us, "Mischler Financial Group, Inc., the oldest diversity-certified broker-dealer owned and operated by military veterans, today announced the appointment of Lt. General Herbert Raymond 'H.R.' McMaster (Ret.), a Hoover Institution Senior Fellow and a former National Security Advisor to the President, as Special Advisor to the firm.... As a Special Advisor to Mischler, General McMaster will offer distinctive geopolitical and global macro insight to the firm's Fortune 500 treasury clients and to the institutional investors and asset managers who rely on Mischler for helping them navigate domestic and global market financial markets."

Principal and CEO of Mischler, Dean Chamberlain comments, "General McMaster is one of our country's most recognized and decorated scholar-warriors; his granular knowledge and insight to global events, coupled with his multi-decade experience as one of our nation's most respected strategic thinkers will prove invaluable to our firm and our firm's capital markets constituents.... It is a rare privilege and a distinct honor for someone such as myself to serve alongside General McMaster."

Next, the U.K.-based publication Treasury Today writes on "Green deposits and sustainable investment," saying, "It's no secret that sustainability and Environmental, Social and Governance (ESG) considerations have become increasingly important in recent years. Where treasurers are concerned, in many cases their role in this topic has historically been focused on operational actions. A survey carried out by the European Association of Corporate Treasurers (EACT) earlier this year found that treasurers' involvement in supporting ESG included making changes to processes and controls (50%) and reducing business travel and encouraging home working (41%) -- both of which have become an even greater focus during the COVID-19 pandemic."

They explain, "Of course, ESG and sustainability extend far beyond these actions. Green bonds and sustainability-linked bonds have gained prominence in recent years, while companies are also exploring opportunities to promote greater sustainability not only within their own companies, but also throughout their supply chains.... Against this backdrop, it should come as no surprise that the topic of sustainable investing is also attracting interest. While only 20% of the EACT survey's respondents said they were investing in sustainable investment instruments, or developing a plan to do so, it is likely that this topic will gain momentum as more sustainable investment opportunities become available."

Treasury Today continues, "For one thing, money market fund providers are increasingly seeking to incorporate sustainability and ESG into their products. In addition, banks are beginning to offer green deposits that enable companies to contribute towards projects that benefit the environment. In November, for example, Citi launched a green deposit solution that enables clients to invest their medium-term excess cash to support environmentally friendly projects."

The piece tells us, "As Stephen Randall, Global Head Liquidity Management, Treasury & Trade Solutions at Citi explains, investments 'will be allocated to finance or refinance a portfolio of green projects that meet the rigorous environmental finance eligibility criteria defined in the Citi Green Bond Framework, established by Citi to finance solutions and developments designed to aim to reduce the impacts of climate change.' He adds that this framework is aligned with ICMA Green Bond principle and was assessed and confirmed by Sustainalytics, an independent provider of sustainability research."

It adds, "HSBC, meanwhile, has launched green deposits in the UK, Singapore and India in 2020, with more markets planned for next year. 'HSBC Green Deposits give treasurers a simple way to support environmentally-beneficial projects,' says Diane S. Reyes, Global Head of Liquidity and Cash Management at HSBC. 'The funds deposited are used by HSBC to provide financing for environmentally beneficial initiatives such as renewable energy and energy efficiency projects such as green buildings and clean transportation. Clients receive a quarterly, portfolio-level view of how their funds have been used and they can manage their green account as simply as a regular deposit account.'"

Also, law firm Cadwalader Cabinet discussed potential regulations on ESG funds in its article, "SEC Officials Push Back on ESG Disclosure Recommendations." They write, "At an Asset Management Advisory Committee ("AMAC") meeting, SEC officials considered a subcommittee's proposed recommendations on environmental, social, and governance ("ESG") disclosure. Division of Investment Management Director Dalia Blass questioned whether it is appropriate to recommend different issuer disclosures for ESG material risks than for other potential areas of risk. In relation to the ESG Subcommittee's disclosure recommendations, Ms. Blass identified the following areas of concern: the potential reliance of the SEC on non-SEC unregulated third-party standard setters in the ESG area; the role of disclosure liability in mandated ESG disclosures; and the different types of disclosures that might be required for different types of issuers and for advisers as opposed to issuers."

SEC Chairman Jay Clayton delivered his opening remarks at the meeting saying, "Today's agenda reflects the AMAC's continued focus on key topics within the asset management industry, including updates from the AMAC's subcommittees focusing on private investments, ESG investments -- or, as I like to say, E * S * and G, separately -- and diversity and inclusion within the asset management industry and the financial services sector more generally. I want you to know that this is a matter of importance to the staff and the Commission. I look forward to these panels and presentations and thank you again for your time and efforts."

Finally, IR Magazine published the article, "Asset managers complain CFA's proposed ESG standards will sow confusion, not clarity," which tells us, "CFA Institute's plan to create a global ESG standard has triggered concern among some US and European asset managers already juggling overlapping regulations and rising costs in a crowded space. Virginia-based CFA Institute, which offers chartered financial analyst certification globally, is forging ahead with its consultation, gathering feedback on its proposed principles of voluntary ESG disclosure standards for investment products. It aims to issue a draft voluntary standard in six months."

The piece quotes, "'It is very difficult for investors to find products that are suitable for their needs and preferences,' Chris Fidler, CFA's senior director of global industry standards, tells IR Magazine. 'Once you start evaluating products it gets really confusing, really quickly. That is the problem in the marketplace we're trying to solve.'"

It adds, "In addition to the initiatives already mentioned, plenty more are under way. In the US, the SEC reviews documents to ensure ESG-related fund names are not misleading and that investors are offered accurate, clear disclosures. The commission's Office of Compliance Inspections and Examinations conducts ESG-focused oversight with specific document requests, and the regulator has established an asset management advisory committee with an ESG subcommittee to draft recommendations by December for SEC action."

For more on ESG and Social MMFs, see these Crane Data News pieces: "More Symposium Highlights: Callahan, Cunningham on Future of MMFs" (11/3/20); "More from Mini Fund Symposium: Dechert's Cohen on ESG, RDM, Reforms" (9/2/20); "Hopkins, Lontai, Tobin Talk Major MF Issues: ESG MFs, Sticking w/Prime" (8/31/20); "Federated's Cunningham: Social at Fore of ESG; N-MFP Holds: T-Bills Dip" (8/11/20); "HSBC Files to Launch ESG Prime Money Market Fund; Proprietary Scoring" (2/19/20); "Fitch Ratings, ICD Host Webinars on ESG Money Funds, Cash Investing" (2/6/20); "Goldman Launches Social Class; Tiedemann Adds FICA; and CS Green ABCP (1/24/20); "Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/5/19); "BNP Insticash Adds ESG Overlay (11/29/19); "Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19); "Goldman Adds ESG Screen" (11/14/19); "Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG" (11/6/19); "UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund" (11/4/19); "BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD" (7/22/19); and, "SSGA Goes Live with ESG Money Market Fund" (7/3/19).

Fitch Ratings published, "2021 Outlook: Global Money Market Funds," which tells us, "Fitch Ratings is revising its sector outlook for money market funds (MMFs) to stable. MMFs have significantly higher liquidity levels than in early 2020, and have benefitted from broadly increasing assets under management since March 2020. Nonetheless, the sensitivities remain: central bank intervention alleviated strains on MMFs in March 2020, but there are still structural issues in the short-term secondary market – any resurgence of market volatility, potentially related to the effects of the coronavirus pandemic, could renew liquidity stress for MMFs. Finally, while no MMFs suspended redemptions in 2020, unlike in 2008, the stress experienced has triggered a regulatory review. The Financial Stability Board has specified liquidity risk and fund structures as important topics for review in 2021."

The outlook explains, "Fitch's MMF Rating Outlook is Stable, reflecting conservatively positioned portfolios, with liquidity levels well above minimum rating and regulatory ranges. The high share of widely held issuers on Rating Watch or Outlook Negative has begun to decrease recently as underlying issuers' ratings have been downgraded or affirmed, implying that credit conditions for MMFs are beginning to stabilise. Nonetheless, ratings are sensitive to credit and liquidity developments. Renewed market volatility – pandemic-related or due to major market events – and the gradual withdrawal of central bank support could pressure ratings."

Fitch writes, "MMF ratings could be sensitive to renewed asset flow volatility in 2021, as temporary facilities put in place by central banks terminate. In March 2020, prime MMFs in both the US and the EU had monthly, aggregate outflows equal to 19.1% and 28.5%, respectively. US prime institutional and EU low volatility net asset value (LVNAV) MMFs had larger outflows , with drops totaling USD104.7 million (-27.9%) and USD97.5 million (-29.1%), respectively. The potential for further market disruption, and a resurgence of investor flight-to-quality, would challenge non-government MMFs more than government-only MMFs." [Note: The Federal Reserve just extended these programs -- see Reuters' "Fed says extending four emergency liquidity programs to March 31, 2021"."]

They continue, "Fitch expects rated funds will maintain high liquidity, well above regulatory and rating thresholds, for the foreseeable future. While high liquidity levels increase rating headroom, they also raise the possibility of adverse developments, such as sudden or severe redemptions or renewed disruption to the secondary market. The possibility of a second wave of the pandemic also causes uncertainty for MMFs. A material reduction in liquidity levels before a significant improvement in the course of the pandemic, such as a viable medical solution, would be viewed as negative for the credit profiles."

Fitch warns, "A large share of issuers held in MMF portfolios are on Negative Outlook, signaling the continued risk of credit deterioration across a large portion of MMFs' investible portfolios. As of end-September 2020, 80% of 'super-core' issuers (defined by Fitch as those held by at least 75% of Fitch-rated prime funds in Europe and the US) and 77% of 'core' issuers (defined by Fitch as those held by at least 50% of Fitch-rated prime funds in Europe and the US) were on Negative Outlook."

The report also comments, "Fitch forecasts sustained low policy rates across major developed markets. Fund providers typically reduce or waive fees to maintain positive yields as market yields approach zero. The spread between gross and net yields of MMFs has declined in Europe and the US, indicating that fee reductions are now widespread. This will pressure fund provider revenues and may make exits from the sector more likely, leading to potential consolidation. The Federal Reserve System has publicly stated that it is opposed to negative rates, and forward markets are not pricing in negative market yields. However, some fund providers have prepared for the possibility of negative fund yields."

On potential regulatory reform, Fitch states, "The Financial Stability Board has identified a review of MMF regulations as a priority focus area for 2021. While specific regulatory proposals are not yet available, regulators have highlighted liquidity, and trigger points for redemption gates or liquidity fees as areas for investigation. A recent Federal Reserve System study found preliminary evidence that redemptions from MMFs increase as weekly liquid assets declined towards the 30% weekly liquidity threshold, at which point a fund's board of directors may consider applying a redemption gate or liquidity fee to the fund."

Finally, they add, "While regulatory changes could increase MMFs' resilience, and thus increase rating headroom, the full effectiveness of these changes may be limited without changes to market structure. While MMFs were under severe redemption pressure in March 2020, their ability to withstand that pressure would have been greater if secondary market liquidity had remained adequate throughout the stress period."

In other news, Bond Buyer published a piece written by deposit broker MaxMyInterest entitled, "Why advisors should ditch money market funds." They comment, "Money market funds have long been a staple in brokerage accounts as a safe place to stash cash that's not being invested. In light of the events of the past year, it's time financial advisors and their clients re-examine this approach."

The piece continues, "The most prominent government MMFs yield only five basis points (0.05%), and while prime funds may yield slightly more, they also carry more risk. Under the Securities and Exchange Commission's new rules promulgated following the financial crisis, retail-held prime funds can be subject to 10-day redemption gates and redemption penalties of 1-2% in periods of financial stress, making it potentially even harder to access cash when needed. For clients seeking safety, liquidity and yield there are far better options than MMFs."

Unsurprisingly, they tell us, "What's a much simpler solution for keeping client cash safe? Plain vanilla FDIC-insured savings accounts. Today's leading online banks -- which are able to pay higher yield by eschewing brick-and-mortar branches -- are delivering yields of 0.40% to 0.60%. Through platforms some are even able to pay rates as high as 0.85% -- a full 80 basis point premium over a government money market fund. With the funds sitting in FDIC-insured and same-day liquid accounts, this incremental yield comes with greater safety and liquidity as compared to an MMF."

The Bond Buyer piece adds, "Sadly, institutional investors can't easily benefit from FDIC insurance coverage in scale and so will remain beholden to MMFs for the time being. But, for retail investors who hold six-to-seven figures in cash, FDIC-insured bank accounts can deliver dramatically higher yield than money market funds."

EFAMA, the European Fund and Asset Management Association, is the latest organization to weigh in on March's market madness with a press release entitled, "EFAMA report invalidates notion that central bank interventions 'bailed-out' MMFs," and a paper entitled, "European MMFs in the Covid-19 market turmoil: Evidence, experience and tentative considerations around eventual future reforms." The release explains, "The report covers all three Money Market Fund categories and suggest that MMFs in Europe have fared well under the March 2020 stress test. The pandemic-induced market events experienced in March 2020 have marked the first true 'stress-test' for European MMFs, following the introduction of the EU Money Market Fund Regulation (MMFR) in 2017. Despite the severity of the liquidity stress in the secondary market for short-term instruments and the significant outflows experienced by European MMFs across all three of the MMFR-identified categories (public debt CNAV, LVNAV and VNAV), funds proved resilient."

It tells us, "EFAMA's findings suggest that European MMF funds entered the volatile month of March with liquidity levels (expressed in terms of weekly maturing assets) well above their regulatory minima, helped also by a better understanding of their investor base as per MMFR requirements. Moreover, the ECB's Pandemic Emergency Purchase Programme (PEPP), announced on 18 March, only had a limited impact on European MMFs, due to the programme's strict eligibility requirements that excluded purchases of financial commercial paper (i.e. the large bulk of MMF asset holdings by definition), as well as assets denominated in non-Euro currencies."

The release adds, "In light of this evidence and from the resulting arguments, the report highlights a number of possible policy courses that global standard-setters (notably IOSCO and the FSB) could consider when attempting to review existing standards. Among these, EFAMA highlights the option of further facilitating liquidity provision by dealer banks and other financial intermediaries in the secondary market by mitigating these institutions' balance sheet constraints at times of heightened market stress. These and other evidence-drawn conclusions will feed into the policy debate going forward, while also confuting the notion that central bank interventions were largely responsible for 'bailing-out' non-bank financial institutions like MMFs."

In its "Executive Summary," the report says, "The Covid-19 pandemic and the consequent market reactions of March 2020 induced by the economic lock-down measures taken across Europe and elsewhere have recast money market funds (MMFs) in the regulatory spotlight. Following the extensive post-Global Financial Crisis regulatory reforms -- as implemented in the EU with the Money Market Fund Regulation (MMFR) of 2017 -- the pandemic-induced market events have marked the first true 'stress test' for European MMFs. This report intends to inform the global policy-making community, as well as the broader public, on the experience of European MMF managers during and after the March turmoil by drawing evidence from a number of key indicators, as well as from managers' direct experience, all in light of the MMFR's robust overarching regulatory framework."

EFAMA comments, "Whereas liquidity management proved challenging for all market participants, European MMFs -- whether short-term or standard and irrespective of their base currency denominations -- have continued to meet redemptions throughout the initial months of the pandemic and until the time of writing (November 2020). Moreover, they have continued to provide a high-quality, well-diversified and liquid investment option at a time when markets underwent considerable stress, while offering both investors and regulators complete transparency around funds' portfolio holdings and liquidity levels."

They explain, "Provisions in the MMFR mandating high levels of daily and weekly liquidity for each type of EU MMF, prudently supplemented in practice with even higher amounts of liquidity based on investor profiling and in light of gradually deteriorating market conditions at the start of 2020, ensured that European managers entered the pandemic with fund liquidity levels well above their regulatory minima."

The summary also tells us, "For EU Low Volatility NAV (LVNAV) and Public Debt Constant NAV (PDCNAV) MMFs, the MMFR includes a critically important 'two-part test', before fund boards are notified to assess any required actions. This mechanism effectively ensures that the MMF, in the event of a significant weekly liquid asset drawdown, is not automatically compelled to notify its board, thereby avoiding the market's perception that further emergency measures may be forthcoming."

It adds, "In light of the 'lessons learnt', but cognisant of the likelihood for further market stresses as the uncertainty effects of the pandemic endures, we formulate a series of recommendations for policy-markets and global standard setters to prudently consider. Besides the need to convene a dedicated forum for the ECB to consult with industry representatives active in European money markets, as well as improving the coordination between central banks and transparency around future intervention programmes, we consider additional options aimed at improving and increasing the resilience of underlying money market conditions during episodes of stress."

The paper's "Conclusion," states, "The Covid-19 March 2020 market shock was fundamentally different from the 2008 Global Financial Crisis in that the former has been a liquidity-driven event during an unprecedented public health crisis and not a solvency-driven one as in 2008. It has been amplified by combination of factors, including, investors' exceptional need for cash, increased risk aversion, higher funding costs for banks due to widening bid-ask spreads, difficulties for financial issuers to find buyers for their CP, as well as an elevated demand for bank dealer intermediation in the context of already constrained capital and risk limits. With these conditions prevailing in European money markets, MMF redemption pressures only rose, as managers struggled to meet both contingent financing needs from corporate clients and financial counterparties' confronting increased margin calls."

It continues, "Yet, in such context, the regulatory reforms introduced under EU MMFR regime in 2017 have proven their value in the ways described in this report. The result of the MMFR's combined liquidity requirements and 'know your customer' provisions explains why the combined net outflows experienced in March where, although sharp, manageable. No individual MMF was obliged to introduce redemption fees or suspend redemptions, and there were no instances of LVNAV funds converting temporarily to variable pricing for their units upon breaching the bounds of their 20 basis point 'collar'."

Finally, EFAMA writes, "In light of these key 'lessons learnt' from the initial outbreak of the Covid-19 pandemic and at a time when its effects are still apparent, EFAMA believes European policy-makers and global standard-setters could prudently consider a range of policy options, beginning with those affecting the functioning of money markets more intimately, i.e. improving the resilience of bank intermediation, along with broadening the present definitions of eligible liquid assets. As the economic and financial challenges from this pandemic endure, a shorter-term priority, for the European industry would be to guarantee better coordination between the ECB and other central banks, as well as greater transparency around the details of their operations. This should be coupled with the creation of a dedicated forum where the ECB can consult a diverse representation of money market participants with the aim to improve information and the efficiency of any future emergency asset purchase programme."

For more Crane Data News on possible pending European and U.S. regulations, see these articles: "IOSCO Weighs in on March-April MMF Episode, Suggests Further Analysis" (11/30/20); "FSB Reviews March Market Turmoil, Targets Short-Term Funding Markets" (11/18/20); "SEC Publishes CP, MMFs in Crisis Primer; Bloomberg Cites Rosengren" (11/13/20); "ICI: Prime Didn't Cause Crisis; N-MFP Holdings: Treasuries Still Half" (11/10/20); "ICI's Impact of Covid on Fin. Markets Report Examines Crisis, Support" (10/19/20); "SEC Covid Shock Study: Frozen CP Market, MMFs & Short-Term Funding" (10/14/20); and, "ICI's Stevens Says Reviewing Crisis and Money Markets; August Trends" (9/30/20).

A week and a half ago, Crane Data hosted its European Money Fund Symposium Online, which featured presentations on European and "offshore" money market mutual funds. (See our Nov. 20 News, "Money Fund University Going Virtual; EMFS Online: Irish Funds' Rooney," our Nov. 23 News, "European MFS Online: IMMFA's Iommi Says MMFs Resilient During Crisis," and our Nov. 27 News, "More European MFS Highlights: Fitch's Sewell Talks Asian Money Funds.") Today, we revisit the "French & Continental Money Fund Update" session, and this time quote from Vanessa Robert of Moody's Investor Service, who discusses "French Money Market Funds." (The European MFS Online replay is here in case you missed it.)

Robert begins, "You can see that the market has declined, but I must say that ... there has been a sharp rebound in Q3 by more than 10%. Now the total size of the French money market fund sector is at E375 billion. However, there are two areas where there has been no rebound: the number of money market fund sponsors, as well as the number of money market funds. There has been a decline for a few years now, reinforced by the EU money market fund regulation that has made the cost of managing money market funds higher with ... stress testing, regulatory disclosures, client procedures [etc.]. So, the cost of doing business is higher.... At the same time, the regulation was also a good occasion for sponsors to revamp their fund offerings and to close some of their funds.... Hence the decline in the number of money market funds."

Robert's slides showcase the decrease in the size of the French money market fund sector, charting it's gradual decrease from E348 billion in 2018, to E321 billion in 2020. Money market fund providers decreased from 54 to 35 over the same two-year span, as did the number of money market funds, which dropped from 200 to 114. Robert also charts the increased average fund size, which jumped from E1.7 billion euros in 2018 to E2.8 billion euros in 2020.

Robert explains, "Let's look at the types of money market funds we have in Europe. With the new EU regulation, we can have funds that are not only VNAV but also public debt CNAV and LVNAVs.... Before the regulation, this was not the case. However, and this is in contrast with what we have observed in Ireland, the French money market fund sector remains 100% VNAV oriented." According to another slide, "The French MMF market at a glance," 17% of French assets are "Short-Term" money funds, while 83% are "Standard" money market funds.

Turning to the turmoil of March, Robert explains, "Now let's look at the impact of the crisis.... Similar to what occurred in Ireland, we can see that in France the waves of redemptions occurred during the month of March, specifically during the week of March the 16th. The outflows were highest on March the 17th with outscores close to 9 billion euros on these specific dates."

She continues, "Similar to what Patrick [Rooney of Irish Funds] said, in France there is cyclicality as well. We know that in terms of subscription-redemption patterns during the first two months of the quarter, there are usually subscriptions. While during the last months of the quarter and specifically in June and December, there are outflows because investors need that cash to settle expenses, to stretch out their balance sheets."

Robert adds, "Now let's look at what happened in 2020. You can see that the outflows observed in March reached a record level close to 15%, more or less this is the same level of outflows we observed back in 2008. But this year it was observed within a shorter period of time.... The outflows predominantly affected the Standard money market funds [while], more or less, short term VNAV remained flat."

Finally, on net flows, she comments, "We looked ... at the cumulative net flows of French money market funds in between February and May, and observed that over a quarter of French money market funds experienced net outflows of 5%, and more than 10% ... lost 25% of their assets during this period of time. So, it's quite significant and massive. However, as you can see, no French money market fund was forced to suspend redemptions."

In related news, a release entitled, "Moody's: Global money market funds outlook remains negative in 2021 due to economic uncertainty, likelihood of more regulation," tells us that, "Money market funds came under severe stress during Q1 2020 in the US and EU, and that, "Looming regulations and rising economic uncertainty support negative outlook."

Moody's release continues, "The 2021 global market money funds sector outlook remains negative, amid economic uncertainty and the increased likelihood of additional regulation following industry support from government and sponsors during the early stages of the coronavirus pandemic, Moody's Investors Service says in its annual outlook. Additionally, the operating environment for global money market funds became more difficult as banking systems outlooks turned decidedly negative, hurting the credit quality of money market instruments. However, in the second half of 2020, prime money market funds credit quality strengthened as managers increased liquidity and allocations to higher quality obligors."

Vice President Stephen Tu comments, "Prime money market funds liquidity is high but industry risk remains due to market uncertainty and lack of yield pickup relative to government funds.... Money market fund sponsors will continue to waive fees as the interest rate environment remains persistently low, and the instability of prime money market funds performance in the early days of the COVID-19 crisis increases the potential that more reforms will be imposed on money market funds in the US and Europe."

The release adds, "In Europe, the credit quality of the limited volatility net asset value funds has improved, reflecting conservative portfolio management, along with an increase in government and agency security holdings to sustain unexpected outflows resulting from coronavirus related uncertainty."