News Archives: April, 2020

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).

Mutual fund news source ignites wrote about recent MMF asset trends in a piece entitled, "As Money Fund Assets Surge, Fidelity's Line Nears $1T," and ignites also hosted a webinar featuring Crane Data's Pete Crane and Dechert's Steve Cohen entitled, "Market Turmoil and Money Funds: What's Ahead?" The article tells us, "Money market fund assets climbed to record highs in March, pushed by volatile markets stemming from the coronavirus pandemic. Across all sponsors, the funds added net $700 billion during the month, putting assets at $4.6 trillion, according to Crane Data. Institutional government funds pulled in the largest chunk amid investors' broader flight to safety."

The article explains, "The largest sponsors captured the lion's share of those assets: The 25 top fund groups hauled in about $640 billion in March, according to Crane Data. And Fidelity, the biggest money fund sponsor, pulled in more than $100 billion during the month, bringing the firm's total assets in the products to $914 billion." They quote our Peter Crane, "March was unprecedented.... It blows away previous asset inflow numbers."

It tells us, "Money fund assets have continued to climb in April, attracting $403 billion through April 24, Crane Data's figures show. Nearly all of the net inflows have gone to the biggest players. Institutional investors account for about two thirds of all assets invested in money funds, making scale a major factor in winning assets, industry observers say.... Nine of the 10 largest money fund sponsors as of March 31 were on the top-10 list in 2008.... Each financial crisis has brought greater concentration of investor assets among the largest firms, Crane says." Crane comments, "It's always the same story in the money fund space. He who has the biggest buckets wins."

The ignites piece continues, "[Crane] adds, the money fund business is quite cyclical, and the makeup of a firm's product line also factors into who wins or loses assets at different times.... But Fidelity has gained market share 'over and above' just being the biggest sponsor, Crane says. 'Whether that's a function of bigger investors' needing bigger buckets, or whether they're doing anything better than others, is tough to tell.' The biggest investors are typically clients of all the largest money fund sponsors, Crane adds."

Finally, ignites adds, "The breadth of Fidelity's business, including its retail brokerage, also buoys its money fund offerings. Fidelity last year made its Government Money Market Fund the cash sweep default for retail retirement accounts. The fund has been the default cash vehicle for the firm's brokerage account customers since 2015, Ignites reported last year. Fidelity does not disclose its sweep assets, according to [a] spokesman. Fidelity does not offer a proprietary money market portal to corporate treasurers. The firm's institutional money market funds are available on most independent and bank portals, the company spokesman says."

On yesterday's ignites webcast, Crane reviewed the "March Madness in Money Markets," saying, "The liquidity buildup that we saw during March was just unprecedented. The flows into government money funds and into bank deposits, a trillion dollars each ... are unprecedented. They're three times as big as anything historically we've ever seen. So that giant liquidity build was happening while the commercial paper and the prime funds were certainly starting to see some danger.... Everybody went to the 2008 playbook and thankfully the regulators did as well, and the Fed started announcing support programs like the Money Market Liquidity Facility.... That, and a couple of support actions by advisors before that program kicked in, stopped the run. By the end of that week, the outflows were pretty much over and there's been a slow steady recovery in prime since that point."

He continues, "Prime money fund assets, which Crane Data says are $1 trillion (ICI's numbers are a couple hundred billion lower because we count some internal funds and other funds that don't report to ICI), showed a $150 billion decline in March, almost half of that has come back in April. The flows in April, month-to-date, show Prime up $76.4 billion. There has been a nice little recovery. Government assets, including Treasury money funds, jumped by $813 billion in March, according to Crane Data's number, and they're up another $350 billion in April. The heavy inflows continue but they've slowed from the manic levels of March. Government funds are still seeing big, big inflows.... Looking at Crane Data's daily data money fund assets went above $5 trillion yesterday.... They have just smashed through record levels."

Crane explains, "The market NAVs, the four digit NAVs for prime, they were showing erosion, they were going down. I joke, a number of funds 'bent the buck'. You couldn't break the buck I guess if you're a floating NAV. With some of the retail tax exempt funds, you were seeing NAVs tick down the shadow prices underneath, everything stayed a dollar on the transactional level and the official price. But you were seeing erosion and that has sort of gone away as the Fed programs added municipal securities as well. They certainly came in and saved a lot of things."

He states, "The weekly liquid assets -- the 30 percent liquidity level had a lot of people watching during that week. You did have one fund dip below that and not implement gates and fees, presumably the board met and they ignored it. They said we're going to survive ... because they knew the Fed program was coming online. You could argue that the regulations and the changes that we saw performed well because funds sort of bent but didn't break."

Finally, Crane says, "About 10 percent of money funds are yielding 0.00 or 0.01 percent. That's the floor that funds put in there. They tend to waive any fees above the level that would put them at zero or below. In 2009 through 2015, nobody went negative. We don't expect anyone to go negative this time. But if you get another shock, if you get another push lower, we've learned in the last decade that the Fed is very powerful ... but if the market says we're going negative, at some point we're going negative. We don't think that's going to happen, funds don't think it's going to happen.... More and more funds are still digesting that big hundred basis point Fed cut that happened during the emergency week in March. Zero yields are a big deal, fee waivers and then theoretically negative yield."

Fitch Ratings published a brief entitled, "U.S. Prime MMF Credit Exposure Manageable, But Risks Loom." They write, "U.S. prime money market funds (MMFs) have limited exposure to issuers in the energy, travel and automobile sectors, which are among the sectors most directly impacted by the coronavirus pandemic. [A table] shows 21 selected nonfinancial corporate issuers, totaling $1.1 billion in prime MMF holdings as of March-end, representing only 2.4% of the funds' total assets. Fitch Ratings' most recent rating actions on most of these issuers primarily involved changing their Rating Outlooks to Negative; most short-term ratings remain at least 'F1' with some 'F2' exposure already sold or matured."

Fitch explains, "While exposures are low on average, certain funds have higher allocations to these issuers, likely reflecting individual managers' confidence in the issuers' credit quality, low investor sensitivity to associated headline risk, and/or a search for yield. For example, as of March-end, the Principal Money Market Fund (not rated by Fitch) had 10% of assets invested in eight of these issuers. Indeed, exposures to a few of these issuers increased in March, including to those in the oil sector (which has been under severe stress), although issuers in MMF portfolios maintain high ratings."

The brief continues, "Prime MMFs' exposure to financials is significantly higher than to corporates.... Fitch took various negative rating actions in the sector due to the effects of the coronavirus outbreak. The impact to MMFs has been limited here as well, as the majority of the rating actions consisted of affirming long-term ratings and changing Rating Outlooks to Negative or placing the ratings on Rating Watch Negative (RWN). A few ratings were downgraded, such as the long-term and short-term ratings of certain Australian banks and their New Zealand based subsidiaries. However, they remain highly rated and thus eligible for inclusion among 'AAAmmf' rated funds."

It states, "While Fitch's base case coronavirus assumptions include a recovery beginning from 3Q20 onward, a meaningful recovery is delayed until after 2021 under the agency's downside scenario, which would have more pronounced rating implications for financial institutions and, by extension, prime MMFs."

The brief also tells us, "MMF managers have been reducing risk exposures in portfolios, focusing on shorter dated maturities and/or higher quality issuers to mitigate liquidity and credit risk. Given the high levels of redemptions prime MMFs experienced in March, the funds sold certain securities to meet redemptions, although it is not clear from available data if fund managers sold any of these holdings due to credit concerns as well."

Finally, it adds, "MMFs would likely be downgraded from 'AAAmmf' if elevated PCFs or unsecured 'F2' exposures become material and are not resolved in the short term. The determination of materiality is a function of the level of PCFs [portfolio credit factors] or size of 'F2' exposure, expected length of the breach and the drivers of the breach. Under Fitch's criteria, MMFs rated 'AAAmmf' cannot have exposures rated below 'F1', excluding certain overcollateralized repossession exposures. Fitch-rated prime MMFs do not currently hold any unsecured exposures rated below 'F1'. Fitch maintains a Negative Outlook on the prime MMF sector given continued market volatility and the potential for additional credit issues to affect MMFs."

The ratings agency also published the release, "Fitch Ratings Updates Money Market Fund Rating Criteria" which tells us, "Fitch Ratings has published an updated version of its 'Money Market Fund Rating Criteria'.' These criteria update Fitch's criteria of the same title published on 6 May 2019. This criteria report primarily focuses on the key rating considerations when assessing the capacity of an MMF, or of other liquidity- or cash-management products, to preserve principal and provide liquidity through limiting credit, market and liquidity risk."

It continues, "The emphasis is on a manager's ability to avoid losses through limiting credit, market and liquidity risk rather than the particular accounting convention used to calculate NAV, and therefore the criteria are applicable to constant net asset value (NAV), variable or floating NAV, and European low-volatility NAV funds. The criteria are also applicable to other liquidity- or cash-management products such as separately managed accounts, private funds, or other similar vehicles that have comparable investment objectives and operating frameworks to MMFs.... The key elements of Fitch's 'Money Market Fund Rating Criteria' are unchanged, and Fitch therefore does not expect any related rating changes."

The full updated "Money Market Fund Rating Criteria explains, "These rating criteria are principles-based, focusing on an MMF's overall risk profile and its key risks -- credit, liquidity and market risk. The thresholds outlined in the report for these risks can be adjusted for qualitative considerations, such as the manager's resources and track record and the investor base profile, among others."

It says, "Fitch analyses credit risk from two perspectives. First, Fitch seeks to understand the manager's credit-selection capabilities and ability to avoid credit events and limit credit-driven losses. Second, Fitch analyses the portfolio's key credit attributes including the short-term ratings assigned to portfolio investments, unsecured versus secured exposures, the level of diversification, and counterparty risk. Fitch's analysis of liquidity risk assumes reduced or absent secondary market liquidity for most securities, save certain ultra-high quality (government and agency) securities.... Fitch also considers the stability and predictability of the investor base and views an intrinsically stable or captive investor base a critical countervailing factor in its assessment of a fund's liquidity needs."

Fitch writes, "Providing investors with timely liquidity is a core MMF objective. MMFs therefore need to be able to meet potentially large, sudden investor outflows, including at times of market stress when secondary market liquidity may be reduced or absent. Fitch's assessment of liquidity risk considers both the liquidity profile of the portfolio of assets, as well as the predictability and stability of the investor base, particularly in times of market stress."

Lastly, they comment, "Funds may adjust liquidity levels up or down to account for specific considerations relating to a fund's investor base, the overall level of concentration and redemption risk, the results of any liquidity stress testing undertaken by the fund manager, or any other backup liquidity arrangements. For example, a fund with a concentrated investor base or an over-reliance on less stable fund flows may need an additional liquidity cushion, whereas a fund with a diversified, intrinsically stable, or captive investor base may be able to operate with lower levels of liquidity."

The Securities and Exchange Commission's latest "Money Market Fund Statistics" summary shows that total money fund assets increased by $704.8 billion in March to a record $4.739 trillion, the 20th increase in the past 21 months and by far the latest increase in history. (Month-to-date in April through 4/24, assets have jumped by another $403.0 billion to $4.994 trillion according to our MFI Daily.) The SEC shows that Prime MMFs plunged $124.5 billion in March to $984.8 billion, while Govt & Treasury funds skyrocketed by $838.3 billion to $3.622 trillion. Tax Exempt funds fell by $9.0 billion to $132.0 billion. (MFI Daily shows Prime up $71.3 billion, and Govt MMFs up $324.6B in April so far.) Yields were down for Prime MMFs and Govt MMFs while Tax-Exempt MMF yields spiked in March. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

March's overall asset increase follows an increase of $17.3 billion in February, a decrease of $4.3 billion in January and increases of $37.2 billion in December, $45.6 billion in November, $88.6 billion in October, $82.9 billion in September, $76.3 billion in August, $75.6 billion in July, $41.9 billion in June, $78.2 billion in May and $690 million in April. Over the 12 months through 3/31/20, total MMF assets increased by $1.245 trillion, or 35.6%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not reported to ICI or others, though Crane Data tracks most of these.)

The SEC's stats show that of the $4.739 trillion in assets, $984.8 trillion was in Prime funds, which slid $124.5 billion in March. This follows a decrease of $13.9 billion in February, an increase of $28.1 billion in January, a decrease of $26.5 billion in December and increases of $20.2 billion in November, $38.4 billion in October and $11.7 billion in September. Prime funds represented 20.8% of total assets at the end of March. They've increased by $12.7 billion, or 0.01%, over the past 12 months.

Government & Treasury funds totaled $3.622 trillion, or 76.4% of assets. They jumped $838.3 billion in March after rising $32.0 billion in February, falling $31.4 billion in January and rising $64.7 billion in December, $24.2 billion in November, $46.6 billion in October and $72.9 billion in September. Govt & Treas MMFs are up a staggering $1.245 trillion over 12 months, or 52.4%. Tax Exempt Funds decreased $9.0B to $132.0 billion, or 2.8% of all assets. The number of money funds was 362 in January, down five from the previous month and down eight funds from a year earlier.

Yields for Taxable MMFs were mixed in March, with only Tax Exempt yields rising. The declines of the past 12 months follow almost 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Mar. 31 was 0.94%, down 79 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 1.15%, down 64 basis points. Gross yields were 0.55% for Government Funds, down 1.09% from last month. Gross yields for Treasury Funds were down 106 bps at 0.57%. Gross Yields for Muni Institutional MMFs rose from 1.17% in February to 3.36%. Gross Yields for Muni Retail funds jumped from 1.20% to 3.35% in March.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.87%, down 78 bps from the previous month and down 1.65% since 3/31/19. The Average Net Yield for Prime Retail Funds was 0.89%, down 65 bps from the previous month and down 1.50% since 3/31/19. Net yields were 0.32% for Government Funds, down 1.06% from last month. Net yields for Treasury Funds decreased 105 basis points to 0.35%. Net Yields for Muni Institutional MMFs jumped from 1.05% in February to 3.21%. Net Yields for Muni Retail funds increased from 0.93% to 3.07% in March. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in March. The average Weighted Average Life, or WAL, was 57.9 days (down 6.5 days from last month) for Prime Institutional funds, and 59.8 days for Prime Retail funds (down 3.2 days). Government fund WALs averaged 98.3 days (up 6.4 days) while Treasury fund WALs averaged 92.4 days (down 5.0 days). Muni Institutional fund WALs were 14.2 days (down 1.5 days), and Muni Retail MMF WALs averaged 34.2 days (up 0.4 days).

The Weighted Average Maturity, or WAM, was 31.3 days (up 0.2 days from the previous month) for Prime Institutional funds, 34.5 days (up 1.2 days from the previous month) for Prime Retail funds, 34.4 days (up 5.0 days) for Government funds, and 41.6 days (up 3.4 days) for Treasury funds. Muni Inst WAMs were down 1.2 days to 13.9 days, while Muni Retail WAMs increased 0.3 days to 31.8 days.

Total Daily Liquid Assets for Prime Institutional funds were 42.5% in March (up 5.2% from the previous month), and DLA for Prime Retail funds was 33.9% (up 8.2% from previous month) as a percent of total assets. The average DLA was 46.9% for Govt MMFs and 94.3% for Treasury MMFs. Total Weekly Liquid Assets was 55.2% (up 3.9% from the previous month) for Prime Institutional MMFs, and 45.3% (up 4.2% from the previous month) for Prime Retail funds. Average WLA was 68.0% for Govt MMFs and 99.0% for Treasury MMFs.

In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for March 2020," the largest entries included: Canada with $139.3 billion, Japan with $87.0 billion, the U.S. with $80.0 billion, France with $71.1B, Germany with $43.7B, Aust/NZ with $41.2B, the U.K. with $40.6B, the Netherlands with $36.4B and Switzerland with $20.0B. No countries were gainers among the "Prime MMF Holdings by Country." The biggest decreases were: the U.S. (down $33.1B), France (down $30.0B), Canada (down $24.8B), Japan (down $20.3B), Germany (down $12.4B), the U.K. (down $9.5B), the Netherlands (down $8.2B), Switzerland (down $6.6B) and Aust/NZ (down $5.3B).

The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $108.2B (down $25.4B from last month), the Eurozone subset had $162.1B (down $56.8B). The Americas had $219.6 billion (down $58.1B), while Asia Pacific had $144.0B (down $30.1B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $981.4 billion in Prime MMF Portfolios as of March 31, $281.8B (28.7%) was in CDs and Time Deposits (down from $360.8B), $303.6B (30.9%) was in Government & Treasury securities (direct and repo) (down from $308.4B), $190.3B (19.4%) was in Financial Company CP (down from $209.9B), $152.1B (15.5%) was held in Non-Financial CP and Other securities (down from $162.9B), and $53.6B (5.5%) was in ABCP (down from $64.4B).

The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $200.3 billion, Canada with $186.2 billion, France with $181.1 billion, the U.K. with $96.2 billion, Germany with $25.4 billion, Japan with $147.0 billion and Other with $45.5 billion. All MMF Repo with the Federal Reserve jumped by $282.8 billion in March to $285.0 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 9.1%, Prime Retail MMFs with 5.7%, Muni Inst MMFs with 0.6%, Muni Retail MMFs 4.9%, Govt MMFs with 18.9% and Treasury MMFs with 15.8%.

Wells Fargo Asset Management posted a recording entitled, "Money market funds: An update post the COVID-19 market shock," which featured Laurie King interviewing Jeff Weaver, Head of Money Funds and Short Duration Strategies. He tells us, "[In] March as fears of COVID-19 gripped the market ... there was a tremendous flight to quality in liquidity as investors sold risky assets and flooded the market in pursuit of cash positions [and] there was a tremendous amount of cash that made their way towards money market funds. In the month of March alone, $790 billion flowed into government and treasury money market funds. At the same time, $160 billion came out of prime money market funds as they were perceived to be more risky."

When asked about "Federal Reserve policy responses being implemented," Weaver answers, "That has certainly come with a number of programs and we've written about them on our blog and our portfolio manager commentary from the money market fund team. Before I highlight the one program that was really crucial for money market funds, and that being the Money Market Liquidity Facility or MMLF, I thought it's important that I should set the stage and provide some background for prime money market funds in particular."

He explains, "SEC Rule 2a-7 requires that money market mutual funds maintain 10% in daily liquidity and 30% in weekly liquidity. So fund managers typically maintain liquidity but beyond these requirements with most funds having been about 40% in weekly liquidity or more. And what we saw in the month of March is as prime redemptions grew, fund managers were being forced to sell longer assets in order to maintain these liquidity requirements. Unfortunately, these sellers were met with a tremendously illiquid bond market and bid on these high quality, typically very liquid securities were at best highly distressed or in many cases, nonexistent. So, as prime fund redemptions accelerated, the Fed smartly instituted the MMLF on Wednesday, March 18 at Midnight Eastern Time in order to provide liquidity to prime and to a lesser extent, municipal money market funds, and to begin to repair the dysfunctional short-term credit markets."

Weaver continues, "Whereas some of the Fed's programs' effectiveness were questionable, the MMLF certainly hit the mark. MMLF-eligible assets include domestic commercial paper, asset-backed commercial paper, certificates of deposit, and municipal securities, including VRDNs. Also eligible were floating rate structures and Yankee CDs, which are CDs issued by U.S. branches of foreign banks. These are all assets that are widely held by prime funds. The facility allowed for prime and municipal money market funds to sell these eligible securities to broker-dealers at amortized cost while those broker-dealers were able to have those purchases financed by the Fed at a rate of prime +100 basis points, or 1.25%."

He adds, "Once the facility was in place, prime funds were able to get the liquidity necessary to meet redemptions. Redemptions began to slow, and by the end of March and into April, those redemptions reversed and turned into additions as short-term markets began to repair and investors started to see value in prime money market fund yields."

King also asks, "How do you feel the short-term bond markets are working now?" Weaver responds, "Short-term bond markets are much better, but they have yet to completely normalize and be in a position to provide good two-way liquidity for market participants.... We believe the worst is certainly behind us and that the retracement of yield spreads are indicative of an improving market."

He says, "We've had to spend a lot of time over the past month reminding and educating investors about the money fund reforms that went into place on October of 2016. At that time, prime and municipal money market funds were split into those exclusively for retail investors and those for institutional investors. The reason these two investors were split was because institutional investor flows were not only larger, but typically much more volatile, particularly in times of stress. After reform, retail prime funds, limited to natural persons only, would continue to have a constant NAV of $1, just like government and treasury funds. However, going forward from that time on, institutional funds would have a floating NAV ... out to 4 decimals, so 1.0000 as a starting point."

Weaver tells us, "Additionally, for both retail and institutional funds, if the 30% weekly liquidity minimum mentioned earlier was breached, a funds board would have the choice whether or not to put in place a redemption gate, which would disallow withdrawals for up to 10 days, or liquidity fees, which would allow the fund to charge up to 2% for any withdrawals. Therefore, it became very important for fund managers to maintain a minimum of 30% liquidity."

He states, "In March, as market worries about COVID-19 increased and bond market illiquidity increased, institutional prime investors began redeeming their shares. These forces combined to cause floating NAVs on institutional prime funds to fall. Most NAVs across the industry fell 15 to 20 basis points or more over that period of time from a slight premium to 1 to a slight discount.... Since the MMLF was put in place and as redemptions turned to additions, most floating NAVs have increased off of their lows and are, in fact, moving back towards levels seen towards the end of last year. With the stabilization in NAVs, many investors are being attracted to the yield advantage of a prime fund versus a government fund."

Weaver comments, "During these volatile times, investors typically increase their cash position, and much of those cash positions find their way to the safety and liquidity of government and treasury money market funds. At Wells Fargo Asset Management, we have three government funds. The Wells Fargo Government Fund, which invests in treasuries, agencies, and repos secured by treasures and agencies. We have the Treasury Plus Fund, which invests in treasury securities and repos secured by treasuries. And then we have the 100% Treasury Fund, which solely invests in treasuries.... We've seen yields on these funds gravitate toward zero basis points. I think it's important to note that as fund yields trend toward zero, mutual funds begin to waive fees in order to maintain a yield of zero or 1 basis point."

He says, "Another thing that's come up in this environment is the fear of or the concern for negative interest rates. We do not believe that the Fed will employ a negative interest rate policy, but nonetheless, that does not keep treasury bills from trading negative when demand outstrips supply. Fortunately for government and treasury funds, with all the federal programs being put in place, the treasury is going to be increasing treasury supply by about $3 trillion, and about $1 trillion of that supply will be in treasury bills. So much of the pressure driving bill yields negative is now being relieved. And over the last two or three weeks, the increase in issuance of bills has moved bill yields from negative to positive."

Finally, King asks, "So what do you want investors to know about money market funds after the volatility in March?" Weaver answers, "During the month of March, we saw tremendous outflows from long-term muni bond funds, many of which invest their cash in VRDNs or municipal money market funds that invest predominantly in VRDNs. About $10 billion in outflows were witnessed from muni money market funds. Those are predominantly in VRDNs it ended up on dealer balance sheets.... SIFMA, which is the weekly rate that's indicative of variable-rate demand note yields, rose from 1.28% on March 11 to 5.2% on March 18. This provided an excellent opportunity for investors with excess liquidity. Because we increased our liquidity by so much in our prime funds from 40% to over 60%, we had a tremendous amount of cash that can be invested in a variety of securities. One of the places that we found opportunity was in VRDNs."

He adds, "Many clients are now becoming much less fearful as we get more and more information on COVID-19, as we witness a flattening of the curve, and as we begin to contemplate moving beyond the current shelter-in-place environment. We continue to see inflows into government money market funds, but we are also receiving increased inquiries and opportunities in prime and municipal money market funds, in addition to longer strategies in order to gain additional yield. Many conversations have changed to concerns about credit quality in short-term credit markets and concerns about downgrades by rating agencies as we enter into the slowdown in the economy. Nonetheless, our analysts and portfolio managers continue to be vigilant in purchasing high-quality assets across our money market complex and the objectives of providing liquidity and preserving capital continues to be at the top of our priorities."

Money market mutual fund assets showed huge gains for the eighth week in a row, breaking the $4.65 trillion level and hitting yet another record. ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets increased by $127.54 billion to $4.65 trillion for the week ended Wednesday, April 22, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $108.70 billion and prime funds increased by $19.05 billion. Tax-exempt money market funds decreased by $206 million." ICI's stats show Institutional MMFs rising $123.0 billion and Retail MMFs increasing $4.6 billion. Total Government MMF assets, including Treasury funds, were $3.825 trillion (82.2% of all money funds), while Total Prime MMFs were $687.4 billion (14.8%). Tax Exempt MMFs totaled $139.15 billion, 3.0%. Money fund assets are up an eye-popping $1.020 trillion, or 28.1%, year-to-date in 2020, with Inst MMFs up $717 billion (31.7%) and Retail MMFs up $173 (12.6%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.602 trillion, or 52.5%, with Retail MMFs rising by $341 billion (28.3%) and Inst MMFs rising by $1.139 trillion (61.9%).

They explain, "Assets of retail money market funds increased by $4.58 billion to $1.55 trillion. Among retail funds, government money market fund assets increased by $441 million to $986.37 billion, prime money market fund assets increased by $4.45 billion to $436.96 billion, and tax-exempt fund assets decreased by $311 million to $124.46 billion." Retail assets account for over a third of total assets, or 33.3%, and Government Retail assets make up 63.7% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $122.96 billion to $3.10 trillion. Among institutional funds, government money market fund assets increased by $108.26 billion to $2.84 trillion, prime money market fund assets increased by $14.60 billion to $250.43 billion, and tax-exempt fund assets increased by $105 million to $14.68 billion." Institutional assets accounted for 66.7% of all MMF assets, with Government Institutional assets making up 91.5% of all Institutional MMF totals. (Note: Crane Data has its own separate, and larger, daily and monthly asset series.)

In related news, The Wall Street Journal tells us that, "Coronavirus Made America's Biggest Banks Even Bigger." The article states, "Companies and consumers flooded U.S. banks with a record $1 trillion of deposits in the first quarter, when markets went haywire and America went dark to stop the spread of the new coronavirus. More than half of it went to the four largest banks in America -- JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. The $590 billion in deposits they gained in the first quarter is nearly double the previous quarterly record of $313 billion for the entire U.S. banking industry, according to Federal Deposit Insurance Corp. data."

They comment, "Much of the $1 trillion flowed into the banks in a two-week span in March, according to a Wall Street Journal analysis of Federal Reserve data. During that time, companies were frantically drawing down on their credit lines and stockpiling cash in preparation for a severe recession. The growth in deposits shows how different this crisis is from the last one. In 2008, America's biggest banks were the bad guys that nearly destroyed the economy. Now, they are a refuge for jittery consumers and businesses waiting out the shutdown."

The WSJ piece continues, "Banks' loan books grew sharply in March, largely a result of companies draining their credit lines.... Much of the borrowed funds ended up in deposit accounts at the same banks, executives said last week when the banks reported first-quarter earnings. Citigroup borrowers drew down $32 billion on credit lines in the first quarter. The corresponding rise in deposits accounted for roughly a third of the $92 billion in corporate deposits the bank added in March, said Chief Financial Officer Mark Mason."

It adds, "Figuring out what to do with all the new deposits is the problem. Because companies have never stockpiled cash quite like this before, banks aren't sure how long the money will stick around. Banks make money on the spread between what they can pay depositors and what they can charge lenders. If the deposits aren't stable, they can't lend them out for fear of getting squeezed. The loan-to-deposit ratio for the industry has fallen to an all-time low, Barclays's Mr. Goldberg said, a sign the banks were holding back."

Finally, ultra-short bond funds saw substantial asset declines in March, J.P. Morgan tells us in a new "Short Duration Update." The brief on "Low duration bond funds" states, "The sharp outflows last month were not limited to prime MMFs: after years of steady growth, low duration bond funds also lost cash. We estimate total AUM across short-term and ultrashort mutual funds and ETFs registered $720bn as of 3/31/20, down $71bn over the month (though still up $31bn relative over a year ago). Both ultrashort funds (those with a portfolio duration between 0.5 and 1.5 years), and short-term funds (with a longer duration of 1.5 to 3.5 years) shrank, dropping $43bn and $28bn, respectively in March. On a percentage basis, this drop was especially severe for the ultrashort funds, which lost 18% of their AUM."

The update says, "Within both the short-term and ultrashort categories, we classify funds into four general styles: government, credit, conservative credit, and multi-sector. Looking at flows by style, outflows were unsurprisingly concentrated in the riskier multi-sector and credit funds (as well as ultrashort conservative credit funds). Short-term government funds gained assets in March, while ultrashort government funds were flat.... On average, all of the credit styles saw negative total returns in March as credit spreads widened sharply, with the riskier styles underperforming. Short-term government funds saw positive returns as rates fell."

JPM adds, "Despite the recent losses, most fund styles have seen positive total returns over the past year, though some individual funds have seen sharply negative returns; short-term funds continue to show more variation in returns between different funds.... It's also worth noting that given the widening of credit spreads, the yields on short-term and ultrashort credit funds actually increased.... Considering the sharp decline in MMF yields, this could make these funds an attractive option going forward for those willing to take on some credit risks, but given considerable uncertainty and volatility, we wouldn't necessarily expect inflows to pick back up any time soon."

Crane Data's Bond Fund Intelligence shows overall bond fund assets falling by $280.2 billion (-9.3%) to $2.721 trillion, with Conservative Ultra-Short BFs falling $21.4 billion (-22.6%) to $73.2 billion, Ultra-Short BFs falling $12.8 billion (-14.4%) to $75.8 billion and Short-Term BFs falling $23.9 billion (-7.6%) to $289.3 billion. (Let us know if you'd like to see our latest BFI, BFI XLS or Bond Fund Portfolio Holdings, which just shipped yesterday.) ICI's latest weekly "Combined Estimated Long-Term Fund Flows and ETF Net Issuance" shows overall bond funds with their first inflow in two weeks in the week ended April 15.

While the nationwide lockdown over the coronavirus pandemic continues, Crane Data remains hopeful that travel will resume later this summer and that we'll be able to host our annual Money Fund Symposium and European Money Fund Symposium. Crane's Money Fund Symposium has been shifted back from June to August 24-26, 2020, and the show remains at the Hyatt Regency Minneapolis. We'll of course continue to monitor events carefully in coming weeks, and we'll be prepared to move again (perhaps to Nov. 18-20), to cancel, and/or to webcast if our client base deems it unsafe. Meanwhile, we'll be preparing for the show and taking steps to spread out and make the event safer. The latest agenda is available, though we'll no doubt be tweaking this as we get closer to the summer, and registrations are being taken at (Note: We'll offer full refunds or credits for any cancellations.)

Our MF Symposium Agenda is scheduled to kick off on Monday, August 24 with a keynote on "Money Funds through the Decades" from Paul Schott Stevens of the Investment Company Institute. The rest of the Day 1 agenda includes: "Treasury Issuance & Repo Update," with Mark Cabana of Bank of America, Dina Marchioni of the Federal Reserve Bank of New York and Tom Katzenbach of the U.S. Department of the Treasury; a "Corporate Investor, Portal & ESG MMF Discussion" with Tom Callahan of BlackRock, Tom Hunt of AFP, and Mark Adamson of Wells Fargo Securities; and, a "Major Money Fund Issues 2020" panel with Tracy Hopkins of Dreyfus/BNY Mellon Cash Investment Strategies, Jeff Weaver of Wells Fargo Asset Management and Peter Yi of Northern Trust Asset Management. (The evening's reception is sponsored by BofA Securities.)

Day 2 of Money Fund Symposium 2020 will begin with "The State of the Money Fund Industry," which features Peter Crane, Deborah Cunningham of Federated Investors and Michael Morin of Fidelity Investments, followed by a "Senior Portfolio Manager Perspectives" panel, including Linda Klingman of Charles Schwab I.M., Nafis Smith of Vanguard and John Tobin of J.P. Morgan Asset Mgmt. Next up is "Government & Treasury Money Fund Issues," with Mike Bird of Wells Fargo Funds 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 JPM and Stewart Cutler of Barclays; "Fund 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 J.P. Morgan Securities 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; "Regulatory & Misc. Issues: ESG, ETF, European," with Brenden Carroll of Dechert LLP, Rob Sabatino of UBS Asset Mgmt and Jonathan Curry of HSBC Global A.M.; "FICC Repo & Agency Roundtable," with Owen Nichols of State Street Global Markets and Kyle Lynch of FHLBanks Office of Finance and, "Money Fund Statistics & Disclosures" with Peter Crane.

Visit the MF Symposium website at for more details. Registration is $750, and discounted hotel reservations are available. We hope you'll it'll be safe to travel and you'll join us in Minneapolis this August! When and if you're ready, attendees, speakers and sponsors should register here and make hotel reservations here. We'll keep you posted on our plans, so watch for updates in coming months. E-mail us at to request the full brochure, or click here to see the latest.

We've also pushed back the dates for our next European Money Fund Symposium, which is now scheduled for Nov. 19-20, 2020 in Paris, France. (It had been scheduled for Sept. 17-18.) We'll be watching travel restrictions to Europe closely in coming months (and may have to shift or cancel this too). Again, we'll give full refunds or credits for any events that are cancelled or that registered attendees can't travel to or want to cancel.

"European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue," says Crane Data President, Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he adds. Last year's European Crane Symposium event in Dublin attracted 110 attendees, sponsors and speakers.

EMFS will be held at the Renaissance Paris La Defense. Hotel rooms must be booked before Thursday, October 1 to receive the discounted rate of E279 (single) or E289 (double). Registration for our 2020 Crane's European Money Fund Symposium is $1,000 USD. Visit to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.

Also, mark your calendars for next year's Money Fund University, which is scheduled for Jan. 21-22, 2021, in Pittsburgh, Pa, and our next Bond Fund Symposium, which is scheduled for March 25-26, 2021 in Newport Beach, Calif. Watch for details in coming months, and let us know if you're interested in sponsoring or speaking. Contact us if you have any feedback or questions. Attendees to Crane Conferences and Crane Data subscribers may access the latest recordings, Powerpoints and binder materials at the bottom of our "Content page." Let us know if you'd like more details on any of our events, and we hope to see you in Minneapolis later this summer and Paris this fall!

Finally, we'll spending the next month or two upgrading our virtual event capabilities, just in case, and we'll be launching a series of Webinars and online events in coming weeks. Mark your calendars for our inaugural event, a "Money Fund Update & Product Training," which will take place on May 21 at 2pm Eastern. (MFI subscribers will be invited and we'll put a notice on the website.)

This month, MFI interviews Deborah Cunningham, Federated Hermes' Executive VP & CIO of Liquidity Products. We ask her about the crazy month of March, and about the current state of the money fund sector, flows and the Fed's support programs. Our Q&A follows. (Note: The following is reprinted from the April issue of Money Fund Intelligence, which was published on April 7. Contact us at to request the full issue or to subscribe.)

MFI: Give us a little history. Cunningham: I've seen 17% interest rates and 17 basis point interest rates, and neither one of them are healthy. I've been in the industry for the better part of four decades, and worked my way from accounting into the investment group through the credit area. I've been on the portfolio management side now for 25 years.

MFI: How are you holding up? Cunningham: Well, things have definitely gotten better. I think the worst days were in the beginning of the week of [March] 16th ... then things started to get better a little bit better on [March 19-20]. I would say the markets definitely turned a corner to some degree on Monday [March 23].

For Treasury securities, the worst days were last week after the massive decrease in yields, but without any real additional volume in Treasury securities yet. Ultimately, you were able to keep positive yields by participating in the primary issuance of bills. But to try to buy anything in the secondary without going into negative territory was almost an impossibility. With the stimulus package … and the additional bill issuance ... that sector is now much healthier.

The muni side is still probably the most disjointed, but it's improving. We'll see a SIFMA reset today.... It will adjust downward. Our thoughts are that it will probably stay elevated through the middle of this month with adjustments downward each week, and then start to return to more normalized levels by the end of the month. Certainly, the Fed's nimbleness in adding first, the high-quality short-term tax-free notes and securities to the MMLF, and then ultimately VRDNs.... Both of those helped immensely from a municipal money market fund standpoint.

MFI: How does this compare to 2008? Cunningham: There were credit concerns in the 2008 timeframe, and it was very sector-specific. Banking was hit hard, broader financial markets were hit hard, and because there weren't as many disclosure requirements back then, investors weren't sure what their money market funds owned. With disclosure as it is now, on an almost continuous basis, and the fact that there's no finger-pointing here, [it's different]. This is nobody's fault. This has huge implications from a worldwide perspective, [so] I feel like there's a rallying point at this time to fix every problem that arises.

MFI: Talk about Fed & Treasury support. Cunningham: There weren't really any pricing issues that were causing consternation with NAVs. It was more, from a daily and weekly liquidity level, making sure people are comfortable with those.... I'm not even sure how the NAV insurance would work with floating NAVs. If I recall correctly, it was a 25-basis point insurance policy [in 2008], but basically that was an insurance policy off a dollar calculated to the penny. How does that translate into NAVs, that some are above, some are below on a four-digit basis to that one dollar? It doesn't have as much meaning in the context of a four-digit NAV. So, there are questions about how that would even work, but it was never really contemplated as the issue.

Investors weren't concerned about the efficacy of the securities that were owned. I don't think anybody thought that what was held in a prime fund or what was held in a tax-free fund was not going to repay appropriately. I think that it was just a question of, 'What's the secondary market liquidity look like?' If liquidations need to go on in perpetuity, then how does that get firmed up? That's where the Fed programs stepped in to help. Certainly the MMLF helped provide a ceiling for spreads and restart secondary market liquidity.

I think the PDCF [Primary Dealer Credit Facility] was an underrated facility that was really, really helpful to secondary market dealers. They genuinely felt like they knew where the market should be but had no balance sheet left. The PDCF, I think really helped free up that balance sheet. I can't say enough about that..... The PDCF, I think in its infancy and it's use within the money market, helped free up and start the liquidity regeneration process in those longer-term markets as well.

MFI: What's next? Cunningham: Low yields, definitely. I think we're past the worst time from a Treasury market perspective, with the supply demand imbalance being taken care of to some degree..... I would expect more [Treasury supply] going forward, given the enormous amount of funding that's going to be needed for this $2.2 trillion in fiscal stimulus.

I also believe we turned a corner last week when the outflows from Prime funds slowed and we started to see smaller inflows into government funds. Government funds are certainly feeling the yield impact a lot more so than prime funds at this point, and a whole lot more than muni funds. You're going to see some additional demand from the marketplace; shareholders going into those types of funds like prime and muni that have capabilities beyond just the Treasury market. So, that should be a good thing for both the supply and the demand side.

Having said that, I unfortunately believe waivers are inevitable for all product types. [W]e've seen at least one fund family decide to close their Treasury product to new investors. If I recall correctly there might have been six or seven of those that closed or altered their products in 2008.... Federated did not do that and Federated Hermes at this point does not intend to do so. Our goal is to be a liquidity provider, which means in our estimation, we take your cash into the products that you want and invest it as best we can, and we give it back to you whenever it is that you need it.

I don't think we'll be in the zero-rate environment [for years]. I feel like the economy is certainly going to take some hits. You've got pockets of credit issues that are going to start creeping to the surface here pretty quickly. Thankfully, they are not for the most part issuers that are prevalent in the liquidity space, which means these are other markets' problems. Nonetheless, they will impact what happens in the broader economy and how fast recovery can begin.... We should rebound sooner and faster.... There will be waivers. Yes, there will be funds at 0 and 1 basis point levels, again. But it shouldn't be long lived -- months and quarters, not years and decades.

MFI: What about customer concerns? Cunningham: They're definitely on the phone asking appropriate questions of their managers. They want reassurance that the funds are open, that they're liquid, that they're not contemplating any types of gates or fees.... Their focus seems to be on the 10% daily and 30% in weekly liquid assets. If a fund in the industry pierced those bounds, what would that mean? Would they choose to impose a gate or fee? The industry needs to update shareholders on these liquidity rules, making sure they understand them.

Also complicating matters is that these conversations are happening from a home setting. I've heard more babies crying and dogs barking in the background than was ever the case in my professional career. So, it's refreshing that people are resilient enough to get their job done and to get the answers that they need, even in circumstances where they're not in that familiar setting where they normally would be conducting their business. So that's a good thing.... The informed shareholder is the happy shareholder.

MFI: How about ultra-shorts or offshore? Cunningham: We actually [just] had a record day in sterling MMF inflows.... The offshore funds continue to be fine operationally and investment-wise.... The Local Government Investment Pools (LGIPs), right now are awash in cash because ... this is a point when they are generally paying out [and] undertaking projects. But because [projects have been] cut way back, the LGIPs have more cash now than they would normally have during this part of their cash flow cycle.

As far as ultra-short funds go, our ultra-short government fund has been gaining a lot of cash.... The corporate ultra-short products and our muni ultra-short products have definitely been losing cash.... Thankfully, some of the ... [programs and] buying by the Fed has put a bit of a price floor and a spread ceiling on those markets.

MFI: Comment on MMF reforms. Cunningham: The support that's been given has been given to the [overall] markets. Yes, the MMLF is specific to the money market fund industry, but the PDCF is specific to the primary dealers. A number of other facilities are specific to banks, and a number of other facilities and programs that are specific to state and local government, private industry, small businesses. I believe the Fed was quick in their response time.... Having gone through 2008, I feel like they were able to react in a ... broad way because they realize, there's no question this is nobody's fault.

This is a pandemic and we have to figure out how best to deal with it across all sectors and all industries.... For that reason, I think you've got to look at this and say, I think the money market functioned as they should have with the appropriate regulations as they were changed in 2016. Might it have been better if we had everyone on a fixed NAV? Probably, but I don't think it would have made that much of a difference.

MFI: What about future growth? Cunningham: What's different about this asset flow [vs. the last zero yield period] is that it's not likely to be influenced by bank rates being supported.... The unlimited FDIC insurance provided an assurance to investors back in the 2008-10 timeframe. That is not the path being entertained this time, and I think that's a good thing for the money fund industry.

Certainly, the biggest group of recipients [of cash this time] are the government funds.... What encourages me is that we're opening new accounts every single day in large volume. It's not just existing shareholders increasing their liquidity and improving their risk profile. It's new customers coming into Federated Hermes products, and I'm sure coming into the industry [overall as well]. And I think they'll be pretty happy with how they're received. So, I think the industry will continue to grow. I mean, I predicted over $4 trillion this year, but I can't say that I predicted it in this fashion.

S&P Global Ratings published an FAQ entitled, "How Money Market Funds Are A Barometer For Gauging Market Liquidity," which reviews recent events in the money market fund space. It explains, "Liquidity (often described as the oxygen of the market) is an important topic for fixed-income markets, and the issue of what is and isn't liquid is often debated. The performance of money market funds (MMFs), which typically invest in short-term, highly liquid assets, have historically provided a window into market funding conditions, with periods of money market stress usually reflecting conditions across the wider capital markets. The economic and financial impacts of the COVID-19 pandemic that started to affect financial markets in the second half of first-quarter 2020 manifested into a period of extreme market volatility and liquidity stress. MMFs, typically a barometer for market liquidity, were not immune to this volatility. In this report, S&P Global Ratings answers frequently asked questions about the evolution of MMF performance during this period of extreme volatility and illiquidity. This report also explains how MMFs help measure market liquidity overall."

The report asks, "Who are the typical investors in MMFs and what are their key investment objectives?" It answers, "As a cash management tool, MMFs are often called a safe place to park cash because their key investment objective is to preserve capital by investing in a diversified portfolio of high quality, short-dated instruments. A typical MMF will endeavor to offer its shareholders capital safeguarding (preservation) and daily access (liquidity), with a rate of return commensurate with cash-market conditions. MMFs are offered to both institutional and retail investors. Larger institutional investors include pension funds, insurers, corporate treasurers from various sectors, local governments, sovereign wealth funds, and other financial institutions or funds. Retail investors invest in MMFs for diversification, for their higher yield compared to a bank account, and possibly for tax advantages."

S&P explains, "In the first three months of 2020, US$535 billion was invested in S&P Global Ratings-rated U.S. dollar-denominated principal stability fund ratings (PSFRs), including US$514 billion in March 2020 alone. This brings the total net annual increase to US$901 billion into rated U.S. dollar-denominated PSFRs to US$3.45 trillion, an increase of 35% year on year. U.S. MMFs ended March 2020 with more than $4.59 trillion in assets, an increase of $624 billion or 15.7% increase for the month. In March alone, U.S. institutional government MMFs increased by $364 billion (29%), U.S. institutional treasury MMFs rose by $298 billion (40%), and U.S. institutional prime MMFs decreased by $116 billion (19%)."

They continue, "Institutional prime MMFs generally have more exposure to bank and corporate, high-credit-quality paper than government MMFs. In March, as a flight-to-quality reaction, there was a large shift from investors moving out of prime funds and into government MMFs, which are considered the safest asset class. For example, across rated PSFRs, the average 'A-1+' credit quality at the end of March was 70% for prime funds and 95% for government/treasury MMFs. In addition to the shift and a genuine requirement for operational cash, the sudden outflow from prime funds is also attributable to other funds with riskier strategies or assets that have invested their cash component in MMFs. When the market moves in the opposite direction, the cash in MMFs might be redeemed. It appears that up to $116 billion in outflows from prime MMFs might be due to redemptions from other funds invested in high yield, emerging markets, or equities. Cash injections to these funds, by redeeming some portion of their prime fund allocation, could stave off the need to sell their own assets at a rapidly falling price."

On liquidity stresses, the report comments, "In the week of March 16, right in the eye of the MMF redemption storm, prime MMFs saw $72 billion of outflows. As a result, two fund sponsors undertook actions not seen since the financial crisis, where their parent company was engaged to buy assets out of their MMFs.... The two groups purchased assets out of the MMFs to help boost their weekly liquid assets levels, which were approaching 30% -- a regulatory metric that mandates funds to hold a certain amount of short-dated assets to meet redemptions."

It tells us, "If a fund was to fall below the 30% threshold, the fund's board could impose: A liquidity fee of up to 2% on redemptions; and [a] temporary suspension of redemptions for up to 10 days if the board (including a majority of its independent directors) determines that imposing these are in the fund's best interests.... In our view, these actions support a fund's continued operations and in our review of the fund's net asset value per share, both funds have remained in line with their rating tolerance levels.... Any U.S.-registered MMF must file a report on a Form N-CR with the SEC if certain portfolio securities default, an affiliate provides financial support to the fund, the fund experiences a significant decline in its shadow price, or liquidity fees or redemption gates are imposed and lifted."

S&P writes, "In 2008, total assets for U.S. MMFs fell 5.4% to $3.4 trillion in the two weeks to Sept. 24. Net institutional fund outflows were significant, totaling $185 billion, while retail MMF assets were up by $1 billion. Notably, government MMFs, which today represent the bulk of US MMFs following the SEC's reforms in 2016, were less active back in 2008. Comparatively, in the two-week period starting March 16, 2020, U.S. MMFs increased US$423 billion, with the majority of those inflows going to institutional government and institutional treasury funds. Institutional prime MMFs have seen outflows of $67 billion, about a third of those in the two weeks of 2008, around the Lehman Brothers default."

They continue, "One notable difference between 2008 and 2020 to this point is that, although they both started with a liquidity crisis, a banking crisis and a sovereign crisis ensued in the years after 2008. That said, lessons were learned following 2008 and Federal Reserve programs have been triggered more quickly this time round, quickly setting off a mechanism to help stabilize markets. It would be prudent to wait and see how the coronavirus affects the economy and markets, and the question of whether outflows will reach levels as seen in 2008 will depend on how quickly COVID-19 can be contained, the severity of the resulting economic downturn, and any lasting impact on sovereigns and issuers MMFs invest in."

S&P also tells us, "During these times of stress, fund managers are investing in very short-term, high-quality paper, treasuries, overnight repos or bank deposits, and cash. The sudden rush to U.S. government and U.S. Treasury MMFs combined with a lowering of interest rates by the Federal Reserve is creating the prospect of negative rates for government securities. This creates a conundrum for government MMFs that must invest 'at least 99.5% of its total assets in cash, government securities and/or repurchase agreements that are collateralized by cash or government securities.' Considering that yields might fall further with further uncertainty, MMFs must tread carefully to avoid yield dilution risk from new investors coming into the fund.... Importantly, since March 15, 2020, and the Federal Reserve cutting interest rates, yields on overnight repo, one-month treasuries, and three-month treasuries have fallen towards zero, only one-year treasuries have remained at least 10 basis points above zero."

They add, "Subsequently, some MMFs might have to suspend subscriptions to avoid investing at negative yields. Notably, on March 31, Fidelity Investments, one of the world's largest asset managers, announced it has closed three money market funds to new investors to protect the return of existing shareholders. In a statement, Fidelity said, 'Newer issues generally have lower yields than the funds' current holdings, and as such they would affect the funds' ability to continue to deliver positive net yields to shareholders.'"

Finally, S&P says, "As long as market uncertainty continues, flows from investors will likely continue into the safest, highest credit quality assets, particularly government MMFs and already in April 2020, we have seen $141 billion invested in government and treasury MMFs. That said, flows may be impeded if MMF yields start turning negative, dislocation in the short-term debt market, pressure on sovereign debt, or a rise in downgrades of highly rated issuers. This has not happened yet. There is evidence to suggest that programs like the Money Market Mutual Fund Liquidity Facility and Commercial Paper Funding Facility have helped to promote liquidity and the functioning of MMFs. The dramatic asset declines for prime MMFs have flatlined after the announcement of these programs, and prime MMFs have seen inflows of $47 billion up to April 15."

Late last week, Moody's Investors Service published the paper, "Money Market Funds US: Funds Face Bear Market on Flight to Quality." They tell us, "Intense selling pressure across financial markets amid economic disruption from the coronavirus pandemic aggregated significant liquidity in investors' accounts, driving money market fund balances higher by $729 billion since February. Treasury and government funds, deemed to be risk-free, increased assets by $908 billion. Credit-sensitive prime and tax exempt funds lost $180 billion. Consequently we changed our outlook on the global money market fund industry to negative from stable on March 18."

The brief continues, "Credit-sensitive funds experienced outflows and sharp net asset value (NAV) declines, as liquidity for their underlying securities disappeared, initiating a feedback cycle that caused a breakdown in the liquidity of the paper they hold. Conversely, Treasury and government funds, with the least credit risk, experienced enormous inflows and rising NAVs, as yields on the paper they hold approached zero."

Moody's Neal Epstein, Matt Nostro, Robert Callagy and Marc Pinto explain, "The outflow from credit-sensitive funds spurred regulatory intervention, despite money market reforms implemented in 2016 to forestall such circumstances. Whether out of necessity or caution, two sponsors also supported their prime funds, purchasing a combined $4.0 billion of securities, increasing their liquidity. The Fed's Money Market Loan Facility (MMLF) will support funds with weakening credit or liquidity profiles. Assets quickly grew to $53 billion."

On zero rates, they write, "Regulators' extraordinary measures to support market functions and provide liquidity drove money market yields lower. As MMF portfolio yields roll down, we anticipate sponsors and intermediaries will waive fees or absorb fund costs to forestall negative fund yields, reducing MMF revenues during 2020, even though fund assets have increased."

The Moody's piece states, "From February 19, when US equity funds closed at year-to-date highs, US money-market fund (MMF) balances increased by $729 billion to $4.69 trillion. Investors seeking safety preferred Treasury and government money market funds, which increased assets by $908 billion, as opposed to credit-sensitive prime and tax-exempt funds, which lost $180 billion.... The watershed dividing flows between credit-sensitive prime funds and Treasury and government money market funds, which are deemed to be risk-free, illustrates the distinct risk these vehicles bear. Credit-sensitive MMFs are dynamically exposed to both market concerns about the risk of the issuers whose paper they hold and their investors' concerns for fund liquidity and stability. Assets not only flowed out of these funds, but they also experienced reductions in market NAV (MNAV)."

They tell us, "Prime funds, which invest in short-term liabilities such as certificates of deposit (CDs), and unsecured commercial paper (CP) or asset-backed CP (ABCP), principally of banks, face the greater risk. Disruptions in this market may raise these issuers' cost of funding, which could in turn impair their credit strength and establish a feedback cycle: prime MMFs' NAVs would begin to decline as their holdings traded lower, investors would redeem shares, and funds would liquidate holdings and further pressure issuers' funding, amplifying the negative credit signal."

Moody's explains, "In the first week of March, institutional investors increased holdings of prime funds, and the demand caused a brief increase in their MNAVs. During the second week and following, redemptions exceeded $100 billion and MNAVs fell below $1.00 per share.... as investors began to appreciate the magnitude of the growing economic risk."

They add, "Money market fund reforms adopted in 2016 that were intended to stabilize fund assets may have had limited effect under these extreme circumstances. To increase their resilience to potential runs, institutional prime funds are required to transact at their market NAV per share: the logic being that if funds cannot 'break the buck' the incentive to sell in response to NAV fluctuations should be reduced. Further, all fund boards must consider imposing redemption fees or gates if weekly liquid assets decline below 30% of assets. Nonetheless, it appears that investors' concerns about fluctuating value and the use of fees and gates impelled them to redeem shares.... We expect that regulators will once again open the question of prime fund liquidity and stability risks. Paradoxically, the 30% weekly liquid asset threshold may have caused investors to sell quickly to avoid the risk of fees or gates, because the margin above that threshold for some funds was narrowing."

The brief states, "Between March 18-20, whether out of necessity or caution, Bank of New York Mellon and Goldman Sachs each provided financial support to MMFs under rules that govern the purchase of securities by a money market fund's affiliates. According to SEC filings, the Bank of New York Mellon purchased $2.2 billion of securities at fair market value from Dreyfus Cash Management. Subsequently the Bank of New York Mellon Corporation paid the excess of amortized cost over fair market value to the fund. Goldman Sachs Bank USA purchased $1.5 billion of securities from the Goldman Sachs Financial Square Money Market Fund and $0.4 billion from the Goldman Sachs Financial Square Prime Obligations Fund at fair market value." (See our March 23 News, "Goldman, Dreyfus Move to Support Prime MMFs; Fed MMLF Adds Munis.")

Moody's also writes, "On March 18, the Federal Reserve established the MMLF, among a number of other supportive actions, with the Federal Reserve Bank of Boston (FRBB) acting as the lender.... At the end of its first three weeks of operation, the MMLF held $53.1 billion of loans ... helping stabilize both the funds that used it and the market for prime paper, which had suffered from inadequate liquidity. We expect assets of the facility to increase, as the ongoing uncertainty about the future course of the coronavirus and its economic consequences should cause markets to remain volatile. The MMLF is authorized through September 30, 2020, unless the Fed Board extends the program. Nonetheless, we expect prime MMFs will maintain large weekly cash positions, as markets and fund investors remain skittish. Despite the Fed's support programs, liquidity in the short-term market remains tight and spreads remain elevated."

They tell us, "On March 23, to provide further support to MMFs, the FOMC directed its desk for open market operations to conduct overnight reverse repurchase operations (or longer, to accommodate market closures) at an offering rate of 0.00%. These operations made the Fed's available supply of Treasury securities accessible to MMFs. One goal was to prevent marketplace scarcity (in the face of high demand for Treasury securities) from driving benchmark yields into negative territory.... Because the Fed expects to maintain its zero-bounded target range for Fed funds (announced on March 15) until the economy has strengthened, we anticipate fund sponsors will be forced to waive or absorb costs for at least the balance of 2020. An additional 10 basis point waiver or cost reduction on $3.6 trillion government and Treasury fund assets would lead to $3.6 billion lower fees."

Finally, they write, "For Treasury and government funds, large inflows in the face of declining asset yields reduce the margin between the yield of a fund's portfolio and its expense ratio. As assets balloon ... fund managers must acquire securities at near-zero yields, driving these funds' yields lower.... If a fund's portfolio yield is lower than its expense ratio, the fund will lose money on every additional dollar it takes in, unless the sponsor (and sales intermediaries) agrees to waive fees or absorb operating costs.... On March 31, Fidelity announced it would 'soft close' three large MMFs that invest in US Treasury securities, after they became a haven for investors fleeing market volatility."

Money market mutual fund assets showed major increases for the seventh week in a row, breaking the $4.5 trillion level and hitting yet another record, though inflows were smaller than the gigantic jumps of mid-March and early April. ICI's latest weekly "Money Market Fund Assets" report explains, "Total money market fund assets increased by $49.10 billion to $4.52 trillion for the week ended Wednesday, April 15, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $38.80 billion and prime funds increased by $6.97 billion. Tax-exempt money market funds increased by $3.32 billion." ICI's stats show Institutional MMFs rising $44.1 billion and Retail MMFs increasing $5.0 billion. Total Government MMF assets, including Treasury funds, were $3.715 trillion (82.2% of all money funds), while Total Prime MMFs were $668.3 billion (14.8%). Tax Exempt MMFs totaled $139.4 billion, 3.1%. Money fund assets are up $890 billion, or 24.5%, year-to-date in 2020. Over the past 52 weeks, ICI's money fund asset series has increased by $1.479 trillion, or 48.6%, with Retail MMFs rising by $341 billion (28.3%) and Inst MMFs rising by $1.139 trillion (61.9%).

They explain, "Assets of retail money market funds increased by $5.01 billion to $1.54 trillion. Among retail funds, government money market fund assets increased by $490 million to $985.93 billion, prime money market fund assets increased by $1.66 billion to $432.51 billion, and tax-exempt fund assets increased by $2.86 billion to $124.78 billion." Retail assets account for over a third of total assets, or 34.1%, and Government Retail assets make up 63.9% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $44.09 billion to $2.98 trillion. Among institutional funds, government money market fund assets increased by $38.31 billion to $2.73 trillion, prime money market fund assets increased by $5.31 billion to $235.83 billion, and tax-exempt fund assets increased by $463 million to $14.58 billion." Institutional assets accounted for 65.9% of all MMF assets, with Government Institutional assets making up 91.6% of all Institutional MMF totals. (Note: Crane Data has its own separate, and larger, daily and monthly asset series.)

In related news, ICI also released its monthly "Money Market Fund Holdings" summary earlier this week, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our April 13 News, "April MF Portfolio Holdings: Govt Securities Skyrocket; CDs, CP Down.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in March, prime money market funds held 33.8 percent of their portfolios in daily liquid assets and 44.9 percent in weekly liquid assets, while government money market funds held 63.3 percent of their portfolios in daily liquid assets and 77.0 percent in weekly liquid assets." Prime DLA increased from 27.1% in February, and Prime WLA increased from 41.2%. Govt MMFs' DLA increased from 61.1% in February and Govt WLA decreased from 78.2% from the previous month.

ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 34 days and a weighted average life (WAL) of 66 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 37 days and a WAL of 97 days." Prime WAMs were up one from the previous month and WALs decreased by five days from the previous month. Govt WAMs increased by five day while WALs were up three days from the previous month.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas declined from $340.25 billion in February to $292.40 billion in March. Government money market funds’ holdings attributable to the Americas rose from $2,187.10 billion in February to $3,102.40 billion in March."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $292.4 billion, or 44.8%; Asia and Pacific at $120.8 billion, or 18.5%; Europe at $230.1 billion, or 35.3%; and, Other (including Supranational) at $9.2 billion, or 1.4%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.102 trillion, or 86.5%; Asia and Pacific at $139.3 billion, or 3.9%; Europe at $326.5 billion, or 9.1%, and Other (Including Supranational) at $19.8 billion, or 0.6%."

Finally, a press release entitled, "Vanguard Closes Treasury Money Market Fund to New Investors" tells us, "Vanguard ... closed its $39.5 billion Treasury Money Market Fund (VUSXX) to new shareholder accounts. The company is seeking to protect existing Fund shareholders from high levels of cash flow that could potentially accelerate reductions to the Fund's yield. Existing shareholders of the Fund can continue to make purchases with no limits."

It explains, "Vanguard believes that money market funds provide significant value to investors as a stable and convenient cash equivalent instrument. However, an increase in demand for high-quality government money market funds, combined with extremely low yields on U.S. Treasury securities, may have the effect of reducing the Fund's yield, as new cash flow is invested in lower-yielding securities."

The release says, "Vanguard is taking this prudent step to temper cash flows and will continue to monitor the Fund and employ additional measures if needed. Vanguard has taken similar pre-emptive measures during prolonged low-interest rate environments."

Finally, it adds, "Prospective investors will continue to have access to other portfolios in Vanguard's $414 billion low-cost lineup of money market funds, including Vanguard Prime Money Market Fund, Vanguard Federal Money Market Fund, and Vanguard's national and state-specific tax-exempt money market funds. Vanguard continues to manage its money market funds very conservatively, focusing only on the highest-quality short-term money market instruments."

Vanguard, the 2nd largest manager of MMFs, is the second fund family to take steps to limit inflows into its Treasury funds. See our March 31 Link of the Day, "Fidelity (Soft) Closes Treasury MMFs," and see these Crane Data News articles on previous Treasury MMF "soft" closings: More on Ultra-Low Treasury Rates, Fee Waivers and Negative Yields (1/7/09), Flurry of Fund Filings on Treasury Funds Closings, Waivers, Insurance (1/14/09), MarketWatch Writes Treasury Money-Market Funds Shutting The Door (1/27/09), Vanguard Merges Treasury Money Funds, Closes Federal Money Market (6/3/09) and Schwab Q and A on Closing of U.S. Treasury Money Fund to Sweeps (10/6/11).

Crane Data's latest MFI International shows assets in European or "offshore" money market mutual assets rising in US Dollar and GBP funds but falling in Euro funds in the latest month. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $32.6 billion over the last 30 days to $956.4 billion; they're up by $79.8 billion year-to-date. Offshore USD money funds, which broke over $500 billion in January and which just retook this level, are up $16.3 billion over the last 30 days and are up $9.1 billion YTD. Euro funds are down E2.4 billion over the previous 30 days, but YTD they're up E21.2 billion. GBP funds have risen by L14.6 billion over 30 days, and are up by L19.4 billion YTD. U.S. Dollar (USD) money funds (190, up one from the previous month) account for over half ($503.5 billion, or 52.6%) of our "European" money fund total, while Euro (EUR) money funds (92, unchanged from the previous month) total E119.8 billion (13.9%) and Pound Sterling (GBP) funds (123, unchanged from the previous month) total L244.3 billion (31.0%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below.

Offshore USD MMFs yield 0.51% (7-Day) on average (as of 4/14/20), down from 2.29% on 12/31/18 and 1.19% at the end of 2017. EUR MMFs yield -0.57% on average, compared to -0.49% at year-end 2018 and -0.55% on 12/29/17. Meanwhile, GBP MMFs yielded 0.25%, down from 0.64% as of 12/31/18 and up from 0.24% at the end of 2017. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's MFII Portfolio Holdings, with data (as of 3/31/20), show that European-domiciled US Dollar MMFs, on average, consist of 22% in Commercial Paper (CP), 15.3% in Certificates of Deposit (CDs), 22.5% in Repo, 25.8% in Treasury securities, 11.7% in Other securities (primarily Time Deposits) and 2.7% in Government Agency securities. USD funds have on average 40.1% of their portfolios maturing Overnight, 8.3% maturing in 2-7 Days, 16.4% maturing in 8-30 Days, 11.5% maturing in 31-60 Days, 6.0% maturing in 61-90 Days, 12.5% maturing in 91-180 Days and 5.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (36.6%), France (12.9%), Japan (9.2%), Canada (8.0%), the United Kingdom (6.4%), Germany (4.7%), the Netherlands (4.2%), Sweden (3.4%), Switzerland (3.2%), Australia (2.7%), Norway (1.9%), Belgium (1.5%), Singapore (1.5%) and China (1.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $140.0 billion (25.8% of total assets), BNP Paribas with $23.2B (4.3%), Barclays PLC with $14.2B (2.6%), Credit Suisse with $14.1B (2.6%), Bank of Nova Scotia with $14.0B (2.6%), Sumitomo Mitsui Banking Corp with $13.1B (2.4%), Mitsubishi UFJ Financial Group Inc with $11.6B (2.1%), Societe Generale with $11.2B (2.1%), Mizuho Corporate Bank with $10.6B (2.0%) and Fixed Income Clearing Corp with $10.0B (1.9%).

Euro MMFs tracked by Crane Data contain, on average 45.4% in CP, 15.6% in CDs, 29.1% in Other (primarily Time Deposits), 7.8% in Repo, 1.4% in Treasuries and 0.7% in Agency securities. EUR funds have on average 35.3% of their portfolios maturing Overnight, 10.2% maturing in 2-7 Days, 14.3% maturing in 8-30 Days, 12.3% maturing in 31-60 Days, 7.5% maturing in 61-90 Days, 17.4% maturing in 91-180 Days and 3.0% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.9%), Japan (12.4%), the U.S. (9.9%), Germany (9.8%), the Netherlands (6.9%), Sweden (6.7%), the U.K. (5.3%), Switzerland (4.3%), Canada (3.5%), China (3.0%), Belgium (1.8%), Abu Dhabi (1.3%) and Austria (1.1%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E5.2B (4.7%), Societe Generale with E5.1B (4.6%), BNP Paribas with E4.4B (4.0%), Sumitomo Mitsui Banking Corp with E3.9B (3.6%), Mizuho Corporate Bank with E3.7B (3.3%), BPCE SA with E3.6B (3.3%), Mitsubishi UFJ Financial Group Inc with E3.5B (3.2%), ING Bank with E3.4B (3.1%), Republic of France with E3.1B (2.8%) and Rabobank with E3.1B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 3/31/20): 29.9% in CDs, 23.2% in CP, 29.2% in Other (Time Deposits), 14.6% in Repo, 2.8% in Treasury and 0.3% in Agency. Sterling funds have on average 39.4% of their portfolios maturing Overnight, 7.4% maturing in 2-7 Days, 10.0% maturing in 8-30 Days, 12.0% maturing in 31-60 Days, 10.1% maturing in 61-90 Days, 16.8% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.5%), the U.K. (16.2%), Japan (13.1%), Canada (10.1%), Germany (7.3%), the Netherlands (7.0%), the U.S. (4.9%), Australia (4.1%), Sweden (3.5%), Singapore (3.4%) and Switzerland (3.2%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L18.3B (10.2%), BNP Paribas with L8.8B (4.9%), BPCE SA with L7.8B (4.4%), Mizuho Corporate Bank with L6.6B (3.7%), Sumitomo Mitsui Banking Corp with L5.1B (2.9%), Sumitomo Mitsui Trust Bank with L5.1B (2.8%), Toronto-Dominion Bank with L5.1B (2.8%), Nordea Bank with L5.0B (2.8%), Credit Agricole with L4.9B (2.7%) and Rabobank with L4.8B (2.7%).

In other news, a J.P. Morgan Securities' latest "US Short Duration Update" writes that, "March was a cruel month for prime funds." They explain, "In a rare turn of events, prime MMFs' cash balances fell by $138bn or 18% in March. Outflows of this magnitude have not occurred since the 2016 MMF reform. But unlike the 2016 episode where outflows persisted for months leading to the reform implementation date, last month's outflows were concentrated over only a two-week time period.... It goes without saying that this sharp, sudden pullback severely hampered prime MMFs' ability to manage their portfolios without disrupting the broader money markets, particularly as funds were rapidly approaching the 30% weekly liquidity minimum."

The piece tells us, "Under the circumstances, prime MMFs saw a material shift in their holdings in March.... Based on Crane data, their repo holdings declined by $99bn or 46% month-over-month. This makes sense given the short-dated nature of these instruments which we suspect were used to meet redemptions. The combination of bank CP/CD and ABCP holdings also decreased by $120bn month-over-month, presumably to meet withdrawals too but also to rotate into more liquid assets. Indeed, prime MMFs' exposures to Treasuries, Agencies, and Fed RRP grew $80bn last month."

JPM's update adds, "With MMLF balances registering $53bn as of April 1, this implies that roughly 44% of the change in bank CP/CD and ABCP holdings found their way into the facility while most of the remainder matured. It's unclear what exactly was pledged to the facility, though we can infer from the month-over-month change in holdings by asset class and parent company domicile that most of what was pledged were CDs issued by French, Japanese, and Canadian banks with US branches.... This is not surprising as those issuers also tend to be the largest unsecured borrowers in the bank CP/CD market."

Finally, they comment, "Going forward, with flows stabilizing in prime MMFs, focus among fund managers is likely going to be a balancing act between maintaining liquidity and maintaining yield. While MMLF has helped funds restore weekly liquidity buffers, volatility in the broader markets will continue to challenge how much liquidity they have to hold, and thereby how much they should invest in short-dated paper. At the same time, yields on prime MMFs continue to collapse and are currently averaging around 0.50%, down 50bp from just a month ago. To combat, funds are gradually adding duration as evidenced by their WAMs extending out by 4 days over the past week. To the degree funds continue to extend, this should be supportive of further Libor-OIS narrowing."

The April issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the lead story, "Bond Fund Assets Plunge as Virus Shock Causes Chaos," which covers the huge outflows in bond funds in March, and, "Worldwide Bond Fund Assets Rise to $11.8 Tril; US Jumps," which looks at the ICI's latest bond fund totals outside the U.S. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields jumped and returns plunged in March. 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 Fund Assets Plunge" article says, "After 14 straight months of outsized inflows and 4 years of strong asset gains, bond funds assets plummeted in March as the coronavirus wreaked havoc on financial markets. Bond fund assets tracked by BFI plunged by $280.1 billion to $2.721 trillion, while bond ETF assets fell by another $30.1 billion to $680.2 billion. Intermediate and Long-Term BFs showed the biggest declines, followed by Municipal and High-Yield BFs."

BFI continues, "While outflows have slowed and returns have stabilized month-to-date in April, some serious damage was done to bond fund returns. (See our lead News brief.) Returns for bond funds overall are now below returns for money market funds in the 1-year period through March 31, 2020. Our BFI Total Index returned 1.43% on average vs. a return of 1.63% for our Crane Money Fund Average."

The piece also quotes the FT's "Asset managers rocked by record bond fund outflows," which says, "Mutual funds and exchange traded funds that invest in bonds suffered $109bn in outflows for the week ending Wednesday, a new record that also included the highest-ever weekly outflows for specialist junk bond and investment-grade corporate bond funds.... The exodus even from investment-grade corporate debt and sovereign bond funds underscores the extent of a rush toward cash that has been blamed for some of the biggest market moves of recent days."

Our Worldwide piece reads, "Bond fund assets worldwide increased slightly in the latest quarter to $11.8 trillion. The U.S. saw assets jump while Ireland and Luxembourg also saw noticeable increases. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Fourth Quarter 2019' release and statistics below."

ICI's report says, "Worldwide regulated open-end fund assets increased 6.4% to $54.88 trillion at the end of the fourth quarter of 2019, excluding funds of funds. Worldwide net cash inflow to all funds was $836 billion in the fourth quarter, compared with $675 billion of net inflows in the third quarter.... The Investment Company Institute compiles worldwide open-end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations."

Our Bond Fund News includes the brief, "Yields Jump, Returns Plunge in March," which tells us, "Bond fund yields jumped and returns plunged last month. Our BFI Total Index returned -4.43% over 1-month and 1.44% over 12 months. The BFI 100 lost 3.82% in March but rose 2.63% over 1 year. Our BFI Conservative Ultra-Short Index returned -1.42% over 1-mo and 0.93% over 1-yr; Ultra-Shorts averaged -2.95% in March and -0.33 over 12 mos. Short-Term returned -3.27% and 0.88%, and Intm-Term lost 2.93% last month but rose 4.88% over 1-year. BFI’s Long-Term Index returned -3.72% in March and 7.04% for 1 -yr; our High Yield Index fell 10.90% in March and is down 6.84% over 1-year."

In another News brief, we quote the Barron's piece, "Most Bond Funds Have Been Beaten Up. It's Time for a Gut Check." It explains, "[W]hile investors often talk about bonds in broad terms, the past several weeks have underscored the fact that the global bond market is anything but homogenous. Of the 19 taxable bond fund categories tracked by Morningstar, all but four -- short-, intermediate-, and long-term U.S. Treasuries, plus intermediate core -- have lost money this year. So what's a bond investor to do now? For most, the best advice is probably to 'shelter in place.'"

A third News update covers the Wall Street Journal article, "Bond Investors Might Need to 'Shorten Up.'" They tell us, "When things get rough in the stock market, many investors turn to bonds to cushion the blow. So what happens when bonds get hammered, too, as they have in the latest turmoil in the financial markets? What should bond investors do now? Some advisers say to stick to short-duration bonds. Others focus on credit quality. And some say to be careful but keep an eye out for opportunities to catch an upswing.... Many investors have already moved into so called ultrashort bond exchange-traded funds, which provide exposure to bonds with durations under two years. Investors poured billions into ultrashort ETFs in March. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL), for example, had $8.7 billion of inflows from investors in March, and iShares Short Treasury Bond ETF (SHV) saw $3.171 billion of inflows, according to data from CFRA Research."

Finally, BFI also features a sidebar that covers "ICI's blog, "ETFs Are Passing the Covid-19 Crisis Test." The piece explains, "Financial markets have continued to churn since our previous post, which examined mutual fund investors' initial reactions to the COVID-19 crisis, with the S&P 500 index and yield on the 10-year Treasury bond gyrating wildly. How have exchange-traded funds (ETFs) weathered the intensifying financial market fallout from the pandemic? In short, even with volatile prices and widening bid-ask spreads in stock and bond markets, trading of ETF shares has been orderly and has contributed to price discovery in the first weeks of March. In addition, net ETF share creations and redemptions, although varying by asset class, have been modest."

Money market fund yields, which fell below the 1.0% level four weeks ago and below the 0.5% level two weeks ago, continued their march downwards towards zero in the latest week. Our flagship Crane 100 Money Fund Index fell 8 basis points over the past week (through Friday, 4/10) to 0.34%, according to Money Fund Intelligence Daily. The Crane 100 is down from 1.46% at the start of the year and down 1.89% from the beginning of 2019 (2.23%). Our Crane Brokerage Sweep Index has already hit the floor, at 0.01% (for balances of $100K), after falling a basis point last week. It's down 27 bps from the end of 2018 (0.28%). The latest Brokerage Sweep Intelligence, with data as of April 10, shows no rate cuts this past week, but two out of 11 major brokerages cut rates in the prior week. All of major brokerages now offer rates of 0.01% for balances of $100K.

While some funds have already hit the zero floor, most money funds maintain a yield advantage over sweeps and bank deposits, though perhaps not for much longer. As of Friday, 155 funds (out of 852 total) yielded 0.00% or 0.01% with total assets of $217.3 billion, or 4.6% of total assets. There were 75 funds yielding between 0.02% and 0.10% (totaling $692.5B, or 14.6% of assets); 142 funds yielded between 0.11% and 0.25% (with $1.048 trillion, or 22.1% of assets); 185 funds yielded between 0.26% and 0.50% ($1.491 trillion, or 31.5%); 222 funds yielded between 0.51% and 0.99% ($992.2B or 20.9%); and, 67 funds yielded over 1.00% ($295.9B or, 6.2% of total assets).

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.29%, down 13 basis points in the week through Friday, April 10. Prime Inst MFs were down 12 bps to 0.58% in the latest week, while Government Inst MFs fell by 15 bps to 0.27% and Treasury Inst MFs dropped by 9 bps to 0.19%. Treasury Retail MFs currently yield 0.04%, (down 2 bps), Government Retail MFs yield 0.11% (down 17 bps), and Prime Retail MFs yield 0.53% (down 22 bps), Tax-exempt MF 7-day yields dropped by 1.73% to 0.80%.

Yesterday's Brokerage Sweep Intelligence shows rates unchanged, but the prior week's BSI shows that Fidelity lowered rates across the board last week, while Ameriprise dropped rates on their higher tiers. Fidelity cut rates on all balances by 6 bps, the $100K balance rate was dropped to 0.01%. Fidelity had been the last major brokerage firm paying more than 0.01% on $100K balances. Ameriprise cut rates on balances of $1M and over by 1 basis point. Rates on $100K balances remained at 0.01%. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months.

Crane's Brokerage Sweep Index was flat last week, after falling to 0.01% the previous week (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).

In other news, Wells Fargo Money Market Funds latest "Portfolio Manager Commentary" explains, "The MMLF has proven particularly effective in providing liquidity support for money market funds, as the banks participating in this facility are exempt from risk-based capital and leverage requirements. This exemption allows banks to intermediate the flow of credit and support market prices and liquidity. As a result, prices in money market securities stabilized and have rebounded and market liquidity has improved. With the introduction of the MMLF, much of the pressure from shareholder redemptions -- as well as the pace of those redemptions -- has subsided.... We anticipate maintaining higher-than-normal liquidity levels in the near future until we can determine that conditions in the markets have begun to normalize."

On the "Municipal sector," Wells' James Randazzo writes, "As pandemic concerns roiled the global markets, the short end of the municipal market was not immune to the liquidity pressures experienced in other markets. During the second week of the month, a sudden and dramatic burst of redemptions from municipal bond funds resulted in heavy selling of variable-rate demand notes (VRDNs) and tender option bonds (TOBs) as well as short-term notes as managers sought to raise liquidity to meet outflows. By mid-month, redemptions began to spread to municipal money market funds as well, adding further pressure on supply. The rapid rise in VRDN inventories reflected the need for managers to raise liquidity quickly rather than concerns about the creditworthiness of the municipal issuers and third-party letter-of-credit providers on the securities."

He continues, "The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index rapidly spiked to 5.20%, a level last seen in 2008, up from 1.15% at the end of February. Further out on the curve, levels on one-year high-grade paper, which had fallen to a low yield of 0.68% at mid-month, quickly gapped to as high as 2.50% as selling pressure moved from variable-rate paper to the fixed-rate space."

Wells' piece continues, "Shortly after it introduced the MMLF to backstop prime money market funds, the Fed expanded the list of securities eligible for the MMLF to include municipal money market funds and their holdings of certain municipal securities, which provided additional support to the municipal markets and led to a surge in demand for VRDNs. Rates on overnight paper, which had spiked to as high as 7.50% on average during the middle of the month, rapidly fell to as low as 0.75% at month-end. The SIFMA Index, which resets weekly, fell to 4.71% on March 25, just two days after the MMLF program was implemented. With weekly inventories rapidly falling over the last few days of the month, we expect the SIFMA Index will fall back into the 1.00%–1.50% range in early April. The short-term notes market recovered as well, with one-year paper falling to 1.34% after reaching a mid-month high of 2.14%."

They tell us, "During the month, we continued to focus our purchases primarily in VRDNs and TOBs with daily and weekly puts. By structuring our funds with an overweight in the short end of the municipal curve, we were well positioned to withstand market volatility and actually benefited from the rapid spike in the SIFMA Index. Looking ahead, we expect the municipal money market space to continue to normalize as we enter a new phase of the zero interest rate policy. In this environment, we expect to maintain our steadfast commitment to maintaining high degrees of liquidity while focusing on principal preservation."

When comparing the coronavirus meltdown to 2008, Wells comments, "In spite of those similarities, the key difference between the two is the credit environment -- specifically the health of the financials sector. In 2008, there were real questions about which financial institutions would survive, and at times it seemed some parts of the system were on the verge of collapse. This time around, we do not view current market volatility as a credit event, primarily due to the fact that the conditions of financial institutions' balance sheets are much more sound than they were 12 years ago, thanks to some of the post-crisis regulations. In our view, current volatility in pricing is due to market participants' uncertainty over current events and that this is not a 'new normal' but rather a temporary situation."

Finally, they add, "We believe this will be resolved through the efforts of the Fed and global central banks to support smooth market functioning as well as evolving clarity over the coronavirus and its effects on the economy. Due to the programs put in place to support the markets, we have seen a moderation in industry flows as well as a stabilization and slight improvement in pricing. We anticipate these improvements will continue as capital markets stabilize and as more clarity around the effects of the current pandemic becomes known. Similar to 2008, though, we are not able to put a time frame around the normalization of current conditions, but we will keep a vigilant eye out for evidence that the risk environment is stabilizing."

Crane Data released its April Money Fund Portfolio Holdings Thursday, and our most recent collection, with data as of March 31, 2020, shows huge jumps in Treasuries, Agencies and Repo but a drop in CDs, CPs and Other (Time Deposits) as Government fund assets skyrocketed and Prime MMF assets plunged. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by a staggering $725.6 billion to $4.561 trillion last month, after increasing $5.0 billion in February, $19.0 billion in January and $24.7 billion in December. Repo continues to be the largest portfolio segment, followed by Treasury securities, then Agencies. CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) rose by $225.1 billion (17.2%) to $1.536 trillion, or 33.7% of holdings, after increasing $10.9 billion in February, $66.6 billion in January and $75.3 billion in December. Treasury securities rose $303.1 billion (29.2%) to $1.342 trillion, or 29.4% of holdings, after increasing $10.4 billion in February and decreasing $83.6 billion in January and $14.7 billion in December. Government Agency Debt increased by $292.5 billion (38.6%) to $1.050 trillion, or 23.0% of holdings, after decreasing $9.7 billion in February, $40.4 billion in January and increasing $42.0 billion in December. Repo, Treasuries and Agencies totaled $3.928 trillion, representing a massive 86.1% of all taxable holdings.

Money funds' holdings of CP, CD and Other (mainly Time Deposits) securities all fell in March while VDRN holdings rose. Commercial Paper (CP) decreased $24.1 billion (-7.5%) to $299.9 billion, or 6.6% of holdings, after decreasing $1.2 billion in February, increasing $16.1 billion in January and decreasing $37.6 billion in December. Certificates of Deposit (CDs) fell by $74.3 billion (-26.0%) to $212.1 billion, or 4.6% of taxable assets, after falling $3.8 billion in February, rising $25.5 billion in January and decreasing $10.5 billion in December. Other holdings, primarily Time Deposits, decreased $8.0 billion (-7.2%) to $103.1 billion, or 2.3% of holdings, after decreasing by $1.5 billion in February, increasing $35.1 billion in January and decreasing $29.5 billion in December. VRDNs increased to $17.7 billion, or 0.4% of assets, from $6.3 billion the previous month. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Monday.)

Prime money fund assets tracked by Crane Data decreased $122.0 billion to $959.0 billion, or 21.0% of taxable money funds' $4.561 trillion total. Among Prime money funds, CDs represent 22.1% (down from 26.5% a month ago), while Commercial Paper accounted for 31.3% (up from 30.0%). The CP totals are comprised of: Financial Company CP, which makes up 18.5% of total holdings, Asset-Backed CP, which accounts for 6.1%, and Non-Financial Company CP, which makes up 6.7%. Prime funds also hold 7.1% in US Govt Agency Debt, 11.1% in US Treasury Debt, 8.4% in US Treasury Repo, 1.1% in Other Instruments, 6.7% in Non-Negotiable Time Deposits, 4.6% in Other Repo, 4.3% in US Government Agency Repo and 1.1% in VRDNs.

Government money fund portfolios totaled $2.401 trillion (52.6% of all MMF assets), up $513 billion from $1.888 trillion in February, while Treasury money fund assets totaled another $1.197 trillion (26.2%), up from $866 billion the prior month. Government money fund portfolios were made up of 40.8% US Govt Agency Debt, 17.3% US Government Agency Repo, 15.4% US Treasury debt, 25.9% in US Treasury Repo, 0.2% in VRDNs, 0.2% in Investment Company and 0.1% in Other Instrument. Treasury money funds were comprised of 72.2% US Treasury debt and 27.7% in US Treasury Repo. Government and Treasury funds combined now total $3.598 trillion, or 78.9% of all taxable money fund assets.

European-affiliated holdings (including repo) fell by $140.7 billion in March to $627.6 billion; their share of holdings fell to 13.8% from last month's 20.0%. Eurozone-affiliated holdings fell to $400.0 billion from last month's $492.5 billion; they account for 8.8% of overall taxable money fund holdings. Asia & Pacific related holdings fell by $35.2 billion to $301.1 billion (6.6% of the total). Americas related holdings fell $1.0 billion to $2.626 trillion and now represent 79.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $311.5 billion, or 43.0%, to $1.036 billion, or 22.7% of assets); US Government Agency Repurchase Agreements (down $71.1 billion, or -13.5%, to $456.5 billion, or 10.0% of total holdings), and Other Repurchase Agreements (down $15.2 billion, or -25.7%, from last month to $44.2 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $20.0 billion to $10.2 billion, or 3.9% of assets), Asset Backed Commercial Paper (down $12.6 billion to $58.7 billion, or 1.3%), and Non-Financial Company Commercial Paper (up $8.5 billion to $64.2 billion, or 1.4%).

The 20 largest Issuers to taxable money market funds as of March 31, 2020, include: the US Treasury ($1,341.5 billion, or 29.4%), Federal Home Loan Bank ($733.1B, 16.1%), Federal Reserve Bank of New York ($284.3B, 6.2%), Fixed Income Clearing Co ($264.2B, 5.8%), RBC ($147.4B, 3.2%), BNP Paribas ($122.8B, 2.7%), Federal Home Loan Mortgage Co ($111.5B, 2.4%), Federal Farm Credit Bank ($111.1B, 2.4%), JP Morgan ($93.9B, 2.1%), Federal National Mortgage Association ($86.3B, 1.9%), Mitsubishi UFJ Financial Group Inc ($70.9B, 1.6%), Sumitomo Mitsui Banking Co ($59.8B, 1.3%), Barclays ($58.2B, 1.3%), Citi ($53.1B, 1.2%), Wells Fargo ($49.7B, 1.1%), Bank of America ($44.2B, 1.0%), Bank of Montreal ($43.6B, 1.0%), Canadian Imperial Bank of Commerce ($42.8B, 0.9%), Credit Agricole ($42.8B, 0.9%) and Societe Generale ($42.7B, 0.9%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($284.3B, 18.5%), Fixed Income Clearing Co ($264.2B, 17.2%), RBC ($119.4B, 7.8%), BNP Paribas ($112.1B, 7.3%), JP Morgan ($85.5B, 5.6%), Mitsubishi UFJ Financial Group ($47.7B, 3.1%), Citi ($44.7B, 2.9%), Sumitomo Mitsui Banking Corp ($42.6B, 2.8%), Barclays ($42.1B, 2.7%) and Wells Fargo ($41.6B, 2.7%). Fed Repo positions among MMFs on 3/31/20 included: Goldman Sachs FS Govt ($25.0B), Fidelity Cash Central Fund ($20.7B), Fidelity Inv MM: Govt Port ($18.7B), BlackRock Lq T-Fund ($18.6B), Wells Fargo Govt MM ($17.4B), JPMorgan US Govt MM ($16.0B), Fidelity Inv MM: Treas Port ($12.8B), Vanguard Market Liquidity Fund ($14.1B), Morgan Stanley Inst Liq Govt ($10.6B) and JPMorgan US Treas Plus MMkt ($10.1B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($28.0B, 5.4%), Bank of Nova Scotia ($26.6B, 5.1%), Toronto-Dominion Bank ($24.5B, 4.7%), Mitsubishi UFJ Financial Group ($23.2B, 4.4%), Svenska Handelsbanken ($22.1B, 4.3%), Canadian Imperial Bank of Commerce ($20.3B, 3.9%), Credit Suisse ($18.1B, 3.5%), Mizuho Corporate Bank Ltd ($17.4B, 3.3%), Sumitomo Mitsui Banking Co ($17.2B, 3.3%) and Bank of Montreal ($16.8B, 3.2%).

The 10 largest CD issuers include: Bank of Montreal ($15.2B, 7.2%), Sumitomo Mitsui Banking Co ($14.8B, 7.0%), Mitsubishi UFJ Financial Group Inc ($14.4B, 6.8%), Toronto-Dominion Bank ($11.6B, 5.5%), Svenska Handelsbanken ($10.8B, 5.1%), Bank of Nova Scotia ($10.3B, 4.9%), DZ Bank ($9.5B, 4.5%), Mizuho Corporate Bank ($9.5B, 4.5%), Sumitomo Mitsui Trust Bank ($8.2B, 3.9%) and Wells Fargo ($7.7B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($22.3B, 8.9%), Societe Generale ($13.9B, 5.6%), Toronto-Dominion Bank ($12.8B, 5.1%), Canadian Imperial Bank of Commerce ($12.2B, 4.9%), Bank of Nova Scotia ($10.4B, 4.2%), Credit Suisse ($8.7B, 3.5%), JP Morgan ($8.4B, 3.4%), BNP Paribas ($8.3B, 3.3%), Barclays ($7.5B, 3.0%) and Australia & New Zealand Banking Group ($7.2B, 2.9%).

The largest increases among Issuers include: the US Treasury (up $303.1B to $1.342 trillion), Federal Home Loan Bank (up $175.6B to $733.1B), Federal National Mortgage Association (up $63.6B to $86.3B), Fixed Income Clearing Corp (up $63.4B to $264.2B), Federal Home Loan Mortgage Corp (up $26.4B to $111.5B), Federal Farm Credit Bank (up $24.4B to $111.1B), RBC (up $7.3B to $147.4B), Citi (up $7.1B to $53.1B), JP Morgan (up $5.9B to $93.9B) and Svenska Handelsbanken (up $4.6B to $22.1B).

The largest decreases among Issuers of money market securities (including Repo) in March were shown by: Credit Agricole (down $38.6B to $42.8B), Goldman Sachs (down $32.1B to $12.3B), Barclays PLC (down $28.3B to $58.2B), Wells Fargo (down $16.7B to $49.7B), Mizuho Corporate Bank Ltd (down $14.2B to $27.9B), Natixis (down $11.3B to $29.8B), HSBC (down $9.6B to $42.6B), Societe Generale (down $9.2B to $42.7B), Bank of America (down $8.1B to $44.2B) and Toronto-Dominion Bank (down $7.0B to $37.8B).

The United States remained the largest segment of country-affiliations; it represents 72.2% of holdings, or $3.294 trillion. Canada (7.3%, $332.1B) was number two, and France (5.6%, $255.5B) was third. Japan (5.3%, $240.6B) occupied fourth place. The United Kingdom (3.0%, $138.2B) remained in fifth place. Germany (1.6%, $71.8B) was in sixth place, followed by The Netherlands (1.4%, $61.9B), Australia (1.0%, $47.6B), Sweden (0.9%, $41.7B) and Switzerland (0.8%, $35.5B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of March 31, 2020, Taxable money funds held 40.5% (up from 38.1%) of their assets in securities maturing Overnight, and another 12.5% maturing in 2-7 days (down from 15.3% last month). Thus, 53.0 % in total matures in 1-7 days. Another 15.6% matures in 8-30 days, while 11.0% matures in 31-60 days. Note that over three-quarters, or 79.6% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 7.4% of taxable securities, while 9.2% matures in 91-180 days, and just 3.8% matures beyond 181 days.

Online money fund trading "portal" ICD hosted a webinar entitled, "Money Market Update: Finding Normal" yesterday, which was hosted by ICD's Jason Owen and which featured UBS Asset Management's Rob Sabatino and Crane Data's Peter Crane. The session discussed the latest in money market fund developments, with a heavy emphasis on March's market turmoil. When comparing the Coronavirus Panic to the Great Recession, Sabatino commented, "If you look at 2008, there was fear of insolvency, whereas this crisis was more of a market illiquidity event with tremendous uncertainty given how quickly the crisis came on. There was no signaling and there was no ability for people to understand how significant Covid-19 would be, and how it would play out in the market.... This time we weren't concerned about downgrades and the bankruptcy of any of the issuers in the money market space. What we really had was a lack of liquidity and the fear that ... outflows from funds ... would use up all of our excess liquidity."

He continued, "There was a lot of concern around that 30% [weekly liquid assets mandate].... But the key here is that it's up to the board's discretion.... At no time did we anticipate any money funds putting up a gate or enacting liquidity fees, because we still had tremendous amount of ability to meet redemption spreads. If you think about 30% of the assets being in that liquid bucket, that's a lot of outflow that you could see and not even have to worry. But we're always concerned about investor sentiment, what they would be focused on.... We did see a migration out of prime funds into what's perceived the safe haven of government and treasury funds, but now things have settled down."

Sabatino added, "I think one of the benefits we had with this crisis was the Fed and Treasury understood what needed to be done. They were able to quickly act and resurrect some programs, create new programs and return some stability to the markets, that was key to getting through the last few weeks."

Crane commented, "I think [the bucketing of liquidity] was one of the things that really helped in this crisis too. You have such huge government money fund tranches in the first place that the prime funds didn't have to be hit so hard and so fast with those liquidity needs. Investors could sort of pay out of them as things came due.... The size of the markets helped, too.... Back in 2008, commercial paper, including asset-backed commercial paper, was $2 trillion. It's now $1 trillion (or was). Prime funds were up there at $2 trillion, and they're now $1 trillion (or were before this started). So, they had smaller problems.... The immediate threat in the Commercial Paper market was more towards other pools beyond money funds.... But because money funds are all buying bank debt in the "credit" (or Prime) funds, they had immediate access to the Fed.... The jury's going to be out for a while on whether the reforms worked or not."

He also told the ICD audience, "The reforms of 2011 and 2014, that went into effect in 2016, didn't remove the ability for sponsors to support the fund, and we saw a couple of managers step in and purchase securities just to provide liquidity. They knew it was all 'money good'. There had been no defaults or major downgrades in the space. So that tool for U.S. money funds was very important. I'm a positive spin guy with this business, as you all know.... You can really argue that the reforms worked like a charm here, that the NAVs bent but they did not break or 'break the buck.' They eroded down and they came back up as those securities paid off. The Fed actions worked well."

Crane also said, "Given Prime funds' slow steady recovery following the big shift in 2016, this may be a setback, and [recovery] may take longer. But ... as these Government Institutional funds start hitting zero, the Prime recovery may be faster than expected, because pretty soon people are going to forget the danger and start starving and searching and for yield."

On negative yields, Sabatino explained, "There were a few weeks there that we were very concerned about our Treasury and Government funds. Given the fact that there is such demand for safe haven, high quality assets that we saw most of the Treasury bill curve trade negative. There were points where some of the bills were being offered at negative 15, 20 basis points.... Now that we've had this massive new issuance -- over the last two weeks we've had a net increase in bill supply of over $600 billion -- the market has adjusted fairly well.... As assets flow into these funds, the yields are impacted because we're investing at current market rates. So, we do see the gross yields on Treasury and Government funds slowly decline. But at this point, now for most of the institutional investors and portal investors who are in low fee funds, I don't anticipate much of a problem."

Finally, Sabatino commented, "The Fed has made it clear that they, unlike parts of Europe, don't really see the usefulness of having negative interest rates. At this point, the Treasury auctions can only come at zero or positive, they can't even come at a negative rate.... I'm hopeful that we won't get to negative rates, but clearly over time we could see rates on government and Treasury bonds close to zero."

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be released later Thursday, and we'll be writing our normal monthly update on the March 31 data for Monday's News. (We're closed, along with the money markets, for Good Friday.) But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings, and we posted these to the website Wednesday. (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 March 31, 2020, includes holdings information from 1,078 money funds (down four from last month), representing assets of a record $4.759 trillion (up a massive $727.7 billion). We review the latest N-MFP data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1.551 trillion (up from $1.326 trillion), or 32.6% of all assets. Treasury holdings total $1.359 trillion (up from $1.047 trillion), or 28.6%, and Government Agency securities totaled $1.072 trillion (up from $777.1 billion), or 22.5%. Holdings of Treasuries, Government agencies and Repo (the vast majority of which is backed by Treasuries and agencies) combined total $3.982 trillion, or 83.7% of all holdings.

Commercial paper (CP) totals $313.6 billion (down from $338.2 billion), or 6.6%, and Certificates of Deposit (CDs) total $216.1 billion (down from $292.1 billion), or 4.5%. The Other category (primarily Time Deposits) totals $143.0 billion (down from $156.8 billion), or 3.0%, and VRDNs account for $103.5 billion (up from $94.1 billion last month), or 2.2%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $190.3 billion, or 4.0%, in Financial Company Commercial Paper; $52.8 billion or 1.1%, in Asset Backed Commercial Paper; and, $70.5 billion, or 1.5%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1,041B, or 21.9%), U.S. Govt Agency Repo ($464.6B, or 9.8%) and Other Repo ($45.0B, or 0.9%).

The N-MFP Holdings summary for the 221 Prime Money Market Funds shows: CP holdings of $308.3 billion (down from $332.3 billion), or 31.4%; CD holdings of $216.1 billion (down from $292.1 billion), or 22.0%; Repo holdings of $169.1 billion (down from $220.6 billion), or 17.2%; Treasury holdings of $109.8 billion (up from $103.4 billion), or 11.2%; Other (primarily Time Deposits) holdings of $97.4 billion (down from $107.9 billion), or 9.9%; Government Agency holdings of $69.7 billion (up from $45.0 billion), or 7.1%; and VRDN holdings of $11.1 billion (up from $5.2 billion), or 1.1%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $190.3 billion (down from $209.9 billion), or 19.4% in Financial Company Commercial Paper; $52.8 billion (down from $63.4 billion) or, 5.4% in Asset Backed Commercial Paper; and $65.2 billion (up from $59.0 billion), or 6.6% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($83.0 billion, or 8.5%), U.S. Govt Agency Repo ($41.1 billion, or 4.2%), and Other Repo ($45.0 billion, or 4.6%).

Crane Data's latest Money Fund Market Share rankings show assets jumped for almost every U.S. money fund complex in March. Money market fund assets skyrocketed $652.7 billion, or 14.1%, last month to $4.622 trillion. Assets have risen by $666.9 billion, or 16.9%, over the past 3 months, and they've increased by $1.317 trillion, or 39.8%, over the past 12 months through Mar. 31, 2020. The biggest increases among the 25 largest managers last month were seen by Fidelity, Goldman Sachs, Morgan Stanley, JP Morgan, BlackRock and Federated, which increased assets by $101.5 billion, $82.5B, $70.6B, $61.4B, $56.3B and $50.6B, respectively. Declines in assets among the largest complexes in March were seen by Schwab and DWS, which decreased by $1.3B and $481M, 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 March.

Over the past year through March 31, 2020, Fidelity (up $242.7B, or 36.2%), Federated (up $125.1B, or 51.3%), JP Morgan (up $121.3B, or 41.0%), Goldman Sachs (up $120.0B, or 59.9%), BlackRock (up $119.8B, or 42.4%), American Funds (up $100.1B, or 572.2%; this was inflated by the addition last year of the $108 billion American Funds Central Cash Fund) and Morgan Stanley (up $91.6B, or 82.2%) were the largest gainers. These complexes were followed by Vanguard (up $68.8B, or 18.5%), SSGA (up $58.5B, or 67.9%), Wells Fargo (up $57.9B, or 53.2%) and Schwab (up $43.4B, or 27.5%).

Fidelity, Morgan Stanley, Goldman Sachs, JP Morgan and BlackRock had the largest money fund asset increases over the past 3 months, rising by $118.2B, $66.6B, $64.8B, $59.9B and $49.9B, respectively. Decliners over 3 months included: American Funds (down $4.5B, or -3.7%), Franklin (down $2.2B, or -11.7%) and PGIM (down $1.8B, or -10.5%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with a record $914.1 billion, or 19.8% of all assets. (Its flagship Fidelity Government Cash Reserves broke the $200 billion level, the first time ever for a money fund.) Fidelity was up a breathtaking $101.5 billion in March, up $118.2 billion over 3 mos., and up $242.7B over 12 months. Vanguard ranked second with $441.2 billion, or 9.5% market share (up $25.3B, up $37.9B and up $68.8B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $416.8 billion, or 9.0% market share (up $61.4B, up $59.9B and up $121.3B). BlackRock ranked fourth with $402.6 billion, or 8.7% of assets (up $56.3B, up $49.9B and up $119.8B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $369.0 billion, or 8.0% of assets (up $50.6B, up $48.5B and up $125.1B).

Goldman Sachs remained in sixth place with $320.2 billion, or 6.9% of assets (up $82.5 billion, up $64.8B and up $120.0B), while Morgan Stanley was in seventh place with $203.1 billion, or 4.4% (up $70.6B, up $66.6B and up $91.6B). Schwab ($201.3B, or 4.4%) was in eighth place (down $1.3B, up $2.8B and up $43.4B), followed by Dreyfus ($187.3B, or 4.1%, up $28.0B, up $28.5B and up $30.3B). Wells Fargo was in 10th place ($166.7B, or 3.6%; up $36.3B, up $35.2B and up $57.9B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($156.3B, or 3.4%), SSGA ($144.7B, or 3.1%), American Funds ($117.6B, or 2.5%), First American ($92.2B, or 2.0%), Invesco ($84.3B, or 1.8%), UBS ($70.4B, or 1.5%), T Rowe Price ($46.1B, or 1.0%), HSBC ($31.8B, or 0.7%), Western ($30.5B, or 0.7%) and DWS ($28.4B, 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 match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, Dreyfus moves ahead of Schwab and Northern moves ahead of Wells Fargo. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($923.3 billion), J.P. Morgan ($590.0B), BlackRock ($572.2B), Vanguard ($441.2B) and Goldman Sachs ($439.8B). Federated ($379.6B) was sixth, Morgan Stanley ($235.0B) was in seventh, followed by Dreyfus/BNY Mellon ($215.5B), Schwab ($201.3B) and Northern ($182.7B) 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 April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/31/20, shows that yields plunged in March for all of our Crane Money Fund Indexes, with the exception of Tax Exempts. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 753), fell 80 basis points to 0.47% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 47 bps to 0.81%. The MFA's Gross 7-Day Yield was down 80 bps to 0.88%, while the Gross 30-Day Yield fell 47 bps 1.22%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.47% (down 94 bps) and an average 30-Day Yield that decreased by 57 bps to 0.85%. The Crane 100 shows a Gross 7-Day Yield of 0.74% (down 94 bps), and a Gross 30-Day Yield of 1.12% (down 57 bps). Our Prime Institutional MF Index (7-day) yielded 0.74% (down by 74 bps) as of March 31, while the Crane Govt Inst Index was 0.39% (down 97 bps) and the Treasury Inst Index was 0.32% (down 98 bps). Thus, the spread between Prime funds and Treasury funds is 42 basis points, while the spread between Prime funds and Govt funds is 35 basis points. The Crane Prime Retail Index yielded 0.77% (down 53 bps), while the Govt Retail Index was 0.46% (down 59 bps) and the Treasury Retail Index was 0.08% (down 97 bps). The Crane Tax Exempt MF Index yield jumped in March to 2.92% (up 2.18%).

Gross 7-Day Yields for these indexes in March were: Prime Inst 1.06% (down 74 bps), Govt Inst 0.66% (down 97 bps), Treasury Inst 0.64% (down 98 bps), Prime Retail 1.26 (down 53 bps), Govt Retail 1.05% (down 59 bps) and Treasury Retail 0.65% (down 97 bps). The Crane Tax Exempt Index increased 2.18% to 3.37%. The Crane 100 MF Index returned on average 0.07% over 1-month, 0.30% over 3-months, 0.30% YTD, 1.78% over the past 1-year, 1.55% over 3-years (annualized), 1.00% over 5-years, and 0.52% over 10-years. The total number of funds, including taxable and tax-exempt, increased by two to 934. There are currently 753 taxable funds, two more than the previous month, and 181 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The April issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Govt MMFs Skyrocket; Prime Reels Over Coronavirus Crisis," which reviews the dramatic moves in money fund assets in March; "Federated's Cunningham on Front Lines of Cash Crisis," which profiles the Federated Hermes MM CIO; and, "Worldwide MF Assets Jump to $6.9 Tril; US Surges, China," which looks at ICI's latest global money fund statistics. We've also updated our Money Fund Wisdom database with March 31 statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to ship on Thursday, April 9, and our April Bond Fund Intelligence is scheduled to go out Wednesday, April 15.

MFI's "Govt MMFs Skyrocket" article says, "Money market mutual fund assets showed their biggest asset gain in history in March, skyrocketing by $652.7 billion, or 16.4%, to a record $4.624 trillion. Government MMFs (including Treasury funds) rose a stunning $813.3 billion (29.6%) to $3.563 trillion, while Prime MMFs fell by $152.0 billion to $929.6 billion last month. In comparison, during September 2008, when Reserve Primary Fund "broke the buck" and MMFs saw $160.1 billion in outflows (to $3.203 trillion), Prime MMFs fell by almost 3 times as much then, $447.6 billion, as they did in March 2020. Govt MMFs jumped by just $324.6 billion back during that tumultuous September of 2008, according to our MFI XLS."

We explain, "ICI's weekly assets series also showed these stunning gains. (See ICI's series in the chart on p.1 and see the flows from our MFI Daily in the chart at right). They show money market mutual fund assets surging to record levels in the latest week (through April 1), though the inflows didn't match the previous week's massive $285.7 billion inflow. (It was the second largest inflow ever though.)"

Our latest "profile" reads, "This month, MFI interviews Deborah Cunningham, Federated Hermes' Executive VP & CIO of Liquidity Products. We ask her about the crazy month of March, and about the current state of the money fund sector, flows and the Fed's support programs. Our Q&A follows."

MFI says, "Give us a little history. Cunningham tells us, "I've seen 17% interest rates and 17 basis point interest rates, and neither one of them are healthy. I've been in the industry for the better part of four decades, and worked my way from accounting into the investment group through the credit area. I've been on the portfolio management side now for 25 years."

We ask, "How are you holding up?" She responds, "Well, things have definitely gotten better. I think the worst days were in the beginning of the week of [March] 16th ... then things started to get better a little bit better on [March 19-20]. I would say the markets definitely turned a corner to some degree on Monday [March 23]."

Cunningham adds, "For Treasury securities, the worst days were last week after the massive decrease in yields, but without any real additional volume in Treasury securities yet. Ultimately, you were able to keep positive yields by participating in the primary issuance of bills. But to try to buy anything in the secondary without going into negative territory was almost an impossibility. With the stimulus package ... and the additional bill issuance ... that sector is now much healthier."

The "Worldwide" article tells readers, "The Investment Company Institute's latest 'Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2019' release shows that money fund assets globally rose by $311.2 billion, or 4.7%, in Q4'19 to a record $6.937 trillion. The increase was driven by big gains in U.S.-based money funds, and increases in Ireland-, China- and Luxembourg-based money funds. MMF assets worldwide have increased by $860.7 billion, or 14.2%, the past 12 months, and money funds in the U.S. now represent 52.4% of worldwide assets. (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.)"

The latest MFI also includes the News brief, "Money Fund Yields Headed to Zero," which writes, "After a panic 100 bps rate cut on March 16, money fund yields dropped below the 1.0% the following day and fell below 0.5% by month-end. And they're still falling. Yields on Government money funds plunged (and a Treasury fund closed to new investors), while Prime MMF barely fell (driving spreads to their widest ever). Our flagship Crane 100 Money Fund Index is now 0.41% (as of 4/6) according to Money Fund Intelligence Daily."

A second News piece titled, "Bill Gives Treasury Temporarily MMF Guarantee, But Need Has Passed," says, "In the depths of the latest money market crisis, the U.S. Treasury sought approval from Congress to launch a program to guarantee money market mutual funds for the second time in history. But as the Federal Reserve stepped in with myriad support programs and after a delay in the CAREs bill, it appears the guarantee won't be needed. (Knock on wood.) See Crane Data's March 19 and April 6 News and WSJ's 'Treasury Department Asks Congress to Let It Backstop Money Markets.'"

Our April MFI XLS, with Mar. 31 data, shows total assets jumped by $652.7 billion in March to $4.624 trillion, after rising $23.4 billion in February, falling $7.8 billion in January and rising $72.7 billion in December. Our broad Crane Money Fund Average 7-Day Yield fell 80 bps to 0.47% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 94 bps to 0.47%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 80 bps at 0.88% and the Crane 100 fell to 0.74%. Charged Expenses averaged 0.41% (unchanged from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 33 (up two days) and 35 days (up two days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Former Fidelity Investments President Robert Pozen wrote an Opinion piece for MarketWatch entitled, "What to know about how the coronavirus crisis will impact your money market fund," which tells us that "Government intervention should be enough to keep your money safe." He comments, "As the coronavirus pandemic topples stock markets, many U.S. investors have sought safety in money market funds. They may be forgetting that during the financial crisis of 2008, the net asset value of one large money market fund dropped below $1 per share. This event, called 'breaking the buck', triggered a stampede out of money market funds -- except for those investing primarily in U.S. Treasurys."

The piece asks, "Are money market funds any safer now for investors? The debt markets are being riled by the threat of defaults and illiquidity. Yet in my view, the answer is definitely yes, money market funds are safe -- not only funds investing only in U.S. government-guaranteed securities, but also funds investing in top-quality commercial paper and funds investing in top-quality municipal securities."

It continues, "On the other hand, the risks to investors in both prime- and muni money market funds are greater than those in government money market funds. The most significant risk is that several securities in the fund's portfolio may default or, more likely, drop sharply in price due to concerns about the creditworthiness of the issuer. SEC rules prohibit these money market funds from investing more than a specified percentage of their assets in the securities of any one issuer. Nevertheless, if several of a fund's largest holdings experience a sharp price drop at the same time, this could result in the fund 'breaking the buck.'"

Pozen writes, "To address this risk, the COVID-19 legislation reinstated the U.S. Treasury's authority to offer government insurance against shareholder losses in a U.S.-based money market fund. However, the new Treasury authority for money market fund insurance expires at the end of 2020. Moreover, the scope of the government insurance offered by the U.S. Treasury is limited to 'the value of a shareholder's account in the participating fund as of the close of business on the day before the announcement of the guarantee.'" (Editor's Note: We think this last statement is from the 2008-2009 Treasury Guarantee program, and don't think the current one has been activated or has had terms discussed yet.)

Finally, he adds, "In short, these extraordinary steps recently taken by the federal government should effectively protect shareholders of all types of money market funds. Under the COVID-19 legislation, the Treasury will soon offer federal insurance against losses for shareholders in money markets. The Fed has created a major facility to help money market funds sell illiquid assets for cash. And the SEC has allowed sponsors and managers of money market funds to purchase troubled or illiquid assets from their own funds."

The recent passage of the "CARES Act," also known as the "Coronavirus Aid, Relief, and Economic Security Act," lists its mission, "To provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic." Its "Section 5001," states, "Non-applicability of restrictions on ESF during national emergency. Section 131 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5236) shall not apply during the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.)."

The bill explains, "The Emergency Economic Stabilization Act of 2008" (12 U.S.C 5236) previously mentioned states, "The Secretary shall reimburse the Exchange Stabilization Fund established under section 5302 of title 31 for any funds that are used for the Treasury Money Market Funds Guaranty Program for the United States money market mutual fund industry, from funds under this chapter.... The Secretary is prohibited from using the Exchange Stabilization Fund for the establishment of any future guaranty programs for the United States money market mutual fund industry."

For more see these Crane Data News articles: Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF (3/19/20), Government Money Funds Ditch Treasury Guarantee Writes (4/17/09), Largest Money Funds All Renew Treasury Guarantee for Prime Funds (4/15/09), Fidelity, Federated, AIM Renew Treasury Guarantee; Drop Govt Funds? (4/14/09), An(other) Offer Funds Couldn't Refuse: All Renew Treasury Guarantee (12/7/08), JPMorgan, UBS Add Treasury Guarantee; 9 of 11 Largest Now Signed (10/3/08), "Money Market Funds Tackle 'Exuberant Irrationality'" Says S&P (10/1/08), Treasury Guarantee Program for Money Funds Live, Fee Is One Bps (9/29/08).

In other news, Crane Data has moved the dates for its "big show" Money Fund Symposium from June to August due to the coronavirus pandemic and widespread corporate travel bans. Crane's Money Fund Symposium is now scheduled for August 24-26, 2020, at the Hyatt Regency Minneapolis. (It had been scheduled for June 24-26.) We'll continue to watch events carefully in coming weeks, and we'll be prepared to move again (perhaps to Nov. 18-20), to cancel, and/or to webcast if the pandemic persists. In the meantime, our planning goes on.

The latest agenda is available and registrations are still being taken at: (Registrations for the June show have been transferred to the new August dates, and June hotel reservations were cancelled if you made them through our room block.) Full refunds or credit will be given for anyone who needs to cancel or isn't sure about travelling, and we'll keep you updated on our plans.

We're also making preparations for our next European Money Fund Symposium, which is scheduled for Sept. 17-18, 2020, in Paris, France. But we'll be watching travel restrictions to Europe closely in coming months (and may have to shift or cancel this too). Let us know if you'd like more details on any of our events, and we hope to see you in Minneapolis (or Paris) late this summer!

Finally, mark your calendars for next year's Money Fund University, which will be Jan. 21-22, 2021, in Pittsburgh, Pa, and our next Bond Fund Symposium, which is scheduled for March 25-26, 2021 in Newport Beach, Calif. Watch for details in coming months, and let us know if you're interested in sponsoring or speaking, and contact us if you have any feedback or questions. Attendees to MFU and Crane Data subscribers may access the latest recordings, Powerpoints and binder materials here:

Now that the danger of a money fund "breaking the buck" or a run on Prime assets has passed (knock on wood), attention in the cash sector is turning to the next potential threat -- negative yields. Earlier this week, Invesco Fixed Income's Laurie Brignac and Rob Corner wrote, "Negative Rates: Could it happen in the US?" They explain, "Questions about the possibility of negative rates in the US have arisen due to the quick and pivotal actions of the US Federal Reserve (Fed) prompted by the economic impact of COVID-19 and subsequent sharp decline in US Treasury yields. We believe the probability of the Fed adopting a negative interest rate policy (NIRP) regime is highly unlikely in the near-term.... Perception of the Fed moving to negative interest rates would cause confusion and even more market upheaval. The Fed has said it's unlikely and raised questions about adverse effects.... Last, a switch by the Fed to a negative interest rate regime would likely significantly impact the US money market fund industry, which is an outcome we believe policy makers do not want."

Invesco's note continues, "Negative yielding, short-term US Treasury securities have occurred historically in the US, very briefly, at key month and quarter-end dates but have not been pervasive in the US markets. More recently, however, we have seen US Treasury securities offered at negative yields across much of the short-term maturity spectrum. We believe the Fed and US Treasury could actively intervene to avoid negative rates from persisting at the short end of the yield curve."

They explain, "The US money market fund industry has already operate efficiently in a zero, or near zero, interest rate environment through waivers and expense reductions. Invesco successfully navigated this environment from 2009 to 2015. If negative rates were to occur and persist and gross yields on money market funds fell below zero, money market funds could implement, with guidance and approval from the Securities and Exchange Commission (SEC), reverse stock splits or reverse distribution mechanisms (RDM) such as share cancellation. Although the SEC has not provided guidance with regards to RDM, Invesco is prepared to adopt this method in the US if negative rates become a reality."

Invesco's piece adds, "We believe an industry shift to RDMs would not happen quickly. Regulatory guidance and disclosures would need to be communicated, systems may need to be updated and clients would need an advance notice period for an orderly transition. Under this regime, money market funds would continue to transact at a $1.00, using RDMs like share cancellation. In our opinion, this scenario is extremely unlikely as we belief it is a path that policy makers do not want to walk."

In mid-March, J.P. Morgan Securities also commented on negative yields in their "Short-Term Fixed Income" and asked, "What happens at zero?" They explain, "We think negative policy rates are unlikely, even in a very weak environment. Not only because there is some question as to whether the Federal Reserve Act even permits the Fed to charge interest on reserves, but also because Congress and the public would surely push back against negative interest rates."

The piece states, "In December 2008, the Fed lowered policy rates to the effective lower bound of 0.00%-0.25%, setting IOER at 0.25%. The decision to move to a range was in large part due to uncertainties around money market functioning at very low levels. However, in the following seven years that the Fed kept rates at the lower bound, domestic money market functioning was generally orderly. To be sure, the decision on the part of MMF managers to waive MMF fees helped significantly. Even as MMF gross yields plummeted to the single digits, MMFs still eked out barely noticeable net positive returns to shareholders.... Managers effectively absorbed the costs of running a MMF to avoid negative yields, and kept cash within the MMF industry. We suspect MMFs will look to waive fees again this time around, and thus give the Fed some comfort that the money markets will continue to function even if IOER falls to zero."

JPM adds, "That said, it's worth noting that the money market industry has changed considerably since rates were previously at the zero lower bound. More specifically, $1tn of cash has moved from prime to government MMFs as a result of MMF reform in 2016. More recently, cash has continued to pile into MMFs, particularly into government MMFs, as markets de-risk and the inversion of the yield curve has prompted investors to stay very short duration.... This means there is significantly more demand for T-bills and Treasury repo now than ever before."

Finally, they tell us, "[C]an MMFs go negative? In Europe, where negative rates have become the norm, MMFs have successfully coped with negative yields by employing a reverse distribution mechanism (RDM). This method allows MMFs to pass on negative interest rates to underlying shareholders by cancelling shares instead of directly charging shareholders. The assets of the cancelled shares are then split among the remaining ones, ensuring that the value per share remains at par or stable, and doesn't break the buck. The tool has proven successful in maintaining cash in EUR-denominated MMFs prior to European MMF reform. Presumably, US MMFs could employ a similar strategy for government MMFs but given the significant market size differences, it may be easier said than done. Not to mention, this is probably something that the SEC, the regulator for MMFs, would likely need to opine on."

For more on money funds and negative yields, see these Crane Data News articles: BofA ML on Negative Yields, Fitch on Angst, and Moody's on Anxiety (2/8/16), European MMF Update: IMMFA on Negative Yields, PwC on Regs, IFIA (3/23/15), Euro Money Fund Update: Negative Yields Arrive, But Assets Jump (11/14/14), Moody's Reviews Euro Money Fund Preparations for Negative Yields (3/15/13), S&P on Implications of Negative Yields For European Money Funds (7/17/12) and More on Ultra-Low Treasury Rates, Fee Waivers and Negative Yields (1/7/9).

In other news, money market mutual fund assets again surged to record levels in the past week, though the inflows didn't match the previous week's massive $285.7 billion inflow. (It was the second largest inflow ever though.) ICI's latest weekly "Money Market Fund Assets" report explains, "Total money market fund assets increased by $175.29 billion to $4.40 trillion for the week ended Wednesday, April 1, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $173.75 billion and prime funds decreased by $4.69 billion. Tax-exempt money market funds increased by $6.24 billion."

ICI's stats show Institutional MMFs rising $162.7 billion and Retail MMFs increasing $12.6 billion. Total Government MMF assets, including Treasury funds, were $3.613 trillion (82.2% of all money funds), while Total Prime MMFs were $654.3 billion (14.9%). Tax Exempt MMFs totaled $129.9 billion, 3.0%. Money fund assets are up $765 billion, or 21.1%, year-to-date in 2020, and they've increased for 8 weeks in a row and in 12 out of the last 15 weeks. Over the past 52 weeks, ICI's money fund asset series has increased by $1.290 trillion, or 41.5%, with Retail MMFs rising by $305 billion (25.0%) and Inst MMFs rising by $985 billion (52.2%).

They explain, "Assets of retail money market funds increased by $12.60 billion to $1.52 trillion. Among retail funds, government money market fund assets increased by $12.93 billion to $976.29 billion, prime money market fund assets decreased by $4.82 billion to $430.84 billion, and tax-exempt fund assets increased by $4.49 billion to $116.88 billion." Retail assets account for over a third of total assets, or 34.7%, and Government Retail assets make up 64.1% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $162.69 billion to $2.87 trillion. Among institutional funds, government money market fund assets increased by $160.81 billion to $2.64 trillion, prime money market fund assets increased by $131 million to $223.47 billion, and tax-exempt fund assets increased by $1.74 billion to $13.06 billion." Institutional assets accounted for 65.3% of all MMF assets, with Government Institutional assets making up 91.8% of all Institutional MMF totals.

Money market mutual fund assets showed their biggest asset gain in history in March, skyrocketing by $624.9 billion to a record $4.591 trillion. Government MMFs rose a stunning $790.4 billion to $3.521 trillion, while Prime MMFs fell by $159.6 billion to $935.6 billion last month. In comparison, during September 2008, when Reserve Primary Fund "broke the buck" and MMFs saw $160.1 billion in outflows (to $3.203 trillion), Prime MMFs fell by almost 3 times as much then, $447.6 billion, as they did in March 2020. Government MMFs jumped by just $324.6 billion back during that tumultuous September of 2008. Tax Exempt MMFs, who have seen yields go through the roof, saw assets fall by $5.8 billion last month to $133.9 billion.

Our Money Fund Intelligence Daily, with data as of March 31, shows money fund assets have risen $160.6 billion over the past week (up $18.3 billion Monday) with Prime assets down $14.5 billion (down $4.5 billion Monday) and Government assets up $171.8B in the latest week (up $22.4 billion Monday). Tax-Exempt MMFs increased $3.3 billion in the past week. Given Monday was also quarter end and that the April 15 tax deadline has been postponed until July 15, money funds don't have any more seasonal outflow periods coming up until June, so flows should remain strong overall (and Prime outflows appear to be over).

Meanwhile in March, Taxable yields plunged and Tax Exempt yields skyrocketed. Our Crane 100 Money Fund Index declined by 95 basis points to 0.46% (7-Day Yield, net, simple), while the broader Crane Money Fund Average slid by 83 bps to 0.47%. Over the past week through March 31, the Crane 100 has declined 12 bps while the Crane MFA has fallen 10 bps. Spreads have never been wider between Government and Treasury money funds and Prime MMFs. Treasury Inst MMF fell 102 bps in March to 0.30%, while Government Inst MMF yields fell 95 bps to 0.43%. Prime Inst MMF yields, on average, fell 63 bps to 0.88%. Thus, Prime Inst MMFs are yielding 58 bps over Treasury funds and 45 bps over Govt funds. Treasury Retail MMFs fell 98 bps to 0.07% (you're likely seeing fee waivers already on some of these funds), Govt Retail fell 78 to 0.30%, and Prime Retail MMFs fell 53 bps to 0.79%.

Looking at "offshore" and European money market mutual assets, Crane Data's latest MFI International shows USD, GBP and EUR MMFs all rose in the latest week. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $27.5 billion MTD to $908.1 billion. They're up by $31.5 billion year-to-date. Offshore USD money funds, which hit a record $500 billion in January, are down $18.3 billion month-to-date and down $22.6 billion YTD. Euro funds are up E7.6 billion month-to-date, and YTD they're up E12.1 billion. GBP funds have risen by L12.0 billion MTD, and are up by L9.2 billion YTD. U.S. Dollar (USD) money funds (190, up one from the previous month) account for over half ($471.9 billion, or 52.0%) of our "European" money fund total, while Euro (EUR) money funds (92, unchanged from the previous month) total E116.8 billion (12.9%) and Pound Sterling (GBP) funds (123, unchanged from the previous month) total L234.1 billion (25.8%).

In related news, a release entitled, "ESMA Announces Update to Reporting Under the Money Market Funds Regulation," tells us, "The European Securities and Markets Authority (ESMA), the EU's Securities Markets regulator, today announces that the first reports by Money Market Funds (MMF) managers under the MMF Regulation (MMFR) should be submitted in September 2020. The original date for submissions was April 2020."

It continues, "This change in timeline comes as there will be an update to the XML schemas that should be used for the reporting, and MMF managers will need additional time to comply with the reporting obligation. The requirements of Article 37 of MMF regulation require MMF managers to submit data to National Competent Authorities (NCAs), who will then transmit this to ESMA. In July 2019, ESMA published a first version of the XML schemas and reporting instructions with the first quarterly reports originally meant to be received by the NCAs by the end of April 2020."

ESMA adds, "The amended XML schema and reporting instructions will be published shortly on ESMA's website. Reporting entities should use the version v1.1 to submit reports required under Article 37 of MMF regulation. As the MMF managers have already started to prepare the first quarterly reports based on the July 2019 template, the time for the submission of the first quarterly reports to the National Competent Authorities is now postponed to September 2020. The reference period for the first reporting is still envisaged for Q1 2020. That means that the MMF Managers will have to report in September 2020 quarterly reports for both the Q1 and Q2 reporting periods." (Note: We don't think these reports will be publicly available, but let us know if you'd like to see our data collections on these funds, MFI International and MFII MF Portfolio Holdings.)

Finally, J.P. Morgan Securities summarized recent money market events and Fed support recently in its "Short-Term Fixed Income." They wrote on Friday night, "Funding stress in the US money markets was intense as the week began, and less intense as it came to a close. Money markets are far from being out of the woods, but some signs of easing emerged as the week progressed.... While the MMLF launched on Monday and helped to provide much needed liquidity to domestic prime funds, there wasn't much help for offshore funds, securities lenders reinvestment portfolios, ultra-short funds and SMAs and other credit investors in the money market space. As the week-ends, funding conditions for issuers in this corner of the money markets remain very tough."

Authors Alex Roever, Teresa Ho, Ryan Lessing and Colin Paiva explain, "Speaking of CPFF and MMLF... In conjunction with the above announcements, the Fed also made tweaks to these programs. For CPFF, eligible issuers will now also include municipal CP issuers. CPFF pricing has also been amended to OIS +110bp, which is much more attractive relative to current market pricing. For MMLF, the list of eligible assets has been expanded to include variable rate demand notes (VRDNs) and bank certificate of deposits."

They continue, "As we noted last week, CDs make up roughly 30% of prime MMFs' portfolio. Their inclusion could unlock about another ~$235bn in liquidity to help with prime funds' weekly liquidity buffers, in addition to the $100bn based on prior list of eligible assets. That said, we’d note that many CDs tend to be longer-dated and have a floating rate note structure. While the Fed has agreed to make MMLF loans to primary dealers on a nonrecourse basis, it did not absolve them from interest rate risk."

The JPM piece also asks, "How much collateral has been pledged to MMLF? This has been the most common question that we have received to date. The facility was announced late Wednesday night (3/18) and officially launched this past Monday (3/24). But even prior to the launch but after the announcement of the facility, primary dealers had already been buying eligible assets from prime MMFs to help them restore liquidity. In effect, the facility has been around for five business days and has purchased $31bn from prime MMFs. Given the immediate improvement of prime institutional MMFs' weekly liquidity bucket, this facility has been extremely effective in providing relief to prime MMFs."

Finally, their latest daily update states, "We have seen a remarkable recovery in WLAs since many funds came dangerously close to breaking the 30% threshold two weeks ago.... In fact, every fund but one is currently operating above 40% WLA. The Fed's institution of the Money Market Liquidity Facility (MMLF) allowed prime funds to sell their Tier 1 CP, CDs, and ABCP to dealers who could, in turn, receive a non-recourse loan from the Fed secured by the paper they had just bought from the prime MMF. The facility has injected sorely needed secondary market liquidity into the unsecured funding markets, to the tune of $31bn as of March 25 (we'll get updated figures for this week tomorrow). MMLF has allowed prime funds to sell their paper in a more orderly fashion so they can meet redemption requests, of which there have been many.... While the pace of outflows has slowed lately, should redemptions return, there will be liquidity for the funds that need it."

The Investment Company Institute published a study on "Trends in the Expenses and Fees of Funds, 2019," which tells us, "Average expense ratios for money market funds held steady at 0.25 percent in 2019. Despite the Federal Reserve lowering the federal funds rate in 2019, short-term interest rates remained well above zero and fund advisers kept their use of expense waivers low. Expense waivers had been offered widely during the period of near-zero short-term interest rates that had prevailed in the post–financial crisis era." (Of course, we're about to start seeing fee waivers become prevalent in money funds again -- see below.)

ICI explains, "On an asset-weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past two decades.... The average expense ratio for money market funds dropped from 0.52 percent to 0.25 percent over this period. The average expense ratio of money market funds remained unchanged for the second consecutive year at 0.25 percent in 2019. The past four years have generally been a reversal from the historical trend in which money market fund expense ratios had remained steady or fallen each year since 1996."

They continue, "After 2009 ... other factors pulled down the average expense ratios of these funds -- primarily developments that stemmed from the ultralow interest rate environment. Over 2008-2009, the Federal Reserve sharply reduced short-term interest rates. By 2009, the federal funds rate was hovering at a little more than zero. Gross yields on taxable money market funds (the yield before deducting the fund's expense ratio), which closely track short-term interest rates, fell to all-time lows. This situation remained in stasis from 2010 to late 2015."

The Expense study elaborates, "In this environment, most money market funds adopted expense waivers to ensure that net yields (the yield on a fund after deducting fund expenses) did not fall below zero.... From 2009 to 2015, advisers waived an estimated $35 billion in money market fund expenses.... It was expected that when short-term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat. That, ultimately, is what happened."

It adds, "In 2019, however, this trend reversed -- as global trade tensions intensified and expectations around future global growth fell, the Federal Reserve lowered the federal funds rate three times. These actions were reflected in short-term interest rates and gross yields on money market funds. With gross yields still well above zero, it has been less likely that the net yields of money market funds would fall below zero."

Finally, ICI writes, "Consequently, advisers have pared back the expense waivers they had provided to their money market funds. For example, in 2015, 93 percent of money market fund share classes had expense waivers, and in 2019, an estimated 76 percent of money market fund share classes had expense waivers. Additionally, the expenses waived dropped sharply from an estimated $5.9 billion in 2015 to an estimated $1.2 billion in 2019.... Expense ratios of money market funds remained unchanged in 2019 as funds continued to balance expense waivers with short-term interest rates associated with looser monetary policy."

In other expense news, we learned from newsletter Fund Action that Invesco has filed the first of what likely will be a series of disclosures preparing for fee waivers in the new about-to-be-zero yield environment. The Statement of Additional Information Supplement filing for Invesco's Money Market Funds explains, "This supplement amends the SAI for each of the above referenced funds (each, a 'Money Market Fund' and together, the 'Money Market Funds') and is in addition to any other supplement(s), unless otherwise specified. You should read this supplement in conjunction with the SAI and retain it for future reference."

It states, "The following information is added immediately after the 7th paragraph in the section titled 'Investment Advisory and Other Services' appearing under the heading 'Investment Adviser' in the SAI: Invesco has voluntarily undertaken to waive fees to the extent necessary to assist the Money Market Funds in attempting to maintain a positive yield. There is no guarantee that a Money Market Fund will maintain a positive yield. That undertaking may be amended or rescinded at any time."

Invesco adds, "The following information is added immediately after the last paragraph in the section titled 'Distribution of Securities' appearing under the heading 'Distribution Plan,' as applicable, in the SAI: Invesco Distributors has voluntarily undertaken to waive or reduce 12b-1 fees to the extent necessary to assist the Money Market Funds in attempting to maintain a positive yield. There is no guarantee that a Money Market Fund will maintain a positive yield. That undertaking may be amended or rescinded at any time." Watch for more filings in coming weeks.

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics, which track a shifting subset of our monthly Portfolio Holdings collection, yesterday. The most recent cut (with data as of March 27) includes Holdings information from 77 money funds (down 17 from a week ago), which represent $2.131 trillion (down from $2.312 trillion) of the $3.835 trillion (55.6%) 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. For our latest monthly Holdings, see our March 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.")

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $813.7 billion (down from $827.0 billion a week ago), or 38.2%, Treasury totaling $664.6 billion (down from $732.9 billion a week ago), or 31.2% and Government Agency securities totaling $452.8 billion (down from $474.6 billion), or 21.3%. Certificates of Deposit (CDs) totaled $66.3 billion (down from $91.7 billion), or 3.1%, and Commercial Paper (CP) totaled $58.6 billion (down from $87.5 billion), or 2.8%. A total of $42.8 billion or 2.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $31.9 billion, or 1.5%. Funds in our weekly collection shortened maturities substantially; a massive 55.2% of assets matures in 1-7 days.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $664.6 billion (31.2% of total holdings), Federal Home Loan Bank with $303.4B (14.2%), Fixed Income Clearing Co with $182.9B (8.6%), Federal Reserve Bank of New York with $88.3B (4.1%), BNP Paribas with $68.7B (3.2%), Federal Farm Credit Bank with $65.2B (3.1%), RBC with $60.5B (2.8%), Federal Home Loan Mortgage Co with $51.8B (2.4%), JP Morgan with $41.6B (2.0%) and Fidelity with $41.2B (1.9%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($203.2B), Fidelity Inv MM: Govt Port ($175.7B), Goldman Sachs FS Govt ($156.5B), BlackRock Lq FedFund ($137.0B), JP Morgan 100% US Treas MMkt ($117.0B), Wells Fargo Govt MM ($117.0B), Morgan Stanley Inst Liq Govt ($99.3B), Goldman Sachs FS Treas Instruments ($95.8B), BlackRock Lq T-Fund ($81.0B) and State Street Inst US Govt ($78.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Finally, see more coverage on our "Link of the Day" from yesterday, "Fidelity (Soft) Closes Treasury MMFs." The Financial Times' writes, "Fidelity shuts three Treasury funds to new investors." They comment, "Fidelity said it would stop accepting new money into three money market funds that invest in US Treasuries, as it sought to protect existing investors from the dramatic decline in interest rates since the outbreak of coronavirus.... 'The faster these funds take in new money, the faster returns head to zero,' said Pete Crane, who runs money market fund data provider Crane Data.... 'Fidelity is doing this to protect existing investors.'"

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