News Archives: June, 2020
The ICI released its "Trends in Mutual Fund Investing" and its "Month-End Portfolio Holdings of Taxable Money Funds" for May 2020 late yesterday. The former report shows that money fund assets increased by $31.8 billion to $4.769 trillion in May, after increases of $399.4 billion in April, $690.6 billion in March and $32.9 billion in February. For the 12 months through May 31, 2020, money fund assets have increased by a breath-taking $1.609 trillion, or 50.9%. (Crane Data's separate MFI Daily series shows money fund assets decreasing by $85.5 billion month-to-date in June through 6/26.)
ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds increased by $701.32 billion, or 3.4 percent, to $21.16 trillion in May, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."
It explains, "Bond funds had an inflow of $43.16 billion in May, compared with an outflow of $7.21 billion in April.... Money market funds had an inflow of $30.63 billion in May, compared with an inflow of $398.25 billion in April. In May funds offered primarily to institutions had an inflow of $20.08 billion and funds offered primarily to individuals had an inflow of $10.54 billion."
ICI's latest statistics show that both Taxable MMFs gained assets last month, while Tax Exempt MMFs lost assets. Taxable MMFs increased by $34.0 billion in May to $4.635 trillion. Tax-Exempt MMFs decreased $2.2 billion to $133.8 billion. Taxable MMF assets increased year-over-year by $1.611 trillion (53.3%), while Tax-Exempt funds fell by $1.9 billion over the past year (-1.4%). Bond fund assets increased by $12.0 billion in May (2.7%) to $4.598 trillion; they've risen by $22.0 billion (5.0%) over the past year.
Money funds represent 22.5% of all mutual fund assets (down 0.7% from the previous month), while bond funds account for 21.7%, according to ICI. The total number of money market funds was 358, down 2 from the month prior and down from 368 a year ago. Taxable money funds numbered 278 funds, and tax-exempt money funds numbered 80 funds.
ICI's "Month-End Portfolio Holdings" confirms a big jump in Treasuries and a drop in Repo and Agencies last month. Treasury holdings in Taxable money funds remained in first place among composition segments; after passing Repo in April. Treasury holdings increased by $342.5 billion, or 17.6%, to $2.293 trillion, or 49.5% of holdings. Treasury securities have increased by $1.545 trillion, or 206.6%, over the past 12 months. (See our June 10 News, "June Portfolio Holdings: Treasuries Skyrocket; Repo, Agencies Plunge.")
Repurchase Agreements were in second place among composition segments; they decreased by $215.5 billion, or -17.3%, to $1.032 trillion, or 22.3% of holdings. Repo holdings have dropped $91.8 billion, or -8.2%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $97.5 billion, or -9.8%, to $894.6 trillion, or 19.3% of holdings. Agency holdings have risen by $206.5 billion, or 30.0%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they decreased by $10.8 billion, or -4.3%, to $238.7 billion (5.1% of assets). CDs held by money funds shrunk by $1.7 billion, or -0.7%, over 12 months. Commercial Paper remained in fifth place, up $5.5 billion, or 2.7%, to $213.0 billion (4.6% of assets). CP has decreased by $10.5 billion, or -4.7%, over one year. Other holdings increased to $32.1 billion (0.7% of assets), while Notes (including Corporate and Bank) were down to $7.3 billion (0.2% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 8.686 million to 39.308 million, while the Number of Funds was down two at 278. Over the past 12 months, the number of accounts rose by 4.458 million and the number of funds decreased by nine. The Average Maturity of Portfolios was 43 days, three more than in April. Over the past 12 months, WAMs of Taxable money have increased by 13.
In other news, money market fund yields continue to bottom out around 1/8th of a percent above zero, as our flagship Crane 100 inched down by just one basis point to 0.12%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over half of all money funds and over one quarter of MMF assets have since landed on the zero yield floor, though many continue to show some yield.
According to our Money Fund Intelligence Daily, as of Friday, 6/26, 475 funds (out of 849 total) yield 0.00% or 0.01% with assets of $1.465 trillion, or 29.1% of the total. There are 179 funds yielding between 0.02% and 0.10%, totaling $1.305 trillion, or 25.9% of assets; 121 funds yielded between 0.11% and 0.25% with $1.650 trillion, or 32.8% of assets; 71 funds yielded between 0.26% and 0.50% with $535.5 billion in assets, or 10.6%; and just three funds yield between 0.51% and 0.99% with $81.9 billion in assets or 1.6% (no funds yield over 1.00%).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.08%, down a basis point in the week through Friday, 6/26. The Crane Money Fund Average is down 39 bps from 0.47% at the beginning of April. Prime Inst MFs were down 1 basis point to 0.20% in the latest week and Government Inst MFs were flat at 0.06%. Treasury Inst MFs were unchanged at 0.05%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.02% (down a basis point in the last week), and Prime Retail MFs yield 0.11% (down a basis point for the week), Tax-exempt MF 7-day yields were unchanged at 0.04%. (Let us know if you'd like to see our latest MFI Daily.)
The largest funds tracked by Crane Data yielding 0.00% or 0.01% include: Fidelity Govt Cash Reserves ($200.2B), Fidelity Government Money Market ($192.4B), Fidelity Treasury Fund ($29.2B) and Edward Jones Money Mkt Inv ($22.5B).
Our Crane Brokerage Sweep Index, which hit the zero floor a little over two months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of June 26, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last ten weeks at 0.01% (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).
We wrote last week about the Association for Financial Professionals' new "2020 AFP Liquidity Survey," and quoted from the press release and the survey's summary report. Today, we excerpt more from the major sections on cash and money markets. The survey reports, "At 47 percent of organizations, investment policies call out and/or separate cash holdings used for day-to-day liquidity from the rest of the company's cash and short-term investment holding -- a five-percentage-point decrease from last year. Those policies include guidance stipulating the amount of cash holdings that is set aside for day-to-day liquidity versus other uses. The decline in the percentage of companies that have policies calling out cash holdings might be correlated with the lower percentage of organizations having written investment policies. The share reported in the current survey is closer to the 45 percent figure in 2018."
It continues, "Thirty-five percent of financial professionals report their organizations have neither a percentage nor dollar limit on short-term investment holdings by asset manager or fund. Eighteen percent of companies impose dollar limits while 27 percent restrict short-term investment with percentage limits; the remaining 20 percent have a mix of both dollar and percentage limits.... Percentage limits allow for the changes to be proportionate to the portfolio as it grows/shrinks, while dollar limits set specific levels of risk applicable to a fund or manager. What's interesting here is the dollar amount/balance of the fund is not taken into consideration necessarily to remove concentration of risk if a fund were to have large outflows, especially as early in the current pandemic crisis two investment managers provided liquidity/support to their money funds."
On "Rating Requirements for Money Funds," AFP writes, "A majority (83 percent) of organizations' investment policies requires money market funds be rated. Forty-three percent of organizations require at least one agency rating assign a AAA rating and 23 percent mandate that their money market fund earn a AAA rating from at least two agencies. Fund ratings are meant primarily to be liquidity driven and not credit driven -- a major difference in credit rating methodologies. The three major rating agencies differ in their general ratings criteria, so it is important to understand how they differ; an organization's written policy incorporates these differences."
A section titled, "Environmental, Social and Governance (ESG) Investment Parameters in Operating Cash," tells us, "The Principles for Responsible Investment (PRI) is an association that defines 'responsible investment as a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership. Environmental factors include climate change, resource depletion, waste, pollution, deforestation. Social aspects are incorporated as human rights, modern slavery, child labor, working conditions, and employee relations. Governance deals with bribery and corruption, executive pay, board diversity and structure, political lobbying and donations, and tax strategy.'"
AFP explains, "Only 18 percent of respondents consider ESG investment parameters when managing operating cash, 68 percent do not consider ESG and 14 percent are unsure about taking ESG parameters into account. The share of those organizations that are considering ESG parameters is four percentage points higher than that reported in last year's report. Net investors (27 percent) and privately held organizations (20 percent) are more likely to consider ESG criteria than are other organizations."
They add, "Half of respondents impose the same investment ESG parameters globally as domestically while 34 percent do not impose them the same; 16 percent are unsure. A higher percentage of smaller organizations (those with annual revenue of less than $1 billion) (64 percent) and privately owned organizations (56 percent) impose the same investment ESG parameters globally as domestically. Organizations investing in ESG investments are investing in the following: ESG Money funds (cited by 38 percent of respondents), Separately managed accounts (24 percent), Individual securities (21 percent)."
On "Money Market Funds," AFP's Survey states, "There are various drivers that play a role in the selection of money market funds. The top three are fixed or floating NAV, yield and counterparty risk of underlying instruments. Fifty-six percent of survey respondents cite fixed or floating NAV as a primary driver, 38 percent cite yield and 37 percent cite counterparty risk of underlying instruments. In 2019 the top three drivers were fixed or floating NAV, yield and fund ratings."
They comment, "The change in the mix reflects two factors: the desire for prudent safety in terms of fixed NAV and diversification in times of stressed liquidity. We often see the changes in this mix from year to year, with the one exception that fixed or floating NAV continues to be the primary driver in the selection of a money fund. Equal this year to counterparty risk is the relationship aspect of investing. The fund sponsor being part of the bank relationship mix is equally important, further driving the need for treasury professionals to leverage their share of the wallet."
Discussing "Resources," AFP says, "Banks play a key role in supporting organizations in their cash and short-term investment strategies by providing them with critical information on economic indicators and trends. In the past few years, it has been challenging to accurately predict the economic environment, and organizations are more likely to look to their banking partners for sound advice. This year's survey results substantiate this claim; 94 percent of financial professionals identify banks as resources their organizations use for cash and short-term investment holding information. Other resources used by financial professionals include: Investment research from brokers/investment banks (cited by 40 percent of respondents), Credit rating agencies (35 percent), Money market portals (32 percent), Money market funds (31 percent). Over half the survey respondents (58 percent) would prefer to receive information from the above sources via email. Forty-three percent would like to receive this information from a combination of in-person meetings and electronically."
The survey also says, "The primary rationale for investing in U.S. Domestic Prime/Floating NAV Funds is yield (cited by 69 percent of respondents) followed by fund ratings/credit quality (46 percent). For privately held organizations, 80 percent of respondents note that yield is the primary rationale for investing in U.S. Domestic Prime/Floating NAV Funds as well. Other primary rationales respondents selected are diversification of underlying instruments (36 percent), ease of transaction process (31 percent) and fund sponsor as part of our overall bank relationship mix and support (24 percent). As noted earlier in this report, the current allocation to prime funds is five percent, so this perspective is probably more that of the opportunistic-type investor with a higher risk tolerance."
It continues, "For the 27 percent of organizations that do invest outside of the U.S. and in a European MMF (second only to bank deposits), euro-denominated debt is the second-highest rated currency after USD offshore. The most often-cited type of fund invested is low volatility NAV short-term MMF (26 percent). Forty-one percent of respondents are still researching a decision; that is a large contingency given the high allocation to euro-denominated vehicles. Nearly half of non-investment grade organizations and privately held organizations (49 percent) are still researching a decision, compared to 31 percent of net investors."
Finally, AFP adds, "Separately managed accounts were selected as a common alternative investment option that organizations consider to complement current investment selection (43 percent). Fifty-nine percent of privately held organizations also selected separately managed accounts, while only 29 percent of publicly owned organizations did so. This has been the primary alternative investment option after the establishment of Prime Funds since 2016. Extending maturities (31 percent), ultrashort funds (21 percent) and ETFs bond or cash strategies (21 percent) were other alternative investment cited by respondents."
Money market fund assets inched lower in the latest week, their fifth weekly decline in a row. Since the week ended May 20, assets have declined by $106.3 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.175 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $1.58 billion to $4.68 trillion for the week ended Wednesday, June 24, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $1.06 billion and prime funds increased by $1.07 billion. Tax-exempt money market funds decreased by $1.59 billion." ICI's stats show Institutional MMFs increasing $720 million and Retail MMFs decreasing $2.3 billion. Total Government MMF assets, including Treasury funds, were $3.786 trillion (80.8% of all money funds), while Total Prime MMFs were $765.8 billion (16.4%). Tax Exempt MMFs totaled $131.1 billion, 2.8%.
Money fund assets are up an eye-popping $1.051 trillion, or 28.9%, year-to-date in 2020, with Inst MMFs up $860 billion (38.0%) and Retail MMFs up $191 billion (13.9%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.491 trillion, or 46.7%, with Retail MMFs rising by $331 billion (27.0%) and Inst MMFs rising by $1.159 trillion (59.1%).
They explain, "Assets of retail money market funds decreased by $2.31 billion to $1.56 trillion. Among retail funds, government money market fund assets decreased by $1.36 billion to $982.89 billion, prime money market fund assets increased by $147 million to $460.84 billion, and tax-exempt fund assets decreased by $1.09 billion to $117.03 billion." Retail assets account for exactly a third of total assets, or 33.3%, and Government Retail assets make up 63.0% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $722 million to $3.12 trillion. Among institutional funds, government money market fund assets increased by $300 million to $2.80 trillion, prime money market fund assets increased by $920 million to $304.95 billion, and tax-exempt fund assets decreased by $498 million to $14.04 billion." Institutional assets accounted for 66.7% of all MMF assets, with Government Institutional assets making up 89.8% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
In other news, J.P. Morgan writes in its "Mid-Week US Short Duration Update," about "Prime MMFs: Is this the start of a movement?" They explain, "Last week, news of Fidelity's decision to liquidate two of its prime institutional money funds surprised many money markets observers. This comes on the heels of news last month that Northern Trust will also be shuttering its prime institutional money fund. Both fund families are respected in the money market industry, and their decision to close their institutional prime funds has clearly sparked questions about whether this was a unique situation given the circumstances, or, if it could be the start of broader movement."
The piece continues, "To be fair, the prime institutional funds shuttered are very small. In aggregate, their assets under management totaled ~$13-14bn as of earlier this month, representing ~4% of the prime institutional market and an even smaller 1.7% across the entire prime fund space. Based on Crane Data, their gross yields were also very low -- in the high single-digits to midteens -- relative to other prime institutional funds that are currently yielding in the 0.30-0.50% range. Furthermore, from the fund managers' perspective, those funds represent only sliver of their broader MMF business. So in some ways, the managers consolidated their own money funds."
It tells us, "Going forward, it wouldn't surprise us if MMF consolidation took place both internally and externally. Small prime institutional MMFs are most susceptible in this regard as large and sudden outflows could easily prompt them to breach the 30% liquidity bucket -- something managers are keen to avoid. While this risk was more navigable before the Fed cut rates, the current low rate environment would seem to suggest a rather unbalanced risk-reward relationship, particularly given the behavior of institutional money."
JPM says, "The uncertainty as it relates to fund flows has resulted in prime institutional fund managers holding over 50% of liquidity (on average) compared to the 42% in early March, and thereby negatively impacting gross fund yields.... Furthermore, the prospect of more money fund reform, whatever it may be, only adds to the cost of running of a prime MMF. While large asset managers have both the capital and the liquidity to deal with the above issues, the new economics of the money markets may not apply to every fund in a family. Smaller funds within large fund families, as well as smaller fund families, may be targets for consolidation."
They add, "On the margin, this likely means a rotation of cash from prime institutional funds to government institutional funds, providing continued support to T-bills and repo in the money markets. Its impact on Libor is likely limited given the small nature of these funds and the fact that most funds are already operating at over 50% liquidity (i.e., investing in T-bills and repo and CP/CD that matures in less than 7 days)."
Finally, thanks to those who attended our Crane's Money Fund Webinar: Portfolio Holdings Update yesterday (and thanks to JPM's Teresa Ho for an excellent presentation! For those who missed it, register here to listen to the recording, or see our Money Fund Channel here and the Powerpoint here. (See the bottom of our "Content" page for all of our Webinar and conference materials.) Mark your calendars and watch for details on our next webinar, Crane's Money Fund Webinar: Portfolio Manager Perspectives, which will be held July 22 at 1pm, and bear with us as we ramp up our virtual event capabilities over the next couple of months.
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $31.0 billion in May to a record $5.231 trillion, the 22nd increase in the past 23 months. (Month-to-date in June through 6/23, assets have decreased by $63.9 billion according to our MFI Daily.) The SEC shows that Prime MMFs increased $50.6 billion in May to $1.141 trillion, while Govt & Treasury funds fell by $18.6 billion to $3.951 trillion. Tax Exempt funds decreased by $1.0 billion to $140.1 billion. Yields were down across the board for Prime, Govt and Tax-Exempt MMFs in May. 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. (Note: Crane's Money Fund Webinar: Portfolio Holdings Update takes place today at 2:00pm EDT. Crane Data's Peter Crane and J.P. Morgan Securities' Teresa Ho will discuss the latest trends in money funds and portfolios. To register, click here.)
May's overall asset increase follows increases of $461.6 billion in April, $704.8 billion in March and $17.3 billion in February. This followed a decrease of $4.3 billion in January but increases of $37.2 billion in December, $45.6 billion in November and $88.6 billion in October. Over the 12 months through 5/31/20, total MMF assets have increased by an incredible $1.658 trillion, or 46.4%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these in its collections.)
The SEC's stats show that of the $5.231 trillion in assets, $1.141 trillion was in Prime funds, up $50.6 billion in May. This follows an increase of $105.2 billion in April and decreases of $124.5 billion in March and $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 and $38.4 billion in October. Prime funds represented 21.8% of total assets at the end of May. They've increased by $132.0 billion, or 13.1%, over the past 12 months.
Government & Treasury funds totaled $3.951 trillion, or 75.5% of assets. They fell $18.6 billion in May after skyrocketing $347.3 billion in April and $838.3 billion in March, and increasing $32.0 billion in February. They fell $31.4 billion in January, but rose $64.7 billion in December, $24.2 billion in November and $46.6 billion in October. Govt & Treas MMFs are up a staggering $1.528 trillion over 12 months, or 63.1%. Tax Exempt Funds decreased $1.0B to $140.1 billion, or 2.7% of all assets. The number of money funds was 360 in May, down one from the previous month, and down ten funds from a year earlier.
Yields for Taxable MMFs were down across the board in May. Steady declines over the past 14 months follow almost 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on May 31 was 0.40%, down 19 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.53%, down 32 basis points. Gross yields were 0.29% for Government Funds, down 10 bps from last month. Gross yields for Treasury Funds were down 9 bps at 0.28%. Gross Yields for Muni Institutional MMFs fell from 0.30% in April to 0.21%. Gross Yields for Muni Retail funds dropped from 0.51% to 0.42% in May.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.33%, down 20 bps from the previous month and down 2.13% since 5/31/19. The Average Net Yield for Prime Retail Funds was 0.28%, down 30 bps from the previous month and down 2.04% since 5/31/19. Net yields were 0.09% for Government Funds, down 8 bps from last month. Net yields for Treasury Funds decreased 8 basis points to 0.09%. Net Yields for Muni Institutional MMFs dropped from 0.16% in April to 0.08%. Net Yields for Muni Retail funds decreased from 0.25% to 0.16% in May. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in May. The average Weighted Average Life, or WAL, was 57.2 days (down 0.8 days from last month) for Prime Institutional funds, and 60.0 days for Prime Retail funds (down 0.6 days). Government fund WALs averaged 102.3 days (up 2.2 days) while Treasury fund WALs averaged 98.0 days (up 1.6 days). Muni Institutional fund WALs were 15.9 days (up 2.5 days), and Muni Retail MMF WALs averaged 30.6 days (down 0.6 days).
The Weighted Average Maturity, or WAM, was 43.2 days (up 2.4 days from the previous month) for Prime Institutional funds, 47.6 days (up 5.0 days from the previous month) for Prime Retail funds, 40.3 days (up 4.4 days) for Government funds, and 47.1 days (up 0.9 days) for Treasury funds. Muni Inst WAMs were up 2.4 days to 15.4 days, while Muni Retail WAMs decreased 0.4 days to 28.4 days.
Total Daily Liquid Assets for Prime Institutional funds were 50.0% in May (up 2.4% from the previous month), and DLA for Prime Retail funds was 42.1% (up 4.2% from previous month) as a percent of total assets. The average DLA was 58.4% for Govt MMFs and 95.6% for Treasury MMFs. Total Weekly Liquid Assets was 62.2% (up 2.2% from the previous month) for Prime Institutional MMFs, and 50.5% (up 2.0% from the previous month) for Prime Retail funds. Average WLA was 73.8% for Govt MMFs and 98.8% for Treasury MMFs.
In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for May 2020," the largest entries included: Canada with $135.6 billion, France with $93.8 billion, Japan with $89.7 billion, the U.S. with $78.9B, the U.K. with $45.6B, Germany with $41.5B, the Netherlands with $37.0B, Aust/NZ with $31.1B and Switzerland with $18.9B. The biggest gainers among the "Prime MMF Holdings by Country" were: France (up $5.4 billion), Canada (up $3.1B) and Germany (up $1.2B). The biggest decreases were: the U.S. (down $8.8B), Japan (down $7.5B), Aust/NZ (down $1.7B), Switzerland (down $1.2B) and the Netherlands (down $0.2B). The U.K. remained unchanged.
The SEC's "Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $104.8B (down $7.1B from last month), the Eurozone subset had $182.7B (up $3.2B). The Americas had $215.0 billion (down $5.8B), while Asia Pacific had $137.2B (down $6.8B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.156 trillion in Prime MMF Portfolios as of May 31, $489.3B (42.3%) was in Government & Treasury securities (direct and repo) (up from $420.0B), $275.5B (23.8%) was in CDs and Time Deposits (down from $290.0B), $171.6B (14.8%) was in Financial Company CP (down from $180.4B), $157.7B (13.6%) was held in Non-Financial CP and Other securities (up from $149.4B), and $62.1B (5.4%) was in ABCP (up from $55.7B).
The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $177.3 billion, Canada with $139.8 billion, France with $190.6 billion, the U.K. with $78.2 billion, Germany with $29.8 billion, Japan with $142.3 billion and Other with $40.0 billion. All MMF Repo with the Federal Reserve fell by $0.5 billion in May to $1.3 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 6.1%, Prime Retail MMFs with 3.1%, Muni Inst MMFs with 1.4%, Muni Retail MMFs 4.2%, Govt MMFs with 16.4% and Treasury MMFs with 13.7%.
The Investment Company Institute's latest "Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2020" release shows that money fund assets globally rose by $750.6 billion, or 10.8%, in Q1'20 to a record $7.688 trillion. The increase was driven by big gains in U.S. and China- based money funds.MMF assets worldwide have increased by $1.611 trillion, or 26.5%, the past 12 months, and money funds in the U.S. now represent 56.4% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)
ICI's release says, "Worldwide regulated open-end fund assets decreased 12.6 percent to $47.95 trillion at the end of the first quarter of 2020, excluding funds of funds. Worldwide net sales to all funds was $691 billion in the first quarter, compared with $835 billion of net inflows in the fourth quarter of 2019. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the international organization of national fund associations. The collection for the first quarter of 2020 contains statistics from 46 jurisdictions."
It explains, "Assets in regulated open-end funds reported in US dollars fell in the first quarter of 2020 in part because of US dollar appreciation. For example, on a US dollar–denominated basis, fund assets in Europe dropped 13.9 percent in the first quarter, compared with a decrease of 11.7 percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets dropped 21.7 percent to $19.20 trillion at the end of the first quarter of 2020. Bond fund assets decreased by 8.4 percent to $10.81 trillion in the first quarter. Balanced/mixed fund assets decreased by 14.5 percent to $5.85 trillion in the first quarter.... Money market fund assets rose 10.9 percent globally to $7.69 trillion."
The release also says, "At the end of the first quarter of 2020, 40 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 23 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 16 percent of the worldwide total."
ICI adds, "Net sales of regulated open-end funds worldwide were $691 billion in the first quarter of 2020. Flows out of equity funds worldwide were $19 billion in the first quarter, after experiencing $143 billion of net inflows in the fourth quarter of 2019. Globally, bond funds posted an outflow of $229 billion in the first quarter of 2020, after recording an inflow of $256 billion in the fourth quarter.... Money market funds worldwide experienced an inflow of $915 billion in the first quarter of 2020 after registering an inflow of $287 billion in the fourth quarter of 2019."
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. strengthened its position as the largest money fund market in Q1’20 with $4.337 trillion, or 56.4% of all global MMF assets. U.S. MMF assets increased by $705.4 billion (19.4%) in Q1'20 and increased by $1.300 trillion (42.8%) in the 12 months through Mar. 31, 2020. China remained in second place among countries overall. China saw assets increase $137.4 billion (13.4%) in Q1, to $1.160 trillion (15.1% of worldwide assets). Over the 12 months through Mar. 31, 2020, Chinese MMF assets have risen by $49.4 billion, or 4.4%.
Ireland remained third among country rankings, ending Q1 with $615.5 billion (8.0% of worldwide assets). Dublin-based MMFs were down $16.8B for the quarter, or -2.7%, and up $56.8B, or 10.2%, over the last 12 months. Luxembourg remained in fourth place with $408.0 billion (5.3% of worldwide assets). Assets there decreased $142 million, or -0.0%, in Q1, and were up $24.5 billion, or 6.4%, over one year. France was in fifth place with $329.5B, or 4.3% of the total, down $22.8 billion in Q1 (-6.5%) and down $44.2B (-11.8%) over 12 months.
Australia was listed in sixth place with $238.0 billion, or 3.1% of worldwide assets. Its MMFs decreased by $5.1 billion, or -2.1%, in Q1. Note that ICI's data includes this footnote for Australia: "Due to a reclassification, a portion of the assets from the 'other' category have been moved into the money market and real estate categories." Australia's MMF assets were mysteriously shifted into the "Other" category several years ago but reappeared several quarters ago. Japan was in seventh place with $110.3 billion (1.4%); assets there fell $5.9 billion (-5.1%) in Q1 and increased by $10.2 billion (10.1%) over 12 months.
Korea, the 8th ranked country, saw MMF assets increase $7.9 billion, or 8.6%, in Q1'20 to $99.2 billion (1.3% of the world's total MMF assets); they've risen $18.6 billion (23.1%) for the year. Brazil was in 9th place, assets decreased $8.3 billion, or -9.8%, to $76.2 billion (1.0% of total assets) in Q1. They've decreased $488 million (-0.6%) over the previous 12 months. ICI's statistics show Mexico in 10th place with $54.6B, or 0.7% of total assets, down $11.2B (-17.0%) in Q1 and down $4.0 (-6.8%) for the year. India was in 11th place, decreasing $17.8 billion, or -25.6%, to $51.8 billion (0.7% of total assets) in Q1 and decreasing $11.8 billion (-18.5%) over the previous 12 months.
Canada ($29.8, up $2.8B and up $8.1B over the quarter and year, respectively) ranked 12th ahead of the United Kingdom ($28.6B, down $33M and up $3.3B). Chinese Taipei ($28.6B, down $1.0B and up $3.1B) and Chili ($22.9B down $4.7B and up $1.6B), rank 13th through 15th, respectively. Switzerland, South Africa, Norway, Germany and Argentina round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $4.531 trillion, up $686.0 billion in Q1. Asian MMFs increased by $116.3 billion to $1.693 trillion, while Europe saw its money funds decrease by $47.5 billion in Q1'20 to $1.442 trillion. Africa saw its money funds decrease $4.2B to $20.9 billion.
Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data.
The Association for Financial Professionals releases its "2020 AFP Liquidity Survey" Tuesday, which surveyed "nearly 375 corporate treasury and finance professionals in early March." AFP's press release, entitled, "Companies Turn to Bank Deposits as COVID-19 Crisis Continues," says, "Companies are holding their short-term investments in banks due to concerns over the economy, according to the 2020 AFP Liquidity Survey, underwritten by Invesco." It shows that "51% of respondents revealed that they increased their short-term investments in banks. This is the highest percentage in three years and a reversal of a downward trend that began in 2015. Although the survey was taken before the full effect of liquidity preservation efforts had set in due to the COVID-19 outbreak, this flight to caution likely reflects concerns that the pandemic poses a critical threat to the global economy." (Note: Watch for more comments during two webinars this week -- on Wednesday, 6/24, at 3pm, AFP will host, "Don't Gamble with Your Cash Investments" featuring Peter Crane and Evergy Inc.'s James Gilligan, and on Thursday, 6/25, at 2pm, we'll host "Crane's Money Fund Webinar: Portfolio Holdings Update," with Crane and J.P. Morgan Securities' Teresa Ho.)
The AFP release explains, "Safety continues to be the most-valued short-term investment objective for 62% of organizations, followed by liquidity at 34% and yield at a distant third with 4%. Given the current recession, we should probably expect larger shares of companies opting for safety in the future. As the crisis surrounding the pandemic unfolds, trust in banking partners will be paramount as the survey reflects. Ninety-three percent of respondents consider the overall relationship with their banks to be the primary driver in bank deposit selection. Seventy-three percent indicated that the credit quality of a bank is a deciding factor in determining where to maintain balances."
AFP president & CEO Jim Kaitz comments, "Bank deposits saw an increase for the first time in five years, and that's not a coincidence.... Although we performed this survey in the early days of the pandemic, financial professionals could see the gathering storm. With companies needing more access to liquidity and drawing down on credit facilities, their relationships with their banks will become more important than ever."
The release also tells us, "The percentage of companies with written investment policies declined by nine points to 71%. However, this area will likely be prioritized amid the current recession. The majority of cash and short-term investments held outside the U.S. is in U.S. dollars (52%) and bank products, mirroring a domestic approach to investing."
Laurie Brignac, CIO of the Invesco Global Liquidity Fixed Income Group, adds, "As a global provider of cash solutions, at Invesco we have also successfully navigated the recent environment through our longstanding commitment to safety and liquidity followed by yield.... The heightened importance of reliable practices and planning in uncertain environments is consistent with the findings in this annual survey, and we see that borne out with the consideration of cash segmentation strategies with many of our global clients both in the U.S. and abroad."
The Liquidity Survey's "Comprehensive Results" report's Introduction discusses COVID-19 and the economy, then says, "Managing liquidity is going to be key for treasury and finance professionals. Creating a liquidity buffer will be important as there is tremendous uncertainty regarding when there will be a return to any semblance of normalcy. Additionally, it is challenging to forecast when to expect an uptick in the economy. While some industries may rebound relatively quickly, the impact on others will be felt longer -- especially among those which are capital intensive with very limited revenue prospects. The last time treasury professionals saw this kind of upheaval was the financial crisis. Now, more than a decade later, the rear-view mirror provides a glimpse on how best to remain resilient in order to survive and thrive in this new normal."
On "Cash and Short-Term Investments," they state, "Thirty-one percent of corporate practitioners report an increase in their organizations' cash holdings within the U.S. in the past 12 months, 53 percent indicate there has been no significant change and 16 percent report a decrease. These results are comparable to those in the 2019 survey in which 30 percent of treasury and finance professionals reported an increase in U.S. cash holdings and 50 percent indicated cash balances had not changed significantly. The share of those reporting a decrease in their companies' cash holdings within the U.S. decreased by four percentage points from that reported last year (20 percent)."
AFP tells us, "Sixty-nine percent of organizations hold some amount of cash outside of the U.S. -- higher than the 63 percent reported last year. The share increases to 79 percent for publicly owned organizations. Thirty-six percent of these companies hold at least half their cash outside the U.S. Sixty-nine percent of large organizations -- those with at least $1 billion in annual revenue -- hold cash outside the U.S. compared to 59 percent of firms with annual revenue less than $1 billion that do so. These findings suggest that larger and publicly owned organizations are more likely to invest outside the U.S. than are others."
They also write, "In the past two years, organizations were maintaining less than 50 percent of their short-term investments in bank deposits (46 percent in 2019 and 48 percent in 2018). In this year's survey results, however, we see an increase, with the typical organization currently maintaining 51 percent of its short-term investment portfolio in bank deposits. This allocation represents a five-percentage-point increase from 2019 and a two-percentage-point increase from 2018. The higher balance being allotted to bank deposit products could potentially be pandemic (COVID-19) driven. As interest rates dropped to zero when this survey was being conducted, bank relationships were called upon as companies drew down on revolvers and accessed extra liquidity. The offset is possibly reflected in the higher balances maintained in bank products as companies look to extend their share of the wallet with safety being paramount -- all else being equal."
The survey says, "Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2.27 vehicles for their cash and short-term investments. This average is a decrease from the 2.60 figure reported in 2019. The majority of organizations continues to allocate a large share of their short-term investment balances -- an average of 77 percent -- in safe and liquid investment vehicles: bank deposits, money market funds (MMFs) and Treasury securities. The allocation to Government/Treasury money market funds is 16 percent, slightly higher than the 14 percent reported last year.
It also tells us, "The anticipated changes in investment mix are more likely to be observed in bank deposits, with 26 percent of respondents anticipating an increase and 15 percent expecting a decrease. Other investments likely to be impacted by shifts in an organization's investment mix are Government/Treasury money market funds and Treasury bills. As stated earlier, the increase in the investment mix towards bank deposits and Government/Treasury money funds not only reflects a flight to safety, but also as money funds durations decrease, there is additional yield to capture as rates were set to zero."
AFP writes on "Allocations Outside the U.S.," "Those organizations with cash and short-term investment holdings outside of the U.S. manage their cash holdings similarly as they do their domestic ones. Seventy percent of non-U.S. cash holdings are maintained in bank-type investments (including certificates of deposits, time deposits, etc.). This is similar to last year's survey result of 75 percent. Another 21 percent is held in money market mutual funds and government-type securities -- 10 percentage points higher than the share that reported investing in these vehicles in the 2019 survey."
Finally, they add, "Treasurers consider several factors when deciding where to place their organizations' cash and short-term investments. A vast majority considers the overall relationship with their banks a determinant (cited by 93 percent of survey respondents) while 73 percent indicate that the credit quality of a bank is a deciding factor. During the financial crisis, credit quality of the bank was a primary driver in bank product utilization. With the pandemic, the overall relationship with banks is a key driver, suggesting that financial professionals are heavily invested in such relationships. However, they are prudent when looking at the long term and ensure that the credit quality is up to par. Rates are the third most important consideration, and this result is in line with the principles organizations follow when investing: safety first, liquidity second, and yield a distant third. As the pandemic and its aftermath unfold, organizations are focused on being able to access credit and remaining viable."
Fidelity Investments, the largest manager of money market funds, sent an e-mail to clients Friday with the Subject, "Fidelity Institutional Prime Money Market Funds Liquidation." They write, "We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio. Both funds will remain fully accessible to investors until their liquidation on or about August 14, 2020. There are no restrictions on investments in or redemptions from the funds until, as part of the liquidation process, the funds close to new investments as of the close of business on August 12, 2020. It is important to note that this decision does not affect any of our other money market funds -- institutional or retail -- and there is no need to take immediate action. We are committed to working with our institutional clients to determine alternative liquidity investment products that best suit their needs by August 12."
The announcement continues, "Our decision to liquidate these two funds was made after thoughtful review and consideration of our experience with investor behavior in institutional prime money market funds during periods of market stress, evolving institutional investor preferences, and our broader money market business. We are choosing to exit the institutional prime segment of the marketplace because we believe we can better meet institutional investors' needs with other cash management products."
A companion Q&A asks, "Does this decision affect any other Fidelity money market funds or Fidelity's money market funds business?" Fidelity answers, "No. Our decision to liquidate our two institutional prime money market mutual funds is specific to these two funds. This decision does not affect any of our other money market funds or any other part of our money market fund business. We have a deep, longstanding and ongoing commitment to our institutional and retail money market fund investors. We continue to offer a broad range of choices for our investors' cash investments, including government, retail municipal, and retail prime money market funds, as well as low duration bond funds and separately managed accounts."
It tells us, "Shareholders will be able to exchange their shares into other Fidelity funds, redeem their shares, or remain in the fund until August 14, 2020, at which time securities will be liquidated and posted to client accounts as cash. The funds will close to new investments on or about August 12, 2020, two days prior to the liquidation. Shareholders in workplace retirement plans will have the opportunity to redeem their assets ahead of the liquidation and move them to another investment option offered by their retirement plan. If retirement plan shareholders have not redeemed and moved their fund assets upon liquidation, cash balances will be invested as directed by the plan sponsor or absent such direction, in the plan's default option."
Fidelity comments, "There is no immediate need to take action. We look forward to working with our institutional prime fund investors between now and August 12, as they determine the alternative cash investment product that works best for them. We have a broad range of options for investors who currently use institutional prime money market funds to consider, including government, retail municipal, and retail prime money market funds as well as low duration bond funds and separately managed accounts.... Shareholders of FIMM Prime Money Market Portfolio and FIMM Prime Reserves Portfolio will be allowed to exchange into comparable classes of the FIMM Portfolios and the Institutional Class of Fidelity Conservative Income Bond Fund, even if the amount of the exchange is below the investment minimum for that class." Tickers for FIMM Prime Reserves Portfolio include: FIDXX, FDOXX, FDVXX, FIPXX and FDIXX, and tickers for the FIMM Prime Money Market Portfolio include: FDPXX, FEPXX, FHPXX and FFPXX.
The Fidelity Q&A also asks, "What is happening to the portfolio managers, Michael Widrig and Maura Walsh?" They answer, "Michael Widrig and Maura Walsh will continue to co-manage the funds until liquidation and, thereafter, will retain their other existing portfolio management responsibilities." and "Do shareholders need to approve the liquidation? No, the fund's Board of Trustees approved the liquidation and it is not subject to shareholder approval."
The Q&A also discusses the Fidelity Treasury Money Market Mutual Funds, and tells us, "There is no connection between our decision to close three Treasury money market funds to new investors at the end of March and the liquidation of our institutional prime money market funds; however, both decisions reflect the fact that the interests of our fund shareholders are always a priority."
The statement adds, "Our decision to close three Treasury money market funds to new investors at the end of March was related to lower Fed rates. With the federal funds rate and yields on Treasury securities at historic lows, by limiting inflows into these Treasury money market funds, we continue to be successful in achieving our goal of preserving the returns of existing fund shareholders. Restricting inflows has helped reduce the number of new Treasury securities that the funds have needed to purchase, which is important because the newer issues generally have lower yields than the funds' existing holdings. We are continuing to monitor market conditions and yields on these Treasury funds and are pleased to report that we expect to re-open the three funds to new investors in the coming months."
Fidelity Fixed Income President Nancy Prior tells us, "As you know, we have two publicly available Institutional Prime funds, FIMM Prime and FIMM Prime Reserves. Combined, they're under $14 billion and represent less than 2.0% of our assets.... A lot of a lot of this decision [was made based on] investor behavior in these institutional prime funds.... Our internal funds, you know, we run those with significantly higher levels of liquidity. We also know very well who the shareholders are in those funds. So [there will be] no change at all on the internal prime funds [and], we have a very large presence in the Retail Prime space, [about] $120-125 billion. [There's also] no change at all on the government side. So this is really limited to just these two institutional prime funds."
She explains, "It really was three factors that that led to this for us. The first was our experience, as well as the industry's, with investor behavior in institutional prime funds, particularly during periods of stress. You know, we've consistently seen this behavior time and again. Back in March, Institutional Prime lost over 30% of their assets. And, you know, we focus very much on portfolio construction, aligned with how shareholders use the funds. So we have always managed our institutional prime funds with very high levels of liquidity. That has served our shareholders well, both in calm markets as well as volatile markets. Back in March of this year, the liquidity on both of these institutional prime funds remained above 40 percent while experiencing the redemptions."
Prior comments, "For us, this is about our view that the cash management needs of institutional investors can be better met with Government funds.... Institutional investors themselves have shown their preference for Govt funds over Prime funds.... Since the [2016 reforms], the entire industry has seen declining assets in Institutional Prime. At its peak back in 2011, Institutional Prime had over 40% of the industry's assets ... now [we're] down to less than 6% of total industry assets, right around that $300 billion dollar mark. So investors have spoken with their feet and have shown their preference for govt funds over institutional prime funds."
Finally, she adds, "But I'll tell you, we are as committed as ever to the money market business, to our institutional and retail shareholders in that business. You know, this is going to allow us to continue to invest in people and technology and allocate our resources to that portion of the money market business that's in greatest demand by all of our investors, as well as some of our broader fixed income initiatives. So this is, again, liquidating these two funds, less than two percent of our assets, and no impact on any other part of our business." (For more, see our May 20, 2020 News, "Northern Liquidating Prime Obligs; NY Fed on PDCF; Weekly Port Holds," and our Feb. 2, 2015 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.")
This month, Money Fund Intelligence interviews Laurie Brignac, Chief Investment Officer for Invesco Global Liquidity, which will celebrate its 40th birthday this year. (Money funds will celebrate their 50th this October.) Brignac tells us about Invesco's history, about the events of the last several months and the issues facing money fund managers for the remainder of 2020. Our Q&A follows. (Note: The following is reprinted from the June issue of Money Fund Intelligence, which was published on June 5. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us some history. Brignac: We launched our first money market fund back in 1980 and at that time we were known as AIM Investments. AIM merged with Invesco in the late '90s, but we're proud of the fact that we have the same investment process that we used on that first day in 1980. I don't know if many people can say that. The process has stood the test of time and worked very well for our clients over multiple interest rate and credit cycles. We're very proud of the fact that we have never had to buy securities or support any of our money market funds, even through the financial crisis. We've been able to honor all purchases and redemptions on T+0 basis.
MFI: What about your own history? Brignac: I actually joined the firm back in 1992, so I'm going be turning 28 this year with Invesco. I like that number better than my age! I've been privileged to be part of changes not only at Invesco but in the industry as a whole. And I work with an incredible team of portfolio managers and research analysts that make coming to work every day a joy. Through the changes over the years, the senior leaders of our teams have basically worked together for close to 15 years and in some cases 20 years. We've been through the 2008 crisis and now this latest COVID event together. At the same time, we've been able to bring in a new generation of portfolio managers that bring diverse experience and backgrounds to our disciplined process.
MFI: What's your biggest priority now? Brignac: There's never a dull moment in the front end of the curve.... Going into this year, our biggest priority was the Oppenheimer Funds merger ... just continuing the integration into the Invesco family. This has been good for the firm. We've taken the best of Oppenheimer and the best of Invesco. At the end of the day, we're going to be much stronger.
Obviously, as the virus started making its way across the globe, we were adapting to the new environment in our global offices: Hong Kong, Shenzhen and then over to EMEA and the U.S. We were very focused on the team, making sure that they had what they need to take care of our clients, but really not understanding, or I think anticipating, just how quickly things would shut down globally. Our biggest priority is always taking care of our portfolios and our clients during volatile and uncertain times, and at the same time, taking care of our team. You make sure that you're taking care of your people so they can take better care of your clients.
MFI: Talk about March's madness. Brignac: We started adjusting our portfolios back at the end of February, really in early March, because of the Covid news. The situation started evolving very quickly. Market volatility increased and the Fed, who was very active in the early part of March deploying liquidity plus an inter-meeting interest rate cut of 50 basis points, was trying to limit downside risk due to the virus. Unfortunately, the risk-off tone continued, and we wanted to hold a little bit more liquidity. We also were going into corporate tax day in mid-March and started seeing redemptions.
That's when we started hearing about how there was just not a lot of liquidity in the market. Dealer balance sheets were full and the credit market seized very quickly. I think it took everybody a little bit by surprise. Up until mid-March, we were seeing inflows into our prime funds. But all of a sudden everything just came to a screeching halt. The good news was that this was clearly not a credit event but a liquidity event, unlike 2008. It didn't make navigating the markets any easier, but at least you weren't concerned about the holdings in your portfolios.
MFI: What's your biggest challenge? Brignac: We are all very good at managing money market funds and liquidity products in a zero-interest rate environment. We did it for many years, so I don't think that that's really the biggest challenge. [But] for the first time ever, you saw Fed fund futures contracts trade at a premium or at a negative yield. The Fed has been very clear that this is not a policy that they are going to embrace; they have a lot of tools at their disposal. But if you had asked me six months ago, I would have said the likelihood of negative interest rates was zero.... But there is a lot of uncertainty in the market, so I think that the likelihood of that has increased. I still don't think we're going to see negative yielding money market funds anytime soon.
MFI: How would negative yields work? Brignac: I think the two probable options would be a floating NAV or the RDM, reverse distribution mechanism. Obviously, we would need guidance from the SEC before anything would be decided. One of the things that I've considered is, do we potentially adopt a model where you could have either option, or both in one fund? You could have a floating share class and maybe an RDM share class. [Depending on] whether you're a retail or an institutional investor, there may be a preference as to which of those you would gravitate towards, like accumulating and distributing share classes in Europe.... Again, I think the likelihood of that happening is quite low, but ... never say never. You just have to make sure that you're prepared as best you can be if it does happen. But it's not our base case.
MFI: What are you doing in the portfolios? Brignac: We're keeping a very conservative allocation at this point.... Despite the fact that we're inching out WAMs and WALs, we're still holding a large amount of liquidity. That is still going to be number one. Because as you know, in money markets, it's not return on your dollar, it's return of your dollar. You want to make sure that you can fund redemptions. Given how flat the yield curve is right now ... in these types of environments, risk can get mispriced. People are just reaching for an extra basis point here and there.
When you look at March, it wasn't a credit event, it was a liquidity event. As the economy starts to evolve and reset, there are going to be some liquidity issues. The Fed is absolutely involved and active, but we've never been one to rely on a Fed put.... So, I think that we're just going to get a little bit more selective in terms of how we're extending and who we're extending with. Do you take a lower quality name for an extra basis point? I just don't think that makes that sense.
MFI: Talk about customers. Brignac: Overall, we are primarily institutional. But our retail presence has most definitely been growing, especially with the successful integration of Oppenheimer. Right now, obviously, cash is king. People are holding on to more cash just because of all the uncertainty, whether it is China relations, the economic impact of Covid, and some of the social unrest, unfortunately, that we have here right now in the United States. So, it really is a good time to remain quite short.
On the retail side, we are up year-to-date, but have seen some recent flows as investors are taking advantage of the risk rally. We are also seeing inflows back into the ultra-short space. That has turned around from a pretty ugly March.... On the institutional side, [we're seeing inflows] there as well, unlike in your typical risk-off environment, where we usually see a lot of money go into money market funds, and then once everybody gets comfortable, it flows right back out.... It doesn't seem like this is going to go out in the same way it came in. I think people are effectively on hold from the institutional side.
MFI: What about fee waivers? Brignac: We've started waiving fees to support certain higher expense share classes. Similar to 2009-2015 when the Fed was on hold, both gross and net yields were quite low. So I think the expectation is that we'll probably get back there again. Luckily, we don't have to dust off the playbook because really it wasn't allowed to get that dusty.
But it's just part of the business of being a global asset manager. Liquidity is an important asset class and I think you have to offer it to your clients. Given the success we've had, our track record, and the tremendous job that our team has done ... it's a good business and it's a business that you want to hold on to, even if it means waivers for the next however many years.
MFI: What is your outlook for the future? Brignac: I think we've got a Fed on hold. There is a lot more cash in money market funds than there has ever has been; it's a blessing and a curse right now. On the one hand as a manager, we absolutely love to see it. But at the same time, you do still want to see money being deployed to support the economy. I think that when you look at the Fed and the Treasury and the job that they've done in providing support in terms of issuing bills to help provide supply for the massive amounts of inflows that we've seen, [the question is] really, 'How does that unwind?' We're having discussions to make sure that as the Treasury extends the average maturity of their debt and reduces their presence in the bill market, that they do so in a way that is still supportive of the front end. Because what we don't want to see is pervasive, negative bill yields like we did in March. That was not good.
I think that the Treasury and the Fed are very aware that though the Fed is on hold, there are a lot more tools at their disposal to support the economy, and negative interest rate policy is not on the table. At some point the Treasury will want to fund more of the fiscal policy further out the curve. But I think unwinding from the front end of the yield curve is likely to be a delicate dance. That's what we're keeping our eye on.
ICI says in a release that, "Retirement Assets Total $28.7 Trillion in First Quarter 2020," and accompanying data tables show that money funds held in retirement accounts total $549 billion, or 13%, of the total $4.337 trillion in money funds. MMFs represent just 2.9% of the total $18.881 trillion of mutual funds in retirement accounts. The release says, "Total US retirement assets were $28.7 trillion as of March 31, 2020, down 11.9 percent from December 31, 2019. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of March 2020." We review this latest quarterly update, and quote from two other articles on money funds and cash investing, below.
It continues, "Assets in individual retirement accounts (IRAs) totaled $9.5 trillion at the end of the first quarter of 2020, a decrease of 13.7 percent from the end of the fourth quarter of 2019. Defined contribution (DC) plan assets were $7.9 trillion at the end of the first quarter, down 12.3 percent from December 31, 2019. Government defined benefit (DB) plans -- including federal, state, and local government plans -- held $5.9 trillion in assets as of the end of March 2020, an 11.1 percent decrease from the end of December 2019. Private-sector DB plans held $3.2 trillion in assets at the end of the first quarter of 2020, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion."
The ICI tables also show money funds accounting for $370 billion, or 9%, of the $4.066 trillion in IRA mutual fund assets and $179 billion, or 4%, of the $4.219 trillion in defined contribution plan holdings. Among the DC plan holdings, $120 billion is in money fund assets, making up 4% of the total $3.297 trillion in 401(k) plan mutual fund assets. Money funds saw $88 billion of inflows in Q1'20 into retirement accounts vs. outflows of $148 billion for all long-term funds. (IRAs accounted for $55 billion of the MMF inflows while DC plans accounted for $33 billion.) Money funds in non-retirement account variable annuities totaled just $32 billion, or 3% of the $1.088 trillion of mutual funds in these VAs.
In other news, Euromoney published a piece entitled, "Money markets plan for post-pandemic resilience." They write, "As the coronavirus pandemic wreaked havoc in financial markets around the world, the normally sleepy world of money market funds was roaring into life. While cash poured into government funds in March, prime funds saw a stampede for the exits. In the fortnight between March 11 and March 25, investors yanked $139 billion from prime money market funds, the largest two-week spell of outflows since September 2016, according to data from the Investment Company Institute."
The article continues, "As governments across Europe went into lockdown, fund operations were tested to their very limits -- in part because many business continuity plans failed to anticipate the severity of such a crisis. One spokesperson at a UK-based investment platform reflects that: 'If you look at the most common disaster recovery plans of all big businesses -- particularly those that are registered with the stock exchange -- we have fantastically comprehensive plans, including how we can relocate our operations to different disaster recovery sites very quickly. But losing all of our sites, and potentially having to have all of our people working from home, is just unprecedented.'"
They quote David Callahan, head of money markets at Lombard Odier Investment Managers, "One of the challenges of remote working is that normally my colleague and I are sitting next to each other and we talk; now we’re having to type in IB Chat all day, and it takes a lot of time.... We have to make sure we're on the same page so that we don't make an operational or strategic mistake, so that's a bit of a handicap in terms of efficiency. It highlights how important proximity is."
Euromoney also quotes Calastone's Ed Lopez, who comments, "If your operation is fairly good and you've got built-in checks and balances around manual processes, when you're all sitting on the same floor of the same building that is one thing, but if you're all dispersed, even working together through a secure VPN or other system, that may be a risk.... Automation definitely removes some of the friction and risk inherent in manual processes, and it obviously supports a work-from-home environment. One consequence of what's happening now is that people are going to have to automate more and more -- and more robustly -- because you've got fewer people in an office."
The article adds, "Almost 75% of treasurers who are members of the Association of Corporate Treasurers said their organizations are automating at least some treasury functions, according to ACT's 2019 Business of Treasury report. But while more corporate treasurers are using technology, Lopez notes that many money fund investors still have to perform the majority of tasks manually.... In a post-pandemic world, technology and automation is going to become an integral part of both fund providers' and investors' business continuity plans, as organizations seek ways to become more operationally resilient and avoid the turmoil recently experienced."
Finally, yesterday's Wall Street Journal featured, "Goldman Goes Main Street With Push Into Corporate Bank Accounts." They wrote, "Goldman Sachs Group Inc. ... is trying to become a player in the staid business of managing corporate cash. The firm will soon begin marketing new bank accounts for corporate treasurers and chief financial officers to manage and move their cash. It is Chief Executive David Solomon's latest move to transform the bank, and it comes during a time of economic uncertainty and market turmoil that has clouded the outlook for companies big and small."
The Journal piece states, "Goldman is taking on the global commercial banks that dominate the business. Citigroup Inc., JPMorgan Chase & Co. and HSBC Holdings HSBC PLC, among others, move trillions of dollars for giant corporations and small businesses to help them meet payroll, pay vendors and manage global currency risk. Banks earned $32 billion from providing such services last year, according to research firm Coalition."
It adds, "Cash-management businesses earn money in three ways: by lending out corporate deposit dollars, through payment fees, and by charging customers to exchange currencies.... Goldman is currently paying between 0.10% and 0.35% interest on its customers’ deposits; companies, unlike consumers, can negotiate for a better deal. Goldman aims to bring in $50 billion of deposits and $1 billion in annual revenue from cash-management by 2025, President John Waldron told investors in January."
J.P. Morgan writes in its most recent "Short-Term Fixed Income" update that, "The latest MMF holdings data reveal yet another rise in T-bills in both government and prime MMFs. As discussed in more detail below, the percentage MMFs are allocating to T-bills has increased to record levels as of the end of May. But in contrast to April where flows into government MMFs prompted the increased exposure, last month's growth in T-bill holdings in MMFs was driven more by relative value considerations. Indeed, month over month, government AUMs fell by $62bn even as they increased their T-bill holdings by $287bn. Meanwhile, repo fell by $223bn. For prime funds, their AUMs increased by $59bn, but their Treasury holdings increased by $75bn while their credit holdings to banks and corporates fell by $26bn."
They explain, "[P]urchases of T-bills by MMFs focused predominately on the shorter end (i.e., less than 90 days) of the curve.... All else equal, we believe this issuance pattern should steepen the T-bills curve, particularly given our expectation that MMF balances should trend higher in 2H. That said, we suspect any sort of steepening will likely be capped/limited given interest among bank portfolios to invest their reserves as a spread over IOER. Anecdotal conversations suggest that engagement would begin if T-bills were trading around IOER + 5-10bp or OIS + 10-15bp. All told, the demand for front-end T-bills will likely remain strong, and in the face of less supply in the short-end relative to the long-end, this should steepen the curve until bank portfolios decide to step in and engage."
On May taxable MMF holdings, JPM comments, "As investors began to put on somewhat more risk last month, taxable MMF inflows were modest, with only $37bn entering the fund complex m/m.... Government funds saw outflows of $10bn while prime funds received a net inflow of $47bn, recouping more of their AUM losses from earlier this year.... Dealer repo ex-FICC decreased $141bn month over month, while exposure to FICC sponsored repo decreased $85bn to $136bn in May…. RRP usage was minimal at just $1bn. Given a 5-12bp disparity between bill yields and repo, most MMFs found relative value by investing in bills rather than repo."
They continue, "In fact, MMFs absorbed a clear majority of the newly issued T-bills last month.... While there was $628bn of net T-bill issuance in May, government funds and prime funds added $287bn and $75bn in bills m/m, respectively. Because of the massive shift in allocations towards T-bills, MMFs now comprise 45% of the T-bill market -- extending last month's rotation into bills.... T-bills now represent a larger fraction of both government and prime funds' portfolios. In both instances, the percentage allocated to T-bills has increased to record levels ... with purchases focused mainly on the shorter end of the bills curve.... The flows into prime funds (+$47bn) in May seem to have entirely found their way into Treasuries instead of credit."
Finally, JPM writes, "On the benchmark reform front, MMFs have continued to hold mostly SOFR Agency FRNs. We estimate that at month-end these funds held $335bn of SOFR FRNs versus $202bn of non-SOFR floaters.... In May, prime funds continued to de-risk, turning away from credit products and pivoting into Treasuries.... Bank CP/CD/TD exposures decreased $2bn.... At the individual issuer level, changes were largely idiosyncratic."
As a reminder, we will be hosting our second online event, "Crane's Money Fund Webinar: Portfolio Holdings Update," next Thursday, June 25 at 2:00pm (Eastern). The webinar will feature Crane Data's Peter Crane and J.P. Morgan Securities' Teresa Ho, who will give a 40 minute update on the latest trends in the money fund space with a focus on the latest Money Fund Portfolio Holdings data. The session will also include a Q&A and brief product training segment on Money Fund Portfolio Holdings data and information. (To register, click here.)
Crane Data's first webinar, "Crane's Money Fund Update & Training," aired May 21st. It featured Pete Crane reviewing recent events and trends involving money market mutual funds for 30 minutes, including discussions of asset flows, negative yield and a number of other topics. The webinar also included a brief, 15 minute tutorial on our Money Fund Intelligence Daily product. (See the bottom of our "Content" page for all of our Webinar and conference materials.)
In related news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of June 12) includes Holdings information from 79 money funds (up one from two weeks ago), which represent $2.571 trillion (down from $2.634 trillion) of the $5.122 trillion (50.2%) 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 June 10 News, "June Portfolio Holdings: Treasuries Skyrocket; Repo, Agencies Plunge.")
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.416 trillion (up from $1.395 trillion two weeks ago), or 55.1%, Repurchase Agreements (Repo) totaling $540.2 billion (down from $592.9 billion two weeks ago), or 21.0% and Government Agency securities totaling $407.4 billion (down from $440.5 billion), or 15.8%. Certificates of Deposit (CDs) totaled $74.2 billion (up from $72.6 billion), or 2.9% and Commercial Paper (CP) totaled $64.0 billion (up from $62.5 billion), or 2.5%. VRDNs accounted for $37.2 billion, or 1.4% and $32.4 billion or 1.3%, was listed in the Other category (primarily Time Deposits).
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.416 trillion (55.1% of total holdings), Federal Home Loan Bank with $239.6B (9.3%), Fixed Income Clearing Co with $85.9B (3.3%), Federal Farm Credit Bank with $65.9B (2.6%), BNP Paribas with $61.2B (2.4%), Federal National Mortgage Association with $54.6B (2.1%), Federal Home Loan Mortgage Corp with $45.2B (1.8%), RBC with $41.8B (1.6%), JP Morgan with $38.4B (1.5%) and Mitsubishi UFJ Financial Group Inc with $26.8B (1.0%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($245.5B), JP Morgan US Govt MMkt ($208.3B), Fidelity Inv MM: Govt Port ($179.0B), BlackRock Lq FedFund ($163.7B), Wells Fargo Govt MM ($138.1B), JP Morgan 100% US Treas MMkt ($133.7B), State Street Inst US Govt ($107.6B), Goldman Sachs FS Treas Instruments ($106.9B), Morgan Stanley Inst Liq Govt ($105.4B), BlackRock Lq T-Fund ($85.9B) and Dreyfus Govt Cash Mgmt ($85.6B). (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.)
Money market fund yields continue to bottom out just above zero -- our flagship Crane 100 inched down by just one basis point to 0.13% last week -- and expense ratios continue to inch lower as fee waivers slowly increase. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March, and is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over half of all money funds and over one quarter of MMF assets have already hit the zero floor, though many continue to show some yield. According to our Money Fund Intelligence Daily, as of Friday, 6/12, 459 funds (out of 849 total) yield 0.00% or 0.01% with assets of $1.398 trillion, or 27.6% of the total. There are 176 funds yielding between 0.02% and 0.10%, totaling $1.373 trillion, or 27.1% of assets; 128 funds yielded between 0.11% and 0.25% with $1.464 trillion, or 28.9% of assets; 78 funds yielded between 0.26% and 0.50% with $750.8 billion in assets, or 14.8%; and just four funds yield between 0.51% and 0.99% with $81.1 billion in assets or 1.6% (no funds yield over 1.00%).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.09%, down a basis point in the week through Friday, 6/12. The Crane Money Fund Average is down 38 bps from 0.47% at the beginning of April. Prime Inst MFs were down 3 bps to 0.22% in the latest week and Government Inst MFs were down a basis point to 0.06%. Treasury Inst MFs were flat at 0.05%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.02% (down a basis point in the last week), and Prime Retail MFs yield 0.13% (down three bps for the week), Tax-exempt MF 7-day yields dropped by 1 basis point to 0.04%.
Our Crane Brokerage Sweep Index, which hit the zero floor a little over two months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of June 12, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last eight weeks at 0.01% (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).
Monday's MFI Daily, with data as of June 12, shows Prime assets continuing their rebound with $6.2 billion of inflows, increasing their asset total to $1.125 trillion in the latest week. Government assets again experienced outflows, though, decreasing by $30.8B to $3.803 trillion. (We expect big outflows Monday due to the June 15 quarterly corporate tax payment date too.) Tax-Exempt MMFs decreased $488 million. Month-to-date money fund assets have fallen by $56.2 billion. Prime assets are up $19.8 billion MTD, while Government assets are down by $75.8 billion. Tax-Exempt MMFs decreased by $97 million.
According to the our separate monthly data series, our June MFI XLS, with data as of May 31, 480 funds (out of 932 total) now yield 0.00% or 0.01% with assets of $913.0 billion, or 18.2% of the total. There are 173 funds yielding between 0.02% and 0.10%, totaling $1.157 trillion, or 23.1% of assets; 165 funds yielded between 0.11% and 0.25% with $2.207 trillion, or 44.0% of assets; 93 funds yielded between 0.26% and 0.50% with $772.4 billion in assets, or 15.4%; and just 12 funds yield between 0.51% and 0.99% with $105.1 billion in assets or 2.1% (no funds yield over 1.00%). (Our June MFI XLS and craneindexes.xlsx files were revised last Monday to include the latest expense numbers from the SEC's Form N-MFP data set. Subscribers may download these via our "Content" center.)
Looking at our revised MFI XLS numbers, Charged Expenses as of May 31 averaged 0.26% (down 4 bps from last month) and 0.21% (down 3 bps), respectively for the Crane MFA and Crane 100. Expense ratios for Prime Inst MF averaged 0.27% (down 3 bps) while Government Inst MFs and Treasury Inst MFs both showed expenses at 0.21% (down 3 bps and 4 bps, respectively). Treasury Retail MFs expense ratio fell to 0.27% (down 7 bps), Government Retail MFs dropped to 0.25% (down 9 bps) and Prime Retail MFs were flat at 0.45%. Tax-exempt MF expenses were 0.33% (unchanged).
Our June MFI XLS, with May 31 data, shows 7-day yields dropping in May. Our broad Crane Money Fund Average 7-Day Yield fell 9 bps to 0.10% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 12 bps to 0.14%. Prime Inst MFs were down 20 bps to 0.26% in May and Government Inst MFs were down 8 bps at 0.07%. Treasury Inst MFs dropped by 6 basis point to 0.06%. Treasury Retail MFs currently yield 0.01%, (down a basis point for the month), Government Retail MFs yield 0.02% (down 3 bps), and Prime Retail MFs yield 0.17% (down 22 bps for the month), Tax-exempt MF 7-day yields dropped by 5 basis point to 0.06%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 14 bps at 0.36% and the Crane 100 fell to 0.35%. Prime Inst MFs were down 23 bps to 0.53% in the latest week and Government Inst MFs were down 10 bps at 0.28%. Treasury Inst MFs dropped by 9 basis point to 0.27%. Treasury Retail MFs currently yield 0.28%, (down 7 bps in the last month), Government Retail MFs yield 0.27% (down 12 bps in the last month), and Prime Retail MFs yield 0.62% (down 22 bps in May), Tax-exempt MF 7-day yields dropped by 5 basis point to 0.39%. (Let us know if you'd like to see our latest MFI XLS or MFI Daily.)
In other news, the June issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Core Bonds Focus of PIMCO's Scott Mather on AssetTV," which highlights PIMCO Total Return, and, "BlackRock on Treasury ETFs; Launches Ultra-Short SGOV," which quotes Karen Schenone on Treasuries. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields plunged and returns jumped in May. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our "PIMCO's Scott Mather" pieces says, "AssetTV features a video entitled, 'Straight From PIMCO: Core Bonds in Focus,' which tells us, "Scott Mather, CIO U.S. Core Strategies, discusses performance differences amid core bond funds, and how a focus on quality, liquidity and diversification has helped PIMCO Total Return provide portfolio ballast in this crisis.'"
Our BlackRock Treasury piece reads, "BlackRock Fixed Income Product Strategist Karen Schenone writes about the popularity of Treasury bonds in a new blog, 'Trending Now: Treasury ETFs.' She explains, 'The market volatility since the start of the COVID-19 crisis has highlighted one of the main reasons why investors own bonds: potential for principal protection. When the crisis first started in March and April, investors began to drastically shift their portfolios to cope with the new environment. As a result, short-term U.S. Treasuries have been a popular investment given the potential stability they can provide. Given their newfound popularity, let’s take a closer look at this critical sector.'"
Our Bond Fund News includes the brief, "Yields Plunge, Return Jump in May," which tells us, "Bond fund yields fell and returns jumped again last month. Our BFI Total Index returned 1.85% over 1-month and 3.48% over 12 months. The BFI 100 gained 1.53% in May and rose 4.91% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.55% over 1-mo and 1.87% over 1-yr; Ultra-Shorts averaged 0.95% in May and 1.20% over 12 mos. Short-Term returned 1.27% and 2.84%, and Intm-Term rose 1.15% last month and 6.57% over 1- year. BFI’s Long-Term Index returned 1.34% in May and 9.46% for 1-year; our High Yield Index rose 3.92% but is down 0.64% over 1-year."
In another News brief, we quote the Morningstar piece, "Who Won, or Lost, in the Bond Fund Sell-Off." Tom Lauricella comments on March's madness, "[I]t was really a double whammy. On the one hand, the initial wave of fear was liquidity-driven. Everything just sort of froze up. Concurrent with that, all of a sudden we started having that credit fear.... [O]nce it started to look like we could go for quite a while and companies could actually go belly up and so forth, then anything that had a real even whiff of credit risk -- and especially things like high yield and bank loans and so forth, they really took it on the chin."
Finally, BFI also features a sidebar that covers the Barron's piece, "The Future of ETFs." It explains, "Exchange-traded funds, long maligned as the harbinger of the next crisis, have become the quiet and unlikely champions of the coronavirus bond market. During the critical week of March 23, when bond trading dried up, ETFs played a vital role. The iShares iBoxx High Yield Corporate Bond (HYG) traded 168,000 times a day, while its top five underlying holdings traded only 25 times a day. It was a similar case for iShares iBoxx Investment Grade Corporate Bond (LQD). This allowed institutional and individual bond investors to manage their portfolios; that ability to trade actually helped set, or predict, the prices of the underlying bonds."
Crane Data's MFI International shows assets in European or "offshore" money market mutual assets rising again over the past month, after breaking above $1.0 trillion for the first time ever two months ago. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $32.8 billion over the last 30 days to $1.034 trillion; they're up by $157.1 billion year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are up $20.0 billion over the last 30 days and are up $51.4 billion YTD. Euro funds are up just 103 million over the previous 30 days, but YTD they're up E24.9 billion. GBP funds have risen by L9.8 billion over 30 days, and are up by L43.0 billion YTD. U.S. Dollar (USD) money funds (192) account for over half ($545.9 billion, or 52.8%) of the "European" money fund total, while Euro (EUR) money funds (92) total E123.5 billion (13.2%) and Pound Sterling (GBP) funds (123) total L268.0 billion (31.4%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.
Offshore USD MMFs yield 0.24% (7-Day) on average (as of 6/11/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.51% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.16%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's June MFII Portfolio Holdings, with data as of 5/31/20, show that European-domiciled US Dollar MMFs, on average, consist of 22.8% in Commercial Paper (CP), 15.1% in Certificates of Deposit (CDs), 13.1% in Repo, 33.3% in Treasury securities, 13.7% in Other securities (primarily Time Deposits) and 1.9% in Government Agency securities. USD funds have on average 33.0% of their portfolios maturing Overnight, 5.6% maturing in 2-7 Days, 15.6% maturing in 8-30 Days, 15.5% maturing in 31-60 Days, 11.5% maturing in 61-90 Days, 15.0% maturing in 91-180 Days and 3.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.8%), France (12.7%), Canada (7.2%), Japan (6.5%), the United Kingdom (5.6%), Sweden (4.9%), the Netherlands (4.1%), Germany (3.9%), Switzerland (2.1%), Australia (2.1%), Belgium (1.7%), China (1.7%), Norway (1.3%) and Singapore (1.0%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $202.7 billion (32.4% of total assets), Barclays PLC with $16.8B (2.7%), Credit Agricole with $16.7B (2.7%), BNP Paribas with $16.1B (2.6%), Bank of Nova Scotia with $12.5B (2.0%), Credit Mutuel with $10.5B (1.7%), Mizuho Corporate Bank Ltd with $10.3B (1.7%), Mitsubishi UFJ Financial Group Inc with $10.1B (1.6%), Scandinaviska Enskilda Banken AB with $9.7B (1.6%) and Natixis with $9.4B (1.5%).
Euro MMFs tracked by Crane Data contain, on average 42.5% in CP, 15.6% in CDs, 26.2% in Other (primarily Time Deposits), 12.2% in Repo, 3.1% in Treasuries and 0.4% in Agency securities. EUR funds have on average 31.3% of their portfolios maturing Overnight, 11.4% maturing in 2-7 Days, 12.1% maturing in 8-30 Days, 19.3% maturing in 31-60 Days, 13.4% maturing in 61-90 Days, 11.2% maturing in 91-180 Days and 1.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.6%), the U.S. (11.2%), Japan (9.5%), Germany (9.5%), Sweden (6.8%), the Netherlands (5.8%), the U.K. (5.6%), Belgium (4.8%), Switzerland (4.4%), Canada (3.5%), China (1.8%), Finland (1.3%) and Abu Dhabi (1.2%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.6B (5.5%), BNP Paribas with E6.3B (5.3%), BPCE SA with E4.9B (4.1%), Societe Generale with E4.7B (3.9%), Mizuho Corporate Bank with E4.5B (3.8%), Republic of France with E3.9B (3.2%), Svenska Handelsbanken with E3.7B (3.1%), Bank of America with E3.5B (2.9%), Mitsubishi UFJ Financial Group Inc with E3.4B (2.8%) and ING Bank with E3.3B (2.8%).
The GBP funds tracked by MFI International contain, on average (as of 5/31/20): 30.6% in CDs, 20.5% in CP, 25.3% in Other (Time Deposits), 16.0% in Repo, 7.2% in Treasury and 0.3% in Agency. Sterling funds have on average 34.5% of their portfolios maturing Overnight, 7.5% maturing in 2-7 Days, 11.6% maturing in 8-30 Days, 14.4% maturing in 31-60 Days, 14.8% maturing in 61-90 Days, 14.1% maturing in 91-180 Days and 3.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the U.K. (21.8%), France (17.9%), Japan (13.7%), Canada (9.2%), Germany (5.7%), the Netherlands (5.3%), the U.S. (4.8%), Sweden (3.9%), Australia (3.2%), Singapore (2.6%) and Switzerland (2.3%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L34.4B (14.7%), Mizuho Corporate Bank Ltd with L12.1B (5.2%), BNP Paribas with L9.1B (3.9%), BPCE SA with L7.2B (3.1%), RBC with L6.6B (2.8%), Credit Agricole with L6.5B (2.8%), Sumitomo Mitsui Banking Corp with L5.9B (2.5%), Nordea Bank with L5.8B (2.5%), Mitsubishi UFJ Financial Group Inc with L5.8B (2.5%) and Standard Chartered Bank with L5.2B (2.2%).
In related news, last week Fitch Ratings hosted a webinar entitled, "European MMF Update – Liquidity, credit risk and sterling yields featuring Alastair Sewell and Minyu Wang. They tell us, "Now, negative yields is something money market funds, of course, have seen before in Euro.... Euro denominated money market funds have been in negative territory for a considerable period of time [since] 2014 and 2015 .... EONIA ... turned negative several months before the yield on the money market funds turned negative. The important takeaway here is that money market funds can withstand negative rates on extremely short rate indexes for a period of time, before necessarily themselves having negative yields."
Sewell explains, "The reason that is possible is because of the maturity transformation that the money market funds effect.... They can only invest out to a year, so their ability to transform maturities is negligible. But the fact that they can do that gives them the ability to eke out some incremental yield over the shortest of rates and therefore to potentially maintain a marginally positive yield, even during a period in which the shortest rates, in fact, themselves are negative. In the case of Europe, both the shortest and longer dated rates subsequently went negative, which forced money market funds into negative yielding territory as well, in the first quarter of 2015."
He tells us, "The other point to highlight here is the spread between the gross and the net yield.... You can see that the spread between the gross and the net yield shrinks as the money market funds get closer to ... where they go into negative territory. So `this is in evidence of the funds waiving fees in order to preserve a net yield in excess of zero for as long as possible. Once yields had actually turned negative ... the gross net spread widens again, indicating the funds did, in fact begin charging fees again. So, take away number two is that the funds will do everything they can to avoid getting into negative yield. That includes, obviously, what they can control on the asset side of their portfolios [and] on the liability side.... There is no contractual obligation for them to do that, it's as a matter of choice by the managers. But we see the evidence that it happened."
Sewell asks, "When this happened in euros, what was the investor reaction? Well ... once yields turned negative, investors withdrew from Euro money market funds ... and there were outflows. Overall outflows weren't actually that severe ... and they were really managed by the funds without any issues. [Then] after a period of fairly flat assets, you actually started seeing money coming back into the Euro money market funds, despite the fact that they were resolutely negative by that point. And to us, that indicates that investors pulled money out of money market funds, hoping to find suitable replacement products. [But] they concluded that the alternative options were not sufficiently attractive to them and chose to come back in to money market funds due to this lack of palatable alternatives."
He adds, "Now, this was eased, of course, back in 2015 because money market funds were able to cancel shares.... However, this practice was outlawed in the European money market fund reform process. [Now] the principal mechanism would be to transfer investors in 'distributing' share classes [into] 'accumulating' share classes.... So, investors in an LVNAV in a negative market environment would still be in an LVNAV [that would] decrease very slowly in value overtime. But fundamentally, they would be in the same product.... All that would really change from an investor perspective is the need to move to an accumulating share class to comply with the requirements of the European money market fund reform.... It would seem to me that there is a greater sensitivity for negative rates in Sterling than there is in dollars based on current market conditions."
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") yesterday. Among the 4 tables it includes on money market mutual funds, the First Quarter 2020 edition shows that Total MMF Assets increased by $703.7 billion to $4.338 trillion in Q1'20, confirming the gigantic buildup of cash during the March coronavirus shutdown. The Household Sector, by far the largest investor segment with $2.648 trillion, saw assets jump in Q1, as did the next largest segment, Nonfinancial Corporate Businesses, as both businesses and individuals scrambled to get liquid in March.
The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show a slight asset increase in MMF holdings for the Other Financial Business (formerly Funding Corporations) and the Rest of the World category in Q1 2020. Private Pension Funds, Nonfinancial Noncorporate Business, Life Insurance Companies and State & Local Government Retirement also saw assets increase in Q1. State & Local Govts and Property-Casualty Insurance, were the only segments to see decreases. Over the past 12 months, the Household Sector, Nonfinancial Corporate Businesses and Other Financial Business showed the biggest asset increases. Every category showed except Property-Casualty Insurance saw increases over the past year.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $695 billion, or 19.1%, in the first quarter to $4.338 trillion. Over the year assets were up $1.259 trillion, or 40.9%. The largest segment, the Household sector, totals $2.648 trillion, or 61.0% of assets. The Household Sector jumped by $500 billion, or 23.3%, in the quarter, after increasing $85 billion in Q4'19. Over the past 12 months through Q1'20, Household assets were up $822 billion, or 45.0%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $666 billion, or 15.4% of the total. Assets here rose by $89 billion in the quarter, or 15.5%, and they've increased by $194 billion, or 41.0%, over the past year. Other Financial Business was the third-largest investor segment with $334 billion, or 7.7% of money fund shares. They rose by $25 billion, or 8.0%, in the latest quarter. Other Financial Business has increased by $82 billion, or 32.7%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds held 4.0% of money fund assets ($173 billion), up by $8 billion (4.8%) for the quarter, and up $12 billion, or 7.1%, for the year. The Rest of the World, category which held $155 billion (3.6%), was in 5th place. The Nonfinancial Noncorporate Business remained sixth place in market share among investor segments with 3.3%, or $142 billion, while Life Insurance Companies held $92 billion (2.1%), State and Local Government Retirement Funds held $83 billion (1.9%), State and Local Governments held $24 billion (0.6%) and Property-Casualty Insurance held $22 billion (0.5%) according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $2.569 trillion, or 59.2% of the total. Debt securities includes: Open market paper ($225 billion, or 5.2%; we assume this is CP), Treasury securities ($1.268 trillion, or 29.2%), Agency and GSE-backed securities ($931 billion, or 21.5%), Municipal securities ($131 billion, or 3.0%) and Corporate and foreign bonds ($19 billion, or 0.5%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($1.468 trillion, or 33.8% of total assets) and Time and savings deposits ($239 billion, or 5.5%). Money funds also hold minor positions in Miscellaneous assets ($84 billion, or 1.9%), Foreign deposits ($4 billion, 0.1%) and Checkable deposits and currency (-$26 billion, -0.6%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $47 billion.
During Q1, Debt Securities were up $387 billion. This subtotal included: Open Market Paper (down $12 billion), Treasury Securities (up $231 billion), Agency- and GSE-backed Securities (up $176 billion), Corporate and Foreign Bonds (down $5 billion) and Municipal Securities (down $3 billion). In the first quarter of 2020, Security Repurchase Agreements were up a huge $293 billion, Foreign Deposits were down $4 billon, Checkable Deposits and Currency were down $27 billion, Time and Savings Deposits were down by $19 billion, and Miscellaneous Assets were up $73 billion.
Over the 12 months through 3/31/19, Debt Securities were up $674B, which included Open Market Paper up $9B, Treasury Securities up $388B, Agencies up $275B, Municipal Securities (down $4), and Corporate and Foreign Bonds (up $5B). Foreign Deposits were up $2 billon, Checkable Deposits and Currency were up $6B, Time and Savings Deposits were up $14B, Securities repurchase agreements were up $488B and Miscellaneous Assets were up $75B.
Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."
Federated Hermes President and CEO J. Christopher Donahue and President Ray Hanley presented earlier this week at Morgan Stanley's "Virtual US Financials Conference," where they discussed recent money fund flows, fee waivers and implication of recent Fed support programs. Donahue comments, "The money market growth so far in 2020 is $80 billion, which is about 20 percent. As you know, money markets tend to shine when things are unsettled, but we notice that money markets do well in higher rates too. Our whole history is a history of higher highs and higher lows." We quote from the Federated session below, and we also review recent comments from Bank of England's Jon Cunliffe on money funds.
Host Mike Cyprys comments, "We saw during the recent crisis over a trillion dollars of inflows across the industry into money funds, most of it into institutional 'govie' funds. Is that mostly pension fund clients? Just curious what types of clients [were] driving these inflows?" Donahue answers, "We would say about 90 percent of our growth came from institutional clients, and that includes wealth management, bank trust, corporations. The other 10 percent would be retail, broker dealers, sweeps, things like that.... There's a bunch of that money that's CARES money, that's PPP money, and that money was designed to come in and go out and get forgiven. So, you would expect some of it to have that kind of a character."
He continues, "Not all the money was a pure flight to safety type money, and that's an important thing to consider. Now, when you say, 'Well, gee wiz what would it take to have all this flow out?' Well, I already told you about some of the money that's being used, that's what happens with cash. We think that if rates are at all higher that sure helps the money funds. In past cycles with rates going up, ... the money funds will get there sooner than the bank deposit rates.... Our house view is that the Fed isn't going to do anything to rates anyway and we're going to be living in this type of environment. But we have seen things like Repo rates go up a basis point or so over the last day or two, little things like that."
On fee waivers, Donahue comments, "Well, we are not going to change what we said at the other conference and at the quarter end, which was: We estimate $3 million of reduction in Q2 operating income from what we call money market fund minimum yield waivers. So, we're staying with that. That's based on our investment team's outlook on the asset level and the mix at the time."
Hanley comments, "In terms of the reinvestment rates, you're right. We've seen Libor come in and concur with the actions that the Fed took in that market. You can see the rates that are out there. We can go out in a money fund out beyond one year, 397 days, but of course much of the portfolio is very short. So we're just under 20 basis points in terms of 1-month Libor, and a bit more going up to three. On the government side, where we've seen the bill rates jump a bit, as Chris mentioned, we're up into the teens on 3- and 6-months, the mid to upper teen levels. On the repo rates, which is where a lot of the portfolios need to be to provide liquidity, we've seen a couple basis point improvement there over the last week or two. So, we're seeing six to 11 basis points on different types of Repo, Treasury and MBS and weekly Muni."
When asked how waivers this time might be different from 2009-2015, Donahue explains, "It's always a multifaceted calculation. It's a function of both the rates and the volume and what kind of funds. In our case ... a big factor is the distribution expenses. So today our assets are higher than they were in '08, and we are more concentrated in Government money funds compared to Prime and Munis than before. Government funds ... have lower yields and so they could run into minimum yield waivers faster. But, we also have much more assets at lower fee levels, which means they run into waivers later than the last cycle. And there were a lot of funds that we had before that were in sweep vehicles which are now in bank deposits, and those ran into waivers earlier in the cycle. It's just very, very difficult to try and build a model to take care of all of these factors, to come up with an estimate. So there are a lot of differences, but the money fund remains very, very solid cash management vehicle."
Earlier this week, the Bank of England's Jon Cunliffe gave a speech entitled, "Financial System Resilience: Lessons from a real stress," which discussed money funds and short-term funding issues. He states, "Within the investment fund universe, we need to look at the related question of whether actual or prospective redemption requests generated additional pressures for funds invested in illiquid assets, how well liquidity management tools operated under stress and whether we saw any emergence of first mover advantages that could have created 'run' dynamics. One important element in the amplification of liquidity pressure appears to have been the unwinding of large positions in interest rate markets, particularly US Treasuries, by very highly leveraged hedge funds."
Cunliffe explains, "As the search for liquidity intensified, money market funds (MMFs) came under pressure. Post crisis reforms in the US and in other jurisdictions had sought to make MMFs stable under stress, to reduce 'first mover' advantages and incentives for investors to 'run'. However, under the recent stress, MMFs appear again to have been a source of vulnerability in the system. As the demand for liquidity grew and market participants drew down their investments in money markets, MMFs saw substantial withdrawals. However, as many funds tried to liquidate their assets (largely commercial paper) to meet redemptions, they found the markets effectively closed."
He tells us, "Some MMFs came very close to regulatory liquidity thresholds and to the point at which they would have to suspend or 'gate' withdrawals, which could in turn have triggered contagion to other MMFs and severely exacerbated the overall stress in the financial system. Various direct and indirect central bank actions helped to avoid this outcome. We need to look at whether, despite the post crisis reforms, investors conceive of MMFs as equivalent to deposit accounts and whether MMFs have the resilience to meet the meet the consequent liquidity demands in a severe stress. We should also explore the liquidity characteristics under stress of some of the underlying assets, like bank commercial paper, on which MMFs depend for liquidity."
Cunliffe also says, "As well as looking at what drove and amplified the search for liquidity, we will I think need to examine why the core funding markets were overwhelmed by the demand, amplifying further the pressures in the system. There have been warning signs that these markets might prove unable to transmit liquidity under stressed conditions. It is not clear whether this is due to the role of regulation such as the leverage ratio as has been claimed or to the increasing risks to dealers as government bond prices fell or some combination of the two. But as with CCP margin, it is important that we remember the reasons for the regulatory reforms in this area."
Finally, he adds, "As I have noted, one of the key differences between this crisis and the financial crisis has been the ability of the core banks to absorb a very severe financial market shock. We should not put that at risk by weakening the regulation of banks. If we want to increase the overall resilience of the system we cannot simply lower resilience in one area in order to strengthen it in another. Rather we need to look at other ways to reduce surges in the demand for liquidity and improve the supply of liquidity under stress."
Bloomberg Law first wrote about the news in its piece, "Money Fund Industry Draws BOE Scrutiny After March Market Strain." They tell us, "The multi trillion-dollar money market fund industry was a source of 'vulnerability' in the financial system at the height of the coronavirus crisis and demands closer scrutiny, said Jon Cunliffe, a Bank of England deputy governor. Cunliffe told a web conference on Tuesday that regulators must look at whether the funds are invested in liquid assets that can be easily sold to meet redemptions during times of stress."
Crane Data released its June Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of May 31, 2020, shows another jump in Treasuries and big drops in Government Agency Debt and Repo last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $31.6 billion to $5.122 trillion last month, after increasing a staggering $529.4 billion in April and $725.6 billion in March (and $5.0 billion in February). Treasury securities moved towards the $2.5 trillion level, and remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)
Among taxable money funds, Treasury securities jumped by $355.9 billion (16.7%) to $2.484 trillion, or 48.5% of holdings, after increasing $795.7 billion in April, $303.1 billion in March, and $10.4 billion in February. Repurchase Agreements (repo) decreased by $216.7 billion (-16.8%) to $1.071 trillion, or 20.9% of holdings, after decreasing $238.4 billion in April and increasing $225.1 billion in March and $10.9 billion in February. Government Agency Debt decreased by $99.8 billion (-9.6%) to $944.4 billion, or 18.4% of holdings, after increasing $6.9 billion in April and $292.5 billion in March but decreasing $9.7 billion in February. Repo, Treasuries and Agencies totaled $4.499 trillion, representing a massive 87.8% of all taxable holdings.
Money funds' holdings of CDs and Other (mainly Time Deposits) securities fell in May while VDRN and CP holdings rose. Commercial Paper (CP) increased $5.2 billion (1.8%) to $293.2 billion, or 5.7% of holdings, after decreasing $11.9 billion in April, $24.1 billion in March and $1.2 billion in February. Certificates of Deposit (CDs) fell by $7.4 billion (-3.3%) to $217.3 billion, or 4.2% of taxable assets, after increasing $12.6 billion in April, but falling $74.3 billion in March and $3.8 billion in February. Other holdings, primarily Time Deposits, decreased $5.7 billion (-5.9%) to $91.7 billion, or 1.8% of holdings, after decreasing by $5.7 billion in April, $8.0 billion in March and $1.5 billion in February. VRDNs increased to $20.6 billion, or 0.4% of assets, from $20.4 billion the previous month. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)
Prime money fund assets tracked by Crane Data increased $59.0 billion to $1.135 trillion, or 22.2% of taxable money funds' $5.122 trillion total. Among Prime money funds, CDs represent 19.1% (down from 20.9% a month ago), while Commercial Paper accounted for 25.7% (down from 26.7%). The CP totals are comprised of: Financial Company CP, which makes up 12.1% of total holdings, Asset-Backed CP, which accounts for 6.0%, and Non-Financial Company CP, which makes up 7.6%. Prime funds also hold 5.0% in US Govt Agency Debt, 27.9% in US Treasury Debt, 3.8% in US Treasury Repo, 0.7% in Other Instruments, 4.8% in Non-Negotiable Time Deposits, 4.3% in Other Repo, 5.2% in US Government Agency Repo and 1.0% in VRDNs.
Government money fund portfolios totaled $2.656 trillion (51.9% of all MMF assets), down $34.0 billion from $2.690 trillion in April, while Treasury money fund assets totaled another $1.330 trillion (26.0%), down from $1.354 trillion the prior month. Government money fund portfolios were made up of 33.4% US Govt Agency Debt, 13.1% US Government Agency Repo, 38.3% US Treasury debt, 14.7% in US Treasury Repo, 0.2% in VRDNs and 0.2% in Investment Company. Treasury money funds were comprised of 86.3% US Treasury Debt, 13.6% in US Treasury Repo and 0.1% U.S. Government Agency Debt. Government and Treasury funds combined now total $4.044 trillion, or 78.9% of all taxable money fund assets.
European-affiliated holdings (including repo) fell by $76.6 billion in May to $639.2 billion; their share of holdings fell to 12.5% from last month's 14.0%. Eurozone-affiliated holdings fell to $435.3 billion from last month's $461.9 billion; they account for 8.5% of overall taxable money fund holdings. Asia & Pacific related holdings decreased $25.5 billion to $290.3 billion (5.7% of the total). Americas related holdings jumped $99.0 billion to $4.185 trillion and now represent 81.7% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $147.9 billion, or -19.4%, to $615.5 billion, or 12.0% of assets); US Government Agency Repurchase Agreements (down $69.7 billion, or -14.6%, to $406.3 billion, or 7.9% of total holdings), and Other Repurchase Agreements (up $0.9 billion, or 1.9%, from last month to $49.2 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $28.1 billion to $137.9 billion, or 2.7% of assets), Asset Backed Commercial Paper (up $5.8 billion to $68.5 billion, or 1.3%), and Non-Financial Company Commercial Paper (up $27.6 billion to $86.8 billion, or 1.7%).
The 20 largest Issuers to taxable money market funds as of May 31, 2020, include: the US Treasury ($2,483.5 billion, or 48.5%), Federal Home Loan Bank ($606.4B, 11.8%), Fixed Income Clearing Co ($136.2B, 2.7%), BNP Paribas ($128.4B, 2.5%), Federal National Mortgage Association ($123.7B, 2.4%), RBC ($115.7B, 2.3%), Federal Farm Credit Bank ($107.6B, 2.1%), Federal Home Loan Mortgage Co ($101.5B, 2.0%), JP Morgan ($99.8B, 1.9%), Mitsubishi UFJ Financial Group Inc ($65.0B, 1.3%), Barclays ($60.0B, 1.2%), Sumitomo Mitsui Banking Co ($59.5B, 1.2%), Credit Agricole ($54.7B, 1.1%), Citi ($50.9B, 1.0%), Societe Generale ($46.2B, 0.9%), Toronto-Dominion Bank ($39.3B, 0.8%), Bank of Nova Scotia ($38.7B, 0.8%), Bank of America ($37.7B, 0.7%), Canadian Imperial Bank of Commerce ($36.8B, 0.7%) and Bank of Montreal ($35.4B, 0.7%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($136.2B, 12.7%), BNP Paribas ($117.3B, 11.0%), JP Morgan ($89.7B, 8.4%), RBC ($89.0B, 8.3%), Mitsubishi UFJ Financial Group ($45.0B, 4.2%), Citi ($41.5B, 3.9%), Barclays ($39.4B, 3.7%), Sumitomo Mitsui Banking Corp ($39.1B, 3.7%), Credit Agricole ($38.8B, 3.6%) and Societe Generale ($35.6B, 3.3%). Fed Repo positions among MMFs on 5/31/20 included: Franklin US Govt Money Market Fund ($1.3B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($26.7B, 5.2%), Toronto-Dominion Bank ($25.4B, 5.0%), Barclays ($20.6B, 4.1%), Sumitomo Mitsui Banking Co ($20.4B, 4.0%), Mitsubishi UFJ Financial Group ($20.5B, 3.9%), Bank of Nova Scotia ($19.1B, 3.8%), Canadian Imperial Bank of Commerce ($17.4B, 3.4%), Credit Agricole ($15.9B, 3.1%) and Mizuho Corporate Bank Ltd ($14.9B, 2.9%).
The 10 largest CD issuers include: Sumitomo Mitsui Banking Co ($15.8B, 7.3%), Mitsubishi UFJ Financial Group Inc ($15.1B, 7.0%), Toronto-Dominion Bank ($11.6B, 5.4%), Sumitomo Mitsui Trust Bank ($11.5B, 5.3%) Bank of Montreal ($10.6B, 4.9%), Svenska Handelsbanken ($10.3B, 4.7%), Bank of Nova Scotia ($10.1B, 4.7%), Natixis ($10.1B, 4.6%), Credit Suisse ($7.4B, 3.4%) and Nordea Bank ($7.4B, 3.4%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($20.0B, 8.1%), Toronto-Dominion Bank ($13.3B, 5.4%), Societe Generale ($10.1B, 4.1%), JP Morgan ($10.1B, 4.1%), Canadian Imperial Bank of Commerce ($9.6B, 3.9%), Bank of Nova Scotia ($8.5B, 3.5%), BNP Paribas ($8.3B, 3.4%), NRW.Bank ($7.9B, 3.2%), Caisse des Depots et Consignations ($7.6B, 3.1%) and ING Bank ($7.2B, 2.9%).
The largest increases among Issuers include: the US Treasury (up $346.3B to $2,483.5 trillion), Federal National Mortgage Association (up $4.4B to $123.7B), Nordea Bank (up $4.3B to $11.9B), Sumitomo Mitsui Trust Bank (up $2.5B to $18.9B), Australia & New Zealand Banking Group Ltd (up $1.4B to $14.3B), Landesbank Baden-Wurttemberg (up $0.9B to $8.5B), Norinchukin Bank (up $0.6B to $14.2B), Daiwa Securities Group Inc (up $0.4B to $11.1B), NRW.Bank (up $0.4B to $8.3B) and ABN Amro Bank (up $0.2B to $13.8B).
The largest decreases among Issuers of money market securities (including Repo) in May were shown by: Federal Home Loan Bank (down $103.7B to $606.4B), Fixed Income Clearing Corp (down $84.6B to $136.2B), Barclays PLC (down $25.5B to $60.0B), JP Morgan (down $16.0B to $99.8B), Credit Agricole (down $12.2B to $54.7B), RBC (down $9.9B to $115.7B), HSBC (down $9.9B to $33.1B), Mizuho Corporate Bank Ltd (down $8.6B to $29.2B), Citi (down $8.5B to $50.9B) and Mitsubishi UFJ Financial Group Inc (down $7.7B to $65.0B).
The United States remained the largest segment of country-affiliations; it represents 76.2% of holdings, or $3.901 trillion. France (5.7%, $292.5B) was number two, and Canada (5.5%, $283.7B) was third. Japan (4.7%, $239.0B) occupied fourth place. The United Kingdom (2.4%, $125.1B) remained in fifth place. Germany (1.4%, $71.8B) was in sixth place, followed by The Netherlands (1.2%, $60.6B), Australia (0.8%, $38.4B), Sweden (0.7%, $36.1B) and Switzerland (0.6%, $30.2B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of May 31, 2020, Taxable money funds held 32.4% (down from 33.3%) of their assets in securities maturing Overnight, and another 10.3% maturing in 2-7 days (down from 11.0% last month). Thus, 42.7 % in total matures in 1-7 days. Another 18.3% matures in 8-30 days, while 13.9% matures in 31-60 days. Note that over three-quarters, or 74.9% 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 9.8% of taxable securities, while 13.0% matures in 91-180 days, and just 2.3% matures beyond 181 days.
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out late Tuesday morning, and we'll be writing our normal monthly update on the May 31 data for Wednesday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (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 May 31, 2020, includes holdings information from 1,076 money funds (up 31 from last month), representing assets of a record $5.321 trillion (up $13 billion). We review the new N-MFP data below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.506 trillion (up from $2.118 trillion), or 47.1%, Repurchase Agreement (Repo) holdings in money market funds totaled $1.078 trillion (down from $1.251 trillion), or 20.3% of all assets and Government Agency securities totaled $962.3 billion (down from $1.037 trillion), or 18.1%. Holdings of Treasuries, Government agencies and Repo (the vast majority of which is backed by Treasuries and agencies) combined total $4.546 trillion, or 85.5% of all holdings.
Commercial paper (CP) totals $303.4 billion (up from $296.8 billion), or 5.7%, and Certificates of Deposit (CDs) total $219.6 billion (down from $227.1 billion), or 4.1%. The Other category (primarily Time Deposits) totals $137.2 billion (down from $147.9 billion), or 2.6%, and VRDNs account for $114.0 billion (up from $113.8 billion last month), or 2.1%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $171.6 billion, or 3.2%, in Financial Company Commercial Paper; $61.5 billion or 1.2%, in Asset Backed Commercial Paper; and, $70.3 billion, or 1.3%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($620.2B, or 11.7%), U.S. Govt Agency Repo ($409.8B, or 7.7%) and Other Repo ($48.4B, or 0.9%).
The N-MFP Holdings summary for the 221 Prime Money Market Funds shows: Treasury holdings of $325.9 billion (up from $248.9 billion), or 28.2%; CP holdings of $297.6 billion (up from $291.1 billion), or 25.7%; CD holdings of $219.6 billion (down from $227.1 billion), or 19.0%; Repo holdings of $153.9 billion (down from $156.3 billion), or 13.3%; Other (primarily Time Deposits) holdings of $90.0 billion (down from $92.9 billion), or 7.7%; Government Agency holdings of $57.9 billion (down from $62.3 billion), or 5.0%; and VRDN holdings of $12.8 billion (up from $12.6 billion), or 1.1%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $171.6 billion (down from $179.8 billion), or 14.8% in Financial Company Commercial Paper; $61.5 billion (up from $54.3 billion) or, 5.3% in Asset Backed Commercial Paper; and $64.5 billion (up from $57.0 billion), or 5.6% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($45.6 billion, or 3.9%), U.S. Govt Agency Repo ($59.9 billion, or 5.2%), and Other Repo ($48.4 billion, or 4.2%).
In related news, J.P. Morgan writes in a recent "Mid-Week US Short Duration Update," that, "Over the past month, total MMF balances have held steady at around $4.5tn as the events from late March have faded into the rearview mirror. Thanks to some of the early intervention brought in by the Fed (i.e., PDCF and MMLF), prime MMF balances have grown by $100bn since the end of March to $745bn, retracing nearly two-thirds of the assets lost at the onset of the crisis. Meanwhile government MMF assets, after a meteoric rise over March and April, have largely plateaued at around $3.8tn.... Even so, prime funds are holding more liquidity than ever before outside of the MMF reform episode in 2016 (the 7d liquidity bucket is at 49%). At the same time, government MMFs must think about how to stay fully invested when Treasury decides to shift its issuance towards coupons instead of bills later this year."
They continue, "But while the issues of liquidity and supply have receded for the time being, another is rising -- that is, zero interest rate policy. Since the Fed first engaged in emergency rate cuts in early March, gross prime and government yields have plummeted by 120bp and 126bp to 0.60% and 0.36% respectively.... This makes sense, particularly with government MMFs, as repo, bills, and discos have been trading inside of 30bp during the better part of this time period, significantly dragging fund yields down along with them. Once we factor in expense ratios, which based on Crane Data have a median of 27bp (25% percentile is 27bp, 75% percentile is 45bp), it's not surprising that 43% of fund share classes (mostly government funds) currently have net yields of 0.00% or 0.01%. Were it not for fee waivers, which some funds have already employed, net yields to shareholders would have otherwise been negative."
JPM adds, "This then raises the question: how long can this persist? Many fund complexes endured the original ZIRP period (the 'OZ') which lasted six years from Dec 2008 to Dec 2015. While rates were low, they were nonetheless positive, allowing funds to offset some of their costs of running a money fund even when they provided fee waivers to their clients. Others approached the low rate environment by soft closing their funds. Both of these OZ tactics are being reused today as bills/discos are now trading inside of 15bp, leading to a variety of funds to announce fee waivers and/or soft closes. We expect to see more of this."
The brief asks, "Perhaps more critically, what happens to MMFs if the Fed decides to engage in negative rates (NIRP)? At -25bp, there would be no yield to offset the costs of running a money fund; rather, negative rates would only add to it. Soft closing a fund would not help as assets would still be reinvested at negative rates. At that point, we have to assume that some sort of reverse distribution mechanism would have to be put in place to deal with negative rates should NIRP eventually become a reality. This type of process was used for a time by some MMFs operating in Europe. However, it has not been used in the US and would need to be structured into US funds. Multiple fund managers have indicated to us that they are currently investigating including this type of mechanism, in case market rates head lower."
Finally, Ignites also (again) writes about the issue in "Fearing Negative Yields, Money Funds Explore Their Options." They explain, "The $4.7 trillion money market fund industry is preparing for the products' yields to enter negative territory, even if the threat is not imminent.... During the roughly seven-year period of ultra-low rates following the 2008 financial crisis, the industry waived fees on money funds to maintain zero or positive yields. Money fund yields never dipped into negative territory, though. With interest rates once again in a range of 0 to 0.25%, and heightened concerns around negative money fund yields, U.S. sponsors are exploring a tactic that European shops have used to cope with negative rates, known as reverse distribution mechanism."
The article continues, "Treasury and government money market funds can adopt floating net asset values, but none have. Consequently, they are essentially set up to operate at a $1.00-per-share net asset value. The reverse distribution mechanism would allow such money funds to keep a stable $1.00-per-share net asset value despite negative yields' weighing down their underlying holdings. This is done by passing on negative yields to shareholders through canceling the appropriate number of fund shares, fund commentaries explain.... The reverse distribution mechanism would be used when fee waivers are 'impractical' -- that is, in a true negative yield environment when funds would have to waive most or all of their fees, says Peter Crane, CEO of Crane Data."
Ignites quotes Citi's Sean Tuffy, "It's an open question whether it's allowed in the U.S." They write, "European money funds used the approach for several years to deal with negative interest rates. However, the European Securities and Markets Authority said in December 2018 that the tool would no longer be allowed. The regulator viewed share cancellation as being inconsistent with broader reforms and voiced concerns about shareholder fairness, Tuffy says. The Investment Company Institute is 'having ongoing discussions' with the SEC about possible alternatives to handle negative yields on money funds, including reverse distribution mechanisms, according to a statement from ICI general counsel Susan Olson."
Crane Data's latest Money Fund Market Share rankings show assets increased for over half of U.S. money fund complexes in May. Money market fund assets increased $31.5 billion, or 0.6%, last month to a record $5.160 trillion. Assets have risen by $1.191 trillion, or 30.0%, over the past 3 months, and they've increased by $1.660 trillion, or 47.4%, over the past 12 months through May 31, 2020. The biggest increases among the 25 largest managers last month were seen by Goldman Sachs, JP Morgan, Wells Fargo, Vanguard, Northern and Schwab, which increased assets by $31.1 billion, $16.9B, $8.1B, $7.9B, $6.8B and $4.8B, respectively. The largest declines in assets among the largest complexes in May were seen by BlackRock, First American, DWS, Dreyfus, Invesco and Morgan Stanley, which decreased assets by $22.7 billion, $14.9B, $5.0B, $4.8B, $3.3B and $2.5B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in May.
Over the past year through May 31, 2020, Fidelity (up $280.1B, or 41.0%), Goldman Sachs (up $206.3B, or 99.1%), JP Morgan (up $192.3B, or 63.1%), Federated (up $143.8B, or 56.5%), BlackRock (up $139.7B, or 47.6%), Morgan Stanley (up $105.7B, or 188.9) and Vanguard (up $103.0B, or 27.3%) were the largest gainers. These complexes were followed by SSGA (up $83.3B, or 91.4%), Wells Fargo (up $74.1B, or 61.1%), Northern (up $67.4B, or 59.5%) and Schwab (up $53.3B, or 33.0%). Goldman Sachs, Fidelity, JP Morgan, Morgan Stanley and BlackRock had the largest money fund asset increases over the past 3 months, rising by $176.9B, $151.2B, $142.0B, $92.0B and $87.0B, respectively. Decliners over 3 months included: DWS (down $4.7B, or -16.3%) and T Rowe Price (down $3.1B, or -7.2%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $963.7 billion, or 18.7% of all assets. Fidelity was up $2.1 billion in May, up $151.2 billion over 3 mos., and up $280.1B over 12 months. JP Morgan ranked second with $497.3 billion, or 9.6% market share (up $17.0B, up $142.0B and up $192.3B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard was third with $480.7 billion, or 9.3% market share (up $7.9B, up $64.8B and up $103.0B). BlackRock ranked fourth with $433.3 billion, or 8.4% of assets (down $22.7B, up $87.0B and up $139.7B for the past 1-month, 3-mos. and 12-mos.), while Goldman Sachs took fifth place with $414.6 billion, or 8.0% of assets (up $31.1B, up $176.9B and up $206.3B).
Federated dropped to sixth place with $398.3 billion, or 7.7% of assets (up $2.7 billion, up $79.8B and up $143.8B), while Morgan Stanley was in seventh place with $224.5 billion, or 4.4% (down $2.5B, up $92.0B and up $105.7B). Schwab ($214.7B, or 4.2%) was in eighth place (up $4.8B, up $12.1B and up $53.3B), followed by Dreyfus ($201.3B, or 3.9%, down $4.8B, up $42.0B and up $41.2B). Wells Fargo was in 10th place ($195.3B, or 3.8%; up $8.1B, up $64.9B and up $74.1B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($180.7B, or 3.5%), SSGA ($174.4B, or 3.4%), American Funds ($167.08B, or 3.2%), First American ($92.9B, or 1.8%), Invesco ($82.8B, or 1.6%), UBS ($82.7B, or 1.6%), T Rowe Price ($39.9B, or 0.8%), HSBC ($39.7B, or 0.8%), Western ($31.7B, or 0.6%) and DWS ($24.2B, or 0.5%). 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 BlackRock and Goldman move ahead of Vanguard, 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 ($973.8 billion), J.P. Morgan ($710.4B), BlackRock ($617.0B), Goldman Sachs ($542.0B) and Vanguard ($480.7B). Federated ($410.2B) was sixth, Morgan Stanley ($261.6B) was in seventh, followed by Dreyfus/BNY Mellon ($224.2B), Schwab ($214.7B) and Northern ($207.2B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.
The June issue of our Money Fund Intelligence and MFI XLS, with data as of 5/31/20, shows that yields dropped in May for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 753), fell 8 basis points to 0.11% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 9 bps to 0.14%. The MFA's Gross 7-Day Yield was down 8 bps to 0.41%, while the Gross 30-Day Yield fell 9 bps 0.44%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.15% (down 11 bps) and an average 30-Day Yield that decreased by 13 bps to 0.18%. The Crane 100 shows a Gross 7-Day Yield of 0.38% (down 11 bps), and a Gross 30-Day Yield of 0.41% (down 13 bps). Our Prime Institutional MF Index (7-day) yielded 0.27% (down by 19 bps) as of May 31, while the Crane Govt Inst Index was 0.08% (down 6 bps) and the Treasury Inst Index was 0.06% (down 5 bps). Thus, the spread between Prime funds and Treasury funds is 21 basis points, while the spread between Prime funds and Govt funds is 19 basis points. The Crane Prime Retail Index yielded 0.19% (down 21 bps), while the Govt Retail Index was 0.04% (down a basis point) and the Treasury Retail Index was 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yield dropped in April to 0.06% (down 5 bps).
Gross 7-Day Yields for these indexes in May were: Prime Inst 0.57% (down 19 bps), Govt Inst 0.32% (down 6 bps), Treasury Inst 0.31% (down 5 bps), Prime Retail 0.64 (down 20 bps), Govt Retail 0.37% (down one basis point) and Treasury Retail 0.35% (unch. from the previous month). The Crane Tax Exempt Index decreased 0.05% to 0.39%. The Crane 100 MF Index returned on average 0.02% over 1-month, 0.12% over 3-months, 0.35% YTD, 1.46% over the past 1-year, 1.53% over 3-years (annualized), 1.01% over 5-years, and 0.52% over 10-years.
The total number of funds, including taxable and tax-exempt, decreased by two to 932. There are currently 750 taxable funds, down three from the previous month, and 182 tax-exempt money funds (up one from from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.
The June issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "MFs Begin Waiving Expenses to Avoid Negative Yields," which focuses on fee waivers as money fund yields approach zero; "Invesco's Brignac on Time-Tested Process, Client Care," which profiles the CIO for Invesco Global Liquidity; and, "NY Fed Blog Reviews MMLF, CPFF, PDCF Fed Support Plans," which looks at the Fed's lending facilities. We've also updated our Money Fund Wisdom database with May 31 statistics, and was sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our June Money Fund Portfolio Holdings are scheduled to ship on Tuesday, June 9, and our June Bond Fund Intelligence is scheduled to go out Friday, June 12.
MFI's "Waiving Expenses" article says, "Money funds have stabilized at a record $5.2 trillion following a harrowing March and a surprisingly robust recovery in April and May. While CP market turmoil, the Prime asset drop and recovery and the Government MMF asset bonanza are still stories, the big issue facing funds is now zero and perhaps negative yields, along with fee waivers and reduced expenses. Yields have fallen to 0.15% on average and over 25% of assets (and 50% of funds) are now on the 0.00%-0.01% floor."
It continues, "During the last zero yield era (2009-2015), funds basically waived half of their fees, cutting expenses from roughly 0.35% to 0.17%. While it's difficult to get timely and accurate expense and waiver data, it's clear that waivers are starting to bite and expenses are moving downwards. (We update ours using the SEC's Form N-MFP info, but we don't update until the 6th business day -- so see our June MFI XLS and craneindexes.xlsx file on the website on Monday for the latest.)"
Our "Profile" reads, "This month, Money Fund Intelligence interviews Laurie Brignac, Chief Investment Officer for Invesco Global Liquidity, which will celebrate its 40th birthday this year. (Money funds will celebrate their 50th this October.) Brignac tells us about Invesco's history, about the events of the last several months and the issues facing money fund managers for the remainder of 2020. Our Q&A follows."
MFI says, "Give us a little history. Brignac tells us, "We launched our first money market fund back in 1980 and at that time we were known as AIM Investments. AIM merged with Invesco in the late '90s, but we're proud of the fact that we have the same investment process that we used on that first day in 1980. I don't know if many people can say that. The process has stood the test of time and worked very well for our clients over multiple interest rate and credit cycles. We're very proud of the fact that we have never had to buy securities or support any of our money market funds, even through the financial crisis. We've been able to honor all purchases and redemptions on T-0 basis."
The "NY Fed Blog" article tells readers, "The Federal Reserve Bank of New York posted a series of 'Liberty Street Economics' blogs reviewing the Fed's recent support facilities, including 'The Money Market Mutual Fund Liquidity Facility,' 'The Primary Dealer Credit Facility' and 'The Commercial Paper Funding Facility.' The MMLF piece tells us, 'Over the first three weeks of March, as uncertainty surrounding the COVID19 pandemic increased, prime and municipal (muni) money market funds (MMFs) faced large redemption pressures. Similarly to past episodes of industry dislocation, such as the 2008 financial crisis and the 2011 European bank crisis, outflows from prime and muni MMFs were mirrored by large inflows into govt MMFs.'"
The post explains, "To prevent outflows from prime and muni MMFs from turning into an industry-wide run, as happened in September 2008 when one prime MMF 'broke the buck,' the Federal Reserve announced the establishment of the Money Market Mutual Fund Liquidity Facility, or MMLF, on March 18. Under this facility, the Federal Reserve Bank of Boston provides loans to eligible borrowers ... taking as collateral eligible securities purchased from prime and muni MMFs. The U.S. Treasury provides $10 billion of credit protection to the Federal Reserve from the Treasury's Exchange Stabilization Fund."
The latest MFI also includes the News brief, "Money Fund Assets Up in May But Down in June," which writes, "MMF assets increased by $31.6 billion in May to a record $5.163 trillion according to Crane's MFI XLS. ICI's latest weekly shows assets falling by $36.3 billion in the latest week to $4.752 trillion."
A second News piece titled, "Northern Liquidating Prime Obligs," says, "Northern Institutional Funds filed to liquidate its $1.7 billion Northern Prime Obligations Portfolio. The filing says, 'The Board ... has determined ... that the Portfolio be liquidated and terminated on or about July 10, 2020.' See Bloomberg's 'Northern Trust to Shutter Money-Market Fund After Redemptions.'"
Our June MFI XLS, with May 31 data, shows total assets increased by $31.6 billion in May to $5.163 trillion, after jumping $417.9 billion in April, $688.1 billion in March and $23.4 billion in February. Our broad Crane Money Fund Average 7-Day Yield fell 8 bps to 0.11% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 11 bps to 0.15%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 8 bps at 0.41% and the Crane 100 fell to 0.38%. Charged Expenses averaged 0.30% (down 4 bps from last month) and 0.23% (down two from the previous month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 41 (up 2 days) and 44 days (up 3 days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
A press release, "CCLA's Public Sector Deposit Fund Reaches £1 Billion," tells us, "Client-owned fund manager CCLA today announces that its Public Sector Deposit Fund (PSDF), a money market fund, reached £1 billion of assets under management on 3 June 2020 for the first time since its launch in 2011. The fund's investor base is made up of 550 parishes, towns, districts, boroughs, counties, pension funds, police, fire authorities and housing associations amongst others."
CCLA's Peter Hugh Smith comments, "I'd like to thank all of our clients who have helped us to reach this milestone. A larger fund enables us to increase our lot sizes, to achieve even greater diversification and command better rates in the sterling money markets. This in turn means all clients benefit from the fund's growth which is so important during these fiscally-challenged times."
The release continues, "The Covid-19 crisis is hitting many of the regular income streams councils rely on at a time when councils are having to spend more addressing issues associated with the crisis. To be able to meet potential redemption requests from investors, the fund is holding increased levels of liquidity."
Hugh Smith adds, "We can see that some councils are holding up-front cash payments from government to deploy in meeting the challenges of Covid-19, while others are already carefully managing cash on a daily or weekly basis. It is evident that both existing and new clients are using CCLA's Public Sector Deposit Fund to optimise their cash management and help protect vital services they provide during this crisis."
Lastly, the release tells us, "Following the freezing of deposits in the 2008 global financial crisis, CCLA worked with the Local Government Association to create a UK regulated fund suitable for the public sector, modelled on its successful church and charity deposit funds. The fund integrates ESG factors into its processes through its screening for counterparties' corporate governance, and approach to climate change and sustainability. Additionally, CCLA leads an active engagement programme on wide ranging issues such as the living wage and mental health."
Crane Data's MFI International shows assets in European or "offshore" money market mutual assets jumping in USD and GBP currencies and falling in EUR currency 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 $34.7 billion over the last 30 days to $1.004 trillion; they're up by $127.7 billion year-to-date. (See our May 15 News, "European Money Fund Assets Hit Record $1 Trillion; MFII, ICI Holdings.")
Offshore USD money funds, which broke over $500 billion in January, increased by $19.3 billion MTD, and they're are up $37.3 billion YTD. Euro funds decreased by E1.9 billion MTD, while YTD they're up E22.6 billion. GBP funds are up L11.5 billion MTD, and are up by L33.3 billion YTD. U.S. Dollar (USD) money funds (192) account for over half ($531.8 billion, or 53.0%) of our "European" money fund total, while Euro (EUR) money funds (92) total E121.2 billion (12.1%) and Pound Sterling (GBP) funds (123) total L258.2 billion (25.7%).
Fitch Ratings will be hosting a "European MMF Update – Liquidity, credit risk and sterling yields" on June 10th at 9am Eastern. It will feature Fitch's Alastair Sewell and Minyue Wang and will focus on "a discussion on latest developments in European Money Market Funds (MMFs) and the ongoing implications of the coronavirus crisis on the sector." The description says, "We will provide a detailed update on fund flows, liquidity and what happens next in terms of funds' credit risk. Analysts will also discuss the impact of negative-yielding UK government bonds on sterling MMFs."
In other upcoming webinar news, AFP will feature a session entitled, "Don't Gamble with Your Cash Investments" on June 24 at 3:00pm Eastern featuring our Peter Crane and Evergy Inc.'s James Gilligan. The introduction says, "While many corporate treasurers think they're protected from a 'black swan' money market event, the calm market environment the cash investment landscape is untenable. In this webinar, a money market fund tracker and corporate treasurer discuss the latest strategies for protecting against market volatility, investing in flat, falling and rising rate environments and analyze the major risks."
Finally, Crane Data will host its second online event, "Crane's Money Fund Webinar: Portfolio Holdings Update," on June 25 at 2:00pm (Eastern). (To register, go here: https://register.gotowebinar.com/register/7835412736738944525.) Crane Data's Peter Crane will host a 30 minute update on the latest trends in the money fund space, focusing on the latest Money Fund Portfolio Holdings data. Crane will be joined by J.P. Morgan Securities' Teresa Ho, who will comment on recent events and review the latest data on money market securities. The session will also include a 15 minute Q&A and brief product training segment on Money Fund Portfolio Holdings data and information."
For those of you who might have missed it, we hosted our first webinar, "Crane's Money Fund Update & Training," on May 21st. It featured Pete Crane reviewing recent events and trends involving money market mutual funds for 30 minutes, including discussions of asset flows, negative yield and a number of other topics. The webinar also included a brief, 15 minute tutorial on our Money Fund Intelligence Daily product. (See the bottom of our "Content" page for all of our Webinar and conference materials.)
Watch for more webinars in coming months, and we still remain 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 is scheduled for August 24-26, 2020 at the Hyatt Regency Minneapolis. We'll continue to monitor events carefully in coming weeks, and we'll be prepared to move, 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. (Note: We'll offer full refunds or credits for any cancellations.)
Our next European Money Fund Symposium is now scheduled for Nov. 19-20, 2020 in Paris, France. 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 we'll keep you posted on our upcoming virtual, and live, events.
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 29) includes Holdings information from 78 money funds (up 26 from a week ago), which represent $2.634 trillion (up from $1.835 trillion) of the $5.123 trillion (51.4%) 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 May 12 News, "May MF Portfolio Holdings: Treasuries Skyrocket, Repo Plunges in April.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.395 trillion (up from $829.5 billion a week ago), or 53.0%, Repurchase Agreements (Repo) totaling $592.9 billion (up from $460.8 billion a week ago), or 22.5% and Government Agency securities totaling $440.5 billion (up from $333.0 billion), or 16.7%. Certificates of Deposit (CDs) totaled $72.6 billion (up from $57.0 billion), or 2.8% and Commercial Paper (CP) totaled $62.5 billion (down from $63.7 billion), or 2.4%. VRDNs accounted for $39.0 billion, or 1.5% and $31.2 billion or 1.2%, was listed in the Other category (primarily Time Deposits).
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.395 trillion (53.0% of total holdings), Federal Home Loan Bank with $268.3B (10.2%), Fixed Income Clearing Co with $92.7B (3.5%), BNP Paribas with $70.5B (2.7%), Federal Farm Credit Bank with $65.9B (2.5%), Federal National Mortgage Association with $55.1B (2.1%), Federal Home Loan Mortgage Corp with $48.9B (1.9%), RBC with $46.7B (1.8%), JP Morgan with $44.4B (1.7%) and Mitsubishi UFJ Financial Group Inc with $28.0B (1.1%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($238.4B), JP Morgan US Govt ($218.2B), Fidelity Inv MM: Govt Port ($189.1B), BlackRock Lq FedFund ($170.9B), JP Morgan 100% US Treas MMkt ($147.6B), Wells Fargo Govt MM ($136.2B), Goldman Sachs FS Treas Instruments ($131.2B), Morgan Stanley Inst Liq Govt ($114.1B), State Street Inst US Govt ($103.9B), Dreyfus Govt Cash Mgmt ($89.8B) and BlackRock Lq T-Fund ($86.3B). (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.)
In other news, the website ETF Strategy tells us that, "BlackRock expands Treasury bond suite with ultra-short ETF." They write, "BlackRock has expanded its suite of US Treasury bond ETFs with a new fund providing ultra-short duration exposure. The iShares 0-3 Month Treasury Bond ETF (SGOV) has listed on NYSE Arca and comes with an expense ratio of 0.07%."
The piece explains, "The fund is linked to the ICE 0-3 Month US Treasury Securities Index which consists of fixed-rate US Treasury bills, notes, and bonds with maturities of three months or less. Inflation-linked and floating rate debt, as well as STRIPS (Separate Trading of Registered Interest and Principal of Securities), are not eligible for inclusion. The fund becomes the lowest-cost fund in its category of ultra-short Treasury bond ETFs -- those consisting of securities with less than one year to maturity."
ETF Strategy comments, "The largest funds in the category are the $24.4bn iShares Short Treasury Bond ETF (SHV US), which comes with an expense ratio of 0.15%; the $18.5bn SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL US), which has an expense ratio of 0.13%; and the $3.5bn Goldman Sachs Access Treasury 0-1 Year ETF (GBIL US), which costs 0.14%. The ETF may appeal to investors seeking low-cost, liquid exposure to Treasuries in order to protect their portfolios from potential future volatility."
BlackRock's Steve Laipply comments, "iShares is committed to providing investors with the tools they need to build resilient bond portfolios, the importance of which has been reinforced as investors sought safe havens in recent volatile markets.... We've seen more than $26 billion in flows across the suite of iShares short-term bond ETFs year-to-date. The addition of SGOV to our US Treasury and shorter maturity suites offers precise exposure for increased stability, liquidity, and cash management."
The piece adds, "According to BlackRock, bond ETFs played an indispensable role in markets during the unprecedented volatility, dislocation, and challenges in liquidity caused by the Covid-19 sell-off. In the first quarter of 2020, bond ETFs registered trading volumes of $1.3 trillion globally, half the trading volume recorded for the whole of 2019. During this time, BlackRock notes that bond ETFs provided price discovery, helped investors understand rapidly changing market conditions, and provided a benchmark reference for returns, volatility, and sentiment."
An updated Prospectus Supplement for Wells Fargo Money Market Fund tells us, "Effective August 15, 2019, Wells Fargo Funds Management, LLC ('Funds Management'), the investment manager to the Fund, has implemented a temporary voluntary fee waiver of 0.07% for the Fund's Premier Class shares. This voluntary fee waiver is in addition to the Fund's current contractual fee waiver, which caps Premier Class expenses at 0.20% through May 31, 2021.... This additional voluntary fee waiver may be discontinued by Funds Management at any time without notice. Please note that the removal of the voluntary waiver will lead to increased expenses which will impact the Fund's yield."
Finally, a new Supplement for the American Beacon U.S. Government Money Market Select Fund says, "Effective May 29, 2020, direct mutual fund accounts will no longer be offered to new shareholders of the American Beacon U.S. Government Money Market Select Fund (the 'Fund'), a series of American Beacon Select Funds (the 'Trust')."
It adds, "Existing direct mutual fund account shareholders will continue to be able to buy or sell shares through their existing direct mutual fund accounts, but will no longer be able to open new direct mutual fund accounts. American Beacon Advisors, Inc. (the 'Manager') may allow the following individuals to open new direct mutual fund accounts in its sole discretion: (i) employees of the Manager, or its direct parent company, Resolute Investment Managers, Inc., (ii) employees of a sub-advisor to a fund in the American Beacon Funds Complex, (iii) members of the Board of Trustees of the Trust, (iv) employees of Kelso & Company, L.P. or Estancia Capital Management, LLC, the Manager’s indirect parent companies, and (v) members of the Manager's Board of Directors. This information hereby supersedes and replaces any contrary information included in the Fund's summary prospectus, prospectus, and statement of additional information."
Money market fund yields appear to have bottomed out last week, as our flagship Crane 100 inched down by just one basis point to 0.15%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March, and is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Almost half of all money funds and over one quarter of MMF assets have already hit the zero floor, though many continue to show some yield. According to our Money Fund Intelligence Daily, as of Friday, 5/29, 410 funds (out of 852 total) yield 0.00% or 0.01% with assets of $1.335 trillion, or 26.1% of the total. There are 171 funds yielding between 0.02% and 0.10%, totaling $1.071 trillion, or 20.9% of assets; 152 funds yielded between 0.11% and 0.25% with $1.801 trillion, or 35.2% of assets; 102 funds yielded between 0.26% and 0.50% with $679.1 billion in assets, or 13.3%; and just 12 funds yield between 0.51% and 0.99% with $236.8 billion in assets or 4.6% (no funds yield over 1.00%).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.11%, down a basis point in the week through Friday, 5/29. The Crane Money Fund Average is down 36 bps from 0.47% at the beginning of April. Prime Inst MFs were down 3 bps to 0.27% in the latest week and Government Inst MFs fell by 1 basis point to 0.08%. Treasury Inst MFs dropped by 1 basis point to 0.06%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.03% (flat in the last week), and Prime Retail MFs yield 0.19% (down 3 bps for the week), Tax-exempt MF 7-day yields dropped by 1 basis point to 0.06%. (Let us know if you'd like to see our latest MFI Daily.)
The largest funds tracked by Crane Data yielding 0.00% or 0.01% include: Fidelity Govt Cash Reserves ($201.2B), Fidelity Government Money Market ($189.5B), Federated Government Obl Cap ($155.9B), Fidelity Treasury Fund ($29.7B), Edward Jones Money Mkt Inv ($22.4B), Invesco Treasury Cash Mgmt ($21.8B) and Schwab US Treasury MF Investor ($20.4B). Funds yielding 0.00% or 0.01% are the most likely to be waiving partial fees in order to avoid negative yields.
Our Crane Brokerage Sweep Index, which hit the zero floor two months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of May 29, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last eight weeks at 0.01% (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).
Monday's MFI Daily, with data as of May 29, shows money fund assets seeing modest inflows. Last week money fund assets experienced the first outflows since the coronavirus crisis started in mid-March, with a decrease of $19.2 billion. Prime assets continue their rebound with $4.2 billion of inflows increasing their asset total to $1.105 trillion in the latest week. Following inflows of $790 billion in March and $362 billion April, Government assets again experienced inflows in the latest week, increasing by $2.2B to $3.879 trillion. Tax-Exempt MMFs decreased $1.5 billion. Month-to-date money fund assets have risen $81.5 billion. Prime assets are up $87.3 billion MTD, while Government assets are down by $5.5 billion. Tax-Exempt MMFs decreased by $364 million.
In other news, PIMCO posted, "Reassessing Short Term Strategies Amid Market Recalibration: Liquidity, Libor, and the Fed," in mid-May. They write, "Short-term fixed income assets sold off in March as investors sought to de-risk and indiscriminately raise liquidity in response to fallout from the global health crisis. Jerome Schneider, PIMCO's head of short-term portfolio management, discusses the outlook for short-term assets give recent Fed announcements of support, how a possible resurgence of COVID-19 could affect liquidity markets, and the future of Libor (the London Interbank Offered Rate) as a benchmark for trillions of dollars of financial instruments."
The piece explains, "Short-term markets got hit hard in the first quarter, along with market segments. Could we see that again, such as if we see a resurgence of Covid-19, or have the Federal Reserve's actions bolstered liquidity enough? Concerns about risk markets at the beginning of the global economic shutdown in mid-March prompted investors to de-risk and maintain higher levels of liquidity. Unlike the global financial crisis (GFC), this recent period of stress was founded upon concerns about liquidity rather than systemic solvency, which put money-market and short-duration assets at the vortex of the volatility."
PIMCO's Schneider writes, "For U.S. dollar investors in short-term markets, this sparked unprecedented flows into U.S. government money market funds and out of prime funds, which can take credit risk and were subsequently forced to sell assets in order to maintain their required liquidity buffers. The resulting lack of appetite for new issue credit (bank and financial) holdings and the forced selling of short-term assets, including financial commercial paper (CP) and certificates of deposit (CDs), propelled credit spreads and absolute yields to rise relative to risk-free benchmarks such as the fed funds rate, the overnight index swap rate (OIS), and the Secured Overnight Financing Rate (SOFR). Libor the benchmark proxy for many credit-indexed instruments, also widened relative to OIS and SOFR, reflecting underlying stress in money markets. The spread of Libor versus OIS reached a peak of 138 basis points (bps) on 31 March, indicated sharply reduced risk appetite and elevated demands for liquidity."
He continues, "Financial institutions' efforts to raise funding during this period of stress were challenged. Even though banks offered CP at historically wide spreads of up to 100 bps above Libor in an attempt to lure investors, the lack of demand at any premium simply caused new issuance to plummet. Secondary market liquidity was even worse, with high quality CDs trading at distressed levels as dealers hoarded liquidity. It wasn’t until the Federal Reserve Board of New York stepped in to support money markets via the Money Market Mutual Fund Liquidity Facility (MMLF) and the Tier 1 commercial paper market via the Commercial Paper Funding Facility (CPFF) that credit conditions began to stabilize and then ease."
PIMCO comments, "Since 23 March, the array of announced Fed-sponsored programs has helped provide stability by injecting liquidity directly into affected segments of the money markets, as well as by outlining additional support to front-end credit markets. While surprising given regulators' reluctance to support a backstop to prime funds after the GFC, the MMLF has provided specific relief as an outlet for prime money funds to sell their credit holdings, thereby raising much-needed liquidity and easing concerns that prime fund investors might be gated (i.e., face a temporary suspension of redemption privileges) due to eroding liquidity buffers."
They state, "The Federal Reserve's broad-based support for liquidity and credit markets via their announced loan programs has helped to quell the dire sentiments observed in March and set us on a path toward normalcy. Further, the central bank has demonstrated a profound commitment to support the economy throughout the medium-term recovery associated with the COVID-19 crisis, as Fed officials remain visibly supportive of these emergency measures.... While the Fed is clearly on call to help put out any rekindled fires, savers and investors should not be complacent in this evolving economic environment. Rather, they should actively evaluate the pros and cons of risk allocations as well as costs of de-risking entirely to money funds."
The posting adds, "Short-term markets have begun to stabilize. Nevertheless, market liquidity remains thin and credit spreads remain elevated and sensitive to not only the trajectory of the virus' economic impact, but to the challenges presented by everyday market function, which are a consideration for liquidity as many dealers and banks continue to operate with less-efficient work-from-home structures. Moreover, there is potential for further credit weakness spurred by deteriorating corporate earnings or possible bankruptcies of high-yield credit issuers. Furthermore, concerns over corporate credit will remain for the cyclical horizon despite prime fund outflows stabilizing.... We believe an important takeaway is that many nonfinancial issuers in highly cyclical industries most affected by the crisis have been left with no source of short-term funding ... and those mostly Tier 2 nonfinancial issuers that will continue to be forced to pay a premium to issue short-term debt and commercial paper."
Finally, the article tells us, "As concerns about the trajectory of the economy continue to percolate, investors from all avenues have become increasingly defensive and continue to allocate more assets to cash strategies. A return to the zero lower bound has us thinking about emerging structural opportunities for short-term investments, as unfortunately the Fed's monetary policy benchmark hovering at 0% does little to reward the broadening corral of investors looking for safety and income while maintaining a defensive posture. Similar to the previous episode of ZIRP (Zero Interest Rate Policy) in 2012, we believe the best solution will be active evaluation of liquidity needs and tiering your cash capital between immediate and intermediate liquidity needs. Front-end investors who remain flush with cash due to a defensive orientation may benefit from high quality, short-dated, floating-rate assets and strategies that can take advantage of this structural tailwind of elevated liquidity premiums versus the near-0% benchmark rates offered by traditional government money market funds."
Fee waivers were in the news Friday as the Financial Times wrote, "US money market funds waive fees to stave off negative returns." The FT tells us, "US asset managers are cutting the fees they charge for money market funds after the dramatic decline in yields on the short-term debt they rely on threatened to leave clients with negative returns. Federated Hermes, Fidelity and TIAA-CREF, which manage some of the largest money market funds, have already waived fees on several products. Vanguard, another large manager, said it has not yet needed to waive fees but remained committed to keeping investors' returns positive." They quote, "Peter Crane, who runs information provider Crane Data, said other managers were likely to follow suit, adding: 'The last time rates went to zero we saw most funds cut expenses in half.'"
The FT piece explains, "The Federal Reserve slashed its target for short-term interest rates by 1.5 percentage points to between zero and 0.25 per cent when coronavirus ripped through global markets. That has dragged the three-month Treasury yield down to just 0.14 per cent. Despite those meagre returns, spooked investors have poured cash into money market funds. Industry assets have risen by more than $1tn since the beginning of March to $4.8tn, according to data from the Investment Company Institute. The flows have pushed the funds to buy debt that is yielding close to zero, dragging down overall returns."
It continues, "Federated said it had lowered fees on more than 30 money market funds. TIAA-CREF has waived fees on two funds that invest in government debt and government-backed securities. Fund managers do not have to publicly disclose incremental fee changes on funds, which can change daily. Instead, they disclose a yield that investors earn, which has expenses already deducted."
The article adds, "The average yield across all types of money market funds fell 0.2 percentage points in April to just 0.19 per cent, down from 1.31 per cent at the start of the year, according to Crane Data. Yields on Treasury-focused money market funds have fallen to just 0.11 per cent.... Some strategists have raised concerns that as returns sink, money market funds could lose their appeal as a haven for cash, prompting an exodus by investors. However fund managers pointed to the fact that the last time the Fed's lower bound dropped to zero, between 2009 and the end of 2015, money market fund assets remained steady at more than $2.5tn."
Finally, the FT writes, "Money market funds could come under even more pressure should the Fed follow its peers in Japan and Europe and push its main policy rate below zero. Investors recently moved to price in such a move by next year, but rebuttals from a range of central bank officials, including chairman Jay Powell, have since pared back those bets."
The publication ThinkAdvisor also recently published, "How Asset Managers are Addressing the Threat of Negative Yields." They write, "It may never happen, but that hasn't stopped firms from taking preemptive steps. The most popular and safest investments during the COVID-19 pandemic are under threat from potentially negative interest rates, and asset managers are responding. In a FAQ for investors, TIAA said it was waiving expenses for its CREF Money Market Account and for the TIAA-CREF Money Market Fund, an investment option within its TIAA Access annuity product, to prevent negative yields because current short-term rates are too low to cover those expenses."
They continue, "In another sign of negative rate fears for money market funds, Fidelity Investments in mid-March waived fees on several U.S. Treasury and U.S. government money market funds sold exclusively through intermediaries -- which tend to have higher expense levels than other funds -- in order 'to maintain positive net yields on those share classes.'"
This piece adds, "In another effort to protect money fund investors against negative yields, Fidelity announced in late March that it was closing three money market funds to new investors outside of retirement plans that had established that option by March 31.... Vanguard made the same decision for its Treasury Money Market Fund in mid-April, closing the fund to new investors because net new flows would threaten an even lower yield."
In related news, a new Prospectus Supplement for Gabelli U.S. Treasury Money Market Fund explains, "Effective May 28, 2020, (the 'Effective Date') initial purchases by new accounts of the Fund's shares, either directly or through the exchange privileges described in the Prospectus under 'Exchange of Shares' in amounts exceeding $5 million will require preapproval by the Fund by calling 1-800 GABELLI. The Fund reserves the right to reject any purchase order if, in the opinion of the Fund's management, it is in the Fund's best interest to do so. Existing shareholders may continue to purchase additional shares of the Fund after the Effective Date, as set forth in the Prospectus. These changes will have no effect on existing shareholders' ability to redeem shares of the Fund as described in the Prospectus."
For more on fee waivers, zero and negative yields, see these Crane Data News pieces: Yields Inch Towards Zero, Outflows; T Rowe Waivers; Weekly Holdings (5/27/20), Crane Discusses Record MMF Assets, Zero Yields, Regs on First Webinar (5/26/20), Barron's, Wiener: TIAA Going Negative?, Federated Hermes Earnings Call Talks Govt MMFs, Zero Yields, Waivers (5/4/20), ICI: MMF Assets Break $4.5 Trillion; Vanguard Soft Closes Treasury MMF (4/17/20), ICI on Expense Ratio Trends; Fee Waiver Filing; Weekly MF Holdings (4/1/20) and, Fidelity (Soft) Closes Treasury MMFs (3/31/20).
