News Archives: June, 2021
The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for May 2021. The monthly "Trends" report shows that money fund assets increased $78.6 billion in May to $4.608 trillion. This follows increases of $31.9 billion in April, $129.4 billion in March and $39.4 billion in February. But MMFs decreased $5.2 billion in January, $10.0 billion in December and $12.0 billion in November. Assets also fell $47.6 billion in October, $118.4 billion in September, $56.7 billion in August, $55.4 billion in July and $133.5 billion in June. For the 12 months through May 31, 2021, money fund assets have decreased by $160.5 billion, or -3.4%. (Month-to-date in June through 6/28, MMF assets have decreased by $56.7 billion according to Crane's MFI Daily.)
Their monthly release states, "The combined assets of the nation’s mutual funds increased by $248.55 billion, or 1.0 percent, to $25.80 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.... Bond funds had an inflow of $22.54 billion in May, compared with an inflow of $52.82 billion in April.... Money market funds had an inflow of $78.92 billion in May, compared with an inflow of $31.92 billion in April. In May funds offered primarily to institutions had an inflow of $96.39 billion and funds offered primarily to individuals had an outflow of $17.47 billion."
The Institute's latest statistics show that Taxable MMFs gained assets last month while Tax Exempt MMFs lost assets (again). Taxable MMFs increased by $82.0 billion in May to $4.515 trillion. Tax-Exempt MMFs decreased $3.4 billion to $92.9 billion. Taxable MMF assets decreased year-over-year by $119.6 billion (-2.6%), while Tax-Exempt funds fell by $40.9 billion over the past year (-30.6%). Bond fund assets increased by $41.7 billion in May to a record $5.440 trillion; they've risen by $842.1 billion (18.3%) over the past year.
Money funds represent 17.9% of all mutual fund assets (up 0.2% from the previous month), while bond funds account for 21.1%, according to ICI. The total number of money market funds was 316 down 10 from the month prior and down from 358 a year ago. Taxable money funds numbered 251 funds, and tax-exempt money funds numbered 65 funds.
ICI's "Month-End Portfolio Holdings" confirm the massive spike in Repo and the giant drop in Treasuries last month. But Treasury holdings in Taxable money funds still remain the largest composition segment (since surpassing Repo last April). Treasury holdings plunged $138.0 billion, or -7.3%, to $2.219 trillion, or 49.1% of holdings. Treasury securities have decreased by $74.5 trillion, or 3.2%, over the past 12 months. (See our June MF Portfolio Holdings: Repo Skyrockets Led by RRP; T-Bills Plunge.")
Repurchase Agreements were the second largest composition segment; repos jumped by $191.0 billion, or 16.5%, to $1.351 trillion, or 29.9% of holdings. Repo holdings have increased $319.1 billion, or 30.9%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $18.9 billion, or -3.4%, to $540.5 billion, or 12.0% of holdings. Agency holdings have fallen by $354.1 billion, or -39.6%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $801 million, or -0.4%, to $195.5 billion (4.3% of assets). CDs held by money funds shrank by $43.2 billion, or -18.1%, over 12 months. Commercial Paper took fifth place, down $8.2 billion, or -4.6%, to $168.7 billion (3.7% of assets). CP has decreased by $44.3 billion, or -20.8%, over one year. Other holdings increased to $29.6 billion (0.7% of assets), while Notes (including Corporate and Bank) were down to $4.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 43.934 million, while the Number of Funds was down by 8 to 251. Over the past 12 months, the number of accounts rose by 4.626 million and the number of funds decreased by 27. The Average Maturity of Portfolios was 37 days, down 5 days from April. Over the past 12 months, WAMs of Taxable money have decreased by 6.
In other 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 25, 2021) includes Holdings information from 55 money funds (down 17 funds from a week ago), which represent $1.774 trillion (down from $2.594 trillion) of the $4.947 trillion (35.9%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $846.5 billion (down from $1.284 trillion a week ago), or 47.7%, Repurchase Agreements (Repo) totaling $561.0 billion (down from $884.2 billion a week ago), or 31.6% and Government Agency securities totaling $155.2 billion (down from $233.8 billion), or 8.7%. Commercial Paper (CP) totaled $60.0 billion (down from $64.7 billion), or 3.4%. Certificates of Deposit (CDs) totaled $50.7 billion (up from $47.4 billion), or 2.9%. The Other category accounted for $73.5 billion or 4.1%, while VRDNs accounted for $27.1 billion, or 1.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $846.5 billion (47.7% of total holdings), Federal Reserve Bank of New York with $202.5B (11.4%), Federal Home Loan Bank with $85.2B (4.8%), BNP Paribas with $48.5B (2.7%), Fixed Income Clearing Corp with $35.8B (2.0%), Federal National Mortgage Association with $30.2B (1.7%), RBC with $27.5B (1.6%), JP Morgan with $27.1B (1.5%), Federal Farm Credit Bank with $25.3B (1.4%) and Barclays PLC with $20.8B (1.2%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($248.4 billion), BlackRock Lq FedFund ($172.7B), Federated Hermes Govt Obl ($132.5B), Fidelity Inv MM: Govt Port ($129.7B), BlackRock Lq T-Fund ($119.3B), BlackRock Lq Treas Tr ($113.7B), Dreyfus Govt Cash Mgmt ($109.9B), JPMorgan 100% US Treas MMkt ($100.6B), JPMorgan Prime MM ($77.9B) and, Federated Hermes Treasury Oblig ($53.9B). (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.)
A press release entitled, "IIF Comments on ESMA Consultation Report on EU MMF Regulation," tells us, "The Institute of International Finance (IIF) submitted a response to the European Securities and Markets Authority (ESMA) request for comment on the topic of EU Money Market Fund Regulation – legislative review on June 25." The IIF is a "global association of the financial industry" focused on risk management and comprised of mainly multinational banks. On March 26, 2021, the European Securities and Market Authority published a press release entitled, "ESMA Consults on the Framework for EU Money Market Funds," which requested feedback on potential European money market fund reforms. (Comments to ESMA are due by June 30. See our March 30 News, "ESMA Posts Consultation Report on Potential Reform of European MMFs," and our March 19 News, "ESMA Report Examines Vulnerabilities in European Money Market Funds.")
The release explains, "The IIF recognizes that the European Union has advanced considerable legislative efforts to promote the smooth functioning and resilience of MMFs in the region. However, the unprecedented COVID-19 crisis has revealed some further structural vulnerabilities in MMF and short-term funding markets that should be addressed through a holistic review of the impact of market structure on the resilience of the short-term funding markets."
It comments, "The IIF believes that a holistic review of market structure impacts can produce targeted and proportionate measures for the specific segments of the MMF sector and short-term funding markets that experienced significant stress in the March 2020 market turmoil. We also strongly encourage ESMA to coordinate its initiatives with respect to the NBFI sector, short-term funding markets and MMFs with other standard-setting bodies and regulators and supervisors in key jurisdictions."
The release adds, "The response letter reiterates the IIF's frequent calls to seek globally harmonized regulation and the application of the principle of 'same activity, same risk, same regulation' to the greatest extent possible, taking into account local specificities, and jurisdictional differences in market and product structures. The letter also includes IIF’s response to the 12 questions raised in the consultation report."
The full comment letter, addressed to Anneli Tuominen and Natasha Cazenave of ESMA, says, "The Institute of International Finance (IIF) and its member firms welcome the opportunity to contribute to the work of the European Securities and Markets Authority (ESMA) on potential reform measures for Money Market Funds (MMFs), as highlighted in the Consultation Report: EU Money Market Fund Regulation – legislative review (Consultation Report). This effort is a significant contribution to the initiatives being undertaken at the global level by the G20, the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) to enhance the resilience of the non-bank financial intermediation (NBFI) sector while preserving its benefits."
It states, "We would like to highlight some of the work programs and initiatives currently underway among the global financial services standard-setting bodies. As the Report acknowledges, the FSB has announced in its 2021 Work Programme that one of the key deliverables this year would be 'policy proposals to enhance MMF resilience and a report on progress in the work programme for strengthening NBFI resilience'. IOSCO has also stated that it will further contribute 'to FSB policy work relating to MMFs and the underlying short-term funding-markets. We welcome these initiatives, as they are focused holistically at the NBFI sector and at the short-term funding markets, rather than narrowly at MMFs."
The IIF continues, "We encourage ESMA to take a similar holistic approach that focuses on the root causes of the March 2020 market dislocations in order to propose a comprehensive set of reforms that would improve market functioning and increase market resilience to a range of possible future disruptions arising from different sources or catalysts. We also encourage ESMA to engage in dialogue with IOSCO to collaborate and exchange views on appropriate measures to enhance the resilience of MMFs and short-term funding markets, again taking into account important market and product structures and market specificities across jurisdictions."
They write, "We appreciate the attention that is being given at the global, regional and jurisdictional levels to these important issues. However, we are concerned about the potential for these initiatives to lead to regulatory fragmentation, conflicting or duplicative regulation or supervision, or potential barriers to market access or to a level playing field for all market participants given the global nature of financial markets and participants."
IIF MD Andres Portilla comments, "ESMA's active engagement in global efforts among industry standard setters and coordination with regulators in other key markets could help reduce regulatory and market fragmentation by carefully aligning measures to address the need for greater resilience in MMFs and short-term funding markets. We reiterate the IIF's frequent calls to seek globally harmonized regulation and the application of the principle of 'same activity, same risk, same regulation' to the greatest extent possible, taking into account local specificities, and jurisdictional differences in market and product structures."
He explains, "We encourage ESMA and other standard setters, regulators and supervisors to coordinate their review of the need for reforms with the central banks that supported the money markets in some jurisdictions during the March 2020 period of stress. Coordination with central banks could help to devise holistic solutions that minimize the risk of moral hazard by addressing the root causes of the March 2020 market dislocations and by improving short-term funding market functioning."
The letter adds, "We understand that various national and regional authorities are issuing different surveys to market participants in an effort to better design regulatory or supervisory reforms for the MMF sector. While we appreciate the need for additional information in order to construct an appropriate official sector response, these requests for information or data should be coordinated through a central global standard setter or authority such as IOSCO. This coordination could also facilitate a better exchange of information among regulators and supervisors which, in turn, could lead to collaborative solutions."
Finally, it says, "We also encourage ESMA to consider a greater focus on market participants' own stress tests and scenario analyses in lieu of standardized market-wide scenarios. Bespoke tests and scenarios can be useful techniques to field test different liquidity risk management tools and business continuity plans designed to respond to stressed market conditions. The IIF appreciates ESMA’s openness to seek public comment on the Consultation Report. We remain committed to active participation and engagement in the discussion of potential reforms to MMF Regulation."
We wrote last week about the Association for Financial Professionals' new "2021 AFP Liquidity Survey," and quoted from the press release and summary. Today, we excerpt more from the major sections on cash and money markets. The survey reports, "At 54 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 seven-percentage-point increase 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 increase in the percentage of companies that have policies calling out cash holdings might be correlated with the higher percentage of organizations having written investment policies, most likely due to the higher balances held in cash and cash equivalents. The share reported in the current survey is closer to the 52 percent figure in 2019." (Register for AFP's upcoming webinar, "Liquidity After the Pandemic: Highlights from the 2021 AFP Liquidity Survey," which is July 13 from 3-4pm EDT and features AFP's Tom Hunt, Invesco's Laurie Brignac and Crane Data's Pete Crane.)
It continues, "Thirty-three percent of financial professionals report that their organizations have neither a percentage nor a dollar limit on short-term investment holdings by asset manager or fund. Eighteen percent of companies impose dollar limits while 28 percent restrict short-term investment with percentage limits; the remaining 21 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. Perhaps larger companies are actively managing their fund exposure more through the use of technology such as investment portals and are more comfortable with a more holistic view. Smaller companies may lack access to the technology and thus rely more on manual processes to validate."
On "Rating Requirements for Money Funds," AFP writes, "A majority (80 percent) of organizations' investment policies requires that money market funds be rated. Thirty-nine percent of organizations require at least one rating agency assign a AAA rating and 23 percent mandate that their money market funds 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, "ESG investing practices, which stand for environmental, social and governance, can include, but are not limited to, strategies that select companies based on their stated commitment to one or more ESG factors -- for example, companies with policies aimed at minimizing their negative impact on the environment or companies that focus on governance principles and transparency. ESG practices may also entail screening out companies in certain sectors or that, in the view of the fund manager, have shown poor performance with regard to management of ESG risks and opportunities. Funds that elect to focus on companies' ESG practices may have broad discretion in how they apply ESG factors to their investment or governance processes. Fund managers focusing on ESG generally examine criteria within the environmental, social, and/or governance categories to analyze and select securities for inclusion in their portfolio."
AFP explains, "Only 17 percent of respondents consider ESG investment parameters when managing operating cash, 64 percent do not consider ESG and 18 percent are unsure about taking ESG parameters into account. Net investors (20 percent), investment-grade organizations (20 percent) and larger organizations with annual revenue of at least $1 billion (20 percent) are more likely to consider ESG criteria than are other organizations. The percentage of organizations considering ESG investment parameters has increased from 14 percent in 2019 to 17 percent currently."
They add, "Fifty-seven percent of respondents impose the same investment ESG parameters globally as domestically while 22 percent do not impose them the same; 22 percent are unsure. A higher percentage of organizations that are net investors (58 percent) and publicly owned (63 percent) impose the same investment ESG parameters globally as domestically. Compared to last year's survey results, a larger share of companies is imposing the same investment ESG parameters globally as domestically."
On "Money Market Funds," AFP's Survey states, "There are various drivers that play a role in the selection of money market funds. The three factors that play the most important role are yield, fund ratings and fixed or floating NAV. Sixty-five percent of treasury and finance professionals cite fund yield as a primary driver (among the top three drivers), while 55 percent cite [fund ratings] and 45 percent cite fixed or floating NAV as having a significant role when selecting a mutual fund."
It comments, "To put some perspective on the weighting for type of money market funds, the vast majority of companies that invest in them choose Government money market funds three times more often than Prime funds. Government money market funds account for 17 percent of current allocations and Prime funds account for five percent. A logical conclusion is that the vast majority of organizations that viewed fixed or floating NAV as a dominant driver in the past now do not see that as a hurdle because the limited fund selections prevent organizations from investing in such funds."
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. The past year has been challenging for financial professionals in their being able 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: 90 percent of financial professionals identify banks as resources their organizations use to access cash and short-term investment holding information. Other resources used by treasury and finance professionals include: Investment research from brokers/investment banks (cited by 45 percent of respondents); Credit rating agencies (32 percent); Money market fund portals (30 percent)."
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 (36 percent). Other primary rationales noted by respondents are counterparty risk of underlying instruments (26 percent) and diversification of underlying instruments (20 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 those 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 and the same as Canadian dollars after USD offshore. The most-often cited type of fund invested is low volatility NAV short-term MMF (28 percent). Nearly half of respondents are still researching a decision; that is a large contingency given the high allocation to euro-denominated vehicles."
Finally, AFP adds, "Extending maturities is selected as common alternative investment option that organizations consider to complement current investment selection (37 percent), probably in response to the changing yield curve and in a more optimistic outlook environment for the rest of the year as the pandemic winds down, vaccinations roll out, unemployment declines and federal stimulus boosts the consumer sector. Separately managed accounts (34 percent), ultrashort funds (19 percent) and ETFs bond or cash strategies (19 percent) are other alternative investments cited by respondents."
The ICI's latest weekly "Money Market Fund Assets" report shows MMFs falling sharply for the third week in a row, following four straight weeks of increases. The release says, "Total money market fund assets decreased by $31.36 billion to $4.55 trillion for the week ended Wednesday, June 23, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $31.52 billion and prime funds increased by $713 million. Tax-exempt money market funds decreased by $552 million." ICI's weekly "Assets" release shows money fund assets up $250 billion, or 5.8%, year-to-date in 2021. Inst MMFs are up $343 billion (12.4%), while Retail MMFs are down $94 billion (-6.1%).
ICI's stats show Institutional MMFs decreasing $29.1 billion and Retail MMFs decreasing $2.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.966 trillion (87.2% of all money funds), while Total Prime MMFs were $487.6 billion (10.7%). Tax Exempt MMFs totaled $92.7 billion (2.0%). Over the past 52 weeks, money fund assets have decreased by $136 billion, or -2.9%, with Retail MMFs falling by $128 billion (-8.2%) and Inst MMFs falling by $8 billion (-0.2%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
It explains, "Assets of retail money market funds decreased by $2.25 billion to $1.43 trillion. Among retail funds, government money market fund assets decreased by $696 million to $1.12 trillion, prime money market fund assets decreased by $1.34 billion to $229.60 billion, and tax-exempt fund assets decreased by $211 million to $81.16 billion." Retail assets account for just under a third of total assets, or 31.5%, and Government Retail assets make up 78.3% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $29.10 billion to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $30.82 billion to $2.84 trillion, prime money market fund assets increased by $2.06 billion to $258.01 billion, and tax-exempt fund assets decreased by $341 million to $11.57 billion." Institutional assets accounted for 68.5% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.
In other news, the Financial Times writes on "Money market funds: the tale of two diverging paths." The article explains, "There is a love-hate relationship between the US Federal Reserve, regulators and money market funds, a $5tn industry at the heart of short-term funding, shadow banking, monetary policy, and the dollar-centric international financial system."
It tells us, "Lately, prime funds are back on the regulatory hot seat and potentially face additional reforms for their role in the money market turmoil of March 2020. Big investor outflows from such funds at the time left managers rushing to sell assets, reprising some of the dynamics seen in the financial crisis. Meanwhile, the largest money market funds, mostly government funds, now lend the Fed several hundred billion dollars daily ($790bn on Tuesday) to finance the central bank's bond buying programme."
The FT piece says, "Since the turn of the year, short-term funding markets face a list of forces that push rates towards the negative territory, including $1tn cash released by the US Treasury to pay for various Covid economic relief programmes. Demand for a current low supply of treasury bills also pushes prices up and yields down. By setting the interest rate on the money funds' lending to the Fed at 0.05 percent, the central sets a floor for rates. If the Fed is paying those yields, funds are unlikely to want to lend to private borrowers at lower rates. So government funds happily lend the cash to the Fed, directly recycling the cash created by asset buying by the central bank."
It adds, "However, one additional dollar cash recycled by the money market fund to the Fed means one dollar less available to the banks. With government funds offering 0.05 percent, banks have to cut fees or increase returns on their deposits to compete for funds. And if money market funds compete away stable deposits that have more favourable regulatory treatments for the banks than other sources of funding, the appetite of banks for lending might be reduced. All this represents a big shift. The unsecured short-term funding market historically backed by prime funds will not disappear, but instead will likely be intermediated between more opaque money lenders and borrowers. Government funds are likely to continue to grow. Only the Fed and the US Treasury can satiate their asset growth demand going forward."
Finally, we covered our recent "Asian Money Fund Symposium" webinar in yesterday's News, but today we quote from Fitch Ratings' Alastair Sewell, who presented on Chinese Money Funds. He tells the virtual event, "Beyond [the] mutual fund part of China, there are an enormous amount of assets under management in various other products.... Money market funds in China ... have enjoyed enormous growth over the last 10 or so years and have really powered the broader industry. If you look at the long-term growth rate for money market funds in China on an annualized basis ... the growth has been spectacular, it's growing at an enormous pace. But then if you shorten the time period [to] the five-year and the three-year growth rate, and this is coming up to March 2021 ... the latest figures for China, you can see that the growth rate is decelerating."
Sewell asks, "Is there a future for money funds in China? ... Money market fund share has been shrinking, it went down from 61 percent [of all fund assets] at the end of 2013, to just below 50 percent at the end of last year. So relative share is shrinking, the question is: does that continue? Does this deceleration that we've seen in Chinese growth ... turn into shrinkage? And if so, where is the end point for this? Is China going to end up looking more like the U.S., and if China is going to get to that, how is it going to get there? Are money market fund assets going to shrink? Or is the pie going to increase? Aidan expressed a view earlier that the pie is going to increase, and I think we would concur with that view."
He explains, "One of the reasons for that is when you look at the relative share of different fund types, or funds in general in China, money market funds in particular, you see the penetration rate of mutual funds overall is below the penetration rate of money market funds, which is also pretty low.... You can see when you calculate money fund assets as a share of GDP, so to put it into relative terms, the money market fund assets in China are substantially behind the U.S. So even if China follows the U.S. over time and gets to some kind of fund asset allocation that looks like the U.S., then it would suggest that it's going to come from the overall pie expanding."
Sewell adds, "Of course, the next question is, when is it going to get there? And interestingly, China has developed incredibly quickly when you think [about how] money market funds appeared in the U.S. in the 1970s.... There's 40-plus years of development of money market funds over China in the U.S. [In] China, they've been going since 2003, and it's really only been going in a material way since 2013.... So, I think the story here is that there is still significant growth ahead, [but] slowing from where it was." (See the Asian MFS recording here and Crane Data subscribers may access the handouts here.)
Last week, Crane Data hosted its latest webinar, "Asian Money Fund Symposium," which featured J.P. Morgan Asset Management's Aidan Shevlin, Goldman Sachs A.M.'s Pat O'Callaghan, Fitch Ratings' Alastair Sewell, S&P Global's Andrew Paranthoiene and Crane Data's Peter Crane. The 2-hour, 3-part event discussed money funds, money markets and investors in China, Japan and several other Eastern markets. We excerpt from the first segment below, and watch for more highlights in coming days and in the July issue of our Money Fund Intelligence newsletter. (Thanks again to those who attended and to our excellent speakers! See the recording here and Crane Data subscribers may access the handouts here. Also, register for our next webinar, "Money Fund Wisdom Product Training," which is July 20 from 2-3pm Eastern.)
Shevlin tells us, "As background, I work for J.P. Morgan Asset Management and am the Head of the International Liquidity Fund Management team. I have been based in Hong Kong for the last 15 years and previously was working in London. I moved to Hong Kong to help set up our global liquidity business here [and] launch our funds in China. We also have money market funds in Taiwan, in Hong Kong, Singapore, Australia and other types of funds.... So, we've built quite a familiarity and expertise with money markets across the region."
He explains, "Asia is now becoming effectively too big for the world and for Western markets to ignore in terms of its share of global growth, its share of global trade, the amount of bonds outstanding in Asia. It's just a massive economy now.... China is the second biggest bond market in the world; it's the second biggest equity market in the world. They're increasingly being opened to Western investors ... giving investors a huge increase in the range of ... issuers they can buy. It gives them great diversification. Asian issuers typically offer at higher yields than their Western peers, while having a higher credit quality and an equivalent or lower duration.... It's a market which everyone is now looking at. Everyone wants to get involved in and be active there."
Shevlin comments, "Across the region, we're seeing a very positive trend in terms of ratings, in terms of the growth of the market and the growth of the universe of issuers. In the past we saw most issuers in Asia were very focused on the local markets.... That's now evolving, banks across the region are now more actively using the money markets and the international bond markets to raise money, and that's raising their profile as well. And obviously there's now more investors wanting to tap into the region.... We see new issuers coming to market every year and that really helps with diversification.... We see funds across the U.S. and Europe buying Chinese issuers, we've seen more Korean issuers, more Taiwanese issuers, printing in these markets as well."
He says, "China has developed very rapidly in the last 20 years. If you just roll back the clock to 1999, if you were an investor in China and you had cash, you were a multinational company, you only one option, and that was time deposits. And it wasn't a great option, because you had to place your time deposit with a bank, every bank offered the same interest rate, every bank offered fixed tenors.... It was a very strict market with very little choice. But over time ... we've seen a huge growth in the number of different instruments and the number of different issuers, [and] the number of different markets.... But with that growth, we've also seen an increased amount of risk.... So it definitely created an environment where, as an investor in the markets, you need to be much more aware about what you're actually buying."
Shevlin adds, "One of the key successes in China over the last decade or so has been the mutual fund industry; they've been super successful. I'm sure you've all read the headlines. We're seeing massive growth, it's now over 20 trillion AUM, in remnimbi terms. One of the key drivers of that growth has been money market funds.... So, there's a massive wallet available in China, and that gives a massive opportunity for everyone to invest. And even that ... is only a small share of the total kind of investable universe, where a huge amount of money is still invested in very plain vanilla time deposits with the big banks in China. So that's where the opportunity is. That's where a lot of people are looking at where they can actually access that market and really benefit from those drivers."
He comments, "Some of the key reasons we've seen money market funds be so successful in China is basically the attractive yields they've offered. As recently as a few years ago, you could get money market funds offering 4% to 6% yield.... Also in China, we've seen very significant volatility in bond and equity markets in the past, and a lot of retail investors weren't that keen on that kind of volatility, especially when they could get a stable yield from money market funds, which was very secure. And finally, money market funds really benefited from the development of the e-commerce market in China, of the e-wallets in China, which used the money market funds as cash parking vehicles."
Shevlin states, "If we look at the split of money market funds, you can see it's really dominated by [e-wallets], it's approximately 42% e-wallets.... Then the second portion is basically the retail money market fund space, which is more traditional retail money market funds. Institutional money market funds are about 25%, that's local, corporate, institutional. And then the AAA money market fund space where JP Morgan Asset Management operates, represents only about 1% of the industry. But within that we represent about 86% of the AAA space via our joint venture partner in China, China International Fund Management, CIFM. So quite an interesting way of thinking about the funds."
Goldman's O'Callaghan says, "I lead our Client Portfolio Management efforts globally for Goldman Sachs Asset Management, for the Liquidity Solutions business based in New York. Our firm has a wide offering of onshore and offshore money market vehicles denominated in dollars, sterling, euro, and yen. In terms of our presence beyond yen in Asia at the moment, that is limited to the yen offshore product. However, we are looking to develop a few other offerings across Asia for our clients, both based locally in those markets, as well as large U.S. multinational corporations who have a currency denominated outside of the currencies that I just referenced in terms of our product offering."
He describes his clients, "You have the very large institutional type clients outside of U.S. borders, sovereign wealth funds, a very large hedge funds space abroad, you have corporates that have headquarters outside of the U.S., as well as the U.S. multinationals that have very significant regional presence across the region. So, I would say from a client diversification standpoint, it is very broad, very deep, very liquid in terms of where our clients are based, what currencies they hold and where their operations are focused in terms of managing their cash."
On Japan, O'Callaghan comments, "I would say when you think about Japanese money market funds or liquidity vehicles, really what you're focused on there would be Japanese government bonds and time deposits offered by the financial institutions that are based in the region. And so, the market is not as broad and not as deep, clearly as some of the other markets that we're engaged with, whether it's Dollars or Euro and Sterling.... When you think about negative rates, obviously we're all managing through a fairly substantial negative rate environment in Europe.... The Bank of Japan took rates negative a while back, and so that yield pressure remains across the yen products."
Shevlin adds, "An interesting note talking about Japan ... I remember when we started the business here, we had two Japanese Yen funds, onshore Japan, and at the time they were our biggest funds in Asia. China was very small at that time, and they remained quite large, even up to the point where rates went negative in Japan.... The Japanese market is actually huge, there is a ton of cash there. But unfortunately the regulations make it difficult to operate money market funds in the current environment. That's why you've seen a massive drop in the AUM of all the funds in Japan, which could directly come back if interest rates someday go positive."
He tells us, "In terms of China, ... the CSRC is the local regulator, which looks after the stock markets and money market funds in China. Overall, I think they have done a pretty solid job in regulating money market funds in China. They introduced the first regulations back in 2003, and they've progressively improved those and modified them over the years, especially during times of crisis.... The CSRC does look at what's happening in Western markets: what the SEC is doing, what Europe is doing, they look at IOSCO.... But they also adjust for local market nuances and local market liquidity conditions as well. Over the years ... we have seen regulation tighten to ensure funds are more tightly restricted in terms of liquidity and security."
Shevlin explains, "If we cast our minds back a decade ago, the deviation between the best and worst performing funds in China could be one or two percent, which is just huge when you think about the deviation between best and worst performing funds in Europe and the U.S. That over the years has declined quite dramatically to the point today, where the deviation is much smaller between the best and worst performing funds in China.... [T]hose loopholes, those ways for people to try and earn extra yield on the funds in China, because of their retail focus, ... that definitely has changed. I think that's a good thing, and it shows that the CSRC is listening to the market and aware of the risks that they face. And I think those risks are quite large."
Finally, he tells the webinar, "There are considerable credit risks in China.... A lot of people are very concerned about the level of borrowing, especially in local government [and] in corporates. And we see a lot of concern in the market ... increasing defaults, highly leveraged issuers, and opaque shadow banking markets, unique domestic rating agencies.... They all create a lot of challenges for people and investors who are used to, in the past, having government guarantees, either explicit or implicit, and those guarantees are now dissipating slightly. However, by having proper, detailed and independent credit analysis, these risks can be mitigated -- just like in any other market."
The Association for Financial Professionals published its "2021 AFP Liquidity Survey," yesterday. A press release, entitled, "Significant Increase in Cash Holdings Within the U.S. Attributed to Pandemic Continues," tells us, "As organizations gradually recover from the liquidity crisis due to the coronavirus pandemic, there is a large focus on preserving their cash and safeguarding against any future uncertainty, according to the 2021 AFP Liquidity Survey, underwritten by Invesco."
AFP explains, "In a survey of 327 corporate treasury and finance professionals, 47% report an increase in their organizations' cash and short-term investment holdings within the U.S. in the past 12 months ending March 2021, which is 16 percentage points higher than the 31% reported in the 2020 AFP Liquidity Survey Report and the highest share reported in the 16 years that AFP has been tracking this data. Seventy-two percent of survey respondents report that pandemic planning and contingencies had either a significant or some impact on the increase in cash holdings at their organizations."
They comment, "Organizations continue to maintain slightly more than half of their short-term investments in bank deposits, as this year's results show that the typical organization currently maintains 52% of its short-term investment portfolio in bank deposits (compared to 51% in 2020). This allocation represents a six-percentage-point increase from 2019 and a four-percentage-point increase from 2018."
AFP's release continues, "Additional findings include: When selecting a mutual fund, the survey reports that 65% of treasury and finance professionals cite fund yield as a primary driver, 55% cite fund ratings, and 45% cite fixed or floating NAV. The share of respondents (60%) who reported that their organizations either have plans to prepare operating cash and investment portfolios for LIBOR or are researching the process for doing so is significantly larger than the 39% who reported the same in last year's survey."
President & CEO Jim Kaitz comments, "As expected, the pandemic's impact on liquidity has shaped and continues to shape organizations' cash and short-term investment decisions.... While the U.S. seems to be turning the corner with the coronavirus pandemic, safety continues to be the most important objective, and treasury and finance professionals remain cautious with their short-term investments."
Laurie Brignac, CIO of the Invesco Global Liquidity Fixed Income Group, adds, "Throughout the last year, safety and liquidity have still reverberated as paramount with investment professionals as US money market fund balances remained elevated.... As we re-emerge from lockdown and adjust to the 'new normal,' investors may consider a strategic segmentation approach with their cash holdings to uncover opportunities in our current market climate."
The Liquidity Survey's Introduction says, "As treasury and finance professionals rebuild cash reserves at their organizations, they are most likely to adopt a more conservative posture when it comes to their companies' cash and short-term investments. Survey respondents indicate their companies are going to be very cautious in their investments. Nearly half (47 percent) will increase their cash and short-term investment holdings compared to the past 12 months. That figure is the highest reported percentage since AFP began tracking this data in 2006. It also highlights the severity of the liquidity crisis treasury professionals have been managing over the past year."
It states, "During these challenging times, treasury and finance professionals continue to rely on their banking partners. A majority (52 percent) of survey respondents indicates that their organizations' cash and short-term investment holdings are being maintained in bank deposits. That share is an increase from the 46 percent reported in the 2019 report and the 51 percent in the 2020 survey."
On "Cash and Short-Term Investments," they write, "Forty-seven percent of corporate practitioners report an increase in their organizations' cash holdings within the U.S. in the past 12 months -- 16 percentage points higher than the 31 percent reported in the 2020 AFP Liquidity Survey Report and the highest share reported in the 16 years that AFP has been tracking this data. The share of those respondents reporting a decrease in their companies' cash holdings within the U.S. decreased by two percentage points from last year to 14 percent."
AFP tells us, "Sixty-four percent of organizations hold some amount of cash outside of the U.S. -- lower than the 69 percent reported last year. Seventy-eight percent of publicly owned organizations hold cash outside of the U.S.; 37 percent of these companies hold at least half of their cash outside the U.S. Sixty-six percent of large organizations -- those with at least $1 billion in annual revenue -- hold cash outside the U.S., slightly higher than the 63 percent of organizations with annual revenue under $1 billion that do so. These findings suggest that publicly owned companies are more likely to invest outside the U.S. than are those that are privately held."
They also write, "Similar to the result in last year's survey, organizations continue to maintain slightly more than 50 percent of their short-term investments in bank deposits. The typical organization currently maintains 52 percent of its short-term investment portfolio in bank deposits (compared to 51 percent in 2020). This allocation represents a six-percentage-point increase from 2019 and a four-percentage-point increase from 2018. The higher balance being allocated to bank deposits is potentially pandemic (COVID-19) driven. As interest rates dropped to zero when the crisis began in the spring of 2020, bank relationships were key as organizations needed to draw down on liquidity. Even though there have been signs of recovery and some cautious optimism in the past 12 months, it is evident that treasury professionals are still leaning on their banks for support."
The survey says, "Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2.5 vehicles for their cash and short-term investments. This average is a decrease from the 2.27 figure reported in 2020 as well as the 2.6 reported in 2019."
It explains, "The majority of organizations continues to allocate a large share of their short-term investment balances -- an average of 76 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 17 percent, a mere one-percentage point higher than the 16 percent reported last year."
Finally, AFP adds, "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 92 percent of survey respondents) while 64 percent indicate that the credit quality of a bank is a deciding factor. Compelling rates offered on deposits and earnings credit rate (ECR) are also considered when treasury professionals are considering which banks to use when investing in bank deposits." (Watch for more coverage in coming days.)
This month, MFI speaks with Christopher Tufts, the new Global Head of Portfolio Management and Trading for the money market fund business at J.P. Morgan Asset Management. Tufts had been Head of Portfolio Management for the U.S. funds before taking on an expanded role late last year. We discuss the current rate environment, supply and pending regulatory issues, among other things. Our Q&A follows. (Note: The following is reprinted from the June issue of Money Fund Intelligence, which was published on June 7. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us a little history. Tufts: J.P. Morgan Asset Management has been managing money market funds since 1987, and as an institution, J.P. Morgan has been solving client liquidity needs for over 200 years. Today, we manage about $885 billion in short-term fixed income assets, of which roughly $735 billion sits in money market funds and liquidity separately managed accounts.... The money market fund offering has evolved and expanded significantly over time, and today is comprised of over 30 funds, managed in 8 different currencies across an array of on- and offshore vehicles, including our pioneering AAA-rated RMB offering in Asia.
The portfolio management team is distributed across the U.S., London and Hong Kong with an average of 22 years of experience. Without a doubt, I think that global reach and depth of experience throughout multiple rate cycles and stressed scenarios over the years helped us emerge from last year's volatility in a strong position across the platform.... I've been with J.P. Morgan my entire career, having started with the firm in the summer analyst program in 1995.
MFI: What is your biggest priority? Tufts: It may sound obvious, but the top priority for the portfolio management team never really changes -- we're focused first and foremost on the core deliverables that clients expect from us: prudent liquidity management and capital stability. We've learned over the years that discipline around our core investment philosophy and investment process is the best path to long-term success for our clients and our business. Having said that, the market and industry context that surrounds those objectives seems to be in constant motion.
Right now, we've really got our work cut out for us just getting cash invested every day at yields north of zero. And that holds true across locations and currencies, not just in the U.S. dollar money market funds. In some ways, the investment process becomes a bit more simplified in a zero-rate environment -- there are fewer decisions to be made. But in a market like this one, which is feeling the cumulative impact of so many different technical liquidity factors, the trading days can feel especially challenging. Our current focus from a portfolio management point of view is on matching increased client liquidity balances with investable supply that's being pressured in the opposite direction. We kept our Treasury and Government funds open for client subscriptions during the peak of the inflows last year, and doing the same going forward is really the key priority.
One example of how we're doing that is the work we've done around repo counterparties to ensure we have the deepest possible list of repo relationships and the most potential avenues for supply. We've been active in cleared repo, we've added trading capabilities with insurance companies, and we've leveraged broader bank relationships at J.P. Morgan to uncover new sources of collateral. In the prime funds, we work with a global team of dedicated credit research analysts to ensure that we're tapping into every issuer possible of high-quality, short term debt in the market across every global jurisdiction.
MFI: What about other challenges? Tufts: In many ways, today's most significant challenges are very familiar. This is not our first experience with managing liquidity funds in a zero-rate environment, or a negative-rate environment in the case of our European funds. Nor is it the first time we've been faced with potential changes to the product regulatory structure. I think what feels different and perhaps a bit more challenging from a market perspective this time is just the trend and outlook for technicals in the market. In the U.S., during the last run of near-zero rates, you had a pretty steady decline of money market fund balances -- roughly $1 trillion from 2009 to 2015. In contrast, you've seen industry assets move up about $1 trillion since March of last year.
The demand for high-quality short-term assets from the money market fund industry, particularly Treasury and Government funds, has been far outpacing available supply. We're also seeing lower market rates this cycle across the board.... So, the combination of robust fund flows, scant supply and low market rates are undoubtedly the biggest challenges.
MFI: What are you buying? Tufts: In USD Government and Treasury MMFs, where yield curves are particularity flat and supply challenges are particularly acute, we're leaning heavily on the overnight and 1-week repo markets. We've been less interested in buying U.S. Treasury and Agency paper further out the curve. We made those trades toward the end of last year and early this year, while we still had a bit of yield to work with. So the recent trades have favored repo, and more and more of that repo activity is being directed to the Fed's overnight Reverse Repo Program (RRP). You've seen the recent surge in the overall program balances. For now, the marginal new dollar coming in to our Government and Treasury repo funds will likely land with the Fed. We're also obviously using the regular T-Bill auctions to get invested … given the current zero floor at auctions.
In our prime funds, we've generally had a bit more to work with in terms of trading out the curve. But the CP and CD markets have not been immune to the effects of excess liquidity in the system and curves have flattened there as well, leading us to shorten our purchasing activity more recently. The challenge there has been finding banks that want to take new overnight and 1-week deposit balances. So, I think you'll see our prime funds start to lean more heavily on the Fed RRP as well in the coming weeks and months.
MFI: How about customer concerns? Tufts: In general, clients haven't been expressing any particular points of concern. I think the low-rate environment globally is frustrating for everyone, but as we discussed, that hasn't really slowed down the inflows thus far. Certainly, potential regulatory changes for prime funds, globally, is a topic of active discussion.... They're keen to understand the potential range of outcomes and also the timing.
We're seeing continued, significant interest in ultra-short bond funds, both U.S. dollar and non-dollar, and that's been a consistent theme with clients since central banks dropped rates globally last year.... We're talking through offerings in that space with clients and trying to understand their visibility and accuracy of cash flow projections to make sure that we pair them with the right product.... Our ultra-short Managed Reserves strategy, which is led by David Martucci and a team of seasoned, global portfolio managers, is sitting at all-time high of more than $100 billion.
MFI: What about ESG? Tufts: I think we've tried to take a very measured and deliberate approach around ESG. We started with integrating ESG factors into the investment process and reflecting those inputs in the prospectus and the other fund documentation. Really, it was just about calling out ESG factors more explicitly, since we're using those within our credit analysis process in terms of building approved issuer lists for the funds.... We've also done some more targeted ESG initiatives like our new Empowering Change program.
MFI: Are fee waivers hurting? Tufts: Fee waivers are just a fact of life in multiple currencies and funds at the moment. The low-rate environment impacts clients, intermediaries and obviously the economics of our business. We're fortunate that the platform at J.P. Morgan Asset Management is very broad and we operate at considerable scale.... The scale really gives us the ability to weather periods like this one.... In terms of fee competition, you've seen some outliers occasionally in terms of net yields and waiver levels, but in general, the pack is pretty tightly clustered. I wouldn't expect to see much deviation from here. Not until there's more of a curve to work with and we start to talk about Fed liftoff, which we think is still quite a ways off.
MFI: Tell us about the trading portal. Tufts: We made sure when we launched Morgan Money that it was based on state-of-the-art technology with all the features any client could ask for. [The portal] was developed to meet the needs of modern liquidity managers, powered by a trading and analytics platform that integrates seamlessly with a client's existing technology set.... We have over 1,800 clients on the platform today, that represents about $157 billion in AUM.... I think that speaks to the value proposition that clients are finding in the Morgan Money platform.
MFI: What's your outlook going forward? Tufts: Even at these very low levels of income, money funds continue to offer critical benefits that clients have always valued: same-day liquidity, diversification, professional management and credit analysis. So, we're seeing clients continue to pump money into this sector at a pretty good clip.
On the regulatory side, we do anticipate further regulatory changes coming down the pipeline for prime funds both onshore and offshore. But we’re still in the early stages of that process. Regulators did a lot after the financial crisis to make these funds more resilient to credit and liquidity shocks.... I think the good news is that regulators seem more or less intent on building on the work that they've already done, and they appear focused on adjusting the existing regulations to enhance the resilience of these funds in stressed markets rather than fundamentally changing the product structure altogether.
In terms of our stance on reform, you can read it in our comment letter to the SEC regarding the President's Working Group (PWG) report. We think the 30% weekly liquidity linkage to gates and fees created a 'bright line' for clients that sped up redemption activity last spring. We think the single most impactful change they could make would be to delink gates and fees from that 30% liquidity requirement which would substantially improve the resilience of prime and tax-free money funds in the future.
Beyond that, regulators are also evaluating the entire short-term fixed-income market for potential improvements. This is a positive for the sector overall and for the clients who rely on these products.... So, we'll march forward, and as they say: 'Liquidity rolls on.'
The OMFIF, or Official Monetary and Financial Institutions Forum, which calls itself "an independent think tank for central banking, economic policy and public investment," released a report (in partnership with Federated Hermes) entitled, "The future of money market funds." They write on, "The need for constructive dialogue," and comment, "OMFIF has conducted a thorough review of what happened in the money markets in March 2020, and whether the current ideas mooted by a host of national and international policy-makers to 'fix' money market funds would have the desired effects. We have spoken to a wide range of industry participants, former policymakers, market regulators, lawyers and academics and taken on board their views. This paper is the result of that research." (Note: Thanks again to those who attended our "Asian Money Fund Symposium" webinar last week. For anyone who missed it, the replay is available here, and the materials are available to subscribers via our "Money Fund Webinar 2021 Download Center.)
The OMFIF paper explains, "There is clearly a disconnect between how policy-makers view MMFs and what the funds themselves believe to be the issues at play in the markets in which they operate. At the very least, this demands a period of constructive dialogue between the parties, which this paper aims to encourage and facilitate. Such a dialogue would avoid a rush to judgement about a financial market segment that plays an important role for companies (in reducing their borrowing costs) and for investors in diversifying their exposure and increasing their returns). The truth is that MMFs have performed robustly and proved their resilience through two seismic financial crises."
It continues, "MMF industry participants are clearly ready and willing to engage in these discussions. They agree, for example, that concerns about liquidity in secondary money markets are justified. However, they rightly point out that this is an issue for the market as a whole, rather than just MMFs, and that policy-makers need to adopt a holistic approach."
The introduction tells us, "OMFIF believes that organisations such as the President's Working Group in the US, the European Securities and Markets Authority in the European Union, and the Financial Stability Board internationally are considering proposals -- such as capital buffer requirements, minimum balance at risk or swing pricing requirements -- which either address problems that don't exist or make MMFs far less able to fulfil their core role. The danger is that investors will seek alternative -- and perhaps systemically riskier -- alternatives."
The report's Executive Summary says, "We urge regulators to consider and consult in constructively with the industry the following key findings of the paper. Its points include: "MMFs are capital markets instruments, and should not be regulated like deposits; While there were liquidity issues created by a once-in-a-century economic shock, there was no bailout -- no taxpayer money was lost in 2020 (or in 2008) because of MMFs; MMFs' footprint on short-term markets accounts for just 10% of the market today, compared to 30% pre-2008; While some post-financial crisis regulatory initiatives in the US and Europe helped the functioning of the market in 2020, the tie between weekly liquid asset threshold and potential imposition of a fee or gate backfired, and in fact exacerbated outflows from MMFs; and Central bank interventions -- such as the Commercial Paper Funding Facility and Money Market Mutual Liquidity Facility -- were much smaller than in other markets, never fully drawn down and quickly paid off, demonstrating the relatively robust nature and resilience of this 50-year-old market."
The summary adds, "If policy-makers take into account the wealth of data and analysis available, and a broad view of the short-term markets, they should realise that the stresses of 2020 were not due to the vulnerability of MMFs or any other financial product. The dislocation of 2020 was caused by a global economic shock to the system, resulting from the decisions of governments around the world to shut down their economies to prevent the spread of Covid-19."
OMFIF's white paper explains, "This report focuses on a narrow but critical component of the global financial system: the short-term funding markets. In the aftermath of the crisis, policy-makers are naturally looking at what changes there should be to the regulation and supervision of financial markets to mitigate the stresses experienced in March 2020. This report examines what refinements, if any, should be made in the regulation of money markets, including MMFs, which are a vital player in those short-term markets. It should be recognised at the outset that it may be impossible to avoid the severe economic damage caused by such a global pandemic and the resulting coordinated government action, or even to substantially reduce that through product regulation."
It states, "OMFIF favours fair-minded and balanced regulation of financial markets in a way that protects systems and society from undue risk, promotes growth and stability and allows the financial industry to thrive and innovate. OMFIF was launched more than 10 years ago precisely to offer central banks, sovereign funds and other players in the financial system a forum to discuss issues and challenges."
The piece also comments, "MMFs were another focus of regulatory review in the financial crisis and were subjected to significant reforms in the US in 2010 and 2014 and in Europe in 2017. Because of these reforms, MMFs held higher levels of liquidity going into the March 2020 crisis and may have had enough to ride it out, were it not for the regulatory link between weekly asset liquidity level and board consideration of fees and gates. The 30% WLA requirement became a floor instead of a buffer. Despite tremendous market-wide challenges caused by the pandemic and government decisions to close economies, short-term liquidity drying up and cash requirements of panicked investors put these funds under considerable stress. Central banks supplied targeted liquidity to the money markets."
It continues, "Conventional wisdom has it that if something is not broken, don't try to fix it. There really are two questions. The first is whether short-term funding markets need fixing. The second is whether MMFs also need fixing. The short-term markets may need structural improvements, but the case has not been made that MMFs need improvements. Those who claim that money markets are broken need to prove it. It is not enough, as we shall examine in detail, simply to assert that MMFs need extensive regulatory intervention to repair or restructure them just because they experienced stress in a pandemic-caused crisis that impacted the entire financial system."
The OMFIF explains, "There is a fundamental disagreement on how to view the financial stress that occurred in March 2020. Those who have long rued the very existence of MMFs and objected to this alternative to bank intermediation are seizing on last year's stress as a reason to put further restrictions and conditions on MMFs, even if this means allowing them a significantly reduced role or banning them entirely, which would prevent millions of investors from benefiting from them. They are simply following the mantra of 'let no crisis go to waste'."
They write, "That may well eliminate the need for central bank or government intervention into MMFs (but would not eliminate or even reduce the need in a crisis for intervention into the underlying money markets, financial institutions or the economy at large), but at what cost? Short-term funding markets, with or without MMFs, fulfil a clear need both for borrowers and investors. MMFs have been an important mechanism in facilitating the flow of short-term funds. If they are regulated to the extent that they cannot efficiently play that vital role, then who will play it?"
The report also explains, "There is a fundamental philosophical difference as to whether MMFs are deposits that should be subject to bank-like regulations or investment products that are appropriately supervised by securities regulators.... 'Importantly, we must recognise that no structure or regulation can make a financial product completely invulnerable to market shocks,' according to one industry participant."
Finally, it adds, "The way forward entails first and foremost a detailed analysis of what actually happened with the onset of the pandemic. There is a wealth of data available and modern technology offers tools to assist regulatory agencies in sorting through it. There then needs to be an open dialogue involving all market participants, taking a holistic view of the short-term funding market and the entire ecosystem of finance. Reforms need to be forward-looking. All this will take some time. Policy-makers should not rush to conclusions before properly assessing the facts and the potential unintended consequences of the suggested reforms."
The Investment Company Institute published, "Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2021," which shows that money fund assets globally rose by $164.6 billion, or 2.0%, in Q1'21 to $8.479 trillion. The increase was driven by big jumps in U.S. and Chinese money market fund assets, but European assets plunged. MMF assets worldwide increased by $791.4 billion, or 10.3%, in the 12 months through 3/31/21, and money funds in the U.S. now represent 53.0% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Thanks to our speakers and to those who attended our "Asian Money Fund Symposium" webinar. The replay is available here for those that missed it, and watch for the materials to be posted to our "Money Fund Webinar 2021 Download Center soon.)
ICI's release says, "Worldwide regulated open-end fund assets increased 2.5 percent to $64.63 trillion at the end of the first quarter of 2021, excluding funds of funds. Worldwide net cash inflow to all funds was $1.2 trillion in the first quarter, compared with $744 billion of net inflows in the fourth quarter of 2020. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the fourth quarter of 2020 contains statistics from 46 jurisdictions."
It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was decreased by US dollar depreciation over the first quarter of 2021. For example, on a US dollar–denominated basis, fund assets in Europe decreased by 0.2 percent in the first quarter, compared with an increase of 4.5 percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets increased by 5.0 percent to $29.76 trillion at the end of the first quarter of 2021. Bond fund assets decreased by 1.0 percent to $12.92 trillion in the first quarter. Balanced/mixed fund assets increased 1.9 percent to $7.95 trillion in the first quarter.... Money market fund assets increased by 1.9 percent globally to $8.48 trillion."
The release also tells us, "At the end of the first quarter of 2021, 46 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 20 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 13 percent of the worldwide total."
ICI adds, "Net sales of regulated open-end funds worldwide were $1,187 billion in the first quarter of 2021. Flows out of equity funds worldwide were $347 billion in the first quarter, after experiencing $192 billion of net inflows in the fourth quarter of 2020. Globally, bond funds posted an inflow of $317 billion in the first quarter of 2021, after recording an inflow of $326 billion in the fourth quarter.... Money market funds worldwide experienced an inflow of $263 billion in the first quarter of 2021 after registering an inflow of $90 billion in the fourth quarter of 2020."
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. sustained its position as the largest money fund market in Q1'21 with $4.497 trillion, or 53.0% of all global MMF assets. U.S. MMF assets increased by $163.6 billion (3.8%) in Q1'21 and increased by $159.5 billion (3.7%) in the 12 months through Mar. 31, 2021. China remained in second place among countries overall. China saw assets increase $156.4 billion (12.7%) in Q1, to $1.390 trillion (16.4% of worldwide assets). Over the 12 months through Mar. 31, 2021, Chinese MMF assets have risen by $230.5 billion, or 19.9%.
Ireland remained third among country rankings, ending Q1 with $691.0 billion (8.1% of worldwide assets). Dublin-based MMFs were down $64.8B for the quarter, or -8.6%, and up $75.5B, or 12.3%, over the last 12 months. Luxembourg remained in fourth place with $481.1 billion (5.7% of worldwide assets). Assets there decreased $27.5 billion, or -5.4%, in Q1, and were up $73.2 billion, or 17.9%, over one year. France was in fifth place with $443.6B, or 5.2% of the total, down $37.9 billion in Q1 (-7.9%) and up $114.1B (34.6%) over 12 months.
Australia was listed in sixth place with $270.8 billion, or 3.2% of worldwide assets. Its MMFs decreased by $4.4 billion, or -1.6%, in Q1. Japan was in seventh place with $128.7 billion (1.5%); assets there fell $3.6 billion (-2.7%) in Q1 and increased by $18.4 billion (16.6%) over 12 months. Korea, the 8th ranked country, saw MMF assets decrease $4.5 billion, or -3.9%, in Q1'21 to $111.7 billion (12.6% of the world's total MMF assets); they've risen $12.5 billion (12.6%) for the year. Brazil was in 9th place, assets increased $4.9 billion, or 5.3%, to $92.5 billion (1.1% of total assets) in Q1. They've increased $21.2 billion (27.9%) over the previous 12 months. ICI's statistics show Mexico in 10th place with $64.1B, or 0.8% of total assets, down $285B (-0.4%) in Q1 and up $9.4 million (17.3%) for the year.
India was in 11th place, decreasing $5.9 billion, or -9.2%, to $58.3 billion (0.7% of total assets) in Q1 and increasing $6.5 billion (12.5%) over the previous 12 months. Chinese Taipei ($37.9B, up $1.3B and up $12.2B over the quarter and year, respectively) ranked 12th ahead of Chile ($23.4B, down $10.0B and up $424M). Canada ($32.7B, down $3.5B and down $531M) and South Africa ($28.6B down $1.2B and up $7.7B), rank 13th through 15th, respectively. The U.K., Switzerland, Norway, Argentina and Germany round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $4.726 trillion, up $156.5 billion in Q1. Asian MMFs increased by $139.3 billion to $2.009 trillion, and Europe saw its money funds decrease by $130.0 billion in Q1’21 to $1.715 trillion. Africa saw its money funds decrease $1.2B to $28.6 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. (Let us know too if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased $72.4 billion in May to $5.112 trillion. (Month-to-date in June assets are down $15.4 billion through 6/15, according to our MFI Daily.) The SEC shows that Prime MMFs fell by $14.6 billion in May to $914.6 billion, Govt & Treasury funds increased $90.3 billion to $4.096 trillion and Tax Exempt funds decreased $3.3 billion to $101.5 billion. Yields were down again 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. (Last Call: Register for this morning's "Asian Money Fund Symposium" webinar, Thursday, June 17 from 10:00am-12:00pm EDT.)
May's overall asset increase follows an increase of $46.3 billion in April, $146.1 billion in March, $30.5 billion in February and $35.4 billion in January. Over the 12 months through 5/31/21, total MMF assets have decreased by $119.1 billion, or -2.3%, 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 assets in its collections.)
The SEC's stats show that of the $5.112 trillion in assets, $929.2 billion was in Prime funds, down $14.6 billion in May. This follows an increase of $1.3 billion in April, $7.2 billion in March, a decrease of $29.2 billion in February, an increase of $36.4 billion in January. Prime funds represented 17.9% of total assets at the end of May. They've decreased by $226 billion, or -19.8%, over the past 12 months.
Government & Treasury funds totaled $4.096 trillion, or 80.1% of assets. They increased $90.3 billion in May, after increasing $48.4 billion in April, $140.9 billion in March, $64.3 billion in February and decreasing $2.0 billion in January. Govt & Treasury MMFs are up $145.6 billion over 12 months, or 3.7%. Tax Exempt Funds decreased $3.3 billion to $101.5 billion, or 2.0% of all assets. The number of money funds was 320 in May, down 10 from the previous month, and down 40 funds from a year earlier.
Yields for Taxable MMFs were down again in May. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on May 31 was 0.09%, down a basis point from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.15%, down a basis point. Gross yields were 0.05% for Government Funds, down two basis points from last month. Gross yields for Treasury Funds were also down two basis points at 0.04%. Gross Yields for Muni Institutional MMFs were down two basis points at 0.07% in April. Gross Yields for Muni Retail funds were down a basis point at 0.12% in May.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.05%, down a basis point from the previous month and down 6 basis points since 12/31/20. The Average Net Yield for Prime Retail Funds was 0.02%, unchanged from the previous month, and down a basis point since 12/31/20. Net yields were 0.02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.01%. Net Yields for Muni Institutional MMFs were unchanged from April at 0.03%. Net Yields for Muni Retail funds were unchanged at 0.01% in May. (Note: These averages are asset-weighted.)
WALs and WAMs largely mixed in May. The average Weighted Average Life, or WAL, was 57.1 days (down 1.1 days) for Prime Institutional funds, and 50.1 days for Prime Retail funds (up 1.5 days). Government fund WALs averaged 82.9 days (down 5.7 days) while Treasury fund WALs averaged 84.9 days (down 6.2 days). Muni Institutional fund WALs were 13.7 days (up 0.9 days from the previous month), and Muni Retail MMF WALs averaged 22.6 days (down 0.2 days).
The Weighted Average Maturity, or WAM, was 40.2 days (down 1.0 days from the previous month) for Prime Institutional funds, 39.6 days (down 1.5 days from the previous month) for Prime Retail funds, 35.7 days (down 5.0 days) for Government funds, and 39.2 days (down 4.5 days) for Treasury funds. Muni Inst WAMs were up 1.2 days to 13.6 days, while Muni Retail WAMs decreased 0.2 days to 21.7 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.2% in May (up 1.4% from the previous month), and DLA for Prime Retail funds was 35.3% (up 4.4% from previous month) as a percent of total assets. The average DLA was 71.9% for Govt MMFs and 96.4% for Treasury MMFs. Total Weekly Liquid Assets was 64.7% (up 1.5% from the previous month) for Prime Institutional MMFs, and 47.2% (up 3.0% from the previous month) for Prime Retail funds. Average WLA was 84.8% for Govt MMFs and 99.4% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for Mayl 2021," the largest entries included: Canada with $95.4 billion, France with $88.4 billion, Japan with $73.8 billion, the U.S. with $55.1B, Germany with $37.9B, the U.K. with $35.9B, the Netherlands with 31.5B, Aust/NZ with $24.7B and Switzerland with $14.4B. The biggest gainers among the "Prime MMF Holdings by Country" were: France (up $6.5 billion) and Japan (up $3.1B). The biggest decreases were: Canada (down $6.1B), the Netherlands (down $3.7B), Switzerland (down $1.9B), Aust/NZ (down $1.4B), the U.K. (down $1.4B), Germany (down $1.1B) and the U.S. (down $0.2B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows Europe had $106.6B (down $5.6B from last month), the Eurozone subset had $176.6B (up $1.8B). The Americas had $150.6 billion (down $6.3B), while Asia Pacific had $113.2B (up $2.7B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $905.5B billion in Prime MMF Portfolios as of May 31, $322.5B (35.6%) was in Government & Treasury securities (direct and repo) (down from $329.0B), $230.9B (25.5%) was in CDs and Time Deposits (down from $233.1B), $190.5B (21.0%) was in Financial Company CP (up from $189.9B), $122.3B (13.5%) was held in Non-Financial CP and Other securities (down from $128.4B), and $39.3B (4.6%) was in ABCP (down from $41.8B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $177.9 billion, Canada with $145.3 billion, France with $190.6 billion, the U.K. with $79.9 billion, Germany with $23.1 billion, Japan with $150.2 billion and Other with $37.9 billion. All MMF Repo with the Federal Reserve was up $278.8 billion in May at $458.6B billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 8.0%, Prime Retail MMFs with 6.1%, Muni Inst MMFs with 0.7%, Muni Retail MMFs with 2.9%, Govt MMFs with 12.7% and Treasury MMFs with 11.6%.
Bloomberg published, "Drowning in Cash, Money Markets Seek Another Life Raft From Fed." Authors Alexandra Harris and Benjamin Purvis write, "More and more, investors are wondering whether the Federal Reserve will tweak its monetary policy toolkit to help out money markets that are starting to drown in a sea of cash. The Fed's existing facilities have helped alleviate the impact of the growing dollar glut in short-term funding markets that's outstripping the supply of investable securities and weighing down front-end rates. But officials can only continue to do so if money-market funds, which help funnel more than $4 trillion of cash investments into short-term instruments, are functioning properly. Now, some are now wondering how long the Fed can stem the effects of the growing cash pile if it doesn't adjust some of the auxiliary rates it uses to help steer markets -- including the zero yield it offers through its reverse repurchase agreement operations." (Reminder: Register for our "Asian Money Fund Symposium" webinar, which is Thursday, June 17 from 10:00am-12:00pm Eastern.)
The piece quotes Teresa Ho of JPMorgan, "There comes a point where zero becomes too much.... Zero is great when you're in a crisis, but when it comes to the weight of zero basis points, it's quite heavy for the front end." They quote our Peter Crane, "If the situation is expected to persist, you would expect that smaller players might try and get out.... Or if all yields are below 5 basis points or even negative, that would force everyone out of the business. It's a matter of when."
Bloomberg writes, "But as that facility and other instruments that yield next to nothing become bigger portions of portfolios, money-market funds may begin to feel the pinch. Taking administrative and other costs into account, some funds could begin to produce losses, which might prompt them to stop accepting new cash from investors or even close entirely. That, in turn, risks pushing even more money directly into Treasury, repo and fed funds markets -- because only certain institutions have access to Fed facilities like the RRP -- potentially dragging rates below the central bank's 0% floor."
They add, "With the Fed's floor at risk of cracking, some observers have suggested that the central bank may need to raise its so-called administered rates: those it offers on the reverse repo facility, and its interest rate on excess reserves. By edging those up, it can provide some breathing room for money-market funds and reduce risks to the system. Such a change could take place at the Federal Open Market Committee meeting on Tuesday and Wednesday, although there's debate around the likelihood and wisdom of such a move." (See also the FT piece, "Fed urged to aid money market funds as negative rates loom.")
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our June 10 News, "June MF Portfolio Holdings: Repo Skyrockets Led by RRP; T-Bills Plunge.")
Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in May, prime money market funds held 32.9 percent of their portfolios in daily liquid assets and 47.7 percent in weekly liquid assets, while government money market funds held 80.4 percent of their portfolios in daily liquid assets and 89.0 percent in weekly liquid assets." Prime DLA was up from 29.9% in April, and Prime WLA increased from 45.5%. Govt MMFs' DLA increased from 79.2% in April and Govt WLA increased from 88.8% from the previous month.
ICI explains, "At the end of May, prime funds had a weighted average maturity (WAM) of 45 days and a weighted average life (WAL) of 62 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 37 days and a WAL of 84 days." Prime WAMs were down one day from the previous month, while WALs were up one day from the previous month. Govt WAMs were down five days while WALs were down six days from April.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $173.00 billion in April to $172.90 billion in May. Government money market funds' holdings attributable to the Americas rose from $3,470.72 billion in April to $3,555.35 billion in May."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $172.9 billion, or 35.4%; Asia and Pacific at $92.5 billion, or 18.9%; Europe at $217.6 billion, or 44.5%; and, Other (including Supranational) at $6.1 billion, or 1.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.555 trillion, or 88.4%; Asia and Pacific at $138.6 billion, or 3.4%; Europe at $310.7 billion, 7.7%, and Other (Including Supranational) at $15.6 billion, or 0.4%."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 28, 2021) includes Holdings information from 70 money funds (up 24 funds from two weeks ago), which represent $2.411 trillion (up from $1.680 trillion) of the $4.947 trillion (48.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.241 trillion (up from $804.2 billion two weeks ago), or 51.5%, Repurchase Agreements (Repo) totaling $763.1 billion (up from $525.9 billion two weeks ago), or 31.7% and Government Agency securities totaling $206.0 billion (up from $182.2 billion), or 8.5%. Commercial Paper (CP) totaled $65.8 billion (up from $56.6 billion), or 2.7%. Certificates of Deposit (CDs) totaled $49.2 billion (up from $46.7 billion), or 2.0%. The Other category accounted for $59.9 billion or 2.5%, while VRDNs accounted for $26.2 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.242 trillion (51.5% of total holdings), Federal Reserve Bank of New York with $258.7B (10.7%), Federal Home Loan Bank with $100.1B (4.2%), BNP Paribas with $59.0B (2.4%), Fixed Income Clearing Corp with $54.2B (2.2%), RBC with $47.0B (1.9%), Federal Farm Credit Bank with $42.8B (1.8%), JP Morgan with $39.4B (1.6%), Federal National Mortgage Association with $38.1B (1.6%) Mitsubishi UFJ Financial Group Inc with $29.2B (1.2%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($226.3 billion), Goldman Sachs FS Govt ($205.6B), Wells Fargo Govt MM ($160.7B), Morgan Stanley Inst Liq Govt ($135.8B), Fidelity Inv MM: Govt Port ($129.5B), BlackRock Lq T-Fund ($127.7B), Dreyfus Govt Cash Mgmt ($113.6B), BlackRock Lq Treas Tr ($112.9B), JPMorgan 100% US Treas MMkt ($112.4B) and, Goldman Sachs FS Treas Instruments ($106.9B). (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.)
The June issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "Bond Fund Assets Hit $5.4T; Bond ETFs Over $1.1 Trillion," which covers the continued inflows into the bond fund market; and "Wells Fargo A.M.'s Roberts on Sustainable Investing," which quotes from an ESG piece in Wells' latest Income Generator. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped while yields were flat in May. We excerpt from the new issue below. (Note: Please join us later this week for our "Asian Money Fund Symposium" webinar, which will take place Thursday, June 17 from 10:00am-12:00pm Eastern.)
BFI's "Assets" piece reads, "Bond funds continue to see inflows, though funds have been punished a bit by rising rates and declining NAVs. Nonetheless, asset levels in both bond funds and bond ETFs continue to break records, with funds moving over $5.4 trillion and ETFs surpassing $1.1 trillion. We review the latest growth and also look at the largest and fastest growing funds below."
It continues, "ICI's latest 'Trends in Mutual Fund Investing – April 2021' shows bond fund assets rose $96.2 billion, or 1.8%, to $5.398 trillion in April, after rising $10.2 billion in March. Over the 12 months through 4/30/21, bond fund assets increased by $919.8B, or 20.5%. The number of funds rose by 1 in April to 2,120, down 28 over a year."
Our Wells ESG article explains, "Wells Fargo Asset Management covers 'Innovations in Sustainable Fixed Income Investing' in their latest 'Income Generator' publication. Author Helen Roberts explains, 'Sustainable investing is a top priority for many today. We can see that interest across the investment spectrum—from investors, to companies that issue new securities, to asset managers that are creating new products and to regulators that are formalising guidelines regarding sustainability. Further, the COVID‐19 pandemic has likely accelerated the trend towards sustainability, as we focus more closely on the vulnerability and resilience of not just society, but also of our planet.'"
Roberts continues, "With this mounting focus on environmental, social and governance (ESG) issues, the number of ESG‐related product launches has increased substantially over the last three years. Broadridge calculated that more than half of all global long‐term fund inflows went into ESG‐type mandates during the first three quarters of 2020."
A News brief, "Returns Up Again, Yields Mixed in May," says, "Bond fund returns rose and yields were flat last month. Our BFI Total Index rose 0.34% in 1-month and 5.10% in 12 mos. The BFI 100 rose 0.36% in May and 4.50% over 1 year. Our BFI Conservative Ultra-Short Index was up 0.06% over 1-mo and 0.95% over 1-yr; Ultra-Shorts averaged 0.08% in May and 2.30% over 12 mos. Short-Term increased 0.21% and 4.01%, and Intm-Term rose 0.36% last month and 3.36% over 1-year. BFI's Long-Term Index rose 0.37% in May and 2.85% over 1-year. Our High Yield Index jumped 0.42% in May and 13.05% over 1-year."
Another News brief quotes the Bloomberg article, "Bond ETFs With $1 Trillion Shrug as Fed Starts to Withdraw." It reads, "The Federal Reserve ... will start reversing its surprise decision last March to scoop up bond ETFs as part of efforts to keep credit flowing amid the coronavirus crash.... The Fed's foray into the credit market was perceived as a stamp of approval on a structure that's long been the subject of criticism and hyperbole."
A third News update covers, MarketWatch's "Municipal-Bond Inflows Are Smashing Records in 2021," which tells us, "Data from Refinitiv Lipper ... shows that through mid‐May, investors had plowed $41.7 billion into muni‐bond funds. That's nearly the same amount as in all of last year, putting 2021 on track to be one of the best years in history."
Finally, a sidebar, entitled, "MStar Compares ETFs, Funds writes, "A post from Morningstar, 'Examining Active Bond ETFs Potential,' discusses, 'Considerations to make when assessing actively managed bond ETFs relative to their mutual fund share class compatriots.' It tells us, 'Actively managed bond exchange‐traded funds boast the same benefits over actively managed bond mutual funds that their stock‐picking counterparts do. In most cases, assuming all else equal, their lower fees and the prospect for greater tax efficiency make consuming these actively managed bond portfolios in an ETF wrapper more desirable.'"
Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, mark your calendars for next year's Bond Fund Symposium, which is scheduled for March 28-29, 2022, in Newport Beach, Calif.
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") Thursday. Among the 4 tables it includes on money market mutual funds, the First Quarter 2021 edition shows that Total MMF Assets increased by $164 billion to $4.500 trillion in Q1'21. The Household Sector, by far the largest investor segment with $2.783 trillion, saw assets jump in Q1. The second largest segment, Nonfinancial Corporate Businesses, experienced a drop in assets. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, show asset decreases in MMF holdings for the Nonfiancial Corporate Business and Life Insurance Companies categories in Q1 2021. (Reminder: Register for our upcoming "Asian Money Fund Symposium" webinar, which takes place next Thursday, June 17 from 10am-12pm Eastern.)
Other Financial Business (formerly Funding Corps), the Rest of the World, Property-Casuality Insurance and State & Local Governments all saw small asset increases in Q1. The Private Pension Funds and State&Local Govt Retirement sectors remained unchanged. Over the past 12 months, the Household Sector and the Other Financial Business categories showed the biggest asset increases, while Nonfinancial Corporate Businesses saw the biggest asset decrease.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $164 billion, or 3.8%, in the first quarter to $4.500 trillion. The largest segment, the Household sector, totals $2.783 trillion, or 61.9% of assets. The Household Sector rose by $188 billion, or 7.2%, in the quarter. Over the past 12 months through Q1'21, Household assets were up $365 billion, or 15.1%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $629 billion, or 14.0% of the total. Assets here fell by $49 billion in the quarter, or -7.3%, and they've decreased by $291 billion, or -31.7%, over the past year. Other Financial Business was the third-largest investor segment with $520 billion, or 11.6% of money fund shares. They rose by $24 billion, or 4.9%, in the latest quarter. Other Financial Business has increased by $102 billion, or 24.3%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds, held $161 billion (3.6%). The Rest of the World, was the 5th largest category with 2.9% of money fund assets ($132 billion); it was up by $5 billion (3.8%) for the quarter and up $1 billion, or 1.1% over the last 12 months. The Nonfinancial Noncorporate Business remained sixth place in market share among investor segments with 2.5%, or $114 billion, while Life Insurance Companies held $63 billion (1.4%), Property-Casualty Insurance held $39 billion (0.9%), State and Local Governments held $36 billion (0.8%), and State and Local Government Retirement Funds held $24 billion (0.5%), according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $3.234 trillion, or 71.9% of the total. Debt securities includes: Open market paper ($183 billion, or 4.1%; we assume this is CP), Treasury securities ($2.363 trillion, or 52.5%), Agency and GSE-backed securities ($573 billion, or 12.7%), Municipal securities ($104 billion, or 2.3%) and Corporate and foreign bonds ($13 billion, or 0.3%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($1.056 trillion, or 23.5% of total assets) and Time and savings deposits ($185 billion, or 4.1%). Money funds also hold minor positions in Miscellaneous assets ($77 billion, or 1.7%), Foreign deposits ($2 billion, 0.0%) and Checkable deposits and currency (-$54 billion, -1.2%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $39 billion.
During Q1, Debt Securities were up $49 billion. This subtotal included: Open Market Paper (up $9 billion), Treasury Securities (up $106 billion), Agency- and GSE-backed Securities (down $58 billion), Corporate and Foreign Bonds (were flat) and Municipal Securities (down $9 billion). In the first quarter of 2021, Security Repurchase Agreements were up $50 billion, Foreign Deposits were up $1 billion, Checkable Deposits and Currency were down $46 billion, Time and Savings Deposits were up by $45 billion, and Miscellaneous Assets were up $66 billion.
Over the 12 months through 3/31/21, Debt Securities were up $666 billion, which included Open Market Paper down $43B, Treasury Securities up $1.095T, Agencies down $358B, Municipal Securities (down $27), and Corporate and Foreign Bonds (down $1B). Foreign Deposits were down $2B, Checkable Deposits and Currency were down $28B, Time and Savings Deposits were down $54B, Securities repurchase agreements were down $413B and Miscellaneous Assets were down $7B.
Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."
Crane Data's June Money Fund Portfolio Holdings, with data as of May 31, 2021, show a huge increase in Repo holdings and a giant drop in Treasuries. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) rose $30.2 billion to $4.947 trillion in May, after rising $29.1 billion in April and $187.5 billion in March. Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CD , Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: Please join us next Thursday, June 17 from 10am-12pm Eastern, for our "Asian Money Fund Symposium" webinar.)
Among taxable money funds, Treasury securities dropped $135.0 billion (-5.3%) to $2.406 trillion, or 48.6% of holdings, after falling $29.6 billion in April and jumping $142.8 billion in March. Repurchase Agreements (repo) jumped $200.9 billion (16.2%) to $1.439 billion, or 29.1% of holdings, after increasing $54.1 billion in April and $108.3 billion in March. Government Agency Debt decreased by $22.7 billion (-3.9%) to $563.4 billion, or 11.4% of holdings, after decreasing $15.8 billion in April and $35.1 billion in March. Repo, Treasuries and Agencies totaled $4.409 trillion, representing a massive 89.1% of all taxable holdings.
Money funds' holdings of VRDNs saw an increase in the last month, while CP, CDs and Other (mainly Time Deposits) all experienced decreases in May. Commercial Paper (CP) decreased $5.0 billion (-1.9%) to $263.0 billion, or 5.3% of holdings, after increasing $2.4 billion in April and $3.1 billion in March. Certificates of Deposit (CDs) fell by $3.7 billion (-2.6%) to $138.6 billion, or 2.8% of taxable assets, after increasing $6.5 billion in April and $4.1 billion in March. Other holdings, primarily Time Deposits, decreased $5.4 billion (-4.3%) to $120.7 billion, or 2.4% of holdings, after increasing $11.5 billion in April and decreasing $35.3 billion in March. VRDNs increased to $16.5 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Thursday.)
Prime money fund assets tracked by Crane Data were up at $893 billion, or 18.1% of taxable money funds' $4.947 trillion total. Among Prime money funds, CDs represent 15.5% (down from 15.7% a month ago), while Commercial Paper accounted for 29.5% (unchanged from the April). The CP totals are comprised of: Financial Company CP, which makes up 21.1% of total holdings, Asset-Backed CP, which accounts for 4.3%, and Non-Financial Company CP, which makes up 4.1%. Prime funds also hold 3.7% in US Govt Agency Debt, 18.0% in US Treasury Debt, 10.7% in US Treasury Repo, 0.4% in Other Instruments, 10.3% in Non-Negotiable Time Deposits, 5.7% in Other Repo, 3.0% in US Government Agency Repo and 0.9% in VRDNs.
Government money fund portfolios totaled $2.767 trillion (55.9% of all MMF assets), up from $2.734 trillion in April, while Treasury money fund assets totaled another $1.287 trillion (26.0%), up from $1.274 trillion the prior month. Government money fund portfolios were made up of 19.2% US Govt Agency Debt, 14.3% US Government Agency Repo, 43.5% US Treasury Debt, 22.6% in US Treasury Repo, 0.2% in VRDNs, 0.1% in Other Instruments and 0.1% in Investment Company. Treasury money funds were comprised of 81.0% US Treasury Debt and 19.0% in US Treasury Repo. Government and Treasury funds combined now total $4.054 trillion, or 81.9% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $31.9 billion in May to $657.3 billion; their share of holdings fell to 13.3% from last month's 14.0%. Eurozone-affiliated holdings decreased to $454.6 billion from last month's $475.5 billion; they account for 9.2% of overall taxable money fund holdings. Asia & Pacific related holdings decreased to $231.5 billion (4.7% of the total) from last month's $241.7 billion. Americas related holdings increased to $4.054 trillion from last month’s $3.981 trillion, and now represent 81.9% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $197.8 billion, or 25.8%, to $965.7 billion, or 19.5% of assets); US Government Agency Repurchase Agreements (up $4.1 billion, or 1.0%, to $422.4 billion, or 8.5% of total holdings), and Other Repurchase Agreements (down $1.0 billion, or -1.9%, from last month to $50.8 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $0.8 billion to $188.4 billion, or 3.8% of assets), Asset Backed Commercial Paper (down $2.5 billion to $38.3 billion, or 0.8%), and Non-Financial Company Commercial Paper (down $3.3 billion to $36.3 billion, or 0.7%).
The 20 largest Issuers to taxable money market funds as of May 31, 2021, include: the US Treasury ($2,406 billion, or 48.6%), Federal Reserve Bank of New York ($459.7B, 9.3%), Federal Home Loan Bank ($316.2B, 6.4%), BNP Paribas ($116.6B, 2.4%), RBC ($101.8B, 2.1%), Federal Farm Credit Bank ($95.6B, 1.9%), Federal National Mortgage Association ($87.2B, 1.8%), JP Morgan ($83.8B, 1.7%), Fixed Income Clearing Corp ($72.1B, 1.5%), Credit Agricole ($67.5B, 1.4%), Bank of America ($67.0B, 1.4%), Barclays PLC ($62.7B, 1.3%), Federal Home Loan Mortgage Corp ($61.0B, 1.2%), Societe Generale ($52.0B, 1.1%), Sumitomo Mitsui Banking Co ($51.5B, 1.0%), Mitsubishi UFJ Financial Group Inc ($44.7B, 0.9%), Citi ($44.1B, 0.9%), Canadian Imperial Bank of Commerce ($40.0B, 0.8%), Nomura ($36.8B, 0.7%) and Bank of Montreal ($32.1B, 0.6%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($459.7B, 31.9%), BNP Paribas ($104.1B, or 7.2%), RBC ($81.9B, or 5.7%), JP Morgan ($75.8B, or 5.3%), Fixed Income Clearing Corp ($72.1B, or 5.0%), Bank of America ($63.5B, or 4.4%), Credit Agricole (47.3B, or 3.3%), Barclays PLC ($45.9B, or 3.2%), Societe Generale ($40.9B, or 2.8%), and Citi ($88.9B, or 2.7%).
The largest users of the $460B in Fed RRP included: Goldman Sachs FS Govt ($48.0B), Fidelity Govt Money Market ($43.8B), JPMorgan US Govt MM ($40.5B), Fidelity Govt Cash Reserves ($35.9B), Morgan Stanley Inst Liq Govt ($35.8B), Fidelity Cash Central Fund ($35.3B), Fidelity Inv MM: Govt Port ($27.6B), BlackRock Lq FedFund ($25.6B), Fidelity Sec Lending Cash Central Fund ($22.6B) and BlackRock Lq T-Fund ($16.7B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($21.0B, or 4.75), Credit Agricole ($20.3B, or 4.5%), RBC ($20.0B, or 4.4%), Canadian Imperial Bank of Commerce ($17.1B, or 3.8%), Barclays PLC ($16.9B, or 3.7%), Toronto-Dominion Bank ($16.4B, or 3.6%), Skandinaviska Enskilda Banken AB ($15.5B, or 3.5%), Federated ($14.0B, or 3.1%), Sumitomo Mitsui Banking Corp ($12.9B, or 2.9%) and Sumitomo Mitsui Trust Bank ($12.6B, or 2.8%).
The 10 largest CD issuers include: Bank of Montreal ($10.2B, or 7.4%), Sumitomo Mitsui Banking Corp ($9.4B, or 6.8%), Canadian Imperial Bank of Commerce ($9.4B, or 6.8%), Sumitomo Mitsui Trust Bank ($8.3B, or 6.0%), Toronto-Dominion Bank ($8.1B, or 5.9%), Credit Agricole ($7.4B, or 5.4%), Mizuho Corporate Bank Ltd ($6.8B, or 4.9%), Credit Mutuel ($5.6B, or 4.0%), Mitsubishi UFJ Financial Group Inc ($5.6B, or 4.0%) and Landesbank Baden-Wurttemberg ($5.2B, or 3.8%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($11.7B, or 5.4%), BNP Paribas ($10.8B, or 5.0%), Societe Generale ($10.5B, or 4.8%), JP Morgan ($8.0B, or 3.7%), Toronto-Dominion Bank ($$7.8B, or 3.6%), Barclays PLC ($7.4B, or 3.4%), DNB ASA ($7.1B, or 3.3%), Credit Suisse ($7.0B, or 3.2%), Skandinaviska Enskilda Banken AB ($7.0B, or 3.2%) and Swedbank AB ($6.5B, or 3.0%).
The largest increases among Issuers include: Federal Reserve Bank of New York (up $279.9B to $459.7B), Bank of America (up $9.8B to $67.0B), JP Morgan (up $5.1B to $83.8B), Mizuho Corporate Bank Ltd (up $2.1B to $29.1B), Societe Generale (up $2.0B to $52.0B), Standard Chartered Bank (up $1.4B to $11.8B), KBC Group NV (up $1.1B to $9.1B), Rabobank (up $1.0B to $8.7B), Canadian Imperial Bank of Commerce (up $0.7B to $40.0B) and Credit Suisse (up $0.5B to $17.0B).
The largest decreases among Issuers of money market securities (including Repo) in April were shown by: US Treasury (down $136.6B to $2,406B), Fixed Income Clearing Co (down $39.1B to $72.1B), Federal Home Loan Bank (down $21.2B to $316.2B), Mitsubishi UFJ Financial Group Inc (down $15.0B to $44.7B), RBC (down $12.7B to $101.8B), Credit Agricole (down $10.6B to $67.5B), Barclays PLC (down $8.5B to $62.7B), DNB ASA (down $5.7B to $13.6B), ING Bank (down $4.8B to $20.9B) and Sumitomo Mitsui Banking Corp (down $4.2B to 51.5B).
The United States remained the largest segment of country-affiliations; it represents 77.1% of holdings, or $3.813 trillion. France (5.9%, $291.2B) was number two, and Canada (4.9%, $241.2B) was third. Japan (4.4%, $217.3B) occupied fourth place. The United Kingdom (2.4%, $117.0B) remained in fifth place. Germany (1.3%, $61.9B) was in sixth place, followed by the Netherlands (1.1%, $53.6B), Sweden (0.9%, $45.9B), Australia (0.6%, $28.8B) and Switzerland (0.5%, $24.0B). (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, 2021, Taxable money funds held 38.6% (up from 32.7%) of their assets in securities maturing Overnight, and another 10.4% maturing in 2-7 days (down from 12.0%). Thus, 49.0% in total matures in 1-7 days. Another 15.5% matures in 8-30 days, while 14.5% matures in 31-60 days. Note that over three-quarters, or 79.0% of securities, mature in 60 days or less (unchanged from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.4% of taxable securities, while 10.1% matures in 91-180 days, and just 2.5% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our normal monthly update on the May 31 data for Thursday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of May 31, 2021 includes holdings information from 1,029 money funds (down 13 from last month), representing assets of $5.098 trillion (up from $5.034 trillion). Prime MMFs now total $905.5 billion, or 17.8% of the total. We review the new N-MFP data below, and we also look at our revised MMF expense data.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.427 trillion (down from $2.549 trillion), or a massive 47.6% of all holdings. Repurchase Agreement (Repo) holdings in money market funds jumped to $1.442 trillion (up from $1.236 trillion), or 28.3% of all assets, and Government Agency securities totaled $578.5 billion (down from $589.6 billion), or 11.3%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.448 trillion, or a stunning 87.3% of all holdings.
Commercial paper (CP) totals $272.5 billion (down from $278.1 billion), or 5.3% of all holdings, and the Other category (primarily Time Deposits) totals $163.0 billion (up from $162.4 billion), or 3.2%. Certificates of Deposit (CDs) total $139.1 billion (down from $142.8 billion), 2.7%, and VRDNs account for $75.2 billion (down from $76.0 billion last month), or 1.5% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $190.5 billion, or 3.7%, in Financial Company Commercial Paper; $38.3 billion or 0.8%, in Asset Backed Commercial Paper; and, $43.7 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($983.6B, or 19.3%), U.S. Govt Agency Repo ($407.9B, or 8.0%) and Other Repo ($50.8B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $267.9 billion (down from $272.9 billion), or 29.6%; Repo holdings of $174.1 billion (up from $158.3 billion), or 19.2%; Treasury holdings of $165.5 billion (down from $186.7 billion), or 18.3%; CD holdings of $139.1 billion (down from $142.8 billion), or 15.4%; Other (primarily Time Deposits) holdings of $116.6 billion (down from $117.7 billion), or 12.9%; Government Agency holdings of $33.8 billion (down from $35.9 billion), or 3.7% and VRDN holdings of $8.6 billion (up from $7.9 billion), or 1.0%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $190.5 billion (up from $189.9 billion), or 21.0%, in Financial Company Commercial Paper; $38.3 billion (down from $40.8 billion), or 4.2%, in Asset Backed Commercial Paper; and $39.1 billion (down from $42.2 billion), or 4.3%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($97.0 billion, or 10.7%), U.S. Govt Agency Repo ($26.2 billion, or 2.9%), and Other Repo ($50.8 billion, or 5.6%).
In related news, money fund charged expense ratios fell to a new record low of 0.06% in May, as measured by our Crane 100 Money Fund Index and Crane Money Fund Average. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Tuesday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout late yesterday.) Visit our "Content" page for the latest files, and see below for the review of the latest N-MFP Portfolio Holdings data.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio (Exp%) of 0.06%, down two basis points from last month's previous record low level. The average is down from 0.27% on Dec. 31, 2019, so funds are waiving 21 bps, or 70% of full charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also shows a charged expense ratio of 0.06% as of May 31, 2021, down two basis points from the month prior and down from 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) now average 0.11% (down two basis point from last month), Government Inst MFs expenses average 0.04% (down a basis point from the month prior), Treasury Inst MFs expenses also average 0.04% (down two basis points from last month). Treasury Retail MFs expenses currently sit at 0.04%, (down two basis points from the month prior), Government Retail MFs expenses yield 0.03% (down a basis point over the month). Prime Retail MF expenses are 0.14% (down two basis points from the month prior). Tax-exempt expenses were down two basis points over the month, averaging 0.11%.
Gross 7-day yields were down a basis point at 0.07% on average in the month ended May 31, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 734), shows a 7-day gross yield of 0.07%, down two basis points from the previous month. The Crane Money Fund Average is down 1.65% from 1.72% at the end of 2019. The Crane 100's 7-day gross yield also fell two basis points, ending the month at 0.07%, down 1.66% from year-end 2019.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $2.927 billion (as of 5/31/21). Our estimated annualized revenue totals decreased from $3.790 billion last month, and fell from $6.028 trillion at the start of 2020 and from $10.642 trillion at the start of 2019. Charged expenses and gross yields are driven by a number of variables, and increasing Treasury supply should alleviate some of the pressures from this past month. Nonetheless, severe fee waivers and heavy fee pressure should continue as long as the Fed keeps yields pinned to almost zero.
Crane Data's latest Money Fund Market Share rankings show assets were higher among the majority of the largest U.S. money fund complexes in May. Money market fund assets increased $70.4 billion, or 1.4%, last month to $5.063 trillion. Assets have increased by $282.9 billion, or 5.9%, over the past 3 months, and they've decreased by $158.4 billion, or -3.1%, over the past 12 months through May 31, 2021. The biggest increases among the 25 largest managers last month were seen by JP Morgan, Morgan Stanley, Wells Fargo, Northern and Dreyfus, which grew assets by $25.5 billion, $14.5B, $13.8B, $11.9B and $10.1B, respectively. But declines in May were seen by Federated, Vanguard, Goldman Sachs, Schwab and First American, which decreased by $11.0 billion, $10.1B, $6.8B, $3.8B and $710M, 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, 2021, BlackRock (up $113.3B, or 26.2%), First American (up $43.4B, or 46.7%), Dreyfus (up $26.0B, or 12.9%), Morgan Stanley (up $24.2B, or 10.8%), T. Rowe Price (up $10.2B, or 25.2%), DWS (up $8.8B, or 36.6%), Columbia (up $5.1B, or 34.4%), and Vanguard (up $4.9B, or 1.0%) were the largest gainers. BlackRock, Goldman Sachs, JP Morgan, Morgan Stanley and Dreyfus had the largest asset increases over the past 3 months, rising by $90.3B, $43.8B, $27.9B, $19.5B and $19.4B, respectively. The largest decliners over 3 months included: Fidelity (down $16.3B, or -1.8%), Schwab (down $12.4B, or -7.5%), Vanguard (down $9.0B, or -1.9%), PGIM (down $913M, or -4.5%) and Alliance Bernstein (down $192M, or -1.4%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $889.3 billion, or 17.6% of all assets. Fidelity was down $302M million in May, down $16.3 billion over 3 mos., and down $73.6B over 12 months. BlackRock ranked second with $550.7 billion, or 10.9% market share (up $4.1B, up $90.3B and up $113.3B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard remained in third with $475.3 billion, or 9.4% market share (down $10.1B, down $9.0B and up $4.9B). JP Morgan ranked fourth with $474.8 billion, or 9.4% of assets (up $25.5B, up $27.9B and down $45.9B for the past 1-month, 3-mos. and 12-mos.), while Goldman Sachs took fifth place with $357.1 billion, or 7.1% of assets (down $6.8B, up $43.8B and down $50.7B).
Federated Hermes was in sixth place with $336.6 billion, or 6.6% of assets (down $11.0 billion, up $13.6B and down $50.7B), while Morgan Stanley was in seventh place with $263.2 billion, or 5.2% (up $14.5B, up $19.5B and up $24.2B). Dreyfus ($237.4B, or 4.7%) was in eighth place (up $10.1B, up $19.4B and up $26.0B), followed by Wells Fargo ($207.9B, or 4.1%, up $13.8B, up $8.5B and down $1.2B). Northern was in 10th place ($178.7B, or 3.5%; up $11.9B, up $16.9B and down $14.3B).
The 11th through 20th-largest U.S. money fund managers (in order) include: American Funds ($154.5B, or 3.1%), Schwab ($152.5B, or 3.0%), SSGA ($149.3B, or 2.9%), First American ($135.6B, or 2.7%), Invesco ($85.1B, or 1.7%), UBS ($58.6B, or 1.2%), T. Rowe Price ($51.1B, or 1.0%), HSBC ($39.5B, or 0.8%), Western ($34.2B, or 0.7%) and DWS ($32.3B, or 0.6%). Crane Data currently tracks 65 U.S. MMF managers, unchanged from last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers appear as Fidelity, BlackRock, JP Morgan, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Dreyfus/BNY Mellon, Wells Fargo and Northern. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($903.1 billion), BlackRock ($751.6B), JP Morgan ($671.9B), Vanguard ($475.3B) and Goldman Sachs ($474.9B). Federated Hermes ($346.2B) was sixth, Morgan Stanley ($318.8B) was in seventh, followed by Dreyfus ($260.8B), Wells Fargo ($208.8B) and Northern ($203.9B) 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 5/31/21, shows that yields were flat or down in May for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 734), was flat at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also unchanged at 0.02%. The MFA's Gross 7-Day Yield was down a basis point at 0.09%, the Gross 30-Day Yield was also down a basis point at 0.09%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unch) and an average 30-Day Yield also unchanged at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.09% (down a basis point), and a Gross 30-Day Yield of 0.09% (also down a basis point). Our Prime Institutional MF Index (7-day) yielded 0.03% (unch) as of May 31, while the Crane Govt Inst Index was unchanged at 0.02%, the Treasury Inst Index was unchanged at 0.01%. Thus, the spread between Prime funds and Treasury funds is 2 basis points, and the spread between Prime funds and Govt funds is 1 basis point. The Crane Prime Retail Index yielded 0.01% (unch), while the Govt Retail Index was 0.01% (unch), the Treasury Retail Index was also 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.01% (unch) in May.
Gross 7-Day Yields for these indexes in April were: Prime Inst 0.16% (down a basis point), Govt Inst 0.06% (down a basis point), Treasury Inst 0.06% (down a basis point), Prime Retail 0.17% (down a basis point), Govt Retail 0.06% (unch) and Treasury Retail 0.06% (down a basis point). The Crane Tax Exempt Index was down a basis point at 0.13%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.00% over 3-months, 0.01% YTD, 0.03% over the past 1-year, 1.06% over 3-years (annualized), 0.86% over 5-years, and 0.45% over 10-years.
The total number of funds, including taxable and tax-exempt, was down 18 at 899. There are currently 734 taxable funds, down 13 from the previous month, and 165 tax-exempt money funds (down 5 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 to subscribers Monday morning, features the articles: "Asset Growth Continues, But No Yields in Sight; Record RRP," which tracks the continued jumps in assets despite yields sitting at rock bottom; "J.P. Morgan A.M.'s Chris Tufts: Focused on Core Deliverables," which profiles the new JPMAM Head of Liquidity; and, "Boston Fed Proposes Only Govt MMFs; Already 80%," which highlights the possibility of banning Prime MMFs. We also sent out our MFI XLS spreadsheet Monday a.m., and updated our Money Fund Wisdom database query system with 5/31/21 data. (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 Wednesday, June 9, and our June Bond Fund Intelligence is scheduled to go out Monday, June 14.
MFI's lead article says, "Money fund assets continue to see strong growth, but fund managers aren't celebrating as any yield becomes increasingly difficult to find. Assets broke back above the $5 trillion level ($4.6 trillion if you're looking at ICI's totals), and the inflows show no signs of subsiding. Charged expenses and gross yields are pushing to record lows, though, and the business model of money market funds is coming into question. We look at the latest asset and yield trends, the record usage of the Fed’s RRP program, and whether funds can survive with gross yields of 0.00%, below."
It continues, "Crane Data's latest MFI XLS shows money fund assets increasing by $74.0 billion in May 2021 to $5.066 trillion, up $341.9 billion, or 7.2% year-to-date. Our numbers just broke back above the $5.0 trillion mark for the first time since June 2020, and they're approaching the record level of $5.163 set in April 2020."
Our latest profile reads, "This month, MFI speaks with Christopher Tufts, the new Global Head of Portfolio Management and Trading for the money market fund business at J.P. Morgan Asset Management. Tufts had been Head of Portfolio Management for the U.S. funds before taking on the expanded role late last year. We discuss the current rate environment, supply and pending regulatory issues, among other things. Our Q&A follows."
MFI says, "Give us a little history." Tufts tell us, "J.P. Morgan Asset Management has been managing money market funds since 1987, and as an institution, J.P. Morgan has been solving client liquidity needs for over 200 years. Today, we manage about $885 billion in short-term fixed income assets, of which roughly $735 billion sits in money market funds and liquidity separately managed accounts.... The money market fund offering has evolved and expanded significantly over time, and today is comprised of over 30 funds, managed in 8 different currencies across an array of on- and offshore vehicles, including our pioneering AAA-rated RMB offering in Asia."
Tufts adds, "The portfolio management team is distributed across the U.S., London and Hong Kong with an average of 22 years of experience. Without a doubt, I think that global reach and depth of experience throughout multiple rate cycles and stressed scenarios over the years helped us emerge from last year's volatility in a strong position across the platform.... I've been with J.P. Morgan my entire career, having started with the firm in the summer analyst program in 1995."
The "Boston Fed" article tells readers, "The Federal Reserve Bank of Boston's new paper, 'Money Market Mutual Funds: Runs, Emergency Liquidity Facilities, and Potential Reforms,' is causing quite a stir in the money fund industry. Authored by Kenechukwu Anadu and Siobhan Sanders, it states, 'Twice in the past 12 years, prime and tax-exempt money market mutual funds (MMMFs), collectively non-government MMMFs, have experienced large investor redemptions and runs.... These strains only abated after the Board of Governors of the Federal Reserve System and the United States Department of the Treasury took emergency actions, including the establishment of lending facilities for non-government MMMFs.'"
The piece continues, "Policymakers are now examining potential reform options to enhance non-government funds' resilience and reduce run risk. An option worth examining is a requirement that all non-government MMMFs convert to government MMMFs, which remained resilient -- and even experienced large inflows -- during periods in which non-government funds experienced runs. An option worth examining is a requirement that all non-government MMMFs convert to government MMMFs, which remained resilient -- and even experienced large inflows -- during periods in which non-govt funds experienced runs."
MFI also includes the News brief, "NY Fed Blogs on WLAs and Retail vs. Inst Prime Runs," It says, "The Federal Reserve Bank of New York published, ‘Sophisticated and Unsophisticated Runs,’ written by Marco Cipriani and Gabriele La Spada. The piece tells us, 'In March 2020, U.S. prime money market funds (MMFs) suffered heavy outflows following the liquidity shock triggered by the COVID-19 crisis.... In this post, based on a recent Staff Report, we contrast the behaviors of retail and institutional investors during the run and explain the different reasons behind the run.'"
Another News brief, "SEC Stats: Assets Retake $5 Trillion; Govt MMFs Break $4T," explains, "The SEC's 'Money Market Fund Statistics' summary shows total money fund assets increased $46.3 billion in April to $5.040 trillion. (According to Crane Data, MMFs assets rose by $74.0 billion in May.) Prime MMFs rose by $1.3 billion in April to $929.2 billion, Govt & Treasury funds increased $48.4 billion to $4.006 trillion and Tax Exempt funds decreased $3.4 billion to $104.8 billion. Yields were down again in April."
Our June MFI XLS, with May 31 data, shows total assets increased $74.0 billion in May to $5.066 trillion, after increasing $62.2 billion in April, jumping $151.0 billion in March, rising $30.8 billion in February and $5.6 billion in January. Assets decreased $6.7 billion in December, $11.7 billion in November, $46.8 billion in October, $121.2 billion in September, $42.3 billion in August, $44.2 billion in July and $113.0 billion in June. Our broad Crane Money Fund Average 7-Day Yield was unchanged at 0.02%, our Crane 100 Money Fund Index (the 100 largest taxable funds) also remained flat at 0.02%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both stand at 0.09%. Charged Expenses averaged 0.07% for the Crane MFA and 0.07% for the Crane 100. (We'll revise expenses on Tuesday once we upload the SEC's Form N-MFP data for 5/31.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 38 (down two days from the previous month) and 39 days (down three days), respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMFs increasing for their 4th week in a row, inching up $3.4 billion following last week's huge increase of $67.7 billion. The release says, "Total money market fund assets increased by $3.35 billion to $4.61 trillion for the week ended Wednesday, June 2.... Among taxable money market funds, government funds increased by $1.74 billion and prime funds increased by $663 million. Tax-exempt money market funds increased by $938 million." ICI's weekly "Assets" release shows money fund assets up $315 billion, or 7.3%, year-to-date in 2021. Inst MMFs are up $404 billion (14.6%), while Retail MMFs are down $90 billion (-5.9%). (Note: Register here for our next webinar, "Asian Money Fund Symposium," which is June 17 from 10am-12pm EDT.)
ICI's stats show Institutional MMFs increasing $8.5 billion and Retail MMFs decreasing $5.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.023 trillion (87.2% of all money funds), while Total Prime MMFs were $495.2 billion (10.7%). Tax Exempt MMFs totaled $94.1 billion (2.0%). Over the past 52 weeks, money fund assets have decreased by $140 billion, or -2.9%, with Retail MMFs falling by $131 billion (-8.4%) and Inst MMFs falling by $8 billion (-0.3%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
It explains, "Assets of retail money market funds decreased by $5.13 billion to $1.44 trillion. Among retail funds, government money market fund assets decreased by $3.97 billion to $1.12 trillion, prime money market fund assets decreased by $1.06 billion to $234.01 billion, and tax-exempt fund assets decreased by $96 million to $82.60 billion." Retail assets account for just under a third of total assets, or 31.1%, and Government Retail assets make up 78.0% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $8.47 billion to $3.18 trillion. Among institutional funds, government money market fund assets increased by $5.72 billion to $2.90 trillion, prime money market fund assets increased by $1.72 billion to $261.20 billion, and tax-exempt fund assets increased by $1.03 billion to $11.45 billion." Institutional assets accounted for 68.9% of all MMF assets, with Government Institutional assets making up 91.4% of all Institutional MMF totals.
In other news, fund news source ignites writes, "Boston Fed Officials Float Killing Prime, Muni Money Funds." The article tells us, "Two Boston Federal Reserve officials last month proposed a drastic change for money market funds. Regulators should consider requiring that prime and municipal money funds convert to government funds, which would reduce 'the vulnerabilities' stemming from the sector, argue Kenechukwu Anadu and Siobhan Sanders in a May 21 article. Converting all 'non-government funds' -- both retail and institutional -- to government money funds would also lessen 'the likelihood of future official sector support,' they wrote in their paper, 'Money Market Mutual Funds: Runs, Emergency Liquidity Facilities, and Potential Reforms.'" (See our May 27 News, "Boston Fed Paper Proposes Requirement to Convert All MMFs to Govt.")
The piece continues, "Prime and municipal money funds made up about 20% of the $4.9 trillion in total money fund assets as of April 30, according to Crane Data. Prime funds represented about $914 billion and municipal funds had $105 billion, the money fund tracker's data shows. In March 2020, investors pulled about $100 billion from institutional prime funds in a two-week period. The outflows abated after the government intervened in several ways that directly and indirectly helped money funds."
The ignites explains, "The conversion to government funds would be 'relatively simple to implement, and market adjustment to this change could be facilitated by an appropriately lengthy transition period,' the Boston Fed officials said.... 'Notably, the largest prime fund sponsor did so on its own last year,' the paper's authors note, referring to Vanguard. The fund giant last August announced it would reorganize its $125 billion retail prime fund into a government fund.... Fidelity announced a year ago that it would liquidate two institutional prime funds with nearly $14 billion in assets at the time. Northern Trust said in December that it would exit prime and municipal funds because the 'risk-reward [balance]' had become 'misaligned.'"
It states, "Eliminating prime and municipal money market funds was not part of the potential reforms that the President's Working Group on Financial Markets outlined in December. Two months later, the SEC requested public comment on the suggested reforms. But the paper by Boston Fed officials 'legitimizes' the idea of doing away with prime and municipal money funds, says Peter Crane, CEO of Crane Data. However, opposition to killing the two money fund categories is strong, he notes. '[I]f they try to go that route, they're going to meet some fierce resistance,' Crane says."
The article says, "In fact, a May 24 comment letter penned by nearly 40 high-profile executives, academics and former regulators cites the Boston Fed officials' paper and mounts a defense to that proposal. 'We ... do not support abolishing prime money market funds,' the Committee on Capital Markets Regulation wrote. Members include Barbara Novick, former vice chair at BlackRock, as well as two former SEC commissioners, Daniel Gallagher and Roel Campos. 'Prohibiting prime [money market funds] would ... have unclear effects on financial stability as institutional investors could shift their assets to less-regulated alternatives,' the research group wrote. 'Abolishing prime [money market funds] could also have unintended consequences, including increasing funding costs for issuers of short-term debt and reducing returns for investors in prime [money market funds].'"
It adds, "Some of the possible reforms included in the President's Working Group report would ultimately result in eliminating prime and municipal funds, Crane notes. For example, the group proposed requiring that money funds hold capital in reserve to meet redemptions or that sponsors commit to supporting troubled products. The President's Working Group said it aimed to facilitate discussion and did not endorse any specific proposals."
Finally, ignites comments, "Many in the fund industry are lobbying for a more targeted reform: that the SEC reconsider its current practice of linking requirements for weekly liquid assets to the possibility of imposing liquidity fees and redemption gates. There is 'widespread agreement' that the link between the two 'exacerbated outflows from institutional prime funds during March 2020,' ICI Chief Economist Sean Collins said in a statement. 'It follows that regulators should focus their efforts on delinking.'"
The Federal Reserve Bank of New York posted a study on its Liberty Street Economics blog entitled, "Sophisticated and Unsophisticated Runs." Written by Marco Cipriani and Gabriele La Spada, the piece tells us, "In March 2020, U.S. prime money market funds (MMFs) suffered heavy outflows following the liquidity shock triggered by the COVID-19 crisis. In a previous post, we characterized the run on the prime MMF industry as a whole and the role of the liquidity facility established by the Federal Reserve (the Money Market Mutual Fund Liquidity Facility) in stemming the run. In this post, based on a recent Staff Report, we contrast the behaviors of retail and institutional investors during the run and explain the different reasons behind the run."
The post explains, "The chart below shows cumulative percentage outflows from prime MMFs offered to retail and institutional investors from January to April 2020. Institutional funds suffered larger outflows than retail ones, with outflows for institutional funds reaching 29 percent by March 26 versus only 7 percent for retail funds. The higher responsiveness of institutional investors to shocks buffeting the industry was also observed during the 2008 run, following Lehman Brothers' bankruptcy." (Note: The NY Fed's totals didn't include a number of Prime Inst MMFs covered by the SEC and Crane Data, so the outflows appear much larger than our totals.)
It continues, "Not only did institutional prime funds suffer more outflows than retail ones, but there was also large heterogeneity within both institutional and retail funds. As the table below shows, whereas the median institutional prime fund suffered a 30 percent cumulative percentage outflow, one-quarter of institutional funds experienced outflows smaller than 11 percent and one-quarter experienced outflows larger than 40 percent. Similarly, the median retail prime fund suffered outflows of 1 percent, whereas one-quarter of retail funds experienced inflows greater than 9 percent and one-quarter experienced outflows greater than 12 percent. Understanding why some institutional and retail investors ran while others did not is the focus of our work."
The authors ask, "Why Did Institutional Investors Run?" They answer, "The 2014 reform of the MMF industry, enacted in October 2016, forced all prime funds to adopt a system of redemption gates and liquidity fees contingent on the level of the fund's weekly liquid assets (WLA) -- that is, cash, Treasuries, and other very liquid securities. If a fund's WLA fall below 30 percent of its total assets, the fund is allowed to impose a liquidity fee of up to 2 percent on all redemptions or temporarily suspend redemptions for a period of up to ten business days. If the fund's WLA fall below 10 percent, the fund is required to impose a fee of 1 percent, unless the board of directors determines that such a fee is not in the best interests of the fund shareholders. One concern is that a fund's WLA may provide a focal point for investors to run, generating a so-called preemptive run; it is therefore interesting to study whether, during the COVID-19 run, investor outflows were larger in prime funds with lower WLA."
The New York Fed authors say, "Teasing out the impact of WLA on run behavior, however, is complicated by the fact that WLA are themselves impacted by redemptions: typically, funds meet redemptions by selling some of their liquid securities, thereby reducing their WLA. In other words, redemptions may be higher in funds with lower WLA not because low WLA cause redemptions, but because redemptions lower WLA. To correct for this endogeneity problem, in the chart below, we plot fund outflows during the run (March 6-26, 2020) as a function of each fund's past WLA level (as measured in the fourth quarter of 2019)."
Cipriani and La Spada write, "There is strong negative relationship between an institutional fund's WLA in the fourth quarter of 2019 and the outflows it experienced during the run. Indeed, regression analyses show that a 10 percentage point decrease in WLA in the fourth quarter of 2019 increases daily percentage outflows by 1.1 percentage points during the run; this is a very large effect considering that the run lasted approximately twenty days. Note that the relationship between outflows and WLA is not present in retail funds. Whereas institutional investors in prime MMFs were concerned about the impact of their funds' WLA on their access to liquidity, this was not the case for retail investors."
The post also asks, "Why Did Retail Investors Run?" It responds, "Since prime retail funds still operate with a stable net asset value (NAV), one could imagine that outflows were driven by the likelihood that a fund may break the buck (in other words, that the fund's NAV per share may drop by more than 50 basis points), which would lead to a repricing of the fund's shares and a credit loss for the investors. This does not seem to be the case. The chart below shows outflows from retail funds over the March 2020 run as a function of each fund's minimum shadow NAV (the per-share NAV based on the market value of the securities in the fund's portfolio) during the same period. Retail funds whose NAV reached lower levels during the run did not experience larger outflows."
It states, "If neither WLA nor the NAV mattered for retail investors, what drove the heterogeneity of retail outflows during the COVID-19 run? The chart below shows cumulative percentage outflows from retail prime funds separately for two fund groups: those belonging to families that also offer institutional prime funds and those belonging to families that do not offer institutional prime funds. Retail outflows are concentrated in retail prime funds belonging to families that also offer institutional prime funds. Indeed, our regression analyses show that retail funds belonging to families with institutional prime funds experienced 1.4 percentage point higher daily percentage outflows during the run, a very sizable effect over a twenty-day period."
The post adds, "How can we explain such spillover from the institutional to the retail prime MMF sector? One possibility is that retail investors, who are generally less sophisticated, use the behavior of institutional investors in their own family as a signal, attaching to it informational value on the risk of the family's retail funds. Indeed, not only did retail funds in families also offering institutional funds suffer larger outflows, but the size of retail outflows in these families is also positively correlated with the family's institutional outflows. Our regression analysis shows that, during the run, a 10 percentage point daily outflow from a family's institutional prime funds caused an additional 3 percentage point outflow in the family's retail funds over the next five days."
Finally, it concludes, "Outflows from institutional prime MMFs during the early stages of the COVID-19 pandemic were higher in funds with lower weekly liquid assets (WLA), for which the imposition of gates or fees was more likely (consistent with the idea of preemptive runs). Retail investors did not respond to funds' WLA or NAV but rather left funds from families with larger institutional outflows. This evidence suggests that the motivations behind the runs of institutional and retail investors are different."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 28, 2021) includes Holdings information from 46 money funds (down 23 funds from a week ago), which represent $1.680 trillion (down from $2.062 trillion) of the $4.917 trillion (34.2%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $804.2 trillion (down from $1.006 billion a week ago), or 47.9%, Repurchase Agreements (Repo) totaling $525.9 billion (down from $580.5 billion a week ago), or 31.3% and Government Agency securities totaling $182.2 billion (down from $231.6 billion), or 10.8%. Commercial Paper (CP) totaled $56.6 billion (down from $83.1 billion), or 3.4%. Certificates of Deposit (CDs) totaled $46.7 billion (down from $58.6 billion), or 2.8%. The Other category accounted for $46.5 billion or 2.8%, while VRDNs accounted for $17.5 billion, or 1.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $804.2 trillion (47.9% of total holdings), Federal Reserve Bank of New York with $154.8B (9.2%), Federal Home Loan Bank with $98.5B (5.9%), BNP Paribas with $47.2B (2.8%), RBC with $36.7B (2.2%), Federal Farm Credit Bank with $36.0B (2.1%), Federal National Mortgage Association with $31.8B (1.9%), JP Morgan with $28.7B (1.7%), Fixed Income Clearing Corp with $26.4B (1.6%) and Societe Generale with $25.4B (1.5%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($229.5 billion), Wells Fargo Govt MM ($160.6B), Fidelity Inv MM: Govt Port ($131.7B), Morgan Stanley Inst Liq Govt ($130.6B), Dreyfus Govt Cash Mgmt ($118.6B), JP Morgan 100% US Treas MMkt ($108.6B), First American Govt Oblg ($100.8B), State Street Inst US Govt ($86.0B), JPMorgan Prime MM ($76.9B) and, Morgan Stanley Inst Liq Treas Sec ($65.3B). (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.)
Last week, Fitch Ratings hosted a webinar entitled, "Cash Investment in China," which featured Fitch Ratings' Alastair Sewell and J.P. Morgan Asset Management's Aidan Shevlin. The pair discussed, "The evolving cash management landscape in China; The rise of Chinese money market funds; Differences between Chinese and US/European money market funds; [and] The outlook for Chinese money market funds: current trends and new developments." Below we excerpt some of the highlights, and we also review the latest on yields. (Note: Register for Crane Data's next free webinar, "Asian Money Fund Symposium," which takes place June 17, from 10am-12pm EDT. This 2-hour presentation on money market funds in Asia will also feature Aidan Shevlin of J.P. Morgan Asset Management and Alastair Sewell of Fitch Ratings, along with Pat O'Callaghan of Goldman Sachs A.M., Andrew Paranthoiene of S&P Global and Peter Crane of Crane Data. Please join us!)
On Fitch's China event, Shevlin says, "The timing of this call is actually very interesting, I was talking with my colleagues in Shanghai just today and they were mentioning that they were celebrating their 17th anniversary. They [CIFM] were one of the earliest fund managers to launch in China. So, [this] shows how young this market is. If we roll the clock back to 1999, the early 2000s, if you were an investor in China or one of the multinational companies starting to operate there, you had extremely limited options for where to place your cash. It was basically time deposits or time deposits, there was nothing else available. And at that time, all of the time deposits ... in China would have to be controlled by the PBOC or Central Bank. They set the interest rates for all loans [and] all the time deposits. So regardless of your credit quality, regardless of the credit quality of the bank you were placing with, you were getting exactly the same interest rate and that to a lot of frustration in the market."
He explains, "When you were only closing time deposits 20 years ago, it was a simple structure [that] everyone understood, and it was relatively risk free because you were closing with banks which were owned by the government. It was basically both almost, and explicit, and implicit government guarantee. Those guarantees have gone now, and the range of products we have today is huge and the range of risks associated with those products is also huge. We're now in a much different environment, where you've got more choice, more ability to earn a higher return, but also considerably more risk, which we've seen evolving over the last few years."
Sewell comments, "You mentioned that regulation has developed steadily in China.... I think it was 2003 that money market funds first appeared in China.... But over a relatively short period of time, compared with the U.S. where these things have been around for over 40 years, [Chinese] money market funds have expanded quite rapidly. You see that here on this chart ... which shows you the expansion of the money market fund industry in China. It's grown enormously and it's grown rapidly. So, what has been driving the growth of money market funds in China? What was change in 2013, which drove assets to increase so significantly?"
Shevlin responds, "You are definitely correct, and I think you make a very good point. Money market funds have definitely been one of the success stories of the liberalization of interest rates and financial markets in China, and they really benefited from that liberalization.... [S]howing the mutual fund industry growth in China over the last, say, several years, it's grown rapidly. It's totaling about ... $3 trillion U.S. dollars, which is extremely large by global standards."
In related news, Fitch Ratings published the brief, "U.S. Money Market Funds: May 2021." It states, "Government MMFs Asset Gains Continue: Total taxable money market fund (MMF) assets increased by $36 billion from March 31, 2021 to April 30, 2021, according to iMoneyNet data. Government MMFs gained $45 billion in assets during this period, offset by a $9 billion decrease in prime MMF assets."
Fitch writes, "Prime MMFs have been steadily decreasing exposure to government securities while increasing exposure to commercial paper (CP), partially driven by managers' search for yield in the current low rate environment and the limited supply of treasuries. Prime MMFs increased CP exposure by $22 billion and decreased government exposures by $192 billion, from August 31, 2020 to April 30, 2021, according to Crane Data."
They add, "Low Yields Persist: Since the U.S. Federal Reserve cut rates in response to market volatility in March 2020, MMF yields have remained at near-zero levels, and are likely to stay as the Fed continues to support low rates. As of April 30, 2021, institutional government and prime MMF yields were 0.02% and 0.03%, respectively, per iMoneyNet data."
Crane Data's statistics also show money market fund yields continuing to bottom out just above zero. Our flagship Crane 100 remained unchanged in the last week to 0.02%. The Crane 100 Money Fund Index fell below the 1.0% level over a year ago in mid-March, and below the 0.5% level in late March. It is down from 1.46% at the start of 2020 and down from 2.23% at the beginning of 2019.
Over three-quarters of all money funds and over half 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, 5/28, 646 funds (out of 811 total) yield 0.00% or 0.01% with assets of $2.924 trillion, or 58.0% of the total $5.038 trillion. There are 161 funds yielding between 0.02% and 0.10%, totaling $2.090 trillion, or 41.5% of assets; 4 funds yielded between 0.11% and 0.20% with $23.2 billion. No funds yield over 0.15%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 654), shows a 7-day yield of 0.02%, unchanged in the week through Friday, May 28. The Crane Money Fund Average is down 45 bps from 0.47%, a year ago at beginning of April. Prime Inst MFs were unchanged at 0.03% in the latest week, Government Inst MFs were flat at 0.02%, and Treasury Inst MFs were unchanged at 0.01%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs also yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.01% (unchanged). Tax-exempt MF 7-day yields were also unchanged at 0.01%. (Let us know if you'd like to see our latest MFI Daily.)
Our latest Brokerage Sweep Intelligence, with data as of May 28, showed no changes in the last week. All major brokerages, with the exception of RW Baird, 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 58 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, 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). RW Baird offers a rate of 0.02% for its balances of $100K.
Over the past month-and-a-half, we've quoted from most of the 50 letters written in response to the SEC's "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report". Today, we finish the job and quote from the handful of late entrants, including missives from the Committee on Capital Markets Regulation, The Carfang Group and Attorney Stephen Keen. See here for the list of comment letters and see these Crane Data News stories for our highlights: "More Handicapping: Cohen on Reform Timeline; SSGA; FT on Cash Glut" (5/25/21), "Crane and Dechert's Cohen: Handicapping Money Fund Reform Webinar" (5/24/21), "May MFI: ICI Defends MMFs; SEC, PWG Report Comments" (5/7/21), "Dear SEC: Rest of Top 20 Weigh In; SSGA, Invesco, T. Rowe, Western" (4/29/21), "Dreyfus, Wells, Northern on PWG and Reforms: Treasuries, Runs, Float" (4/28/21), "Federated Hermes Blasts PWG: MMFs Didn't Cause, No Structural Issues" (4/21/21), "Schwab, Vanguard SEC Comments Support Floating NAV for Prime Retail" (4/19/21), "ICI Comments to SEC on Reforms: No Silver Bullet, MMFs Didn't Cause" (4/14/21), "BlackRock Tells SEC Look Holistically" (4/22/21), "Fidelity: Preserve and Protect MMFs" (4/15/21), "JPMAM Urges Incremental Change (4/14/21). (See also the replay of our "Handicapping Money Fund Reforms" webinar for more.)
The CCMR letter tells us, "This report by the Committee on Capital Markets Regulation examines the role of money market funds in the March 2020 COVID crisis and sets forth reforms that would enhance the liquidity of MMFs that primarily invest in short-term private debt securities ('prime MMFs'). The Committee's recommendations are intended to significantly reduce the likelihood that government intervention to support prime MMFs will be necessary in a future crisis."
It continues, "We evaluate policy reforms to prime MMFs that would enhance their resiliency and reduce the likelihood of future government support. We begin by evaluating whether prime MMFs should be abolished. We find that doing so would not eliminate the contagion risk associated with uninsured wholesale short-term funding of which prime MMFs represent only a very small share. Prohibiting prime MMFs would also have unclear effects on financial stability as institutional investors could shift their assets to less-regulated alternatives. Abolishing prime MMFs could also have unintended consequences, including increasing funding costs for issuers of short-term debt and reducing returns for investors in prime MMFs. We therefore do not support abolishing prime MMFs."
The letter explains, "We then set forth recommendations for enhancing the resiliency of prime MMFs. The 2020 crisis demonstrated that prime MMFs' liquidity buffers did not function as intended. Investors in prime MMFs treated the 30 percent minimum as a floor, because breaching that minimum provided MMF boards with the authority to restrict or apply a fee to withdrawals. The SEC can therefore reduce the incentive of investors to withdraw by simply eliminating liquidity fees and gates thereby allowing prime MMFs to use their liquidity buffers to meet investor withdrawals. We further recommend that the SEC enhance the quality of prime MMFs' liquidity buffers to promote investor confidence in the ability of prime MMFs to withstand market stress. One way that the SEC could do so is by requiring that prime MMFs hold 25-50% of their weekly liquidity buffer in short-term U.S. government securities, including U.S. government agency securities."
The CCMR writes, "Next, we examine proposals to impose capital buffers on prime MMFs. We find that capital requirements would substantially increase the cost of operating prime MMFs, which would likely prevent sponsors from offering such funds. Even if sponsors continued to offer prime MMFs with capital requirements, it is not clear that capital buffers against losses would meaningfully reduce the incentive of investors to withdraw in a crisis. We therefore do not support capital buffers for prime MMFs."
They add, "Finally, we consider swing pricing proposals for prime MMFs. Swing pricing authorizes prime MMFs to impose additional fees on redeeming investors, typically after a certain withdrawal threshold based on total AUM is met (e.g., such as 10% of total AUM are withdrawn from a fund). We find that swing pricing would be impractical to implement for prime MMFs as doing so would prevent same-day settlement -- a key feature for institutional investors in prime MMFs. Swing pricing would also be ineffective at reducing the incentive of investors to withdraw in a crisis. We therefore do not support swing pricing for prime MMFs."
The Carfang Group's comment letter, tells us, "The Carfang Group appreciates the opportunity to offer comments in response to the Commission's release of the December 2020 President's Working Group on Financial Markets, Overview of Recent Events and Potential Reform Options for Money Market Funds. We applaud all efforts to enhance the U.S. capital markets, already the broadest, deepest and most liquid in the world. We especially encourage policies that facilitate the efficient flow of working capital to corporations and municipalities, the engines of economic growth, job creation and infrastructure funding. Efficient flow of capital between investors and issuers is paramount."
It continues, "The Carfang Group strongly encourages the Commission, and more broadly, all financial regulators, to avoid premature rule making until (1) the totality of the multi-trillion-dollar capital flows during the March 2020 crisis are examined, (2) the roles that all market participants and regulators played are understood, and (3) the efficacy of the trillions of dollars of government support across the financial markets and institutions is evaluated.... Some of the failures, shortcomings and omissions of the PWG Report have been documented.... Those papers and others demonstrate why the report should not be relied upon as the basis of yet another round of regulation of Prime Money Market Funds (PMMFs) at this time."
In a section entitled, "Crisis-Related Market Turmoil in Perspective," Carfang writes, "PMMF redemptions represented only 6% of the money in motion during the March 2020 crisis.... Since the implementation of the 2014 regulations, PMMFs' role had already been significantly diminished to just 5% of the liquidity market.... PMMF liquidation of just 3% of the outstanding commercial paper (CP) in March 2020 was not a crisis accelerant.... PMMFs, once again, weathered this crisis as the most resilient non-government backed asset class.... All short-term asset classes, public and private sector alike, received trillions of dollars in financial support and/or regulatory forbearance during the crisis."
The comment concludes, "The scope of the PWG Report is far too narrow to provide a useful framework for enacting new regulations on PMMFs.... Before rushing into premature decisions, regulators need to understand (1) the totality of the multi-trillion-dollar capital flows during that period, (2) the roles that all market participants and regulators played, and (3) the efficacy of the trillions of dollars of government support across the financial markets and institutions."
Finally, veteran money fund attorney Stephen Keen's comment letter, begins, "I am writing to comment on the process for developing proposals for the further reform of money market fund regulations. Although my questions and comments are prompted by the Report of the President's Working Group on Financial Markets Overview of Recent Events and Potential Reform Options for Money Market Funds, issued December 22, 2020, I do not wish to comment on any of the reforms considered in the Report. Rather, I would like to remind the Securities and Exchange Commission of the importance of conducting careful fact finding and analysis as to the behavior of money market funds and their shareholders during March 2020 before developing any reform proposals."
It continues, "Although none of the current commissioners were at the Commission during the adoption of the major reforms to Rule 2a-7 in 2014, the current Acting Director of the Division of Investment Management, Sarah ten Siethoff, was and should be able to confirm my observations. In my view, the Division of Risk, Strategy, and Financial Innovation's Money Market Fund Study: Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher (Experience through the Financial Crisis, Efficacy of 2010 Reforms, and Potential Economic Effects of Future Reforms), issued November 30, 2012 (the '2012 MMF Study'), was a key step in the reform process. Frankly, the actions prior to the 2012 MMF Study, including the previous PWG report, the MMF roundtable and the Financial Stability Oversight Council recommendations, struck me as a waste of time due to their superficial analysis of the failure of the Reserve Primary Fund and its aftermath."
Keen explains, "The gist of my recommendation is that IM and DERA should do more analysis of this data and use the Commission's examination authority to fill any holes in the information. Although I have suggested some specific questions for the Commission's staff to consider, the Prime MMF Report illustrates the importance of testing assumptions against the data. For example, conventional wisdom was that MMFs managed by banks and investment banks would be less likely to suffer redemptions because investors would believe they have more resources with which to support their MMFs. Yet the Prime MMFs Report finds 'funds with advisers owned by the largest U.S. banks designated as global systemically important banks accounted for 56% of the outflows in the third week of March even though these funds managed only around 28% of net assets in publicly offered prime institutional MMFs.' This could suggest that requiring advisers to provide fund support may not be effective in preventing large scale redemptions."
In a section on "Questions for Further Analysis," he asks, "Were there earlier indications that the cash flows of Supported Funds were more volatile than other prime or tax-exempt funds? ... Did the portfolio composition of the Supported Fund that reported a market-based NAV below $0.9975 differ significantly from other tax-exempt MMFs? ... [W]ere there particular CP issuers that the MMFs chose not to roll over? ... this would be consistent with a reaction to general market conditions.... Who were the market participants who 'reported concerns that the imposition of a fee or gate by one fund, as well as the perception that a fee or gate would be imposed by one fund, could spark widespread redemptions from other funds, leading to further stresses in the underlying markets?' Did these participants redeem from MMFs and was this the primary reason?"
Keen also writes, "The Report states that one tax-exempt MMF nevertheless reported a market-based NAV of less than $0.9975 and required sponsor support. But this should not have been due to a drop in the price of its seven-day VRDNs. I expect it more likely that the fund (a) had already realized losses from earlier sales of portfolios securities, (b) sold longer-term portfolio holdings in response to redemptions in March and (c) redemptions during March increased the significance of these realized losses. In all events, it would be helpful for DERA to include such details in its analysis.... In summary, I cannot find a structural problem with tax-exempt MMFs."
The letter concludes, "I urge the Commission to learn from its experience during the proposal and adoption of the amendments to Rule 2a-7 in 2014. The Chairwoman's recalcitrance in authorizing the 2012 MMF Study and request for the Financial Stability Oversight Council to intercede served only to delay consideration and adoption of the eventual reforms. I do not know why the Commission chose to give MMFs with fluctuating NAVs or tax-exempt MMFs the power to impose a liquidity fee or temporarily suspend redemptions, but if it was to placate the Treasury Secretary and Chairman of the Federal Reserve Board, the choice was counterproductive.... Finally, any reforms to Rule 2a-7 will be irrelevant if the Commission and other authorities continue to allow issuers of stable-dollar cryptocurrencies to pay interest on their currencies without registering as investment companies or obtaining bank charters."
