News Archives: February, 2022
As spring approaches and the pandemic recedes, Crane Data is gearing up for its 2022 conference calendar, and we look forward to seeing everyone in person again! Late next month, we'll host our ultra-short bond fund focused Bond Fund Symposium in Newport Beach, Calif., March 28-29, and later in June we'll host our big show, Money Fund Symposium, in Minneapolis, Minn., June 20-22. We're still taking registrations (and sponsorships) for Bond Fund Symposium, and the preliminary agenda is available and registrations are also being taken for Money Fund Symposium. Bond Fund Symposium is the only conference devoted entirely to bond mutual funds, bringing together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers, while Money Fund Symposium is the largest gathering of money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators in the world. We review both agendas and events, as well as Crane Data's other 2022 conferences, below.
Our fifth annual ultra-short bond fund event, Crane's Bond Fund Symposium, will take place March 28-29, 2022 at the Hyatt Regency Newport Beach (Calif.). Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. After cancelling our 2020 Boston event and holding a virtual BFS last year, we look forward to seeing the "cash-plus" community in person again in 2022! Registrations are now being accepted ($750) and sponsorship opportunities are available. (Ask us if you'd like us to "match" tickets or if you might be eligible for a "comp" ticket to BFS!)
Bond Fund Symposium's Day One (3/28) morning agenda includes: a Keynote: State of the Bond Fund Marketplace with Peter Crane of Crane Data and Shelly Antoniewicz of the Investment Company Institute; Bond Market Strategists: Rates & Risks with Michael Cloherty of UBS, Ira Jersey of Bloomberg Intelligence and Alex Roever of J.P. Morgan Securities; and ETF & Near-Cash ETF Trends, with Brian McMullen of Invesco and James Palmieri of State Street Global Advisors. (Note: There may be last minute agenda tweaks, so let us know if you're interested in speaking or have any requests.)
The Day One afternoon agenda includes: Senior Portfolio Manager Perspectives with Andrew Wittkop of PIMCO and Dave Rothweiler of UBS Asset Management; Ultra-Short LGIPs & Bond Fund Ratings with Peter Gargiulo of Fitch Ratings and Emelyne Uchiyama of S&P Global; Major Issues in Fixed-Income Investing featuring Logan Miller of Wells Fargo as moderator, Matthew Brill of Invesco, Morten Olsen of Northern Trust AM; and, ESG Issues in the Bond Fund Space with Henry Shilling of Sustainable Research & Analysis and Dave Martucci of J.P. Morgan A.M.. Monday will close with a reception sponsored by Wells Fargo Securities.
Day Two's agenda includes: Money Funds & Conservative Ultra-Shorts with Crane Data's Peter Crane and Kerry Pope of Fidelity Investments; Regulatory Update: Bond Fund Issues '22 with Matthew Barsamian of Dechert LLP and Jamie Gershkow of Stradley Ronon Stevens & Young; Government & Muni Bond Fund Discussion with Mike Kitchen of Cavanal Hill Inv Mgmt and Kristian Lind of Neuberger Berman. And lastly, a Bond Fund Data & Crane Product Demo with Crane Data's Peter Crane. (This will be followed by a lunch by the pool.)
Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Hyatt Regency. We'd like to thank our sponsors and exhibitors -- Bank of America, Northern Trust, Federated Hermes, UBS Asset Management, Wells Fargo Securities, Morgan Stanley IM, T. Rowe Price, Dreyfus, Fitch Ratings, J.P. Morgan, S&P Global Ratings, StoneX, Toyota, Invesco and Bloomberg Intelligence -- for their support. E-mail us for more details.
Our MF Symposium Agenda kicks off on the Juneteenth Holiday, Monday, June 20 with a Keynote: The Brave New World in Liquidity featuring Joe Sullivan and Yeng Felipe Butler of Allspring Global Investments (formerly Wells Fargo Funds). The rest of the Day 1 Agenda includes: Strategists Speak '22: Fed, Rates & Reforms, with Vanessa Hubbard McMichael of Wells Fargo Securities, Priya Misra of TD Securities and Alex Roever of J.P. Morgan Securities; a Corporate Investors, Portals, D&I Discussion with Tom Hunt of AFP, Tom Callahan of BlackRock and Tory Hazard of Institutional Cash Distributors; and, a Major Money Fund Issues 2022 panel with moderator Peter Crane, Deborah Cunningham of Federated Hermes, John Tobin of BNY Mellon Cash Investment Strategies and Peter Yi of Northern Trust. (The evening's reception is sponsored by Bank of America.)
Day 2 of Money Fund Symposium 2022 begins with Treasury Issuance & Fed Repo Update, which features Mark Cabana of BofA Securities, Dina Marchioni of the Federal Reserve Bank of NY and Tom Katzenbach of the U.S. Dept. of the Treasury ; followed by a Senior Portfolio Manager Perspectives panel with Linda Klingman of Charles Schwab I.M., Nafis Smith of Vanguard and Jeff Plotnik of U.S. Bancorp Asset Mgmt. Next up is Government Money Fund & Repo Issues, with Joseph Abate of Barclays, Mike Bird of Allspring Funds and Geoff Gibbs of DWS. The morning concludes with a Muni & Tax Exempt Money Fund Update, featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya of J.P. Morgan Securities.
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: Dealer's Choice: Supply, New Securities & CP with Robe Crowe of Citi Global Markets, John Kodweis of J.P. Morgan and Stewart Cutler of Barclays; Ratings Focus: Governance, Global & LGIPs with Robert Callagy of Moody's Investors Service, Greg Fayvilevich of Fitch Ratings, and Michael Masih of S&P Global Ratings; Ultra-Short Bond & European MMF Update, with Rob Sabatino of UBS AM and Laurie Brignac of Invesco. The day's wrap-up presentation is Brokerage Sweeps, AMAs & Deposit Issues involving Chris Melin of Ameriprise Financial and Michael Berkowitz of Citi Treasury & Trade Solutions. (The Day 2 reception is sponsored by Barclays.)
The third day of the Symposium features the sessions: The State of the Money Fund Industry" with Peter Crane of Crane Data, Pia McCusker of SSGA and Michael Morin of Fidelity Investments; Regulations: Money Fund Reforms Round III, with Brenden Carroll of Dechert and Clair Pagnano of K&L Gates LLP; and, a final session on Money Fund Statistics, Software & Disclosures.
Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are available. We hope you'll join us in Minneapolis this June! Note that some of our speakers have yet to confirm their participation, and the agenda is still in the process of being finalized, so watch for tweaks in coming weeks. E-mail us at info@cranedata.com to request the full brochure.)
Finally, mark your calendars for our next European Money Fund Symposium, which is scheduled for Sept. 27-28, 2022, in Paris, France and for our next Money Fund University, which is scheduled for Dec. 15-16, 2022, in Boston, Mass. Let us know if you'd like more details on any of our events, and we hope to see you in Newport Beach next month, in Minneapolis in June or in Paris or Boston later in 2022!
The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, as well as its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for January 2022 yesterday. The former shows assets inching higher following 3 weeks of steep declines, while the latter confirms a big drop in money fund assets in January. Year-to-date, MMFs are down by $150 billion, or -3.2%. Over the past 52 weeks, money fund assets have increased by $211 billion, or 4.8%, with Retail MMFs falling by $36 billion (-2.4%) and Inst MMFs rising by $247 billion (8.7%).
ICI's weekly release says, "Total money market fund assets increased by $5.01 billion to $4.55 trillion for the week ended Wednesday, February 23, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $13.50 billion and prime funds decreased by $7.13 billion. Tax-exempt money market funds decreased by $1.36 billion." ICI's stats show Institutional MMFs increasing $2.1 billion and Retail MMFs increasing $3.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.041 trillion (88.7% of all money funds), while Total Prime MMFs were $428.0 billion (9.4%). Tax Exempt MMFs totaled $85.4 billion (1.9%).
ICI explains, "Assets of retail money market funds increased by $2.96 billion to $1.48 trillion. Among retail funds, government money market fund assets increased by $3.84 billion to $1.20 trillion, prime money market fund assets decreased by $305 million to $200.13 billion, and tax-exempt fund assets decreased by $579 million to $75.91 billion." Retail assets account for just under a third of total assets, or 32.4%, and Government Retail assets make up 81.3% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $2.05 billion to $3.08 trillion. Among institutional funds, government money market fund assets increased by $9.66 billion to $2.84 trillion, prime money market fund assets decreased by $6.82 billion to $227.87 billion, and tax-exempt fund assets decreased by $782 million to $9.45 billion." Institutional assets accounted for 67.6% of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals. (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 Crane's asset series.)
ICI's monthly "Trends" report shows that money fund assets plunged $136.1 billion in January to $4.620 trillion. This follows increases of $136.1 billion in December (coincidentally the exact same size as January's decline), $65.5 billion in November, $11.1 billion in October, $6.4 billion in September and $25.5 in August. MMFs decreased $24.4 billion in July and $73.4 billion in June, but increased $78.6 billion in May, $31.9 billion in April, $129.4 billion in March and $39.4 billion in February. For the 12 months through Jan. 31, 2022, money fund assets increased by $291.5 billion, or 6.7%. (Month-to-date in February through 2/23, MMF assets have decreased by $45.0 billion to $4.961 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.)
The monthly release states, "The combined assets of the nation's mutual funds decreased by $1.22 trillion, or 4.5 percent, to $25.74 trillion in January, 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 outflow of $13.13 billion in January, compared with an outflow of $7.42 billion in December.... Money market funds had an outflow of $136.13 billion in January, compared with an inflow of $136.30 billion in December. In January funds offered primarily to institutions had an outflow of $137.22 billion and funds offered primarily to individuals had an inflow of $1.09 billion."
The Institute's latest statistics show that Taxable funds and Tax Exempt MMFs both saw losses last month. Taxable MMFs decreased by $135.5 billion in January to $4.533 trillion. Tax-Exempt MMFs decreased $0.6 billion to $86.2 billion. Taxable MMF assets increased year-over-year by $311.0 billion (7.4%), while Tax-Exempt funds fell by $19.5 billion over the past year (-18.4%). Bond fund assets decreased by $120.7 billion in January to a $5.504 trillion, but they rose by $221.7 billion (4.2%) over the past year.
Money funds represent 17.9% of all mutual fund assets (up 0.3% from the previous month), while bond funds account for 21.3%, according to ICI. The total number of money market funds was 305, unchanged from the prior month and down from 340 a year ago. Taxable money funds numbered 245 funds, and tax-exempt money funds numbered 60 funds.
ICI's "Month-End Portfolio Holdings" confirms a huge drop in Repo last month and a jump in CDs. Repurchase Agreements remained the largest composition segment in January, falling $200.2 billion, or -8.6%, to $2.127 trillion, or 46.9% of holdings. Repo holdings have increased $1.169 trillion, or 122.1%, over the past year. (See our Feb. 10 News, "Feb. MF Portfolio Holdings: Repo Drops, Time Deposits, Treasuries Jump.)
Treasury holdings in Taxable money funds rebounded last month and remained the second largest composition segment. Treasury holdings increased $15.2 billion, or 0.9%, to $1.709 trillion, or 37.7% of holdings. Treasury securities have decreased by $543.5 trillion, or -24.1%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $7.3 billion, or -1.9%, to $371.6 billion, or 8.2% of holdings. Agency holdings have fallen by $244.6 billion, or -39.7%, over the past 12 months.
Certificates of Deposit (CDs) reclaimed fourth place; they increased by $67.4 billion, or 57.9%, to $183.9 billion (4.1% of assets). CDs held by money funds shrank by $5.1 billion, or -2.7%, over 12 months. Commercial Paper fell back to fifth place, but was up $8.6 billion, or 6.3%, to $145.3 billion (3.2% of assets). CP has decreased by $37.7 billion, or -20.6%, over one year. Other holdings decreased to $25.7 billion (0.6% of assets), while Notes (including Corporate and Bank) inched lower to $2.4 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 48.273 million, while the Number of Funds remained the same at 245. Over the past 12 months, the number of accounts rose by 6.716 million and the number of funds decreased by 20. The Average Maturity of Portfolios was 31 days, five days lower than December. Over the past 12 months, WAMs of Taxable money have decreased by 16.
Law firm Troutman Pepper recently published its latest "Investment Management Update," which includes a piece entitled, "SEC Proposes Money Market Fund Reforms." They tell us, "On December 15, 2021, the SEC issued proposed amendments to certain rules governing money market funds under the Investment Company Act of 1940. These proposed amendments arise out of the aftermath of the COVID-19 pandemic and attempt to address shortcomings that the current rules exhibited during the market instability. The SEC proposed a number of amendments to Rule 2a-7 of the Investment Company Act, which regulates money market funds. Many of these proposals seek to weaken investors' incentives to redeem from certain funds during times of market illiquidity, providing funds with a 'cooling off' period to temper short-term investor panic. Additionally, the proposals attempt to better equip a fund's ability to manage significant and rapid investor redemption."
The article explains, "One such proposal was to remove the ability of a money market fund to impose redemption gates.... Another proposal would remove from Rule 2a-7 the provisions allowing/requiring money market funds to impose liquidity fees once the fund crosses certain liquidity thresholds.... While the proposal would remove the liquidity fee provision in Rule 2a-7, a money market fund's board of directors may nonetheless approve the fund's use of redemption fees (up to but not exceeding 2% of the value of shares redeemed) to eliminate or reduce, as practicable, dilution of the value of the fund's outstanding securities under Rule 22c-2 of the Investment Company Act. Therefore, to the extent a fund's board determines that the ability to impose fees may be necessary to protect investors, the board could establish a redemption fee approach to meet the needs of the fund, provided the fund complies with Rule 22c-2 and discloses information about the redemption fee in its prospectus."
It continues, "To replace the removal of the fees and gate provisions, the SEC is proposing swing pricing requirements, specifically for institutional prime and institutional tax-exempt money market funds, that would apply when the fund experiences net redemptions. This proposed rule would specify how an institutional fund would determine its swing factor, which would differ based on the amount of net redemptions. Swing pricing policies and procedures must be implemented by a board-designated administrator, segregated from portfolio management, and may not include portfolio managers."
Troutman Pepper states, "The swing pricing proposal attaches board oversight of swing pricing, requiring board approval of (1) policies and procedures, (2) approving the swing pricing administrator, and (3) annual reviews of reports produced by the swing pricing administrator (which report the fund must maintain for six years)."
They comment, "The swing pricing proposal seeks to ensure the costs from net redemptions are fairly allocated and do not give rise to a first-mover advantage or dilution under either normal or stressed market conditions. Under the proposal, an institutional fund would be required to adjust its current net asset value (NAV) per share by a swing factor reflecting spread and transaction costs, as applicable, if the fund has net redemptions for the pricing period. If an institutional fund has net redemptions for a pricing period that exceed the 'market impact threshold,' which would be defined as 4% of the fund's NAV divided by the number of pricing periods the fund has in a business day, or such smaller amount of net redemptions as the swing pricing administrator determines, the swing factor also would include market impact."
The piece adds, "Furthermore, the SEC proposes to increase the minimum liquidity requirements to 25% daily liquid assets and 50% weekly liquid assets. The SEC believes this will provide a substantial buffer that would better equip money market funds to manage significant and rapid investor redemptions, while maintaining funds' flexibility to invest in diverse assets during normal market conditions."
Finally, they write, "The SEC also proposes certain changes to reporting requirements.... The SEC further proposes that there be a transition period for compliance with the amendments if adopted: A 12-month compliance date for: Any money market fund to comply with the proposed swing pricing requirement and the applicable swing pricing disclosures; and Government and retail funds to determine if financial intermediaries have the capacity to redeem and sell at a price based on the current net asset value per share pursuant to Rule 22c-1 or prohibit the financial intermediary from purchasing in nominee name on behalf of other persons, securities issued by the fund. A six-month compliance date for: The proposed increased daily minimum asset and weekly minimum asset requirements; and, the amendments to Form N-CR and N-MFP, except the swing pricing-related disclosures on Form N-MFP."
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 Feb. 18) includes Holdings information from 73 money funds (up from 62 a week ago), which represent $2.594 trillion (up from $2.124 trillion) of the $4.946 trillion (52.4%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our Feb. 16 News, "Weekly MF Portfolio Holdings Still Half Repo; ICI Holdings Summary," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.270 trillion (up from $1.042 trillion a week ago), or 49.0%; Treasuries totaling $999.4 billion (up from $802.5 billion a week ago), or 38.5%, and Government Agency securities totaling $141.5 billion (up from $110.5 billion), or 5.5%. Commercial Paper (CP) totaled $63.8 billion (up from a week ago at $60.3 billion), or 2.5%. Certificates of Deposit (CDs) totaled $40.7 billion (up from $38.3 billion a week ago), or 1.6%. The Other category accounted for $53.9 billion or 2.1%, while VRDNs accounted for $24.7 billion, or 1.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $999.4 billion (38.5% of total holdings), the Federal Reserve Bank of New York with $810.0B (31.2%), Fixed Income Clearing Corp with $69.5B (2.7%), Federal Home Loan Bank with $61.8B (2.4%), BNP Paribas with $60.3B (2.3%), Federal Farm Credit Bank with $46.9B (1.8%), RBC with $42.7B (1.6%), Societe Generale with $27.8B (1.1%), Barclays PLC with $26.8B (1.0%) and Federal National Mortgage Association with $20.9B (0.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($232.9B), Goldman Sachs FS Govt ($211.4B), BlackRock Lq FedFund ($170.1B), Morgan Stanley Inst Liq Govt ($145.9B), Allspring Govt MM ($128.6B), Fidelity Inv MM: Govt Port ($125.5B), Goldman Sachs FS Treas Instruments ($120.2B), BlackRock Lq Treas Tr ($119.8B), Dreyfus Govt Cash Mgmt ($119.7B) and BlackRock Lq T-Fund ($117.7B). (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.)
ICD recently hosted a webinar entitled, "Global Markets Update 2022 with BlackRock," which asked, "What are the trends that will impact investors in 2022 as the world transitions from a pandemic-focused economy?" The session was moderated by ICD's Justin Brimfield and featured BlackRock Global CIO Rich Mejzak and BlackRock Director and Govt Fund PM Eion D’Anjou. Its description says, "BlackRock joins ICD to discuss: Expectations around inflation, rising rates and yields in money market funds (MMF); Impact of labor market and supply chain concerns on the global economy; and, BlackRock Liquid Federal Trust Fund (BLFT) and other investment opportunities in the year ahead."
Mejzak comments, "We obviously are very thoughtful about flows, or anticipated flows, into and out of our products. We run liquidity products. So that is going to be a huge determinant of how we manage strategy, especially in front of a rising interest rate environment. Up until this point, markets have been pretty aggressive in repricing the Fed. The reality was that a lot of the products that we invest in were not reflecting [this] to the same degree. That's a function of a couple of things.... The supply-demand dynamic in the front end was out of skew, you had money assets that were largely unchanged over the last several quarters, and you had diminishing supply."
He explains, "The supply part of that, I think, is beginning to change. If you think about it, we got there for a real, rational reason. Over the last couple of years, interest rates were incredibly low, and credit spreads were very, very tight. So everyone, including the U.S. Treasury, took that opportunity to refinance if they could.... Especially in investment grade, we saw record years of issuance and most of that was skewed towards longer end of the curve. We're starting to see a little bit of a reversal of that."
Mejzak continues, "Last year we saw an increase in issuance in the one-to-three-year part of the curve. We're seeing that again this year, and we're seeing a slight uptick in the commercial paper supply, as expected. It's more cost effective.... So we're seeing a little bit more supply.... You also have the reverse repo program ... there's $1.7 trillion in the RRP ... that has nowhere else to go. There just aren't enough assets. That's starting to change as markets are repricing."
He says, "We think that it depends on product, when we think about investment strategy. It really matters who our client is, their liquidity needs [and] the transparency into the liquidity.... For money market funds, you really don't have much of a choice. [W]e need to respect the chance of 50 [bps] in March. But for our separate account clients, or even some of our short duration strategies, where you have 2.0% funds priced in by next year, you do need to look at some of this stuff.... [S]ome of our clients are really inclined to grab the income that's available right now. We're starting to do that. [But] you absolutely need to be laddered.... You just constantly have to have stuff maturing. It's tough to pick a spot on the curve that you love just because you want to be able to reinvest if rates are going to continue to go higher."
Mejzak adds, "Then the other thing you touched on was liquidity. It's likely that if we are to see further exaggerated volatile moves in markets, it's going to be because of liquidity. Liquidity is not great. We talk about this all the time, whether it be any asset class.... The reality is money has been chased into risk assets ... whether it be real estate or equities or cryptocurrencies, for that matter.... When they come under pressure, they need to get sold. That eats up risk budgets and ultimately when risk budgets get eaten up, there's less balance sheet room for any type of security, including 2-month commercial paper. So, we're very thoughtful about that and how we invest."
D'Anjou comments, "It's no longer transitory. It's nimble. I think that's the way that we're thinking about investment strategy.... I would highlight two words ... cautiously and conservatively. So, it's a tale of two markets. In 2020-2021, we were running above average duration metrics pretty consistently. We were in an abundant liquidity regime, [there was] a lot more demand than supply, and we were in a low-rate environment. So running a little bit higher duration metrics made sense both in fixed and in floating. Now we're in a bit of a sea change. Since the fourth quarter ... we've been really, really conservative with our duration extension. We are running I would call it an underweight in duration ... and an overweight in liquidity in those funds that have accessibility to repo. I think that's pretty prudent and that's the way that we're going to continue to progress."
He states, "The Fed continues to tell us that they're keeping all options on the table.... I think it's going to become extremely apparent that the committee is going to find themselves or may find themselves behind the curve, and that's going to warrant them moving faster towards normalizing monetary policy. Our expectation on the desk is low probability of a 50-basis point hike at any meeting, but we have to respect the possibility that they may go there.... We still think that there's going to be consistent 25 basis point hikes over the course of the year."
D'Anjou also says, "I think you see that the price action just tells you that the rate structure looks appealing. But again, we're in this abundant liquidity regime that we keep mentioning that the committee now needs to find their way out of.... It's going to be anything but smooth. So, we're going to continue to see market volatility like we're seeing today, like we've seen for the last six weeks. I think again, it warrants being conservative with duration maintaining above average liquidity."
He continues, "The overall size of the money fund complex is about $3.6 trillion in assets at the onset of the pandemic, right around $4.65 trillion at the end of January 2022.... There's still a concentration of assets that are in money funds that you have to respect. And within that, there's a concentration among buyers, right? There's only a handful ... you can think of that are that are pretty sizable in the industry. So, it puts a premium on maintaining above average liquidity."
D'Anjou adds, "[That's another reason] why we're overweight in repo, as Rich mentioned. We don't expect to see a massive outflow of AUM ... clients, have a different behavior. We've seen that there's broad-based comfort holding above average cash buffers in the event that there's, an uptick in COVID concerns, etc.... Corporations are comfortable running above average cash buffers to not run into issues that they saw early 2020."
When asked about spreads, Mejzak answers, "If we get 50 bps on March 17 [we'll see spreads between Prime and Govt come back]. I'm kidding, but I'm not kidding. Clearly the relationship between the two has been distorted by fee waivers. Assuming a rate hike in March and now potentially 50 bps, that happens, I don't want to say overnight, but most funds keep 50% seven days and shorter.... That that gap will start widening within days. We did a lot of work on this [during the] last money fund reform.... Regardless of the absolute level of interest rate rates ... the average spread was around 30 bps. You would think we could probably get there in fairly short order again."
On bank deposits, he says, "We hear the same thing from everyone.... Bank deposits are going to lag money funds in yield.... Banks are reluctant to get more deposits without the demand for loan growth on the other side. So the expectation [is that] there's going to be movement from deposits into the money funds. Having a horse in the race, we certainly hope that's the case."
Finally, on MMF Reforms, Mejzak adds, "Money market reform actually hit the Federal Register ... so it's officially here. [There's an] open comment for 60 days. I think it's April 11th the responses are due. We certainly will be responding to that. I'll spare everybody the details ... but yes, it's coming. Final details are TBD.... The Government space [is] less likely to be impacted. But any Prime strategy is likely to have some impact. So, we don't know. We're in a much different place than we were last time we went through reform.... We've already seen that massive movement of assets. So, there is a tendency to believe that some of the Prime assets are perhaps stickier. But they are certainly potentially impacted here through reform."
A press release entitled, "ESMA Proposes Reforms to Improve Resilience of Money Market Funds" explains, "The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, is issuing an Opinion containing proposed reforms to the regulatory framework for EU Money Market Funds (MMFs) under the Money Market Funds Regulation (MMFR). The proposals will improve the resilience of MMFs by addressing in particular liquidity issues and the threshold effects for constant net asset value (CNAV) MMFs." See ESMA's "Final Report - ESMA Opinion on the Review of the Money Market Fund Regulation and their "Final Report - Guidelines on Stress Test Scenarios Under the MMF Regulation 2021."
ESMA explains, "These proposed reforms result from the lessons learnt from the significant liquidity difficulties faced by MMFs during the initial outbreak of the COVID-19 pandemic in March 2020. At the time investor redemption rates rose on the liability side with a corresponding deterioration in the liquidity of money market instruments on the asset side."
Chair Verena Ross comments, "ESMA is today proposing a number of changes to the MMF regulation intended to make MMFs more resilient. These reforms will help to improve the overall stability of financial markets, by reducing the risk of liquidity stress. In March 2020 MMFs faced difficulties brought on by increases in redemption demands while the assets they held became more difficult to sell. Our proposals today, which are consistent with those of the ESRB, aim to ensure that MMFs will be able to meet investors' redemption requests, and that this will continue to be the case also in the future."
The release states, "The ESMA Opinion includes the following key policy measures aimed at improving the resilience of MMFs: Addressing the threshold effects for constant net asset value (CNAV) MMFs by removing the possibility to use amortized costs for low volatility NAV (LVNAVs) MMFs [and] decoupling regulatory thresholds from suspensions, gates and redemption fees for LVNAV/CNAV MMFs."
Additional "key policy measures include: "Addressing liquidity related issues by ensuring mandatory availability of at least one liquidity management tool for all MMFs; amendments of the Daily liquid asset/ Weekly liquid assets ratios as well as the pool of eligible assets, including public debt assets, which can be used to satisfy these liquidity ratios; and inclusion/Reinforcement of the possibility to temporarily use liquidity buffers in times of stress."
It continues, "In addition, ESMA is proposing complementary reforms aimed at enhancing MMFs' preparedness for a crisis. These include enhancements of reporting requirements and the stress testing framework, as well as clarification of the requirements on external support and new disclosure requirements linked to the rating of MMFs. ESMA has also published the annual update of the Guidelines on MMF Stress tests."
The statement adds, "ESMA has sent its Opinion to the European Commission and will work closely with the Commission throughout the Review of the MMF Regulation. The Guidelines on MMF Stress tests will be further reviewed this year to take in particular into account the interdependencies between the different risk factors under certain market situations. ESMA will be consulting on this review in 2022 and the outcome will be published by the end of the year."
The Executive Summary of the "Final Report - ESMA Opinion" says of the "Reasons for publication," "The Money Market Fund Regulation (2017/1131) (MMF Regulation) provides that 'by 21 July 2022, the Commission shall review the adequacy of this Regulation from a prudential and economic point of view, following consultations with ESMA'. The COVID-19 crisis has been challenging for MMFs. A number of EU MMFs faced significant liquidity issues during the period of acute stress in March 2020 with large redemptions from investors on the liability side, and a severe deterioration of liquidity of money market instruments on the asset side."
It continues, "At international level, several workstreams have assessed the situation faced by MMFs during this crisis, and which policy options should be considered in order to address the issues which have been observed, and potentially enhance further the reforms on MMFs adopted following the 2008 financial crisis. In the EU context, the ESMA work takes the form of an assessment of the functioning and potential need for amendment of the regulatory framework applicable to MMFs in the EU, which is the MMF Regulation and its implementing measures."
The report tells us, "Following the publication of a consultation document, this final report contains in annex I the ESMA opinion2 which outlines proposals on the review of the MMF Regulation, as well as in annex IV the quantitative input to the Commission for the purpose of its review.... Section I explains the background to the ESMA proposals on the review of the MMF Regulation. Annex I contains the ESMA Opinion on the review of the MMF Regulation. Annex II contains the Feedback statement from the consultation document on the review of the MMF Regulation, that ESMA published while developing the present Final report. Annex III contains the advice of the Securities and Markets Stakeholder Group. Annex IV contains the ESMA quantitative input on the MMF sector."
It adds, "Following the receipt of the ESMA Opinion, the European Commission will review the adequacy of the MMF Regulation as foreseen in its review clause." (For more on European Money Fund Regulations, see these Crane Data News articles: "IMMFA's Veronica Iommi Talks Regulations at European MF Symposium" (10/25/21), "Sept. MFI Profile: BlackRock's Beccy Milchem on European MMF Issues" (9/21/21), "JPMAM, HSBC, Invesco Comment to ESMA On European MMF Regulations" (7/29/21), "ESMA Posts Consultation Report on Potential Reform of European MMFs" (3/30/21).)
Finally, ESMA opinion explains, "Based on the abovementioned categorization of the vulnerabilities of MMFs, and corresponding corrective measures proposed to be taken, ESMA suggests the following package of reforms, and corresponding amendments of the MMF Regulation, which will be detailed in the next sections of the present Opinion.... Major reforms aimed at addressing threshold effects for constant NAV MMFs: Removing the possibility to use amortized costs for LVNAVs; Decoupling regulatory thresholds from suspensions/gates/redemption fees for LVNAV/CNAV; [and] Major reforms aimed at addressing liquidity related issues.... Mandatory availability of at least one LMT (liquidity management tool) for all MMFs; activation of these LMTs by the manager of the MMF." ("Such LMTs could be, in particular, anti-dilution levies (ADL), liquidity fees, and could also include swing pricing.")
The measures also include: "Amendments of the Daily liquidity assets ratios (DLA)/ Weekly liquidity assets ratios (WLA) of VNAV (and LVNAV) MMFs, as well as the pool of eligible assets, including public debt assets, which can be used to satisfy these liquidity ratios.... Inclusion/Reinforcement of the possibility to temporarily use liquidity buffers in times of stress.... Complementary/crisis preparedness reforms, aimed at enhancing the MMF resilience as a whole, in view of any future crisis events they might have to face.... Enhancement of MMF reporting requirements.... Enhancement of the MMF stress testing framework.... Clarification of the requirements on external support.... New disclosure requirements on ratings of MMFs."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets declined by $125.1 billion in January to $5.090 trillion (after almost hitting a record the previous month). The SEC shows that Prime MMFs increased by $10.7 billion in January to $827.0 billion, Govt & Treasury funds decreased $135.2 billion to $4.169 trillion and Tax Exempt funds decreased $0.6 billion to $93.6 billion. Gross yields for Taxable funds were higher while net yields were flat in January. 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.
January's asset decrease follows gains of $122.9 billion in December, $53.7 billion in November, $7.9 billion in October, $19.9 billion in September and $24.9 billion in August. MMFs saw decreases of $39.9 billion in July and $86.9 billion in June. Assets increased $72.4 billion in May, $46.3 billion in April, $146.1 billion in March and $30.5 billion in February. Over the 12 months through 1/31/22, total MMF assets have increased by $272.1 billion, or 5.7%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
The SEC's stats show that of the $5.090 trillion in assets, $827.0 billion was in Prime funds, up $10.7 billion on January, down $20.5 billion in December, $21 billion in November and $12.1 billion in October. This follows an increase of $2.6 billion in September, but declines of $8.1 billion in August and $19.4 billion in July. Prime funds represented 16.2% of total assets at the end of January. They've decreased by $122.9 billion, or -12.9%, over the past 12 months. (Month-to-date in February through 2/16, total MMF assets have fallen by $47.6 billion, according to our MFI Daily.)
Government & Treasury funds totaled $4.169 trillion, or 81.9% of assets. They decreased by $135.2 billion in January after increasing by $144.4 billion in December, $76.0 billion in November, $21.0 billion in October, $20.4 billion in Sept. and $32.8 billion in August. Govt & Treasury MMFs are up $352.5 billion over 12 months, or 9.2%. Tax Exempt Funds decreased $0.6 billion to $93.6 billion, or 1.8% of all assets. The number of money funds was 312 in December, unchanged from the previous month and down 29 funds from a year earlier.
Yields for Taxable and Tax Exempt MMFs were mostly flat or higher in January. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on January 31st was 0.12%, unchanged from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.18%, up 2 bps from the previous month. Gross yields were 0.09% for Government Funds, up 2 basis points from last month. Gross yields for Treasury Funds were also up 2 bps at 0.09%. Gross Yields for Tax Exempt Institutional MMFs were down 2 basis points to 0.09% in January. Gross Yields for Tax Exempt Retail funds were down 4 bps to 0.10%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.08%, unchanged from the previous month but down 2 basis points from 1/31/21. The Average Net Yield for Prime Retail Funds was 0.02%, unchanged from the previous month, and down a basis point since 1/31/21. 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 Tax Exempt Institutional MMFs were down 1 bps from December to 0.04%. Net Yields for Tax Exempt Retail funds were unchanged at 0.01% in January. (Note: These averages are asset-weighted.)
WALs and WAMs were sharply lower in January. The average Weighted Average Life, or WAL, was 48.4 days (down 5.6 days) for Prime Institutional funds, and 46.5 days for Prime Retail funds (down 5.1 days). Government fund WALs averaged 76.7 days (down 1.6 days) while Treasury fund WALs averaged 78.1 days (down 5.7 days). Tax Exempt Institutional fund WALs were 13.9 days (unchanged from the previous month), and Tax Exempt Retail MMF WALs averaged 21.4 days (down 2.8 days).
The Weighted Average Maturity, or WAM, was 29.8 days (down 6.3 days from the previous month) for Prime Institutional funds, 36.4 days (down 7.3 days from the previous month) for Prime Retail funds, 30.3 days (down 3.3 days from previous month) for Government funds, and 33.4 days (down 6.6 days) for Treasury funds. Tax Exempt Inst WAMs were down 0.3 days to 13.5 days, while Tax Exempt Retail WAMs decreased 3.3 days to 20.4 days.
Total Daily Liquid Assets for Prime Institutional funds were 53.5% in January (up 0.8% from the previous month), and DLA for Prime Retail funds was 28.9% (down 3.6% from previous month) as a percent of total assets. The average DLA was 80.0% for Govt MMFs and 97.2% for Treasury MMFs. Total Weekly Liquid Assets was 65.2% (up 2.3% from the previous month) for Prime Institutional MMFs, and 44.2% (down 1.1% from the previous month) for Prime Retail funds. Average WLA was 89.8% for Govt MMFs and 99.0% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for Jan. 2022," the largest entries included: Canada with $96.4 billion, France with $70.0 billion, Japan with $64.6 billion, the U.S. with $49.8B, Germany with $33.8B, the U.K. with $28.4B, Aust/NZ with $27.7B, the Netherlands with $252.9B and Switzerland with $11.5B. The gainers among the "Prime MMF Holdings by Country" included: France (up $20.4B), Germany (up $18.7B), the Netherlands (up $13.0B), the U.K. (up $9.0B) and the U.S. (up $3.7B). Decreases were shown by: Canada (down $17.0 billion), Japan (down $6.7B), Aust/NZ (down $4.9B) and Switzerland (down $0.6B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows the Eurozone subset had $147.5B (up $65.3B), while Europe (non-Eurozone) had $94.0B (up $43.0B from last month). The Americas had $146.3 billion (down $13.3B), while Asia Pacific had $111.3B (down $9.4B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $824.7B billion in Prime MMF Portfolios as of Jan. 31, $282.9B (34.3%) was in Government & Treasury securities (direct and repo) (down from $362.0B), $226.9B (27.5%) was in CDs and Time Deposits (up from $143.9B), $165.1B (20.0%) was in Financial Company CP (up from $157.7B), $114.7B (13.9%) was held in Non-Financial CP and Other securities (up from $112.3B), and $35.1B (4.3%) was in ABCP (down from $35.9B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $123.3 billion, Canada with $124.4 billion, France with $129.0 billion, the U.K. with $50.8 billion, Germany with $11.1 billion, Japan with $127.7 billion and Other with $27.6 billion. All MMF Repo with the Federal Reserve was down $265.1 billion in January to $1.475 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.1%, Prime Retail MMFs with 3.9%, Tax Exempt Inst MMFs with 0.4%, Tax Exempt Retail MMFs with 2.3%, Govt MMFs with 13.9% and Treasury MMFs with 13.8%.
Last week, the SEC's Proposed Money Market Fund Reforms, which had been released in mid-December, were finally published in the Federal Register. This started the clock ticking on the 60-day comment period, so comments are now due by April 11. (See our Dec. 15 News, "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing and the SEC's press release here.) While to date there have been only a handful of legitimate comments (see the Comments on Money Market Fund Reforms here), a few serious responses continue to trickle in. The latest is from Norbert Michel from the Cato Institute, Center for Monetary and Financial Alternatives.
Michel's letter explains, "My name is Norbert Michel and I am the Vice President and Director at the Cato Institute's Center for Monetary and Financial Alternatives. I appreciate the opportunity to provide input to the Securities and Exchange Commission (SEC) for its proposed rule on money market funds (MMFs). The Cato Institute is a public policy research organization dedicated to the principles of individual liberty, limited government, free markets, and peace, and the Center for Monetary and Financial Alternatives [is dedicated to] identifying, studying, and promoting alternatives more conducive to a stable, flourishing, and free society. The opinions I express here are my own."
It says, "The rules that govern MMFs under the Investment Company Act of 1940 should be amended to improve the resilience and transparency of MMFs. To achieve such a goal, the amendments from 2010 and 2014 should be repealed. The Commission should finalize a rule that is more like the 1983 version of rule 2a-7 than it is to the current version."
The comment tells us, "The Commission's latest rule proposal partly acknowledges the failures of the previous MMF amendments, and the Commission deserves credit for recognizing those failures. Still, many of the same misguided views toward MMFs that drove many earlier rule amendments appears to be driving those in the new proposal. In 1981, for instance, Fed Chairman Paul Volcker testified before a Congressional committee that the Fed would prefer 'money market funds be subject to regulations that would make them more competitive with banking institutions and less attractive to investors.' Volcker proposed that Congress give MMFs reserve requirements, as well as rules that prevented investors from redeeming their shares on demand."
It states, "Even where it is no longer antagonistic, regulators have increasingly crafted rules to mitigate the supposed systemic risks of MMFs. Multiple government reports, in fact, justify these types of regulations by arguing that MMFs exhibited an inherent vulnerability to destabilizing runs during the 2008 crisis. Nonetheless, MMFs have displayed such an excellent safety record that many of these same government reports -- as well as other government agencies and research reports -- have had no choice but to acknowledge it. For example, a 2010 President's Working Group on Financial Markets (PWG) report acknowledges that in 'the twenty-seven years since the adoption of [the SEC's] rule 2a-7, only two MMFs have broken the buck. In 1994, a small MMF suffered a capital loss because of exposures to interest rate derivatives, but the event passed without significant repercussions.' The report also states that although 'the run on MMFs in 2008 is itself unique in the history of the industry, the events of 2008 underscored the susceptibility of MMFs to runs.'"
Michel writes, "Naturally, the uniqueness of the 2008 run suggests that MMFs are not inherently susceptible to such problems. Likewise, a 2010 Federal Reserve paper notes that from 'the introduction of the rules specifically governing these funds in 1983 until the Lehman bankruptcy in September 2008, only one small MMF lost money for investors,' and even though 'MMF prospectuses and advertisements must warn that 'it is possible to lose money by investing in the Fund', investors virtually never lost anything.'"
He continues, "Moreover, basic evidence from the 2008 crisis demonstrates that even the turmoil in the MMF sector during that period did not result in major losses for shareholders. Of the more than 800 MMFs that existed at the end of 2007, only one broke the buck during the crisis. In fact, shareholders of that fund -- the now infamous Reserve Primary Fund --ultimately received more than $0.98 cents on the dollar."
The letter states, "According to the conventional narrative, this success rate is only because the federal government stepped in to guarantee MMFs. A major problem with that theory, however, is that the Treasury guarantee program was never called on to cover any losses, a remarkable fact given that the program required participating funds to have a NAV greater than or equal to $0.995 and to liquidate if their share price fell by only one half of a percent. As reported in the Wall Street Journal, one reason for the success of that program was that 'the problems were relatively simple and contained,' because MMFs 'held high-quality and short-term assets, so the risk of guaranteeing them wasn't high for the government.'"
It continues, "Proponents of stricter MMF regulation also argue that because many fund sponsors stepped in to support their share values, typically by purchasing assets at par and waiting to resell them, the damage in the MMF industry was much worse than it appeared. A major problem with this argument, though, is that MMFs were explicitly designed with such sponsor support mechanisms in mind, meaning that they worked exactly as they were supposed to work. The truth is that it should be very rare for a MMF to ever return less than $1 per share to its shareholders, and indeed it has rarely happened. The overall evidence demonstrates that MMFs are not inherently unstable or vulnerable to destabilizing runs."
Michel also says, "More broadly, the view that MMF share redemptions cause market stress is fundamentally incorrect. Short-term capital flows through MMFs, meaning that share redemptions represent flows that occur in reaction to (among other things) market stress. There is virtually no evidence of MMF share redemptions causing stress or contagious runs on other credit markets, but a great deal of evidence linking those redemptions to (among other things) government-mandated rules and regulations, such as capital and liquidity requirements."
The letter's "Recommendations" tell us, "The MMF outflows in 2020 are just the latest example of prescriptively designed rules and regulations that fail to work as the designers intend. Just as decades of increasingly strict bank regulations have failed to produce financial stability, so too have increasingly strict MMF rules.... As a starting point for a new rule 2a-7, the Commission should use the 1983 regulatory framework for MMFs as a baseline. From there, the SEC should pare down the prescriptive rules to the bare minimum, so that they include little more than an average maturity restriction."
Finally, it adds, "Federal officials have repeatedly failed to design the stable and vibrant markets that they profess they can design. A less prescriptive regulatory framework for regulating MMFs will not guarantee a more stable financial system, but a highly prescriptive framework has already been proven to produce a fragile system. The Commission should admit that they cannot design vibrant capital markets that are always perfectly stable if they also want to allow investors to take the risks that create vibrant capital markets."
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 Feb. 11) includes Holdings information from 62 money funds (down from 65 two weeks ago), which represent $2.124 trillion (down from $2.268 trillion) of the $4.977 trillion (42.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our Feb. 10 News, "Feb. MF Portfolio Holdings: Repo Drops, Time Deposits, Treasuries Jump," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.042 trillion (down from $1.068 trillion two weeks ago), or 49.1%; Treasuries totaling $802.5 billion (down from $876.5 billion two weeks ago), or 37.8%, and Government Agency securities totaling $110.5 billion (down from $138.2 billion), or 5.2%. Commercial Paper (CP) totaled $60.3 billion (down from two weeks ago at $61.7 billion), or 2.8%. Certificates of Deposit (CDs) totaled $38.3 billion (down from $43.1 billion two weeks ago), or 1.8%. The Other category accounted for $51.9 billion or 2.4%, while VRDNs accounted for $18.7 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $802.5 billion (37.8% of total holdings), the Federal Reserve Bank of New York with $672.9B (31.7%), BNP Paribas with $50.8B (2.4%), Fixed Income Clearing Corp with $47.8B (2.3%), Federal Home Loan Bank with $45.7B (2.2%), RBC with $40.5B (1.9%), Federal Farm Credit Bank with $37.3B (1.8%), Societe Generale with $24.7B (1.2%), Mitsubishi UFJ Financial Group Inc with $18.2B (0.9%) and Federal National Mortgage Association with $17.8B (0.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($235.3B), Goldman Sachs FS Govt ($217.2B), Morgan Stanley Inst Liq Govt ($147.2B), Allspring Govt MM ($132.6B), Fidelity Inv MM: Govt Port ($126.6B), Dreyfus Govt Cash Mgmt ($126.2B), Goldman Sachs FS Treas Instruments ($110.4B), JPMorgan 100% US Treas MMkt ($99.9B), First American Govt Oblg ($94.9B) and State Street Inst US Govt ($90.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
In related news, ICI also 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.
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in January, prime money market funds held 29.3 percent of their portfolios in daily liquid assets and 47.6 percent in weekly liquid assets, while government money market funds held 86.9 percent of their portfolios in daily liquid assets and 93.5 percent in weekly liquid assets." Prime DLA was down from 34.6% in December, and Prime WLA was down from 47.9%. Govt MMFs' DLA increased from 84.6% in December and Govt WLA increased from 92.2% the previous month.
ICI explains, "At the end of January, prime funds had a weighted average maturity (WAM) of 32 days and a weighted average life (WAL) of 54 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 31 days and a WAL of 77 days." Prime WAMs were nine days shorter than December, while WALs were five days lower than the previous month. Govt WAMs were five days shorter and WALs were three days shorter than December, respectively.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $235.59 billion in December to $160.82 billion in January. Government money market funds’ holdings attributable to the Americas declined from $3,972.38 billion in December to $3,794.54 billion in January."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $160.8 billion, or 36.6%; Asia and Pacific at $87.9 billion, or 20.0%; Europe at $185.0 billion, or 42.1%; and, Other (including Supranational) at $5.5 billion, or 1.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.795 trillion, or 91.9%; Asia and Pacific at $119.7 billion, or 2.9%; Europe at $195.0 billion, 4.7%, and Other (Including Supranational) at $19.3 billion, or 0.5%.
Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds decreased over the past month to $990.7 billion, after hitting a record high of $1.101 trillion two months prior. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $80.7 billion over the 30 days through 2/11. They're down $72.3 billion (-6.6%) year-to-date. Offshore US Dollar money funds are down $26.1 billion over the last 30 days and are down $21.9 billion YTD to $512.6 billion. Euro funds dropped E12.2 billion over the past month. YTD they're down E15.5 billion to E142.8 billion. GBP money funds decreased L18.5 billion over 30 days; they are down by L12.6 billion YTD to L234.5B. U.S. Dollar (USD) money funds (190) account for half (51.7%) of the "European" money fund total, while Euro (EUR) money funds (93) make up 16.3% and Pound Sterling (GBP) funds (123) total 31.9%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below.
Offshore USD MMFs yield 0.04% (7-Day) on average (as of 2/11/22), up from 0.03% a month earlier, but down from 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.68% on average, up from -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.18%, up from 0.01% on 12/31/21 and 0.00% on 12/31/20, but down from 0.64% on 12/31/19 and 0.64% on 12/31/18. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's January MFII Portfolio Holdings, with data as of 1/31/22, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 17% in Repo, 28% in Treasury securities, 16% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 41.7% of their portfolios maturing Overnight, 6.7% maturing in 2-7 Days, 14.2% maturing in 8-30 Days, 15.3% maturing in 31-60 Days, 8.0% maturing in 61-90 Days, 10.5% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (38.3%), France (14.3%), Japan (8.9%), Canada (8.3%), Sweden (6.7%), the Netherlands (3.2%), the U.K. (3.2%), Australia (3.1%), Germany (3.1%) and Switzerland (2.0%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $155.0 billion (28.1% of total assets), BNP Paribas with $20.7B (3.7%), Credit Agricole with $17.9B (3.3%), Nordea Bank with $13.1B (2.4%), Societe Generale with $12.7B (2.3%), Sumitomo Mitsui Banking Corp with $11.8B (2.1%), Federal Reserve Bank of New York with $10.9B (2.0%), Skandinaviska Enskilda Banken AB with $10.6B (1.9%), RBC with $10.1B (1.8%) and Barclays PLC with $9.8B (1.8%).
Euro MMFs tracked by Crane Data contain, on average 41% in CP, 22% in CDs, 24% in Other (primarily Time Deposits), 10% in Repo, 3% in Treasuries and 0% in Agency securities. EUR funds have on average 31.2% of their portfolios maturing Overnight, 9.4% maturing in 2-7 Days, 15.5% maturing in 8-30 Days, 10.5% maturing in 31-60 Days, 12.6% maturing in 61-90 Days, 16.5% maturing in 91-180 Days and 4.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.3%), Japan (12.3%), the U.S. (8.7%), the U.K. (7.2%), Sweden (7.0%), Switzerland (5.0%), Germany (4.7%), Austria (3.5%), Canada (3.1%), and Supranational (2.7%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E10.0B (7.2%), BPCE SA with E7.2B (5.1%), BNP Paribas with E5.8B (4.2%), Barclays PLC with E5.6B (4.0%), Societe Generale with E5.6B (4.0%), Zürcher Kantonalbank with E5.0B (3.6%), Sumitomo Mitsui Banking Corp with E4.9B (3.5%), Svenska Handelsbanken with E4.8B (3.5%), Republic of France with E4.6B (3.3%), and Mizuho Corporate Bank Ltd with E4.3 (3.1%).
The GBP funds tracked by MFI International contain, on average (as of 1/31/22): 39% in CDs, 23% in CP, 20% in Other (Time Deposits), 15% in Repo, 3% in Treasury and 0% in Agency. Sterling funds have on average 30.8% of their portfolios maturing Overnight, 13.0% maturing in 2-7 Days, 15.5% maturing in 8-30 Days, 14.4% maturing in 31-60 Days, 10.2% maturing in 61-90 Days, 9.7% maturing in 91-180 Days and 6.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.4%), the U.K. (15.2%), Japan (15.0%), Canada (13.5%), Australia (6.5%), the Netherlands (5.4%), Sweden (5.2%), the U.S. (4.4%), Germany (4.2%) and Spain (2.7%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L14.1B (6.8%), Mizuho Corporate Bank Ltd with L8.2B (4.0%), BPCE SA with L7.5B (3.6%), Mitsubishi UFJ Financial Group Inc with L7.2B (3.5%), Toronto-Dominion Bank with L7.2B (3.5%), Sumitomo Mitsui Banking Corp with L7.1B (3.4%), Bank of Nova Scotia with L6.7B (3.2%), National Australia Bank Ltd with L6.6B (3.2%), RBC with L6.5B (3.2%), and Standard Chartered Bank with L5.8B (2.8%).
The February issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "Bond Funds Hammered in Jan.; Losses Biggest Since March '20," which says bond funds had their second worst month ever last month; and, "Lord Abbet's O'Brien on Short Duration Credit," which quotes from a recent webinar. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell hard in January while yields jumped. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. We look forward to seeing some of you too at our upcoming Bond Fund Symposium, March 28-29 in Newport Beach, Calif.)
Our "Bond Funds Hammered in Jan." piece reads, "Bond funds suffered their second biggest asset decline and third worst monthly performance ever in January (in the seven years since BFI has been tracking funds). Total bond fund assets fell by $95.0 billion last month to $3.230 trillion (according to Crane Data), the largest decline since March 2020's $280.2 billion plunge. Returns on average fell by 1.52% for the month, the biggest drop since March 2020’s -4.44%."
It continues, "Morningstar discusses the losses in its piece, 'Bond Funds Start 2022 in a Sea of Red.' They comment, 'Lately, there's been virtually no place for bond investors to hide. Every major category of bond funds -- with exception of funds that invest in bank loans -- has started 2022 with losses, and in most cases, extending declines posted last year.'"
Our "profile" piece states, "Lord Abbet recently hosted a webinar entitled, 'Short Duration Credit: A Timely Response to Rate and Inflation Risk.' The description explains, 'With historically low yields on longer-term, government-related securities, coupled with elevated duration risk, investors may want to consider reallocating a portion of their core bond allocations to short duration credit.' In this webinar, Andrew O'Brien, CFA, lead Portfolio Manager for the firm's taxable fixed income strategies joins Joseph Graham, CFA, Investment Strategist, as they examine how short duration credit may potentially provide an attractive investment opportunity in an environment of inflation and interest-rate uncertainty.'"
It continues, "O'Brien comments, 'Today, the topic of inflation and rates [is] on pretty much everybody's mind. We think short duration credit strategies are an attractive solution, so we'll be talking about the markets set up for that, and also how we manage short duration, what makes us special and what we see today in the market.... Let me give you a brief just commercial for Lord Abbet ... we're a private partnership. We have been since our founding in 1929.... We've carved out some very strong niches where we've shown the ability to add value. Short duration is certainly one of those.'"
He says, "I just want to point out where our assets are. Of the $255 billion, $175 billion is in taxable fixed income.... Our ultra-short and short-duration are multi-sector in nature, as are our core and core-plus <b:>`_.... We think we were the first multi-sector manager in fixed income, and what that allowed us to do was build out a very focused teams within a bunch of different areas in fixed-income.... Applying that to short duration, I think, is a big competitive differentiator for us, given that a lot of the short duration universe tends to come from the cash treasury management side of the business. Nothing wrong with that, but we come from the credit side of the business and utilize our credit expertise."
Our first News brief, "Returns Plunge, Yields Jump in Jan.," comments, "Bond fund returns fell sharply and yields jumped last month. Our BFI Total Index plunged 1.52% over 1-month and fell 0.82% over 12 months. The BFI 100 returned -1.63% in Jan. and -0.84% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.12% for 1-month and down 0.15% for 1-year; Ultra-Shorts declined 0.24% and 0.09%, respectively. Short-Term decreased 0.74% and 0.69%, and Intm-Term fell 1.74% in Jan. and fell 1.74% over 1-year. BFI's Long-Term Index fell 2.45% in Jan. and fell 2.35% over 1-year. Our High Yield Index fell 1.81% in Jan. but gained 2.32% over 1-year."
We also cover the "FSOC Statement on Nonbank Financial Intermediation." BFI states, "The Financial Stability Oversight Council met recently and discussed bond funds briefly. Their statement says, 'The market dislocations of March 2020 demonstrated that some NBFIs [nonbank financial institutions] remain vulnerable to acute financial stresses and may amplify or transmit stress in the financial system. In 2021, the Council made it a priority to evaluate and address the risks ... posed by three types of NBFIs: hedge funds, open-end funds, and money market funds (MMFs)."
A third News brief is headlined, "Bloomberg writes, 'Billions Are Flowing to Cash-Like ETFs in 'Hunt' Before Fed Hike.'" They ask, "What's safer than short-duration bonds? Even shorter duration debt. As investors brace for an increasingly aggressive Federal Reserve, money is flooding into cash-like ETFs -- which are seen as ... less vulnerable to interest-rate risk. Traders have been piling into exchange-traded funds mostly focused on ultra-short instruments like Treasury bills, while offloading ETFs tracking longer-dated debt -- even those that are considered short-term bonds.... The $14 billion PIMCO Enhanced Short Maturity Active ETF (ticker MINT) lured inflows of nearly $900 million in the best week since it started trading in 2009, according to data compiled by Bloomberg."
Yet another News brief, "WSJ says, '`Investors Sour on Muni Funds,' writes, "Investors pulled $1.4 billion from municipal bond funds in the week ended last Wednesday, the biggest weekly outflow since the early days of the pandemic, according to Refinitiv Lipper. Municipal bond yields, which rise as prices fall, climbed last week after the Federal Reserve signaled it would begin steadily raising interest rates in mid-March, reducing the appeal of outstanding debt. Yields on the highest-rated state and local bonds jumped to 1.55% Monday from 1.34% last Tuesday, according to Refinitiv MMD. Returns on the S&P Municipal Bond Index have fallen to minus 2.33% this year through Jan. 28 ... the lowest YTD returns in at least 16 years."
Also, a BFI sidebar, "Federated Earnings on BFs," explains, "Federated Hermes' CEO Chris Donahue says on the company's latest earnings call, 'Fixed income separate account net sales were driven by high yield [and] multisector strategies.... Net redemptions occurred in ultra-short bond fund and certain other short-duration strategies.... In the fourth quarter, we successfully launched our first 2 active transparent ETFs, an investment-grade short-duration corporate bond fund and a high-yield short-duration bond fund.'"
Finally, another sidebar, "Bond Funds See Outflows," tells readers, "Bond fund assets dropped $7.6 billion in December and are falling again in January, after hitting a record $5.6 trillion in November. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' comments, 'Bond funds had estimated outflows of $19.88 billion for the week, compared to estimated outflows of $11.37 billion during the previous week. Taxable bond funds saw estimated outflows of $15.60 billion, and municipal bond funds had estimated outflows of $4.28 billion.' Over the past 5 weeks, bond funds and ETFs have seen outflows of $18.720 billion."
The SEC recently released its latest quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q2'21) to $319 billion (up from $304 billion in Q1'21 and up from $303 billion in Q2'20). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Third Calendar Quarter 2019 through Second Calendar Quarter 2021 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools. Note too that we'd been adding the SEC's Liquidity Fund and Section 3 Liquidity Fund totals in past quarters, but we recently learned that the latter is a subset of the former and not a separate group.)
The tables in the SEC's "Private Funds Statistics: Second Calendar Quarter 2021," with the most recent data available, show 76 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 3 from last quarter and up 9 from a year ago. (There are 56 Section 3 Liquidity Funds out of the 76 Liquidity Funds.) The SEC receives Form PF reports from 37 Liquidity Fund advisers (24 of which are Section 3 Liquidity Fund advisers), the same number as last quarter and as a year ago.
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $319 billion, up $15 billion from Q1'21 and up $16 billion from a year ago (Q2'20). Of this total, $317 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $330 billion, up $16 billion from Q1'21 and up $21 billion from a year ago (Q2'20). Of this total, $328 billion in is Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $105 billion is held by Other (33.1%), $57 billion is held by Unknown Non-U.S. Investors (18.0%), $52 billion is held by Private Funds (16.5%), $25 billion is held by SEC-Registered Investment Companies (7.8%), $8 billion in held by Pension Plans (2.4%), $11 billion is held by Insurance Companies (3.5%), $3 billion is held by Non-Profits (1.0%) and $1 billion is held by State/Muni Govt. Pension Plans (0.3%).
The tables also show that 70.3% of Section 3 Liquidity Funds have a liquidation period of one day, $296 billion of these funds may suspend redemptions, and $263 billion of these funds may have gates. WAMs average a short 37 days (45 days when weighted by assets), WALs are 53 days (60 days when asset-weighted), and 7-Day Gross Yields average 0.20% (0.10% asset-weighted). Daily Liquid Assets average about 48% (40% asset-weighted) while Weekly Liquid Assets average about 60% (60% asset-weighted).
Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (44.6%) are fully compliant with Rule 2a-7. When calculating NAVs, 75.0% are "Stable" and 25.0% are "Floating." For more, see our Jan. 27 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting," and see the SEC's recent proposal "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews."
In other news, we wrote in our Feb. 7 Link of the Day about SEC Chair Gensler's FSOC Statement. While we linked to more of the Feb. 4 FSOC Meeting, we didn't cover everything. (See the recording here and see the FSOC's Statement on Money Market Fund Reform here.)
Their Financial Stability Oversight Council Statement on Nonbank Financial Intermediation explains, "Nonbank financial institutions (NBFIs) are an essential source of capital in financial markets and provide vital funding to the U.S. economy. In 2016, the Financial Stability Oversight Council (Council) issued a statement describing risks to financial stability that may arise from certain asset management products and activities. The market dislocations of March 2020 demonstrated that some NBFIs remain vulnerable to acute financial stresses and may amplify or transmit stress in the financial system."
It continues, "In 2021, the Council made it a priority to evaluate and address the risks to U.S. financial stability posed by three types of NBFIs: hedge funds, open-end funds, and money market funds (MMFs). At its meeting on February 4, 2022, the Council received updates from member agency staff on progress over the past year regarding these three types of NBFIs through working groups and Council member agency rulemaking activity. The Council will continue to evaluate, monitor, and address these risks to financial stability in 2022."
On "Money Market Funds," FSOC writes, "MMFs are significant participants in short-term funding markets, which are a substantial source of funding for businesses and local governments and liquidity for investors. As described in the Overview of Recent Events and Potential Reform Options for Money Market Funds released by the Presidents Working Group on Financial Markets in December 2020, significant outflows from MMFs during the early stages of the COVID-19 pandemic destabilized short-term funding markets. As in 2008, taxpayer-backed government intervention was necessary to support MMFs and short-term funding markets more broadly and to restore market functioning. These events underscored that MMFs have structural vulnerabilities that can create or transmit stress to short-term funding markets."
They adds, "The SEC recently proposed reforms that would increase the minimum liquidity requirements for MMFs, require some MMFs to adopt swing pricing, and remove MMFs' ability to impose liquidity fees and redemption gates when funds fall below certain liquidity thresholds. These measures should help reduce the financial stability risks posed by MMFs. The Council supports the SEC's efforts to reform MMFs and strengthen short-term funding markets." See the FSOC Meeting Webcast here.
Crane Data's February Money Fund Portfolio Holdings, with data as of Jan. 31, 2022, show Repo plummeting in January while Other (Time Deposits) and Treasuries jumped higher. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $108.3 billion to $4.977 trillion in January, after rising by $114.1 billion in December, $46.4 billion in November and $72.4 billion in October. Assets decreased $26.0 billion in Sept., increased $47.4 billion in August and decreased $89.1 billion in July. Repo remained the largest portfolio segment, while Treasuries remained in the No. 2 spot. (MMF holdings of Fed repo fell sharply to $1.470 trillion.) Agencies were the third largest segment, CP remained fourth, ahead of Other/Time Deposits, CDs and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.
Among taxable money funds, Repurchase Agreements (repo) dropped $234.4 billion (-9.4%) to $2.248 trillion, or 45.2% of holdings, in January, after increasing $228.0 billion in December, and $113.6 billion in November. Treasury securities increased $40.0 billion (2.2%) to $1.846 trillion, or 37.1% of holdings, after increasing $19.9 billion in December and decreasing $52.6 billion in November. Government Agency Debt was down $6.9 billion, or -1.7%, to $389.5 billion, or 7.8% of holdings, after decreasing $26.7 billion in December and $10.1 billion in November. Repo, Treasuries and Agency holdings totaled $4.484 trillion, representing a massive 90.1% of all taxable holdings.
Money fund holdings of CP, CDs and Other (mainly Time Deposits) were all up in January. Commercial Paper (CP) increased $11.8 billion (5.4%) to $228.6 billion, or 4.6% of holdings, after decreasing $29.9 billion in December and $3.0 billion in November. Other holdings, primarily Time Deposits, increased by $69.0 billion (119.4%) to $126.8 billion, or 2.5% of holdings, after declining $58.4 billion in Dec. and $4.7 billion in Nov. Certificates of Deposit (CDs) increased by $12.6 billion (11.6%) to $121.3 billion, or 2.4% of taxable assets, after decreasing $21.9 billion in December and increasing $3.0 billion in Nov. VRDNs declined to $17.0 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday.)
Prime money fund assets tracked by Crane Data jumped to $807 billion, or 16.2% of taxable money funds' $4.977 trillion total. Among Prime money funds, CDs represent 15.0% (up from 13.6% a month ago), while Commercial Paper accounted for 28.3% (up from 27.3% in Dec.). The CP totals are comprised of: Financial Company CP, which makes up 20.2% of total holdings, Asset-Backed CP, which accounts for 4.2%, and Non-Financial Company CP, which makes up 3.9%. Prime funds also hold 3.3% in US Govt Agency Debt, 13.9% in US Treasury Debt, 14.0% in US Treasury Repo, 0.3% in Other Instruments, 13.1% in Non-Negotiable Time Deposits, 6.4% in Other Repo, 2.3% in US Government Agency Repo and 0.9% in VRDNs.
Government money fund portfolios totaled $2.889 trillion (58.0% of all MMF assets), down from $2.960 trillion in Dec., while Treasury money fund assets totaled another $1.282 trillion (25.8%), down from $1.330 trillion the prior month. Government money fund portfolios were made up of 12.5% US Govt Agency Debt, 10.6% US Government Agency Repo, 29.8% US Treasury Debt, 46.7% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 68.0% US Treasury Debt and 31.9% in US Treasury Repo. Government and Treasury funds combined now total $4.171 trillion, or 83.8% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $148.6 billion in Jan. to $494.3 billion; their share of holdings jumped to 9.9% from last month's 6.8%. Eurozone-affiliated holdings increased to $341.7 billion from last month's $242.1 billion; they account for 6.9% of overall taxable money fund holdings. Asia & Pacific related holdings inched higher to $217.0 billion (4.4% of the total) from last month's $214.7 billion. Americas related holdings dropped to $4.260 trillion from last month's $4.522 trillion, and now represent 85.6% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $247.6 billion, or -11.7%, to $1.872 trillion, or 37.6% of assets); US Government Agency Repurchase Agreements (up $13.9 billion, or 4.5%, to $324.3 billion, or 6.5% of total holdings), and Other Repurchase Agreements (down $0.7 billion, or -1.3%, from last month to $52.0 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $8.1 billion to $162.7 billion, or 3.3% of assets), Asset Backed Commercial Paper (down $0.7 billion to $34.0 billion, or 0.7%), and Non-Financial Company Commercial Paper (up $4.4 billion to $31.9 billion, or 0.6%).
The 20 largest Issuers to taxable money market funds as of Jan. 31, 2022, include: the US Treasury ($1.846 trillion, or 37.1%), Federal Reserve Bank of New York ($1.470T, 29.5%), Federal Home Loan Bank ($217.0B, 4.4%), Fixed Income Clearing Corp ($101.1B, 2.0%), Federal Farm Credit Bank ($99.5B, 2.0%), BNP Paribas ($93.6B, 1.9%), RBC ($92.8B, 1.9%), Sumitomo Mitsui Banking Co ($58.2B, 1.2%), JP Morgan ($46.6B, 0.9%), Credit Agricole ($45.1B, 0.9%), Citi ($43.1B, 0.9%), Barclays ($41.2B, 0.8%), Federal National Mortgage Association ($40.8B, 0.8%), Bank of America ($40.7B, 0.8%), Mitsubishi UFJ Financial Group Inc ($40.2B, 0.8%), Bank of Montreal ($38.4B, 0.8%), Societe Generale ($36.1B, 0.7%), Toronto-Dominion Bank ($32.1B, 0.6%), Federal Home Loan Mortgage Corp ($29.2B, 0.6%) and Canadian Imperial Bank of Commerce ($28.6B, 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 ($1.470T, 65.4%), Fixed Income Clearing Corp ($101.1B, 4.5%), BNP Paribas ($82.7B, 3.7%), RBC ($75.3B, 3.3%), Sumitomo Mitsui Banking Corp ($43.6B, 1.9%), JP Morgan ($41.2B, 1.8%), Citi ($38.7B, 1.7%), Bank of America ($37.1B, 1.6%), Mitsubishi UFJ Financial Group Inc ($31.5B, 1.4%) and Societe Generale ($27.7B, 1.2%). The largest users of the $1.470 trillion in Fed RRP included: Goldman Sachs FS Govt ($112.0B), JPMorgan US Govt MM ($111.6B), Fidelity Govt Money Market ($106.1B), Fidelity Govt Cash Reserves ($95.0B), BlackRock Lq FedFund ($80.0B), Morgan Stanley Inst Liq Govt ($77.4B), BlackRock Lq T-Fund ($66.3B), Vanguard Federal Money Mkt Fund ($60.2B), Dreyfus Govt Cash Mgmt ($54.5B) and Federated Hermes Govt Obl ($54.3B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($22.4B, 5.4%), Barclays PLC ($18.8B, 4.6%), Toronto-Dominion Bank ($18.2B, 4.4%), RBC ($17.6B, 4.2%), Bank of Montreal ($16.1B, 3.9%), Sumitomo Mitsui Banking Corp ($14.6B, 3.5%), Mizuho Corporate Bank Ltd ($14.3B, 3.4%), Bank of Nova Scotia ($14.0B, 3.4%), Skandinaviska Enskilda Banken AB ($13.9B, 3.4%) and Canadian Imperial Bank of Commerce ($12.2B, 2.9%).
The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($11.0B, 9.0%), Bank of Montreal ($10.2B, 8.4%), Toronto-Dominion Bank ($7.6B, 6.3%), Canadian Imperial Bank of Commerce ($7.6B, 6.2%), Landesbank Baden-Wurttemberg ($6.8B, 5.6%), Credit Agricole ($6.4B, 5.2%), Mitsubishi UFJ Financial Group Inc ($5.8B, 4.8%), Sumitomo Mitsui Trust Bank ($5.2B, 4.3%), Barclays PLC ($5.2B, 4.2%) and Bank of Nova Scotia ($5.1B, 4.2%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($12.0B, 6.2%), Toronto-Dominion Bank ($9.6B, 5.0%), Bank of Nova Scotia ($8.9B, 4.6%), BNP Paribas ($8.8B, 4.5%), UBS AG ($8.2B, 4.2%), Societe Generale ($8.1B, 4.2%), Barclays PLC ($7.2B, 3.7%), Skandinaviska Enskilda Banken AB ($6.6B, 3.4%), National Australia Bank Ltd ($6.1B, 3.1%) and Bank of Montreal ($5.9B, 3.0%).
The largest increases among Issuers include: the US Treasury (up $40.0B to $1.846T), Credit Agricole (up $23.5B to $45.1B), Societe Generale (up $17.2B to $36.1B), Barclays PLC (up $16.7B to $41.2B), BNP Paribas (up $16.1B to $93.6B), DNB ASA (up $9.8B to $12.4B), Swedbank AB (up $9.7B to $11.1B), Citi (up $8.3B to $43.1B), Skandinaviska Enskilda Banken AB (up $6.6B to $13.9B) and Nordea Bank (up $6.2B to $9.4B).
The largest decreases among Issuers of money market securities (including Repo) in January were shown by: Federal Reserve Bank of New York (down $262.0B to $1.470T), RBC (down $28.8B to $92.8B), Bank of Montreal (down $11.2B to $38.4B), Canadian Imperial Bank of Commerce (down $10.5B to $28.6B), Federal National Mortgage Association (down $7.6B to $40.8B), Bank of Nova Scotia (down $4.9B to $21.3B), Australia & New Zealand Banking Group Ltd (down $2.4B to $10.3B), Federal Home Loan Mortgage Corp (down $1.9B to $29.2B), National Australia Bank Ltd (down $1.9B to $9.2B) and Mizuho Corporate Bank Ltd (down $1.8B to $21.8B).
The United States remained the largest segment of country-affiliations; it represents 81.1% of holdings, or $4.037 trillion. Canada (4.5%, $222.8B) was in second place, while France (4.2%, $210.2B) was No. 3. Japan (3.9%, $195.3B) occupied fourth place. The United Kingdom (1.6%, $79.0B) remained in fifth place. Netherlands (0.9%, $44.1B) was in sixth place, followed by Sweden (0.9%, $43.2B), Germany (0.9%, $42.3B), Australia (0.6%, $30.8B) and Switzerland (0.4%, $17.3B). (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 Jan. 31, 2022, Taxable money funds held 56.7% (up from 55.6%) of their assets in securities maturing Overnight, and another 6.0% maturing in 2-7 days (down from 7.7%). Thus, 62.7% in total matures in 1-7 days. Another 9.1% matures in 8-30 days, while 9.8% matures in 31-60 days. Note that over three-quarters, or 81.6% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 5.8% of taxable securities, while 9.0% matures in 91-180 days, and just 3.5% 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 regular monthly update on the January 31 data for Thursday's News. But we also uploaded 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 Jan. 31, includes holdings information from 1,003 money funds (down 16 funds from last month), representing assets of $5.122 trillion (down from $5.229 trillion). Prime MMFs now total $824.7 billion, or 16.1% 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 Repurchase Agreement (Repo) holdings in money market funds fell to a still huge $2.262 trillion (down from $2.496 trillion), or 44.2% of all assets. Treasury holdings totaled $1.862 trillion (up from $1.822 trillion), or 36.4% of all holdings, and Government Agency securities totaled $404.9 billion (down from $409.9 billion), or 7.9%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.530 trillion, or a massive 88.5% of all holdings.
Commercial paper (CP) totals $237.6 billion (up from $225.5 billion), or 4.6% of all holdings, and the Other category (primarily Time Deposits) totals $166.2 billion (up from $96.7 billion), or 3.2%. Certificates of Deposit (CDs) total $121.3 billion (up from $108.7 billion), 2.4%, and VRDNs account for $66.8 billion (down from $70.2 billion last month), or 1.3% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $165.1 billion, or 3.2%, in Financial Company Commercial Paper; $34.5 billion or 0.7%, in Asset Backed Commercial Paper; and, $38.0 billion, or 0.7%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.873 trillion, or 36.6%), U.S. Govt Agency Repo ($337.7B, or 6.6%) and Other Repo ($52.1B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $233.9 billion (up from $221.9 billion), or 28.4%; Repo holdings of $185.8 billion (down from $290.5 billion), or 22.5%; Treasury holdings of $118.0 billion (up from $95.9 billion), or 14.3%; CD holdings of $121.3 billion (up from $108.7 billion), or 14.7%; Other (primarily Time Deposits) holdings of $126.8 billion (up from $57.3 billion), or 15.4%; Government Agency holdings of $30.9 billion (up from $28.4 billion), or 3.7% and VRDN holdings of $8.1 billion (down from $9.1 billion), or 1.0%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $165.1 billion (up from $157.7 billion), or 20.0%, in Financial Company Commercial Paper; $34.5 billion (down from $35.2 billion), or 4.2%, in Asset Backed Commercial Paper; and $34.4 billion (up from $29.0 billion), or 4.2%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($115.6 billion, or 14.0%), U.S. Govt Agency Repo ($18.4 billion, or 2.2%), and Other Repo ($51.8 billion, or 6.3%).
In other news, money fund charged expense ratios (Exp%) rose in January to 0.09% from 0.08% the prior month. Charged expenses hit their record low of 0.06% in May 2021 but remained at 0.07% for most the second half of last year. Our Crane 100 Money Fund Index and Crane Money Fund Average were both 0.09% as of Jan. 31, 2022. 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 yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.09%, one bps higher than last month's level (and three bps higher than May's record low 0.06%). The average is down from 0.27% on Dec. 31, 2019, so we estimate that funds are waiving 18 bps, or 67% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also showed a charged expense ratio of 0.09% as of Jan. 31, 2022, one bps higher than the month prior but down from 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.13% (unchanged from last month), Government Inst MFs expenses average 0.07% (up 2 bps from previous month), Treasury Inst MFs expenses average 0.08% (up 2 bps from last month). Treasury Retail MFs expenses currently sit at 0.08%, (up 2 bps from last month), Government Retail MFs expenses yield 0.07% (up 1 bps from last month). Prime Retail MF expenses averaged 0.16% (up one bps). Tax-exempt expenses were down four basis points over the month to 0.09% on average.
Gross 7-day yields inched higher on average for the month ended Jan. 31, 2022. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 744), shows a 7-day gross yield of 0.11%, up 2 bps from the prior month. The Crane Money Fund Average is down from 1.72% at the end of 2019 and down from 0.15% the end of 2020. Our Crane 100's 7-day gross yield was up one bps, ending the month at 0.11%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $4.656 billion (as of 1/31/22). Our estimated annualized revenue totals increased from $4.043B last month and are noticeably higher than the record low of $2.927 in May. Annualized MMF revenues have fallen from $6.028 trillion at the end of 2020 and $10.642 trillion at the end of 2019. Charged expenses and gross yields are driven by a number of variables, but revenues should surge in coming months if the Federal Reserve begins raising interest rates as expected.
Crane Data's latest monthly Money Fund Market Share rankings show assets fell sharply among almost all U.S. money fund complexes in January. Money market fund assets decreased $146.8 billion, or -2.8%, last month to $5.023 trillion. Assets increased by $31.9 billion, or 0.6%, over the past 3 months; they've increased by $301.1 billion, or 6.3%, over the past 12 months through Jan. 31. The only increases among the 25 largest managers last month were seen by Vanguard, First American, HSBC, T Rowe Price and American Funds, which grew assets by $1.5 billion, $582 million, $450M, $389M and $209M, respectively. The largest declines in January were seen by BlackRock, Federated Hermes, Morgan Stanley, JPMorgan and Goldman Sachs, which decreased by $32.1 billion, $20.5B, $15.5B, $15.1B and $14.3B, 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, and look at money fund yields in January, below.
Over the past year through Jan. 31, 2022, BlackRock (up $89.2B, or 21.0%), Morgan Stanley (up $57.9B, or 24.7%), Goldman Sachs (up $51.3B, or 16.9%), Dreyfus (up $51.1B, or 24.6%), and JPMorgan (up $44.9B, or 10.6%) were the largest gainers. Northern, BlackRock, Fidelity, First American and Dreyfus had the largest asset increases over the past 3 months, rising by $18.3B, $12.2B, $10.2B, $10.0B and $9.1B, respectively. The largest decliners over 12 months were seen by: Vanguard (down $30.8B), Charles Schwab (down $28.6B), Allspring (down $15.8B), Federated Hermes (down $11.6B) and American Funds (down $10.6B). The largest decliners over 3 months included: Allspring (down $9.5B), Morgan Stanley (down $4.9B), SSGA (down $4.5B), Vanguard (down $3.0B) and American Funds (down $2.8B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $912.8 billion, or 18.2% of all assets. Fidelity was down $8.4B in January, up $10.2 billion over 3 mos., and down $1.5B over 12 months. BlackRock ranked second with $526.7 billion, or 10.5% market share (down $32.1B, up $12.2B and up $89.2B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked third with $462.0 billion, or 9.2% market share (up $1.5B, down $3.0B and down $30.8B). JPMorgan ranked in fourth place with $458.3 billion, or 9.1% of assets (down $15.1B, down $913M and up $44.9B), while Goldman Sachs was the fifth largest MMF manager with $366.2 billion, or 7.3% of assets (down $14.3B, up $2.6B and up $51.3B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $328.4 billion, or 6.5% (down $20.5B, up $503M and down $11.6B), while Morgan Stanley was in seventh place with $281.7 billion, or 5.6% of assets (down $15.5B, down $4.9B and up $57.9B). Dreyfus ($246.5B, or 4.9%) was in eighth place (down $7.6B, up $9.1B and up $51.1B), followed by Northern ($207.2B, or 4.1%; down $9.5B, up $18.3B and up $42.8B). Allspring (formerly Wells Fargo) was in 10th place ($182.9B, or 3.6%; down $4.4B, down $9.5B and down $15.8B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Schwab ($144.8B, or 2.9%), SSGA ($142.1B, or 2.8%), First American ($133.3B, or 2.7%), American Funds ($132.4B, or 2.6%), Invesco ($94.9B, or 1.9%), T. Rowe Price ($53.6B, or 1.1%), UBS ($45.6B, or 0.9%), HSBC ($37.2B, or 0.7%), DWS ($36.8B, or 0.7%) and Western ($36.0B, or 0.7%). Crane Data currently tracks 63 U.S. MMF managers, the same number as last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except JPMorgan moves up to the No. 3 spot and Goldman moves to the No. 4 spot (ahead of Vanguard). 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 ($925.3 billion), BlackRock ($721.6B), JP Morgan ($659.7B), Goldman Sachs ($477.8B) and Vanguard ($462.0B). Federated Hermes ($337.2B) was sixth, Morgan Stanley ($334.3B) was in seventh, followed by Dreyfus/BNY Mellon ($271.2B), Northern ($236.6B) and Allspring ($182.9B), 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 February issue of our Money Fund Intelligence and MFI XLS, with data as of 1/31/21, shows that yields were flat to higher again in January for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 744), remained at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield also stayed at 0.02%. The MFA's Gross 7-Day Yield stayed at 0.09%, and the Gross 30-Day Yield remained at 0.09%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unchanged) and an average 30-Day Yield (also unchanged) at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.10% (unchanged), and a Gross 30-Day Yield of 0.10% (unch). Our Prime Institutional MF Index (7-day) yielded 0.04% (unch) as of Jan. 31. The Crane Govt Inst Index remained at 0.02% and the Treasury Inst Index was unchanged at 0.01%. Thus, the spread between Prime funds and Treasury funds remains at two basis points, and the spread between Prime funds and Govt funds is just one 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) as of Jan.31.
Gross 7-Day Yields for these indexes to end January were: Prime Inst 0.16% (unch), Govt Inst 0.07% (unch), Treasury Inst 0.07% (unch), Prime Retail 0.16% (unch), Govt Retail 0.07% (unch) and Treasury Retail 0.07% (unch). The Crane Tax Exempt Index remained at 0.14%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.00% over 3-months, 0.00% YTD, 0.02% over the past 1-year, 0.75% over 3-years (annualized), 0.96% over 5-years, and 0.52% over 10-years.
The total number of funds, including taxable and tax-exempt, up 3 in January to 896. There are currently 744 taxable funds, up 3 from the previous month, and 152 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.
The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "Fee Waivers Poised to Shrink, MMF Revenue Ready to Jump," which discusses recent earnings calls and expectations for Fed hikes to remove waivers; "Money Fund University '22 Highlights: Supply, New Regs," which quotes from our latest basic training conference; and, "Swing Pricing Main Focus in SEC's Money Fund Reforms," which covers articles explaining the SEC's controversial fee proposal. We also sent out our MFI XLS spreadsheet Monday morning, and we've updated our database with 1/31/22 data. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Wednesday, Feb. 9, and our February Bond Fund Intelligence is scheduled to go out on Monday, Feb. 14.
MFI's "Fee Waiver article says, "Money market mutual funds are poised to sharply reduce fee waivers and see revenue jump in coming months, according to recent earnings calls. BlackRock, Federated Hermes, Northern and BNY Mellon have all weighed in on the topic on their latest earnings calls, and Crane Data's estimates show revenues are poised to double or triple in 2022."
It continues, "BlackRock says on its Q4'21 earnings call that the advisor expects fee waivers to cease as we get into 2022. CFO Gary Shedlin comments, 'We incurred approximately $135 million of gross discretionary yield support waivers in the fourth quarter, essentially the same as the third quarter, bringing total waivers to approximately $500 million for the full year. Given the current prospects for higher rates in the near term, we now anticipate most of these waivers would cease shortly after the first 25 basis point increase in the Fed funds rate.... Recall that approximately 50% of these gross fee waivers are generally shared with distributors, reducing the impact on operating income.'"
Our "MFU Highlights" article reads, "Crane Data recently hosted its Money Fund University 'basic training' event, which featured a number of experts giving overviews of the money markets, money funds and interest rates. We excerpt from some market comments below. (Note: Subscribers and Attendees may access the Powerpoints and recordings via our 'Money Fund University 2022 Download Center.'")
J.P. Morgan Securities' Teresa Ho, presenting an "Instruments of the Money Markets Intro," says, "The money markets refer to a part of the fixed income markets whose securities mature inside of 13 months or less. It is high quality and low credit risk, and clearly because of both of those things, doesn't yield a lot relative to the longer end of the credit curve.... This is a very, very large market.... Borrowers use it as a way to help finance their expenses on a short-term basis. Investors use it as a way to invest cash on a temporary basis, and then others use it as a way to manage their interest rate risk.... As long as there's demand for liquidity and as long as there's a mismatch between incoming and outgoing cash flows, there is a need for the money markets."
Ho continues, "While it was a fairly mundane part of the market back in the day. I think what we have found out, given all of the recent financial crisis that we've come across, is just how integral this part of the market is to the rest of the fixed income markets."
Our "Swing Pricing" states, "Barclays Joseph Abate writes on 'Swinging NAVs' in his latest 'Interest Rate Research.' He tells us, 'Last month, the SEC released a series of money fund reform proposals. The most significant was a swing price requirement for institutional prime funds. We review the proposal, its complications, and consider its effects on funding markets.... Money fund reform returned to regulators' policy agendas in the aftermath of the surge in prime fund redemptions in March 2020 that caused the CP market to freeze up.... This is despite two intervening rounds of reforms meant to prevent investor runs by shifting institutional prime funds to floating NAVs and imposing minimum overnight and weekly liquidity buffer requirements."
The piece continues, "These reform proposals all share similar features, which reflects the fact that many of these ideas are modifications of past reforms or re-treads of earlier, rejected approaches. There does not seem to be a strong consensus among the SEC commissioners about all of these reforms -- two of the five commissioners noted their opposition to swing pricing last month. But one of these opponents is resigning at the end of this month. Thus, although we think there is a strong chance that the next round of money fund reforms will include measures to reduce investors' propensity to run, it is not clear if this will take the form of swing pricing. The SEC laid out an expected timeline for its proposals. Once the rule becomes effective (perhaps by next summer), some of the rule changes will take immediate effect. Others, such as the minimum liquidity buffers and swing pricing, will be adopted after a transition period of 6m and 12m, respectively."
MFI also includes the News brief, "MMF Assets Plunge in January," which says, "After rising for 5 months in a row (capped off with a surge of $126.0 billion in Dec.), money fund assets plunged by $146.8 billion in January to $5.024 trillion, according to MFI XLS. ICI's separate series shows assets falling in 4 of the past 5 weeks to $4.628T."
Another News brief, "Barron's Discusses SEC's New Regs," asks, "Could the SEC's New Regs Kill Prime Money Market Funds?" They write, "To the untrained eye, the debate over the Securities and Exchange Commission's proposed new money market fund regulations may seem like a fight over nothing. But it is causing a dustup between regulators and fund providers all the same. And it could have big ramifications for investors."
Our February MFI XLS, with Jan. 31 data, shows total assets decreased $146.8 billion to $5.024 trillion, after increasing $104.6 billion in December, $49.7 billion in November and $20.5 billion October. Assets increased $878 million in September and increased $27.9 billion in August. Assets decreased $12.4 billion in July and $73.0 billion in June. Our broad Crane Money Fund Average 7-Day Yield was flat at 0.02%, and 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 unchanged from previous month at 0.09% and 0.10%, respectively. Charged Expenses averaged 0.08% for the Crane MFA and the Crane 100. (We'll revise expenses Tuesday once we upload the SEC's Form N-MFP data for 1/31/22.) The average WAM (weighted average maturity) for the Crane MFA was 31 days (down 4 days from previous month) while the Crane 100 WAM dropped 5 days to 33 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Federal Reserve Bank of Boston's Supervisory Research and Analysis Unit recently posted an article entitled, "Swing Pricing Calibration: A Simple Thought Exercise Using ETF Pricing Dynamics to Infer Swing Factors for Mutual Funds." The paper explains, "In March 2020, amid the onset of the COVID-19 pandemic, pooled investment funds that invest substantially in short-term debt instruments experienced large net redemptions and runs. For example, in the two-week period ended March 24, 2020, net redemptions from publicly-offered institutional prime money market mutual funds (MMMFs) were about 30 percent (Presidents' Working Group on Financial Markets (PWG 2020)). Ultra-short-term bond mutual funds (MFs), including those that invest substantially in short-term corporate debt instruments, experienced large monthly net outflows of about 15 percent of net assets in March 2020. These outflows resulted in some funds liquidating their underlying assets at large discounts, which contributed to volatility in the prices of those assets and strains in broader financial markets."
It continues, "Policy makers are assessing potential options to reduce the structural vulnerabilities in MFs and MMMFs, particularly those that invest in assets that can suddenly become illiquid during periods of stress. One option under consideration is swing pricing, or the process of adjusting a MF's net asset value per share (NAV) to pass on the costs arising from its net purchase or redemption activity to the investors responsible for that activity. Swing pricing can disincentivize large redemptions; however, effective design and calibration require real-time estimates of liquidity costs. These liquidity costs can be difficult to measure for certain corporate debt instruments, such as commercial paper, which generally only have thin secondary markets, even during normal times."
The piece tells us, "In this note, we use pricing dynamics for Exchange-Traded Funds (ETFs) that invest primarily in short-term debt to provide rough estimates of a range of swing-factor-proxies for MFs that invest in similar assets. The premise underlying this thought exercise is that MFs and ETFs that hold similar portfolios are comparable, except for the fund structure. Accordingly, the magnitude of ETF premiums and discounts could be a useful, albeit imprecise, proxy for liquidity costs for a MF that holds similar assets to the ETF. Thus, for MFs that held at least 50 percent of their pre-COVID-19 net assets in short-term corporate debt, swing-factor-proxies (that is, the ETF price discount to the value of its underlying assets) ranged between 2 and 7 percent, on average, during the most stressful period in March 2020."
It continues, "This measure tended to be higher for MFs that held more short-term corporate debt than the median MF and those with a longer weighted average life (WAL) than the median MF. For MFs that invest at least 50 percent of their pre-COVID-19 net assets in government-related securities, the analogous range is only 0.01 percent to 0.11 percent, on average. These much lower ranges likely reflect the relatively low-risk and high liquidity of these funds' underlying assets."
The introduction adds, "Thus, during periods of stress in which funds experience large net redemptions, swing factors could range between 0.01 percent, for MFs that invest substantially in short-term government-related securities, to almost 7 percent for those that invest substantially in short-term corporate debt, on average. These proxies could be useful for benchmarking stress-period swing factors in which funds that invest substantially in money market instruments experience large net redemptions. Outside this cohort, the general framework could also be useful to benchmark swing-factor-proxies for other types of MFs that invest in less liquid assets, including municipal bonds, which also experienced unusually large net outflows in 2020."
The Boston Fed's conclusion comments, "Open-ended collective investment vehicles, particularly those that invest in non-government debt, engage in liquidity transformation. Large redemptions and runs from these vehicles can negatively impact financial markets, as was observed in March 2020. One potential policy option for dampening large redemptions and destabilizing runs on funds is swing pricing, particularly if it is designed so that redeeming shareholders bear the full costs of their redemption activity. Despite swing pricing's potential benefits, calibrating swing factors is difficult, particularly for assets with thin secondary markets, such as commercial paper."
Finally, it says, "In this note, we provide a framework that can be used to benchmark swing factors for different fund types. For example, for MFs that invest primarily in short-term corporate debt, the discount-to-NAV could fall between 2 percent to 7 percent, on average, during periods of stress in which the funds experience large net redemptions. Our analysis could be useful to policy makers that are examining methods to calibrate swing factors that reasonably approximate transaction costs, while preserving the benefits of the fund to investors."
In other news, the Investment Company Institute's latest weekly "Money Market Fund Assets" report shows assets falling $17.5 billion during the week including month-end, after a big jump (up $28.6B) the prior week. Assets fell sharply in the first three weeks of January (down $88.5B), which followed 8 straight weeks of gains at year end (up $150.6 billion). Year-to-date, MMFs are down by $77 billion, or -1.6%. Over the past 52 weeks, money fund assets have increased by $317 billion, or 7.3%, with Retail MMFs falling by $50 billion (-3.2%) and Inst MMFs rising by $366 billion (13.2%).
ICI's weekly release says, "Total money market fund assets decreased by $17.53 billion to $4.63 trillion for the week ended Wednesday, February 2, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $18.65 billion and prime funds increased by $1.31 billion. Tax-exempt money market funds decreased by $194 million." ICI's stats show Institutional MMFs decreasing $14.9 billion and Retail MMFs decreasing $2.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.101 trillion (88.6% of all money funds), while Total Prime MMFs were $439.9 billion (9.5%). Tax Exempt MMFs totaled $86.4 billion (1.9%).
ICI explains, "Assets of retail money market funds decreased by $2.67 billion to $1.48 trillion. Among retail funds, government money market fund assets decreased by $1.94 billion to $1.20 trillion, prime money market fund assets decreased by $702 million to $201.11 billion, and tax-exempt fund assets decreased by $30 million to $76.77 billion." Retail assets account for just under a third of total assets, or 32.0%, and Government Retail assets make up 81.3% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $14.86 billion to $3.15 trillion. Among institutional funds, government money market fund assets decreased by $16.71 billion to $2.90 trillion, prime money market fund assets increased by $2.01 billion to $238.74 billion, and tax-exempt fund assets decreased by $164 million to $9.64 billion." Institutional assets accounted for 68.0% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals. (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 Crane's asset series.)
S&P Global Ratings recently published "U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2021)," as well as a "European 'AAAm' Money Market Fund Trends (Fourth-Quarter 2021)." They write, "The year ended on a generally positive note for rated U.S. MMFs in 2021. Government fund net assets continued to grow during the fourth quarter, ending at $3.11 trillion. Assets in government funds increased 21% for the year. Prime funds struggled to grow assets in the fourth quarter and experienced net outflows for the year, settling at $365 billion. The minimal spread between prime funds and government funds certainly was a contributing factor. The high probability that the Federal Reserve will hike rates multiples times in 2022 may shift some assets back into prime."
The update continues, "However, there will be further challenges down the road with the looming prospect of potential regulatory reforms, as at the end of 2021 the SEC officially voted on proposed amendments to rule 2a-7 of the Investment Company Act of 1940, under which MMFs are registered. The proposals include increasing the minimum daily and weekly liquidity requirements to 25% and 50%, respectively, removing the requirement for MMFs to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds, and requiring certain MMFs to implement swing pricing so redeeming investors bear the liquidity costs of their redemptions. There may be adjustments based on feedback from industry participants during the 60-day comment period."
It explains, "The asset composition of government funds shifted heavily toward repo. Repo exposure ended the quarter at its highest level for the year with support from the Fed's Reverse Repurchase Program. Fund managers' use of repo was driven by the lack of Treasury bill and agency note supply, which was exacerbated by the significant inflows into government funds. Consequently, usage of the Fed's reverse repo facility hit all-time highs during the second half of 2021."
S&P states, "Prime funds experienced only marginal changes in asset composition over the quarter. Early in the year, managers of prime funds began reducing Treasury exposure, reflecting a partial return to pre-pandemic strategies and the declining Treasury bill supply. Fund managers subsequently allocated more cash into repo, bank deposits, and municipal variable rate securities."
They comment, "Fund yields remained suppressed over 2021, primarily due to the Fed's tight monetary policy and banks being inundated with deposits. This prompted fund managers to implement fee waivers for extended periods, but with the increasing likelihood of interest rate rises in 2022, we will likely see a slow reduction in fee waivers. At the close of the year, the seven-day and 30-day net yields for government funds were 0.02% and 0.01%, respectively, while the seven-day and 30-day net yield for prime funds were both 0.04%."
The piece adds, "Managers continued to keep their funds short-dated, driven by their liquidity targets and the lack of incentive to extend until possible Fed rate hikes. Government fund managers modestly extended the weighted average maturity (WAM) by just one day compared to the previous quarter while prime funds reduced WAM by two days.... Net asset values (NAV per share) for rated funds stayed in a 24 basis point range, between 0.9995 and 1.0019 per share."
The list of "S&P Global 'AAAm' USD Principal Stability Funds–Government funds includes: JPMorgan U.S. Government Money Market Fund ($258.9B), Goldman Sachs Financial Square Government Fund ($223.8B), BlackRock Liquidity Funds FedFund ($180.8B), Morgan Stanley Institutional Liquidity Funds - Government Portfolio ($155.6B), Federated Government Obligations Fund ($142.2B), Allspring Government Money Market Fund ($139.9B), Fidelity Investments Money Market Government Portfolio ($132.7B), Dreyfus Government Cash Management ($132.5B), BlackRock Liquidity Funds T-Fund ($129.5B), BlackRock Liquidity Funds Treasury Trust Fund ($114.3B).
The S&P Global 'AAAm' USD Principal Stability Funds--Prime list includes: JPMorgan Prime Money Market Fund ($69.9B), Florida PRIME ($20.3B), Federated Prime Cash Obligations Fund ($18.0B), State Treasury Asset Reserve of Ohio (STAR OHIO) ($15.0B), Morgan Stanley Institutional Liquidity Funds - Prime Portfolio ($14.7B), State Street Money Market Portfolio ($12.9B), Connecticut State Treasurer's Short-Term Investment Fund ($12.4B), Federated Institutional Prime Obligations ($12.2B), Texas Cooperative Liquid Assets Securities System ($12.1B) and Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) ($10.9B).
S&P's "`European 'AAAm' Money Market Fund Trends," tells us, "European-domiciled MMFs rated by S&P Global Ratings closed out 2021 strong, as all three currencies had inflows in the fourth quarter. Euro MMFs saw the largest quarter-on-quarter growth, rising 18%, followed by an 8% increase in pounds sterling, and a 3% increase in U.S. dollar MMFs. Over the year, euro-denominated MMFs increased 1% from December 2020 to €126.8 billion, the highest level since July 2012, which ominously was the month the European Central Bank lowered its deposit rate to 0.00%. Net assets for U.S dollar MMFs also saw year-over-year growth of 4.7% to $506.1 billion, whereas sterling declined 5.3% to £238.3 billion since peaking at £252 billion in December 2020."
It says, "While seven-day net yield averages have remained relatively flat throughout 2021, the fourth quarter displayed mixed results across the three currencies. U.S. MMFs remained consistent, averaging a 0.03% yield, while euro MMFs trended lower, to -0.76%. The seven-day net yield average for 'AAAm' sterling principal stability funds increased to 0.02% in December, the first time in a positive yield environment for S&P Global-rated funds since September 2020. The increase in sterling seven-day yield averages can be attributed to rising market rates leading into the Bank of England's (BOE's) decision to increase the bank rate by 15 basis points to 0.25% after the Monetary Policy Committee meeting on Dec. 15, 2021, with an increasing likelihood of more sterling rate rises throughout 2022."
The "Trends" explains, "In the fourth quarter, weighted-average maturities (WAMs) declined across the rated euro, sterling, and U.S dollar MMFs. The U.S Federal Reserve (Fed) is expected to raise interest rates multiple times in 2022 to combat high inflation, following the announcement in November 2021 that it would taper its bond buying program. With additional rate hikes on the horizon, WAMs are likely to continue their downward trend as fund managers look to take advantage of the potential lift-off throughout 2022."
Finally, it adds, "Since the well-documented market turmoil of March 2020, S&P Global-rated Europe-domiciled MMFs have all seen significant rises in net asset levels with: euro-denominated funds up 46%, sterling-denominated funds up 10%, and U.S. dollar-denominated funds up 22%. This demonstrates the continued investor demand for cash management products, such as investing in rated money market funds despite the unprecedented low interest rates across the three currencies. With multiple rate hikes on the horizon for both the Fed and BOE, and given their high credit quality investments, diversification, and liquidity, MMFs should remain an important short-term investment vehicle for investors to place their cash. In the past 12 months, we affirmed all our 'AAAm' ratings on MMFs."
Two weeks ago, Crane Data hosted its Money Fund University "basic training" event, which reviews the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. (See our Jan. 26 News, "Money Fund University Highlights: J.P. Morgan's Teresa Ho Talks Supply.) Today, we quote from the session on the "Federal Reserve & Money Markets, which featured BofA Securities' Mark Cabana. Cabana gave an extensive overview of the Fed, but also addressed several hot topics, including the recently proposed money fund reforms. (Note: Crane Data Subscribers and MFU Attendees may access the Powerpoints and recordings via our "Money Fund University 2022 Download Center." Mark your calendars too for our next live event, Bond Fund Symposium, which is March 28-29 in Newport Beach, Calif.)
Cabana tells the virtual MFU, "Okay, one final topic for me and maybe the most important for this audience, money fund reform.... You can see a summary of what the SEC has proposed.... There are really two biggies, in our view.... Swing pricing, that's the single most important potential reform that the SEC is considering. And ... higher daily and weekly liquid asset requirements. Swing pricing will only be applied to prime institutional funds, but it is essentially we think of it as almost a redemption fee, especially if you are a large investor in a prime institutional fund."
He explains, "I believe the threshold is if you as an investor comprise 4% of the total prime institutional fund.... If you do that, and if you want to redeem all of that quickly, then you are subject to essentially seeing your withdrawal charge a liquidity fee or a downward NAV adjustment on the cash that you're trying to get back. In times of market stress, that liquidity fee for that downward NAV adjustment can be quite high. It's also very difficult for funds to estimate and implement. So again, to us, that's the real big element of these reforms."
Cabana continues, "If you are an investor in a money fund, you likely ... prize liquidity above anything. You just want to make sure that you can get your money back when you want it and hopefully get a little bit of a return. What you don't want to do is have an investment in the money fund and yield 25 basis points, maybe 125 basis points at the end of this year, but then be hit with a 5% redemption fee if you're trying to get your money back. That doesn't work."
He says, "If swing pricing is implemented as we expect, we think it is essentially going to kill the prime institutional business. And it may not even require prime institutional funds to tell their investors and have their investors withdraw funds. Look, it's very possible that institutional prime funds just close the funds because they know what's coming. They know how difficult it would be to apply these redemption fees and as the swing pricing adjustments, and we think that they're well aware of the impact that it would have on investors."
Cabana also tells us, "So swing pricing to us is the single most important reform here. And sadly, when we read the rule, our interpretation of the SEC rule is that the SEC knows that swing pricing could kill prime institutional funds. And the way they wrote the rule led us to believe that the SEC actually sees this risk as a feature of the rule, not a flaw. They're not crying a river about the potential end of the existence for prime institutional funds. Not at all. And again, that's just the reality of the regulatory environment. So, it would not surprise us to see a number of prime institutional funds announce fund closures once the SEC rules are final."
He states, "But the other big or secondary but still relevant reform is ... higher daily and weekly liquid asset requirements. So, increasing daily and weekly liquid asset requirements to 25% and 50%, respectively, from 10% and 30%, across funds. To us, this, especially if you're a prime fund, just further reduces the yield advantage that you're going to be able to offer to clients. If you're an investor, your money fund, you know, why are you going to invest in a prime fund? Especially a prime institutional fund if the yield enhancement is being deteriorated? So again, we just think that this is going to further reduce the attractiveness of money funds, especially in the prime side, and probably see more inflows into the government side."
Cabana also says, "We don't know how much of an impact this will have. We don't know what type of outflows we're going to see yet. But 2016 provides us with a little bit of a footprint, and you can see that again, it's a pretty substantial reduction in overall prime balances that we saw during the last money fund episode. We think we very well could be looking at something similar after this round of money fund reform. What that means for broader money markets is that CP, CDs, unsecured funding [rates are] going to increase because the industry is going to be losing a good source of unsecured funding demand."
He explains, "Again, exactly how much and what the spread widening is, is tough to know. We've estimated that it will be between three to seven basis points.... We arrive at that by looking at what happened last time, sort of sizing that to today's values in terms of the amount of CPs and CDs that current prime funds buy, and then run a range of scenarios of potential outflows to come up with that three to seven basis points. But it's going to be negative for at least funders at the front end of the curve. It's going to reduce a source of prime investment option or reduce the source of CP or CD issuer demand."
Cabana adds, "So again, stay tuned on that in terms of timing, as Pete alluded to. But the SEC came out with this rule in the middle of December. They said that the comment period would be 60 days after the proposed rule hits the Federal Register. The last time I checked to see if it was in the Federal Register last week, it was not there yet. So this 60-day period has not yet started, but we imagine that it will happen soon. Maybe it's happened since last I checked, and we imagine that comments will be back to the SEC by, you know, let's call it, the end of March April timeframe."
Finally, he comments, "The SEC will probably take three to six months to review those comments, and come back with final rules ... maybe by the end of Q3 or the end of the year. We're going to hear a final rule from the SEC on this. And again, our base case is that it's not going to be favorable. So, I'm sure this is very much top of mind to everybody who's participating in the Money Fund University today. And again, I just think that you've got to acknowledge that it's very likely that prime funds and especially prime institutional funds face a pretty meaningful upward challenge in the years ahead."
The Federal Reserve Bank of New York's "Liberty Street Economics" blog published, "Pricing Liquidity without Preemptive Runs," which discusses Prime money market funds and swing pricing. Authors Marco Cipriani, Antoine Martin and Patrick McCabe write, "Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs."
They explain, "One feature of prime MMFs that contributes to their run vulnerability is liquidity transformation. That is, prime MMF shares are more liquid than many of the assets they hold, and even in crises when market liquidity costs for those assets rise, investors who redeem quickly are able to obtain liquidity for free. The costs of their redemptions are instead borne by investors who don't redeem so fast, so all investors have an incentive to redeem quickly -- that is, to run. This first-mover advantage for redeeming investors is present even for funds with floating net asset values (NAVs), such as institutional prime funds, whose share prices fluctuate along with changes in the market-based value of the funds' assets. Investors in these funds who redeem quickly in times of stress can avoid paying the liquidity costs arising from their redemptions because those costs typically are not immediately reflected in the fund's NAV."
The piece continues, "One way to mitigate run vulnerability is to put a price on liquidity during times of stress, so that redeeming investors pay the costs arising from their redemptions. However, doing so can cause additional problems: if investors are able to foresee when the cost of redeeming will rise, they can run preemptively, as they did in March 2020. Is it possible to price liquidity without causing preemptive runs?"
It tells us, "The vulnerability of prime MMFs to runs is well documented following major runs in September 2008 and March 2020. After the 2008 crisis, the Securities and Exchange Commission (SEC) implemented two sets of reforms, in 2010 and 2014. The latter allows prime MMFs to impose redemption fees or gates if their weekly liquid assets (WLA) fall below 30 percent of total assets. The redemption fees and gates were intended, in part, to impose a cost on redeeming investors and thereby to slow runs, but recent research ... shows that the rule had the opposite effect. MMFs with WLAs close to the 30 percent threshold had larger outflows than MMFs with greater amounts of WLA, and the research links the increased outflows to the redemption fees and gates. In other words, prime fund investors ran preemptively before fees or gates could be used. The occurrence of preemptive runs should not be surprising. For example, in a 2014 Staff Report and a Liberty Street Economics post, we explained how fees or gates contingent on depleted liquidity could lead to preemptive runs."
They then discuss swing pricing, stating, "Recent reports on potential MMF reforms by the President's Working Group (PWG) on Financial Markets and the Financial Stability Board suggest that 'swing pricing' -- or economically equivalent mechanisms—could be a safer way of pricing liquidity than the current system of fees and gates. In December 2021, the SEC proposed a swing pricing requirement for institutional prime funds. How would these measures work?"
The blog answers, "The idea behind swing pricing is to impose a cost for redemptions on the same day that the fund faces large outflows. On those days, the NAV of the fund 'swings' down so that redeeming investors receive less for their shares than they otherwise would. The reduction in NAV should be calibrated to match the liquidity costs associated with redemptions. This is the approach proposed by the SEC, although other economically equivalent measures could also be effective. One alternative would be to charge a redemption fee on the same day that the fund has large outflows, rather than reducing the NAV. Whether the price of liquidity is imposed through a reduction in NAV or a fee, the key to avoiding preemptive runs is that the price depends on same-day redemptions."
It continues, "Preemptive runs can occur when investors are able to anticipate a future increase in liquidity cost and avoid it by redeeming before it's imposed. For example, under current rules, if a prime fund's WLA has fallen to near 30 percent and looks likely to drop below that threshold soon, investors can redeem immediately to avoid a possible fee or gate."
The article explains, "By contrast, suppose that the fund charges a price for liquidity that increases with the size of the fund's same-day net outflows. Investors who believe that a liquidity cost will be imposed tomorrow could choose to redeem today. However, since the liquidity price increases with today's net outflows, by redeeming, those investors increase the expected liquidity charge that they pay today, so their redemptions are not preemptive. Moreover, since the liquidity price reflects the liquidity cost of redemptions, that cost is no longer borne by remaining investors, and the incentive to run preemptively is eliminated."
It also says, "This argument is intuitive and is also backed by the academic literature that studies run behavior. This literature shows that when payouts for redeeming investors can be set based on the amount of requested redemptions and if payouts are reduced to offset liquidation costs, runs are eliminated."
The blog adds, "Swing pricing has been used by mutual funds in Europe and studied in this paper. As we would expect, the European experience shows that swing pricing has not generated preemptive runs. Moreover, swing pricing eliminates the first-mover advantage arising from liquidity transformation and significantly reduces outflows during market stress."
Finally, it concludes, "Putting a price on MMF liquidity could reduce the fragility of prime funds if that price can be charged without creating a risk of preemptive runs. Preemptive runs can be avoided by using swing pricing or similar tools that price liquidity based on same-day net outflows. These tools would be beneficial for many stakeholders in the short-term funding markets. For example, they would insulate MMF investors from the costs of others' redemptions when liquidity costs rise. Liquidity pricing could also be useful for fund managers who currently lack tools to stop runs on their funds. Finally, liquidity pricing could benefit taxpayers by reducing the likelihood of future bailouts for MMFs."
