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The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-​End Portfolio Holdings of Taxable Money Funds" for February 2022 yesterday. The report confirms a drop in money fund assets in February. The monthly "Trends" report shows that money fund assets dropped $​38.​3 billion in February to $​4.​581 trillion. This follows a decrease of $​136.​1 billion in January, 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 and $​129.​4 billion in March. For the 12 months through Feb. 28, 2022, money fund assets increased by $​213.​8 billion, or 4.​9%. (​Month-​to-​date in March through 3/​29, MMF assets have increased by $​16.​6 billion to $​5.​002 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 $​530.​63 billion, or 2.​1 percent, to $​25.​21 trillion in February, 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 $​34.​51 billion in February, compared with an outflow of $​13.​47 billion in January.... Money market funds had an outflow of $​37.​59 billion in February, compared with an outflow of $​136.​14 billion in January. In February funds offered primarily to institutions had an outflow of $​42.​34 billion and funds offered primarily to individuals had an inflow of $​4.​75 billion."

The Institute'​s latest statistics show that Taxable funds and Tax Exempt MMFs both saw losses last month. Taxable MMFs decreased by $​37 billion in February to $​4.​496 trillion. Tax-​Exempt MMFs decreased $​1.​3 billion to $​84.​9 billion. Taxable MMF assets increased year-​over-​year by $​229.​9 billion (​5.​4%), while Tax-​Exempt funds fell by $​16.​1 billion over the past year (-​16.​0%). Bond fund assets decreased by $​89.​2 billion in February to a $​5.​415 trillion, but they rose by $​123.​5 billion (​2.​3%) over the past year.

Money funds represent 18.​0% of all mutual fund assets (​up 0.​1% from the previous month), while bond funds account for 21.​8%, according to ICI. The total number of money market funds was 302, down 3 from the prior month and down from 331 a year ago. Taxable money funds numbered 243 funds, and tax-​exempt money funds numbered 59 funds.

ICI'​s "Month-​End Portfolio Holdings" confirms a drop in Treasuries last month and an increase in Repo. Repurchase Agreements remained the largest composition segment in February, increasing $​11.​0 billion, or 0.​5%, to $​2.​138 trillion, or 47.​6% of holdings. Repo holdings have increased $​1.​115 trillion, or 109.​0%, over the past year. (​See our March 10 News, "March MF Portfolio Holdings Flat: Repo Inches Higher, Treasuries Lower.)

Treasury holdings in Taxable money funds fell last month but remained the second largest composition segment. Treasury holdings decreased $​13.​8 billion, or -​0.​8%, to $​1.​694 trillion, or 37.​7% of holdings. Treasury securities have decreased by $​526.​5 trillion, or -​23.​7%, 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 $​4.​4 billion, or 2.​4%, to $​188.​2 billion (​4.​2% of assets). CDs held by money funds shrank by $​10.​6 billion, or -​5.​3%, over 12 months. Commercial Paper fell back to fifth place, but was up $​2.​0 billion, or 1.​3%, to $​147.​3 billion (​3.​3% of assets). CP has decreased by $​42.​2 billion, or -​22.​3%, over one year. Other holdings increased to $​26.​4 billion (​0.​6% of assets), while Notes (​including Corporate and Bank) inched higher to $​3.​5 billion (​0.​1% of assets).

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased to 48.​536 million, while the Number of Funds dropped by 2 this past month to 243. Over the past 12 months, the number of accounts rose by 6.​126 million and the number of funds decreased by 20. The Average Maturity of Portfolios was 28 days, 3 days lower than January. Over the past 12 months, WAMs of Taxable money have decreased by 18.

In related news, ICI also published the release, "Retirement Assets Total $​39.​4 Trillion in Fourth Quarter 2021," which includes data tables showing that money market funds held in retirement accounts inched lower to $​529 billion in Q4'​21, now accounting for 11% of the total $​4.​756 trillion in money funds. MMFs represent 4.​2% of the total $​12.​578 trillion of mutual funds in retirement accounts.

The release says, "Total US retirement assets were $​39.​4 trillion as of December 31, 2021, up 4.​5 percent from September and up 11.​6 percent for the year. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of December 2021. Assets in individual retirement accounts (​IRAs) totaled $​13.​9 trillion at the end of the fourth quarter of 2021, an increase of 4.​3 percent from the end of the third quarter of 2021. Defined contribution (​DC) plan assets were $​11.​0 trillion at the end of the fourth quarter, up 5.​3 percent from September 30, 2021."

The ICI tables also show money funds accounting for $​366 billion, or 6%, of the $​6.​210 trillion in IRA mutual fund assets, $​110 billion, or 2%, of the $​4.​982 trillion in 401(​k) plan assets, and $​164 billion, or 3%, of the $​6.​368 trillion in defined contribution plan holdings.

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Earlier this month, we excerpted from a Federal Reserve Bank of New York report, "Money Market Fund Vulnerabilities: A Global Perspective." (​See our March 21 News, "NY Fed Paper: Money Market Fund Vulnerabilities: A Global Perspective," and our March 24 News, "NY Fed Report Reviews Origins of MMFs in U.​S., Europe, Japan, China.") Today, we quote from the section involving "MMF crises." The NY Fed writes, "Crises have arisen in MMFs around the world, particularly since 2000. Although each crisis event has reflected the particular characteristics of a jurisdiction'​s MMFs and how they were regulated at the time, some common themes emerge. Investors and even regulators in many cases appear to have been surprised that MMFs were not as safe and money-​like as they had been perceived. Investors often respond by running from MMFs even though losses – if any – are typically small relative to losses that can occur in other types of investment funds. Institutional investors are especially fast to run, and investors who redeem early are typically at an advantage relative to others. The range of events also shows that MMF crises are not unique to a particular jurisdiction or regulatory regime, and that runs still occur even after authorities have introduced new restrictions to respond to past crises." (Note: Thank you to those who attended our Bond Fund Symposium this week in Newport Beach, Calif.! We hope you enjoyed the show.... Visit our "Bond Fund Symposium 2022 Download Center" for materials and recordings.)

They explain, "Early examples of strains in MMFs often involved exposures to assets with credit and interest rate risks, including some that are no longer considered appropriate for MMFs to hold. Some of these episodes nonetheless highlight that even small losses – or the threat of losses – can cause sudden loss of moneyness in MMFs and disproportionate reactions by investors.... Between 1989 and 2003, sponsors stepped in voluntarily more than 140 times to support MMFs that held defaulted debt or other assets that had lost value. For example, in 1989 and 1990, several MMF sponsors purchased defaulted CP from their funds at par (​SEC, 1990; Moody'​s, 2006; ICI, 2009). Meanwhile, shareholders over these years suffered losses only in one instance, in 1994, when the Community Bankers' U.​S. Government Money Market Fund ... '​broke the buck' -- that is, its share price fell below $​1.​00."

The paper tells us, "During this period, the SEC responded to each wave of distress and sponsor support with new rules or other actions designed to limit risks that had just become apparent. For example, amendments to rule 2a-​7 were adopted in 1991 in the wake of the 1989-​1990 CP defaults to tighten diversification requirements and again in 1996 after losses stemming from the Orange County bankruptcy led to sponsor support for several dozen MMFs (​ICI, 2009)."

It states, "As Enron collapsed in late 2001, five JMMFs that held Enron'​s Euroyen bonds suffered losses that caused them to '​break the buck' -- that is, their share prices dropped below their normal ¥​10,​000 NAVs. One fund fell to ¥​9,​319.... Investors responded by redeeming shares en masse, and JMMF assets shrunk by 58 percent from October to December and continued falling thereafter.... While the JMMF holdings of Enron reflected the particularly lax rules for these money funds, this episode illustrates broader vulnerabilities and patterns.... Enron obligations in the Sumisei MMF climbed from 2.​2% of the assets at the end of October to 5.​3% near the end of November, as the fund met heavy redemptions by selling other assets."

Discussing the "European Union," the piece says, "In the summer of 2007, '​enhanced' and '​dynamic' MMFs in France, Luxembourg, and Germany suffered mark-​to-​market losses and difficulty valuing certain portfolio assets, including asset-​backed subprime mortgage securities. Some asset managers intervened to support their funds, while others suspended redemptions and imposed losses on investors. For example, following significant losses on subprime mortgages, Luxembourg-​based AXA Investment Management offered to purchase all shares in two of its enhanced MMFs at the prevailing NAV, and French asset manager ODDO suspended redemptions in its enhanced MMFs, liquidated the funds, and protected retail investors from losses. BNP suspended redemptions in three MMFs and eventually reopened them with haircuts of between 1 and 2 percent of NAV. Some German asset managers suspended redemptions for their enhanced MMFs, as well."

It continues, "In the second half of 2007 and early 2008, some MMF sponsors provided support to their MMFs either by purchasing assets directly from the fund'​s portfolios or by guaranteeing the value of the MMF shares to investors. At the crisis intensified, sponsor support increased. At least 26 MMFs received support between August 2007 and the end of 2009 (​Moody'​s, 2010). Support actions resulted in large losses for asset managers and their parent banking groups, leading to contagion from MMFs to the banking system (​Bengtsson, 2013; McCabe, 2010)."

Back in the U.​S., they explain, "In the aftermath of the 2007 crisis in the market for asset-​backed CP (​ABCP), SEC records indicate that 44 MMFs received support due to holdings of distressed ABCP. Despite news of substantial MMF exposure to these securities, MMF investors did not run from the funds during the ABCP crisis, as sponsor support – even though it was discretionary – evidently convinced investors that MMFs were safe.... U.​S. prime MMFs attracted large inflows in the year after the 2007 ABCP crisis, even as the broader financial crisis expanded, likely because sponsor support for MMFs had preserved their moneyness while other assets and cash-​like vehicles were losing value.... However, when Lehman Brothers failed on September 15, 2008, some prime MMFs were holding its debt, and investors redeemed more than $​300 billion (​15% of assets) from prime funds in the next five days. Outflows only abated when the U.​S. Treasury guaranteed virtually the entire MMF industry and the Federal Reserve provided liquidity using its emergency powers."

The NY Fed paper comments, "The 2008 run in the United States underscored the vulnerabilities of MMFs, such as the fragility of their NQA moneyness and their susceptibility to contagion. SEC data show that 29 MMFs had losses large enough to break the buck in 2008, but sponsors bailed them out.... However, the failure of just one MMF sponsor to support its fund immediately accelerated the run on the entire MMF sector. Daily prime MMF outflows on the two days after Lehman'​s bankruptcy (​September 15 and 16) averaged $​40 billion, but news late on September 16 that the Reserve Primary Fund would not be supported by its sponsor and had broken the buck prompted $​102 billion in redemptions from other MMFs the next day."

It adds, "Amidst the run, the importance of liquidity transformation, the first-​mover advantage for redeeming investors, and threshold effects were also clear. Investors who redeemed from the Reserve Primary Fund early on September 15 received $​1 per share. But redemptions depleted the fund'​s liquidity, including its capacity for overdrafts from its custodian bank, and the fund halted redemptions (​permanently) later that day. Investors who waited to redeem not only received less than $​1 for their shares, but also had to wait several years to receive all of their money.... Institutional investors worsened stress for MMFs in 2008. Institutional MMFs, which held 64% of the assets in prime funds on the eve of Lehman'​s failure, accounted for 95% of the redemptions in the first five days of the run."

The paper states, "The run on prime MMFs quickly exacerbated strains in short-​term funding markets, in part because MMFs had to liquidate holdings to meet redemptions. The repercussions were not limited to the United States. U.​S. prime MMFs had become very large suppliers of short-​term dollar funding for global banks particularly those in Europe. The run quickly put funding pressure on those banks that was only relieved by emergency increases in currency swap lines by Federal Reserve and other central banks."

It tells us, "The SEC responded to the 2008 run by adopting two sets of reforms. In 2010, it introduced daily liquid asset and WLA requirements. In 2014, the SEC mandated that all non-​government funds (​that is, prime and tax-​exempt funds) have the ability to impose gates and fees on redemptions if their WLAs fall below the regulatory minimum of 30% of total assets. In addition, institutional prime and institutional tax-​exempt funds were required to have floating (​variable) NAVs. One consequence of the 2014 reforms was significant shrinkage of both the prime and tax-​exempt MMF sectors in the year leading up to October 2016, when the reforms went fully into effect. Prime and tax-​exempt MMF assets under management fell 68% and 47%, respectively, in that year. The assets of publicly-​sold institutional prime funds fell especially sharply – 88% that year – so the fraction of prime funds held by institutional investors plummeted."

They also discuss the European debt crisis in 2011, and issues in China in 2013 and South Africa in 2014. Then they tell us, "As concerns mounted in March about the economic and financial consequences of the COVID-​19 pandemic, a '​dash for cash' caused stress in a range of markets, including those for U.​S. Treasury securities, corporate and municipal bonds, and money-​market instruments. Redemptions from prime MMFs grew quickly into a run in mid-​March.... Publicly-​offered institutional prime MMFs had outflows of 30% of assets over the two-​week period from March 10 to 24, and retail prime funds had outflows of 9% over a two-​week interval beginning a day later.... By these measures, prime MMF outflows exceeded those in September 2008 (​however, in dollar terms, institutional prime fund outflows were larger in 2008)."

Finally, they add, "MMF vulnerabilities were evident again in this crisis. The funds were susceptible to the surge in liquidity demand because of their liquidity transformation: They offered shareholders liquidity on demand at no charge even as liquidity in the markets for the instruments the funds held was becoming scarce and costly. This contributed to a first-​mover advantage for redeeming investors, which was exacerbated by threshold effects, as investors redeemed on concern that funds could impose fees or gates if their WLAs fell below the 30% minimum requirement.... The first-​mover advantage was clear: Funds' declining WLA levels were publicly available on a daily basis, so investors could see the detrimental effects of others’ earlier redemptions on their own prospects. `​The fragility of moneyness was also a contributing factor, as the dash for cash was not indiscriminate: Investors, apparently questioning the safety of prime MMFs, redeemed from prime funds and shifted money into government funds. Institutional investors were again faster to redeem than retail investors, and funds that appear to have been held by large institutional investors experienced disproportionately larger outflows.... Like other crises, the 2020 MMF runs and strains in the United States and Europe have led to calls for further reforms and restrictions on MMF operations."

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A press release entitled, "Reich & Tang Deposit Networks, LLC (​R&​T) and Total Bank Solutions (​TBS) Announce Plan to Combine Firms to Accelerate Growth, Drive Innovation and Expand Product Offerings," tells us, "R&​T and TBS announced today that they have entered into a definitive agreement to combine both companies. The combination of the two firms will provide banks, credit unions, wealth managers and trust institutions with a larger selection of products and services, designed to meet their unique cash sweep, deposit funding and securities-​based lending needs. Estancia Capital Partners, a private equity firm based in Scottsdale, Arizona, will have a majority interest upon close."

It explains, "R&​T and TBS will have a combined total of assets under supervision of more than $​220 billion, and over 120 experienced professionals that will provide services to more than 20 unique broker dealer sweep programs, approximately 100 trust companies as well as registered investment advisors, robo-​advisors, municipalities and retirement plans in coordination with their clearing firms, custodians and technology integration partners. Both firms have long track records of providing superior client service and developing solutions that enhance their respective clients' experience and deliver value to their underlying customers."

R&​T President Joe Jerkovich comments, "We are thrilled to unite with TBS and expand our presence in the broker dealer and trust insured cash sweep business. Similar to R&​T, TBS is a well-​established organization whose mission is focused on helping customers to achieve their goals. Together, we will continue to offer innovative products differentiated through personalized and value-​driven service. Most importantly, both firms share the same fundamental values and commitments to our clients, communities, employees and other stakeholders, which made our decision to partner with TBS very compelling."

Eric Pierce, Chairman of TBS, says, "Joined with R&​T, we will have a greater opportunity to create value by expanding the products and services we will be able to offer banks and wealth managers.... TBS' technology investments in our Securities Based Lending and Deposit Management systems, when combined with the flexibility and depth of R&​T'​s Demand Deposit Marketplace program and reciprocal bank network will enable us to better serve and deepen relationships with our clients, while continuing to provide the best possible client experience and access to our collective industry expertise and thought leadership."

The release states, "Over the past decade, R&​T focused on growing its Demand Deposit Marketplace® ("​DDM") program, a reciprocal bank network providing banks, trust companies and other financial institutions access to $​30 million of FDIC insurance from participating FDIC-​insured banks for their customers. As a result of the combination, R&​T expects to increase the FDIC insurance available through the DDM program up to $​50 million over the next 12 months. By participating in the DDM program, community banks can compete for deposits with larger banks based on the ability to provide higher levels of insurance to their customers with the knowledge that R&​T can reciprocate these deposits back to the bank from its network of more than 250 banks."

Takashi Moriuchi, Co-​Founder and Managing Director at Estancia adds, "​We had the good fortune to cultivate relationships with both management teams over the last three years.... Our investment in R&​T last year inspired both management teams to discuss the strategic possibilities of combining companies and capitalize on compelling market opportunities by providing even more services to the combined firms' clients."

The release also says, "​The executive leadership team of the combined firm will include employees from both R&​T and TBS. Michael Lydon and Joe Jerkovich will continue to lead the combined firm as Chief Executive Officer and President, respectively, with Kevin Bannerton, Joe Sarbinowski, and Gary Hom from TBS joining the executive management team, together with Tom Nelson, Steve Genereau and Andrew Mintz from R&​T."

They write, "​The parties signed definitive agreements on March 21, 2022. The transaction is expected to close by May 2022. Seward & Kissel LLP served as legal advisors to R&​T and Estancia. For TBS, Piper Sandler served as exclusive financial advisor and Debevoise & Plimpton was legal counsel."

The posting comments, "Reich & Tang Deposit Solutions (​R&​T) offers deposit and liquidity solutions to financial intermediaries throughout the country. Through its Demand Deposit Marketplace program, R&​T provides banks with access to billions in reciprocal deposits, and underlying customers with access to high levels of FDIC insurance through participating banks. R&​T is the trusted vendor of large broker dealers and other financial institutions that offer insured cash sweep programs. The firm is focused on providing unmatched client service by creating, improving, and delivering smarter solutions to help banks and a range of wealth managers maximize the value of their deposit, liquidity, and short-​term investment programs."

It adds, "Total Bank Solutions (​TBS) is a privately held financial technology firm located in Hackensack, NJ. The company was founded in 2004 to serve the needs of banks and wealth management organizations. Its offerings include its FDIC Insured Deposit Program (​IDP) and Loan Management System (​LMS). With over $​100 billion in assets under administration (​AUA), IDP provides wealth managers and their customers the benefit of extended FDIC insurance and, for participating banks, access to a stable, diversified, and cost-​effective source of deposit funding. LMS is an end-​to-​end securities-​based lending and collateral monitoring platform that connects banks with borrowers seeking collateralized loans."

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With the April 11 deadline approaching, substantial letters have finally started appearing on the SEC'​s "Comments on Money Market Fund Reform" page. One of the latest comes from Northern Trust Asset Management Executive Vice President & Head of Fixed Income Colin Robertson. He writes, "Northern Trust Asset Management is pleased to submit these comments to the Securities and Exchange Commission on proposed amendments to certain rules that govern money market funds under the Investment Company Act of 1940. NTAM commends the Commission for its thoughtful consideration of proposed changes to MMF regulation after the stresses placed on short-​term funding markets in March 2020." (Note: For those attending our Bond Fund Symposium today, welcome to Newport Beach, Calif.! We hope you enjoy the show today and Tuesday. Visit our "Bond Fund Symposium 2022 Download Center" for materials and recordings.)

The comment letter tells us, "Northern Trust Investments, Inc. is the primary U.​S. investment adviser of NTAM and is one of the nation'​s largest sponsors of MMFs. As of December 31, 2021, registered MMFs sponsored by NTI and operating under Rule 2a-​7 under the Act had approximately $​218 billion in net assets, all of which were in 'government MMFs' (​as defined in Rule 2a-​7). NTAM offers a range of liquidity solutions, including tax-​exempt, prime and government cash management solutions across mutual funds, CITs, UCITS and separately managed accounts. Because of the importance of the liquidity solutions that NTAM offers to our clients, NTAM welcomes this opportunity to engage constructively with the Commission regarding regulatory reform measures for MMFs."

It explains, "NTAM'​s views on the proposed amendments are summarized below: It is highly unlikely that NTAM will reenter the institutional prime or institutional tax-​exempt MMF markets. Swing pricing, together with increased liquidity requirements, if adopted, will reduce the utility of the money market fund vehicle to such an extent that the product will no longer be viewed by investors as an attractive investment option and will no longer serve many of its intended valuable cash management functions."

Northern comments, "Converting to a floating net asset value, rather than implementing mechanisms that reduce the number of fund shares outstanding, is an appropriate solution in a negative interest rate environment. The current regulatory framework applicable to government MMFs should be preserved, and should not be altered in response to perceived challenges related to other types of MMFs. Furthermore, NTAM supports MMF reform efforts that increases transparency for investors and preserves cash management options. NTAM, however, urges the Commission to reassess and balance the need for certain investor-​specific information, as proposed, with the paramount need to protect investor privacy."

They state, "In 2020, NTAM initiated a thoughtful progression of modifications to its MMF lineup by exiting the prime and tax-​exempt MMF sectors, a process that began in May 2020 with the closure of NTAM'​s institutional prime MMF, the Northern Institutional Funds - Prime Obligations Portfolio. NTAM'​s MMF product lineup changes were grounded in (​1) shifting investor preferences, (​2) the expectation of punitive MMF regulatory changes, and (​3) NTAM'​s views on interest rates. More specifically, our MMF lineup changes were influenced by the following NTAM views: Investors should be compensated for the risks they take, and NTAM is committed to delivering investment products and solutions that fit our investor-​centric approach."

Northern adds, "Future MMF regulatory changes have the potential to make prime and tax-​exempt MMFs unattractive to investors through unnecessary complexity and without compensating for the investment risk, especially in low interest rate environments. Government MMFs are the optimal solution for investors' immediate operational cash needs. The proposed amendments to Rule 2a-​7 that would require swing pricing for institutional prime and tax-​exempt MMFs and impose increased liquidity requirements further reinforces NTAM'​s decision to exit the prime and tax-​exempt MMF markets and, if adopted, makes it highly unlikely that NTAM will reenter the institutional prime and tax-​exempt MMF markets."

They also write, "As more fully explained below, NTAM does not view the removal of liquidity fees and redemption gates from Rule 2a-​7 as offsetting the new proposed swing pricing and increased liquidity requirements in a manner that would make prime and tax-​exempt MMFs appealing to investors or fund sponsors. In short, NTAM does not support the proposed amendments to Rule 2a-​7 that would require swing pricing for institutional prime and tax-​exempt MMFs and increased liquidity thresholds."

The letter explains, "As evidenced during March 2020, access to liquidity remains of primary importance to investors. Even though no MMF imposed a liquidity fee or redemption gate, the mere possibility of a fee or gate was a contributing factor in the level of MMF redemptions as certain MMFs' level of weekly liquid assets decreased closer to 30% of the MMF'​s total assets (​the level at which a board of directors/​trustees has discretion to impose a liquidity fee or redemption gate)."

It states, "Our clients use MMFs for a variety of purposes, ranging from overnight '​sweeps' of available cash for short-​term yield, to pools of readily available cash to meet business operating expenses or investment needs, to longer-​term strategic allocations of excess cash. It is vitally important that any additional regulatory requirements adequately consider the essential priorities of both retail and institutional investors to have readily available, predictable access to MMFs to meet their various cash management and liquidity needs. As further discussed below, NTAM expects that the proposed amendments will cause the prime and tax-​exempt MMF sector to continue to decline, causing corporate and municipal borrowers to continue their move towards other sources of short-​term funding, further reinforcing NTAM'​s view of government MMFs as the optimal solution for investors' immediate operational cash needs."

Northern says, "Regarding swing pricing specifically, NTAM views swing pricing as adding further complexities and operational challenges to institutional prime and tax-​exempt MMFs that significantly diminish the benefits of principal preservation and liquidity access, both of which are core tenets valued by investors in cash management vehicles. As a result, the institutional prime and tax-​exempt MMF product will no longer serve many of its intended cash management functions that investors seek and value and will no longer be viewed by investors as an attractive investment vehicle to help manage their important cash management needs. Instead, NTAM believes that a clear and consistent approach to any anti-​dilution mechanism would benefit investors and fund sponsors."

Finally, they comment on disclosures, "Although similar information is required to be disclosed in a MMF'​s registration statement on an annual basis, NTAM believes monthly reporting of this information may cause investors to adjust holdings as of month end to avoid public disclosure of their MMF holdings. This investor specific disclosure item could therefore increase MMF redemption activity in a manner that does not serve the Commission'​s objectives of MMF reform. With respect to investors monitoring MMF liquidity levels, NTAM notes that investors will continue to have access to publicly available information about MMFs' historical net flows as well as current liquidity levels on a MMF'​s website. This information, which is required to be reported on a daily basis, provides a sufficient basis for investors to monitor redemption risks without the need for additional disclosure of shareholders that own more than 5% of shares as of month end. Revising the proposed reporting requirements to be reported on a confidential basis will still enable the Commission to collect and aggregate data and monitor a MMF'​s potential risk of redemption by an individual or small group of investors, but will protect investor privacy and confidentiality."

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The ICI published the study, "Trends in the Expenses and Fees of Funds, 2021." It tells us, "Average expense ratios for money market funds fell 9 basis points from 0.​21 percent in 2020 to 0.​12 percent in 2021. Fund advisers' use of expense waivers remained high in 2021 as the Federal Reserve kept short-​term interest rates at near-​zero levels." Shelly Antoniewicz, ICI'​s senior director of industry and financial analysis, comments, "As the fund industry meets the demands of cost-​conscious investors, competition continues to push down on the expense ratios of mutual funds and exchange-​traded funds ... and investors continue to concentrate their assets in lower-​cost funds when they invest." (Note: ICI'​s Antoniewicz will speak Monday at our Bond Fund Symposium in Newport Beach, Calif., along with our Peter Crane, on "The State of the Bond Fund Market." We look forward to seeing some of you Monday!)

ICI explains, "On an asset-​weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past 25 years. In 1996, equity mutual fund investors incurred expense ratios of 1.​04 percent, on average, or $​1.​04 for every $​100 in assets. By 2021, that average had fallen to 0.​47 percent. Hybrid and bond mutual fund expense ratios have also declined since 1996. The average ... bond mutual fund expense ratio fell from 0.​84 percent to 0.​39 percent. The average expense ratio for money market funds dropped from 0.​52 percent to 0.​12 percent over this period."

The section on "Money Market Funds" (​page 23) tells us, "The average expense ratio of money market funds fell 9 basis points from 0.​21 percent in 2020 to 0.​12 percent in 2021.... Over the past decade, developments that stemmed from changes in short-​term interest rates have been the primary factors affecting average money market fund expense ratios."

It says, "​Over 2008–​2009, the Federal Reserve sharply reduced short-​term interest rates. By 2009, the federal funds rate was hovering at a little more than zero. Gross yields on taxable money market funds (​the yield before deducting the fund'​s expense ratio) -- which closely track short-​term interest rates -- fell to all-​time lows. This situation continued from 2010 to late 2015."

ICI writes, "In this environment, most money market funds adopted expense waivers to ensure that net yields (​the yield on a fund after deducting fund expenses) did not fall below zero. With an expense waiver, a fund'​s adviser agrees to absorb the cost of all or a portion of a fund'​s fees and expenses for some time. The expense waiver, by reducing the fund'​s expense ratio, boosts the fund'​s net yield. These expense waivers are costly for fund advisers, reducing their revenues and profits."

They state, "From 2009 to 2015, advisers waived an estimated $​36 billion in money market fund expenses. It was expected that when short-​term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat."

ICI continues, "​That, ultimately, is what happened. In December 2015, the Federal Reserve raised the federal funds rate by 0.​25 percent, signifying a strengthening economy; it was raised eight more times from 2016 to 2018, each time by 0.​25 percent. In 2019, however, this trend reversed -- as global trade tensions grew more uncertain and expectations around future global growth fell, the Federal Reserve lowered the federal funds rate three times. These actions were reflected in short-​term interest rates and gross yields on money market funds."

They add, "​In 2020, the Federal Reserve slashed the federal funds rate again as the COVID-​19 pandemic effectively shut down the global economy. With short-​term interest rates at nearly zero by the end of April 2020, it became more likely that the net yields of money market funds could fall below zero. Consequently, advisers reinstituted the expense waivers they had provided to their money market funds in the ultralow interest rate environment that persisted from 2009 through 2015. In 2021, the federal funds rate continued to hover close to zero and an average 97 percent of money market fund share classes provided expense waivers. As such, the expenses waived by money market funds increased sharply from an estimated $​3.​1 billion in 2020 to an estimated $​8.​4 billion in 2021."

In related news, ICI'​s latest "Money Market Fund Assets" report shows assets flat after falling sharply for two weeks in a row. Year-​to-​date, MMFs are down by $​144 billion, or -​3.​1%, with Institutional MMFs down $​112 billion, or -​3.​4% and Retail MMFs down $​33 billion, or 2.​2%. Over the past 52 weeks, money fund assets have increased by $​113 billion, or 2.​5%, with Retail MMFs falling by $​62 billion (-​4.​2%) and Inst MMFs rising by $​175 billion (​5.​9%).

ICI'​s weekly release says, "Total money market fund assets increased by $​1.​95 billion to $​4.​56 trillion for the week ended Wednesday, March 23, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​1.​81 billion and prime funds increased by $​3.​50 billion. Tax-​exempt money market funds increased by $​268 million." ICI'​s stats show Institutional MMFs increasing $​4.​1 billion and Retail MMFs decreasing $​2.​2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​050 trillion (​88.​9% of all money funds), while Total Prime MMFs were $​424.​1 billion (​9.​3%). Tax Exempt MMFs totaled $​86.​2 billion (​1.​9%).

ICI explains, "Assets of retail money market funds decreased by $​2.​17 billion to $​1.​44 trillion. Among retail funds, government money market fund assets decreased by $​2.​04 billion to $​1.​16 trillion, prime money market fund assets decreased by $​736 million to $​196.​89 billion, and tax-​exempt fund assets increased by $​607 million to $​76.​64 billion." Retail assets account for just under a third of total assets, or 31.​5%, and Government Retail assets make up 80.​9% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $​4.​12 billion to $​3.​12 trillion. Among institutional funds, government money market fund assets increased by $​223 million to $​2.​89 trillion, prime money market fund assets increased by $​4.​24 billion to $​227.​21 billion, and tax-​exempt fund assets decreased by $​340 million to $​9.​51 billion." Institutional assets accounted for 68.​5% of all MMF assets, with Government Institutional assets making up 92.​4% 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.)

​

On Monday, we excerpted from a Federal Reserve Bank of New York report, "Money Market Fund Vulnerabilities: A Global Perspective." (​See our March 21 News, "NY Fed Paper: Money Market Fund Vulnerabilities: A Global Perspective.") Today, we quote from the section involving "MMF origins," which includes an excellent history on money market funds globally. They tell us, "MMFs were first introduced in the United States and then in France to offer investors money market rates of interest when bank deposit rates were capped by regulation. As such, from their origins, MMFs straddled the functions of bank deposits and investment funds.... MMFs were invented in the United States and first approved by the U.​S. Securities and Exchange Commission (​SEC) in September 1972. The first MMFs were intended to give investors with modest wealth -- including small businesses -- access to money market yields, as bank interest rates were capped at the time by Federal Reserve Regulation Q, and Treasury bills (​which were a popular means of earning market rates) were subject to $​10,​000 minimum investments. From the beginning, U.​S. MMFs were designed to mimic deposit features, with many funds maintaining stable share prices (​that is, net asset values per share, or NAVs) fixed at $​1 or $​100. By 1974, Fidelity was offering check writing privileges for its MMFs."

The paper explains, "By straddling the functions of bank deposits and investment funds, MMFs gained popularity but also stirred controversy. Assets in MMFs grew from $​1.​7 billion in 1974 to $​220 billion in 1982 -- that is, from 5 percent to 74 percent of all U.​S. mutual fund assets.... The banking industry saw MMFs, which were already 10 percent of the size of bank deposits by 1982, as an end-​run around bank regulations and a competitive threat. Banks mounted campaigns at the federal and state levels to reign in MMFs and liberalize deposit-​rate policy. Only the latter was successful: Bank deposit-​rate ceilings were effectively eliminated in 1986. Thus, MMFs survived and had a key role in giving middle-​class investors access to competitive short-​term interest rates."

It continues, "Meanwhile, within three years of approving the first MMFs, the SEC was already expressing concerns about practices that foreshadowed the vulnerabilities of MMFs. The SEC in 1975 and 1977 noted '​deficiencies' in MMFs' use of amortized (​historical) cost for valuing portfolio assets and stated that use of amortized cost -- which to this day helps MMFs in many countries maintain stable NAVs -- might advantage redeeming investors over others: 'The Commission is concerned that the use of the amortized cost method ... may result in overvaluation or undervaluation of the portfolios of [​MMFs] ... [​so that] investors purchasing or redeeming shares could pay or receive more or less than the actual value of their proportionate shares of the funds' current net assets. The effect of such sales or redemptions may therefore result in inappropriate dilution of the assets and returns of existing shareholders.'"

The Staff Report says, "Based on these considerations, the SEC in 1977 stated that amortized cost would be inappropriate '​under all but very limited circumstances'.... Nonetheless, after many MMFs sought to use amortized cost, the SEC changed direction. In 1983, it adopted Rule 2a-​7, which allowed funds to use amortized cost and NAV rounding to maintain stable share prices if they adhered to certain restrictions, including holding only short-​term assets that present '​minimal credit risks' and limiting portfolio average maturity to no more than 120 days (​SEC, 1983). Over the next decade, the U.​S. MMF industry tripled in size to more than $​500 billion in assets under management. Today, the U.​S. MMF sector is still the world'​s largest, with AUM of over $​5 trillion."

Discussing "France," they write, "The first European MMFs were created in France for regulatory arbitrage purposes similar to those that spurred development of the U.​S. industry. In 1981, a large share of French term deposits became subject to an interest rate cap, as the government sought to reduce bank funding costs. To avoid losing clientele, banks bypassed the rate caps by setting up MMFs through their asset management affiliates to offer money market yields to investors. Initially, MMFs invested mostly in short-​term government debt, but deregulation in the mid-​1980s and the opening of French capital markets allowed MMFs to invest more in private short-​term debt instruments, such as commercial paper (​CP) and certificates of deposit (​CDs). Demand for MMFs expanded due to favorable changes to the tax code in 1989 ... and the introduction in the early 1990s of new types of '​dynamic' MMFs with higher credit risk and longer portfolio maturities. By 1993, total assets of French MMFs had reached almost €​240 billion... and accounted for more than 60 percent of the French open-​end investment (​mutual) fund industry."

The study states, "Unlike their U.​S. counterparts, French MMFs all had variable net asset values (​VNAVs, or '​floating' NAVs), as so-​called '​constant' NAVs (​CNAVs) -- equivalent to the stable NAVs that prevailed in the United States -- were prohibited. French MMFs were permitted to use amortized cost to value assets with less than three months to maturity in part because of very limited secondary market activity for these assets and hence the lack of adequate market data to value them."

On "Luxembourg and Ireland," they summarize, "In addition to France, Ireland and Luxembourg have become major domiciles for European MMFs. MMFs have remained relatively small in most other European countries, where they are mainly targeted at retail investors. Luxembourg has long been a hub for European mutual funds, and MMFs first appeared there in the late 1980s. Early MMFs in Luxembourg were VNAV funds patterned on French MMFs but with tax advantages that allowed them to invest economically in a broader range of (​non-​French) assets. Tax advantages also encouraged investment by residents of other European countries, such as Germany and Spain.... In addition, Luxembourg developed a U.​S. dollar (​USD) MMF sector with CNAV funds mainly targeted at non-​resident institutional investors, who were mostly outside of Europe."

The piece continues, "Ireland'​s first MMFs were a CNAV USD government fund and a USD prime fund opened in 1991 and 1993, respectively, by Federated, a U.​S. asset management firm. Moreover, many of the Irish-​domiciled management companies that offered additional Irish MMFs belonged to U.​S. asset management groups. Like most other European mutual funds, Irish MMFs complied with European UCITS rules. At the same time, they largely adhered to U.​S. MMF rules and guidelines from credit rating agencies (​CRAs), as there was no European regulatory framework specifically for MMFs before 2018 and the funds were offered largely to non-​resident institutional investors, who were familiar with U.​S. rules and credit ratings. Hence, an AAA money market fund rating from a CRA was initially seen as a prerequisite for authorization of an Irish MMF. Up to this day, almost all Irish MMFs offer a stable NAV. Most MMFs in Ireland have been issued in foreign currencies (​mainly USD and sterling), reflecting their foreign investor bases. Luxembourg MMFs are denominated in a mix of USD, euros, and sterling."

Then on "Japan," the report tells us, "Money management funds (​JMMFs) were introduced in Japan in 1992 and marketed as a safe but higher-​yielding alternative to bank deposits. JMMFs maintained stable Y10,​000 NAVs, even though these funds had virtually no safeguards like those that limited risk in U.​S. or European funds.... Within two years of their introduction, JMMFs had Y12 trillion in AUM and accounted for more than a quarter of the Japanese mutual fund sector, but, as discussed below, a run on these funds beginning in late 2001 nearly wiped them out. A second, safer type of money fund, the money reserve fund (​MRF), which first became available in 1997, did have credit quality restrictions. MRFs were used in customer securities trading accounts at broker-​dealers for settlement purposes and as a place to temporarily invest cash."

After mentioning "South Africa," the paper discusses "China," saying, "MMFs were first introduced in China in 2003. As was the case in the United States and France, MMF growth in China was driven, particularly after 2010, by below-​market caps on bank deposit rates and an easing of portfolio restrictions for MMFs in 2011.... Growth in recent years has been propelled by linkages between MMFs and major e-​commerce platforms, such as Alibaba, Baidu, and Tencent.... The Chinese MMF sector is now the second largest in the world, with $​1.​4 trillion in AUM as of mid-​2021."

Finally, they add, "Chinese MMFs mostly maintain stable NAVs, with sponsor support expected when the MMF portfolio experiences small losses (​IMF, 2017), and are held by a mix of retail and institutional investors. Unlike their counterparts in the United States and Europe, MMFs in China regularly employ leverage, largely by using repo financing."

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The Investment Company Institute published, "Worldwide Regulated Open-​Fund Assets and Flows, Fourth Quarter 2021," which shows that money fund assets globally surged by $​383.​0 billion, or 4.​5%, in Q4'​21 to $​8.​833 trillion. The big increase was driven by gains in money funds in the U.​S., Ireland, Luxembourg and China. Meanwhile, money funds in Brazil, Korea and Japan decreased. MMF assets worldwide increased by $​519.​0 billion, or 6.​2%, in the 12 months through 12/​31/​21, and money funds in the U.​S. represent 53.​8% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: We'​re still taking registrations to our upcoming Bond Fund Symposium, March 28-​29 in Newport Beach, Calif. See you Monday!)

ICI'​s release says, "Worldwide regulated open-​end fund assets increased 3.​9 percent to $​71.​05 trillion at the end of the fourth quarter of 2021, excluding funds of funds. Worldwide net cash inflow to all funds was $​1.​1 trillion in the fourth quarter, compared with $​794 billion of net inflows in the third quarter of 2021. The Investment Company Institute compiles worldwide regulated open-​end fund statistics on behalf of the International Investment Funds Association (​IIFA), the organization of national fund associations. The collection for the fourth quarter of 2021 contains statistics from 46 jurisdictions."

It explains, "The growth rate of total regulated open-​end fund assets reported in US dollars was decreased by US dollar appreciation over the fourth quarter of 2021. For example, on a US dollar–​denominated basis, fund assets in Europe increased by 2.​6 percent in the fourth quarter, compared with an increase of 4.​9 percent on a euro-​denominated basis."

ICI'​s quarterly continues, "​On a US dollar–​denominated basis, equity fund assets increased by 5.​6 percent to $​33.​64 trillion at the end of the fourth quarter of 2021. Bond fund assets increased by 0.​6 percent to $​13.​72 trillion in the fourth quarter. Balanced/​mixed fund assets increased by 3.​3 percent to $​8.​78 trillion in the fourth quarter, while money market fund assets increased by 3.​7 percent globally to $​8.​83 trillion."

The release also tells us, "​At the end of the fourth quarter of 2021, 47 percent of worldwide regulated open-​end fund assets were held in equity funds. The asset share of bond funds was 19 percent and the asset share of balanced/​mixed funds was 12 percent. Money market fund assets represented 12 percent of the worldwide total."

ICI adds, "​Net sales of regulated open-​end funds worldwide were $​1.​1 trillion in the fourth quarter of 2021.... Globally, bond funds posted an inflow of $​235 billion in the fourth quarter of 2021, after recording an inflow of $​337 billion in the third quarter.... Money market funds worldwide experienced an inflow of $​308 billion in the fourth quarter of 2021 after registering an inflow of $​22 billion in the third quarter of 2021."

According to Crane Data'​s analysis of ICI'​s "​Worldwide" fund data, the U.​S. sustained its position as the largest money fund market in Q4'​21 with $​4.​756 trillion, or 53.​8% of all global MMF assets. U.​S. MMF assets increased by $​213.​1 billion (​4.​7%) in Q4'​21 and have increased by $​422.​4 billion (​9.​7%) in the 12 months through Dec. 31, 2021. China remained in second place among countries overall. China saw assets jump $​28.​4 billion (​1.​9%) in Q4, to $​1.​490 trillion (​16.​9% of worldwide assets). Over the 12 months through Dec. 31, 2021, Chinese MMF assets have surged by $​255.​9 billion, or 20.​7%.

Ireland remained third among country rankings, ending Q4 with $​727.​1 billion (​8.​2% of worldwide assets). Dublin-​based MMFs were up $​53.​8B for the quarter, or 8.​0%, and down $​28.​8B, or -​3.​8%, over the last 12 months. Luxembourg remained in fourth place with $​502.​3 billion (​5.​7% of worldwide assets). Assets there increased $​23.​9 billion, or 5.​0%, in Q4, and were down $​6.​3 billion, or -​1.​2%, over one year. France was in fifth place with $​427.​2B, or 4.​8% of the total, up $​14.​4 billion in Q4 (​3.​5%) and down $​54.​2B (-​11.​3%) over 12 months.

Australia was listed in sixth place with $​242.​2 billion, or 2.​7% of worldwide assets. Its MMFs decreased by $​837 million, or -​0.​3%, in Q4. Japan, the 7th ranked country, saw MMF assets decrease $​4.​8 billion, or -​3.​8%, in Q4'​21 to $​120.​8 billion (​1.​4% of the total); they'​ve decreased $​11.​5 billion (-​8.​7%) for the year. Korea was in 8th place with $​114.​2 billion (​1.​3%); assets there fell $​6.​3 billion (-​5.​2%) in Q4 and decreased by $​2.​0 billion (-​1.​7%) over 12 months. Brazil was in 9th place, assets decreased $​11.​8 billion, or -​11.​8%, to $​88.​3 billion (​1.​0% of total assets) in Q4. They'​ve decreased $​4.​2 billion (-​4.​5%) over the previous 12 months. ICI'​s statistics show Mexico back in 10th place with $​69.​7B, or 0.​8% of total assets, up $​5.​4 billion (​8.​4%) for the year. (​Mexico didn'​t report last quarter.)

India was in 11th place, increasing $​4.​6 billion, or 7.​8%, to $​64.​0 billion (​0.​7% of total assets) in Q4 and decreasing $​190 million (-​0.​3%) over the previous 12 months. Chinese Taipei ($​31.​0B, down $​2.​3B and down $​5.​6B over the quarter and year, respectively) ranked 12th ahead of United Kingdom. ($​29.​8B, up $​693M and up $​564M). Canada ($​26.​1B, down $​247M and down $​6.​7B) and South Africa ($​23.​4B down $​866M and down $​6.​4B), rank 14th and 15th, respectively. Switzerland, Chile, Norway, Argentina, and Germany round out the 20 largest countries with money market mutual funds.

ICI'​s quarterly series shows money fund assets in the Americas total $​4.​986 trillion, up $​275.​6 billion in Q4. Asian MMFs increased by $​19.​3 billion to $​2.​074 trillion, and Europe saw its money funds increase by $​88.​9 billion in Q4'​21 to $​1.​750 trillion. Africa saw its money funds decrease $​866M to $​23.​4 billion.

Note that Ireland and Luxembourg'​s totals are primarily "​offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'​d like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI'​s data. (Let us know too if you'​d like to see our latest Money Fund Intelligence International product, which tracks "​offshore" money market funds domiciled in Europe and outside the U.​S.)

​

Federated Hermes President & CEO J. Christopher Donahue spoke at the 2022 RBC Capital Markets Global Financials Conference two weeks ago (​prior to the Fed'​s 1/​4-​point rate hike), and discussed fee waivers, money fund asset growth and a number of other topics. We quote from this webinar below. (Note: Registered attendees to our upcoming Bond Fund Symposium conference, which takes place March 28-​29 in Newport Beach, Calif, and Crane Data clients may access the latest BFS materials (​and recordings afterwards) via our "Bond Fund Symposium 2022 Download Center." See you in California next week!)

RBC Capital Markets' host Kenneth Lee comments, "The negative impact from minimum yield fee waivers are expected to decline rapidly over the next few quarters.... What would you highlight as factors that could impact guidance either to the upside or to the downside?" Donahue responds, "​Okay, let'​s just review from the earnings call what we said about the negative impact on operating income from minimum yield waivers. In the fourth quarter, it was about $​38 million. We expected Q1 to improve about to $​22 million. Then if you have the 25-​basis point rate increase here next week [​which happened] ... we would expect in Q2 to go down about 90% or improve by 90% of the $​22 million, basically almost wiping it out. Of course, these expectations are based on 100 things ... yields, asset levels, war and peace, ... and every other factor known to man."

He continues, "Powell said last week he wants 25, which our CIO has been saying for a long time.... So, we'​re thinking they'​re going to do twenty-​five, and other rates have moved up into in anticipation of that. If you look at the 3-​month T-​bill that averaged about 5 bps in the fourth quarter. Now they'​re in the mid-​30s [​bps]. And if you look at the 6-​month bills, they averaged 6 bps, now they'​re up to around 70 bps. That repo rate won'​t move until the Fed moves. And that'​s what goes on."

Donahue tells the RBC event, "​So then as to the future, what we like, we like ... the 25s.... The first 25 [​hike] basically wipes out the majority of the waivers. But it also enables a money market fund to catch up to spot rate faster than 50 or even higher increase. And we believe that they are going to be on track to do the 25s. How many of them? [​At least] four to six. It all depends on who you'​re talking to. Changing that would change [​how] some of the interest rates [​shift]. But once we get the first increase, we'​re good to go in terms of the operating income."

Lee also says to Donahue, "Talk about your outlook for money market fund, AUM [​asset] growth this year." The Federated CEO replies, "Well, it is rising rates that drives the truck. But there are other factors too. For example, a total risk off scenario in the marketplace due to exogenous, black swan events, such as are going on over in Ukraine could cause people to want to get back into money funds. But I think to have this discussion, we'​ve got to look at the money markets overall the way we look at it our liquidity business. This includes both funds and separate accounts, and they were about $​435 billion recently, compared to $​448 billion at the start of the year. OK, that'​s down $​13 billion. What happened? The ... money market funds were down about $​20B and the separate accounts increased by about $​8B. That'​s what gives us the $​13B."

Donahue comments, "​So, you can see that that'​s being led down by the money funds. However, that basically just recaptures some seasonality and some activities on the money funds that occurred at the end of the year.... But what we think this really does is set the stage for increasing assets in up environments after a little time. Our history is that when there'​s rising rates, we do better on the AUM side. That is in large part because it'​s a cash management service that'​s paying the investor more. But it'​s also ... because the banks are managing their rates, and we’​re paying a market rate. They tend to manage their deposit betas so they have profitability, and we have no choice but to pay the market rate -- that'​s the way it works."

He explains, "One other thing that I'​d like to mention is that the overall liquidity levels in the whole system have been enhanced, both by the Fed in terms of QE and [​increasing] the money supply, and in terms of COVID response. All that jazz increases the amount of liquidity in the system, and the money market fund is just a percentage of the total liquidity in the system."

Donahue adds, "This has given us new opportunities in terms of talking to clients and coming up with solutions. We do a lot of portfolio construction work on the long side. But we find that there'​s a great interest among clients and solutions on the short side where people are really concerned about how short they are going to go with one- or two-​year period and how do they manage that. What'​s their portfolio construction look like on the short side? So, we obviously have the money funds, the micro-​short, the ultra-​short, the short-​intermediate and our low-​duration products, and we'​ve been pretty good at coming up with answers, solutions and higher-​quality type discussions with clients on these matters. So, basically if you talk to the salespeople or guys like me, we think assets will be up by year end."

When asked about "the competitive dynamics to unfold between money market funds and competing bank deposits," Donahue answers, "​Well, what is said is the banks don'​t want them ... however we don'​t have a lot of evidence they actually turn the deposits away. So, what'​s going on? They'​re pricing them for profitability. And so therefore, even though the bank deposits tend to go up at various times, we tend to have a great rate advantage over them, especially if rates increase. And if you look at the last few cycles ... it'​s been pretty, pretty dramatic, which lights up the beauty of the cash management service called the money market fund."

Finally, he states, "Another thing that goes on is the extent to which the banks say they don'​t and really don'​t want the deposits because of capital issues and other things. They will use the money fund, a lot like squishing a balloon. So, this ... allows [​excess cash] to go into a money fund, and then if they want it back on the balance sheet, that is good. This has been going on since I was selling mutual money market funds to bank trust departments in the '​70s, which is the Stone Age, but it'​s the same act all over again."

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The Federal Reserve Bank of New York published a "Staff Report" entitled, "Money Market Fund Vulnerabilities: A Global Perspective." Written by ESMA'​s Antoine Bouveret, the NY Fed'​s Antoine Martin and the Federal Reserve Board of Governor'​s Patrick McCabe, the Abstract explains, "Money market funds (​MMFs) are popular around the world, with over $​9 trillion in assets under management globally. From their origins in the 1970s, MMFs have operated in a niche between the capital markets and the banking system, as investment funds that offer private money-​like assets with features similar to those of bank deposits. Hence, they are vulnerable to runs that arise from liquidity transformation and from sudden changes in investor perceptions of the funds' ability to serve as money-​like assets. Since 2000, MMF runs have occurred in many countries and under many regulatory regimes. The global pattern of runs and crises shows that MMF vulnerabilities are not unique to a particular set of governing arrangements, and that mitigating these vulnerabilities requires fundamental reforms that either place MMFs more clearly within the investment-​fund sector or establish protections for MMFs similar to those for deposits." (Note: There'​s just one week until our Bond Fund Symposium conference, which takes place March 28-​29 in Newport Beach, Calif! We look forward to seeing some of you in LA next week!)

The paper tells us, "Money market funds (​MMFs) are mutual funds – that is, open-​end collective investment funds -- that invest primarily in short-​term instruments and aim to maintain stable, or near-​stable, share prices. MMFs were first created in the United States and then in France to offer investors money market rates of interest when bank deposit rates were constrained by regulatory caps. From their origins, MMFs operated in the niche between the capital markets and the banking system, as investment funds that offered private money-​like assets with features similar to those of bank deposits. Even the earliest funds in the United States were designed to blend investment and deposit features, such as share prices rounded to $​1.​00 and check-​writing privileges, and rounded share prices were adopted in some other countries. MMFs today are popular around the world, with over $​9 trillion in assets under management (​AUM) as of mid-​2021, about 13 percent of global mutual fund assets."

It says, "However, MMFs are also vulnerable to disruptive waves of redemptions and runs. MMFs, like other investment funds, are not eligible for the protections provided to modern bank deposits, including public backstops such as deposit guarantee schemes and routine central bank liquidity support. Hence, the money-​like features of MMFs have made them vulnerable -- just as bank deposits historically were -- to runs that arise from liquidity transformation and from sudden changes in investor perceptions of the funds' moneyness. Rapid growth of the MMF industry, increasing use of MMFs by institutional investors for cash management, larger footprints in the short-​term funding markets that contribute to contagion risk, and cross-​border investing have heightened vulnerabilities."

The report continues, "Since 2000, MMF runs and other crises have occurred in many countries and under many regulatory regimes, with early strains mostly due to poor management of credit or interest-​rate risks but more recent runs arising from liquidity transformation. For the most part, the crises have occurred among MMFs that invest in private-​debt instruments, such as U.​S. prime funds that hold commercial paper and bank obligations. After these crises, authorities have often modified MMF rules to prevent recurrence of the problems just observed and with the intention of mitigating broader vulnerabilities. The severe repercussions of runs on MMFs during the global financial crisis and at the onset of the COVID-​19 pandemic, and the need for central bank interventions, as well as taxpayer support in some instances, have led to calls for significant additional reforms to limit the risk MMFs pose to financial stability. The global pattern of runs and crises shows that MMF vulnerabilities are not unique to a particular set of governing arrangements, and that mitigating these vulnerabilities requires structural reforms that either place MMFs more clearly within the investment-​fund sector or establish protections for MMFs similar to those for deposits."

It adds, "Although this paper focuses on MMFs, other nonbank financial institutions use liquidity transformation to offer money-​like features to investors and hence may be vulnerable to runs. Examples include private liquidity funds and bank-​sponsored short-​term investment funds (​STIFs) in the United States and the rapidly growing worldwide stablecoin sector."

Discussing "MMF vulnerabilities and their significance," the authors comment, "The vulnerabilities of MMFs have been extensively described and documented, both in academic research and in official publications. Academic research was largely silent on MMF risks until the Global Financial Crisis (​McCabe, 2010), but the run on MMFs in 2008 prompted a wave of studies of factors that contributed to redemptions (​see, for example, Baba, McCauley, and Ramaswamy, 2009; McCabe, 2010; Kacperczyk and Schnabl, 2013; Schmidt, Timmermann, and Wermers, 2016). Additional research has focused on the factors behind heavy redemptions from U.​S. MMFs during the 2011 European debt crisis (​Chernenko and Sunderam, 2014) and amidst the runs on MMFs at the outset of the COVID-​19 pandemic (​Li, Li, Macchiavelli, and Zhou, 2021; Cipriani and La Spada, 2020). Other papers focused more specifically on vulnerabilities and policy proposals to address them (​for example, McCabe, Cipriani, Holscher, and Martin, 2013; Hanson, Scharfstein, and Sunderam, 2015)."

They state, "Government authorities and international organizations have also weighed in with a focus primarily on developing and analyzing proposals for reforms that might mitigate MMF vulnerabilities. These include official publications in the wake of the 2008 crisis (​PWG, 2010; FSOC, 2012; SEC, 2013; EC, 2012; IOSCO, 2012) as well as after the March 2020 money market stress (​PWG, 2020; ESMA, 2021, 2022; FSB, 2021; ESRB, 2021, 2022; SEC, 2021). For example, the FSB'​s 2021 report on 'Policy Proposals to Enhance Money Market Fund Resilience' lists two types of vulnerabilities for MMFs: They are susceptible to sudden and disruptive redemptions, and they can face challenges in selling assets to meet heavy redemptions. The report also notes that the susceptibility to redemptions arises because the funds perform liquidity transformation, they are used for cash management, and they are exposed to credit risk."

The paper summarizes, "Here, we argue that MMF vulnerabilities have two fundamental sources: They perform liquidity transformation, and they serve as private money-​like assets that can -- like other such assets -- suddenly lose their '​moneyness.' Both can contribute to sudden redemptions, and together they make MMFs vulnerable to runs."

Finally, under "Policy implications and conclusions," the report explains, "​Operating in the niche between banking and investment funds, MMFs appear to offer the best of both worlds, with money-​like shares that pay market rates of interest. However, when crises have occurred, MMFs repeatedly have proven vulnerable and have failed to measure up to either the banking or the mutual fund models. Without the protections provided to bank deposits, the moneyness of MMFs is fragile. And, unlike the mutual fund model that disperses risks across a wide range of investors in proportion to their ownership of shares, MMF risks are disproportionately borne by non-​redeeming shareholders, and -- in some jurisdictions -- by sponsors and taxpayers."

It says, "The hybrid bank-​fund nature of MMFs suggests two approaches for addressing their vulnerabilities. One is the banking package: Insurance, access to lender-​of-​last resort liquidity, and supervision to mitigate moral hazard and protect taxpayers. A drawback of this approach is that the financial system already has banks. The mutual fund model, in which risks are borne by shareholders, offers a second approach (​McCabe, 2015). Mitigating vulnerabilities within the mutual fund model would require more novel policies to address liquidity transformation and the fragility of moneyness."

The economists also write, "The fundamental challenge of liquidity transformation is how to allocate a scarce, underpriced resource -- liquidity in a MMF -- efficiently. Currently, liquidity is provided at no charge to the first investors to redeem. Three approaches might be possible to address this problem: Increase liquidity enough so that it isn'​t scarce, by requiring that MMFs hold only WLA or government securities; ration liquidity among investors by delaying redemptions or imposing partial gates (​where investors can only redeem a fraction of their shares) to reduce the convertibility of shares to cash when liquidity is scarce; or price liquidity by introducing swing pricing or economically equivalent measures. Official publications by national and jurisdictional authorities and international bodies have assessed some of these options in detail (​PWG, 2020; ESMA, 2021, 2022; FSB, 2021; SEC, 2021)."

They state, "Making moneyness less fragile within the context of the mutual fund model -- which is designed to impose risks transparently, rather than create information-​insensitive, NQA assets -- is more challenging. One possible approach would be to outsource risks to third parties who are compensated accordingly. For example, investors outside the MMF could provide a capital buffer (​Hanson, Scharfstein, and Sunderam, 2015)."

The conclusion summarizes, "While some of these reform options for MMFs have been discussed for a decade or more, adopting robust structural reforms for MMFs has proven difficult. For example, the SEC'​s 2014 reforms came only after the Commission had failed to act in 2012 and the Secretary of the Treasury initiated a Financial Stability Oversight Council proposed recommendation for further reforms (​Geithner, 2012; FSOC, 2012). Moreover, reforms put in place in the prior decade in the United States and Europe proved insufficient to contain the runs in March 2020. The difficulty of implementing effective reforms reflects, at least in part, the benefits of MMFs as they are currently structured for broad constituencies of investors, issuers, and asset managers and the implicit subsidies they receive from central bank support when MMF runs occur. Indeed, recent comment letters from the MMF industry express near-​universal opposition to all structural reform options, including swing pricing and capital buffers. So, meaningful mitigation of MMF vulnerabilities is likely to continue to be a challenge for policymakers."

It adds, "​Finally, MMFs are not the only institutions with these vulnerabilities. Any vehicle that engages in liquidity transformation to provide money-​like services presents similar challenges. In the United States, for example, private liquidity funds and bank-​sponsored short-​term investment funds (​STIFs) have similar features. Worldwide, the explosive growth of stablecoins, which aim to offer not only stable value and liquidity but also access to the payments system, all backed by assets that are likely to become illiquid in crises, suggests that policymakers may have a new challenge on their hands."

​

The Secretary of the Commonwealth of Massachusetts, William Galvin, who oversees securities regulation, issues a press release entitled, "With Rates Rising, Galvin Investigates Whether Investors Are Being Shortchanged," which takes a swipe at low rates paid in brokerage sweep accounts. It says, "Concerned that investors will be facing all of the negative impacts of rising interest rates without seeing any of the positives, Secretary of the Commonwealth William F. Galvin has directed his Securities Division to investigate whether Massachusetts investors are being ill-​served by brokers and their in-​house and affiliated banks refusing to raise interest rates paid to customers with sweep accounts." (Note: We'​re still taking registrations for our upcoming Bond Fund Symposium, March 28-​29 in Newport Beach, Calif! Tickets are $​750.)

The release continues, "The Federal Reserve announced ... that interest rates will be raised 0.​25%, and additional increases are expected later in the year. Galvin believes that with these rate hikes, consumers already struggling to cope with rising costs caused by inflation will also be faced with higher mortgage and credit card rates, while banks keep the interest rates on cash deposits low."

Galvin comments, "​Consumers are being squeezed right now.... They'​re being hit with the double-​whammy of higher credit card and loan rates on one end and low rates of interest on their bank accounts and other investments. It'​s simply unfair that consumers are being asked to pay more on credit cards and loans, while the banks are pocketing the interest rate hikes that should be earned on custodial money instead of raising interest rates for people who are trying to keep their savings."

The statement adds, "The inquiry being conducted by Galvin'​s Securities Division is regarding sweep accounts, which are often used by brokerage firms to hold an investor'​s money while it is waiting to be invested. The Division sent letters today to six broker-​dealers, inquiring about whether the firms intend to increase the rate of interest on the sweep accounts offered to their customers. Letters of inquiry were sent to TD Ameritrade, Merrill Lynch, LPL Financial, Ameriprise, Securities America, and SoFi." (Crane Data'​s Brokerage Sweep Intelligence publication, which tracks sweep rates paid by all the major brokerage firms, shows all of them yielding 0.​01% currently. Ask us if you'​d like to see our latest weekly issue.)

Barrons' also writes about the news in their piece, "Massachusetts' Top Securities Cop Wants to Know When Brokerages Will Raise Cash-​Account Yields." They comment, "​Now that the Federal Reserve has begun to raise interest rates, will brokerage firms raise the rates they pay investors in response? That'​s a question many investors are likely asking, and now Massachusetts' top securities regulator wants to know, too. Secretary of the Commonwealth William Galvin, who oversees the state'​s securities regulation division, has sent letters to six brokerages asking how they will respond to the Federal Reserve'​s quarter-​point rate increase announced Wednesday, widely seen as an opening salvo in a series of rate hikes expected to last at least through the end of the year."

They add, "In those letters, Galvin asks the firms if they intend to increase interest rates in sweep accounts, which he defines broadly as cash sweeps, money market mutual funds, bank deposits, or any other vehicle for holding uninvested cash. He asked each firm to provide a spreadsheet detailing the types of sweep accounts available to Massachusetts investors, along with all disclosure materials detailing fees and commissions, interest rates and yields, and risks and conflicts of interest, as well as any related revenue-​sharing agreements with third parties."

In other news, the Investment Company Institute'​s latest "Money Market Fund Assets" report shows assets falling sharply for the second week in a row after a huge jump at the end of February. Year-​to-​date, MMFs are down by $​146 billion, or -​3.​1%, with Institutional MMFs down $​117 billion, or -​3.​6% and Retail MMFs down $​30 billion, or 2.​0%. Over the past 52 weeks, money fund assets have increased by $​173 billion, or 3.​9%, with Retail MMFs falling by $​63 billion (-​4.​2%) and Inst MMFs rising by $​236 billion (​8.​2%).

ICI'​s weekly release says, "Total money market fund assets decreased by $​16.​89 billion to $​4.​56 trillion for the week ended Wednesday, March 16, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $​13.​05 billion and prime funds decreased by $​4.​51 billion. Tax-​exempt money market funds increased by $​669 million." ICI'​s stats show Institutional MMFs increasing $​28.​5 billion and Retail MMFs decreasing $​45.​4 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​052 trillion (​88.​9% of all money funds), while Total Prime MMFs were $​429.​1 billion (​9.​2%). Tax Exempt MMFs totaled $​85.​9 billion (​1.​9%). [Editor'​s note: Crane Data will be asking about these numbers, as the Retail outflow is abnormally large; we assume there must be some kind of reclassification.]

ICI explains, "Assets of retail money market funds decreased by $​45.​40 billion to $​1.​44 trillion. Among retail funds, government money market fund assets decreased by $​45.​34 billion to $​1.​17 trillion, prime money market fund assets decreased by $​469 million to $​197.​62 billion, and tax-​exempt fund assets increased by $​404 million to $​76.​04 billion." Retail assets account for just under a third of total assets, or 31.​6%, and Government Retail assets make up 81.​0% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $​28.​52 billion to $​3.​12 trillion. Among institutional funds, government money market fund assets increased by $​32.​29 billion to $​2.​89 trillion, prime money market fund assets decreased by $​4.​04 billion to $​222.​97 billion, and tax-​exempt fund assets increased by $​265 million to $​9.​85 billion." Institutional assets accounted for 68.​4% of all MMF assets, with Government Institutional assets making up 92.​5% 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.)

​

The Securities and Exchange Commission'​s latest monthly "Money Market Fund Statistics" summary shows that total money fund assets declined by $​29.​3 billion in February to $​5.​061 trillion (​after almost hitting a record two months prior). The SEC shows that Prime MMFs decreased by $​2.​7 billion in February to $​824.​3 billion, Govt & Treasury funds decreased $​25.​8 billion to $​4.​143 trillion and Tax Exempt funds decreased $​0.​8 billion to $​92.​8 billion. Gross yields and net yields for Taxable funds were higher in February. 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.

February'​s asset decrease follows a decrease of $​125.​1 billion in January, then 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 2/​28/​22, total MMF assets have increased by $​212.​9 billion, or 4.​4%, according to the SEC'​s series. (Note that the SEC'​s series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)

The SEC'​s stats show that of the $​5.​061 trillion in assets, $​824.​3 billion was in Prime funds, down $​2.​7 billion in February, 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.​3% of total assets at the end of February. They'​ve decreased by $​96.​4 billion, or -​10.​5%, over the past 12 months. (Month-​to-​date in March through 3/​16, total MMF assets have fallen by $​10.​1 billion, according to our MFI Daily.)

Government & Treasury funds totaled $​4.​143 trillion, or 81.​9% of assets. They decreased by $​25.​8 billion in February, $​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 $​326.​7 billion over 12 months, or 8.​9%. Tax Exempt Funds decreased $​0.​8 billion to $​92.​8 billion, or 1.​8% of all assets. The number of money funds was 312 in February, unchanged from the previous month and down 27 funds from a year earlier.

Yields for Taxable and Tax Exempt MMFs were mostly higher or flat in February. The Weighted Average Gross 7-​Day Yield for Prime Institutional Funds on February 28th was 0.​14%, up 2 bps from the prior month. The Weighted Average Gross 7-​Day Yield for Prime Retail MMFs was 0.​20%, up 2 bps from the previous month. Gross yields were 0.​11% for Government Funds, up 2 basis points from last month. Gross yields for Treasury Funds were up 5 bps at 0.​14%. Gross Yields for Tax Exempt Institutional MMFs were up 8 basis points to 0.​17% in February. Gross Yields for Tax Exempt Retail funds were up 13 bps to 0.​23%.

The Weighted Average 7-​Day Net Yield for Prime Institutional MMFs was 0.​10%, up 2 bps from the previous month and up 2 basis points from 2/​28/​21. The Average Net Yield for Prime Retail Funds was 0.​03%, up 1 bps from the previous month, and up a basis point since 2/​28/​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 up 4 bps from January to 0.​08%. Net Yields for Tax Exempt Retail funds were up 2 bps at 0.​03% in February. (​Note: These averages are asset-​weighted.)

WALs and WAMs were sharply lower in February. The average Weighted Average Life, or WAL, was 44.​6 days (​down 3.​8 days) for Prime Institutional funds, and 45.​6 days for Prime Retail funds (​down 0.​9 days). Government fund WALs averaged 73.​6 days (​down 3.​1 days) while Treasury fund WALs averaged 76.​8 days (​down 1.​3 days). Tax Exempt Institutional fund WALs were 11.​7 days (​down 2.​2 days), and Tax Exempt Retail MMF WALs averaged 20.​2 days (​down 1.​2 days).

The Weighted Average Maturity, or WAM, was 23.​4 days (​down 6.​4 days from the previous month) for Prime Institutional funds, 27.​3 days (​down 9.​1 days from the previous month) for Prime Retail funds, 26.​6 days (​down 3.​7 days from previous month) for Government funds, and 33.​4 days (​unchanged from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 2.​3 days to 11.​2 days, while Tax Exempt Retail WAMs decreased 1.​3 days to 19.​1 days.

Total Daily Liquid Assets for Prime Institutional funds were 53.​9% in February (​up 0.​4% from the previous month), and DLA for Prime Retail funds was 29.​1% (​up 0.​2% from previous month) as a percent of total assets. The average DLA was 80.​1% for Govt MMFs and 97.​9% for Treasury MMFs. Total Weekly Liquid Assets was 66.​6% (​up 1.​4% from the previous month) for Prime Institutional MMFs, and 44.​7% (​up 0.​5% from the previous month) for Prime Retail funds. Average WLA was 89.​9% for Govt MMFs and 99.​5% for Treasury MMFs.

In the SEC'​s "Prime Holdings of Bank-​Related Securities by Country table for Feb. 2022," the largest entries included: Canada with $​92.​9 billion, France with $​68.​0 billion, Japan with $​60.​1 billion, the U.​S. with $​41.​9B, Germany with $​35.​8B, the Netherlands with $​30.​3B, the U.​K. with $​29.​3B, Aust/​NZ with $​27.​8B and Switzerland with $​11.​6B. The gainers among the "Prime MMF Holdings by Country" included: the Netherlands (​up $​4.​4B), Germany (​up $​2.​0B), the U.​K. (​up $​0.​9B), Aust/​NZ (​up $​0.​1B) and Switzerland (​up $​0.​1B). Decreases were shown by: the U.​S. (​down $​7.​9B), Japan (​down $​4.​5B), Canada (​down $​3.​5 billion) and France (​down $​2.​0B).

The SEC'​s "Prime Holdings of Bank-​Related Securities by Region" table shows the Eurozone subset had $​153.​0B (​up $​5.​5B), while Europe (​non-​Eurozone) had $​97.​8B (​up $​3.​8B from last month). The Americas had $​134.​8 billion (​down $​11.​5B), while Asia Pacific had $​103.​3B (​down $​8.​0B).

The "​Prime MMF Aggregate Product Exposures" chart shows that of the $​818.​1B billion in Prime MMF Portfolios as of Feb. 28, $​273.​5B (​33.​4%) was in Government & Treasury securities (​direct and repo) (​down from $​282.​9B), $​229.​4B (​28.​0%) was in CDs and Time Deposits (​up from $​226.​9B), $​158.​9B (​19.​4%) was in Financial Company CP (​down from $​165.​1B), $​124.​2B (​15.​2%) was held in Non-​Financial CP and Other securities (​up from $​114.​7B), and $​31.​9B (​3.​9%) was in ABCP (​down from $​35.​1B).

The SEC'​s "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.​S. with $​128.​2 billion, Canada with $​120.​6 billion, France with $​142.​2 billion, the U.​K. with $​61.​9 billion, Germany with $​11.​4 billion, Japan with $​124.​4 billion and Other with $​29.​1 billion. All MMF Repo with the Federal Reserve was down $​28.​9 billion in February to $​1.​446 trillion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.​1%, Prime Retail MMFs with 4.​2%, Tax Exempt Inst MMFs with 0.​2%, Tax Exempt Retail MMFs with 2.​0%, Govt MMFs with 13.​2% and Treasury MMFs with 12.​2%.

​

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 March 11) includes Holdings information from 71 money funds (​down from 88 two weeks ago), which represent $​2.​561 trillion (​down from $​2.​908 trillion) of the $​4.​980 trillion (​51.​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 March 10 News, "March MF Portfolio Holdings Flat: Repo Inches Higher, Treasuries Lower," for more.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​1.​232 trillion (​down from $​1.​398 trillion two weeks ago), or 48.​1%; Treasuries totaling $​1.​022 trillion (​down from $​1.​118 trillion two weeks ago), or 39.​9%, and Government Agency securities totaling $​134.​1 billion (​down from $​159.​0 billion), or 5.​2%. Commercial Paper (​CP) totaled $​61.​7 billion (​down from two weeks ago at $​75.​8 billion), or 2.​4%. Certificates of Deposit (​CDs) totaled $​38.​7 billion (​up from $​50.​7 billion two weeks ago), or 1.​5%. The Other category accounted for $​48.​3 billion or 1.​9%, while VRDNs accounted for $​24.​9 billion, or 1.​0%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​1.​022 trillion (​39.​9% of total holdings), the Federal Reserve Bank of New York with $​750.​7B (​29.​3%), Fixed Income Clearing Corp with $​75.​6B (​2.​9%), Federal Home Loan Bank with $​60.​1B (​2.​3%), BNP Paribas with $​59.​9B (​2.​3%), Federal Farm Credit Bank with $​43.​6B (​1.​7%), RBC with $​41.​6B (​1.​6%), Societe Generale with $​31.​7B (​1.​2%), Barclays PLC with $​27.​8B (​1.​1%) and JP Morgan with $​22.​1B (​0.​9%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($​243.​4B), Goldman Sachs FS Govt ($​221.​0B), BlackRock Lq FedFund ($​164.​4B), Morgan Stanley Inst Liq Govt ($​144.​1B), Allspring Govt MM ($​129.​1B), Dreyfus Govt Cash Mgmt ($​127.​9B), Fidelity Inv MM: Govt Port ($​126.​6B), BlackRock Lq Treas Tr ($​119.​5B), BlackRock Lq T-​Fund ($​111.​4B) and Goldman Sachs FS Treas Instruments ($​106.​4B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

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 February, prime money market funds held 27.​9 percent of their portfolios in daily liquid assets and 48.​0 percent in weekly liquid assets, while government money market funds held 87.​3 percent of their portfolios in daily liquid assets and 93.​7 percent in weekly liquid assets <​b:>`​_." Prime DLA was down from 29.​3% in January, and Prime WLA was up from 47.​6%. Govt MMFs' DLA increased from 86.​9% in January and Govt WLA increased from 93.​5% the previous month.

ICI explains, "At the end of February, prime funds had a weighted average maturity (​WAM) of 25 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 29 days and a WAL of 75 days." Prime WAMs were seven days shorter than January, while WALs were unchanged from the previous month. Govt WAMs were two days shorter and WALs were two days shorter than January, respectively.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas declined from $​160.​82 billion in January to $​145.​58 billion in February. Government money market funds’ holdings attributable to the Americas declined from $​3,​794.​54 billion in January to $​3,​793.​98 billion in February."

The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​145.​6 billion, or 34.​2%; Asia and Pacific at $​82.​9 billion, or 19.​5%; Europe at $​192.​6 billion, or 45.​3%; and, Other (​including Supranational) at $​4.​0 billion, or 1.​0%. The Government Money Market Funds by Region of Issuer table shows Americas at $​3.​794 trillion, or 91.​4%; Asia and Pacific at $​116.​1 billion, or 2.​8%; Europe at $​230.​8 billion, 5.​6%, and Other (​Including Supranational) at $​9.​1 billion, or 0.​2%.

​

Crane Data'​s latest MFI International shows that assets in European or "​offshore" money market mutual funds decreased over the past month to $​981.​4 billion, after hitting a record high of $​1.​101 trillion in mid-​December. These U.​S.-​style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $​9.​3 billion over the 30 days through 3/​11. They'​re down $​81.​6 billion (-​7.​7%) year-​to-​date. Offshore US Dollar money funds are down $​4.​7 billion over the last 30 days and are down $​26.​6 billion YTD to $​507.​8 billion. Euro funds dropped E4.​6 billion over the past month. YTD they'​re down E20.​1 billion to E138.​3 billion. GBP money funds increased L408 million over 30 days; they are down by L12.​1 billion YTD to L234.​9B. U.​S. Dollar (​USD) money funds (​190) account for over half (​51.​7%) of the "​European" money fund total, while Euro (​EUR) money funds (​93) make up 16.​0% and Pound Sterling (​GBP) funds (​123) total 32.​3%. We summarize our latest "​offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (​which went out to subscribers Monday), below.

Offshore USD MMFs yield 0.​05% (​7-​Day) on average (​as of 3/​11/​22), up from 0.​04% a month earlier. Yields averaged 0.​03% on 12/​31/​21, 0.​05% on 12/​31/​20, 1.​59% on 12/​31/​19 and 2.​29% on 12/​31/​18. EUR MMFs yield -​0.​67% 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.​27%, up from 0.​01% on 12/​31/​21 and 0.​00% on 12/​31/​20. But they'​re 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 March MFII Portfolio Holdings, with data as of 2/​28/​22, show that European-​domiciled US Dollar MMFs, on average, consist of 22% in Commercial Paper (​CP), 15% in Certificates of Deposit (​CDs), 16% in Repo, 29% in Treasury securities, 17% in Other securities (​primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 43.​9% of their portfolios maturing Overnight, 6.​4% maturing in 2-​7 Days, 19.​1% maturing in 8-​30 Days, 10.​5% maturing in 31-​60 Days, 7.​5% maturing in 61-​90 Days, 9.​2% maturing in 91-​180 Days and 3.​4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​38.​3%), France (​13.​2%), Japan (​8.​9%), Canada (​8.​9%), Sweden (​6.​9%), the Netherlands (​3.​5%), the U.​K. (​3.​5%), Australia (​3.​4%), Germany (​2.​5%) and Switzerland (​1.​8%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​156.​0 billion (​28.​9% of total assets), BNP Paribas with $​19.​3B (​3.​6%), Credit Agricole with $​15.​0B (​2.​8%), RBC with $​13.​1B (​2.​4%), Nordea Bank with $​12.​7B (​2.​4%), Sumitomo Mitsui Banking Corp with $​12.​5B (​2.​3%), Skandinaviska Enskilda Banken AB with $​11.​6B (​2.​2%), Societe Generale with $​10.​9B (​2.​0%), Barclays PLC with $​10.​8B (​2.​0%) and Mizuho Corporate Bank Ltd with $​10.​5B (​1.​9%).

Euro MMFs tracked by Crane Data contain, on average 41% in CP, 22% in CDs, 25% in Other (​primarily Time Deposits), 9% in Repo, 3% in Treasuries and 0% in Agency securities. EUR funds have on average 34.​0% of their portfolios maturing Overnight, 7.​9% maturing in 2-​7 Days, 11.​0% maturing in 8-​30 Days, 16.​2% maturing in 31-​60 Days, 13.​4% maturing in 61-​90 Days, 14.​5% maturing in 91-​180 Days and 2.​8% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​33.​7%), Japan (​12.​4%), the U.​S. (​9.​5%), the U.​K. (​7.​7%), Sweden (​6.​1%), Switzerland (​5.​6%), Germany (​5.​2%), Austria (​3.​6%), Netherlands (​3.​1%), and Canada (​2.​6%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E8.​5B (​7.​1%), BPCE SA with E5.​9B (​4.​9%), Societe Generale with E5.​7B (​4.​8%), Barclays PLC with E5.​3B (​4.​4%), BNP Paribas with E5.​2B (​4.​3%), Mizuho Corporate Bank Ltd with E4.​1 (​3.​5%), Zü​rcher Kantonalbank with E3.​9B (​3.​3%), Svenska Handelsbanken with E3.​8B (​3.​2%), Sumitomo Mitsui Banking Corp with E3.​7B (​3.​1%) and Republic of France with E3.​4B (​2.​8%).

The GBP funds tracked by MFI International contain, on average (​as of 2/​28/​22): 36% in CDs, 21% in CP, 25% in Other (​Time Deposits), 16% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 38.​9% of their portfolios maturing Overnight, 8.​9% maturing in 2-​7 Days, 13.​2% maturing in 8-​30 Days, 14.​3% maturing in 31-​60 Days, 8.​0% maturing in 61-​90 Days, 9.​8% maturing in 91-​180 Days and 6.​9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​17.​6%), Japan (​15.​5%), Canada (​15.​4%), the U.​K. (​11.​3%), Australia (​7.​5%), the U.​S. (​5.​3%), the Netherlands (​5.​2%), Sweden (​4.​4%), Germany (​3.​3%) and Spain (​2.​8%).

The 10 Largest Issuers to "​offshore" GBP money funds include: Mizuho Corporate Bank Ltd with L7.​9B (​5.​0%), Toronto-​Dominion Bank with L6.​4B (​4.​0%), RBC with L6.​3B (​4.​0%), Mitsubishi UFJ Financial Group Inc with L6.​0B (​3.​8%), National Australia Bank Ltd with L5.​9B (​3.​7%), Bank of Nova Scotia with L5.​7B (​3.​6%), BNP Paribas with L5.​6B (​3.​5%), Credit Agricole with L4.​9B (​3.​1%), Standard Chartered Bank with L4.​9B (​3.​1%) and Societe Generale with L4.​6B (​2.​9%).

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The March issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "Assets Continue Slide on Both Negative Returns & Outflows," which looks at bond funds' 3-​month slide; and, "ICI Examines Bond Funds During Crisis; Survey on 3/​20," which quotes from a new ICI study. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell and yields jumped again in February. 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. Also, we look forward to seeing some of you at our upcoming Bond Fund Symposium, March 28-​29 in Newport Beach, Calif!)

Our "Assets Continue Slide" piece reads, "After hitting a record in November 2021, bond fund assets have fallen for three months in a row, with big declines the past two months. Crane Data shows bond fund assets declining by $​60.​2 billion in February, bringing the year-​to-​date decline to $​155.​1 billion (​through 2/​28). (​Assets declined by $​14.​7 billion in Dec.) Given the continued declines in returns, it looks like we could be in for further outflows in coming weeks. We review the latest statistics below.

It continues, "​ICI'​s 'Combined Estimated Long-​Term Fund Flows and ETF Net Issuance,' comments, 'Bond funds ​had estimated outflows of $​13.​15 billion for the week [​ended March 2], compared to estimated outflows of $​3.​70 billion during the previous week [​and $​9.​42 billion the prior week]. Taxable bond funds saw estimated outflows of $​9.​74 billion, and municipal bond funds had estimated outflows of $​3.​41 billion.' Over the past 5 weeks, bond funds and ETFs have seen outflows of $​44.​25 billion."

Our "Profile" piece states, "​A new paper from the Investment Company Institute, entitled, 'ICI Bond Mutual Fund Survey Brings Facts to the Debate,' written by Shelly Antoniewicz and Sean Collins, tells us, 'New ICI research provides a detailed picture of bond mutual funds’ role in the fixed-​income markets during March 2020. ICI urges regulators to use this information when considering policies to enhance the resilience of markets. Otherwise, policies based on inaccurate data or inapt narratives could harm bond mutual fund investors.'"

It continues, "​Policymakers in the United States and globally continue to evaluate the pandemic-​driven market turmoil of March 2020 with a view toward enhancing market resiliency. As they perform their analysis, we urge them to ensure that their conclusions are built upon solid evidence."

ICI says, "One area of intense focus is bond mutual funds. Policymakers have repeatedly claimed that bond mutual funds, faced with historically high outflows during March 2020, amplified or contributed significantly to stresses in the fixed-​income markets, as these quotes illustrate: 'Forced sales of [​bond] fund assets contributed to a sharp deterioration in fixed-​income market liquidity that necessitated additional emergency interventions by the Federal Reserve;' and, '​The liquidity mismatch between [​bond] funds' assets and liabilities contributed to shock amplification, with investor outflows and the associated asset fire-​sales by fund managers combining to eventually threaten broader financial stability. [Bond funds sought] initially [​to] meet increased redemption demand using cash and cash equivalents but were unsuccessful, forcing them to ultimately fire-​sell bonds into illiquid markets.'"

Our first News brief, "Returns Fall, Yields Surge Again in Feb.," comments, "Bond fund returns fell sharply and yields jumped again last month. Our BFI Total Index dropped 0.​88% over 1-​month and fell 1.​04% over 12 months. The BFI 100 returned -​0.​88% in Feb. and -​0.​99% over 1-​year. Our BFI Conservative Ultra-​Short Index was down 0.​16% for 1-​month and down 0.​34% for 1-​year; Ultra-​Shorts declined 0.​27% and 0.​37%, respectively. Short-​Term decreased 0.​56% and 1.​25%, and Intm-​Term fell 1.​02% in Feb. and fell 1.​67% over 1-​year. BFI'​s Long-​Term Index fell 1.​59% in Feb. and fell 2.​27% over 1-​year. Our High Yield Index fell 0.​86% in Feb. but gained 1.​12% over 1-​year.

We also quote Forbes.​com on "Why Almost Every Bond Fund Is Down This Year." They explain, "If you own a bond fund, it'​s probably down in recent months. Let'​s talk about why.... We'​ll start with the iShares 20+ Year Treasury Bond ETF (​TLT) TLT -​1%. TLT is the knee-​jerk investment that many '​first-​level' investors buy when they are looking for bond exposure. Unfortunately, there are two big problems with TLT: It only yields 2.​1%. Worse yet, its 19-​year duration is drubbing its total returns.... Over short time periods, most fixed-​rate bond funds trade opposite long-​term Treasury rates. When rates take off, bond prices suffer."

A third News brief is headlined, "Bloomberg Writes 'Bond Funds Lurk as a Challenge to Fed'​s Inflation Fight.'" The editorial says, "Bond funds are in a bad spot, and it will probably get worse. A crash to Earth for growth stocks and cryptocurrencies is one thing, but a sharp decline in mainstream bond mutual funds could spell enormous trouble. Signs are emerging of the beginnings of a potential downward spiral in these funds, which could ultimately lead to redemption halts and ... panic by retail investors. That could pose the biggest challenge to the Federal Reserve'​s plans to tame inflation through rate increases."

Yet another News brief, "Kiplinger'​s 'Consider Short-​Term Bond Funds,' quotes, "Savers craving substantial bank and money market interest rates courtesy of the Federal Reserve are still waiting. You might see 0.​75% for six months by the second half of 2022, which I agree beats prolonged zero yields.... Do not despair. The picture is brighter for fans of short-​term bond mutual funds and exchange-​traded funds (​ETFs)."

Also, a BFI sidebar, "Barron'​s Profiles American Funds Strategic Bond," states, "​In a recent 'Fund Profile,' Barron'​s writes, 'This Bond Fund Shuns Mere Yield.' They tell us, 'You can learn a lot about your bond fund by looking at how it performed during the pandemic market slide in 2020. If it provided ballast and stability to your portfolio, it did its job. If it was just another source of downside risk, it might be time to look for a new fund.'"

Finally, another sidebar, "Vanguard Trims ETF Fees," comments, "​The Independent Advisor for Vanguard Funds newsletter writes, 'Vanguard just filed the annual reports for a slew of funds including some of its largest and most popular index funds and ... it'​s getting harder ... for the behemoth to keep trimming costs. Of 97 share classes on 27 funds including ... Total Bond Market Index ... four ... saw expense ratios fall and three rose.... All the trims were applied to four bond ETFs."

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The Federal Reserve released its latest quarterly "Z.​1 Financial Accounts of the United States" statistical survey (​a.​k.​a. "Flow of Funds") Thursday. Among the 4 tables it includes on money market mutual funds, the Fourth Quarter 2021 edition shows that Total MMF Assets increased by $​186 billion to $​5.​206 trillion in Q4'​21. The Household Sector, by far the largest investor segment with $​2.​944 trillion, saw the biggest asset increase in Q4. The second largest segment, Nonfinancial Corporate Businesses, also experienced a jump in assets. The Fed'​s latest Z.​1 numbers, which contain one of the few looks at money fund investor segments available, also shows big asset increases in MMF holdings for the Other Financial Business and Mutual Funds categories in Q4 2021. (Reminder: We'​re still taking registrations for our upcoming Bond Fund Symposium in Newport Beach, Calif., March 28-​29!)

Private Pension Funds, Life Insurance Companies, Nonfinancial Noncorporate Business, Exchange-​traded Funds, the Rest of the World and State & Local Governments categories all saw minor asset increases last quarter. The Property-​Casualty Insurance category saw a small asset decrease in Q4, while the State & Local Govt Retirement sector remained unchanged. Over the past 12 months, the Household Sector, Other Financial Business and Mutual Funds categories showed the biggest asset increases, while Life Insurance Companies saw the only asset decrease.

The Federal Reserve made a number of changes to the tables this quarter. Describing a "Money market funds sector data source change," the report says, "The money market mutual funds (​MMF) sector (​tables F.​121 and L.​121) has been revised beginning 2010:​Q4 to reflect a change in data source to Securities and Exchange Commission Form NMFP. The level of assets and shares outstanding of the sector have increased due to the inclusion of private placement MMFs in the source data. Changes in the level due to changes in the data source in 2010:​Q4 are recorded as other volume changes in the Financial Accounts."

On "Mutual funds sector holdings of money market funds," Z.​1 tells us, "​The mutual funds sector (​tables F.​122 and L.​122) has been revised beginning 2010:​Q4 to reflect holdings of money market funds not previously reported on the tables. In addition, holdings of repurchase agreements, commercial paper, corporate bonds, and miscellaneous assets have been revised. Additional and revised holdings are estimated using data from Morningstar and Investment Company Institute.... The exchange-​traded funds sector (​tables F.​124 and L.​124) has been revised beginning 2010:​Q4 to reflect holdings of money market funds not previously reported on the tables."

The Fed'​s "​Table L.​206," "​Money Market Mutual Fund Shares," shows that total assets increased by $​186 billion, or 3.​7%, in the fourth quarter to $​5.​206 trillion. The largest segment, the Household sector, totals $​2.​944 trillion, or 56.​6% of assets. The Household Sector increased by $​94 billion, or 3.​3%, in the quarter. Over the past 12 months through Dec. 31, 2021, Household assets were up $​268 billion, or 10.​0%.

Nonfinancial Corporate Businesses, the second-​largest segment according to the Fed'​s data series, held $​694 billion, or 13.​3% of the total. Assets here increased by $​34 billion in the quarter, or 5.​1%, and they'​ve increased by $​16 billion, or 2.​4%, over the past year. Other Financial Business was the third-​largest investor segment with $​533 billion, or 10.​2% of money fund shares. This category jumped $​33 billion, or 6.​6%, in the latest quarter. Other Financial Business, which we believe includes Securities Lending, has increased by $​52 billion, or 10.​7%, over the previous 12 months.

The fourth-​largest segment (​a new addition to the tables), Mutual Funds, held $​321 billion (​6.​2%). Private Pension Funds, was the 5th largest category with 4.​6% of money fund assets ($​238 billion); it was up by $​4 billion (​1.​6%) for the quarter and up $​18 billion, or 8.​1% over the last 12 months. The Rest of World remained sixth place in market share among investor segments with 2.​7%, or $​139 billion, while ` Nonfinancial Noncorporate Business <​b:>`​_ held $​122 billion (​2.​3%), Life Insurance Companies held $​63 billion (​1.​2%), Exchange-​traded Funds held $​42 billion (​0.​8%), Property-​Casualty Insurance held $​41 billion (​0.​8%), State & Local Governments held $​38 billion (​0.​7%) and State & Local Govt Retirement held $​32 billion (​0.​6%), according to the Fed'​s Z.​1 breakout.

The Fed'​s "​Flow of Funds" Table L.​121 shows "​Money Market Mutual Funds" largely invested in "​Debt Securities," or Credit Market Instruments, with $​2.​569 trillion, or 49.​3% of the total. Debt securities includes: Open market paper ($​226 billion, or 4.​3%; we assume this is CP), Treasury securities ($​1.​815 trillion, or 34.​9%), Agency and GSE-​backed securities ($​410 billion, or 7.​9%), Municipal securities ($​111 billion, or 2.​1%) and Corporate and foreign bonds ($​7 billion, or 0.​1%).

Other large holdings positions in the Fed'​s series include Security repurchase agreements ($​2.​496 trillion, or 47.​9% of total assets) and Time and savings deposits ($​144 billion, or 2.​8%). Money funds also hold minor positions in Miscellaneous assets ($-​3 billion, or -​0.​1%) and Foreign deposits ($​0 billion, 0.​0%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $​35 billion.

During Q4, Debt Securities were up $​34 billion. This subtotal included: Open Market Paper (​down $​23 billion), Treasury Securities (​up $​120 billion), Agency- and GSE-​backed Securities (​down $​64 billion), Corporate and Foreign Bonds (​down $​3 billion) and Municipal Securities (​up $​5 billion). In the fourth quarter of 2021, Security Repurchase Agreements were up $​232 billion, Foreign Deposits were down $​1 billion, Time and Savings Deposits were down by $​36 billion, and Miscellaneous Assets were down -​107.​0%.

Over the 12 months through 12/​31/​21, Debt Securities were down $​956 billion, which included Open Market Paper (​down $​6B), Treasury Securities (​down $​651B), Agencies (​down $​278B), Municipal Securities (​down $​15B), and Corporate and Foreign Bonds (​down $​6B). Foreign Deposits were unchanged, Time and Savings Deposits were down $​21B, Securities repurchase agreements were up $​1.​427 trillion and Miscellaneous Assets were down $​10B.

The Z.​1 L.​121 table also added new subtotals for various fund types. They show Stable NAV money market funds with $​4,​587 billion, or 88.​1% of the total (​up $​231.​9 or 5.​3% in Q4 and up $​459B or 11.​1% over 1-​year), and Floating NAV money market funds with $​619 billion, or 11.​9% (​down $​45.​7B or -​6.​9% in Q4 and down $​19B or -​3.​0% in 2021). Government money market funds total $​4.​304 trillion, or 82.​7% (​up $​241B or 5.​9% in Q4 and up $​549B or 14.​6% over 1-​year), Prime money market funds total $​807 billion, or 15.​5% (​down $​51.​4B or -​6.​0% in Q4 and down $​62B or -​7.​1% in 2021) and Tax-​exempt money market funds $​94B, or 1.​8% (​down $​3.​4B or -​3.​5% in Q4 and down $​20B or -​17.​3% last year).

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Crane Data'​s March Money Fund Portfolio Holdings, with data as of Feb. 28, 2022, show Repo holdings rebounding slightly while Treasuries moved lower. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) increased by $​2.​9 billion to $​4.​980 trillion in February, after decreasing $​108.​3 billion in January, but rising $​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 were roughly flat at $​1.​424 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. (Note: We hope to see you late this month at our `​Bond Fund Symposium conference in Newport Beach, Calif., March 28-​29!)

Among taxable money funds, Repurchase Agreements (​repo) increased $​10.​7 billion (​0.​5%) to $​2.​259 trillion, or 45.​3% of holdings, in February, after decreasing $​234.​4 billion in January, but increasing $​228.​0 billion in December and $​113.​6 billion in November. Treasury securities decreased $​17.​0 billion (-​0.​9%) to $​1.​829 trillion, or 36.​7% of holdings, after increasing $​40.​0 billion in January and $​19.​9 billion in December, but decreasing $​52.​6 billion in November. Government Agency Debt was up $​1.​5 billion, or 0.​4%, to $​391.​0 billion, or 7.​9% of holdings, after decreasing $​6.​9 billion in January, $​26.​7 billion in December and $​10.​1 billion in November. Repo, Treasuries and Agency holdings totaled $​4.​479 trillion, representing a massive 89.​9% of all taxable holdings.

Money fund holdings of CP and Other (​mainly Time Deposits) were up in February, while CDs saw a decline. Commercial Paper (​CP) increased $​2.​9 billion (​1.​3%) to $​231.​5 billion, or 4.​6% of holdings, after increasing $​11.​8 billion in January but decreasing $​29.​9 billion in December and $​3.​0 billion in November. Other holdings, primarily Time Deposits, increased by $​9.​5 billion (​7.​5%) to $​136.​3 billion, or 2.​7% of holdings, after increasing $​69.​0 billion in January but declining $​58.​4 billion in Dec. and $​4.​7 billion in Nov. Certificates of Deposit (​CDs) decreased by $​6.​9 billion (-​5.​7%) to $​114.​4 billion, or 2.​3% of taxable assets, after increasing $​12.​6 billion in January, decreasing $​21.​9 billion in December and increasing $​3.​0 billion in Nov. VRDNs climbed to $​19.​1 billion, or 0.​4% of assets. (​Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday.)

Prime money fund assets tracked by Crane Data dropped to $​790 billion, or 15.​9% of taxable money funds' $​4.​980 trillion total. Among Prime money funds, CDs represent 14.​5% (​down from 15.​0% a month ago), while Commercial Paper accounted for 29.​3% (​up from 28.​3% in Jan.). The CP totals are comprised of: Financial Company CP, which makes up 19.​8% of total holdings, Asset-​Backed CP, which accounts for 3.​9%, and Non-​Financial Company CP, which makes up 5.​6%. Prime funds also hold 2.​9% in US Govt Agency Debt, 13.​9% in US Treasury Debt, 13.​1% in US Treasury Repo, 0.​4% in Other Instruments, 14.​5% in Non-​Negotiable Time Deposits, 6.​2% in Other Repo, 1.​8% in US Government Agency Repo and 1.​1% in VRDNs.

Government money fund portfolios totaled $​2.​890 trillion (​58.​0% of all MMF assets), up from $​2.​889 trillion in Jan., while Treasury money fund assets totaled another $​1.​301 trillion (​26.​1%), up from $​1.​282 trillion the prior month. Government money fund portfolios were made up of 12.​7% US Govt Agency Debt, 10.​1% US Government Agency Repo, 28.​4% US Treasury Debt, 48.​3% in US Treasury Repo, 0.​0% in Other Instruments. Treasury money funds were comprised of 69.​0% US Treasury Debt and 30.​9% in US Treasury Repo. Government and Treasury funds combined now total $​4.​191 trillion, or 84.​2% of all taxable money fund assets.

European-​affiliated holdings (​including repo) increased by $​41.​8 billion in Feb. to $​536.​1 billion; their share of holdings jumped to 10.​8% from last month'​s 9.​9%. Eurozone-​affiliated holdings increased to $​366.​9 billion from last month'​s $​341.​7 billion; they account for 7.​4% of overall taxable money fund holdings. Asia & Pacific related holdings inched lower to $​206.​6 billion (​4.​2% of the total) from last month'​s $​217.​0 billion. Americas related holdings dropped to $​4.​234 trillion from last month'​s $​4.​260 trillion, and now represent 85.​0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​up $​31.​1 billion, or 1.​7%, to $​1.​903 trillion, or 38.​2% of assets); US Government Agency Repurchase Agreements (​down $​17.​5 billion, or -​5.​4%, to $​306.​8 billion, or 6.​2% of total holdings), and Other Repurchase Agreements (​down $​2.​9 billion, or -​5.​5%, from last month to $​49.​1 billion, or 1.​0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​down $​6.​5 billion to $​156.​2 billion, or 3.​1% of assets), Asset Backed Commercial Paper (​down $​3.​3 billion to $​30.​7 billion, or 0.​6%), and Non-​Financial Company Commercial Paper (​up $​12.​7 billion to $​44.​6 billion, or 0.​9%).

The 20 largest Issuers to taxable money market funds as of Feb. 28, 2022, include: the US Treasury ($​1.​829 trillion, or 36.​7%), Federal Reserve Bank of New York ($​1.​424T, 28.​6%), Federal Home Loan Bank ($​216.​1B, 4.​3%), Fixed Income Clearing Corp ($​140.​4B, 2.​8%), Federal Farm Credit Bank ($​101.​6B, 2.​0%), BNP Paribas ($​98.​6B, 2.​0%), RBC ($​92.​4B, 1.​9%), Sumitomo Mitsui Banking Co ($​52.​9B, 1.​1%), Barclays ($​49.​9B, 1.​0%), JP Morgan ($​47.​2B, 0.​9%), Credit Agricole ($​45.​3B, 0.​9%), Citi ($​44.​7B, 0.​9%), Societe Generale ($​44.​0B, 0.​9%), Federal National Mortgage Association ($​41.​4B, 0.​8%), Mitsubishi UFJ Financial Group Inc ($​39.​7B, 0.​8%), Bank of America ($​38.​4B, 0.​8%), Bank of Montreal ($​33.​6B, 0.​7%), Toronto-​Dominion Bank ($​30.​4B, 0.​6%), Federal Home Loan Mortgage Corp ($​29.​3B, 0.​6%) and Canadian Imperial Bank of Commerce ($​28.​2B, 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 ($​1.​424T, 63.​1%), Fixed Income Clearing Corp ($​140.​4B, 6.​2%), BNP Paribas ($​89.​8B, 4.​0%), RBC ($​75.​1B, 3.​3%), JP Morgan ($​42.​0B, 1.​9%), Citi ($​41.​3B, 1.​8%), Sumitomo Mitsui Banking Corp ($​40.​8, 1.​8%), Societe Generale ($​36.​1B, 1.​6%), Bank of America ($​35.​8B, 1.​6%) and Barclays ($​3.​7B, 1.​4%). The largest users of the $​1.​424 trillion in Fed RRP included: Goldman Sachs FS Govt ($​116.​1B), JPMorgan US Govt MM ($​123.​5B), Fidelity Govt Money Market ($​105.​0B), Fidelity Govt Cash Reserves ($​94.​3B), Vanguard Federal Money Mkt Fund ($​83.​3B), Morgan Stanley Inst Liq Govt ($​79.​3B), BlackRock Lq FedFund ($​78.​5B), BlackRock Lq T-​Fund ($​58.​5B), Fidelity Inv MM: Govt Port ($​54.​4B) and Dreyfus Govt Cash Mgmt ($​52.​0B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Credit Agricole ($​20.​5B, 5.​0%), Barclays ($​18.​2B, 4.​5%), Toronto-​Dominion Bank ($​17.​5B, 4.​3%), RBC ($​17.​3B, 4.​3%), Nordea Bank ($​15.​5B, 3.​8%), Mizuho Corporate Bank Ltd ($​14.​9B, 3.​7%), Bank of Montreal ($​14.​5B, 3.​6%), Canadian Imperial Bank of Commerce ($​13.​0B, 3.​2%), Skandinaviska Enskilda Banken AB ($​12.​5B, 3.​1%) and Bank of Nova Scotia ($​12.​4B, 3.​1%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($​9.​6B, 8.​4%), Bank of Montreal ($​8.​2B, 7.​1%), Toronto-​Dominion Bank ($​7.​5B, 6.​5%), Canadian Imperial Bank of Commerce ($​7.​4B, 6.​4%), Landesbank Baden-​Wurttemberg ($​6.​3B, 5.​5%), Mitsubishi UFJ Financial Group Inc ($​6.​3B, 5.​5%), Barclays ($​5.​5B, 4.​8%), Sumitomo Mitsui Trust Bank ($​5.​1B, 4.​5%), Bank of Nova Scotia ($​4.​8B, 4.​2%) and Credit Agricole ($​4.​6B, 4.​1%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: RBC ($​10.​2B, 5.​4%), Toronto-​Dominion Bank ($​8.​4B, 4.​5%), UBS AG ($​8.​0B, 4.​2%), Bank of Nova Scotia ($​7.​6B, 4.​1%), BNP Paribas ($​7.​6B, 4.​0%), Societe Generale ($​7.​6B, 4.​0%), Barclays ($​6.​2B, 3.​3%), Bank of Montreal ($​6.​0B, 3.​2%), National Australia Bank Ltd ($​5.​8B, 3.​1%) and Skandinaviska Enskilda Banken AB ($​5.​6B, 3.​0%).

The largest increases among Issuers include: Fixed Income Clearing Corp (​up $​39.​3B to $​140.​4B), Barclays (​up $​8.​8B to $​49.​9B), Societe Generale (​up $​8.​0B to $​44.​0B), Nordea Bank (​up $​6.​1B to $​15.​5B), BNP Paribas (​up $​5.​0B to $​98.​6B), Rabobank (​up $​3.​0B to $​11.​7B), Svenska Handelsbanken (​up $​2.​8B to $​11.​7B), ING Bank (​up $​2.​5B to $​19.​7B), Federal Farm Credit Bank (​up $​2.​0B to $​101.​6B) and Citi (​up $​1.​5B to $​44.​7B).

The largest decreases among Issuers of money market securities (​including Repo) in February were shown by: the Federal Reserve Bank of New York (​down $​45.​6B to $​1.​424T), the US Treasury (​down $​17.​0B to $​1.​829T), Sumitomo Mitsui Banking Corp (​down $​5.​3B to $​52.​9B), Bank of Montreal (​down $​4.​8B to $​33.​6B), Swedbank AB (​down $​3.​9B to $​7.​1B), Bank of America (​down $​2.​3B to $​38.​4B), Bank of Nova Scotia (​down $​1.​9B to $​19.​4B), Natixis (​down $​1.​8B to $​17.​0B), Toronto-​Dominion Bank (​down $​1.​7B to $​30.​4B) and Skandinaviska Enskilda Banken AB (​down $​1.​4B to $​12.​5B).

The United States remained the largest segment of country-​affiliations; it represents 80.​6% of holdings, or $​4.​015 trillion. France (​4.​5%, $​224.​7B) was in second place, while Canada (​4.​4%, $​218.​5B) was No. 3. Japan (​3.​8%, $​187.​1B) occupied fourth place. The United Kingdom (​1.​8%, $​91.​2B) remained in fifth place. Netherlands (​1.​0%, $​50.​4B) was in sixth place, followed by Sweden (​1.​0%, $​47.​2B), Germany (​0.​9%, $​45.​8B), Australia (​0.​6%, $​30.​6B) and Switzerland (​0.​4%, $​17.​8B). (​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. Note too: U.​S. money funds have never been allowed to invest in Russian debt or holdings, so there is no doubt no direct exposure there.)

As of Feb. 28, 2022, Taxable money funds held 58.​7% (​up from 56.​7%) of their assets in securities maturing Overnight, and another 5.​8% maturing in 2-​7 days (​down from 6.​0%). Thus, 64.​5% in total matures in 1-​7 days. Another 10.​6% matures in 8-​30 days, while 7.​8% matures in 31-​60 days. Note that over three-​quarters, or 82.​8% 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 6.​3% of taxable securities, while 7.​6% matures in 91-​180 days, and just 3.​2% matures beyond 181 days. (​Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

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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 February 28 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 Feb. 28, includes holdings information from 1,​004 money funds (​up 1 fund from last month), representing assets of $​5.​137 trillion (​up from $​5.​122 trillion). Prime MMFs now total $​818.​1 billion, or 15.​9% of the total. We review the new N-​MFP data, and we also look at our revised MMF expense data, below.

Our latest Form N-​MFP Summary for All Funds (​taxable and tax-​exempt) shows Repurchase Agreement (​Repo) holdings in money market funds rose to $​2.​288 trillion (​up from $​2.​262 trillion), or 44.​5% of all assets. Treasury holdings totaled $​1.​844 trillion (​down from $​1.​862 trillion), or 35.​9% of all holdings, and Government Agency securities totaled $​405.​8 billion (​up from $​404.​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.​538 trillion, or a massive 88.​3% of all holdings.

Commercial paper (​CP) totals $​240.​4 billion (​up from $​237.​6 billion), or 4.​7% of all holdings, and the Other category (​primarily Time Deposits) totals $​176.​1 billion (​up from $​166.​2 billion), or 3.​4%. Certificates of Deposit (​CDs) total $​114.​5 billion (​down from $​121.​3 billion), 2.​2%, and VRDNs account for $​68.​7 billion (​up from $​66.​8 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: $​158.​9 billion, or 3.​1%, in Financial Company Commercial Paper; $​31.​2 billion or 0.​6%, in Asset Backed Commercial Paper; and, $​50.​2 billion, or 1.​0%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​1.​892 trillion, or 36.​8%), U.​S. Govt Agency Repo ($​346.​8B, or 6.​8%) and Other Repo ($​49.​2B, or 1.​0%).

The N-​MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $​236.​5 billion (​up from $​233.​9 billion), or 28.​9%; Repo holdings of $​180.​1 billion (​down from $​185.​8 billion), or 22.​0%; Treasury holdings of $​116.​3 billion (​down from $​118.​0 billion), or 14.​2%; CD holdings of $​114.​5 billion (​down from $​121.​3 billion), or 14.​0%; Other (​primarily Time Deposits) holdings of $​135.​2 billion (​up from $​126.​8 billion), or 16.​5%; Government Agency holdings of $​26.​0 billion (​down from $​30.​9 billion), or 3.​2% and VRDN holdings of $​9.​5 billion (​up from $​8.​1 billion), or 1.​2%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​158.​9 billion (​down from $​165.​1 billion), or 19.​4%, in Financial Company Commercial Paper; $​31.​2 billion (​down from $​34.​5 billion), or 3.​8%, in Asset Backed Commercial Paper; and $​46.​4 billion (​up from $​34.​4 billion), or 5.​7%, in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​117.​0 billion, or 14.​3%), U.​S. Govt Agency Repo ($​14.​2 billion, or 1.​7%), and Other Repo ($​48.​9 billion, or 6.​0%).

In related news, money fund charged expense ratios (​Exp%) jumped in February to 0.​12% from 0.​09% 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.​12% as of Feb. 28, 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.​12%, three bps higher than last month'​s level (​and six 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 15 bps, or 56% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also showed a charged expense ratio of 0.​12% as of Feb. 28, 2022, three bps higher than the month prior but down from 0.​40% at year-​end 2019.

Prime Inst MFs expense ratios (​annualized) average 0.​15% (​up 2 bps from last month), Government Inst MFs expenses average 0.​09% (​up 2 bps from previous month), Treasury Inst MFs expenses average 0.​13% (​up 5 bps from last month). Treasury Retail MFs expenses currently sit at 0.​13%, (​up 5 bps from last month), Government Retail MFs expenses yield 0.​10% (​up 3 bps from last month). Prime Retail MF expenses averaged 0.​18% (​up two bps). Tax-​exempt expenses were up 11 bps over the month to 0.​20% on average.

Gross 7-​day yields inched higher on average for the month ended Feb. 28, 2022. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 741), shows a 7-​day gross yield of 0.​14%, up 3 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 three bps, ending the month at 0.​14%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $​5.​858 billion (​as of 2/​28/​22). Our estimated annualized revenue totals increased from $​4.​656B last month, and they are now double May'​s record low $​2.​927B level. Annualized MMF revenues are still below their estimated $​6.​028 billion at the end of 2020 and $​10.​642 billion at the end of 2019. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their surge in coming months if the Federal Reserve begins raising interest rates as expected.

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Crane Data'​s latest monthly Money Fund Market Share rankings show assets declined among the majority of the largest U.​S. money fund complexes in February. Money market fund assets decreased $​34.​3 billion, or -​0.​7%, last month to $​5.​007 trillion. Assets decreased by $​36.​4 billion, or -​0.​7%, over the past 3 months; they'​ve increased by $​259.​8 billion, or 5.​4%, over the past 12 months through Feb. 28. The largest increases among the 25 largest managers last month were seen by Fidelity, SSGA, SEI, Invesco and Vanguard, which grew assets by $​15.​3 billion, $​4.​0B, $​2.​5B, $​2.​3B and $​2.​2B, respectively. The largest declines in February were seen by JPMorgan, BlackRock, Allspring, First American and Northern, which decreased by $​13.​3 billion, $​11.​0B, $​9.​3B, $​7.​4B and $​4.​5B, respectively. Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "​Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields in February, below.

Over the past year through Feb. 28, 2022, BlackRock (​up $​90.​2B, or 19.​6%), Goldman Sachs (​up $​64.​1B, or 20.​5%), Morgan Stanley (​up $​44.​5B, or 18.​3%), Dreyfus (​up $​38.​6B, or 17.​7%), and Northern (​up $​35.​3B, or 21.​8%) were the largest gainers. Fidelity, Invesco, Northern, SSGA and American Funds had the largest asset increases over the past 3 months, rising by $​28.​9B, $​9.​7B, $​8.​7B, $​6.​9B and $​6.​7B, respectively. The largest decliners over 12 months were seen by: Vanguard (​down $​36.​2B), Allspring (​down $​29.​2B), Charles Schwab (​down $​24.​8B), UBS (​down $​7.​6B) and Federated Hermes (​down $​5.​9B). The largest decliners over 3 months included: Allspring (​down $​19.​5B), JP Morgan (​down $​17.​2B), Goldman Sachs (​down $​14.​5B), Morgan Stanley (​down $​13.​7B) and BlackRock (​down $​12.​4B).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​930.​5 billion, or 18.​6% of all assets. Fidelity was up $​15.​3B in February, up $​28.​9 billion over 3 mos., and up $​24.​8B over 12 months. BlackRock ranked second with $​515.​8 billion, or 10.​3% market share (​down $​11.​0B, down $​12.​4B and up $​90.​2B for the past 1-​month, 3-​mos. and 12-​mos., respectively). Vanguard ranked third with $​461.​9 billion, or 9.​2% market share (​up $​2.​2B, up $​5.​9B and down $​36.​2B). JPMorgan ranked in fourth place with $​449.​2 billion, or 9.​0% of assets (​down $​13.​3B, down $​17.​2B and up $​26.​4B), while Goldman Sachs was the fifth largest MMF manager with $​367.​3 billion, or 7.​3% of assets (​up $​1.​2B, down $​14.​5B and up $​64.​1B for the past 1-​month, 3-​mos. and 12-​mos.).

Federated Hermes was in sixth place with $​324.​9 billion, or 6.​5% (​down $​3.​5B, down $​7.​9B and down $​5.​9B), while Morgan Stanley was in seventh place with $​279.​2 billion, or 5.​6% of assets (​down $​2.​5B, down $​13.​7B and up $​44.​5B). Dreyfus ($​246.​1B, or 4.​9%) was in eighth place (​up $​583M, down $​3.​1B and up $​38.​6B), followed by Northern ($​203.​0B, or 4.​1%; down $​4.​5B, up $​8.​7B and up $​35.​3B). Allspring (​formerly Wells Fargo) was in 10th place ($​173.​6B, or 3.​5%; down $​9.​3B, down $​19.​5B and down $​29.​2B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: SSGA ($​148.​0B, or 3.​0%), Schwab ($​144.​1B, or 2.​9%), American Funds ($​143.​5B, or 2.​9%), First American ($​125.​9B, or 2.​5%), Invesco ($​97.​2B, or 1.​9%), T. Rowe Price ($​54.​4B, or 1.​1%), UBS ($​43.​3B, or 0.​9%), DWS ($​38.​0B, or 0.​8%), HSBC ($​36.​4B, or 0.​7%) and Western ($​32.​6B, or 0.​7%). Crane Data currently tracks 62 U.​S. MMF managers, down 1 from last month.

When European and "​offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers 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) and SSGA takes Allspring'​s spot at number 10. 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 ($​942.​9 billion), BlackRock ($​708.​5B), JP Morgan ($​642.​2B), Goldman Sachs ($​479.​5B) and Vanguard ($​461.​9B). Federated Hermes ($​334.​3B) was sixth, Morgan Stanley ($​325.​9B) was in seventh, followed by Dreyfus/​BNY Mellon ($​270.​1B), Northern ($​231.​9B) and SSGA ($​174.​8B), 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 March issue of our Money Fund Intelligence and MFI XLS, with data as of 2/​28/​22, shows that yields were flat to higher again in February for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 741), 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 was flat at 0.​11%, and the Gross 30-​Day Yield was also flat at 0.​11%. (Gross yields will be revised later Tuesday, though, once we download the SEC'​s Form N-​MFP data for 2/​28/​22. We expect the revised expense and gross data to move higher again.)

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.​11% (​unch), and a Gross 30-​Day Yield of 0.​11% (​unch). Our Prime Institutional MF Index (​7-​day) yielded 0.​04% (​unch) as of Feb. 28. 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.​02% (​up 1 bp) as of Feb.​28.

Gross 7-​Day Yields for these indexes to end February were: Prime Inst 0.​17% (​unch), Govt Inst 0.​08% (​unch), Treasury Inst 0.​10% (​up 1 bp), Prime Retail 0.​17% (​unch), Govt Retail 0.​08% (​unch) and Treasury Retail 0.​09% (​unch). The Crane Tax Exempt Index rose 1 bp to 0.​11%. The Crane 100 MF Index returned on average 0.​00% over 1-​month, 0.​00% over 3-​months, 0.​00% YTD, 0.​01% over the past 1-​year, 0.​69% over 3-​years (​annualized), 0.​95% over 5-​years, and 0.​52% over 10-​years.

The total number of funds, including taxable and tax-​exempt, down 5 in February to 891. There are currently 741 taxable funds, down 3 from the previous month, and 150 tax-​exempt money funds (​down 2 from last month). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.

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The March issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "MMF Assets Dip Again After January Plunge; Slow Liftoff," which discusses the latest on money market fund assets and yields; "BlackRock'​s Mejzak, D'​Anjou Cautious and Conservative," which quotes from a recent webinar; and, "ESMA Proposes Reforms to European Money Fund Regs," which covers the money fund reform proposals in the EU. We also sent out our MFI XLS spreadsheet Monday morning, and we'​ve updated our database with 2/​28/​22 data. Our March Money Fund Portfolio Holdings are scheduled to ship on Wednesday, March 9, and our March Bond Fund Intelligence is scheduled to go out on Monday, March 14. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center. Reminder: Today is the last day for discounted hotel rates to our upcoming Bond Fund Symposium conference in Newport Beach, Calif., March 28-​29.)

MFI'​s "MMF Assets article says, "Money market mutual fund assets were lower again in February after a huge outflow in January. Going forward, assets should stay weak in the first half (​and drop briefly following any Fed moves as assets shift to higher yielding direct instruments). But assets should rise in the second half of the year as money fund yields move off the zero floor and regain their historical rate advantage over bank deposit products."

It continues, "​The Investment Company Institute'​s latest 'Money Market Fund Assets' report shows assets rebounding sharply in the latest week, after one flat week and 3 weeks of steep declines. Year-​to-​date, MMFs are down by $​99 billion, or -​2.​1%, with Institutional MMFs down $​113 billion, or 3.​5% and Retail MMFs up $​14 billion, or 1.​0%. Over the past 52 weeks, money fund assets have increased by $​243 billion, or 5.​6%, with Retail MMFs falling by $​25 billion (-​1.​7%) and Inst MMFs rising by $​269 billion (​9.​4%). (Crane Data'​s MFI XLS shows assets falling $​34.​2 billion in February after plummeting $​128.​1 billion in January.)"

Our "BlackRock" profile reads, "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; 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."

Our "ESMA Proposes" piece states, "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.'"

It continues, "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.'"

MFI also includes the News brief, "MF Revenue Rises to $​4.​7B." which says, "Money fund charged expense ratios (​Exp%) rose in January to 0.​09% from 0.​08% the prior month. (​Expenses hit a record low of 0.​06% in May 2021.) We estimate that annualized revenue for all money funds is $​4.​656 billion as of 1/​31/​22. (​Our 2/​28/​22 numbers will be revised tomorrow with N-​MFP data.) Revenues rose from $​4.​043B in Dec. and from May 2020’​s record low of $​2.​927B.

Another News brief, "Bloomberg Says MMF WAMs Short," says, "​Bloomberg posted, 'Battered Money-​Market Industry Is Ready for Aggressive Fed,' which tells us, '​While the global financial system waits for the Federal Reserve to begin lifting interest rates, funds across the money-​market industry are positioning their cash to take advantage of the higher yields to come. For some funds that means shortening exposure to interest-​rate shifts in their portfolios. As of Feb. 14, more than 100 money markets funds had a weighted average maturity, or WAM, of 10 days or less ... according to money-​market information provider Crane Data.'"

Our March MFI XLS, with Feb. 28 data, shows total assets decreased $​34.​2 billion to $​5.​009 trillion, after decreasing $​146.​8 billion in January, but 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 were the same as the previous month at 0.​11% and 0.​11%, respectively. Charged Expenses averaged 0.​09% for the Crane MFA and the Crane 100. (​We'​ll revise expenses Tuesday once we upload the SEC'​s Form N-​MFP data for 2/​28/​22.) The average WAM (​weighted average maturity) for the Crane MFA was 27 days (​down 3 days from previous month) while the Crane 100 WAM dropped 4 days to 29 days). (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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The Investment Company Institute'​s latest "Money Market Fund Assets" report shows assets rebounding sharply in the latest week, after one flat week and 3 weeks of steep declines. Year-​to-​date, MMFs are down by $​99 billion, or -​2.​1%, with Institutional MMFs down $​113 billion, or 3.​5% and Retail MMFs up $​14 billion, or 1.​0%. Over the past 52 weeks, money fund assets have increased by $​243 billion, or 5.​6%, with Retail MMFs falling by $​25 billion (-​1.​7%) and Inst MMFs rising by $​269 billion (​9.​4%). (Note: We hope you join us for our upcoming Bond Fund Symposium conference in Newport Beach, Calif., March 28-​29. Click here for the agenda and click here to register.)

ICI'​s weekly release says, "Total money market fund assets increased by $​51.​75 billion to $​4.​61 trillion for the week ended Wednesday, March 2, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $​50.​76 billion and prime funds increased by $​1.​10 billion. Tax-​exempt money market funds decreased by $​106 million." ICI'​s stats show Institutional MMFs increasing $​45.​7 billion and Retail MMFs increasing $​6.​0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​092 trillion (​88.​8% of all money funds), while Total Prime MMFs were $​429.​1 billion (​9.​3%). Tax Exempt MMFs totaled $​85.​3 billion (​1.​9%).

ICI explains, "Assets of retail money market funds increased by $​6.​02 billion to $​1.​48 trillion. Among retail funds, government money market fund assets increased by $​7.​58 billion to $​1.​21 trillion, prime money market fund assets decreased by $​1.​40 billion to $​198.​73 billion, and tax-​exempt fund assets decreased by $​163 million to $​75.​75 billion." Retail assets account for just under a third of total assets, or 32.​2%, and Government Retail assets make up 81.​5% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $​45.​73 billion to $​3.​12 trillion. Among institutional funds, government money market fund assets increased by $​43.​18 billion to $​2.​88 trillion, prime money market fund assets increased by $​2.​50 billion to $​230.​37 billion, and tax-​exempt fund assets increased by $​57 million to $​9.​51 billion." Institutional assets accounted for 67.​8% 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.)

In other news, the Federal Reserve Bank of New York'​s Lori Logan gave a speech recently on "Federal Reserve Asset Purchases: The Pandemic Response and Considerations Ahead," which discussed March 2020, the RRP and money markets in general. She says, "The onset of the pandemic resulted in an unprecedented '​dash for cash' as heightened uncertainty in the outlook and shifts to a remote trading posture prompted extreme price volatility, sudden portfolio de-​risking, and strains in market functioning. In this environment, even the most liquid securities, like Treasuries, were being sold broadly and in large quantities, overwhelming the market'​s intermediation capacity."

Logan explains, "​As the Committee reduces the balance sheet, staff will carefully monitor developments in money markets to understand changes in reserve conditions and inform the Committee'​s assessment of the appropriate path for the balance sheet in the longer run. Importantly, the prior experience with balance sheet reduction offers a useful guide to money market conditions that reflect ample reserves. The FOMC is committed to maintaining sufficient reserves to ensure that administered rates -- the interest on reserve balances (​IORB) and overnight reverse repo facility (​ON RRP) rates -- exercise control over the federal funds rate. However, should pressures in overnight markets unexpectedly emerge, the new Standing Repo Facility (​SRF) that the Committee established last year is also available, providing an important backstop to support effective policy implementation and smooth market functioning."

She tells us, "Even as the current environment is characterized by higher levels of liquidity than in 2015, I am confident that administered rates will again be effective at lifting the federal funds rate when the Committee increases the target range. Administered rates create strong incentives in overnight markets, and the ON RRP provides a broad range of money market investors an alternative investment to support the federal funds rate and other overnight rates. My sense is that the current setting of administered rates relative to the target range has been working well and that it could continue to support effective policy implementation following any increase in the target range in coming months, although adjustments could be warranted over time."

Logan comments, "​With the high levels of liquidity in money markets, take-​up at the ON RRP facility could increase as rates rise. Flows between bank reserves and ON RRP balances depend, in part, on relative levels of interest rates on bank deposits versus other money market investments, such as money market mutual funds (​money funds). Some banks may use rising rates as an opportunity to reduce reserve holdings by shedding deposits. If, when the FOMC increases the target range, banks raise deposit rates by less than money funds increase net yields to investors, funds could flow from banks into money funds, which could in turn increase take-​up at the ON RRP."

She adds, "​That said, while many expected an increase in the ON RRP in 2015, this did not come to pass, and it could be that ON RRP balances remain relatively steady following liftoff or even decline. Regardless of what happens following liftoff, over time, as the Committee reduces the size of the balance sheet, I expect usage in the ON RRP to decline."

Finally, Fitch Ratings posted, "U.​S. Money Market Funds: February 2022," which explains, "Total taxable money market fund (​MMF) assets decreased by $​139 billion from Dec. 31, 2021 to Jan. 31, 2022, according to iMoneyNet data. Government MMFs lost $​138 billion in assets during this period, and prime MMF assets decreased by $​1 billion, continuing a gradual decline."

It continues, "Taxable MMFs decreased exposure to repos while increasing exposure to U.​S. Treasuries for the first time since March 2021. Repo holdings decreased by $​278 billion, while Treasury holdings increased by $​39 billion, from Dec. 31, 2021 to Jan. 31, 2022, according to Crane Data. Repo remains the largest portfolio segment, followed by Treasury."

Fitch also says, "​As of Jan. 31, 2022, institutional government and prime MMF net yields were 0.​02% and 0.​03%, respectively, per iMoneyNet, unchanged from the end of December. MMF managers expect to reduce fee waivers and realize increased revenue from the anticipated fed funds rate hikes.... Following SEC proposals in December to increase the weekly liquid asset (​WLA) requirement from 30% to 50%, MMFs have begun increasing their holdings of WLAs. For institutional prime funds, the average level of WLAs increased 4% to 65% from Nov. 30, 2021 to Jan. 31, 2022."

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State Street Global Investors recently posted an "Insight" piece entitled, "Navigating Short-​Term Fixed Income Amid Inflation, Tightening, and the Pandemic." Written by Senior Portfolio Manager James Palmieri, the piece discusses ultra-​short and short-​term investing strategies and explains, "Given where we are in the economic cycle, coupled with rich valuations and the inception of global monetary tightening, we are carrying modest risk. We are a little overweight in duration toward the front end of the curve where the roll down and carry is significant. Compared to a year ago, we'​ve paired back a lot of credit risk. We are positioned with dry powder in case the Fed runs into trouble with its monetary tightening in 2022." (Note: SSGA'​s Palmieri will be speaking at our upcoming Bond Fund Symposium conference in Newport Beach, Calif., March 28-​29. Click here for the agenda and click here to register.)

SSGA'​s posting tells us, "​Amid continued US economic growth, tighter Fed policy, and rich valuations, we have been forced to pare back risk targets substantially, not only on corporate credit but also commercial mortgage-​backed securities (​CMBS). This is enabling us to look for opportunities to invest in credit in 2022 given the tightening cycle."

Asked about the best value in the front end, Palmieri says, "​Two areas are intriguing. One is risk-​free rates, such as the 2-​year Treasury Note, given the enormous carry and roll-​down, which is on the order of 100+ basis points. This is certainly favorable to the longer part of the yield curve and to short-​duration corporate credit spreads, which are cyclically quite tight. The second opportunity is in the AAA CMBS floater market, in very stable properties such as industrial warehouses involved in e-​commerce and cold storage facilities for supermarkets. These offer significant yield pickup compared to AA or A corporate credit floaters. In fact, AAA CMBS floaters offer as much yield as BBB corporate credit with far less fundamental credit risk."

He states, "I believe investors should be more concerned about risk than return in 2022. We are in more of a principal protection environment as the Fed embarks on a tightening cycle in the context of tight credit spread valuations. Our funds' risk exposure is about as mild as it has been in a long time."

The SSGA PM also says, "We believe that inefficiencies exist on multiple time horizons due to the complexity of supply and demand in the fixed income markets. We initially construct our investment portfolios from a top-​down perspective by establishing modest amounts of strategic risk -- consistent with the client'​s risk/​reward appetite -- to take advantage of long-​term inefficiencies in the fixed income market. Examples of such risk would be modest amounts of positive duration and incremental credit spread duration relative to a pre-​defined performance benchmark."

He comments, "​The second time horizon has to do with the shorter-​term or cyclical movement of the markets. In this case we seek to take advantage of opportunities when market pricing deviates from our estimates of fundamental fair value. We hold a monthly asset allocation meeting where we conduct a full review of the economy and market pricing to detect deviations from long-​term fair value. Ultimately the goal of the meeting is to set risk targets."

Palmieri adds, "Finally, for portfolio construction we use a collaborative approach with a bottom-​up fundamental fair value perspective. For each segment of the fixed income market, the security selection process includes contributions from portfolio management, research, and trading. Whether it'​s corporate credit or fixed income securitized markets, the respective teams get together and examine the fair value of the opportunities and select securities that ultimately make up the portfolio."

Asked why short-​term and ultra-​short strategies are important today, he responds, "​The front end of the curve is becoming an interesting place, considering the Fed'​s [​inflation] framework, the pulling forward of ... potential rate hikes, and what appears to be a lower terminal Fed funds rate. We think that the front end is offering a lot of value compared to the back end."

In other news, the Federal Reserve released its latest "Monetary Policy Report" last week, which contained several mentions of money market funds. It states, "Funding markets remain relatively stable. Domestic banks continue to maintain significant levels of high quality liquid assets. Assets under management at prime and tax-​exempt money market funds (​MMFs), which experienced significant outflows during the March 2020 turmoil, continued to decline, on net, since mid-​2021, while those at government MMFs remained near historical highs. In December 2021, the Securities and Exchange Commission (​SEC) proposed reforms to MMFs intended to mitigate the financial stability risks they pose, including the adoption of swing pricing for certain fund types, increased liquidity requirements, and other measures meant to make them more resilient to redemptions."

The report continues, "In July of last year, the Federal Reserve established a domestic standing repurchase agreement (​repo) facility and a standing repo facility for foreign and international monetary authorities. These facilities are intended to serve as backstops in money markets to support the effective implementation of monetary policy and smooth market functioning. The rates for these facilities have been maintained at levels somewhat higher than rates in overnight funding markets, consistent with their intended roles as backstops."

It adds, "Money markets continued to function smoothly amid these developments, with ample liquidity putting broad downward pressure on short-​term interest rates. In addition, the limited supply of Treasury bills during the debt limit episode pushed bill yields lower. In this environment of ample liquidity, limited Treasury bill supply, and low repurchase agreement rates, the ON RRP facility continued to serve its intended purpose of helping to provide a floor under short-​term interest rates and support effective implementation of monetary policy. Usage of the facility has nearly doubled, on average, since early July, primarily driven by greater participation from government money market funds. The ON RRP take-​up reached a record high of $​1.​9 trillion on year-​end before retracing to around $​1.​6 trillion in early January."

​

Federated Hermes filed its latest "10-​K Annual Report" with the SEC last week, and the 112-​page document contains discussions on "Distribution Channels and Product Markets," "Regulatory Matters" and "Risk Factors," among other things. The report tells us, "Federated Hermes' distribution strategy is to provide investment management products and services to more than 11,​000 institutions and intermediaries, including, among others, banks, broker/​dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments. Federated Hermes uses its trained sales force of more than 230 representatives and managers backed by an experienced support staff to offer its products and strategies, add new customer relationships and strengthen and expand existing relationships. Federated Hermes' investment products and strategies are offered and distributed in three markets. These markets and the relative percentage of managed assets at December 31, 2021 attributable to such markets are as follows: U.​S. financial intermediary (​62%); U.​S. institutional (​26%); and international (​12%)."

It continues, "Federated Hermes offers and distributes its products and strategies in this market through a large, diversified group of over 7,​500 national, regional and independent broker/​dealers, banks and registered investment advisors.... As of December 31, 2021, managed assets in the U.​S. financial intermediary market included $​301.​2 billion in money market assets.... Federated Hermes offers and distributes its products and strategies to a wide variety of domestic institutional customers including, among others, government entities, not-​for-​profit entities, corporations, corporate and public pension funds, foundations, endowments and non-​Federated Hermes investment companies or other funds. As of December 31, 2021, managed assets in the U.​S. institutional market included $​131.​9 billion in money market assets.... As of December 31, 2021, managed assets in the international market included ... $​14.​8 billion in money market assets."

On the "Current Regulatory Environment," Federated writes, "U.​S. and global regulators also continue to focus on the market conditions that existed in March 2020, and their impact on open-​end funds, including institutional prime and municipal (​or tax-​exempt) money market funds.... SEC Chair Gensler indicated that he had asked SEC staff for recommendations to address the challenges to money market funds experienced in the spring of 2020, and stated that he believes 'it is time to reflect upon the reforms of 2014 and 2010 to see if we can further improve resiliency, particularly in times of stress.' ... FSOC indicated that '​the [​FSOC] is encouraged by the SEC'​s engagement on this critical issue' and, ... 'will continue to monitor this initiative in the broader context of efforts by financial regulators to strengthen short-​term funding markets and support orderly market functioning, including during periods of heightened market stress.'"

They comment, "Contrary to the focus placed by the PWG Report and regulators on money market funds as a cause of the market turmoil in March 2020, the Investment Company Institute (​ICI) had issued a report entitled, '​Experiences of U.​S. Money Market Funds During the Covid-​19 Crisis' ... that supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil. The ICI MMF Report rebuked suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that, '[​t]​hese suggestions are inconsistent with the data and early press reports.' ... The ICI MMF Report also noted that, '​press reports do not support the theory that money market funds were at the forefront of the market stress' and that, '​Treasury markets were in the news several days before any real mention of money market funds.'"

The 10-​K states, "In response to requests for comments by the SEC'​s Division of Investment Management regarding aspects of the PWG Report and potential money market fund reforms, Federated Hermes, along with the ICI and other industry participants, submitted comment letters that strongly disagree with the conclusions reached in the PWG Report.... Federated Hermes stressed that the market turmoil in March 2020 was created by the Pandemic and the unprecedented global government response and economic shut-​down to stem the spread of the coronavirus.... In a third comment letter, dated September 21, 2021, Federated Hermes expressed its belief that the combination of delinking the potential imposition of redemption gates and liquidity fees with a money market fund'​s weekly liquid asset requirements, adoption of certain liquidity fee procedures, and enhancements to money market funds' ability to '​know their customer' ..., when combined with consideration of, and improvements in, the short-​term markets generally, can address the concerns identified in the PWG Report without adversely impacting the viability of money market funds and their benefits to investors, issuers and capital formation."

It says, "On December 15, 2021, the SEC Commissioners voted to propose new amendments to money market fund rules. In his statement announcing the proposals, SEC Chair Gensler cited the PWG Report, international regulatory concern, the prior FSOC statements, SEC comments and public responses to the SEC'​s requests for comment, as evidence for the systemic risk posed by money market funds. According to the SEC, the proposed amendments would improve the resilience and transparency of money market funds by: (​1) increasing minimum liquidity requirements for daily and weekly liquid assets to 25% and 50%, respectively, to provide a more substantial buffer in the event of rapid redemptions; (​2) removing the ability of money market funds to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds, which would eliminate an incentive for preemptive redemptions; (​3) requiring certain money market funds (​e.​g., institutional prime and institutional municipal (​or tax-​exempt) money market funds) to implement swing pricing, which involves a process of adjusting a fund'​s current NAV such that the transaction price effectively passes on costs stemming from shareholder redemptions to redeeming shareholders, so that they bear the liquidity costs of their redemptions; (​4) enhancing certain reporting requirements (​e.​g., Form N-​MFP and Form N-​CR) to improve the SEC'​s ability to monitor and analyze money market fund data; and (​5) requiring stable NAV money market funds to convert to a floating NAV if future market conditions result in negative money market fund yields. The comment period on the SEC'​s proposed rule will end on April 11, 2022."

The report also tells us, "Federated Hermes is currently reviewing the proposed rule to assess any potential impact to Federated Hermes' business, and intends to participate in the comment process. Federated Hermes believes that swing pricing is not a workable alternative for institutional prime and municipal (​or tax-​exempt) money market funds because it creates uncertainty around redemption proceeds and requires significant system changes for money market funds.... Federated Hermes also opposes increasing the liquidity requirements for daily and weekly assets because of the negative effect such increased requirements will have on money market fund yields. Federated Hermes also opposes the elimination of liquidity fees and redemption gates, and believes money market funds should have a choice between imposing liquidity fees and redemption gates and implementing swing pricing. Finally, Federated Hermes disagrees with the SEC'​s refusal to permit money market funds to use reverse distribution mechanisms or share cancellation methodologies to maintain a stable NAV in a negative rate environment."

It continues, "Federated Hermes has expended, and will continue to expend, significant internal and external resources to engage with regulators on potential money market fund reforms, including through additional comment letters and meetings with U.​S. and global regulators and legislators, the ICI and other industry participants. Management believes money market funds provide a more attractive investment opportunity than other competing products, such as insured deposit account alternatives. Management also believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic. While Federated Hermes believes that some regulations could be improved, such improvements should be measured and appropriate, preserving investors' ability to invest in all types of money market funds.... Legislation has been re-​introduced in the Senate and in the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law."

Discussing "International Regulations," Federated tells us, "The post-​Brexit regulatory environment ... also creates a level of uncertainty regarding the ability and requirements to distribute products and provide investment management services between the UK and EU, increasing regulatory burdens and compliance.... Regarding the regulatory environment for money market funds post-​Brexit, UK-​domiciled money market funds remain on par with current EU regulatory requirements; however, it is possible that the UK may deviate from - or simply not adopt - any new or amended EU money market fund laws, rules or regulations that may be adopted in the future."

They explain, "On February 16, 2022, ESMA published a final report, '​ESMA Opinion on the review of Money Market Fund Regulation,' which makes recommendations to improve the resiliency of money market funds. Among other recommendations, it recommends: (​1) addressing the threshold effects for constant NAV money market funds by removing the possibility to use amortized cost for low volatility NAV money market funds and decoupling regulatory thresholds from suspensions, gates and redemption fees for low volatility NAV and constant NAV money market funds; (​2) addressing liquidity concerns by ensuring mandatory availability of at least one liquidity management tool for all money market funds; (​3) amending daily liquid asset and weekly liquid asset ratios; (​4) adjusting the pool of eligible assets to require money market funds to hold public debt assets, which could be used to satisfy the daily and weekly asset liquidity ratios; (​5) reinforcing the possibility of temporarily using liquidity buffers in times of stress; and (​6) enhancing reporting and disclosure requirements and the stress testing framework for money market funds."

The report then states, "Federated Hermes does not believe money market funds are shadow banking entities. As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic. Federated Hermes intends to continue to engage with UK and EU (​as well as U.​S.) regulators in 2022, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds provide."

Among the "Risk Factors" cited is the "Risk of Federated Hermes' Money Market Products' Ability to Maintain a Stable Net Asset Value." They state, "Approximately 19% of Federated Hermes' total revenue for 2021 was attributable to money market assets. An investment in money market funds is neither insured nor guaranteed by the FDIC or any other government agency. Federated Hermes' retail and government/​public debt money market funds, and its private and collective money market funds, seek to maintain a stable or constant NAV.... Federated Hermes devotes substantial resources, such as significant credit analysis, consideration of ESG factors and attention to security valuation, in connection with the management of its products and strategies. However, the NAV of an institutional prime or municipal (​or tax-​exempt) money market fund, or variable NAV fund or, if the above described conditions are met, a low-​volatility NAV fund, can fluctuate, and there is no guarantee that a government/​public debt or retail (​i.​e., stable or constant NAV) money market fund, or a low-​volatility money market fund, will be able to preserve a stable or constant NAV in the future.... If the NAV of a Federated Hermes stable or constant NAV money market fund were to decline to less than $​1.​00 per share, such Federated Hermes money market fund would likely experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes' Financial Condition."

On low rates, they write, "For the year ended December 31, 2021, Voluntary Yield-​related Fee Waivers totaled $​420.​3 million. These fee waivers were partially offset by related reductions in distribution expenses of $​277.​1 million, such that the net negative pre-​tax impact to Federated Hermes was $​143.​2 million in 2021. For the year ended December 31, 2020, Voluntary Yield-​related Fee Waivers totaled $​113.​0 million. These fee waivers were partially offset by related reductions in distribution expenses of $​98.​4 million, such that the net negative pre-​tax impact to Federated Hermes was $​14.​6 million in 2020."

Finally, the 10-​K adds, "Short-​term interest rates remained near historic lows during the fourth quarter of 2021 as technical factors at the front end of the yield curve kept yields on short-​term government securities -- including repurchase agreements and Treasury bills -- just above zero. Market expectations are that the FOMC will raise interest rates multiple times in 2022, starting in March. Higher yields in 2022 will lower the impact of Voluntary Yield-​related Fee Waivers.... Assuming an increase in interest rates of 25 basis points by the FOMC in March 2022, the first quarter 2022 estimated $​22 million of net negative impact on pre-​tax income from Voluntary Yield-​related Fee Waivers is expected to be reduced by approximately 90% for the second quarter 2022. The actual amount of future Voluntary Yield-​related Fee Waivers and the resulting negative impact of these fee waivers could vary, including in a material way, from management'​s estimates as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, changes in yields on instruments available for purchase by the money market funds, ... changes in fees and expenses of the money market funds, changes in the mix of money market customer assets, changes in customer relationships, changes in money market product structures and offerings, demand for competing products, changes in distribution models, changes in the distribution fee arrangements with third parties, Federated Hermes' willingness to continue the Voluntary Yield-​related Fee Waivers and changes in the extent to which the impact of these fee waivers is shared by any one or more third parties."

​

After 2-​month pause following the release of the SEC'​s Money Fund Reform Proposals, the D&​I and ESG money market fund space appears to be heating up again. A new press release entitled, "Dreyfus launches BOLD shares supporting Howard University," tells us, "Dreyfus Cash Investment Strategies (​Dreyfus), BNY Mellon Investment Management'​s affiliated liquidity manager, ... announced a partnership with Howard University to help support its students in their educational journey with the launch of a new BOLD share class for the Dreyfus Government Cash Management fund. Offered through Dreyfus' largest money market fund, 10% of the BOLD shares net revenue, with a minimum of $​300,​000, will be donated to Howard'​s Graduation Retention Access to Continued Excellence (​GRACE) Grant annually."

It continues, "Howard University, a leading Historically Black College and University (​HBCU), was specifically chosen due to its unwavering commitment to underrepresented minorities and dedication to affordable education. The BOLD shares, which stands for Black Opportunity for Learning and Development, is designed for institutional investors and offered exclusively through BNY Mellon, including LiquidityDirect." (​LiquidityDirect is BNY Mellon'​s online money market fund trading "​portal".)

Dreyfus CIO John Tobin tells us, "Investors can make a significant impact with their cash investments and support Howard University, one of the most distinguished universities in the country.... Partnering with Howard University to help empower the next generation of leaders is an honor. This initiative is just the first step in a long journey with Howard and their graduates."

The press release says, "Howard'​s GRACE Grant was created in 2014 by Howard University President Dr. Wayne A.​I. Frederick to provide additional funding for students who receive the maximum Federal Pell Grant. Distributed based on student need, the program provides a 100% match for Federal Pell Grant students and additional funding for students with no expected family contribution to their education. Since its inception, GRACE recipients saw an average 15% increase in retention and an average four-​year graduation rate of 78%, a 32% increase compared to students who did not receive GRACE funds."

Howard President Dr. Wayne A.​I. Frederick comments, "We are very excited to partner with Dreyfus on this innovative approach to social impact. Through this partnership in support of the GRACE Grant, investors will make a significant impact in the lives of Howard students who are dedicated to succeeding in higher education and in their respective fields but face financial barriers to completing their education."

The release also states, "Dreyfus is pleased to share the following firms are among the inaugural investors in the BOLD share class, supporting today'​s launch: Aon PLC, Genworth Financial, Inc., IBM, Jefferies, Macquarie Group, Protective Life Corporation, Raytheon Technologies, Paramount and UPMC for You."

It quotes Laide Majiyagbe, head of financing & liquidity for BNY Mellon Markets, "Investors are increasingly seeking opportunities to make a social impact with their investment decisions.... Share classes like BOLD enable investors to pursue their financial objectives while also making a real difference in improving the lives and education of promising young people."

Finally, Dreyfus states, "With nearly 50 years of serving investors' cash management needs, the launch of the BOLD shares builds upon the firm'​s deep history of innovation to create an opportunity for clients to invest in a better future. More information on this announcement is available here."

Crane Data currently tracks 35 Social, ESG, Minority or Veteran-​affiliated MMFs with $​85.​9 billion (​as of 1/​31/​22), representing 1.​7% of the total $​5.​043 trillion in taxable MMFs. (​The Social & ESG MMF total is down from $​87.​8 billion as of 12/​31/​21.) Social or "​Impact" MMFs (​all Govt MMFs) total $​32.​9 billion and include: Dreyfus Govt Sec Cash Instit (​DIPXX, $​4.​6B), Federated Hermes Govt Ob Tax-​M IS (​GOTXX, $​7.​0B), Goldman Sachs FS Fed Instr Inst (​FIRXX, $​3.​0B) and Morgan Stanley Inst Liq Govt Sec Inst (​MUIXX, $​18.​3B). ESG MMFs (​All Prime) total $​9.​6B and include: BlackRock LEAF Direct (​LEDXX, $​1.​1B), BlackRock Wealth LEAF Inv (​PINXX, $​1.​5B), DWS ESG Liquidity Inst (​ESGXX, $​608M), Morgan Stanley Inst Liq ESG MMP I (​MPUXX, $​4.​0B), State Street ESG Liq Res Prem (​ELRXX, $​1.​4B) and UBS Select ESG Prime Inst Fund (​SGIXX, $​1.​0B).

Social and Veteran-​Affiliated MMF Share Classes (​Prime and Govt) total $​43.​3B and include: BlackRock Lq FedFund Mischler (​HUAXX, $​1.​6B), Goldman Sachs FS Govt Drexel Hamilton (​VETXX, $​6.​3B), Goldman Sachs FS Prm Ob Drexel Hamilton (​VTNXX, $​31M), Invesco Govt & Agency Cavu (​CVGXX, $​4.​3B), Invesco Liquid Assets Cavu (​CVPXX, $​1M), Invesco Treasury Cavu (​CVTXX, $​588M), JPMorgan 100% US Trs MM Academy (​JACXX, $​102M), JPMorgan 100% US Trs MM Empower (​EJTXX, $​138M), JPMorgan Prime MM Academy (​JPAXX, $​937M), JPMorgan Prime MM Empower (​EJPXX, $​565M), JPMorgan US Govt MM Academy (​JGAXX, $​10.​8B), JPMorgan US Govt MM Empower (​EJGXX, $​4.​1B), JPMorgan US Trs Plus MM Academy (​JPCXX, $​1M), JPMorgan US Trs Plus MM Empower (​EJUXX, $​220M), Morgan Stanley Inst Liq ESG MMP CastleOak (​OAKXX, $​255M), Morgan Stanley Inst Liq Govt CastleOak (​COSXX, $​182M) and Northern Instit Govt Select SWS (​WCGXX, $​12.​8B). (State Street also has Opportunity, Bancroft, Blaylock and Cabrera shares, but these have minimal assets to date.)

For more on ESG and "​Social" MMFs, see these Crane Data News pieces: "SSGA Debuts Opportunity Class; BlackRock Bancroft, Cabrera Shares Live" (​11/​17/​21); "More D&​I: State Street Files for Blaylock Van Shares; WSJ Hits Tether" (​10/​27/​21); "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares" (​8/​19/​21); "Northern Renames Diversity Shares Siebert Williams; Safened Platform" (​4/​20/​21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (​3/​25/​21); "JP Morgan Launches '​Empower' Share Class to Support Minority Banks" (​2/​24/​21); "Mischler Financial Joins '​Impact' or Social Money Market Investing Wave" (​12/​5/​19); and "Dreyfus Launches '​Impact' or Diversity Government Money Market Fund" (​11/​21/​19). Click here to see the Federal Home Loan Bank Office of Finance'​s list of D&​I or diversity and inclusion, dealers.

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