News Archives: April, 2022

ICI released its latest weekly "Money Market Fund Assets" report, as well as its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for March 2022 yesterday. The former shows assets rebounding strongly after plummeting for 3 weeks in a row. The big jump follows last week's 8th largest weekly decline ever (which included the April 15 tax payment date). Year-to-date, MMFs are down by $195 billion, or -4.2%, with Institutional MMFs down $127 billion, or -3.9% and Retail MMFs down $68 billion, or -4.6%. Over the past 52 weeks, money fund assets are down by $20 billion, or 0.4%, with Retail MMFs falling by $67 billion (-4.6%) and Inst MMFs rising by $47 billion (1.5%). (Month-to-date in April through 4/27, MMF assets have decreased by $54.0 billion to $4.960 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.)

ICI's weekly release says, "Total money market fund assets increased by $41.33 billion to $4.51 trillion for the week ended Wednesday, April 27, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $39.83 billion and prime funds increased by $170 million. Tax-exempt money market funds increased by $1.33 billion." ICI's stats show Institutional MMFs jumping by $50.0 billion but Retail MMFs decreasing $8.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.005 trillion (88.8% of all money funds), while Total Prime MMFs were $412.6 billion (9.1%). Tax Exempt MMFs totaled $91.8 billion (2.0%).

ICI explains, "Assets of retail money market funds decreased by $8.64 billion to $1.40 trillion. Among retail funds, government money market fund assets decreased by $10.01 billion to $1.12 trillion, prime money market fund assets decreased by $241 million to $192.19 billion, and tax-exempt fund assets increased by $1.61 billion to $83.63 billion." Retail assets account for just under a third of total assets, or 31.1%, and Government Retail assets make up 80.3% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $49.97 billion to $3.11 trillion. Among institutional funds, government money market fund assets increased by $49.84 billion to $2.88 trillion, prime money market fund assets increased by $411 million to $220.35 billion, and tax-exempt fund assets decreased by $281 million to $8.18 billion." Institutional assets accounted for 68.9% of all MMF assets, with Government Institutional assets making up 92.6% 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 approximately $400 billion lower than Crane's asset series.)

ICI's monthly "Trends" report shows that money fund assets increased $9.6 billion in March to $4.505 trillion. This follows a decrease of $38.3 billion in February, 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 Mar. 31, 2022, money fund assets increased by $107.7 billion, or 2.4%.

The monthly release states, "The combined assets of the nation's mutual funds increased by $86.22 billion, or 0.3 percent, to $25.29 trillion in March, 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 $44.54 billion in March, compared with an outflow of $34.46 billion in February.... Money market funds had an inflow of $11.69 billion in March, compared with an outflow of $37.56 billion in February. In March funds offered primarily to institutions had an inflow of $1.38 billion and funds offered primarily to individuals had an inflow of $10.31 billion."

The Institute's latest statistics show that Taxable funds and Tax Exempt MMFs both saw gains last month. Taxable MMFs increased by $9.2 billion in March to $4.505 trillion. Tax-Exempt MMFs increased $2.5 billion to $87.3 billion. Taxable MMF assets increased year-over-year by $107.7 billion (0.2%), while Tax-Exempt funds fell by $12.0 billion over the past year (-2.9%). Bond fund assets decreased by $162.5 billion in March to a $5.253 trillion, but they decreased by $49 billion (-0.01%) over the past year.

Money funds represent 18.2% of all mutual fund assets (up 0.2% from the previous month), while bond funds account for 20.8%, according to ICI. The total number of money market funds was 302, unchanged from the prior month and down from 328 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 March, increasing $52.8 billion, or 2.5%, to $2.191 trillion, or 48.6% of holdings. Repo holdings have increased $1.065 trillion, or 94.6%, over the past year. (See our April 12 News, "April MF Portfolio Holdings: Fed Repo Jumps; Treasuries, TDs Plunge.)

Treasury holdings in Taxable money funds sharply last month, but they remained the second largest composition segment. Treasury holdings decreased $57.5 billion, or -3.4%, to $1.637 trillion, or 36.3% of holdings. Treasury securities have decreased by $722.5 billion, or -30.6%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $19.2 billion, or -5.1%, to $357.3 billion, or 7.9% of holdings. Agency holdings have fallen by $213.7 billion, or -37.4%, over the past 12 months.

Certificates of Deposit (CDs) reclaimed fourth place; they decreased by $44.0 billion, or -23.4%, to $144.3 billion (3.2% of assets). CDs held by money funds shrank by $42.2 billion, or -22.6%, over 12 months. Commercial Paper fell back to fifth place, but was down $12.8 billion, or -8.7%, to $134.5 billion (3.0% of assets). CP has decreased by $42.3 billion, or -23.9%, over one year. Other holdings increased to $28.6 billion (0.6% of assets), while Notes (including Corporate and Bank) inched higher to $4.0 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 58.757 million, while the Number of Funds unchanged this past month stay at 243. Over the past 12 months, the number of accounts rose by 15.611 million and the number of funds decreased by 18. The Average Maturity of Portfolios was 29 days, 1 day higher than February. Over the past 12 months, WAMs of Taxable money have decreased by 15.

We're keeping the "Comments on Money Market Fund Reform" to the SEC coming with letters from Allspring (formerly Wells Fargo Funds), State Street Global Advisors and Capital Group, the 10th, 11th and 12th largest managers of money market funds. Allspring's submission, written by President Andrew Owen, tells us, "Allspring is the sponsor of the Allspring Funds, a fund family that offers a diverse set of government, prime and tax-exempt money market funds across multiple distribution platforms that include both retail and institutional investors. Assets under management in the Allspring Money Market Funds totaled approximately $177 billion as of March 31, 2022. As the 10th largest sponsor of money market funds in the United States, Allspring welcomes this opportunity to provide the Commission with its thoughts on the Proposing Release." (Reminder: Please register and make hotel reservations soon for our big Money Fund Symposium conference, which will take place June 20-22, 2022 in Minneapolis, Minn. We look forward to seeing you in June!)

The letter states, "For reasons more fully explained below, we oppose the Commission's proposed swing pricing requirement for institutional prime and institutional tax-exempt money market funds. We do not believe that the imposition of such a mechanism is necessary to prevent runs on money market funds, nor do we think that such a mechanism is capable of doing so. While we acknowledge that the imposition of swing pricing may pass some costs of redemption onto redeeming investors during periods of market stress, we note that redeeming investors already experience these costs at least in part due to the fluctuating NAV of the institutional prime and institutional tax-exempt money market funds that would be required to adopt swing pricing. And during normal periods, we believe that swing pricing would have no impact on redeeming investors at all. Given the costs and operational difficulties associated with implementing and continuously imposing swing pricing, even during normal periods when it would have no effect, as well as the potential unintended consequences we discuss below, we think the downsides of swing pricing far exceed the limited benefits."

Allspring continues, "In addition, for the reasons discussed more fully below, we oppose the Commission's proposed amendments to Rule 2a-7 to prohibit a stable NAV money market fund from reducing 'the number of its shares outstanding to seek to maintain a stable net asset value per share or stable price per share'. While we acknowledge that the concept of share cancellation may be somewhat new to certain types of investors, this obstacle can be overcome with clear disclosure, and we believe that such concerns are not a sufficient reason for prohibiting what, in our view, is the most efficient method for stable NAV money market funds to deal with the unlikely scenario of negative interest rates. In addition, we oppose the Commission's proposed requirement that government and retail funds confirm that intermediaries transacting in fund shares have the capacity to process transactions at prices that do not correspond to a stable NAV if the funds were to convert to a floating NAV."

They add, "In conclusion, we strongly object to amending Rule 2a-7 to include a swing pricing requirement or to prohibit the use of share cancellation methods such as RDM. We believe that such amendments would result in negative consequences for shareholders, fund sponsors, the short-term funding markets, and the industry as a whole, while not achieving the objectives the Commission seeks and unduly hampering flexibility for money market funds and the boards that oversee them. We understand and support the Commission's need to undertake further money market reform in light of the events of March 2020. However, we believe that removing the threat of fees and gates from Rule 2a-7 while also increasing the daily and weekly liquid asset requirements for money market funds are adequate steps on their own to strengthen funds and prevent the sort of investor behavior we saw in March 2020. Indeed, had the SEC not adopted the fees and gates provisions in 2014, additional reform might not be necessary now at all. We say that not as a criticism, rather, simply as an acknowledgement that predicting investor behavior is challenging, and as a reminder that reforms adopted under the best of intentions may lead to unintended consequences. We urge restraint."

State Street Global Advisors' comment letter, written by CIO Matthew Steinaway, says, "State Street Global Advisors strongly opposes the Proposed Rule. While some aspects of the proposal could, if properly calibrated, benefit investors and improve market stability in times of stress, we expect the swing pricing mandate for prime institutional funds to significantly inhibit the viability of such funds as investment or cash management products, most likely effectively eliminating such funds from the marketplace, and unnecessarily and unwisely reducing investment options for our clients."

It explains, "First, implementing swing pricing for MMFs is operationally challenging, or perhaps impossible, without making substantial changes to the MMF investment offering. Capturing (or estimating) the data needed to calculate a swing factor takes hours, not minutes, and would require funds to impose much earlier investor cut-off times, eliminate or reduce the ability of MMFs to calculate multiple NAVs per day and reduce MMFs' ability to offer T+0 settlement. For investors, institutional prime MMFs would become much less useful investment options, most notably through loss of intra-day liquidity."

SSGA writes, "Second, the concept that all MMF redemptions should carry the full cost of liquidating a vertical slice of the MMF's portfolio is severely flawed, and inconsistent with how MMFs operate. MMFs are designed specifically for short-term investing, and regularly handle large subscriptions and redemptions. MMFs hold liquidity to meet these large redemptions, usually funded through maturing assets rather than secondary market activity. When a MMF does sell assets, it is done strategically, considering multiple factors, including available market liquidity, market pricing, the overall composition of the portfolio, rating agency rules and forecasts of future liquidity needs. The liquidation of a vertical slice of MMF assets is simply not how such funds manage liquidity, and imposing a swing factor based on such an assumption is simply not consistent with how MMFs operate, and would result in inaccurate, model-based NAVs disconnected from the actual liquidity and redemption practices of the fund."

They tell us, "As a result, the Commission may want to consider requiring funds, under relatively extreme circumstances, to assess set redemption fees under predetermined fund level triggers.... Should the Commission determine such a measure is necessary, we suggest a fixed redemption fee, perhaps of 1%, which is meaningful enough to protect the fund and remaining investors and to provide a disincentive to redemptions during periods the fee is applied."

SSGA's comment adds, "We are concerned that the Commission significantly underestimates the burden and market disruption that will result from its proposed certification requirement. Fixed NAV MMFs are predominantly used as cash management and 'sweep' vehicles, with very frequent and large transaction volumes facilitated by platforms and intermediaries. While a fixed MMF may itself be able to switch to a floating NAV, the system of intermediaries serving investors in the MMF, in many cases, cannot or will not. Certifying the ability to switch to a floating NAV would require MMFs to ensure that this entire ecosystem can support the change, a near impossible task, particularly in the current environment, when negative yields are not imminent or likely in the foreseeable future for US MMFs.... As the Commission describes in its Proposed Rule, there are other tools available which would allow funds to address a negative rate environment, particularly a Reverse Distribution Mechanism ('RDM'). The Commission takes a negative view on the use of RDMs. We disagree, and suggest the Commission reconsider, and allow use of RDMs as an option for fixed NAV MMFs to pass on negative yields to investors."

Finally, The Capital Group, manager of the American Funds, writes "Money market funds play a critical and essential cash management function within the market and to investors of funds managed by the Capital Group. Capital Group manages two money market funds. The first is American Funds U.S. Government Money Market Fund, which as its name implies is a government money market fund that as of March 31, 2022 has approximately $24 billion.... The second is the Capital Group Central Cash Fund ('CCF'), an institutional prime money market fund that is used as a central cash management vehicle primarily for other funds managed by Capital Group and is not offered to the public. As of March 31, 2022, this fund has approximately $147 billion.... We estimate that assets under management of Capital Group's internal institutional prime money market fund represent approximately 18% of overall institutional prime assets. During March 2020 and as discussed further below, both our U.S. government money market fund and CCF realized significant inflows."

They state, "Capital Group generally supports removing the links between fund liquidity requirements and the imposition of redemption gates and liquidity fees, as well as increasing funds' daily and weekly liquidity requirements. We are also supportive of clarifications to rule 2a-7 that will provide better and more consistent data.... At the same time, we are concerned that the swing pricing component of the Proposal will (1) not meet the Proposal's intended objective of preventing fund dilution or runs on funds, (2) reduce the overall availability of money market funds and (3) simultaneously impose substantial and unduly burdensome operational complexity and costs to money market funds. Additionally, although we are supportive of the Proposal's amendments to certain reporting requirements on Form N-MFP to improve the availability of information about money market funds, for the reasons described below, we are concerned that the Proposal does not provide adequate time for filers to submit such additional reporting."

The Capital Group also says, "Privately offered money market funds organized, for example, by a fund adviser for the purpose of centrally managing the cash of the investment companies within a fund complex are inherently different in nature. Capital Group's own non-public, central money market fund focuses on liquidity and capital preservation over yield, and we structure CCF's portfolio accordingly. In our experience, the fund also has greater visibility into upcoming and/or larger redemptions, in particular, and can build shorter term liquidity in anticipation."

They add, "Lastly, consistent with the data driven and supported approach we are advocating for, as illustrated by the lower redemption rates realized by internal money market funds noted in the Proposal's release and as substantiated by Capital Group's own data, we strongly believe that nonpublic internal money market funds should be exempt from the swing pricing requirement if adopted. Because nonpublic internal money market funds have greater visibility into upcoming and/or larger redemptions, in particular, and can build shorter term liquidity in anticipation, the Commission's policy concerns of significant unforeseen shareholder redemptions and first-mover advantage are not typically applicable to nonpublic internal money market funds."

Morgan Stanley and Dreyfus, the 7th and 8th largest managers of money market funds, also submitted "Comments on Money Market Fund Reform" to the SEC. Morgan Stanley Investment Management's letter, written by Jonas Kolk, tells us, "MSIM was an early provider of money market funds in the United States, having offered them since 1975. Today we manage government, prime and tax-exempt money market funds based in the United States -- the Morgan Stanley Institutional Liquidity Funds -- as well as internationally domiciled money market funds. Our Global Liquidity Solutions business, which includes US money market funds operating pursuant to Rule 2a-7 under the Investment Company Act, international money market funds, ultra-short bond funds, and separately managed accounts, had a total of $393 billion in assets ... as of Dec. 31, 2021. US money market funds account for the majority of the AUM of Global Liquidity Solutions ($297 billion)."

Their executive summary says, "MSIM fully supports the SEC's goals of enhancing money market fund resiliency during stressed market conditions and of improving the transparency of money market funds. We agree with the Commission that the events of March 2020 demonstrate reforms are needed to Rule 2a-7. MSIM supports eliminating incentives for preemptive redemptions from institutional prime and tax-exempt funds and allowing those funds to use liquidity buffers more effectively to satisfy heavy redemptions that occur during stressed market conditions."

It notes, "As discussed in more detail below, our letter focuses on the following key provisions of the Release: MSIM supports the SEC's proposed enhancements to certain reporting requirements for money market funds.... MSIM supports increasing daily and weekly liquid assets requirements. However, ... the SEC should adopt a minimum weekly liquid assets threshold of 45% rather than the proposed 50% threshold. MSIM believes the increased liquidity minimums, coupled with the removal of the possibility of redemption gates, may be sufficient to meet the SEC's stated goal of mitigating the effects of large redemptions, and further efforts to address shareholder dilution may not be warranted. Indeed, before imposing significant additional regulatory burdens on money market funds, such as swing pricing or another anti-dilutive measure ('ADM'), we strongly encourage the SEC to further study the effects of increased liquidity minimums on improving the resilience of money market funds."

Morgan Stanley's post continues, "Nonetheless, if the Commission believes that an ADM is necessary at this time, MSIM believes a simpler and more direct form of ADM would be far more effective than the swing pricing framework proposed in the Release. Instead of swing pricing, MSIM strongly supports an evidence-based non-discretionary liquidity fee of 2% triggered by net redemptions, the same metric the Release has proposed for swing pricing. To this end, MSIM supports the proposed removal of the redemption gate provisions from Rule 2a-7 and the delinking of liquidity fees and redemption gates from weekly liquid assets. An ADM using a liquidity fee -- divorced from weekly liquid asset levels or the possibility of redemption gates -- specifically charges first redeemers for the cost of their activity at a time of severe stress. Calibration of the trigger should be tied to levels of net redemptions that in fact indicate severe stress. MSIM's experience indicates this level should be 15% net redemptions over two consecutive trading days, which is substantially higher than the 4% proposed market impact threshold set forth in the Release. To facilitate implementation of any ADM, the SEC should require a standard T+1 settlement cycle for transactions in institutional prime and tax-exempt money market funds."

It also tells us, "MSIM strongly opposes the proposed amendments to address negative interest rates that would (i) prohibit a government or retail money market fund (a 'stable NAV money market fund') from implementing a reverse distribution mechanism ('RDM') or routine reverse stock split and (ii) expand a stable NAV money market fund's obligation to confirm in advance that its financial intermediaries can fulfill shareholder transactions if the fund converts to a floating net asset value ('NAV') per share. As evidenced by European money market funds, RDM provides a more streamlined, practical and elegant solution to address the potential for negative interest rates.... Seeking up-front assurances from intermediaries regarding their ability to handle conversions (and deconversions) between stable and floating NAVs is not necessary nor is it supported by the market and historical facts in the United States. We believe that the obligation to seek assurances from financial intermediaries would unnecessarily reduce assets in government and retail money market funds and could force investors to hold cash in demand deposit accounts, which likely would be harmful both to the investors making such deposits and to the banks receiving them."

MSIM adds, "In addition, the SEC should consider requiring financial intermediaries holding omnibus positions to provide data periodically and consistently to money market funds regarding the ten largest underlying clients (excluding identities) to assist money market funds in managing liquidity."

Dreyfus's feedback letter, written by CEO Thomas Gibbons, tells us, "BNYM Investment Adviser, through its division Dreyfus Cash Investment Strategies, manage[s] $255 billion invested in 17 domestic money market mutual funds structured within the confines of Rule 2a-7 under the Investment Company Act of 1940. Pershing LLC, provides clearing, brokerage custody and other related services. In addition, our Securities Services and Market and Wealth Services businesses provide custody, cash management, clearing, fund accounting, transfer agency, and other services for money market funds and their investors. Together, our businesses provide a well-rounded view of the Proposed Rule's impacts on money market funds."

It states, "BNY Mellon supports the following overarching goals for money market fund reform: Improve the resilience of money market funds during stressed markets, eliminating the need for government intervention; Improve the functioning of short-term funding markets; and, Reduce the likelihood that interventions would be needed to meet future money market fund runs.... BNY Mellon has assessed the changes introduced by the Proposed Rule. Due to the breadth of changes contemplated, we are focusing on three specific suggestions that would have the most impact on investors and on the money market fund industry: A. Amending portfolio liquidity requirements, including decoupling the weekly liquid asset threshold from the imposition of liquidity fees and redemption gates, B. Removing the proposed swing pricing requirement, and C. Introducing reverse distributions as an alternative option for money market funds to handle negative interest rates."

Gibbons continues, "We provide details on the ways in which we believe these rulemaking changes would better serve investors and enhance the resilience of the money market fund industry in Sections A through C below. BNY Mellon has considered the remaining reform options detailed in the Proposed Rule. We agree with the Investment Company Institute's comment letter, dated April 11, 2022, which further discusses the remaining reform options."

He writes, "We agree with the Proposed Rule that money market funds must have a strong source of available liquidity to meet daily redemption requests, particularly in times of market stress. As previously noted, the tie between the Rule 2a-7 requirement imposing a 30% weekly liquid asset minimum (the 'WLA Portfolio Minimum') and the WLA percentage threshold at which a fund's Board of Directors or Trustees may consider the potential imposition of liquidity fees and/or redemption gates could motivate investors to preemptively redeem in situations where a fund's WLA moves towards 30%. This pro-cyclical behavior hastened runs and hampered funds from accessing a fund portfolio's available liquidity to meet redemptions."

BNY Mellon comments, "We also agree with the [ICI letter] suggestion that the variability of introducing swing pricing to institutional money market funds could reduce the appeal of these funds as cash management tools. If swing pricing were introduced, the many investors using these funds for cash management purposes would migrate to private funds, ultra-short funds or separately managed accounts, and many fund managers would leave the space."

They add, "We agree that the money market fund industry must have a clear path forward on how to operate when interest rates become negative. While the pricing provisions of Rule 2a-7 explicitly state that constant NAV funds must have the ability to transition to a floating NAV in certain circumstances where the fund's Board determines that doing so is in the best interest of the fund and its shareholders, other options must be in place to support money market funds if interest rates become negative. A reverse distribution mechanism should be authorized as an additional way for a fund to operate in that environment."

Finally, they conclude, "We appreciate the goals of the Proposed Rule to help protect investors and the money market fund industry. As discussed in Sections A through C above, the three key areas in which the Commission should consider changes are: (A) amending portfolio liquidity requirements, including decoupling the weekly liquid asset threshold from the imposition of liquidity fees and redemption gates, (B) removing the proposed swing pricing requirement, and (C) introducing reverse distributions as an alternative option for money market funds to handle negative interest rates. Finally, we emphasize the need for time to make any necessary system updates to accommodate changes under any final rulemaking, which the ICI Letter outlines in further detail."

We continue excerpting from the most important "Comments on Money Market Fund Reform" written to the Securities & Exchange Commission in response to their Dec 15 "Money Market Fund Reforms proposal. The latest is from Federated Hermes, who not only takes the record for the longest submission (at 115 pages), but who also published a second 45-page letter focused solely on the swing pricing proposal. CEO J. Christopher Donahue and Liquidity CIO Deborah Cunningham write, "This letter presents the comments of Federated Hermes, Inc., and its subsidiaries, in response to the rules regarding money market funds proposed by the Securities and Exchange Commission.... We have also submitted a separate comment letter focused on the Proposal's swing pricing requirements. We would also like to state, up-front, our endorsement of the comment letter submitted by the Investment Company Institute ('ICI') on the Proposal, with only minor differences regarding (i) the application of liquidity fees, (ii) availability of discretionary gates, and (iii) increases to the required daily and weekly liquidity requirements. We fully support the ICI's opposition to swing pricing and their support of a reverse distribution mechanism ('RDM'), as the most appropriate means to manage MMFs in a negative rate environment. As the ICI so rightly points out, MMFs are critically important for (i) over 50 million retail investors, as well as corporations, municipalities, and other institutional investors, who rely on the $5 trillion MMF industry as a low cost, efficient, transparent, cash management investment vehicle that offers market-based rates of return, and (ii) governments (federal, state and local), businesses, and financial institutions who utilize MMFs as an important source of financing."

They tell us, "Federated Hermes has managed MMFs since their inception and remains a leader in the management and distribution of MMFs around the globe. We take our position as an industry leader very seriously, not only because of our history successfully managing MMFs for over 45 years, but because of the critical role MMFs have played for stakeholders, including shareholders, issuers, and those that benefit from the activities of both the public and private sector entities that access the short-term funding markets. We have worked tirelessly over the years to defend and support MMFs, one of the SEC's greatest innovations and one of the best products ever created, against repeated challenges by regulators who seek to control all aspects of the short-term funding markets. It is in this light that we provide our response to the Proposal, as failure to adopt a measured response to the unprecedented events of March 2020 will have unnecessary and catastrophic consequences for stakeholders, including the short-term funding markets, and the overall economy."

The letter explains, "Federated Hermes appreciates the tremendous pressure being applied on the Commission with respect to MMFs. Central banks are once again singularly focused on eliminating the utility of MMFs and thereby regulating them out of existence. Former Federal Reserve ('Fed') Bank President Rosengren, a long-standing critic of MMFs, stated 'my personal preference would be not to have prime money market funds.' Ignoring not only the lack of any data supporting assertions that MMFs played a role in the events of March 2020, but also the dramatic reduction in size of the prime MMF universe after the SEC's 2014 amendments to Rule 2a-7, central banks continue to push a false narrative as to the role MMFs have in short-term funding markets and, specifically, the impact MMFs had on the market turmoil experienced in the Spring of 2020, resulting from the COVID-19 pandemic and government reactions to it."

It continues, "While global regulators have acknowledged that the Liquidity Crisis has placed a spotlight on the critical need to reform and enhance the resilience of short-term funding markets, such important market reforms have taken a backseat to the reform of MMFs, which 'reform' paradoxically would harm short-term markets by reducing liquidity and increasing costs to issuers relying on these markets for funding. Improving short-term funding markets, of which MMFs are but a very small participant, and addressing the root causes of the Liquidity Crisis, should be the priority, and any reform to MMFs, without consideration of the impact of changes to the short-term funding market, would be counterproductive."

Federated comments, "In determining not to apply swing pricing to MMFs in 2016, the SEC confirmed that a liquidity fee was the Commission's preferred approach for MMFs. That determination was correct in 2016 and remains correct today. Swing pricing eliminates a key tenet of MMFs; the ability to transact intraday and same day. Swing pricing would also encourage some investors to market time MMFs not only in stressed conditions, but at any regular interval where a MMF would ordinarily expect to have net redemptions (month-end, quarter-end, year-end, tax days, etc.) in excess of the Proposal's 'impact threshold' of 4% of a MMF's total assets that would trigger imposition of swing pricing, which according to the Commission's Notice accompanying the Proposal, occurs on approximately 5% of trading days. This is slightly more often than once per month, hardly a rare event, nor one that would be difficult for market timers to game.... [S]wing pricing would also serve as another 'bright line' for investors and would accelerate redemption requests in times of stress as some investors may look to game the system."

They say, "Certainly a properly calibrated, unencumbered, targeted liquidity fee remains a more appropriate liquidity management tool ('LMT') for MMFs as opposed to swing pricing which will encourage unnecessarily early redemptions, greatly diminish the already dramatically reduced size of the prime MMF market (if not eliminating it entirely), increase the risk of shareholders being treated unfairly (as the Proposal would permit a fund manager to utilize purchase and redemption assumptions in determining whether a swing pricing should be applied) and create new opportunities for market timing. We should not replace one improper bright line trigger with another."

Federated's letter continues, "Replacing one improper bright line trigger with another is exactly what some managers are proposing with respect to a mandatory liquidity fee. Mandatory liquidity fees, which include triggers (either single or double triggers), one of which is a fund's liquidity levels, will lead to increased redemptions, and once again convert usable liquidity into a floor. Moreover, those managers advocating for mandatory liquidity fees are also proposing a fixed liquidity fee or fees. A discretionary liquidity fee, with discretion in both the timing of implementation and amount, will (i) not serve as a trigger for redemptions, (ii) not impair a fund's ability to utilize its liquidity as intended, and (iii) prevent the imposition of a punitive fee. A discretionary model empowers a board, consistent with its fiduciary duty and in the best interest of the fund and the fund's shareholders, to implement, in instances involving material dilution, a liquidity fee which best approximates the cost of obtaining the actual liquidity in specific market circumstances."

It adds, "We very much appreciate that the Proposal has rejected, once again, many of the old, disproven, and discarded reform ideas which were tabled as part of the PWG Report. However, the need for 'more' or a 'package', so to speak, has resulted in a current Proposal which (i) introduces new ways to market time funds and treat investors unfairly, (ii) includes proposals which are neither supported by data nor the Commission's cost benefit analysis, (iii) is based upon a number of incorrect assumptions, (iv) ignores less onerous alternatives which would preserve, not eliminate, the utility of MMFs for investors and issuers, and (v) unjustifiably calls into question the integrity of the U.S. mutual fund governance system."

Federated complains, "The Proposal then goes beyond the events of the Liquidity Crisis and, as a matter of first impression, simultaneously introduces a prohibition on the use of a RDM to address a negative yield environment, putting at risk the four trillion dollars invested in U.S. Government MMFs. Notwithstanding that the interest rate environment continues an upward trajectory, and notwithstanding the repeated statements of the Fed on its intention not to introduce negative interest rates in the U.S., the proposed prohibition on the use of RDM and the requirement for financial intermediaries to confirm that they are capable to transact using a four-digit NAV would effectively kill off U.S. Government MMFs immediately -- even if a negative rate environment is never experienced. The Proposal cites only a concern that investors will not understand how RDM would operate -- ignoring the fact that the U.S. is a disclosure-based regulatory jurisdiction. Concerns regarding shareholder confusion can and should be addressed with the use of clear and concise, plain English disclosure. In a negative rate environment, investors will experience negative returns in their bank accounts or any other liquidity management product. Retaining the availability to invest in U.S. Government MMFs in a negative rate environment is critically important to investors."

They state, "Federated Hermes supports a data-driven approach to regulation which will enhance the safety and resilience of MMFs. Such an approach must include a full analysis of the short-term funding markets, not just MMFs, to ensure that the Proposal addresses the root causes of the Liquidity Crisis. Other than removing the improper linkage, the data simply does not support the Proposal. The underlying assumptions, the introduction of new market timing / arbitrage opportunities, the lack of credible supporting data, the disregard of more appropriate LMTs, and the implication that fund boards will fail to discharge their fiduciary duty are alarming."

Federated writes, "In this letter, we have endeavored to answer the questions set forth by the Commission and we remain eager to discuss any questions or comments which may arise. Ensuring that any final rules adopted (i) are supported by data and a fact-based cost benefit analysis, (ii) properly consider less onerous and equally effective alternatives, and (iii) enhance the safety and resilience of MMFs, is our top priority and a commitment we have made to our stakeholders."

Deep in the body of the letter, they also point out, "We note that while MMFs advised by global systemically important banks ('GSIBs') only represented approximately 28% of prime MMF assets, they were responsible for 56% of net redemptions from prime institutional MMFs, during March and April 2020. At the precise moment when those same GSIBs needed deposits to fund their balance sheet growth to cover record-breaking commercial borrower draw-downs on lines of credit, their institutional cash management clients shifted approximately $56 billion out of prime MMFs, and the GSIBs received the large inflows of deposits they needed. This looks less like an investor run than GSIBs working with their cash management clients to strategically shift accounts to meet the their balance sheet funding needs."

Federated's second comment letter written by Cunningham and Chief Risk Officer Michael Granito, says, "This letter presents the comments of Federated Hermes, Inc. and its subsidiaries with respect to the recent issuance by the Securities and Exchange Commission of a release proposing reforms to Rule 2a-7 that require, among other things, that all non-government and retail money market funds (i.e. institutional prime and tax-exempt money market funds, 'MMFs') use 'swing pricing' in some circumstances.... This letter will focus primarily on swing pricing as proposed. FHI has filed a separate comprehensive comment letter addressing other aspects of the Proposal. Federated Hermes is one of the largest investment management firms in the United States ... including $301 billion in registered money market fund assets and a total of $451 billion in cash management products.... Federated Hermes ... provides comprehensive investment management to more than 8,400 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers."

It tells us, "Federated Hermes has managed money market funds since their inception and remains a leader in the management and distribution of MMFs around the world. With over 45 years of experience in managing MMFs, we have witnessed firsthand their embodiment of the SEC's statutory mandate of capital formation, efficiency and competition. Our prime, tax-exempt and government MMFs have materially improved the yield to shareholders and reduced the borrowing costs for municipal and corporate issuers. Throughout this long history we have steadfastly defended MMFs against unwarranted arguments for bank-like regulation or other amendments that would scuttle prime and tax-exempt funds, while supporting proposals to improve their resilience. We are at the precipice of another ill-conceived rulemaking. In this letter, Federated Hermes will demonstrate that the costs of the proposed swing pricing requirement for institutional prime and tax-exempt funds far outweigh the alleged benefits; and that the adoption of mandatory swing pricing, as proposed, would be arbitrary and capricious."

Another of the major "Comments on Money Market Fund Reform" posted to the SEC comes from J.P. Morgan. CEO John Donohue writes, "J.P. Morgan Asset Management ('JPMAM') is pleased to respond to the Securities and Exchange Commission's proposal on money market fund reforms. JPMAM is one of the largest managers of MMFs, with over $656 billion in assets under management globally. In the United States, we currently manage approximately $450 billion in MMFs, across government and treasury MMFs (~$363 billion), institutional prime MMFs (~$69 billion), retail prime MMFs (~$6 billion), and tax-exempt MMFs (~$11 billion)."

He tells the SEC, "Like many other MMFs, JPMAM's institutional prime and, to a lesser extent, tax-exempt funds saw meaningful redemptions in March 2020 as a result of the financial market's reactions to the coronavirus pandemic and government efforts to combat it. We are therefore supportive of the SEC's efforts to improve the resilience of MMFs in the US. We evaluated each of the policy options set forth in the December 2020 Report of the President's Working Group on Financial Markets, and provided views in a comment letter to the SEC in April 2021. After careful consideration of the SEC's proposed rules for MMFs and the discussion in the Proposing Release, we have modified our recommendations slightly to address the SEC's concerns."

JPMAM says, "In summary: We strongly support removing the tie between MMF's weekly liquid assets (WLA) and the obligation for a board to consider imposing a fee or gate; we believe this is the single most important reform to enable MMFs to meet elevated redemption levels. We do not oppose raising WLA and daily liquid assets (DLA) to provide a more substantial buffer; however, we believe the proposed 25 percent DLA and 50 percent WLA are too high; we recommend 20 percent DLA and 40 percent WLA. We continue to believe that swing pricing does not work for institutional MMFs, even with the SEC's proposed modifications, and that its imposition would result in a substantial reduction in both assets in and number of such funds offered. Although we do not believe additional reforms are necessary, should the SEC insist on adding an antidilution levy, we believe a tiered liquidity fee could achieve the same goals with fewer negative consequences."

On "Background," they state, "MMFs play a critical role in the functioning of US financial markets and the global economy. We believe the proposed rules, in particular swing pricing, would impair the functionality and attractiveness of institutional MMFs and, as a result, substantially reduce their assets under management (AUM), and lead to industry consolidation. As discussed in more detail below, this view is informed by discussions with clients of our institutional prime MMFs, who shared their thoughts and likely reactions to the proposed changes. In considering the costs and benefits of the proposed rules, we urge the SEC to consider the potential knock-on impacts of a substantial reduction in prime AUM across the short-term market ecosystem."

The letter also says, "As an investment option, institutional prime MMFs serve as an alternative to bank deposits for cash investors who value the same-day liquidity, diversification, and returns these funds offer. Banks frequently position MMFs with deposit customers as a means to help manage their balance sheets more effectively. Providing an alternative to deposits is more important as leverage-based requirements continue to become increasingly binding for large US banks, prompting some banks to push deposits off their balance sheets."

Discussing the "Short-Term Market Ecosystem," JPMAM explains, "[W}hile we recognize the importance of examining the resilience of MMFs following the experiences of March 2020, it is important to note that the challenges were not isolated to prime and tax-exempt MMFs. As market participants demanded cash, a number of market forces, some of them self-perpetuating, caused liquidity to tighten. As discussed in more detail in our PWG letter, modifications elsewhere in the short-term market ecosystem may also be warranted, including enhancing banks' ability to intermediate during times of crisis, reducing the procyclicality of initial margin models at central counterparties, and potentially enhancing the market infrastructure for high-quality, short-term debt. Given the interconnectedness of the short-term market, it is critical to ensure that the regulations in each area are properly calibrated on both a standalone basis and in aggregate, with the aim to strike a balance between promoting safety and soundness of the financial system while also facilitating appropriate amounts of risk-taking and intermediation."

J.P. Morgan notes, "Removing the tie between WLA and the imposition of gates could measurably reduce investor redemptions, both by alleviating investors' fear of losing access to their assets due to gates and, in doing so, reducing downward pricing pressure on longer-dated assets in MMF portfolios and further deterioration of the MMF's net asset value (NAV).... [W]e believe a MMF that imposed a gate would ultimately need to liquidate in any event; therefore, eliminating broader board discretion regarding the imposition of gates from Rule 2a-7 and relying on the existing framework in Rule 22e-3 would be sufficient.... We believe [also] that the SEC's proposal of 25 percent DLA and 50 percent WLA is too high; we propose 20 percent and 40 percent respectively."

They continue, "We continue to believe that swing pricing does not work for institutional MMFs, even with the SEC's proposed modifications. In addition to the client concerns and operational challenges it raises, swing pricing is not fit for purpose because its application is far too broad. We do not believe that any antidilution levy is necessary or beneficial in the ordinary course, or even on days with unusually high redemption volume, unless there is a coincident market disruption; any antidilution mechanism should be narrowly tailored for these rare occasions. For these reasons, we urge the SEC to revisit the redemption fee we previously recommended, with certain modifications to address the SEC's concerns. Below we discuss a) the occasions when an antidilution levy may -- or may not -- be appropriate; b) the challenges with and likely outcomes of imposing swing pricing; and c) our proposed redemption fee."

JPMAM comments, "Unlike long-term mutual funds, MMFs -- particularly institutional MMFs -- are designed to accommodate large flows. MMF investors are not concerned with 'cash drag'; they intentionally utilize such funds to maintain liquidity. MMFs are managed not to maximize returns, but to offer some returns while maintaining the ability to meet liquidity demands. They maintain substantial short-term liquidity on hand at all times and invest in highly liquid, low risk assets. Thus, in the vast majority of circumstances, MMFs do not need to transact in portfolio securities to meet subscriptions and redemptions."

They write, "Moreover, as the Proposing Release explains, institutional MMFs typically value their portfolios using the bid price of underlying securities. As a result, any spread costs associated with selling these securities are already captured in the fund's NAV. In our experience, there are no incremental costs associated with selling the securities these funds hold. Because spreads are already reflected in the NAV and there are typically no costs incurred by the fund in connection with selling securities in ordinary markets, in the ordinary course there is no meaningful dilution experienced by the fund."

JPMAM adds, "In our view, dilution is only likely to occur in a MMF when two factors coincide -- a high level of redemptions and market conditions that render it difficult to transact in portfolio securities at their recorded bid prices. Any antidilution mechanism should seek to narrowly address these circumstances. For the reasons discussed below, we believe swing pricing is not fit for purpose in MMFs; following that discussion, we propose an alternative fee structure designed to address such occurrences."

They also write, "Even if some MMF sponsors could operationalize swing pricing, we expect the costs to be substantial; only the largest funds would likely remain. Larger MMFs may also be more desirable to institutional investors, since such funds would require a higher absolute level of redemptions to trigger an AUM-based MIT. Taken together, we expect swing pricing would ultimately lead to substantial market consolidation, leaving only the largest institutional prime and municipal MMFs."

Donohue explains, "We believe that the delinking of gates from WLA is the single most impactful reform, and that additional reforms are not necessary. However, should the SEC insist on adding an antidilution levy, we believe a fee could achieve the objective of charging investors the cost of their liquidity, with fewer negative consequences. JPMAM's PWG letter proposed a modified redemption fee that was more dynamic than the one and 'up to two' percent fees in the current rule, to be more reflective of the true cost of liquidity to those demanding it. Our proposal also contemplated a pre-approved 'playbook' that provided the board with clear direction on when to impose redemption fees and how to calculate them, to reduce board discretion and facilitate rapid implementation during market stress. While we continue to support such an approach, and believe sufficient clarity could be prescribed in advance, the Proposing Release explains the SEC's concern that such an approach would not facilitate timely action by the board."

They write, "To address this concern, we now propose a prescribed approach for tiered redemption fees that does not require board approval. Under our proposed approach, an institutional prime or municipal MMF would be required to impose a fee on redeeming investors based on a combination of WLA and daily redemptions, as follows: If WLA falls below 30 percent (but above 20 percent) at the end-of-day NAV calculation, AND daily net redemptions are 10 percent of the MMF's assets or higher, a fee of 0.25 percent would be applied to all redemptions; If WLA falls below 20 percent (but above 10 percent) at the end-of-day NAV calculation, a fee of 1.00 percent would be applied to all redemptions; and, If WLA were to fall below 10 percent at the end-of-day NAV calculation, a fee of 2.00 percent would be applied to all redemptions."

Finally, JPMAM adds, "This approach addresses the SEC's concerns about timeliness and certainty, while the tiered structure serves as an approximation of the true cost of liquidity. Importantly, we believe this approach has a number of benefits relative to swing pricing. First, unlike swing pricing, it is narrowly tailored to activate only in times of stress. Second, it is far simpler to both operationalize and explain to clients than swing pricing. Third, it only impacts those who redeem, because the adjustment is external to the NAV (i.e., remaining investors will not experience additional NAV volatility as with swing pricing); and finally, the maximum value addresses investor concerns about the potential unlimited downside risk of swing pricing."

They conclude, "First, the first trigger for a fee includes not just a WLA level, which is publicly available, but net redemptions, which are not. Thus, the 'cliff edge' would not be as visible as it is under the present rules. Perhaps more importantly, as noted above, JPMAM's informal survey of clients indicated that their greatest concern was the potential risk of gates; investment risk and declining NAV were next, and fees were third. This stands to reason, as gates affect all investors in a fund, by removing access to liquidity for an indefinite period and creating uncertainty, whereas fees only affect those who redeem. Finally, the first-tier fee is substantially lower than the current fee of up to two percent that may be applied at 30 percent WLA. We believe that clients will be far less likely to engage in preemptive redemptions to avoid a 0.25 percent fee than to avoid gates or up to a 2 percent fee."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $40.1 billion in March to $5.101 trillion after declining sharply in Jan. and Feb. The SEC shows that Prime MMFs increased by $29.5 billion in March to $853.8 billion, Govt & Treasury funds increased $8.7 billion to $4.152 trillion and Tax Exempt funds increased $1.9 billion to $94.7 billion. Yields, both gross and net, surged higher in March for all types of funds. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

March's asset increase follows decreases of $29.3 billion in February and $125.1 billion in January. Assets gained $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 and $46.3 billion in April. Over the 12 months through 3/31/22, total MMF assets have increased by $106.9 billion, or 2.1%, 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 $5.101 trillion in assets, $853.8 billion was in Prime funds, up $29.5 billion in March. Prime assets were down $2.7 billion in February, up $10.7 billion in January, and down $20.5 billion in December, $21 billion in November and $12.1 billion in October <b:>`_. This follows an increase of $2.6 billion in September, and a decrease of $8.1 billion in August and $19.4 billion in July. Prime funds represented 16.7% of total assets at the end of March. They've decreased by $74.1 billion, or -8.0%, over the past 12 months. (Month-to-date in April through 4/20, total MMF assets have fallen by $98.1 billion, according to our MFI Daily.)

Government & Treasury funds totaled $4.152 trillion, or 81.4% of assets. They increased $8.7 billion in March, 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 $194.5 billion over 12 months, or 4.9%. Tax Exempt Funds increased $1.9 billion to $94.7 billion, or 1.9% of all assets. The number of money funds was 309 in March, down 3 from the previous month and down 21 funds from a year earlier.

Yields for Taxable and Tax Exempt MMFs spiked higher in March. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on March 31 was 0.36%, up 22 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.42%, up 22 bps from the previous month. Gross yields were 0.33% for Government Funds, up 22 basis points from last month. Gross yields for Treasury Funds were up 20 bps at 0.34%. Gross Yields for Tax Exempt Institutional MMFs were up 29 basis points to 0.46% in March. Gross Yields for Tax Exempt Retail funds were up 27 bps to 0.50%.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.31%, up 21 bps from the previous month and up 24 basis points from 3/31/21. The Average Net Yield for Prime Retail Funds was 0.14%, up 11 bps from the previous month, and up 12 bps since 3/31/21. Net yields were 0.14% for Government Funds, up 12 bps from last month. Net yields for Treasury Funds were also up 13 bps from the previous month at 0.14%. Net Yields for Tax Exempt Institutional MMFs were up 29 bps from February to 0.37%. Net Yields for Tax Exempt Retail funds were up 21 bps at 0.24% in March. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in March. The average Weighted Average Life, or WAL, was 44.8 days (up 0.2 days) for Prime Institutional funds, and 42.6 days for Prime Retail funds (down 3.0 days). Government fund WALs averaged 74.7 days (up 1.1 days) while Treasury fund WALs averaged 80.7 days (up 3.9 days). Tax Exempt Institutional fund WALs were 11.9 days (up 0.2 days), and Tax Exempt Retail MMF WALs averaged 19.8 days (down 0.4 days).

The Weighted Average Maturity, or WAM, was 21.8 days (down 1.6 days from the previous month) for Prime Institutional funds, 22.7 days (down 4.6 days from the previous month) for Prime Retail funds, 27.0 days (up 0.4 days from previous month) for Government funds, and 37.3 days (up 3.9 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 0.6 days to 11.8 days, while Tax Exempt Retail WAMs were unchanged from previous month at 19.1 days.

Total Daily Liquid Assets for Prime Institutional funds were 52.7% in March (down 1.2% from the previous month), and DLA for Prime Retail funds was 35.0% (up 5.9% from previous month) as a percent of total assets. The average DLA was 80.4% for Govt MMFs and 97.7% for Treasury MMFs. Total Weekly Liquid Assets was 66.6% (unchanged from the previous month) for Prime Institutional MMFs, and 50.1% (up 5.4% from the previous month) for Prime Retail funds. Average WLA was 90.6% for Govt MMFs and 99.4% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for March 2022," the largest entries included: Canada with $94.4 billion, Japan with $61.1 billion, France with $56.2 billion, the U.S. with $43.4B, the Netherlands with $34.4B, the U.K. with $30.6B, Aust/NZ with $29.4B, Germany with $27.6B and Switzerland with $11.9B. The gainers among the "Prime MMF Holdings by Country" included: the Netherlands (up $4.1B), Aust/NZ (up $1.6B), the U.S. (up $1.5B), Canada (up $1.5 billion), the U.K. (up $1.3B), Japan (up $1.0B) and Switzerland (up $0.3B). Decreases were shown by: France (down $11.8B) and Germany (down $8.2B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $137.7 billion (up $11.5B), while Asia Pacific had $105.4B (up $2.1B). Eurozone subset had $125.7B (down $27.3B), while Europe (non-Eurozone) had $72.0B (down $25.8B from last month).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $850.6B billion in Prime MMF Portfolios as of March 31, $366.1B (43.0%) was in Government & Treasury securities (direct and repo) (up from $273.5B), $176.2B (20.7%) was in CDs and Time Deposits (down from $229.4B), $154.2B (18.1%) was in Financial Company CP (down from $158.9B), $121.6B (14.3%) was held in Non-Financial CP and Other securities (down from $124.4B), and $32.5B (3.8%) was in ABCP (up from $31.9B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $108.6 billion, Canada with $109.1 billion, France with $124.8 billion, the U.K. with $38.9 billion, Germany with $7.8 billion, Japan with $116.4 billion and Other with $26.8 billion. All MMF Repo with the Federal Reserve was up $212.4 billion in March to $1.658 trillion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.4%, Prime Retail MMFs with 3.8%, Tax Exempt Inst MMFs with 0.3%, Tax Exempt Retail MMFs with 1.9%, Govt MMFs with 13.5% and Treasury MMFs with 13.3%.

Earlier this week, we excerpted from recent "Comments on Money Market Fund Reform" posted by the SEC, including one from the largest money fund manager, Fidelity Investments and one from mutual fund trade group ICI. Today, we quote from the second largest MMF manager, BlackRock. Elizabeth Kent and Jonathan Steel write, "BlackRock supports the Securities and Exchange Commission's efforts to continue to improve the resiliency and transparency of United States money market funds. The proposal, which incorporates certain feedback from market participants in response to the December 2020 President's Working Group Paper on potential MMF reform options, represents a positive step toward the Commission's goal of making MMFs more resilient during periods of stress. In particular, we support the proposal's elimination of redemption gates from Rule 2a-7 and amendments to specify the appropriate methodology for calculations of the dollar-weighted average maturity ('WAM') and dollar-weighted average life ('WAL') of MMF portfolios."

They state, "However, we continue to oppose mandatory swing pricing for MMFs, as we do not believe the implementation of swing pricing will achieve the goal of protecting against first-mover advantage while maintaining the usefulness of MMFs for participants in the industry. The Commission's concern is that early redemptions may result in a dilution of value for the remaining MMF investors, triggering an incentive for all MMF investors to redeem quickly in times of stress, a classic 'bank run' scenario. To solve this problem, economic analysis suggests 'internalizing' the costs to the early redeemers, thereby preserving fund value. The Commission has proposed swing pricing as a method of achieving this internalization. In our view, this is not the appropriate method for MMF's, due to the high levels of liquidity that an MMF is required to maintain."

BlackRock explains, "The current proposal's swing pricing solution will introduce unnecessary operational complexity while having only a tenuous relationship with the true cost to an MMF of managing redemptions. Further, the computation of the swing factor when net redemptions breach the threshold in the proposed rule is hypothetical and not representative of the true cost of managing redemptions in an MMF, as explained in more detail below. This complexity and uncertainty would likely diminish the utility of MMFs for investors."

The letter continues, "If the Commission believes internalization of redemption costs is necessary, we believe a redemption fee would be more appropriate for MMFs. In contrast to swing pricing, a redemption fee has the same economic effect as swing pricing but is operationally simpler to implement. We propose a redemption fee that would initially be imposed only if net redemptions exceeded 10%, which equates to half of our proposed level of Daily Liquid Assets ('DLA') (we discuss below why a 20% DLA requirement is more than sufficient for meeting redemptions without the need to sell other assets), and certain levels of market stress are present as measured by Weekly Liquid Asset ('WLA') levels. The maximum value of this fee would be transparent to investors who expect to trade in MMFs at close to net asset value."

BlackRock adds, "We have also identified several other areas where the Commission's proposal should be modified prior to the adoption of a final rule to allow MMFs to (i) continue to meet large redemptions while addressing any concerns about redemption costs and liquidity without causing significant operational challenges to the industry and (ii) retain their availability and utility for participants in the industry. Specifically, we recommend: Adjusting the proposed portfolio liquidity requirements of MMFs; ... Removing the requirement for MMF providers to determine the capacity of intermediaries for implementing a per share floating net asset value ('FNAV') in Government and Retail MMFs and clarifying that intermediaries need only be able to implement manual processes for redemptions in a negative interest rate environment; and, Implementing suggested specific recommendations regarding the proposed reporting requirements."

They then discuss short-term funding markets (STFMs), explaining, "BlackRock firmly believes that the issues in the underlying STFMs must be addressed initially or concurrently with additional MMF reform. While we agree that the lack of liquidity in the market in March 2020 exposed a vulnerability related to the difficulty of liquidating assets, this is a vulnerability of the STFMs as a whole, not a vulnerability exclusive to MMFs.... Changes to MMFs will do little to address the underlying vulnerability of limited liquidity during market stress in certain portions of the STFMs. Moreover, if the changes to MMFs were made in isolation, driving investors away from MMFs and into other corners of the STFMs, these reforms might decrease the limited existing transparency in the STFMs.... [W]e note that a significant reduction in the footprint of MMFs in the STFMs would not necessarily mean a reduction in the possible need for central banks to intervene in future market crises."

BlackRock writes, "Turning to the Commission's proposed increases to the DLA and WLA, these levels should not be raised as high as proposed by the Commission. As stated in our response to the Financial Stability Board ('FSB') report 'Consultation report on Policy Proposals to Enhance Money Market Fund Resilience,' we believe that USD-denominated prime MMFs should hold a minimum of 20% of their assets in DLA. With the removal of the threat of a redemption gate, an enhanced DLA of 20%, coupled with an enhanced WLA of 40%, will provide a strong source of available liquidity to ensure MMFs are able to continue to manage significant and rapid investor redemptions."

The letter argues, "For the following reasons, we do not believe swing pricing is a workable tool for MMFs: Market impact calculations would be based on hypothetical assumptions and, therefore, may unfairly benefit some investors over others. MMFs do not meet redemptions by selling a vertical slice of their portfolio. Rather, an institutional prime MMF typically relies on its DLA to meet redemptions.... Additionally, an MMF is usually aware of an impending large redemption during normal market conditions and manages its liquidity to account for that redemption. Therefore, calculating a 'market impact' each time net redemptions were more than 4% based on the sale of a vertical slice of an MMF would not be reasonable given that such sales do not happen in normal ... market conditions. Without such sales, an MMF would be forced to calculate a swing factor based on a hypothetical sale of a vertical slice of an MMF's portfolio resulting in a hypothetical cost unrelated to the actual impact on an MMF of such redemptions."

It says, "[T]his fictitious market impact factor would (i) potentially disadvantage certain investors (subscribers or redeemers) over others because it is not accurate, and (ii) result in potential moral hazard as sponsors seek to avoid competitive disadvantages resulting from high calculations. Notably, the proposal lacks guidance on how an MMF should estimate these hypothetical costs and, instead, calls on MMF sponsors to be guided by 'good faith.' ... [The] Lack of or Narrow Bid-Ask Spreads make calculating, and applying, the swing factor challenging [and] The operational changes and costs required to implement swing pricing in the U.S. are significant and will impact the viability of institutional prime MMFs."

BlackRock also states, "Certain MMF's are 'Internal Only' which makes them particularly ill-suited to swing pricing. A significant number of the institutional MMFs that exist today are not sold to public investors, but rather are used for money management by mutual fund sponsors. For example, there are prime MMFs that serve only as a sweep vehicle for other open-end mutual funds in the same fund complex or that serve as collateral management vehicles for securities lending done by mutual funds in the same fund complex and are not as sensitive to 'runs' as publicly offered funds.... [T]hese Internal Only MMFs are particularly ill-suited to any anti-dilution mechanisms such as swing pricing."

On the topic of "Swing Pricing Alternative: Modified Redemption Fee," they propose, "The additional proposed portfolio liquidity requirements along with the removal of gates adequately positions MMFs to absorb redemptions during a stressed market. However, if the Commission continues to believe that redeeming investors should bear a cost for redeeming in stressed markets, we believe a modified version of a redemption fee is the most appropriate solution. A redemption fee would best address the concern of placing some cost of redeeming on the redeeming investor during times of stress but still allow an institutional MMF to retain the features that make it useful in the STFMs, such as multiple strikes and a high degree of certainty for redeeming investors. As compared to swing pricing, the infrastructure for a redemption fee is already available in institutional MMFs and our proposed structure could be applied consistently by all institutional MMFs in the market.... An institutional MMF would be required to impose a prescribed redemption fee based on the following factors on a particular day. `The following fees would be applied: If net redemptions were 10% or higher and the prior day's WLA is less than 30% but greater than or equal to 20%, a fee of 0.25% would be applied to all redemptions; If the prior day's WLA is less than 20% but greater than or equal to 10%, a fee of 1.00% would be applied to all redemptions; If the prior day's WLA is less than 10%, a fee of 2.00% would be applied to all redemptions."

BlackRock adds, "This solution provides an efficient and easily applied cost to redeeming investors and, given the Commission's own acknowledgment that the creation of a market impact factor will at best be only an estimation, we believe this prescribed fee would provide more robust protection to remaining investors with no need for a market impact estimation. The formulaic application of the framework would allow MMFs to continue providing same day liquidity. Fund providers could apply the redemption fee quickly after the close of the MMF, without need for extra time to compute estimations."

They write, "Additionally, in the unlikely event that negative interest rates occur in the U.S., we believe it should be more than sufficient for intermediaries to have policies and procedures in place to allow for manually processing redemptions at an FNAV. We are concerned that the Commission's proposal regarding an intermediary's readiness to support negative interest rates would require cost prohibitive changes to myriad systems. To avoid those changes, intermediaries may remove government and retail MMFs from their platform offerings and instead move their customers to alternative products such as bank deposits. We note there is precedence for intermediaries culling the funds they offer in response to regulatory change that would require them to undertake substantial operational and technology change. It was intermediaries' unwillingness to take on this same transformative work after the 2016 MMF reforms that led to the removal of institutional MMFs with FNAVs from certain intermediary platforms."

Finally, BlackRock comments, "Given that backdrop of ample existing transparency for MMFs, we do not believe that collecting more information that is not directly related to a specific reporting shortcoming evident in March 2020 is warranted.... We recommend that given the number of additional reporting points required now under Form N-MFP that the Commission extend the filing deadline for this form to 7 business days after month end. This 2-day extension would allow the additional information to be generated in a timely manner and would allow MMF sponsors to have proper oversight and controls in reviewing the data prior to filing."

One of the most extensive letters posted to the SEC's "Comments on Money Market Fund Reform" page comes from the ICI, the trade association for mutual funds. They write, "The Investment Company Institute (ICI) appreciates the opportunity to provide its views on the Securities and Exchange Commission's proposed amendments to certain rules that govern money market funds under the Investment Company Act of 1940. Today, over 50 million retail investors, as well as corporations, municipalities, and other institutional investors, rely on the $5.0 trillion money market fund industry as a low cost, efficient, transparent, cash management vehicle that offers market-based rates of return." (Note: Make your reservations soon for our upcoming Money Fund Symposium, which is June 20-22, 2022 in Minneapolis, Minn., and please join us for a free Money Fund Statistics Overview this Thursday, April 21 from 2-3pm Eastern.)

ICI tells us, "Given the important role of money market funds in the financial system, the SEC should evaluate reform options by comparing their impact on the ability of money market funds to fulfill this role (i.e., preservation of their key characteristics) against the likely practical impact any money market fund reforms will have on making the overall financial system more resilient. Any new reforms for money market funds should be measured and appropriately calibrated, taking into account data, the costs and benefits these funds provide to investors, the economy, and the short-term funding markets."

President & CEO Eric Pan writes, "[T]he COVID-19 crisis revealed reluctance or inability by certain banks to act as dealers in such circumstances and different expectations between investors and the role of dealers in providing liquidity in these markets. To this end, we agree with commentators that have recommended measures that would adjust bank regulations to enable banks and their dealers to expand their balance sheets to provide market liquidity during stress without materially reducing the overall resilience of those firms. It was the structure of that market during times of stress -- not the action of money market funds -- that was at the heart of the ensuing challenges of March 2020. To this end, money market fund reforms by themselves will not address these challenges."

ICI's Executive Summary states, "Our comments and recommendations, include the following: Amendments to remove liquidity fee and redemption gate provisions. We agree that the regulatory tie between liquidity thresholds and fee and gate thresholds made money market funds more susceptible to financial stress in March 2020 and could likely do so again in future periods of stress."

Discussing, "Proposed swing pricing requirement," they explain, "We strongly disagree with the proposed swing pricing requirement (and the related proposed disclosure and reporting requirements). Swing pricing fails to reflect how money market funds are managed, would not advance the SEC's goals of enhancing money market fund resiliency and by extension financial stability, would likely strip money market funds of features that are key to investors ... and would impose excessive costs to overcome unnecessary and complex structural challenges. Indeed, swing pricing will fundamentally alter the product and its appeal to investors, cause fund sponsors to stop offering the product, and is neither supported by the data nor necessary.... Nevertheless, if the SEC chooses to ignore the evidence and insists on imposing an anti-dilution mechanism (ADM) on certain money market funds, the SEC could modify and leverage the existing fee framework. Similar to retail money market funds, and as supported by data, however, nonpublic institutional prime money market funds do not need special provisions as demonstrated by their lower levels of redemptions in periods of stress."

On "Amendments to portfolio liquidity requirements," they comment, "As economic analysis shows, a modest increase in the daily and weekly liquid asset requirements -- consistent with what most public prime money market funds already maintain as a matter of conservative liquidity risk management -- and importantly in combination with the amendments to remove the current liquidity fee and redemption gate provisions -- would bolster the resiliency of money market funds sufficiently to avoid another March 2020 like event. To this end, we recommend the SEC increase daily and weekly liquid asset requirements to 20 percent and 40 percent, respectively. We also generally support a requirement that would require a fund to notify its board upon a 'liquidity threshold event,' provided the definition of such event is adjusted to require board notification when daily liquid assets and weekly liquid assets go below 10 percent and 20 percent, respectively (half of our proposed liquidity levels)."

Regarding "Amendments related to potential negative interest rates," ICI says, "We strongly oppose a requirement that government and retail money market funds must determine that each financial intermediary has the capacity to redeem and sell securities issued by a fund at a floating NAV per share or prohibit the financial intermediary from purchasing the fund's shares in nominee name. Imposing this requirement on these funds is neither necessary nor relevant to the redemption pressures experienced by other money market funds in March 2020, would be prohibitively expensive for many financial intermediaries, and may drastically reduce these important funds for the short-term funding needs of investors and the direct financing for governments, businesses, and financial institutions.... Further, the proposed provision to prohibit reverse distribution mechanisms (RDM) or reverse stock splits should not be included in the final amendments because such tools should be available to funds to use in a negative interest rate environment."

On "PWG Report Reform Options," they add, "We support the SEC's decision not to include other reform options discussed in the PWG Report, such as minimum balance at risk, capital buffers, and liquidity exchange bank membership. The likeliest impact of any of these options would be to decrease the utility and attractiveness of these products to investors and cause fund sponsors to exit the industry."

Finally, the comment letter tells us, "We also note that even if funds could accommodate the operational challenges of swing pricing, only the largest funds would likely survive because the costs would be substantial and prohibitive for smaller funds. We do not believe the SEC should want to create a regulatory environment that dampens competition and accelerates further industry consolidation."

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 March, prime money market funds held 30.0 percent of their portfolios in daily liquid assets and 49.0 percent in weekly liquid assets, while government money market funds held 85.9 percent of their portfolios in daily liquid assets and 92.2 percent in weekly liquid assets." Prime DLA was up from 27.9% in February, and Prime WLA was up from 48.0%. Govt MMFs' DLA decreased from 87.3% in February and Govt WLA decreased from 93.7% the previous month.

ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 22 days and a weighted average life (WAL) of 56 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 30 days and a WAL of 77 days." Prime WAMs were three days shorter than February, while WALs were two days longer from the previous month. Govt WAMs were one day longer and WALs were two days longer than February, respectively.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $145.58 billion in February to $193.01 billion in March. Government money market funds' holdings attributable to the Americas declined from $3,793.98 billion in February to $3,772.27 billion in March."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $193.0 billion, or 45.6%; Asia and Pacific at $81.8 billion, or 19.3%; Europe at $144.3 billion, or 34.1%; and, Other (including Supranational) at $4.0 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.772 trillion, or 92.6%; Asia and Pacific at $108.3 billion, or 2.7%; Europe at $183.7 billion, 4.5%, and Other (Including Supranational) at $10.1 billion, or 0.2%.

Following last week's April 11 deadline, dozens of new comment letters have been posted to the SEC's "Comments on Money Market Fund Reform" page. While we're still reading, the feedback so far has unanimously blasted the SEC's swing pricing proposal, and most have expressed major concerns with the proposal to force intermediaries to account for floating NAV government MMFs. Fidelity's feedback letter, written by Chief Legal Officer Cynthia Lo Bessette, tells us, "Fidelity Investments appreciates the opportunity to provide comments to the Securities and Exchange Commission on its proposed rule and form amendments relating to money market funds.... The stresses in the money market fund industry that occurred at the onset of the COVID-19 pandemic in the United States have been well documented. These stresses highlighted certain vulnerabilities in segments of the money market fund industry as well as the need to reconsider certain aspects of Rule 2a-7. Fidelity is encouraged that the SEC has sought to solve for these vulnerabilities in the Proposal by bolstering liquidity requirements and by reevaluating its prior support for temporary suspensions of redemptions (commonly referred to as 'gates'). Fidelity is also encouraged that the SEC did not propose other, more pernicious, reform options that would significantly disrupt the money market fund industry and, in turn, the smooth functioning of the capital markets. It is evident that the SEC, at least in portions of the Proposing Release, accounted for the feedback provided by the industry in response to the report of the President's Working Group on Financial Markets (the 'PWG') on potential reform options for money market funds."

It continues, "Fidelity has long served as a leading provider of money market funds and has extensive experience managing funds in both normal and stressed market conditions. With an ethos focused on meeting our customers' needs and delivering a superior customer experience, we view our money market fund business as an important component of delivering better outcomes for our customers. Fidelity first began managing and offering money market funds in 1974 and remains the largest provider of money market funds with approximately $940 billion in assets under management as of March 31, 2022, representing approximately 19 percent of the U.S. money market fund industry. Fidelity currently offers an extensive suite of money market funds, including government, prime and tax-exempt funds, to both retail and institutional investors. In addition, as a diversified provider of financial services, Fidelity witnesses firsthand and in real time the starkly divergent investment behaviors of different types of money market fund investors such as retail brokerage customers, individuals saving for retirement through employer-sponsored and individual retirement accounts, and corporate treasurers seeking short-term investment options for operating cash, among others."

Fidelity writes, "Based on this experience, we believe much of the Proposal, including increasing liquidity requirements and the SEC reevaluating its prior support for redemption gates, solves for the vulnerabilities in money market funds that surfaced in March 2020 and, in this regard, is an appropriate and positive regulatory response from the SEC. That said, we are equally concerned that other recommendations in the Proposal do not address the events of March 2020 and are inconsistent with the practical realities of managing and distributing money market funds. In particular, Fidelity believes that neither swing pricing nor the SEC's proposed requirements relating to negative yields are necessary or suitable tools to protect investors."

The Executive Summary says, "In the remainder of our letter, Fidelity evaluates each of the primary components of the Proposal, discussing in detail the points summarized below. In addition, we are encouraged that the SEC did not propose several of the other reform options described in the PWG Report, which would have severely and negatively impacted shareholders in money market funds, including capital buffers, insurance programs, a minimum balance at risk and a floating NAV for all funds. Our views are informed by our long-standing commitment to meeting the needs of our customers as their circumstances change and as markets evolve. Fidelity Supports the Removal of Gates; ... Fidelity Supports Higher Liquidity Requirements; [and] Fidelity Remains Strongly Opposed to Swing Pricing."

It explains, "Fidelity is deeply concerned that regulators have rushed to the conclusion that swing pricing would be an effective tool, despite the overwhelming evidence to the contrary. In particular: The SEC has failed to justify a need for swing pricing. The SEC acknowledges a lack of data quantifying the amount of trading costs or dilution that can arise from redemptions in institutional prime and institutional municipal funds, but nonetheless concludes that swing pricing would solve for 'significant, unfair adverse consequences to remaining investors in a fund' caused by other shareholders' redemptions. To the contrary and based on our experience managing a broad array of money market funds for many years, shareholders are not motivated to redeem based on the potential for dilutive trading costs. Money market funds maintain ample short-term liquidity allowing the funds to satisfy redemptions with liquidity on hand, resulting in no trading costs and no dilution imposed on other shareholders from redemptions. As a result, there exists no problem that swing pricing would solve."

Fidelity's letter continues, "The proposed removal of gates and higher liquidity requirements make swing pricing even less necessary.... By eliminating gates and by requiring funds to maintain even higher percentages of liquidity, any small justification that may have existed for swing pricing is rendered moot.... Even with the introduction of a market impact factor, NAVs would never move sufficiently to affect shareholders' decisions to redeem.... [N]early imperceptible adjustments to a fund's NAV are unlikely to affect a shareholder's decision to redeem. Operational impediments in the U.S. market remain. The obstacles to implementing swing pricing in the U.S. mutual fund market have been well documented since the SEC first introduced the concept in 2015. These obstacles center on the inability of fund companies to know flows in sufficient time to decide whether a NAV must be swung. Significant changes to the distribution of money market funds and a massive investment of shareholder resources would be required to enable the implementation of swing pricing. In the absence of any benefits from swing pricing, these operational impediments further underscore why swing pricing is an inappropriate regulatory tool."

The summary states, "The SEC Should Not Move Forward with its Proposal Relating to Negative Yields: The SEC's Proposal, which would require funds and broker-dealers to enact permanent solutions that have the potential to impact government money market funds that serve as daily investment vehicles for cash in retail brokerage accounts (or 'brokerage sweep vehicles'), is premature. A host of complexities to this issue exist and Fidelity encourages the SEC to undertake a concerted and thorough review (which the current environment of higher-than-normal inflation and rising interest rates affords), with input from the industry, of the many issues at play prior to mandating such a radical change.... In addition, because the Proposal as currently drafted could drive assets away from government money market funds, the Proposal could negatively impact both the Treasury Department's exercise of fiscal policy (with government funds holding close to 30 percent of outstanding Treasury debt) and the Federal Reserve's conduct of monetary policy. If the SEC proceeds with including requirements relating to negative yields in the final rule, we encourage the SEC to modify the requirements to not require that fund companies discontinue distributing funds through broker-dealers that cannot support a floating NAV now, but instead require that fund companies working with their intermediaries to have in place a reasonably adequate plan for how they would respond to a negative rate environment should one arise."

Fidelity adds, "The SEC Should Extend the Compliance Deadlines: The SEC should extend each of the compliance deadlines for the following portions of the Proposal: swing pricing and the related disclosure from 12 months to two years, requirements relating to negative yields from 12 months to two years, and the new Form N-CR and Form N-MFP disclosure requirements from six months to 18 months. These requirements all entail significant challenges to implement and likely will be occurring at a time when fund companies and administrators are implementing multiple other rule changes currently on the SEC's rulemaking agenda."

The comment letter also says, "Fidelity supports removing the gate provisions from Rule 2a-7 for the reasons cited by the Commission.... Fidelity is also encouraged by the SEC's willingness to revisit and eliminate a regulatory requirement it imposed less than ten years ago once events demonstrated that the requirement was not only ineffective but contributed to the very stresses the requirement was originally designed to prevent.... [W]e support the efforts of the Investment Company Institute to identify and propose an alternative to swing pricing that would involve a form of a liquidity fee and believe that, if properly constructed, such a fee potentially could serve as a more effective alternative than swing pricing.... As described in further detail above, the stresses experienced by money market funds in March 2020 were focused on liquidity pressures in publicly offered institutional prime funds.... Rather than attempting to increase liquidity once a crisis starts when the tools to do so may become unavailable, maintaining a healthier percentage of liquid assets prior to a crisis will prevent, or at the very least lessen, stresses on the fund if that crisis ensues."

On swing pricing, they write, "In the Proposing Release, the SEC has failed to state its case sufficiently for the adoption of such a drastic change to the mutual fund operating model that has served investors and the capital markets so well for so many years. Based on unsupported assertions of 'significant, unfair adverse consequences' and 'material dilution,' the SEC has proposed requiring that funds apply the speculative concept of a market impact factor in a manner that bears no resemblance to how investment advisors manage funds. In addition, Fidelity's analyses continue to demonstrate that swing pricing will not achieve the results that the SEC claims because the NAV movements will be immaterial. Given the lack of any benefits to shareholders from the adoption of swing pricing, it is unreasonable for the SEC to expect the industry to undertake lengthy and expensive efforts to solve for the significant operational impediments to swing pricing."

Fidelity also comments, "While we question the utility of swing pricing even in the absence of these other changes, these changes eliminate any small justification for swing pricing that may have otherwise existed.... As a result of these significant buffers, redemptions do not result in 'material dilution' or 'significant, unfair adverse consequences.' Given that the facts and data demonstrate that neither a problem exists nor that swing pricing would achieve the intended outcomes, Fidelity believes that swing pricing would have no practical benefit for money market funds or their shareholders."

They explain, "If adopted as proposed, swing pricing administrators would be obligated to generate an estimate of the market impact from a practice (i.e., the sale of a vertical slice of the portfolio) that a fund manager would never engage in and then impose that estimate on redeeming shareholders, notwithstanding that the shareholder's redemption was satisfied without cost to the fund and its other shareholders. The SEC's attempt to marry the faulty premise that money market fund redemptions can impose costs on other shareholders with a solution that involves estimates divorced from the actual trading patterns of mutual funds is not sound regulatory policy."

On private or internal money funds, Fidelity writes, "[W]e encourage the SEC to exclude institutional prime and institutional municipal funds that are offered for investment solely to mutual funds or accounts managed in the same fund complex. In the Proposing Release, the SEC asks whether it should provide exclusions of this sort from the swing pricing requirements. We encourage the SEC to exclude from the swing pricing requirements institutional prime and institutional municipal funds that are not sold to the public. This exclusion should include funds that are used by other funds and accounts in the same fund complex for managing cash, for investing collateral from securities lending transactions or for providing an efficient means for other funds and accounts to gain targeted access to certain market sectors."

They explain, "Fidelity believes such an exclusion is appropriate because the adviser knows the shareholders and has significantly greater visibility into upcoming redemptions. This allows the adviser to closely manage to the appropriate liquidity for the fund and virtually eliminates the prospect of unexpected redemptions. In addition, many of these funds are designed for specific purposes and, as such, are not as susceptible to redemptions based on unexpected market volatility. For example, institutional prime money market funds managed as a cash position for other mutual funds in the same complex have not experienced the sizeable outflows that publicly offered institutional prime funds have. In the critical period of March 2020, the Proposing Release notes that privately offered institutional prime funds faced redemptions of approximately six percent compared to approximately 30 percent for publicly offered institutional prime funds. Furthermore, money market funds that are used as investment vehicles for securities lending cash collateral have seasonal flows based on the demand for the underlying securities being lent and have little correlation to any volatility in the short-term markets."

They add, "Fidelity shares the concerns of many in the industry with the SEC's proposals relating to the potential for negative interest rates, which would require funds and broker-dealers to enact a permanent solution now even though the threat of negative interest rates has passed and may never return. We are concerned that the Proposal demonstrates a lack of appreciation on the part of the SEC of the scale and breadth of the issues that the Proposal creates as well as the potential negative consequences on government money market funds. In light of the complexities of this issue, we encourage the SEC to undertake significantly more review in consultation with the industry before adopting a final rule. Rushing forward with the Proposal as currently constructed without adequately studying the myriad of issues it creates could significantly damage the government money market fund industry and could significantly alter the customer experience for retail shareholders investing through broker-dealer accounts."

Fidelity explains, "Broker-dealers offer options for sweep vehicles, but the two most prevalent are government money market funds and bank deposits. Prior to the 2014 reforms, broker-dealers also offered prime money market funds as brokerage sweep vehicles but discontinued doing so once the redemption gate provisions in Rule 2a-7 went effective. The majority of Fidelity's broker-dealer customers have elected one of eight Fidelity government money market funds as the sweep vehicle. In the two most popular Fidelity funds, over $450 billion, or approximately 90% of the funds' assets, represent investments made from the operation of the brokerage sweep."

Finally, they comment, "Fidelity requests that the SEC adopt a compliance deadline of eighteen months for the proposed amendments related to Form N-MFP and Form N-CR. These changes will require industry participants, including Fidelity, to work with service providers to obtain the new information in a systematic manner that can be filed with the SEC within the five-business day deadline for Form N-MFP. A number of the new requirements will result in the volume of information provided on Form N-MFP to increase exponentially, such as security level detail on repurchase agreement transactions and lot level trade information. It is not an exaggeration to suggest that the new requirements will result in some fund complexes reporting thousands of new data points each month. In addition, to comply with the disclosure requirements of Form N-1A, funds currently obtain information on shareholder concentration on an annual basis with a required filing deadline of 120 days after the fund's fiscal year end. The Proposal would require that funds obtain this information every month and file it with the SEC within just five business days.... `Given the significant amount of data proposed to be gathered and included, Fidelity requests that the SEC modify its filing deadline for Form N-MFP of five business days to seven business days to allow for completion of the preparation and review processes."

Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds increased slightly over the past month to $982.9 billion. European MMF assets have declined during the first quarter of 2022, 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, increased by $8.0 billion over the 30 days through 4/13. They're down $80.1 billion (-7.5%) year-to-date. Offshore US Dollar money funds are up $4.4 billion over the last 30 days and are down $25.3 billion YTD to $509.2 billion. Euro funds dropped E2.4 billion over the past month. YTD they're down E23.5 billion to E134.9 billion. GBP money funds increased L4.7 billion over 30 days; they are down by L9.2 billion YTD to L237.9B. U.S. Dollar (USD) money funds (190) account for over half (51.8%) of the "European" money fund total, while Euro (EUR) money funds (93) make up 15.5% and Pound Sterling (GBP) funds (123) total 32.7%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Thursday), below. (Note: Watch for coverage this week of the dozens of letters posted to the SEC's "Comments on Money Market Fund Reform" page following last week's deadline for feedback.)

Offshore USD MMFs yield 0.24% (7-Day) on average (as of 4/13/22), up from 0.05% 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 -0.65% 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 0.53%, 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 3/31/22, show that European-domiciled US Dollar MMFs, on average, consist of 24% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 20% in Repo, 27% in Treasury securities, 13% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 43.9% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 8.7% maturing in 8-30 Days, 13.7% maturing in 31-60 Days, 9.0% maturing in 61-90 Days, 12.2% maturing in 91-180 Days and 3.4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (39.7%), France (13.7%), Canada (9.6%), Japan (9.2%), the Netherlands (4.4%), Sweden (4.3%), Australia (3.9%), Germany (3.4%), the U.K. (3.1%) and Switzerland (1.9%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $142.0 billion (27.2% of total assets), BNP Paribas with $23.5B (4.5%), Fixed Income Clearing Corp with $17.4B (3.3%), Federal Reserve Bank of New York with $16.4B (3.1%), Sumitomo Mitsui Banking Corp with $13.0B (2.5%), Societe Generale with $12.7B (2.4%), RBC with $11.7B (2.2%), Skandinaviska Enskilda Banken AB with $11.1B (2.1%), Toronto-Dominion Bank with $9.6B (1.8%) and Barclays PLC with $9.5B (1.8%).

Euro MMFs tracked by Crane Data contain, on average 40% in CP, 23% in CDs, 24% in Other (primarily Time Deposits), 10% in Repo, 2% in Treasuries and 1% in Agency securities. EUR funds have on average 29.7% of their portfolios maturing Overnight, 12.0% maturing in 2-7 Days, 16.5% maturing in 8-30 Days, 15.2% maturing in 31-60 Days, 8.7% maturing in 61-90 Days, 15.7% maturing in 91-180 Days and 2.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.9%), Japan (11.5%), the U.S. (8.8%), Sweden (7.2%), Germany (6.9%), the U.K. (6.7%), Switzerland (5.4%), Canada (4.2%), Netherlands (4.2%) and Austria (3.2%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E7.5B (5.8%), Societe Generale with E6.0B (4.6%), BNP Paribas with E6.0B (4.6%), DZ Bank AG with E5.2B (4.0%), Barclays PLC with E4.6B (3.5%), Natixis with E4.2 (3.2%), Nordea Bank with E4.1B (3.2%), Svenska Handelsbanken with E4.1B (3.1%), Zürcher Kantonalbank with E3.9B (3.0%) and Sumitomo Mitsui Banking Corp with E3.8B (3.0%).

The GBP funds tracked by MFI International contain, on average (as of 3/31/22): 37% in CDs, 21% in CP, 21% in Other (Time Deposits), 20% in Repo, 1% in Treasury and 0% in Agency. Sterling funds have on average 37.7% of their portfolios maturing Overnight, 11.1% maturing in 2-7 Days, 11.9% maturing in 8-30 Days, 13.8% maturing in 31-60 Days, 8.6% maturing in 61-90 Days, 10.8% maturing in 91-180 Days and 6.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (17.6%), the U.K. (15.7%), Canada (14.8%), Japan (13.9%), Australia (7.0%), the U.S. (5.0%), Sweden (4.8%), the Netherlands (4.7%), Germany (4.1%) and Spain (2.9%).

The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L13.3B (6.5%), BNP Paribas with L9.1B (4.4%), Mitsubishi UFJ Financial Group Inc with L8.9B (4.4%), Toronto-Dominion Bank with L8.5B (4.2%), Bank of Nova Scotia with L7.2B (3.5%), RBC with L6.9B (3.4%), National Australia Bank Ltd with L6.7B (3.3%), Mizuho Corporate Bank Ltd with L6.2B (3.0%), Barclays PLC with L6.1B (3.0%), and Banco Santander with L5.8B (2.8%).

The April issue of our Bond Fund Intelligence, which will be sent to subscribers Thursday morning, features the lead story, "No Quarter for Bond Funds in Q1'22; Pain & Outflows Spread," which reviews the worst performance of bond funds in years; and, "Bond Fund Symposium: Major Issues, Losses, ESG," which quotes from our recent ultra-short bond fund event. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged and yields jumped again in March. 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.) (Note: Crane Data will host a free "Money Fund Statistics Overview" webinar next Thursday, April 21 from 2-3pm Eastern, which will review assets, yields, returns, maturities, liquidity, portfolios and expense ratios, as well as Crane Data products. Click here to register, and we hope you'll join us!)

Our "No Quarter" piece reads, "While few outside the space noticed the losses and outflows early this year, `bond funds' pain splashed across the headlines in March. Bond fund assets have declined by $256.9 billion YTD, or 7.7%, YTD in '22 through 3/31, with returns falling 1.8% in March and 4.1% YTD. (See table below.)"

It quotes Barron's "The Worst Quarter in Years for Bond Fund Investors Had Few Bright Corners," which states, "There was no refuge for investors in bond funds.... Yields across the entire bond market have been rising at their fastest pace in years, and bond prices ... are falling.' Not surprisingly, investors pulled $87 billion from bond mutual funds and ETFs in the first three months of 2022, according to the Investment Company Institute, marking the biggest outflows since the first quarter of 2020. The Vanguard Total Bond fund (VBMFX) ... fell 6.5% in the quarter. Since the fund was launched in 1987, its worst year was 1994's 2.7% decline."

Our "BF Symposium" piece states, "Crane Data hosted its Bond Fund Symposium, recently in Newport Beach, Calif., which brought together ultra-short bond fund managers, issuers, dealers and investors to discuss a number of short-term fixed-income investment topics. Thanks again to those who attended and supported BFS! Attendees and subscribers may access the recordings and conference materials via our Bond Fund Symposium 2022 Download Center. (Mark your calendars for our next Bond Fund Symposium too, March 23-24, 2023, in Boston, Mass.)"

The update continues, "We quoted from the opening session, 'State of the Bond Fund Marketplace,' and from the 'Senior Portfolio Managers Perspectives' sessions in our latest Money Fund Intelligence issue, but below we also excerpt from the 'Major Issues in Fixed-Income Investing' and the 'ESG Issues in the Bond Fund Space,' sessions. (We reprint some of the 'State' comments too.)"

ICI's Antoniewicz says, "For years and years, we had bond prices rising, rates falling, strong capital gains on bond funds and very, very strong inflows. Then all of a sudden, everything turned around. We had very small capital losses last year on bond funds. Flows sort of held up.... But moving into this year, we had much deeper capital losses on bond funds and flows are turning negative."

Our first News brief, "Returns Plunge, Yields Jump, Yet Again," says, "Bond fund returns fell sharply and yields rose again in March. Our BFI Total Index dropped 1.78% over 1-month and fell 2.52% over 12 months. The BFI 100 returned -1.96% in March and -2.45% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.27% for 1-month and down 0.57% for 1-year; Ultra-Shorts declined 0.55% and 0.92%, respectively. Short-Term decreased 1.34% and 2.45%, and Intm-Term fell 2.50% in March and fell 3.42% over 1-year. BFI's Long-Term Index fell 2.74% in March and 3.52% over 1-year. Our High Yield Index fell 0.73% in March but gained 0.25% over 1-year."

We also quote Barron's on "What to Buy Following an Epic Bond Rout." They state, "Many sectors are showing double-digit negative total returns this year.... The iShares 20+ Year Bond ETF (TLT) ... is down 14% this year.... Municipal bond closed-end funds are off 15%.... [M]any bond managers urge investors to be cautious and favor shorter-maturity bonds.... Another risk is that individuals who have put $3.4 trillion into bond funds and ETFs since 2009 continue to exit. Fund flows in both taxable and tax-free bond funds have been negative this year."

A third News brief is headlined, "Reuters Says, 'U.S. Bond Funds Post Outflows for 13th Week in a Row.'" They write, "U.S. investors remained net sellers of bond funds in the week to April 6 on rising prospects of rapid reductions to the Federal Reserve’s balance sheet alongside steady increases in policy rates…. U.S. investors sold bond funds of $2.24 billion, compared with net withdrawals of $3.86 billion in the previous week, Refinitiv Lipper data showed. "

Yet another News brief, "WSJ: 'Exodus From Bond Funds Is Mitigating the Stock Market's Swoon,' The article tells us, "The bad news in the bond market has been a rare boon for stocks. Investors pulled nearly $160 billion from money-market funds and $17.5 billion from bond mutual funds and exchange-traded funds in the first seven weeks of the year, according to Refinitiv Lipper. The exodus is already on pace to be the biggest in at least seven years."

Also, a BFI sidebar, "Worldwide BF Assets $13.6T," states, "Bond fund assets worldwide increased slightly in Q4'21 to $13.6 trillion, led by the four largest bond fund markets: the U.S., Luxembourg, Ireland and China. ICI's 'Worldwide Open-End Fund Assets and Flows, Fourth Quarter 2021,' says, 'Bond fund assets increased by 0.6% to $13.72 trillion in the fourth quarter.... The asset share of bond funds was 19%.... Globally, bond funds posted an inflow of $235 billion in the fourth quarter of 2021, after recording an inflow of $337 billion in Q3.'"

Finally, another sidebar, "Double Whammy on Assets," comments, "After hitting a record in November 2021, bond fund assets have now fallen for four months in a row. Bond fund assets fell $101.8 billion in March; YTD they're down $256.9 billion (through 3/31), according to Bond Fund Intelligence."

With the April 12 deadline now passed for any "Comments on Money Market Fund Reform" to the SEC, we expect to see a flood of postings in the coming days. Letters submitted this week haven't been posted yet, but watch for these soon. The SEC normally takes time to upload feedback, and has been known to take submissions after the deadline. (See our March 28 News, "Northern Trust Comments on Money Market Fund Reforms; No to Prime.") In addition to the expected pending barrage of comment letters, we also expect more articles discussing the proposed regulatory changes. Already, we've seen a handful of these, and we quote from two below.

Reuters wrote late last week, "U.S. money market funds say SEC draft rule would kill some products." It explains, "U.S. asset managers are pushing back on draft rules aimed at fixing systemic risks in the $5 trillion money market funds industry, arguing that one of the proposed measures would kill off popular products, executives told Reuters. After taxpayers bailed out [sic] money market funds, a key source of short-term corporate and municipal funding, for the second time in 12 years during the pandemic-induced turmoil of 2020, the industry is facing renewed regulatory scrutiny."

The article continues, "In December, the Securities and Exchange Commission (SEC) proposed boosting money market funds' resilience by, among other measures, adjusting a funds' value in line with trading activity so that redeeming investors bear the costs of exiting a fund and don't dilute remaining investors. In theory, this "swing pricing" reduces the incentive to run to the exit first. The deadline to submit comments is Monday and the industry is pushing back hard on the swing pricing measures, arguing they would be operationally challenging, impose excessive costs on fund sponsors, and reduce daily liquidity for investors."

They quote Jane Heinrichs, associate general counsel at the Investment Company Institute, "We really do believe that it would kill the product.... Funds would determine it's not worth the changes necessary to make it work for a product that will no longer meet the needs of investors."

Reuters adds, "While swing pricing is used by some European funds, it is an unfamiliar concept to U.S. investors, said Peter Yi, a director at Northern Trust Asset Management. 'Without a doubt, swing pricing is going to be very difficult for investors to understand.'"

The publication Plan Sponsor writes that the "SEC's Proposed Money Market Funds Rules Draw Opposition." This roughly written piece tells us, "Two times burned, this time really shy. The Securities and Exchange Commission had to bolster [sic] money market mutual funds during the 2008 global financial crisis and the 2020 onset of the pandemic. Both times, investors pulled cash out of the funds. So the agency is moving to tighten the withdrawal rules."

It says, "The comment period on the SEC's proposal ends on Monday, and there's a lot of opposition. Big money market investors are threatening to yank their cash out of the funds. The funds mostly invest in commercial paper and bank certificates of deposits [sic]. And these, said SEC Chair Gary Gensler in a statement, 'tend to be illiquid in times of stress.' The problem, he stated, is that there 'isn't a lot of trading in commercial paper and CDs in good times. In stressful times, it almost entirely disappears.'"

Plan Sponsor comments, "What particularly sticks in the craw of many fund investors is 'swing pricing,' which essentially shifts the cost of redemption onto redeeming shareholders. Now, the investors who didn't redeem shoulder the cost. The other controversial feature of the SEC plan is to increase the daily and weekly liquid asset minimums to 25% and 50%, respectively, from 10% and 30%. Also, the plan would expand available information about the funds and thus the SEC's ability to monitor them."

In other news, Allspring Money Market Funds' latest "Overview, Strategy, and Outlook tells us, "In response to the FOMC move and, more importantly, to expectations of future rate increases, market yields have moved higher. Since we tend to take a conservative approach when constructing our portfolios and favor keeping excess liquidity over the stated regulatory requirements, running shorter weighted average maturities and looking to extend if the opportunity offers a favorable risk/reward proposition allowed our portfolios to capture this rate increase quickly. This conservative approach was especially beneficial this month as we were able to reflect more than a 25-bp increase in the yield month over month, and our short positions should enable us to continue to reap such benefits with further tightening. In addition to capturing higher yields, the enhanced liquidity buffer in our portfolios allows us to meet the liquidity needs of our investors and helps dampen net asset value (NAV) volatility."

They state, "While the leading story is the Fed's expressed intention to deal with its inflation problem aggressively, with the March hike of 25 bps looking like just the beginning salvo in an aggressive series of accommodation removal steps soon to follow, the front end of the government market continues to struggle with all the cash the Fed added to the banking system and the money markets over the past few years. The extra cash and its impacts can be seen in three places. First, most obviously, the Fed's reverse repurchase program (RRP), which buttresses the bottom of the Fed's interest rate target range by soaking up excess cash that can't find another home, took in an average of $1.625 trillion every day in the first quarter."

Allspring's update continues, "Second, the Fed's Secured Overnight Financing Rate (SOFR), a broad measure of overnight repurchase agreement (repo) rates, set below the RRP rate of 0.30% in the last few weeks of March. The settings at 0.27% and 0.28% in that period reflect repo investments by investors not eligible to participate in the RRP. The volume of those trades at lower rates has lately been sufficient to move the index lower, perhaps reflecting investor desire to stay as short as possible to fully capture expected Fed hikes."

Finally, they write, "Third, Treasury bills (T-bills) maturing in the next few months are trading at levels far below the RRP. For example, the last two 1-month T-bill auctions yielded 0.135%. Although this partly reflects quarter-end window-dressing demand for T-bills, it is unusual for T-bills to trade so far through the RRP level. As long as the Fed is expected to continue raising rates, this investor behavior of crowding into short maturities is likely to continue, pressuring front-end yields on repos and T-bills."

Crane Data's April Money Fund Portfolio Holdings, with data as of March 31, 2022, show that Repo jumped while Treasuries and Other (Time Deposits) plummeted last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $40.9 billion to $4.939 trillion in March, after increasing $2.9 billion in February but decreasing $108.3 billion in January. Assets rose $114.1 billion in December, $46.4 billion in November and $72.4 billion in October. But they 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 surged to $1.651 trillion.) Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among taxable money funds, Repurchase Agreements (repo) increased $100.9 billion (4.5%) to $2.359 trillion, or 47.8% of holdings, in March, after increasing $10.7 billion in February and decreasing $234.4 billion in January. Repo also increased $228.0 billion in December and $113.6 billion in November. Treasury securities fell $79.2 billion (-4.3%) to $1.750 trillion, or 35.4% of holdings, after decreasing $17.0 billion in February. T-bills increased $40.0 billion in January and $19.9 billion in December, but they declined $52.6 billion in November. Government Agency Debt was down $4.3 billion, or -1.1%, to $386.8 billion, or 7.8% of holdings, after increasing $1.5 billion in February, but decreasing $6.9 billion in January and $26.7 billion in December. Repo, Treasuries and Agency holdings totaled $4.496 trillion, representing a massive 91.0% of all taxable holdings.

Money fund holdings of CP, CDs, and Other (mainly Time Deposits) were all down in March. Commercial Paper (CP) decreased $7.2 billion (-3.1%) to $224.3 billion, or 4.5% of holdings, after increasing $2.9 billion in February and $11.8 billion in January. Certificates of Deposit (CDs) decreased $5.7 billion (-4.9%) to $108.8 billion, or 2.2% of taxable assets, after decreasing $6.9 billion in February but increasing $12.6 billion in January. Other holdings, primarily Time Deposits, decreased by $47.4 billion (-34.8%) to $88.9 billion, or 1.8% of holdings, after increasing $9.5 billion in February and $69.0 billion in January. VRDNs climbed to $20.9 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 rose to $834 billion, or 16.9% of taxable money funds' $4.939 trillion total. Among Prime money funds, CDs represent 13.0% (down from 14.5% a month ago), while Commercial Paper accounted for 26.9% (down from 29.3% in Feb.). The CP totals are comprised of: Financial Company CP, which makes up 18.3% of total holdings, Asset-Backed CP, which accounts for 3.7%, and Non-Financial Company CP, which makes up 4.9%. Prime funds also hold 4.8% in US Govt Agency Debt, 11.5% in US Treasury Debt, 23.8% in US Treasury Repo, 0.4% in Other Instruments, 8.1% in Non-Negotiable Time Deposits, 5.8% in Other Repo, 2.4% in US Government Agency Repo and 1.3% in VRDNs.

Government money fund portfolios totaled $2.871 trillion (58.1% of all MMF assets), down from $2.890 trillion in Feb., while Treasury money fund assets totaled another $1.234 trillion (25.0%), down from $1.301 trillion the prior month. Government money fund portfolios were made up of 12.1% US Govt Agency Debt, 10.4% US Government Agency Repo, 28.6% US Treasury Debt, 48.6% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 67.6% US Treasury Debt and 32.4% in US Treasury Repo. Government and Treasury funds combined now total $4.105 trillion, or 83.1% of all taxable money fund assets.

European-affiliated holdings (including repo) decreased by $97.5 billion in March to $438.6 billion; their share of holdings dropped to 8.9% from last month's 10.8%. Eurozone-affiliated holdings decreased to $317.1 billion from last month's $366.9 billion; they account for 6.4% of overall taxable money fund holdings. Asia & Pacific related holdings inched lower to $192.5 billion (3.9% of the total) from last month's $206.6 billion. Americas related holdings rose to $4.304 trillion from last month's $4.234 trillion, and now represent 87.2% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $89.7 billion, or 4.7%, to $1.992 trillion, or 40.3% of assets); US Government Agency Repurchase Agreements (up $12.0 billion, or 3.9%, to $318.8 billion, or 6.5% of total holdings), and Other Repurchase Agreements (down $0.7 billion, or -1.4%, from last month to $48.4 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $3.5 billion to $152.6 billion, or 3.1% of assets), Asset Backed Commercial Paper (up $0.4 billion to $31.2 billion, or 0.6%), and Non-Financial Company Commercial Paper (down $4.1 billion to $40.5 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of March 31, 2022, include: the US Treasury ($1.750 trillion, or 35.4%), Federal Reserve Bank of New York ($1.651T, 33.4%), Federal Home Loan Bank ($220.1B, 4.5%), Federal Farm Credit Bank ($103.5B, 2.1%), BNP Paribas ($101.3B, 2.1%), Fixed Income Clearing Corp ($95.1B, 1.9%), RBC ($91.2B, 1.8%), Sumitomo Mitsui Banking Co ($53.6B, 1.1%), Mitsubishi UFJ Financial Group Inc ($42.5B, 0.9%), JP Morgan ($40.9B, 0.8%), Bank of America ($39.8B, 0.8%), Federal National Mortgage Association ($35.6B, 0.7%), Societe Generale ($34.5B, 0.7%), Citi ($33.5B, 0.7%), Toronto-Dominion Bank ($30.9B, 0.6%), Canadian Imperial Bank of Commerce ($27.4B, 0.6%), Bank of Montreal ($27.3B, 0.6%), Barclays ($27.1B, 0.5%), Federal Home Loan Mortgage Corp ($25.0B, 0.5%) and Credit Agricole ($22.8B, 0.5%).

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 ($1.651T, 70.0%), Fixed Income Clearing Corp ($95.1B, 4.0%), BNP Paribas ($90.9B, 3.9%), RBC ($74.3B, 3.2%), Sumitomo Mitsui Banking Corp ($42.9B, 1.8%), Bank of America ($37.5B, 1.6%), JP Morgan ($35.8B, 1.5%), Mitsubishi UFJ Financial Group Inc ($31.2B, 1.3%), Citi ($30.7B, 1.3%) and Societe Generale ($29.0B, 1.2%). The largest users of the $1.651 trillion in Fed RRP include: JPMorgan US Govt MM ($127.0B), Fidelity Govt Money Market ($118.9B), Goldman Sachs FS Govt ($114.0B), Fidelity Govt Cash Reserves ($107.1B), Vanguard Federal Money Mkt Fund ($91.8B), BlackRock Lq FedFund ($76.0B), Morgan Stanley Inst Liq Govt ($75.5B), BlackRock Lq T-Fund ($58.1B), Dreyfus Govt Cash Mgmt ($58.0B) and Allspring Govt MM ($56.2B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Barclays PLC ($18.4B, 5.1%), Toronto-Dominion Bank ($18.0B, 5.0%), RBC ($16.9B, 4.7%), Bank of Montreal ($14.2B, 3.9%), Canadian Imperial Bank of Commerce ($13.8B, 3.8%), Bank of Nova Scotia ($13.4B, 3.7%), Mizuho Corporate Bank Ltd ($13.3B, 3.7%), Rabobank ($12.1B, 3.4%), Australia & New Zealand Banking Group Ltd ($11.9B, 3.3%) and Mitsubishi UFJ Financial Group Inc 9$11.4B, 3.2%).

The 10 largest CD issuers include: Canadian Imperial Bank of Commerce ($8.0B, 7.3%), Sumitomo Mitsui Banking Corp ($8.0B, 7.3%), Mitsubishi UFJ Financial Group Inc ($7.6B, 7.0%), Toronto-Dominion Bank ($7.2B, 6.7%), Bank of Montreal ($6.7B, 6.2%), Barclays PLC ($5.9B, 5.5%), Bank of Nova Scotia ($5.9B, 5.4%), Sumitomo Mitsui Trust Bank ($5.7B, 5.2%), Svenska Handelsbanken ($5.2B, 4.7%) and Landesbank Baden-Wurttemberg ($4.9B, 4.5%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($11.1B, 5.9%), Toronto-Dominion Bank ($9.4B, 5.0%), BNP Paribas ($7.7B, 4.1%), UBS AG ($7.6B, 4.1%), Bank of Nova Scotia ($7.5B, 4.0%), Bank of Montreal ($7.5B, 4.0%), Barclays PLC ($6.7B, 3.6%), Rabobank ($5.7B, 3.1%), Societe Generale ($5.2B, 2.8%) and JP Morgan ($5.1B, 2.7%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $226.1B to $1.651T), Federal Home Loan Bank (up $4.0B to $220.1B), Lloyds Banking Group (up $3.6B to $8.8B), Mitsubishi UFJ Financial Group Inc (up $2.8B to $42.5B), BNP Paribas (up $2.8B to $101.3B), Standard Chartered Bank (up $2.3B to $12.0B), Australia & New Zealand Banking Group Ltd (up $2.2B to $13.1B), Federal Farm Credit Bank (up $1.9B to $103.5B), Bank of America (up $1.4B to $39.8B) and Sumitomo Mitsui Trust Bank (up $1.4B to $13.5B).

The largest decreases among Issuers of money market securities (including Repo) in March were shown by: the US Treasury (down $79.1B to $1.750T), Fixed Income Clearing Corp (down $45.3B to $95.1B), Barclays PLC (down $22.8B to $27.1B), Credit Agricole (down $22.5B to $22.8B), Citi (down $11.2B to $33.5B), Societe Generale (down $9.5B to $34.5B), Nordea Bank (down $9.0B to $6.4B), Nomura (down $8.4B to $17.3B), JP Morgan (down $6.4B to $40.9B) and Bank of Montreal (down $6.4B to $27.3B).

The United States remained the largest segment of country-affiliations; it represents 82.9% of holdings, or $4.095 trillion. Canada (4.2%, $209.4B) was in second place, while France (3.8%, $186.7B) was No. 3. Japan (3.6%, $179.9B) occupied fourth place. The United Kingdom (1.4%, $69.6B) remained in fifth place. Netherlands (1.0%, $51.2B) was in sixth place, followed by Germany (0.7%, $36.4B), Australia (0.7%, $32.3B), Sweden (0.5%, $25.3B), and Switzerland (0.4%, $18.7B). (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 March 31, 2022, Taxable money funds held 58.0% (down from 58.7%) of their assets in securities maturing Overnight, and another 7.9% maturing in 2-7 days (up from 5.8%). Thus, 65.9% in total matures in 1-7 days. Another 8.1% matures in 8-30 days, while 8.2% matures in 31-60 days. Note that over three-quarters, or 82.2% 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 6.4% of taxable securities, while 8.3% 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.)

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Monday, and we'll be writing our regular monthly update on the March 31 data for Tuesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Friday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of March 31, includes holdings information from 1,000 money funds (down 4 funds from last month), representing assets of $5.089 trillion (down from $5.137 trillion). Prime MMFs now total $850.5 billion, or 16.7% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses jumping as fee waivers shrank in March, 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 $2.377 trillion (up from $2.288 trillion), or 46.7% of all assets. Treasury holdings totaled $1.766 trillion (down from $1.844 trillion), or 34.7% of all holdings, and Government Agency securities totaled $403.4 billion (down from $405.8 billion), or 7.9%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.546 trillion, or a massive 89.3% of all holdings.

Commercial paper (CP) totals $232.2 billion (down from $240.4 billion), or 4.6% of all holdings, and the Other category (primarily Time Deposits) totals $130.1 billion (down from $176.1 billion), or 2.6%. Certificates of Deposit (CDs) total $108.8 billion (down from $114.5 billion), 2.1%, and VRDNs account for $71.5 billion (up from $68.7 billion last month), or 1.4% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $154.2 billion, or 3.0%, in Financial Company Commercial Paper; $31.6 billion or 0.6%, in Asset Backed Commercial Paper; and, $46.4 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.014 trillion, or 39.6%), U.S. Govt Agency Repo ($314.0B, or 6.2%) and Other Repo ($48.4B, or 1.0%).

The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $228.4 billion (down from $236.5 billion), or 26.9%; Repo holdings of $269.1 billion (up from $180.1 billion), or 31.6%; Treasury holdings of $102.3 billion (down from $116.3 billion), or 12.0%; CD holdings of $108.8 billion (down from $114.5 billion), or 12.8%; Other (primarily Time Deposits) holdings of $87.8 billion (down from $135.2 billion), or 10.3%; Government Agency holdings of $43.0 billion (up from $26.0 billion), or 5.1% and VRDN holdings of $11.0 billion (up from $9.5 billion), or 1.3%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $154.2 billion (down from $158.9 billion), or 18.1%, in Financial Company Commercial Paper; $31.6 billion (up from $31.2 billion), or 3.7%, in Asset Backed Commercial Paper; and $42.7 billion (down from $46.4 billion), or 5.0%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($200.7 billion, or 23.6%), U.S. Govt Agency Repo ($20.0 billion, or 2.4%), and Other Repo ($48.3 billion, or 5.7%).

In related news, money fund charged expense ratios (Exp%) jumped in March to 0.26% from 0.12% 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 0.20% and 0.26%, respectively, as of March 31, 2022. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Friday 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 Friday.) 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 0.20%, eight bps higher than last month's level (and fourteen 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 now waiving just 7 bps, or 26% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.26% as of March 31, 2022, fourteen bps higher than the month prior but down from 0.40% at year-end 2019.

Prime Inst MFs expense ratios (annualized) average 0.25% (up 10 bps from last month), Government Inst MFs expenses average 0.21% (up 12 bps from previous month), Treasury Inst MFs expenses average 0.24% (up 11 bps from last month). Treasury Retail MFs expenses currently sit at 0.30%, (up 17 bps from last month), Government Retail MFs expenses yield 0.29% (up 19 bps from last month). Prime Retail MF expenses averaged 0.35% (up seventeen bps). Tax-exempt expenses were up 14 bps over the month to 0.34% on average.

Gross 7-day yields jumped during the month ended March 31, 2022. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 741), shows a 7-day gross yield of 0.36%, up 22 bps from the prior month. The Crane Money Fund Average is down from 1.72% at the end of 2019 and up from 0.15% the end of 2020. Our Crane 100's 7-day gross yield was up twenty-two bps, ending the month at 0.36%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $10.331B billion (as of 3/31/22). Our estimated annualized revenue totals increased from $5.858B last month, and they are now more than triple May's record low $2.927B level. Annualized MMF revenues have finally past their estimated $6.028 billion at the end of 2020 and are closely approaching the $10.642 billion level from the end of 2019. Charged expenses and gross yields are driven by a number of variables, but revenues should continue rising in coming months if the Federal Reserve continues raising interest rates as expected.

Crane Data's latest monthly Money Fund Market Share rankings show assets increased among the majority of the largest U.S. money fund complexes in March. Money market fund assets increased $24.1 billion, or 0.5%, last month to $5.031 trillion. Assets decreased by $138.6 billion, or -2.7%, over the past 3 months; they've increased by $104.8 billion, or 2.1%, over the past 12 months through March 31. The largest increases among the 25 largest managers last month were seen by SSGA, Fidelity, Goldman Sachs, Vanguard and Invesco, which grew assets by $12.1 billion, $10.1B, $9.2B, $8.7B and $8.3B, respectively. The largest declines in March were seen by Northern, Federated Hermes, Morgan Stanley and Dreyfus, which decreased by $12.4 billion, $10.1B, $6.0B and $4.8B, 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, which jumped in March, below.

Over the past year through March 31, 2022, Fidelity (up $43.5B, or 4.9%), Invesco (up $34.9B, or 48.7%), Goldman Sachs (up $31.1B, or 9.0%), Morgan Stanley (up $28.8B, or 11.8%) and Dreyfus (up $25.3B, or 11.8%), were the largest gainers. American Funds, Fidelity, Invesco, SSGA and PGIM had the largest asset increases over the past 3 months, rising by $20.2B, $15.9B, $11.6B, $6.7B and $3.6B, respectively. The largest decliners over 12 months were seen by: Vanguard (down $30.4B), Federated Hermes (down $19.8B), Charles Schwab (down $17.7B), Allspring (down $15.9B) and UBS (down $13.4B). The largest decliners over 3 months included: BlackRock (down $41.6B), Federated Hermes (down $34.2B), Northern (down $26.1B), Morgan Stanley (down $24.0B) and JP Morgan (down $19.0B).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $937.2 billion, or 18.6% of all assets. Fidelity was up $10.1B in March, up $15.9 billion over 3 mos., and up $43.5B over 12 months. BlackRock ranked second with $517.2 billion, or 10.3% market share (up $1.4B, down $41.6B and down $4.9B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked third with $461.6 billion, or 9.2% market share (up $8.7B, up $1.2B and down $30.4B). JPMorgan ranked in fourth place with $454.4 billion, or 9.0% of assets (up $4.7B, down $19.0B and down $5.4B), while Goldman Sachs was the fifth largest MMF manager with $376.7 billion, or 7.5% of assets (up $9.2B, down $3.8B and up $31.1B for the past 1-month, 3-mos. and 12-mos.).

Federated Hermes was in sixth place with $314.8 billion, or 6.3% (down $10.1B, down $34.2B and down $19.8B), while Morgan Stanley was in seventh place with $273.2 billion, or 5.4% of assets (down $6.0B, down $24.0B and up $28.8B). Dreyfus ($240.0B, or 4.8%) was in eighth place (down $4.8B, down $14.1B and up $25.3B), followed by Northern ($190.7B, or 3.8%; down $12.4B, down $26.1B and up $23.4B). Allspring (formerly Wells Fargo) was in 10th place ($177.4B, or 3.5%; up $3.8B, down $9.9B and down $15.9B).

The 11th through 20th-largest U.S. money fund managers (in order) include: SSGA ($158.2B, or 3.1%), American Funds ($152.4B, or 3.0%), Schwab ($143.2B, or 2.8%), First American ($128.0B, or 2.5%), Invesco ($106.4B, or 2.1%), T. Rowe Price ($52.3B, or 1.0%), UBS ($41.5B, or 0.8%), DWS ($39.9B, or 0.8%), HSBC ($37.3B, or 0.7%) and Western ($32.0B, or 0.6%). Crane Data currently tracks 62 U.S. MMF managers, unchanged from last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers 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 ($948.4 billion), BlackRock ($702.9B), JP Morgan ($638.8B), Goldman Sachs ($502.2B) and Vanguard ($461.6B). Morgan Stanley ($322.7B) was in sixth, Federated Hermes ($322.7B) was seventh, followed by Dreyfus/BNY Mellon ($263.1B), Northern ($217.4B) and SSGA ($185.4B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/31/22, shows that yields jumped higher in March for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 741), jumped to 0.09% (up 7 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield also increased to 0.05% (up 3 bps). The MFA's Gross 7-Day Yield jumped up to 0.21% (up 7 bps), and the Gross 30-Day Yield also inched up to 0.17% (up 3 bps). (Gross yields will be revised Friday afternoon, though, once we download the SEC's Form N-MFP data for 3/31/22. We expect the revised expense and gross data to increase significantly.)

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.15% (up 13 bps) and an average 30-Day Yield (up 7 bps) at 0.09%. The Crane 100 shows a Gross 7-Day Yield of 0.26% (up 12 bps), and a Gross 30-Day Yield of 0.20% (up 6 bps). Our Prime Institutional MF Index (7-day) yielded 0.17% (up 13 bps) as of March 31. The Crane Govt Inst Index was at 0.10% (up 8 bps) and the Treasury Inst Index was also at 0.10% (up 9 bps). Thus, the spread between Prime funds and Treasury funds was up to seven basis points, and the spread between Prime funds and Govt funds is also seven basis points. The Crane Prime Retail Index yielded 0.09% (up 8 bps), while the Govt Retail Index was 0.02% (up 1 bp), the Treasury Retail Index was also 0.02% (up 1 bp from the month prior). The Crane Tax Exempt MF Index yielded 0.15% (up 13 bps) as of March 31.

Gross 7-Day Yields for these indexes to end March were: Prime Inst 0.32% (up 13 bps), Govt Inst 0.19% (up 7 bps), Treasury Inst 0.23% (up 9 bps), Prime Retail 0.27% (up 8 bps), Govt Retail 0.12% (up 1 bp) and Treasury Retail 0.15% (up 1 bp). The Crane Tax Exempt Index remained at 0.21%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.01% over 3-months, 0.01% YTD, 0.02% over the past 1-year, 0.63% over 3-years (annualized), 0.94% over 5-years, and 0.52% over 10-years.

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

The April issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Thursday morning, features the articles: "Yields Move Higher After First Fed Hike; More to Come," which discusses the jump in MMF yields in March; "Bond Fund Symposium Highlights: Carnage in Q1," which quotes from our latest ultra-short bond fund event; and, "Worldwide MF Assets Jump in Q4'21, Led by US, Ireland," which reviews the latest statistics on money market funds domiciled outside the U.S. We also sent out our MFI XLS spreadsheet Thursday morning, and we've updated our database with 3/31/22 data. Our April Money Fund Portfolio Holdings are scheduled to ship on Monday, April 11, and our March Bond Fund Intelligence is scheduled to go out on Thursday, April 14. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.)

MFI's "Yields Move article says, "It's been 3 weeks since the Federal Reserve raised its Fed funds rate off of the zero floor, but money funds are already talking about 2% yields. Yields jumped in March, rising from 0.02%, where they'd been for 2 years, to 0.15% on average (as measured by our Crane 100 Index). They now reflect just over half of the 25 bps rate increase, but may not move much more due to fee waivers being reduced. Still, net yields have been surprisingly strong. Given expectations of a 50 bps hike, yields should move higher still next month."

It continues, "The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 741), shows a 7-day yield of 0.09% (as of 3/31/22), up 7 bps in March. Prime Inst MFs were up 13 bps to 0.17% in the past month, while Government Inst MFs rose 8 bps to 0.10%. Treasury Inst MFs rose 9 bps to 0.10%, while Treasury Retail MFs rose just one bp to 0.02%. Government Retail MFs also now yield 0.02% (up 1 bp), but Prime Retail MFs yield 0.09% (up 8 bps for March). Tax Exempt MF 7-​day yields jumped 13 bps to 0.15%."

Our "BFS" update reads, "Crane Data recently hosted its Bond Fund Symposium event in Newport Beach, Calif., which brought together ultra-short bond fund managers, issuers, dealers and investors to discuss a number of short-term fixed-income topics. Thanks again to those who attended and supported BFS! Attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials via our Bond Fund Symposium 2022 Download Center."

The piece says, "The opening session, 'State of the Bond Fund Marketplace,' featured the Investment Company Institute's Shelly Antoniewicz and Crane Data's Peter Crane. Antoniewicz comments, 'For years and years, we had bond prices rising, rates falling, strong capital gains on bond funds and very, very strong inflows. Then all of a sudden, everything turned around. We had very small capital losses last year on bond funds. Flows sort of held up.... But moving into this year, we had much deeper capital losses on bond funds and flows are turning negative.'"

Our "Worldwide" piece states, "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."

It continues, "ICI's quarterly says, 'On a US dollar–denominated basis, equity fund assets increased by 5.6% to $33.64 trillion at the end of the fourth quarter of 2021. Bond fund assets increased by 0.6% to $13.72 trillion in the fourth quarter. Balanced fund assets increased by 3.3% to $8.78 trillion in the fourth quarter, while money market fund assets increased by 3.7% globally to $8.83 trillion."

MFI also includes the News brief, "MF Assets Rebound Slightly in March." It says, "Money fund assets rose $24.1 billion in March to $5.033 trillion, after 2 months of steep declines, according to our MFI XLS. YTD, MMFs are down by $138.6 billion, or -2.7%. ICI's latest 'Money Market Fund Assets' shows assets jumping $29.7 billion to $4.590 trillion in the latest week after being flat the previous week and falling sharply the two weeks prior."

Another News brief, "Mass's Galvin Warns on Sweeps." It explains, "The Secretary of the Commonwealth of Massachusetts, William Galvin, issued a release entitled, 'With Rates Rising, Galvin Investigates Whether Investors Are Being Shortchanged,' which warns brokerages about low rates paid on sweep accounts."

Another News brief, "Fed Z.1 Shows Big Jump in Household & Business MMF Assets in Q4," tells readers, "The Federal Reserve's latest quarterly 'Z.1 Financial Accounts of the United States,' statistical survey 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."

Our April MFI XLS, with March 31 data, shows total assets increased $24.1 billion to $5.033 trillion, after decreasing $34.6 billion in February and $128.1 billion in January. Assets increased $104.6 billion in December, $49.7 billion in November and $20.5 billion October. MMFs also increased $878 million in September and $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 up 7 bps to 0.09%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 13 bps to 0.15%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 0.21% and 0.26%, respectively. Charged Expenses averaged 0.12% for the Crane MFA and the Crane 100. (We'll revise expenses Friday once we upload the SEC's Form N-MFP data for 3/31/22.) The average WAM (weighted average maturity) for the Crane MFA was 29 days (up 2 days from previous month) while the Crane 100 WAM remained at 29 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

As we discussed in Monday's News, Crane Data hosted its Bond Fund Symposium last week in Newport Beach, Calif. BFS brings together ultra-short bond fund managers, issuers, dealers and investors to discuss a number of short-term fixed-income investment topics. Today, we quote from the opening session, "State of the Bond Fund Marketplace," which featured the Investment Company Institute's Shelly Antoniewicz and Crane Data's Peter Crane. The two discussed and presented statistics on bond fund flows, returns, regulations and recent events. Thanks again to those who attended and supported BFS! Attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or via our Bond Fund Symposium 2022 Download Center. (Mark your calendars for Crane's Money Fund Symposium, June 20-22, 2022 in Minneapolis, Minn., and for next year's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass.)

Antoniewicz comments, "For years and years, we had bond prices rising, rates falling, strong capital gains on bond funds and very, very strong inflows. Then all of a sudden, everything turned around. We had very small capital losses last year on bond funds. Flows sort of held up.... But moving into this year, we had much deeper capital losses on bond funds and flows are turning negative."

She explains, "Growth in bond and money market fund assets in the first part of this year has dropped off.... We peaked around $6.9 trillion in bond fund assets, that's bond funds and ETFs added together, at the end of 2021. Then ... through January we were down to $6.7 trillion. When we publish our February data this week, it's going to be lower, because we had outflows and we also are experiencing deeper capital losses. (ICI's February month-end data shows bond fund assets at $5.415 trillion and bond ETFs at $1.195 trillion, or $6.610 trillion total.)

The ICI economist tells us, "If you look back at yearend 2018 and you move to where we are now as of January 2022, we still have 43% growth in bond fund assets, and that's all coming from capital gains. We've had extremely, extremely strong inflows to bond funds over the past four or five years.... We may get into this in the regulatory session tomorrow. But one thing that sort of perks up regulators heads is if we see extremely fast growth in an asset class, and bond funds are one of those asset classes they are very concerned about."

She also says, "One thing we like to point out at ICI is, yes, we've had strong growth in bond funds, but we also have had strong growth in corporate issuance and the outstanding amount of corporate debt.... You've got two things going on there. Since year-end 2018, the share of the outstanding corporate debt held by bond mutual funds and bond ETFs has only risen from 21% to 24%, so that 43% growth only translated into a higher share of outstanding corporates by three percentage points. So that is something we always like to put into perspective."

Antoniewicz adds, "Given we've got this rising rate environment, fund investors are very concerned about duration right now. So where are ... mutual fund assets sitting? Most of it is sitting in Intermediate-Term, and Intermediate-Term sort of for us is in a 3-to-10-year range. Short-Term is less than 3 [years] and long-term is greater than 10. You do have a lot of the assets sitting in a range where bond fund investors are going to experience these capital losses."

Finally, she states, "One thing we like to do when we do this using Morningstar data is to look at the durations of the different types of bond funds that are out there. You can see that High-Yield has the lowest at 3.5 years, and the longest, of course, is Long-Term U.S. Government, which is close to 17 years. I think what's interesting to me always is if you look towards the middle, they're active investors. So active bond fund managers seem to have a lot lower durations. The have much more flexibility being able to lower their durations in different times of environments. Their asset-weighted average duration of 4.4 years and for index funds it is 6.4 years, extremely close to the Bloomberg index."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of April 1) includes Holdings information from 63 money funds (up from 57 two weeks ago), which represent $2.168 trillion (up from $1.772 trillion) of the $4.977 trillion (43.6%) 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 $1.048 trillion (up from $851.4 billion two weeks ago), or 48.4%; Treasuries totaling $824.8 billion (up from $706.3 billion two weeks ago), or 38.1%, and Government Agency securities totaling $119.3 billion (up from $119.1 billion), or 5.5%. Commercial Paper (CP) totaled $59.2 billion (up from two weeks ago at $36.2 billion), or 2.7%. Certificates of Deposit (CDs) totaled $38.9 billion (up from $16.2 billion two weeks ago), or 1.8%. The Other category accounted for $54.1 billion or 2.5%, while VRDNs accounted for $22.9 billion, or 1.1%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $824.8 billion (38.1% of total holdings), the Federal Reserve Bank of New York with $679.7B (31.4%), Fixed Income Clearing Corp with $58.9B (2.7%), Federal Home Loan Bank with $49.4B (2.3%), BNP Paribas with $49.0B (2.3%), Federal Farm Credit Bank with $41.8B (1.9%), RBC with $34.0B (1.6%), Societe Generale with $24.5B (1.1%), Mitsubishi UFJ Financial Group Inc with $19.2B (0.9%) and Federal National Mortgage Association with $19.0B (0.9%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($249.2B), BlackRock Lq FedFund ($172.1B), Morgan Stanley Inst Liq Govt ($142.3B), Allspring Govt MM ($133.3B), Fidelity Inv MM: Govt Port ($125.0B), Dreyfus Govt Cash Mgmt ($119.3B), BlackRock Lq T-Fund ($117.7B), BlackRock Lq Treas Tr ($112.8B), First American Govt Oblg ($92.3B), and JPMorgan 100% US Treas MMkt ($89.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

It's been almost 3 weeks since the Federal Reserve raised its Federal funds rate off of the zero floor, and money market fund yields continue to inch higher after a big jump the first week. While they've yet to reflect the full 25 basis point increase (and may not entirely due to fee waivers being reduced), yields have risen noticeably since March 1. Our flagship Crane 100 Money Fund Index started March 2022 at 0.02% (where is had been pinned for 2 years), rose to 0.04% ahead of the March 17 hike, jumped to 0.13% the week following the hike, then rose 3 more basis points to 0.16% over the past week. Brokerage sweep rates have barely moved though. Our latest Brokerage Sweep Intelligence shows the vast majority of brokerages still paying 0.01% yields (on FDIC insured deposits). But one brokerage did raise its sweep rates this week. We review the latest money fund and brokerage sweep yields below.

According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/1), 320 funds (out of 821 total) yielded 0.00% or 0.01% with total assets of $1,254.5 trillion, or 25.2% of total assets. (This compares to 593 funds with $2.623 trillion a month ago.) There were 57 funds yielding between 0.02% and 0.04%, totaling $91.3B, or 1.8% of assets; 141 funds yielded between 0.05% and 0.14% with $735.7 billion, or 14.8% of assets; 170 funds yielded between 0.15% and 0.24% with $1,966.4 trillion in assets, or 39.5%; 133 funds yielded 0.25% or higher with $929.4 billion in assets or 18.7%; no funds yielded over 0.50% (yet).

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.10%, up 1 basis point in the week through Friday. The Crane Money Fund Average is up 8 bps from 0.02% at the beginning of March. Prime Inst MFs were up 1 bp to 0.19% in the latest week, and up 15 bps over the course of March. Government Inst MFs rose by 1 bp to 0.12%, they are up 10 bps MTD. Treasury Inst MFs rose by 2 bps to 0.11%, and were up 10 bps in March. Treasury Retail MFs currently yield 0.03%, (unchanged for the week, and up 2 bps in March), Government Retail MFs yield 0.03% (unchanged for the week, and up 2 bps in March), and Prime Retail MFs yield 0.10% (up 1 bps for the week, and up 8 bps for March), Tax-exempt MF 7-day yields rose by 2 bps to 0.15%, they were up 13 bps in March.

Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), remains flat at 0.01%, where it has been for 2 years straight. It had been at 0.12% at the end of 2019 and at 0.28% at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of April 1, shows just one rate changes over the past week.

Among brokerage rates, RW Baird increased its sweep rates to 0.02% for the $100K level (and lower). All of the other major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo. (For more see our March 18 News, "Massachusetts' Galvin Warns Brokerages on Sweeps; MF Assets Fall Again.")

In other news, the New York Times writes more about Fidelity's Ned Johnson, in "How One Man Helped Create a Nation of Investors." The "Dealbook Newsletter" piece says, "Among the trailblazers who made finance more accessible to the masses starting in the 1970s -- John Bogle of Vanguard with his index fund, Charles Schwab with his discount brokerage and Louis Rukeyser with his weekly interrogation of one Wall Street sage or another -- Edward C. Johnson III, the longtime leader of Fidelity Investments, was the least well known yet arguably the most important. The others were all public figures, but Mr. Johnson, who died last week at the age of 91, was a Boston patrician with a patrician's aversion to the spotlight."

They explain, "Mr. Johnson, widely known as Ned, was 42 when he took over Fidelity, a small mutual fund company his father had run for three decades. The year was 1972: The market was in the doldrums, inflation was on the rise and Fidelity's assets were in decline. Like other financial executives, Johnson realized that a new investment vehicle recently approved by the Securities and Exchange Commission might offer a way to attract more money. This vehicle was called a money market fund; by investing in ultrasafe bonds, it could generate returns that matched real-world interest rates. At a time when bank interest was regulated -- fixed by law at 5.25 percent -- these higher-yielding funds were sold as an alternative to savings accounts."

The Times explains, "They were not, however, consumer friendly. While it was easy to move money in and out of a bank account, it often took weeks to redeem money market fund shares, requiring onerous paperwork. That was a turnoff to people who were used to having easy access to their money."

The article continues, "As his obituaries have all noted, Mr. Johnson threw that business model overboard by allowing Fidelity customers to write checks against the company's money market fund. In one stroke, he made it as easy to take money out of a fund as to put money in. His thinking was that people would be more willing to entrust their money to Fidelity if they knew they could easily withdraw it. He would treat investors like consumers."

It adds, "If you're as old as I am, you'll remember what happened next. Inflation surged and interest rates followed. The average 30-year mortgage rate peaked at close to 17 percent by 1981. Tens of millions of Americans, seeing their savings eroded by inflation, made the leap from a bank account to a money market fund. This was the first step in their transition from savers to investors."

The piece tells us, "By the fall of 1982, the Federal Reserve chair Paul Volcker had brought the inflation rate down sharply, triggering a powerful bull market. Mr. Johnson was ready for the moment. Fidelity had long before cut its ties with brokers, giving the company a direct relationship with customers. As their money market fund returns diminished, they looked for other vehicles that could provide the yields they had become accustomed to. What Mr. Johnson could offer them was Fidelity's Magellan fund -- or, more specifically, the genius of its manager, Peter Lynch, whom he had installed five years earlier. It's hard to overstate how important Mr. Lynch was in bringing the middle class to the stock market."

For more, see our March 30 Link of the Day, "Zweig on Ned Johnson & MMFs," our March 25 Link of the Day, "Fidelity's Ned Johnson Passes," Bloomberg's obituary and The WSJ's obituary.

Last week, we hosted our first live Crane's Bond Fund Symposium in two years, which took place in Newport Beach, Calif. Today, we quote from the session, "Senior Portfolio Manager Perspectives," which featured Northern Trust Asset Management's Morten Olsen, PIMCO's Andrew Wittkop and UBS Asset Management's Dave Rothweiler. Thanks again to those who attended and supported BFS, and attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or via our Bond Fund Symposium 2022 Download Center. (Mark your calendars for our next live event, Crane's Money Fund Symposium, which is scheduled for June 20-22, 2022 at The Loews Philadelphia in Minneapolis, Minn., and for next year's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass.)

We first asked, "What are you buying?" Rothweiler responds, "I mean, relative to the space, we've been pretty short on duration. We still like credit. I'd say from a Fed standpoint, you know, the upcoming rate rises, we're steering more and more into the floating rate space. But that being said, in terms of sector, there's still some value in new issue ABS ... and more short-term, maybe around that six-month area, just break-even is still okay for some reason."

On supply, he adds, "Especially given the sell-off over the last few weeks, you know, we haven't had a problem finding bonds. So it seems pretty healthy from our standpoint. It isn't quite the shape it was recently where you had a hard time finding product, for sure."

Wittkop tells us, "I think the overarching thesis ... obviously a lot's going to change over the next three to six months. I think the most important thing that is going to change is regard to the Fed's balance sheet. Obviously, over the last 20 months, the extension of the balance sheet by $5+ trillion has added a lot of cash to the system. As that turns negative, the cash starts to leave the system.... I think it's going to be an overarching negative overall for risk assets in general. So what we're trying not to buy I think is the most important consideration, and what we're trying not to buy is what's done best over the last 20 months."

He says, "What we think has done best and what's been most buoyed by the Fed balance sheet extension is, you know, plain vanilla kind of IG corporates. So, in our space, we're always going to own IG corporates. You can't run an ultra-short, short duration strategy without having some kind of [presence in] that space. What we're trying to do is two-fold.... One is if we say our normal weighting is, call it 40-60%, 60% for most bullish and 40% bearish, we're going to run most of portfolios ... at the lower end of those [ranges]."

Wittkop tells the BFS, "The second thing we're trying to do.... We're trying to keep it relatively short. So ... if we normally see a sweet spot ... at about that 18-month to 2-year point, we don't think there's any reason to move that far out. So we're keeping everything relatively short. Our portfolios don't typically hold a lot of commercial paper. But right now, we've actually been buyers of commercial paper.... You know, there's been some spread widening there. If nothing else, you got kind of immediate liquidity when you want stuff relatively short."

He adds, "So, when it comes to that side, we're trying to buy what we think is most at risk. We do continue to like the securitized side. ABS short WAL, short CMBS, ... the economy is still doing fine. You know, those cash flows in an economy that's still going to be growing above trend should still be relatively consistent, relatively resilient. You can forecast those cash flows. Those spreads to us still look relatively cheap. So, you know where we're underweighting IG, we're kind of overweighting there. So, it's kind of a little bit more barbelled overall. [We're] still running a portfolio I'd say that has much more liquidity than we typically have in in a normal cycle."

When asked what he doesn't buy, Northern's Olsen comments, "We've got a couple of things that we ... have decided not to include in an ultra-short portfolio. So that's high-yield, derivatives and of course, currency or cross-currency bonds. So those three, even though they're obviously very additive to performance at the right times, we just make a business decision that clients in this type of strategy would rather that we keep it somewhat simple [when we] explain all the risk that we're taking inside the portfolio."

He comments, "What we buy, I mean, it's very similar to what you've heard so far ... we have a significant overweight to IG credit at almost all times. We continue to like the additional carry it gives you inside the portfolio. So [we're] being really thoughtful around what type of bonds we're picking. But that's kind of our main story.... Stay away from the riskier asset classes.... A lot of our mutual funds in the short space are just structured long. So we have this one year duration target inside the portfolios, which is longer than most of the market participants and most of our peers."

Finally, Olsen says, "It's been a great run for the last 10 years; it's been an absolutely horrible run for the last four months or so. When I looked at the rankings, it was kind of one of those, you know, show to everybody, happy to share with friends and families and clients. Now I'm trying to put it as far away as possible because it's just not fun to look at. But it's ... an adjustment in the market and we'll see if it's a structural change or if it's another period. We have to get through and we'll get back to something ... like the market we've seen over the last 10 years."

ICI released its latest "Money Market Fund Assets" report Thursday, which shows that assets surged in the latest week after being flat the previous week and falling sharply the two weeks before that. Year-to-date, MMFs are down by $115 billion, or -2.4%, with Institutional MMFs down $83 billion, or -2.6% and Retail MMFs down $32 billion, or -2.2%. Over the past 52 weeks, money fund assets have increased by $93 billion, or 2.1%, with Retail MMFs falling by $55 billion (-3.7%) and Inst MMFs rising by $149 billion (4.9%). (Note: Thanks again to those who attended our Bond Fund Symposium earlier this week in Newport Beach, Calif.! Visit our "Bond Fund Symposium 2022 Download Center" for materials and recordings.)

ICI's weekly release says, "Total money market fund assets increased by $29.73 billion to $4.59 trillion for the week ended Wednesday, March 30, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $27.25 billion and prime funds increased by $1.23 billion. Tax-exempt money market funds increased by $1.25 billion." ICI's stats show Institutional MMFs increasing $28.5 billion and Retail MMFs increasing $1.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.078 trillion (88.8% of all money funds), while Total Prime MMFs were $425.3 billion (9.3%). Tax Exempt MMFs totaled $87.4 billion (1.9%).

ICI explains, "Assets of retail money market funds increased by $1.23 billion to $1.44 trillion. Among retail funds, government money market fund assets decreased by $143 million to $1.16 trillion, prime money market fund assets decreased by $223 million to $196.66 billion, and tax-exempt fund assets increased by $1.59 billion to $78.24 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 80.9% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $28.50 billion to $3.15 trillion. Among institutional funds, government money market fund assets increased by $27.39 billion to $2.92 trillion, prime money market fund assets increased by $1.46 billion to $228.66 billion, and tax-exempt fund assets decreased by $343 million to $9.17 billion." Institutional assets accounted for 68.7% 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.)

In other news, The Carfang Group posted a brief entitled, "U.S. Bank Deposit Growth Slows in 2021," which tells us, "Domestic deposits at U.S. banks grew by 11.7% at a record $18.2 trillion during 2021. Deposit growth mirrored the nominal GDP growth and M2 money supply over that same period. This is a sharp slowdown following the 23% growth of 2020 when the Fed flooded the banking system with deposits in response to the pandemic. Banks were awash in liquidity as deposits grew much faster than GDP."

It continues, "Current growth rates for nominal GDP, M2 and domestic deposits remain well above recent pre-pandemic averages. Recent changes in Fed policy are likely to cause deposits and money supply to further decelerate while inflation will cause nominal GDP to grow. Deposits now stand at 76% of GDP. Should they revert to their historical level of 60% of GDP as the Fed ends its QE, deposit levels would fall by $2.8 trillion."

Carfang adds, "It's too early to declare that the deposit market is tightening but contingency planning is in order. Interviews with senior bankers reflect concern with Fed taper, interest rates and inflation. That, combined with new FDIC guidance favoring technology sourced deposits, alters the playing field for 2022 considerably."

The report explains, "Domestic deposits at U.S. banks grew 11.7% to a record $18.2 trillion in 2021. [The] 11.7% growth is a marked slowdown from the 23% growth in 2020 but well above the long term trendline. Banks in the U.S. have added an historic $4.97 trillion in deposits since the onset of the pandemic. After years of holding steady at 60% of U.S GDP, deposits grew rapidly during the pandemic and now stand at 75.8% of GDP, also well above trendline. Deposit growth closely tracked growth of M2 money supply which was 11.9%."

It states, "Noninterest-bearing deposit growth continues to outstrip interest bearing deposits by a wide margin. Non-interest-bearing deposits (NIB) grew by 18.2% in 2021, whereas Interest bearing (IB) deposits grew by only 9.1%. However, IB growth outpaced NIB growth in the fourth quarter 3.6% to 2.0%. With rates so low, many depositors appeared content leaving their cash in noninterestbearing accounts. That could change markedly as the Fed begins an extended rate increase cycle. These gains follow 46% and 16% increases respectively in 2020. Across all U.S. banks, IB deposits accounted for 70% of total domestic deposits in Q4. The pre-pandemic share was 76% so this is a significant shift."

The brief also tells us that, "Uninsured deposit growth (17.8%) YTD exceeded insured deposit growth (6.8%). This is a sharp slowdown from 2020 during which uninsured deposits grew by 33% while insured deposits were up at 17%, roughly half that rate. Separation continued in the fourth quarter as uninsured deposits grew by 4.9% vs. 1.6% for insured deposits."

Carfang writes, "Brokered deposits are in a state of flux, down 47.8% in 2021 following new classification guidance from the FDIC.... [T]he major reclassifications took place in the second quarter, but the trend continued through year-end. Brokered deposits fell from $1.14 trillion at year-end to $0.59 trillion at year end. They represent a 3.3% of total domestic deposits."

Finally, they conclude, "The torrid 23% deposit growth of 2020 has slowed markedly in 2021. At 11.7%, growth was almost identical to gains in nominal U.S. GDP and in M2 money supply. While that is not yet enough to declare that the market for deposits is tightening, it does indicate alignment with other macro indicators. However, it remains well above historical norms.... Will liquidity still be king, or will depositors begin to seek more yield? ... Will the FDIC brokered deposit guidance continue to lead to major reclassifications and will technology sourced deposits continue to grow in importance?"

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