News Archives: July, 2022
The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, as well as its monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for June 2022 Thursday. Their weekly update shows assets rising for the fourth week in a row, up $59 billion since June 29. Year-to-date, MMFs are down by $115 billion, or -2.4%, with Institutional MMFs down $123 billion, or -3.8% and Retail MMFs up $8 billion, or 0.6%. Over the past 52 weeks, money fund assets are up by $88 billion, or 2.0%, with Retail MMFs rising by $54 billion (3.8%) and Inst MMFs rising by $34 billion (1.1%). (For the month of July, MMF assets increased by $37.5 billion to $5.017 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI.)
ICI's weekly release says, "Total money market fund assets increased by $7.44 billion to $4.59 trillion for the week ended Wednesday, July 27, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $5.41 billion and prime funds increased by $5.08 billion. Tax-exempt money market funds decreased by $3.04 billion." ICI's stats show Institutional MMFs increasing $7.3 billion and Retail MMFs increasing $0.15 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.026 trillion (87.7% of all money funds), while Total Prime MMFs were $466.7 billion (10.2%). Tax Exempt MMFs totaled $97.5 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $149 million to $1.48 trillion. Among retail funds, government money market fund assets decreased by $1.66 billion to $1.15 trillion, prime money market fund assets increased by $4.26 billion to $242.75 billion, and tax-exempt fund assets decreased by $2.45 billion to $87.98 billion." Retail assets account for just under a third of total assets, or 32.2%, and Government Retail assets make up 77.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $7.29 billion to $3.11 trillion. Among institutional funds, government money market fund assets increased by $7.06 billion to $2.88 trillion, prime money market fund assets increased by $817 million to $223.92 billion, and tax-exempt fund assets decreased by $586 million to $9.52 billion." Institutional assets accounted for 67.8% of all MMF assets, with Government Institutional assets making up 92.5% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
ICI's "Trends" report shows that money fund assets increased $25.0 billion in June to $4.541 trillion. This follows a decrease of $8.0 billion in May, a decrease of $71.0 billion in April, an increase of $9.6 billion in March, a decrease of $38.3 billion in February, a decrease of $136.1 billion in January and an increase of $136.1 billion in December (coincidentally the exact same size as January's decline). For the 12 months through June 30, 2022, money fund assets increased by $6.8 billion, or 0.0%.
The monthly release states, "The combined assets of the nation's mutual funds decreased by $1.33 trillion, or 5.6%, to $22.30 trillion in June, 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 $62.49 billion in June, compared with an outflow of $85.70 billion in May.... Money market funds had an inflow of $33.57 billion in June, compared with an outflow of $8.04 billion in May. In June funds offered primarily to institutions had an inflow of $1.75 billion and funds offered primarily to individuals had an inflow of $31.82 billion."
The Institute's latest statistics show that Taxable funds and Tax Exempt MMFs both increased last month. Taxable MMFs increased by $21.5 billion in June to $4.438 trillion. Tax-Exempt MMFs increased $3.5 billion to $103.3 billion. Taxable MMF assets decreased year-over-year by $3.1 billion (-0.0%), and Tax-Exempt funds rose by $9.8 billion over the past year (10.5%). Bond fund assets decreased by $174.9 billion (-3.5%) in June to $4.795 trillion, and they've decreased by $717.7 billion (-13.0%) over the past year.
Money funds represent 20.4% of all mutual fund assets (up 1.3% from the previous month), while bond funds account for 21.5%, according to ICI. The total number of money market funds was 300, unchanged from the prior month and down from 316 a year ago. Taxable money funds numbered 241 funds, and tax-exempt money funds numbered 59 funds.
ICI's "Month-End Portfolio Holdings" confirm yet another plunge in Treasuries and jump in Repo last month. Repurchase Agreements remained the largest composition segment in June, increasing $153.4 billion, or 6.9%, to $2.381 trillion, or 53.7% of holdings. Repo holdings have increased $792.7 billion, or 49.9%, over the past year. (See our July 13 News, "July Portfolio Holdings: Fed Repo in MMFs Breaks $2.0 Tril; T-Bills Down.)
Treasury holdings in Taxable money funds fell sharply again last month, though they remained the second largest composition segment. Treasury holdings decreased $65.4 billion, or -4.5%, to $1.385 trillion, or 31.2% of holdings. Treasury securities have decreased by $720.4 billion, or -34.2%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $19.5 billion, or -5.1%, to $366.0 billion, or 8.2% of holdings. Agency holdings have fallen by $132.4 billion, or -26.6%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they dropped by $16.2 billion, or -9.6%, to $152.9 billion (3.4% of assets). CDs held by money funds rose by $4.8 billion, or 3.2%, over 12 months. Commercial Paper remained in fifth place, down $10.3 billion, or -8.0%, to $118.3 billion (2.7% of assets). CP has decreased by $23.9 billion, or -16.8%, over one year. Other holdings decreased to $18.1 billion (0.4% of assets), while Notes (including Corporate and Bank) dropped to $3.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 57.908 million, while the Number of Funds were unchanged this past month to 241. Over the past 12 months, the number of accounts rose by 13.333 million and the number of funds decreased by 10. The Average Maturity of Portfolios was a record low 26 days, down 2 from May. Over the past 12 months, WAMs of Taxable money have decreased by 12.
The Wall Street Journal writes "Companies Look for Returns on Cash Piles as Interest Rates Rise," which tells us that, "As U.S. interest rates go up, money-market funds have been quicker to adjust than bank accounts, giving companies an incentive to shift their cash into those funds for higher returns. Companies accumulated record levels of cash during the pandemic and parked large amounts in bank accounts, where it usually generated little to no return. Low interest rates meant there was little reason to shift into money-market funds, a form of mutual fund that invests in short-term debt securities including Treasury bills and commercial paper." (Note: Start making plans soon and make your hotel reservations ASAP for our European Money Fund Symposium, which is Sept. 27-28 in Paris, France!)
It explains, "But that is changing as the U.S. Federal Reserve is aggressively raising interest rates to fight elevated inflation. The central bank on Wednesday increased its federal-funds rate for the fourth time this year, by 0.75 percentage point, bringing its benchmark rate range to 2.25% to 2.50%. Amid the rate-rise campaign, yields on money-market funds doubled in June to an average of 1.23% and climbed further to a weekly average of 1.36% as of Monday, according to Crane Data, which tracks money funds. Banks, however, have been slow to boost yields, as they still hold large amounts of cash and aren't looking to attract more."
The Journal piece continues, "Money-market fund assets have increased in recent weeks after declining earlier in the year as companies withdrew cash to pay the Internal Revenue Service and settle other dues. Through Monday, $5.018 trillion was sitting in money-market funds, up $30 billion from the end of June and up $58.3 billion since May 31, Crane Data said."
They quote J.P. Morgan Asset Management's Christopher Tufts, "I have a lot of client conversations about this.... Getting yield above zero has made the product attractive to clients, especially given the volatility in the broader market." It says, "Treasurers consider money-market funds nearly as safe as cash and value the fact that invested amounts remain highly liquid and accessible. Many companies use these funds to park their cash overnight or for a few days, with others going out several months, said Peter Crane, president of Crane Data."
The CFO Journal update states, "Banks have been slow to pass on higher interest rates to corporate clients, as financial institutions continue to have too much cash sitting idle, said Priya Misra, head of global rates strategy at TD Securities.... 'A money-market fund will pass on rate rises more in line with the Fed, so there is more of an incentive to move assets,' she said."
It adds, "Companies also will follow potential changes from the Securities and Exchange Commission, which has been looking into a potential overhaul of money-market funds. The regulator is considering introducing so-called swing pricing, which would result in funds charging redemption-like fees in cases of significant outflows. An announcement is expected later this year."
In other news, the SEC recently released its latest quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q4'21) to $313 billion (up from $302 billion in Q3'21 and down from $322 billion in Q4'20).
The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from First Calendar Quarter 2020 through Fourth Calendar Quarter 2021 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools.)
The tables in the SEC's "Private Funds Statistics: Fourth Calendar Quarter 2021," with the most recent data available, show 79 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 2 from last quarter and up 7 from a year ago. (There are 56 Section 3 Liquidity Funds out of the 79 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers (24 of which are Section 3 Liquidity Fund advisers), up 2 from last quarter and from a year ago.
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $313 billion, up $11 billion from Q3'21 and down $9 billion from a year ago (Q4'20). Of this total, $311 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $318 billion, up $8 billion from Q3'21 and down $8 billion from a year ago (Q4'20). Of this total, $316 billion in is Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $96 billion is held by Other (31.0%), $60 billion is held by Unknown Non-U.S. Investors (19.2%), $57 billion is held by Private Funds (18.5%), $23 billion is held by SEC-Registered Investment Companies (7.5%), $7 billion in held by Pension Plans (2.3%), $9 billion is held by Insurance Companies (2.8%), $4 billion is held by Non-Profits (1.2%) and $1 billion is held by State/Muni Govt. Pension Plans (0.3%).
The tables also show that 68.9% of Section 3 Liquidity Funds have a liquidation period of one day, $291 billion of these funds may suspend redemptions, and $260 billion of these funds may have gates. WAMs average a short 42 days (47 days when weighted by assets), WALs are 58 days (60 days when asset-weighted), and 7-Day Gross Yields average 0.20% (0.10% asset-weighted). Daily Liquid Assets average about 50% (42% asset-weighted) while Weekly Liquid Assets average about 61% (58% asset-weighted).
Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (41.1%) are fully compliant with Rule 2a-7. When calculating NAVs, 75.0% are "Stable" and 25.0% are "Floating." For more, see our Jan. 27 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting," and see the SEC's proposal "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews."
U.S. Securities & Exchange Commission Division of Investment Management Director William Birdthistle gave a speech Tuesday entitled, "Remarks at PLI: Investment Management 2022," where money market funds and MMF reforms were a major topic of the talk. He comments, "The final topic I would like to touch on today is money market funds. These funds, together with a few others, have at times been called 'shadow banks.' Today, the more common, slightly less pejorative term is 'non-bank financial institution.' As a proud member of the SEC's Division of Investment Management, I tend to view the $128 trillion in regulatory assets under management subject to our oversight as a substantial universe in its own right, worthy of its own adjective. But I understand that things might seem otherwise to advocates for the non-fund community."
Birdthistle explains, "Money market funds enjoyed their rise to prominence, of course, largely following the adoption of Regulation Q. Regulation Q imposed ceilings on interest rates that could be paid on bank deposits, which proved to be a competitive liability during the period of high inflation in the late 1970s and early 1980s. Instruments such as money market funds that could offer market interest rates (which peaked above twelve percent in 1981) prospered at the expense of bank accounts capped at the Regulation Q ceiling (which remained below six percent at the time). That moment served as the spark of life for an instrument that has since grown to hold approximately $5 trillion in assets."
He tells us, "While many practitioners may be most familiar with the 2008 financial crisis, the breaking of the buck in the Reserve Primary Fund, and the role of the run on money market funds in the 2008 crisis, there is another notable incident in the life of money market funds. That event is March 2020. It is hard not to notice that this incident has garnered considerably less interest among legal academics than the 2008 financial crisis. March 2020 is known to most of us as the onset of COVID-19, but there is not as much attention focused on these events by practitioners of law and finance as one might expect."
Birdthistle continues, "Today, I would like to dedicate some time to discussing March 2020 and hopefully inspire further intellectual exploration of this event with a few observations and questions for your consideration. September 2008 started primarily as a credit event. In contrast, the market stress of March 2020 was more of a liquidity event. As investors -- particularly institutional investors – sought liquidity and safety, they reallocated their assets into cash and short-term government securities in a dramatic bouleversement of the money market fund ecosystem. Government money market funds enjoyed record flows of $838 billion in March 2020 and an additional $347 billion in April 2020. That spike of well over a trillion dollars came from a variety of places, but the most challenging sources were prime money market funds. During the fortnight of March 11 to 24, publicly offered institutional prime funds experienced a 30% redemption rate (representing about $100 billion), which included outflows of approximately 20% of assets during the week of March 20 alone. One fund experienced a weekly redemption rate of approximately 55%."
He asks, "So how does a fund adviser manage this level of redemptions in one week? Not comfortably. Stresses such as these can lead to circumstances in which areas of the market can freeze and cause rates to spike. That tends to be when central bankers start having to write checks -- and deploring the operations of shadow banks."
Birdthistle also queries, "But what of gates adopted in response to 2008, don't they stop the redemptions? As March 2020 has vividly illustrated, some investors may have feared that if they were not the first to exit their fund, there was a risk that they could be subject to gates or fees, and this anticipatory, risk mitigating perspective potentially further accelerated redemptions."
He responds, "So what is a better solution? To make all these instruments bank accounts? The market had that choice forty years ago and rejected it. When interest rates are high, any instrument with an artificial ceiling is going to suffer the maladies of price controls. When interest rates are low, bank accounts may struggle to generate returns for citizens charged with providing for their own retirement. In a land largely bereft of private-sector pensions, that reduction in choice would be a true impediment. With neither pensions nor higher yielding investment instruments, ordinary Americans would face greater economic challenges. To paraphrase an Irish playwright, to lose one source of financial security may be regarded as a misfortune, to lose both looks like carelessness."
Birdthistle explains, "But there is another story at work here, beyond retail investors, inasmuch as most reforms of money market funds focus upon institutional dollars. No matter how much academics, bankers, and some practicing lawyers might suggest otherwise, institutional money is unlikely to return to bank accounts and more likely to find its way to ultrashort bond funds. Funds now play a role in the markets that bank accounts would have a hard time replacing. Banks do not offer diversified exposure or a market rate in non-zero rate environments. Institutional deposits also impose significant costs to banks in our post-Dodd-Frank regime. In attempting to make banks safer, we have locked in a much larger role for the capital markets in our economy. Attempting to deconstruct that architecture could impose intolerable consequences upon the U.S. economy and financial system. Indeed, money market funds are now so ingrained in our system that the Federal Reserve uses them as a conduit through which to set floors for monetary policy."
He posits, "Perhaps there are other paths that would allow mutual funds to flourish, while still being able to operate in moments of great stress. The United States tends to pride itself, rightfully, on exporting financial innovation around the world. But on this topic, European funds have experience with a process that might be a creative solution to future liquidity crises here: swing pricing. Swing pricing allows investors in a fund to leave whenever they wish but, in moments of tight liquidity, the departing shareholders must bear the higher costs of their exit. Economists everywhere would, I suspect, celebrate a mechanism that essentially prices preferences. In that vein, we are certainly looking forward to reviewing comments on this aspect of the recent money market fund proposal -- which does indeed address swing pricing."
Birdthistle also tells us, "For both regulators and practicing lawyers, the money market story may hold a few lessons. First, regulation is a challenge and an iterative process. Rules can be written to address behavior and analyze the likely consequences, but behavior can still change in a variety of ways that may require additional modifications. As a personal fan of soccer, I have lived through many adjustments to the offsides rule. And of course my teams have suffered more than anybody else's, and the referees are all terrible, and so forth. Yet I'm still a fan, I'm still learning the nuances of that rule, and soccer is still the world's most popular sport. So even with the breaking of the buck in September 2008 and the liquidity crunch of March 2020, our capital markets are the envy of the world. Because our vigilance and oversight is indefatigable and we are always considering ways to make market instruments more resilient."
He continues, "Second, the challenges of a solution like swing pricing can at times be less conceptual and more practical. Do we have a financial plumbing system that will easily allow for this solution? Like many circumstances in which a late arrival enjoys leap-frogging technology, Europe has the benefit of comparatively younger financial infrastructure. Parts of our system hearken back to Buttonwood trees, vacuum tubes, and reel-to-reel computing. Swing pricing, broadly adopted, might require upgrades to parts of that network. But perhaps the world's largest, most globally critical financial system ought to be more modern and robust. Theories are vital, and lawyers are good at them. But learning the plumbing is an underappreciated talent. In our Division, some of the most essential members are those who best understand the pipes of America's financial system."
Finally, Birdthistle adds, "Third, let me be clear that we all need to pay close attention to when things break, regulators most of all. So although I do not think everything should be a bank, nor am I sanguine about problems with money market funds and other instruments vulnerable to liquidity mismatches. On the contrary, I share Chair Gensler's position that the Securities and Exchange Commission has a responsibility to protect for financial stability and to increase the resilience of our financial system. I have seen what happens when firms disregard regulation in an unchecked pursuit of 'innovation.' When some insist on moving fast and breaking things, sometimes that just leaves things broken."
Money fund yields, as measured by our Crane 100 Money Fund Index (7-Day Yield), continued grinding higher, rising by 6 basis points to 1.34% in the week ended Friday, 7/22. Yields rose by 6 basis points the previous week and 4 basis points the week before that too. On average, they're up from 1.18% on June 30 and more than double their level of 0.58% on May 31, and up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Yields should jump again late this week if the Fed hikes rates by 75 bps again as expected. Brokerage sweep rates also inched higher over the past week, as Fidelity again tweaked their rates upwards. Our latest Brokerage Sweep Intelligence shows brokerages paying an average of 0.17% on FDIC insured deposits, up from 0.04% a month ago and 0.01% two months ago. We review the latest money fund and brokerage sweep yields below.
Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 1.23%, also up 6 bps in the week through Friday. The Crane Money Fund Average is up 76 bps from 0.47% at the beginning of June. Prime Inst MFs were up 3 bps to 1.41% in the latest week, and up 77 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 5 bps to 1.29%, they are up 75 bps since the start of June. Treasury Inst MFs up 10 bps for the week at 1.30%, up 80 bps since the beginning of June. Treasury Retail MFs currently yield 1.04%, (up 10 bps for the week, and up 74 bps since June), Government Retail MFs yield 0.98% (up 4 bps for the week, and up 72 bps since June started), and Prime Retail MFs yield 1.21% (up 3 bps for the week, and up 73 bps from beginning of June), Tax-exempt MF 7-day yields dropped by 2 bps to 0.37%, they were down 3 bps since the start of June.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched up a basis point to 0.17%. This follows increases over the past couple of months but also follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of July 22, show just one change over the previous week.
Our latest Brokerage Sweep Intelligence reports that `Fidelity increased rates to 0.82% for all balances between $1K and $5 million and over for the week ended July 22. Just four of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, and UBS.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/22), just 21 funds (out of 818 total) still yield 0.00% or 0.01% with assets of $4.1 billion, or 0.1% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 91 funds yielding between 0.02% and 0.49%, totaling $32.8B, or 0.7% of assets; 169 funds yield between 0.50% and 0.99% with $228.5 billion in assets, or 4.6%; 162 funds yield between 1.00% and 1.24% with $878.1 billion in assets or 17.6%; 259 funds yielded between 1.25% and 1.49% with $2.549 trillion or 51.0%; and 116 funds yielded over 1.50% ($1.305 trillion, or 26.1%).
In related news, a new Financial Institution Letter, entitled, "FDIC Updates on Brokered Deposits," explains, "The Federal Deposit Insurance Corporation (FDIC) is issuing a statement, adding a new Question and Answer (Q&A), and updating public information on the Banker Resource Center Brokered Deposits Page, to remind FDIC-insured depository institutions (IDIs) that deposits swept from broker dealers with a primary purpose exception to unaffiliated IDIs must be reported as brokered if there are any additional third parties involved that qualify as a deposit broker, as defined by Section 337.6 -- Brokered Deposits, of the FDIC's Rules and Regulations."
Highlights of the update include: "A Statement, new Q&A (D.10) in the Questions and Answers Related to Brokered Deposit Rule, and an update to the Public Report of Entities Submitting Notices for a Primary Purpose Exception asterisk note, are being issued to remind IDIs that: An IDI receiving sweep deposits from an unaffiliated broker dealer with a primary purpose exception for that business line should be aware of any additional third parties involved in the deposit placement arrangement that qualify as a deposit broker; If an additional third party is involved that would qualify as a deposit broker, for example, the third party is engaging in matchmaking activities, then the sweep deposits received from the broker dealer must be reported as brokered deposits on the IDI's quarterly filings of the Consolidated Report of Condition and Income (Call Report), even if the broker dealer has a primary purpose exception for the relevant business line."
The highlights continue, "In conjunction with new Q&A D.10, IDIs should review Q&A C.6 for an example of services that constitute matchmaking activities when provided by a third party to a broker-dealer in an unaffiliated sweep program; and The IDI is responsible for accurately reporting deposits on its Call Report. However, the FDIC will not require an IDI to refile Call Reports that predate the issuance of the attached Statement, if, after good faith efforts, certain deposits were not previously reported as brokered by the IDI due to a misunderstanding of how the facilitation aspect of the deposit broker definition applies when additional third parties are involved."
The new "Questions and Answers Related to Brokered Deposits Rule – As of July 15, 2022," tells us, "Below are answers to a collection of questions about the FDIC's brokered deposits rule. Any determination about whether an entity meets the deposit broker definition or one of the exceptions to the definition is based upon the facts and circumstances of each particular deposit placement arrangement. These questions and answers will be periodically updated on the FDIC's website."
Discussing "Exclusive Deposit Placement Arrangements," the FDIC asks, "1. If an insured depository institution (IDI) has separate affiliates that each sweep funds to that IDI (and do not sweep to any other IDI), would each of the affiliates be considered to have an 'exclusive deposit placement arrangement' with the one IDI?" They answer, "Yes, if each affiliate is placing funds at only one IDI, then each affiliate does not meet the 'deposit broker' definition. However, if the affiliates were each sweeping deposits to a different IDI, the IDIs should be aware that, as the FDIC noted in the preamble of the rule, 'a person that creates or utilizes multiple entities that each place deposits with one IDI to evade the rule, while still maintaining a relationship with one or more of such entities, will collectively be viewed as one 'person' and thus qualify as a deposit broker.' 86 Fed. Reg. 6745 (January 22, 2021)."
On Friday, S&P Global Ratings published the brief, "Rapidly Rising Rates Are Putting Some Money Market Funds At Risk," which discusses the `movement of NAV and 'shadow' NAVs of money market mutual funds due to the Federal Reserve's rapid increases in interest rates. They write, "As the Fed pursues rate tightening, S&P Global Ratings expects certain funds with longer-dated positions and longer average maturities to experience modest stress on their net asset values (NAVs). Since January 2022, the Federal Reserve has increased its target federal funds rate from a lower bound of 0.00%-0.25% to 1.50%-1.75% as of June 2022. S&P Global Economists now expect the Fed to be much more aggressive, with the policy rate rising from zero at the beginning of 2022 to 3% by year-end, reaching 3.50%-3.75% by mid-2023. We expect the Fed to keep monetary policy tight until inflation decelerates and nears its target in the second quarter of 2024. From our recent observations, it appears the market is preparing for an interest rate rise of 75 basis points next week, with some possibility of an increase of 100 basis points."
S&P explains, "When assigning a principal stability fund rating (PSFR), we assess management's focus on key characteristics such as credit quality, diversification, maturity, and liquidity of assets as tools to determine the likelihood of a fund maintaining a stable NAV.... These characteristics reflect management's approach and commitment to maintaining principal stability. While this task is generally challenging during times of market volatility, for principal stability funds, management may be placed under enhanced pressure during periods such as the one we are experiencing now: rapid inflation risk accompanied by uncertain and large magnitude monetary policy action to manage that risk."
They tell us, "Typically, but not always, managers reposition portfolios to limit risk of volatile NAVs by shortening duration and managing liquidity risk with enhanced focus on stress scenarios. If a 'AAAm' rated fund's NAV falls below 0.9985, we typically enhance our standard surveillance to ensure funds are maintaining metrics consistent with their assigned rating (i.e., for a 'AAAm' rated fund, the lowest NAV threshold to maintain that rating is 0.99750).... More specifically, our enhanced surveillance includes a shift from weekly portfolio pricing submissions to daily portfolio pricing and stress testing. Enhanced surveillance may also include daily dialogue with the rated fund sponsors. If we observe continued NAV deterioration based on our daily review, we often request a formal management action plan (MAP), typically when marked-to-market NAVs are at or below 0.9980."
S&P also says, "We focus on these NAV levels as warning signs that a fund is inching toward a NAV of less than 0.9950, at which point the fund will have 'broken the buck' as its NAV falls below $1. We focus on these levels to better understand management's commitment to and plan for limiting NAV volatility. We state different NAV sensitivities in our rating criteria in part to provide clarity to the market and fund managers that we would prefer to transition ratings through categories as opposed to simply waiting for a fund to break the buck -- which would represent a rating of 'Dm'."
Finally, they add, "As such, if NAVs fall below 0.9975 for a 'AAAm' rated fund, we have a maximum five-business-day cure period for management to restore and maintain the NAV to at least 0.9975, which is the lowest NAV associated with 'AAAm' rated funds. During the cure period, we would take into account a fund sponsor's MAP to remedy the pressured NAVs as we consider whether to place a rating on CreditWatch or not. We may also provide a bulletin to the market identifying those specific funds whose NAVs are below our criteria's threshold to support their rating (e.g., 0.9975 for 'AAAm' rated funds). A failure to cure the NAV breach within those five business days would typically lead to a downgrade. So far, in the current inflationary cycle, we have not taken any rating actions on funds rated under the PSFR methodology. We continue to closely monitor developments under an enhanced, often daily, surveillance."
Crane Data's latest Money Fund Intelligence Daily publication shows our Crane Money Fund Average, the average of the 671 taxable money funds tracked on a daily basis, with an average NAV, or net asset value, of 0.9996 (as of 7/21/22). This is down from 0.9999 on June 1. We expect NAVs to inch lower later this week once the Federal Reserve hikes rates sharply again.
In other news, BNY Mellon's latest earnings release states, "Total revenue increased 7%, primarily reflecting: Fee revenue increased 4%, primarily reflecting lower money market fee waivers, higher client activity and higher foreign exchange revenue, partially offset by the unfavorable impact of a stronger U.S. dollar, lower market values and the impact of lost business in the prior year in both Pershing and Corporate Trust. Investment and other revenue was unchanged primarily reflecting higher strategic equity investment gains, offset by lower seed capital results. Net interest revenue increased 28%, primarily reflecting higher interest rates on interest-earning assets and a change in asset mix, partially offset by higher funding expense and lower interest-earning assets."
It tells us, "The drivers of the total revenue variances by line of business are indicated below. Also see page 7 for information related to money market fee waivers. Asset Servicing – The year-over-year increase primarily reflects higher net interest revenue, lower money market fee waivers, higher foreign exchange revenue and client activity, partially offset by the unfavorable impact of a stronger U.S. dollar and lower market values.... Issuer Services – The year-over-year increase primarily reflects higher net interest revenue in Corporate Trust, higher Depositary Receipts revenue and lower money market fee waivers, partially offset by the impact of lost business in the prior year in Corporate Trust. The sequential increase primarily reflects the accelerated amortization of deferred costs for depositary receipts services related to Russia recorded in 1Q22, higher Depositary Receipts revenue, higher net interest revenue in Corporate Trust and lower money market fee waivers."
BNY Mellon writes, "The drivers of the total revenue variances by line of business are indicated below. Also see page 7 for information related to money market fee waivers. Pershing – The year-over-year increase primarily reflects lower money market fee waivers and higher transaction activity, partially offset by the impact of prior year lost business. The sequential increase primarily reflects lower money market fee waivers, partially offset by lower equity markets and lower transaction activity. Treasury Services – The year-over-year increase primarily reflects higher net interest revenue, lower money market fee waivers and higher payment volumes. The sequential increase primarily reflects higher net interest revenue and lower money market fee waivers. Clearance and Collateral Management – The year-over-year increase primarily reflects higher net interest revenue and clearance volumes. The sequential increase primarily reflects higher net interest revenue. The drivers of the total revenue variances by line of business are indicated below. Also see page 7 for information related to money market fee waivers."
They comment, "Investment Management – The year-over-year decrease primarily reflects the unfavorable impact of a stronger U.S. dollar, lower seed capital results and market values, an unfavorable change in the mix of AUM and lower equity income, partially offset by lower money market fee waivers. The sequential decrease primarily reflects lower market values, timing of performance fees and the unfavorable impact of a stronger U.S. dollar, partially offset by lower money market fee waivers. Wealth Management – The year-over-year and sequential decreases primarily reflect lower market values, partially offset by higher net interest revenue."
The release adds, "The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In 2Q22, the net impact of money market fee waivers was $66 million, down from $199 million in 1Q22, driven by higher interest rates."
Fitch Ratings published a number of pieces recently, including one entitled, "What Investors Want to Know: Global Money Market Fund Regulation." This paper explains, "New MMF rules have been proposed by the Securities and Exchange Commission (SEC) in the US, European Securities and Markets Authority (ESMA) in Europe and the China Securities Regulatory Commission (CSRC) since 2021. The proposed rules in the US and Europe focus on addressing threshold issues, enhancing MMF liquidity and imposing liquidity management tools, such as swing pricing. Meanwhile, China's regulators are targeting a reduction in the risks associated with large individual MMFs. This report compares the regulatory developments in the three large MMF markets and assesses the potential impact on funds and asset managers. Fitch Ratings expects the US proposals to incrementally widen rating headroom at MMFs, with the exception of swing pricing."
Fitch asks, "How Could the Proposals Affect EU MMFs?" They write, "Prohibiting the use of amortised cost valuations for LVNAV fund proceeds could diminish investor appetite for these products and lead to fund outflows, shrinking the size of LVNAV MMFs. In addition, ESMA's proposed pricing mechanism changes would alter LVNAV fund structures. Many investors view constant pricing as a key attribute of LVNAVs and most respondents to ESMA's initial consultation objected to the elimination of the LVNAV fund structure."
The ratings agency's update continues, "ESMA has not yet finalised its proposal to increase liquidity requirements. Recommendations from the European Systemic Risk Board include higher levels of daily and weekly maturing assets as well as public debt assets and aim to assist MMFs in meeting heightened redemption requests. ESMA also sees a need to differentiate additional liquidity requirements between variable net asset value (VNAV) funds and LVNAV funds. Nevertheless, the proposals do not include exact values for amendments, and ESMA has indicated that further assessment is needed before proposing specific suggestions. Funds may need to adjust the amount and composition of liquid assets, depending on the values included in the final form of the regulations."
It adds, "ESMA proposes to mandate the availability of at least one liquidity management tool for all MMFs. This allows some flexibility, in contrast to the proposed rules in the US that require institutional prime and institutional tax-exempt MMFs to adopt swing pricing. Possible tools in the EU include anti-dilution levies, liquidity fees or swing pricing, and ESMA proposed that the MMF manager can choose to activate such tools, rather than the option being dictated by authorities."
Fitch comments, "Current EU MMF regulations require LVNAV and public debt constant net asset value (CNAV)funds to make provisions for liquidity fees and redemption gates, whereas VNAV MMFs may adopt any eligible liquidity tools under the directives for Undertakings for the Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive, although this is not specifically detailed in the regulations. These tools include suspending redemptions, gates and side pockets. The choice is subject to domestic implementation measures, as the use of such tools is not harmonised in EU law and is mostly subject to national law."
A press release, "Fitch Withdraws Amundi Money Market Fund - Short Term (EUR)'s Rating," states, "Fitch Ratings has withdrawn Amundi Money Market Fund - Short Term (EUR) 'AAAmmf' rating. The rating was withdrawn as the fund was liquidated on 12 July 2022. Fitch will no longer provide rating or analytical coverage of the fund."
Yet another posting, entitled, "European Short-Term Bond Fund Dashboard: June 2022," says, "Fitch Ratings estimates that over two-thirds of short-term bond funds (STBFs) had a weighted average rating factor equivalent to 'BBBf' or below in 1Q22, as measured by weighted assets under management (AUM), based on a sample representing 70% of industry AUM. This is an increase of almost 10% on the previous quarter. High inflation causing funds to seek higher yields by investing in riskier securities may be a contributing factor."
It continues, "Fitch defines STBFs as fixed-income funds with a target duration of between one and three years.... [A] substantial fall in real rates may have contributed to the reallocation to risker asset classes, and the consequent contraction of AUM that emerged in the first quarter. As of March 2022, Article 8 share of AUM among STBFs was 40%, while most STBFs assets are invested in Article 6 funds (45%)."
Finally, Fitch just published their, "U.S. ESG Money Market Funds: 2Q22," which states, "On May 25, 2022, the SEC proposed rule changes on both environmental, social, and governance (ESG) disclosures for investment advisers and investment companies and investment company names. The proposed amendments will require ESG funds to invest more of their assets in ESG investments and establish uniform disclosure requirements. These changes may affect the amount of funds that will brand themselves as ESG going forward and limit potential greenwashing."
They state, "As of June 30, 2022, total U.S. ESG MMF assets under management (AUM) were $9.1 billion. AUM decreased by $240 million in 2Q22, or -2.6%, while overall prime MMF AUM decreased by 4%.... Gross yields of ESG MMFs averaged 82 basis points (bps) in 2Q22, the same as non-ESG MMFs. ESG MMFs' net yields averaged 67 bps during the quarter, which is 6 bps higher than comparable non-ESG MMFs due to lower expense ratios at the ESG funds."
Fitch says, "The Fed continued tightening on May 4th and June 15th, raising rates by 50 and 75 bps, respectively. ESG MMFs' gross and net yields were up 118 bps and 116 bps, respectively, between March 31, 2022 and June 30, 2022, while non-ESG MMFs' gross and net yields rose 118 bps each over the same period. Following each rate hike, yield spreads decreased but quickly stabilized.... Yields will continue to increase as the Fed's benchmark federal-funds rate is expected to reach at least 300 bps by the end of this year."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $26.6 billion in June to $5.044 trillion, after decreasing in May and April, increasing in March and falling sharply in Feb. The SEC shows that Prime MMFs increased by $8.5 billion in June to $860.0 billion, Govt & Treasury funds increased $14.4 billion to $4.073 trillion and Tax Exempt funds increased $3.7 billion to $111.5 billion. Taxable yields skyrocketed in June after rising in May. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.
June's asset increase follows decreases of $19.7 billion in May and $63.3 billion in April, an increase of $40.1 billion in March, and 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 a decrease of $39.9 billion last July. Over the 12 months through 6/30/22, total MMF assets have increased by $18.7 billion, 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 $5.044 trillion in assets, $860.0 billion was in Prime funds, up $8.5 billion in June. Prime assets were up $9.4 billion in May, down $11.7 billion in April, up $29.5 billion in March, 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. 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 17.0% of total assets at the end of June. They've decreased by $34.7 billion, or -3.9%, over the past 12 months. (Month-to-date in July through 7/19, total MMF assets have increased by $24.3 billion, according to our MFI Daily.)
Government & Treasury funds totaled $4.073 trillion, or 80.7% of assets. They increased $14.4 billion in June, decreased by $36.7 billion in May, decreased $57.1 billion in April, increased $8.7 billion in March, decreased by $25.8 billion in February and $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 $44.2 billion over 12 months, or 1.1%. Tax Exempt Funds increased $3.7 billion to $111.5 billion, or 2.2% of all assets. The number of money funds was 307 in June, down 1 from the previous month and down 12 funds from a year earlier.
Yields for Taxable MMFs and Tax Exempt MMFs surged higher in June. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on June 30 was 1.49%, up 61 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 1.63%, up 67 bps from the previous month. Gross yields were 1.46% for Government Funds, up 63 basis points from last month. Gross yields for Treasury Funds were up 53 bps at 1.34. Gross Yields for Tax Exempt Institutional MMFs were up 12 basis points to 0.88% in June. Gross Yields for Tax Exempt Retail funds were up 16 bps to 0.98%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 1.44%, up 61 bps from the previous month and up 139 basis points from 6/30/21. The Average Net Yield for Prime Retail Funds was 1.33%, up 68 bps from the previous month, and up 131 bps since 6/30/21. Net yields were 1.22% for Government Funds, up 63 bps from last month. Net yields for Treasury Funds were also up 53 bps from the previous month at 1.12%. Net Yields for Tax Exempt Institutional MMFs were up 12 bps from May to 0.78%. Net Yields for Tax Exempt Retail funds were up 17 bps at 0.73% in June. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in June. The average Weighted Average Life, or WAL, was 44.0 days (up 1.0 days) for Prime Institutional funds, and 48.3 days for Prime Retail funds (up 0.2 days). Government fund WALs averaged 68.7 days (down 2.5 days) while Treasury fund WALs averaged 74.6 days (down 4.5 days). Tax Exempt Institutional fund WALs were 9.2 days (up 1.6 days), and Tax Exempt Retail MMF WALs averaged 16.7 days (up 0.6 days).
The Weighted Average Maturity, or WAM, was 20.5 days (up 0.2 days from the previous month) for Prime Institutional funds, 15.4 days (up 0.2 days from the previous month) for Prime Retail funds, 24.6 days (down 1.1 days from previous month) for Government funds, and 33.7 days (down 2.0 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 1.5 days to 9.0 days, while Tax Exempt Retail WAMs were up 0.9 days from previous month at 16.2 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.3% in June (up 0.8% from the previous month), and DLA for Prime Retail funds was 39.8% (up 3.1% from previous month) as a percent of total assets. The average DLA was 81.6% for Govt MMFs and 98.6% for Treasury MMFs. Total Weekly Liquid Assets was 65.9% (up 0.8% from the previous month) for Prime Institutional MMFs, and 52.3% (up 3.0% from the previous month) for Prime Retail funds. Average WLA was 90.0% for Govt MMFs and 99.6% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for June 2022," the largest entries included: Canada with $84.8 billion, Japan with $71.8 billion, France with $51.0 billion, the U.S. with $50.3B, Aust/NZ with $30.9B, the U.K. with $29.6B, the Netherlands with $22.5B, Germany with $19.1B and Switzerland with $9.3B. The gainers among the "Prime MMF Holdings by Country" included: Japan (up $8.5B), the U.S. (up $3.6B) and Canada (up $1.1B). Decreases were shown by: the Netherlands (down $12.9B), Germany (down $12.3B), France (down $12.3B), Switzerland (down $1.5B), Aust/NZ (down $0.6B) and the U.K. (down $0.5B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $135.1 billion (up $4.7B), while Asia Pacific had $121.0B (up $10.1B). Eurozone subset had $103.3B (down $40.3B), while Europe (non-Eurozone) had $73.6B (down $13.3B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $859.2B billion in Prime MMF Portfolios as of June 30, $384.7B (44.8%) was in Government & Treasury securities (direct and repo) (up from $333.6B), $188.6B (22.0%) was in CDs and Time Deposits (down from $210.7B), $149.3B (17.4%) was in Financial Company CP (down from $157.5B), $109.0B (12.7%) was held in Non-Financial CP and Other securities (down from $120.3B), and $27.6B (3.2%) was in ABCP (down from $30.2B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $100.5 billion, Canada with $73.6 billion, France with $73.6 billion, the U.K. with $24.8 billion, Germany with $10.4 billion, Japan with $79.3 billion and Other with $19.4 billion. All MMF Repo with the Federal Reserve was up $309.7 billion in June to $2.063 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.0%, Prime Retail MMFs with 6.8%, Tax Exempt Inst MMFs with 0.6%, Tax Exempt Retail MMFs with 1.9%, Govt MMFs with 12.7% and Treasury MMFs with 11.9%.
Fidelity Investments filed to liquidate and reorganize most of their State Municipal money market funds, merging the AZ, CT, MI, OH, and PA Muni MMFs into Fidelity Municipal Money Market Fund, and consolidating their CA, MA, NJ and NY State Muni fund offerings. While there haven't been many moves in 2022, there has been a steady stream of exits in the Tax-Exempt money fund space, driven by years of near-zero yields and money fund reforms. Over the past 5 years, the number of Municipal money market funds has dropped from 245 to 150, while the number of State Municipal funds has fallen from 116 to 53. Since June 2008, assets in Muni MMFs have steadily declined from $490.6 billion to $111.4 billion (as of 6/30/22). Fidelity currently manages 33 Municipal MMFs with $28.0 billion; after these mergers go through, the lineup will be reduced to 20 Muni MMFs.
The filing for the $63 million Fidelity AZ Municipal MMF (FSAXX) says, "The Board of Trustees of Fidelity Union Street Trust II has unanimously approved an Agreement and Plan of Reorganization between Fidelity Arizona Municipal Money Market Fund and Fidelity Municipal Money Market Fund pursuant to which Fidelity Arizona Municipal Money Market Fund would be reorganized on a tax-free basis with and into Fidelity Municipal Money Market Fund."
A Prospectus Supplement for the $284 million Fidelity CT Municipal MM (FCMXX) contains similar language and adds, "A Special Meeting of the Shareholders of Fidelity Connecticut Municipal Money Market Fund is expected to be held on or about November 16, 2022 and approval of the Agreement will be voted on at that time. A combined proxy statement and prospectus containing more information with respect to the Reorganization will be provided to shareholders of record of Fidelity Connecticut Municipal Money Market Fund in advance of the meeting."
The filing for the $187 million Fidelity MI Municipal MM (FMIXX) explains, "The Board of Trustees of Fidelity Municipal Trust II and Fidelity Union Street Trust II has unanimously approved an Agreement and Plan of Reorganization between Fidelity Michigan Municipal Money Market Fund and Fidelity Municipal Money Market Fund pursuant to which Fidelity Michigan Municipal Money Market Fund would be reorganized on a tax-free basis with and into Fidelity Municipal Money Market Fund."
Fidelity OH Muni MM Inv ($177M, FOMXX) and Fidelity PA Muni MM Inv ($152M, FPTXX) also filed to merge into Fidelity Municipal Money Market Fund. Their filings tell us, "A Special Meeting of the Shareholders of Fidelity Pennsylvania Municipal Money Market Fund is expected to be held on or about November 16, 2022 and approval of the Agreement will be voted on at that time. A combined proxy statement and prospectus containing more information with respect to the Reorganization will be provided to shareholders of record of Fidelity Pennsylvania Municipal Money Market Fund in advance of the meeting. If the Agreement is approved at the Meeting and certain conditions required by the Agreement are satisfied, the Reorganization is expected to take place on or about December 2, 2022. If shareholder approval of the Agreement is delayed due to failure to meet a quorum or otherwise, the Reorganization will become effective, if approved, as soon as practicable thereafter."
Filings for the $1.1 billion Fidelity CA Municipal MM (FCFXX) and $2.6 billion Fidelity CA AMT Tax-Free MM (FSPXX, FSBXX, FCFXX) state, "On July 14, 2022, the Board of Trustees approved removing the principal investment strategy to 'normally not invest in municipal securities whose interest is subject to the federal alternative minimum tax' effective September 14, 2022. On July 14, 2022, the Board of Trustees approved a name change for the fund. Effective after the close of business on September 16, 2022, Fidelity California AMT Tax-Free Money Market Fund will be renamed Fidelity California Municipal Money Market Fund."
We also learned that the $1.0 billion Fidelity MA Municipal MM (FDMXX) will merge into the $1.25 billion Fidelity MA AMT Tax-Free MM (FMSXX, FMAXX and FMHXX), which will then be renamed (back to) Fidelity MA Municipal Money Market. The $386 million Fidelity NJ Municipal MMF (FNJXX) will merge into the $419 million Fidelity NJ AMT Tax-Free MM (FSJXX, FSKXX, FNNXX). Also, the $876 million Fidelity NY Municipal MM (FNYXX) will merge into the $1.5 billion Fidelity NY AMT Tax-Free MM (FSNXX, FNKXX and FNOXX).
For more on recent liquidations (or the lack thereof) in the space, see our Crane Data News pieces: "Ivy Funds Liquidating ... Again (6/2/22); "AIG Govt MMF, MuniFund Liquidate (8/3/21), "Western Files to Liquidate Tiny MMFs (6/7/21), "BlackRock Liquidates Ready Assets (2/11/21), "Delaware Liquidates Govt Cash Mgmt" (1/11/21); "DWS Liquidating Govt CR (BIRXX)" (11/25/20); "BMO Liquidating Inst Prime MMF" (11/17/20); "Morgan Stanley NY Muni MM Gone" (10/5/20); "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ" (9/28/20) and "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations (2/20/20).
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 July 15) includes Holdings information from 62 money funds (down 9 from two weeks ago), which represent $2.093 trillion (down from $2.527 trillion) of the $4.989 trillion (41.9%) 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 July 13 News, "July Portfolio Holdings: Fed Repo in MMFs Breaks $2.0 Tril; T-Bills Down," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.100 trillion (down from 1.281 trillion two weeks ago), or 52.6%; Treasuries totaling $721.2 billion (down from $947.5 billion two weeks ago), or 34.5%, and Government Agency securities totaling $118.9 billion (down from $133.8 billion), or 5.7%. Commercial Paper (CP) totaled $47.8 billion (down from two weeks ago at $52.0 billion), or 2.3%. Certificates of Deposit (CDs) totaled $37.0 billion (down from $40.8 billion two weeks ago), or 1.8%. The Other category accounted for $44.9 billion or 2.1%, while VRDNs accounted for $22.3 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $858.6 billion (41.0%), the US Treasury with $721.2 trillion (34.5% of total holdings), Federal Home Loan Bank with $72.3B (3.5%), Federal Farm Credit Bank with $40.8B (2.0%), BNP Paribas with $36.1B (1.7%), RBC with $30.2B (1.4%), Fixed Income Clearing Corp with $21.5B (1.0%), Mitsubishi UFJ Financial Group Inc with $15.5B (0.7%), Credit Agricole with $14.1B (0.7%) and Sumitomo Mitsui Banking Corp with $12.8B (0.6%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($244.6B), Goldman Sachs FS Govt ($208.9B), Morgan Stanley Inst Liq Govt ($175.2B), Dreyfus Govt Cash Mgmt ($118.3B), Fidelity Inv MM: Govt Port ($116.9B), Goldman Sachs FS Treas Instruments ($107.4B), Allspring Govt MM ($102.7B), State Street Inst US Govt ($99.0B), JPMorgan 100% US Treas MMkt ($85.7B) and First American Govt Oblg ($82.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Our flagship Crane 100 Money Fund Index 7-Day Yield Average rose by 6 basis points to 1.29% in the week ended Friday, 7/15, after rising 4 basis points the previous week and 4 basis points the week before that. (It rose another 1 bp yesterday to 1.30%.) Money market fund yields have more than doubled from their level of 0.58% on May 31, and they're up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where they'd been for almost 2 years prior). Brokerage sweep rates also inched higher over the past week. Our latest Brokerage Sweep Intelligence shows brokerages paying an average of 0.16% on FDIC insured deposits, up from 0.04% a month ago and 0.01% two months ago. We review the latest money fund and brokerage sweep yields below.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 1.17%, up 12 bps in the week through Friday. The Crane Money Fund Average is up 70 bps from 0.47% at the beginning of June. Prime Inst MFs were up 6 bps to 1.38% in the latest week, and up 74 bps since the start of June (close to double from the month prior). Government Inst MFs rose by 9 bps to 1.24%, they are up 70 bps since the start of June. Treasury Inst MFs up 9 bps for the week at 1.20%, up 70 bps since the beginning of June. Treasury Retail MFs currently yield 0.94%, (up 7 bps for the week, and up 64 bps since June), Government Retail MFs yield 0.94% (up 10 bps for the week, and up 68 bps since June started), and Prime Retail MFs yield 1.18% (up 3 bps for the week, and up 70 bps from beginning of June), Tax-exempt MF 7-day yields dropped by 8 bps to 0.39%, they were down 1 bp since the start of June.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched up a basis point to 0.16%. This follows increases over the past couple of months but also follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of July 15, show just one change over the previous week.
Our latest Brokerage Sweep Intelligence reports that `Ameriprise Financial Services increased rates to 0.10% for balances between $100K and $250K, to 0.12% for balances between $250K and $1 million, to 0.14% for balances between $1 million and $5 million and to 0.16% for balances of $5 million and more for the week ended July 15. Just four of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, and UBS.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/15), just 20 funds (out of 818 total) still yield 0.00% or 0.01% with assets of $4.1 billion, or 0.1% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 90 funds yielding between 0.02% and 0.49%, totaling $45.6B, or 0.9% of assets; 208 funds yield between 0.50% and 0.99% with $250.4 trillion in assets, or 5.0%; 188 funds yield between 1.00% and 1.24% with $1.450 trillion in assets or 29.1%; 237 funds yielded between 1.25% and 1.49% with $2.430 trillion or 48.7%; and 75 funds yielded over 1.50% ($809.2 billion, or 16.2%).
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds.
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in June, prime money market funds held 32.6 percent of their portfolios in daily liquid assets and 49.4 percent in weekly liquid assets, while government money market funds held 87.3 percent of their portfolios in daily liquid assets and 92.7 percent in weekly liquid assets." Prime DLA was down from 32.8% in May, and Prime WLA was unchanged at 49.4%. Govt MMFs' DLA increased from 86.0% in May and Govt WLA decreased from 93.0% the previous month.
ICI explains, "At the end of June, prime funds had a weighted average maturity (WAM) of 16 days and a weighted average life (WAL) of 57 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 28 days and a WAL of 71 days." Prime WAMs and WALs were both unchanged from the previous month. Govt WAMs were 1 day shorter and WALs were 3 days shorter from May.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $165.23 billion in May to $204.49 billion in June. Government money market funds' holdings attributable to the Americas rose from $3,678.54 billion in May to $3,798.43 billion in June."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $204.5 billion, or 47.5%; Asia and Pacific at $85.9 billion, or 19.9%; Europe at $134.4billion, or 31.2%; and, Other (including Supranational) at $6.0 billion, or 1.5%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.798 trillion, or 95.0%; Asia and Pacific at $73.5 billion, or 1.8%; Europe at $111.0 billion, 2.8%, and Other (Including Supranational) at $15.4 billion, or 0.4%.
Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds rose again over the past month to $985.9 billion. European MMF assets declined during the first 4 1/2 months of 2022, but they've increased over the past 2 months. They still remain below their record high of $1.101 trillion in mid-December 2021. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $21.3 billion over the 30 days through 7/14. They're down $77.1 billion (-7.3%) year-to-date. Offshore US Dollar money funds are up $6.9 billion over the last 30 days and are down $4.7 billion YTD to $529.8 billion. Euro funds rose E7.6 billion over the past month. YTD they're down E21.1 billion to E137.3 billion. GBP money funds increased L4.3 billion over 30 days; they are down by L24.2 billion YTD to L222.9B. U.S. Dollar (USD) money funds (206) account for over half (53.7%) of the "European" money fund total, while Euro (EUR) money funds (95) make up 16.5% and Pound Sterling (GBP) funds (133) total 29.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Tuesday), below. (Note: Mark your calendars and make your hotel reservations soon for our upcoming European Money Fund Symposium, which is Sept. 27-28, 2022, in Paris, France.)
Offshore USD MMFs yield 1.37% (7-Day) on average (as of 7/14/22), up from 0.71% 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 -0.59% 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 1.06%, up 22 bps from a month ago, and up from 0.01% on 12/31/21. Sterling yields were 0.00% on 12/31/20, 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 6/30/22, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 17% in Certificates of Deposit (CDs), 26% in Repo, 18% in Treasury securities, 15% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 56.0% of their portfolios maturing Overnight, 6.6% maturing in 2-7 Days, 10.8% maturing in 8-30 Days, 7.1% maturing in 31-60 Days, 6.1% maturing in 61-90 Days, 11.3% maturing in 91-180 Days and 2.0% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (32.5%), France (14.8%), Canada (12.7%), Japan (10.9%), Sweden (5.5%), the U.K. (3.8%), Australia (3.3%), Germany (3.0%), the Netherlands (3.0%) and Singapore (2.1%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $97.6 billion (18.3% of total assets), RBC with $27.7B (5.2%), BNP Paribas with $23.6B (4.4%), Sumitomo Mitsui Banking Corp with $18.6B (3.5%), Federal Reserve Bank of New York with $17.9B (3.4%), Credit Agricole with $16.8B (3.2%), Fixed Income Clearing Corp <b:>`_ with $15.1B (2.8%), Skandinaviska Enskilda Banken AB with $12.4B (2.3%), Barclays with $11.4B (2.1%) and Mizuho Corporate Bank with $11.2B (2.1%).
Euro MMFs tracked by Crane Data contain, on average 39% in CP, 24% in CDs, 25% in Other (primarily Time Deposits), 10% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 36.8% of their portfolios maturing Overnight, 11.2% maturing in 2-7 Days, 22.4% maturing in 8-30 Days, 15.1% maturing in 31-60 Days, 8.2% maturing in 61-90 Days, 4.0% maturing in 91-180 Days and 2.1% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.6%), Japan (12.9%), the U.S. (8.5%), Sweden (6.6%), the U.K. (6.3%), Germany (5.8%), Switzerland (5.5%), Austria (4.7%), Canada (4.5%) and the Netherlands (4.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.5B (5.4%), Societe Generale with E5.4B (4.5%), BNP Paribas with E5.1B (4.2%), Natixis with E4.6 (3.8%), DZ Bank AG with E4.1B (3.4%), Barclays PLC with E4.1B (3.4%), Sumitomo Mitsui Banking Corp with E3.7B (3.1%), Mizuho Corporate Bank Ltd with E3.7B (3.0%), Credit Mutuel with E3.5B (2.9%) and ING Bank with E3.4B (2.9%).
The GBP funds tracked by MFI International contain, on average (as of 6/30/22): 36% in CDs, 21% in CP, 23% in Other (Time Deposits), 18% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 41.3% of their portfolios maturing Overnight, 11.7% maturing in 2-7 Days, 12.2% maturing in 8-30 Days, 11.6% maturing in 31-60 Days, 6.2% maturing in 61-90 Days, 10.1% maturing in 91-180 Days and 7.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.8%), Canada (16.9%), Japan (15.9%), the U.K. (9.8%), Australia (6.6%), Sweden (5.0%), the U.S. (4.3%), the Netherlands (4.3%), Germany (3.7%) and Spain (3.0%).
The 10 Largest Issuers to "offshore" GBP money funds include: BNP Paribas with L7.0B (4.7%), Mitsubishi UFJ Financial Group Inc with L6.6B (4.4%), Toronto-Dominion Bank with L6.5B (4.4%), Bank of Nova Scotia with L6.1B (4.0%), RBC with L5.7B (3.8%), Barclays with L5.5B (3.7%), Mizuho Corporate Bank Ltd with L5.2B (3.5%), Sumitomo Mitsui Trust Bank with L5.2B (3.4%), Credit Agricole with L5.1B (3.4%) and Nordea Bank with L4.9B (3.3%).
In related news, Bloomberg writes that, "Money-Market Funds Could Get BOE Backstop Access, Says Barclays." The article tells us, "The Bank of England could give money-market funds access to some of its liquidity facilities amid concerns the industry amplifies episodes of market stress, according to Barclays Plc. The central bank and the UK's Financial Conduct Authority are looking into reforming MMFs after they came under severe strain at the start of the pandemic panic two years ago. It forms part of a global regulatory push to better regulate the investment vehicles."
It continues, "The BOE has touted a variety of options, such as changing what the funds invest in so their assets are more easily liquidated or adjusting their redemption policies so investors can't demand cash immediately. `More radically, it could give them access to its liquidity facilities. While these backstops have typically been limited to the likes of banks and dealers, MMFs' systemic importance could yield a compromise, Barclays said in a note to clients."
Bloomberg quotes Barclays Strategist Moyeen Islam, "Money market funds play an important but often under-appreciated role in the interest-rate transmission mechanism.... All else equal, access to a central-bank backstop should prevent liquidity runs and impose stability on MMFs."
The June issue of our Bond Fund Intelligence, which was sent to subscribers Thursday, features the lead story, "Worldwide BF Assets Drop to $13.0 Trillion, Led by U.S.," which reviews Q1 declines in the U.S. and other countries; and, "Ultra-Shorts Not So Hot at Money Fund Symposium," which quotes from Crane Data's most recent conference. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged in June while yields rose for the 9th straight month. 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.)
Our "Worldwide" piece reads, "Bond fund assets worldwide decreased moderately in the latest quarter to $13.0 trillion, led by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and China. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, First Quarter 2022' release and statistics below."
ICIs report says, "Worldwide regulated open-end fund assets decreased 4.6 percent to $67.80 trillion at the end of the first quarter of 2022.... Worldwide net cash inflow to all funds was $81 billion in the first quarter, compared with $1.1 trillion of net inflows in the fourth quarter of 2021. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the first quarter of 2022 contains statistics from 46 jurisdictions."
Our "Ultra-Shorts" piece states, "Crane Data's recent Money Fund Symposium conference included a segment entitled, 'Ultra-Short Bond & European MMF Update,' which featured J.P. Morgan Securities' Teresa Ho, UBS Asset Mgmt's Rob Sabatino, and Federated Hermes' Dennis Gepp. We excerpt from the bond fund-related segments below. (Note: The recordings are available in our 'Money Fund Symposium 2022 Download Center.')"
It continues, "Ho says, 'It's been a pretty ugly year in the fixed income world across the curve and pretty much across asset classes. The sharp pivot in the Fed's monetary policy really punished bond holders, particularly so out the curve.... The front end has performed better than the other parts of the curve. But relative to its historical performance, the front end in the 1-3 year space has had its worst returns since 2020, with returns approaching -2%.... We've seen negative returns dominate, and this is across all different strategies and styles -- government, conservative credit, credit and multisector. The only sector that's been unscathed so far this year are money market funds.'"
Our first News brief, "Returns Get Real Ugly; Yields Higher," says, "Bond fund returns plunged, their 5th decline in 6 months. Yields rose for the 9th month in a row in June. Our BFI Total Index fell 2.20% over 1-month and is down 8.04% over 12 months. The BFI 100 returned -2.30% in June and -8.54% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.24% for 1-month and down 0.90% for 1-year; Ultra-Shorts declined 0.55% and 1.99%, respectively. Short-Term returned -1.27% and -4.80%, and Intm-Term fell -2.03% in June and is down 9.72% over 1-year. BFI's Long-Term Index fell 2.59% and -12.75%. High Yield fell 5.24% in June and 10.04% over 1-year."
A second News brief, "Morningstar Discusses, 'How the Most Widely Held Bond Funds Did in the Second Quarter.'" They write, "Investors in the most widely held bond funds saw across-the-board losses in the second quarter, as stubbornly high inflation and rising interest rates took their toll on returns.... For bond investors, that meant a second consecutive quarter of losses across the vast majority of funds, including those most widely held by investors. And at midyear, bond fund investors are facing some of the worst losses in the market's history."
We also write, "Reuters' 'U.S. Bond Funds See Weekly Inflows After Four Weeks' tells us, 'Investors were net buyers of U.S. bond funds in the week ended July 6 as rising worries over economic growth increased demand for safe-haven U.S. debt. According to Refinitiv Lipper data, U.S. bond funds attracted a net $2.72 billion in purchases, marking their first weekly inflow since June 1.'"
Yet another News brief is: "The WSJ's 'Bond ETFs Attract New Investors With Narrower Offerings' tells us, 'This wouldn't seem to be the best of times for exchange-traded funds that focus on fixed income. A resurgence of inflation not seen in 40 years has put upward pressure on interest rates, which, in turn, has sent prices of bonds and bond funds tumbling. Yet new investment in fixed-income ETFs continues apace. Why? Like their cousins for stocks, ETFs that trade in bond and credit markets have become more granular over the years.... Investors have poured nearly $500 billion into U.S.-listed bond ETFs since the end of 2019, closing June with nearly $1.2 trillion in assets under management, according to research firm CFRA. Investor demand helped lead asset managers to launch 163 new products over the same time frame.'"
A BFI sidebar, "MSRB on Muni Owners," states, "A press release entitled, 'MSRB Research Reveals Significant Shifts in Municipal Securities Ownership <i:https://www.msrb.org/News-and-Events/Press-Releases/2022/Securities-Ownership>,' explains, '`The `Municipal Securities Rulemaking Board (MSRB) examines trends in municipal securities ownership since 2004, revealing a continuous decline in individual investor direct ownership of municipal securities while ownership through funds has steadily risen. Looking at Federal Reserve data from 2004 through the first quarter of 2022, the MSRB found that ownership among banks, insurance companies, money market funds and foreign investors has also shifted.... Ownership of municipal securities has changed significantly during that time period, with ownership through funds—primarily mutual funds and exchange-traded funds (ETFs) -- taking a significant share from direct ownership as individual investor product preferences have shifted.'"
Finally, another sidebar is "BF Outflows Grow in June." It says, "Bond funds saw outflows for the 6th straight month in June. Total assets declined by $99.1 billion to $2.799 trillion last month, according to our Bond Fund Intelligence. YTD, assets are down $526.1 billion (through 6/30/22), and over 1-year they've fallen by $498.4 billion, or -15.1%."
Allspring Money Market Funds writes in their latest monthly "Overview, Strategy, and Outlook" publication, "For our funds, we continue to focus on what the FOMC is saying and positioning for future policy rate increases. 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 has allowed our portfolios to capture these rate increases fairly quickly. In addition to capturing higher yields, the enhanced levels of liquidity allow our portfolios to meet the liquidity needs of our investors and help buffer net asset value (NAV) volatility."
Discussing the "U.S. government sector," they comment, "Although the Fed's rate path deserves and receives much attention, including being addressed above, the degree to which demand overwhelms supply in the government money markets continues to make life difficult for investors in the front end of those markets. In a sense, the Fed's rate setting is the macro picture while the market conditions are the micro environment in which investors operate. The macro has been terrific for investors ('to the moon, Alice') while the micro pressure has meant investment yields on government securities have lagged the Fed's moves."
Allspring says, "The best indicators of the supply/demand imbalance are Treasury bill (T-bill) market levels, Fed reverse repurchase (repo) program (RRP) usage, and repo market behavior as reflected in Secured Overnight Financing Rate (SOFR) settings."
They explain, "T-bills maturing within the next month have routinely traded 40 bps to 50 bps through the Fed's RRP level of 1.55%, the presumed rate floor in the government money markets. This reflects the pressure that investors without access to the RRP have brought on rates in buying because they must (for example, in the case of 100% Treasury money market funds) or because they consider it their best option, all while T-bill supply has fallen fairly significantly for most of the year, by just over $500 billion since February. Rarely have T-bills been so expensive relative to traditional alternatives such as repos."
The Overview states, "While we only see the footprint of the imbalance in T-bill market yields, we can actually measure the imbalance itself by looking at RRP usage <b:>`_.... The RRP is where money goes when it has no better home, and its usage grew from essentially zero to its current $2+ trillion as the Fed's balance sheet grew over the two years of pandemic quantitative easing (QE). By design, QE creates money, either in the form of bank reserves or other liquidity, and much of it found its way into the RRP. Although QE ended in March, the RRP is still growing, probably largely because savers grow less tolerant of stagnant bank deposit yields with each passing Fed rate hike. That same phenomenon is likely at play in the T-bill demand discussed above."
It continues, "Repo market yields have typically stuck closer to the RRP level, but even they have recently cracked under the weight of demand.... In the roughly nine months following the Fed's placement of the RRP rate at 0.05 in June 2021, the SOFR set exactly at the RRP rate on all but 10 days, and even then the variance was usually just 1 bp-2 bps at the most. Since mid-March this year, SOFR has usually set below the RRP, equaling it on only 13 days, and in the past few weeks it has set as much as 11 bps below the RRP."
Allspring adds, "While a rising tide (i.e., Fed hikes) lifts all boats, T-bills and other government instruments appear to be more like submarines lately. The good news is that, in the bigger picture, we are probably roughly at the extremes of the imbalances, at least in this cycle. That's not to say imbalances will resolve and rates revert next week, or next month, or even next quarter. But the T-bill supply contraction should turn around to net supply sometime in the third quarter, and QE morphed into quantitative tightening (QT) in June as the Fed began its briefly awaited but long-running balance sheet contraction. With QT, the Fed has begun removing liquidity from the financial system, and we should eventually see that combine with the improved T-bill picture to shrink the RRP balance."
J.P. Morgan also discusses RRP in its latest "Short-Term Market Outlook and Strategy." They write, "As for MMFs, they have benefited from the series of rate increases YTD, with their net yields having moved up by about 120bp and 140bp to 1.23% and 1.45% for government and prime funds, respectively.... Furthermore, the net yield spread between prime and government MMFs has now widened to 20-25bp, levels last seen in 2019. While MMF reform remains a concern, it appears shareholders are ignoring that for the time being as prime MMF AUMs have increased by $49bn YTD (prime institutional: +$29bn, prime retail: +$20bn). To the extent MMF shareholders are looking for a place to temporarily hide out from the volatility in both the equity and fixed income markets, prime MMFs are an attractive choice relative to government MMFs and bank deposits."
Discussing the "haves and have nots <b:>`_," JPM tells us, "The rally in T-bills this year has been relentless as the lack of supply has driven many liquidity investors to bid T-bills significantly below RRP but above deposits. Yields of 1-3m T-bills have continued pushing substantially lower and are now trading 32-47bp through OIS.... Faced with limited supply options and no access to the Fed, certain liquidity investors have been feeling the pain. Meanwhile, investors with access to the Fed's balance sheet, predominantly MMFs, have had some reprieve."
They explain, "As intended, RRP has been doing its job and is helping to provide a floor, albeit a leaky one, for money market rates via MMFs.... MMFs have seen their T-bill holdings decrease by $1tn over the past year (April '21 to April '22). Meanwhile, RRP balances have increased by $1.7tn. Assuming all T-bill holdings were reallocated into RRP, this means that the reduction in net T-bill issuance over the past year has contributed to about 75% of the increase at the RRP."
JP Morgan's piece adds, "Perhaps more notably, with MMFs having turned to the RRP as a source of supply, this has allowed other liquidity investors to step in. Indeed, T-bill holdings among investors that do not have access to the Fed's balance sheet increased by $290bn over the past year.... As of the end of April, we estimate that they now represent 51% of the market versus 36% last April."
Finally, they comment, "Even so, as we noted, the availability of RRP has not been enough to provide a hard floor for money market rates due to 1) limited investor access and 2) the sharp supply-and-demand imbalance in the front end. Beyond MMFs, other investors such as GSEs have also increased their RRP usage over the past year.... [I]n April, GSEs contributed $139bn to the RRP versus zero during the same period last year. Perhaps it was no surprise that the Fed might consider further increasing the per-counterparty RRP limits, as revealed in the June FOMC meeting minutes. Overall, the supply-and-demand imbalance will likely persist and continue to pressure the front end. Until that pressure fades -- which we don't expect until 2023 -- T-bill valuations will remain rich."
Crane Data's July Money Fund Portfolio Holdings, with data as of June 30, 2022, show that Treasuries plunged again last month while Repo (especially Fed repo) jumped once more. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $2.6 billion to $4.823 trillion in June, after decreasing $58.4 billion in May, $55.2 billion in April and $40.9 billion in March. Repo remained the largest portfolio segment, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York, which surpassed the U.S. Treasury as the largest "Issuer" last month, is now borrowing over $2.0 trillion from money market funds. 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 $128.6 billion (5.4%) to $2.531 trillion, or 52.5% of holdings, in June, after increasing $52.5 billion in May, decreasing $9.9 billion in April, and increasing $100.9 billion in March. Treasury securities fell $72.5 billion (-4.8%) to $1.454 trillion, or 30.1% of holdings, after decreasing $145.4 billion in May, $78.6 billion in April and $79.2 billion in March. Government Agency Debt was down $14.6 billion, or -3.5%, to $406.3 billion, or 8.4% of holdings, after increasing $35.1 billion in May, but decreasing $1.0 billion in April and $4.3 billion in March. Repo, Treasuries and Agency holdings now total $4.391 trillion, representing a massive 91.0% of all taxable holdings.
Money fund holdings of CP, CDs and Other (mainly Time Deposits) holdings all fell in June. Commercial Paper (CP) decreased $17.3 billion (-7.5%) to $212.6 billion, or 4.4% of holdings, after increasing $5.8 billion in May, decreasing $0.1 billion in April and $7.2 billion in March. Certificates of Deposit (CDs) decreased $1.0 billion (-0.9%) to $118.4 billion, or 2.5% of taxable assets, after increasing $3.4 billion in May, $7.3 billion in April but decreasing $5.7 billion in March. Other holdings, primarily Time Deposits, decreased $21.1 billion (-18.7%) to $91.4 billion, or 1.9% of holdings, after decreasing $4.7 billion in May, increasing $28.2 billion in April and decreasing $47.4 billion in March. VRDNs fell to $10.0 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Wednesday around noon.)
Prime money fund assets tracked by Crane Data dropped to $800 billion, or 16.6% of taxable money funds' $4.823 trillion total. Among Prime money funds, CDs represent 14.8% (up from 14.3% a month ago), while Commercial Paper accounted for 26.6% (down from 27.5% in May). The CP totals are comprised of: Financial Company CP, which makes up 18.5% of total holdings, Asset-Backed CP, which accounts for 3.3%, and Non-Financial Company CP, which makes up 4.8%. Prime funds also hold 6.3% in US Govt Agency Debt, 7.0% in US Treasury Debt, 25.6% in US Treasury Repo, 0.3% in Other Instruments, 8.7% in Non-Negotiable Time Deposits, 5.6% in Other Repo, 2.3% in US Government Agency Repo and 0.7% in VRDNs.
Government money fund portfolios totaled $2.779 trillion (57.6% of all MMF assets), down from $2.790 trillion in May, while Treasury money fund assets totaled another $1.244 trillion (25.8%), up from $1.199 trillion the prior month. Government money fund portfolios were made up of 12.8% US Govt Agency Debt, 7.7% US Government Agency Repo, 22.0% US Treasury Debt, 57.1% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 63.2% US Treasury Debt and 36.5% in US Treasury Repo. Government and Treasury funds combined now total $4.023 trillion, or 83.4% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $111.1 billion in June to $345.7 billion; their share of holdings dropped to 7.2% from last month's 9.5%. Eurozone-affiliated holdings decreased to $238.5 billion from last month's $314.3 billion; they account for 4.9% of overall taxable money fund holdings. Asia & Pacific related holdings dropped lower to $170.8 billion (3.5% of the total) from last month's $192.2 billion. Americas related holdings rose to $4.301 trillion from last month's $4.172 trillion, and now represent 89.2% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $190.7 billion, or 9.3%, to $2.246 trillion, or 46.6% of assets); US Government Agency Repurchase Agreements (down $65.3 billion, or -22.0%, to $231.6 billion, or 4.8% of total holdings), and Other Repurchase Agreements (up $3.2 billion, or 6.4%, from last month to $53.1 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $7.9 billion to $147.8 billion, or 3.1% of assets), Asset Backed Commercial Paper (down $2.7 billion to $26.5 billion, or 0.5%), and Non-Financial Company Commercial Paper (down $6.8 billion to $38.3 billion, or 0.8%).
The 20 largest Issuers to taxable money market funds as of June 30, 2022, include: the Federal Reserve Bank of New York ($2.011T, 41.7%), the US Treasury ($1.454 trillion, or 30.1%), Federal Home Loan Bank ($280.8B, 5.8%), Federal Farm Credit Bank ($104.8B, 2.2%), BNP Paribas ($75.5B, 1.6%), Fixed Income Clearing Corp ($67.8B, 1.4%), RBC ($64.5B, 1.3%), Sumitomo Mitsui Banking Co ($46.2B, 1.0%), JP Morgan ($39.2B, 0.8%), Citi ($32.8B, 0.7%), Bank of America ($32.0B, 0.7%), Mitsubishi UFJ Financial Group Inc ($31.2B, 0.6%), Goldman Sachs ($29.0B, 0.6%), Mizuho Corporate Bank Ltd ($27.6B, 0.6%), Toronto-Dominion Bank ($27.1B, 0.6%), Barclays ($25.7B, 0.5%), Bank of Montreal ($24.3B, 0.5%), Canadian Imperial Bank of Commerce ($21.1B, 0.4%), Credit Agricole ($19.0B, 0.4%) and ING Bank ($15.9B, 0.3%).
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 ($2.011T, 79.5%), BNP Paribas ($69.3B, 2.7%), Fixed Income Clearing Corp ($67.8B, 2.7%), RBC ($44.9B, 1.8%), Sumitomo Mitsui Banking Corp ($32.9B, 1.3%), JP Morgan ($32.4B, 1.3%), Bank of America ($27.5B, 1.1%), Citi ($25.6B, 1.0%), Goldman Sachs ($24.8B, 1.0%) and Mitsubishi UFJ Financial Group Inc ($19.2B, 0.8%). The largest users of the $2.011 trillion in Fed RRP include: Vanguard Federal Money Mkt Fund ($129.9B), Fidelity Govt Money Market ($140.0B), Fidelity Govt Cash Reserves ($128.2B), JPMorgan US Govt MM ($121.4B), Goldman Sachs FS Govt ($116.9B), Morgan Stanley Inst Liq Govt ($114.0B), Federated Hermes Govt ObI ($83.0B), BlackRock Lq FedFund ($72.5B), Dreyfus Govt Cash Mgmt ($65.0B) and Fidelity Inv MM: Govt Port ($64.9B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($20.6B, 5.7%), RBC ($19.6B, 5.4%), Barclays PLC ($17.9B, 4.9%), Toronto-Dominion Bank ($16.0B, 4.4%), Bank of Montreal ($13.9B, 3.8%), Skandinaviska Enskilda Banken AB ($13.8B, 3.8%), Sumitomo Mitsui Banking Corp $13.3B, 3.7%), Mitsubishi UFJ Financial Group Inc ($12.0B, 3.3%), Canadian Imperial Bank of Commerce ($11.6B, 3.2%) and Australia & New Zealand Banking Group Ltd ( $11.4B, 3.1%).
The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($11.3B, 9.5%), Mitsubishi UFJ Financial Group Inc ($8.5B, 7.2%), Canadian Imperial Bank of Commerce ($8.2B, 6.9%), Toronto-Dominion Bank ($6.8B, 5.8%), Bank of Nova Scotia ($6.5B, 5.5%), Sumitomo Mitsui Trust Bank ($6.2B, 5.2%), Landesbank Baden-Wurttemberg ($6.0B, 5.1%), Credit Agricole ($5.5B, 4.6%), Mizuho Corporate Bank Ltd ($4.7B, 4.0%) and Nordea Bank ($4.6B, 3.9%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($12.0B, 6.7%), Bank of Montreal ($8.8B, 4.9%), Toronto-Dominion Bank ($8.3B, 4.6%), National Australia Bank Ltd ($7.1B, 4.0%), JP Morgan ($6.7B, 3.8%), Australia & New Zealand Banking Group Ltd ( $6.0B, 3.4%), Barclays PLC ($5.2B, 2.9%), Macquarie Bank Limited ($4.8B, 2.7%), BNP Paribas ($4.7B, 2.6%) and UBS AG ($4.6B, 2.6%).
The largest increases among Issuers include: Federal Reserve Bank of New York (up $267.3B to $2.011T), Mizuho Corporate Bank Ltd (up $4.3B to $27.6B), Goldman Sachs (up $3.9B to $29.0B), Banco Santander (up $2.3B to $12.1B), DBS Bank Ltd (up $1.3B to $4.9B), Mitsubishi UFJ Trust and Banking Corporation (up $1.1B to $7.5B) and Oversea-Chinese Banking Corp (up $1.0B to $5.2B).
The largest decreases among Issuers of money market securities (including Repo) in June were shown by: the US Treasury (down $72.5B to $1.454T), BNP Paribas (down $19.6B to $75.5B), Fixed Income Clearing Corp (down $19.0B to $67.8B), Credit Agricole (down $13.1B to $19.0B), Societe Generale (down $11.8B to $12.8B), Barclays PLC (down $11.6B to $25.7B), JP Morgan (down $9.4B to $39.2B), Mitsubishi UFJ Financial Group Inc (down $8.5B to $31.2B), Sumitomo Mitsui Banking Corp (down $6.6B to $46.2B) and RBC (down $6.2B to $64.5B).
The United States remained the largest segment of country-affiliations; it represents 85.8% of holdings, or $4.139 trillion. Canada (3.4%, $162.7B) was in second place, while Japan (3.2%, $153.9B) was No. 3. France (2.7%, $130.5B) occupied fourth place. The United Kingdom (1.1%, $54.2B) remained in fifth place. Australia (0.7%, $33.0B) was in sixth place, followed by Sweden (0.7%, $33.0B) Netherlands (0.7%, $31.5B), ` Germany <b:>`_ (0.6%, $30.1B) and Switzerland (0.3%, $14.7B). (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.)
As of June 30, 2022, Taxable money funds held 63.8% (up from 62.4%) of their assets in securities maturing Overnight, and another 6.9% maturing in 2-7 days (up from 6.8%). Thus, 70.7% in total matures in 1-7 days. Another 6.2% matures in 8-30 days, while 6.4% matures in 31-60 days. Note that over three-quarters, or 83.3% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 5.7% of taxable securities, while 8.5% matures in 91-180 days, and just 2.5% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Tuesday, and we'll be writing our regular monthly update on the June 30 data for Wednesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (We continue to merge the two series, and the N-MFP version is now available via our Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of June 30, includes holdings information from 996 money funds (down 1 fund from last month), representing assets of $5.033 trillion (up from $4.989 trillion). Prime MMFs now total $859.1 billion, or 17.1% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses moving higher again as the last of the zero-yield fee waivers disappeared, below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds increased to $2.596 trillion (up from $2.424 trillion), or 51.6% of all assets. Treasury holdings totaled $1.466 trillion (down from $1.539 trillion), or 29.1% of all holdings, and Government Agency securities totaled $423.5 billion (down from $436.9 billion), or 8.4%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.485 trillion, or a massive 89.1% of all holdings.
Commercial paper (CP) totals $220.5 billion (down from $238.4 billion), or 4.4% of all holdings, and the Other category (primarily Time Deposits) totals $131.9 billion (down from $153.7 billion), or 2.6%. Certificates of Deposit (CDs) total $118.5 billion (down from $119.6 billion), 2.4%, and VRDNs account for $76.9 billion (down from $77.9 billion last month), or 1.5% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $149.3 billion, or 3.0%, in Financial Company Commercial Paper; $27.0 billion or 0.5%, in Asset Backed Commercial Paper; and, $44.2 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.317 trillion, or 46.0%), U.S. Govt Agency Repo ($233.9B, or 4.6%) and Other Repo ($45.1B, or 0.9%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $216.0 billion (down from $234.3 billion), or 25.1%; Repo holdings of $314.0 billion (up from $262.8 billion), or 36.5%; Treasury holdings of $61.8 billion (down from $69.9 billion), or 7.2%; CD holdings of $118.5 billion (down from $119.6 billion), or 13.8%; Other (primarily Time Deposits) holdings of $89.2 billion (down from $110.8 billion), or 10.4%; Government Agency holdings of $53.9 billion (up from $47.7 billion), or 6.3% and VRDN holdings of $5.8 billion (down from $7.1 billion), or 0.7%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $149.3 billion (down from $157.5 billion), or 17.4%, in Financial Company Commercial Paper; $27.0 billion (down from $29.6 billion), or 3.1%, in Asset Backed Commercial Paper; and $39.7 billion (down from $47.2 billion), or 4.6%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($250.9 billion, or 29.2%), U.S. Govt Agency Repo ($18.1 billion, or 2.1%), and Other Repo ($44.9 billion, or 5.2%).
In related news, money fund charged expense ratios (Exp%) rose again in June (after jumping in May) to 0.40% from 0.38% the prior month. Charged expenses hit a record low of 0.06% in May 2021 but remained at 0.07% for most the second half of 2021. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.40%, respectively, as of June 30, 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 Monday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.27%, 1 basis point higher than last month's level (and 21 bps higher than May's record low 0.06%). The average is the same level (0.27%) as it was on Dec. 31, 2019, so we estimate that funds are now charging normal expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.40% as of June 30, 2022, 2 bps higher than the month prior and the same level as 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.32% (unchanged from last month), Government Inst MFs expenses average 0.28% (up 2 bps from previous month), Treasury Inst MFs expenses average 0.31% (up 1 bp from last month). Treasury Retail MFs expenses currently sit at 0.53%, (up 4 bps from last month), Government Retail MFs expenses yield 0.54% (up 3 bps from last month). Prime Retail MF expenses averaged 0.54% (up 5 bps). Tax-exempt expenses were up 2 bps at 0.41% on average.
Gross 7-day yields rose again during the month ended June 30, 2022 (which included a 75 bps hike). (Yields should jump again late this month if, as expected, the Fed hikes again.) The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 738), shows a 7-day gross yield of 1.44%, up 60 bps from the prior month. The Crane Money Fund Average is still down from 1.72% at the end of 2019 but up from 0.15% the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was up 60 bps, ending the month at 1.45%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $13.301 billion (as of 6/30/22), a new record level. Our estimated annualized revenue totals increased from $12.937B last month and from $10.984B two months ago, and they are now more than quadruple May's record low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue rising in coming months as the MMF start seeing substantial inflows.
Crane Data's latest monthly Money Fund Market Share rankings show assets were higher among the majority of the largest U.S. money fund complexes in June. Money market fund assets increased $31.9 billion, or 0.6%, last month to $4.995 trillion. Assets decreased by $51.6 billion, or -1.0%, over the past 3 months, and they've increased by $19.4 billion, or 0.4%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Federated Hermes, Morgan Stanley, Schwab, Invesco and Goldman Sachs, which grew assets by $24.5 billion, $21.3B, $14.2B, $14.1B and $11.3B, respectively. The largest declines in June were seen by JP Morgan, BlackRock, DWS, Allspring and Western, which decreased by $24.7 billion, $22.2B, $12.3B, $11.1B and $3.6B, 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 doubled in June, below.
Over the past year through June 30, 2022, American Funds (up $47.7B, or 34.1%), Morgan Stanley (up $31.2B, or 11.6%), Goldman Sachs (up $25.7B, or 7.4%), SSGA (up $24.3B, or 16.5%) and Fidelity (up $21.2B, or 2.4%) were the largest gainers. Morgan Stanley, Federated Hermes, Schwab, HSBC and American Funds had the largest asset increases over the past 3 months, rising by $28.1B, $18.5B, $18.5B, $17.2B and $15.0B, respectively. The largest decliners over 12 months were seen by: Allspring (down $49.5B), BlackRock (down $25.1B), JP Morgan (down $23.2B), DWS (down $18.6B) and Vanguard (down $17.1B). The largest decliners over 3 months included: Allspring (down $26.2B), Fidelity (down $24.2B), DWS (down $23.4B), Northern (down $23.2B) and BlackRock (down $14.5B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $910.6 billion, or 18.2% of all assets. Fidelity was up $7.0B in June, down $24.2 billion over 3 mos., and up $21.2B over 12 months. BlackRock ranked second with $502.7 billion, or 10.1% market share (down $22.2B, down $14.5B and down $25.1B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $457.6 billion, or 9.2% of assets (up $4.3B, down $4.1B and down $17.1B). JPMorgan ranked fourth with $447.0 billion, or 8.9% market share (down $24.7B, down $6.6B and down $23.2B), while Goldman Sachs was the fifth largest MMF manager with $375.2 billion, or 7.5% of assets (up $11.3, down $1.4B and up $25.7B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $333.2 billion, or 6.7% (up $24.5B, up $18.5B and down $2.7B), while Morgan Stanley was in seventh place with $301.2 billion, or 6.0% of assets (up $21.3B, up $28.1B and up $31.2B). Dreyfus ($234.7B, or 4.7%) was in eighth place (up $2.3B, down $4.8B and up $9.5B), followed by American Funds ($187.5B, or 3.8%; unchanged, up $15.0B and up $47.7B). SSGA was in 10th place ($171.3B, or 3.4%; down $499M, up $11.4B and up $24.3B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($168.1B, or 3.4%), Schwab ($161.6B, or 3.2%), Allspring (formerly Wells Fargo) ($151.1B, or 3.0%), First American ($117.3B, or 2.3%), Invesco ($104.3B, or 2.1%), HSBC ($54.5B, or 1.1%), T. Rowe Price ($44.7B, or 0.9%), UBS ($42.5B, or 0.9%), Western ($26.9B, or 0.5%) and PGIM ($18.3B, or 0.4%). Crane Data currently tracks 61 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, Goldman moves up to the No. 4 spot and, Vanguard moves down to the No. 5 spot, Morgan Stanley moves up to the No. 6 spot while Federated Hermes moves down one spot to No. 7, SSGA replaces American Funds at No. 9, and Northern moves up to the No. 10 spot. 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 ($921.8 billion), BlackRock ($697.3B), JP Morgan ($632.1B), Goldman Sachs ($502.5B) and Vanguard ($457.6B). Morgan Stanley ($358.5B) was in sixth, Federated Hermes ($340.9B) was seventh, followed by Dreyfus/BNY Mellon ($253.9B), SSGA ($201.9B) and Northern ($194.0B), 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 July issue of our Money Fund Intelligence and MFI XLS, with data as of 6/30/22, shows that yields skyrocketed in June for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 738), rose to 0.97% (up 50 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 0.72% (up 33 bps). The MFA's Gross 7-Day Yield rose to 1.33% (up 49 bps), and the Gross 30-Day Yield also moved up to 1.07% (up 30 bps). (Gross yields will be revised Monday afternoon, though, once we download the SEC's Form N-MFP data for 6/30/22.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.18% (up 60 bps) and an average 30-Day Yield at 0.90% (up 39 bps). The Crane 100 shows a Gross 7-Day Yield of 1.44% (up 59 bps), and a Gross 30-Day Yield of 1.16% (up 39 bps). Our Prime Institutional MF Index (7-day) yielded 1.19% (up 55 bps) as of June 30. The Crane Govt Inst Index was at 1.04% (up 49 bps) and the Treasury Inst Index was at 1.02% (up 51 bps). Thus, the spread between Prime funds and Treasury funds is 17 basis points, and the spread between Prime funds and Govt funds is 15 basis points. The Crane Prime Retail Index yielded 1.06% (up 59 bps), while the Govt Retail Index was 0.71% (up 43 bps), the Treasury Retail Index was 0.80% (up 50 bps from the month prior). The Crane Tax Exempt MF Index yielded 0.56% (up 15 bps) as of June 30.
Gross 7-Day Yields for these indexes to end June were: Prime Inst 1.50% (up 55 bps), Govt Inst 1.30% (up 49 bps), Treasury Inst 1.32% (up 51 bps), Prime Retail 1.53% (up 57 bps), Govt Retail 1.16% (up 37 bps) and Treasury Retail 1.28% (up 49 bps). The Crane Tax Exempt Index jumped to 0.80% (up 15 bps). The Crane 100 MF Index returned on average 0.07% over 1-month, 0.13% over 3-months, 0.13% YTD, 0.14% over the past 1-year, 0.48% over 3-years (annualized), 0.94% over 5-years, and 0.53% over 10-years.
The total number of funds, including taxable and tax-exempt, unchanged in June at 888. There are currently 738 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 July issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "AFP 2022 Liquidity Survey: Banks, MMFs Still Dominate," which discusses the results of a poll of corporate treasurers on cash investing; "Money Fund Symposium '22: Focus on D&I, Rates, Reforms," which covers our recent big conference in Minneapolis; and, "Worldwide MF Assets Fall in Q1, Led by US, Ireland, Lux," which reviews the latest statistics on international money fund markets. We also sent out our MFI XLS spreadsheet Friday morning, and we've updated our database with 6/30/22 data. Our July Money Fund Portfolio Holdings are scheduled to ship on Tuesday, July 12, and our July Bond Fund Intelligence is scheduled to go out on Friday, June 15. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.)
MFI's "Liquidity Survey" article says, "The Association for Financial Professionals published its '2022 AFP Liquidity Survey' last month, which polls corporate treasurers on cash management practices and preferences. They explain, 'The typical organization currently maintains 55% of its short-term investments in bank deposits, slightly higher than the 52% reported in 2021 and 51% in 2020.'" (See AFP's press release and our June 22 News, "More AFP Liquidity Survey: Yield No. 1 Factor for Money Funds.")
AFP writes, "When interest rates dropped to zero at the beginning of the pandemic in the spring of 2020, bank relationships were key as organizations needed to draw down on liquidity.... With inflation relatively high, the Federal Reserve has already raised interest rates. Treasury professionals will continue to rely on relationships with their financial institutions as low yields provide little appetite for companies to move away from bank deposits. Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2.5 vehicles for their cash and short-term investments -- a figure unchanged from the 2.5 reported in 2021."
Our "Symposium" piece explains, "Crane Data recently hosted its 14th annual Money Fund Symposium conference in Minneapolis, which brought together over 420 money fund and cash investment professionals to discuss the latest involving rising rates, pending money fund reforms, and ESG/D&I money fund issues. (Note: Thanks to those who attended Money Fund Symposium! The recordings are available in our 'Money Fund Symposium 2022 Download Center <i:https://cranedata.com/publications/mfsymposium-2022>`_,' and mark your calendars for next year's MFS, June 21-23, 2023, in Atlanta.) We quote from some of the highlights below <b:>`_."
It continues, "The 'Major Money Fund Issues 2022' session featured Federated Hermes' Deborah Cunningham, Dreyfus' John Tobin and Northern Trust AM's Peter Yi. Yi says, 'Northern Trust has had a really rich history in D&I [diversity & inclusion] and social impact strategies. We've been doing diversity-type exposures for probably 30, 40 years.... More relevant to money market mutual funds, ... back in 2014, we were fortunate enough to partner with Williams Capital at the time, now Siebert Williams Shank (SWS), and it's been a great partnership. It's allowed our liquidity investors to help support these minority and women owned financial firms.... Those share classes have grown exponentially.... To your point, we've been really focused on diversity, as well as equality and inclusion."
Our "Worldwide" piece states, "ICI published 'Worldwide Regulated Open-Fund Assets and Flows, Q1'22,' which shows that money fund assets globally fell by $198.0 billion, or -2.2%, in Q1'22 to $8.635 trillion. The decreases were led by drops in money funds in the U.S., France and Luxembourg. Meanwhile, money funds in China and Brazil increased. MMF assets worldwide increased by $156.4 billion, or 1.8%, in the 12 months through 3/31/22, and money funds in the U.S. represent 53.2% of worldwide assets. We review the latest Worldwide MMF totals, below."
ICI's release says, "Worldwide regulated open-end fund assets decreased 4.6% to $67.80 trillion at the end of the first quarter of 2022, excluding funds of funds. Worldwide net cash inflow to all funds was $81 billion in the first quarter, compared with $1.1 trillion of net inflows in the fourth quarter of 2021. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the first quarter of 2022 contains statistics from 46 jurisdictions."
MFI also includes the News brief, "Money Fund Yields Hit 1.2%, Top Funds Over 1.5%; Sweeps Up to 0.15%." It tells readers, "Money market fund yields doubled in June, driven by the Fed's 75 bps rate hike June 15. They continue to grind higher, and should jump again late this month following the next rate move. The 7-Day Yield Average for our flagship Crane 100 Money Fund Index rose by 59 bps to 1.18% last month (it has since risen to 1.2%). Brokerage sweep rates also jumped as Fidelity and others hiked FDIC insured sweep rates."
Another News brief, "Assets Rebound in June," explains, "MFI XLS shows assets rising $31.9 billion in June to $4.996 trillion (after falling $14.7 billion in May and $69.4 billion in April). YTD, MMFs are down by $175.2 billion, or 3.4%. ICI's new weekly 'Money Market Fund Assets' report shows assets up in the latest week."
A sidebar, "Fed Z.1 Shows Big Drop in Household, Business MMFs," states, "The Federal Reserve's First Quarter 2022 'Z.1 Financial Accounts of the United States <i:https://www.federalreserve.gov/releases/z1/default.htm>`_' statistical survey shows that Total MMF Assets decreased by $115 billion to $5.091 trillion in Q1'22. The Household Sector, by far the largest investor segment, saw the biggest asset decrease in Q1. The second largest segment, Nonfinancial Corporate Businesses, also experienced a drop in assets."
Finally, another sidebar, "MSRB: Muni MMFs Shrink," explains, "A press release, '`MSRB Research Reveals Significant Shifts in Municipal Securities Ownership,' explains, '[T]he `Municipal Securities Rulemaking Board (MSRB) examines trends in municipal securities ownership since 2004, revealing a continuous decline in individual investor direct ownership of municipal securities while ownership through funds has steadily risen.... [T]he MSRB found that ownership among banks, insurance companies, money market funds and foreign investors has also shifted."
Our July MFI XLS, with June 30 data, shows total assets increased $31.9 billion to $4.996 trillion, after decreasing $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion in March, decreased $34.6 billion in February and decreased $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. Our broad Crane Money Fund Average 7-Day Yield was up 50 bps to 0.97%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 59 bps to 1.18% in June.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 1.33% and 1.44%, respectively. Charged Expenses averaged 0.38% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 6/30/22.) The average WAM (weighted average maturity) for the Crane MFA was a record low 23 days (down 2 days from previous month) while the Crane 100 WAM decreased 1 day to 24 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
A Prospectus Supplement filing for DWS Government Cash Management Fund explains, "Upon the recommendation of DWS Investment Management Americas, Inc., the investment advisor for DWS Government Cash Management Fund, a feeder fund of Government Cash Management Portfolio, the Board of Trustees of Deutsche DWS Money Market Trust has authorized, on behalf of the fund, the fund's termination and liquidation, which will be effective on or about August 31, 2022. Accordingly, the fund will redeem all of its outstanding shares on the Liquidation Date. The liquidation will be effected according to a Plan of Liquidation and Termination."
It continues, "The operational costs of the liquidation, including the notification to shareholders, will be borne by the Advisor. Shareholders who elect to redeem their shares prior to the Liquidation Date will receive the net asset value per share (normally, $1.00) on such redemption date for all shares they redeem. Shareholders whose shares are redeemed automatically on the Liquidation Date will receive the net asset value per share (normally, $1.00) for all shares they own on the Liquidation Date. As the Liquidation Date approaches, the fund's assets not already converted to cash or cash equivalents will be converted to cash or cash equivalents and the fund will not be pursuing its investment objective."
DWS adds, "The fund will be closed to new investors effective immediately. Retirement plans that currently offer the fund as an investment option may continue to offer the fund to their participants until the Liquidation Date and the fund will continue to accept subsequent investments and dividend reinvestments for existing accounts until the Liquidation Date, except that subsequent investments made by check or Automated Clearing House debit entries will no longer be accepted by the fund beginning two weeks prior to the Liquidation Date."
Our June Bond Fund Intelligence publication also recently mentioned the liquidation of DoubleLine Ultra Short Bond Fund. This filing says, "The Board of Trustees of DoubleLine Funds Trust has approved a plan of liquidation for the Fund. The liquidation of the Fund is expected to take place on or about July 29, 2022. Effective after the close of business on June 14, 2022, the Fund's shares will no longer be available for purchase by new investors or existing investors (other than qualified plans). Dividend reinvestments (where applicable) will continue until the Liquidation Date."
For more on recent liquidations (or the lack thereof) in the space, see our Crane Data News pieces: "Ivy Funds Liquidating ... Again (6/2/22); "Delaware Pauses Cash Liquidation" (11/1/21); "Delaware Ivy Cash Funds Liquidating" (10/4/21); "AIG Govt MMF, MuniFund Liquidate (8/3/21), "Western Files to Liquidate Tiny MMFs (6/7/21), "BlackRock Liquidates Ready Assets (2/11/21), "Delaware Liquidates Govt Cash Mgmt" (1/11/21); "DWS Liquidating Govt CR (BIRXX)" (11/25/20); "BMO Liquidating Inst Prime MMF" (11/17/20); "Morgan Stanley NY Muni MM Gone" (10/5/20); "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ" (9/28/20) and "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations (2/20/20).
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of July 1) includes Holdings information from 71 money funds (down 16 from a week ago), which represent $2.527 trillion (down from $2.865 trillion) of the $4.982 trillion (50.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our June 10 News, "June MF Portfolio Holdings: NY Fed Repo Now Bigger Than US Treasuries," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.281 trillion (down from 1.433 trillion a week ago), or 50.7%; Treasuries totaling $947.5 billion (down from $1.052 trillion a week ago), or 37.5%, and Government Agency securities totaling $133.8 billion (down from $169.7 billion), or 5.3%. Commercial Paper (CP) totaled $52.0 billion (down from a week ago at $57.8 billion), or 2.1%. Certificates of Deposit (CDs) totaled $40.8 billion (down from $48.1 billion a week ago), or 1.6%. The Other category accounted for $45.2 billion or 1.8%, while VRDNs accounted for $26.8 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $967.3 billion (38.3%), the US Treasury with $947.5 trillion (37.5% of total holdings), Federal Home Loan Bank with $82.3B (3.3%), Fixed Income Clearing Corp with $54.9B (2.2%), Federal Farm Credit Bank with $43.8B (1.7%), BNP Paribas with $42.3B (1.7%), RBC with $29.0B (1.1%), JP Morgan with $16.9B (0.7%), Sumitomo Mitsui Banking Corp with $16.9B (0.7%) and Barclays PLC with $15.9B (0.6%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($245.4B), Goldman Sachs FS Govt ($215.9B), Morgan Stanley Inst Liq Govt ($174.0B), BlackRock Lq FedFund ($168.8B), BlackRock Lq Treas Tr ($120.5B), Fidelity Inv MM: Govt Port ($117.0B), Dreyfus Govt Cash Mgmt ($114.4B), BlackRock Lq T-Fund ($111.7B), Goldman Sachs FS Treas Instruments ($111.2B) and Allspring Govt MM ($104.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Money market fund yields have increased by 50 basis points since the Federal Reserve's 75-basis-point rate hike on June 15 and 61 bps since May 31, and they continue to grind higher. Our flagship Crane 100 Money Fund Index 7-Day Yield Average rose by 4 basis points to 1.19% in the week ended Friday, 7/1 (it hit 1.20% yesterday), after rising 27 basis points last week and 23 basis points on June 16 and 17. Two weeks ago, yields broke above 1.0% for the first time since February 2020. The average has more than doubled from 0.58% on May 31, and is up from 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where it had been for almost 2 years prior). Brokerage sweep rates also moved higher again over the past week as RW Baird, Ameriprise Financial Services and Wells Fargo moved rates higher. Our latest Brokerage Sweep Intelligence shows most brokerages now paying an average of 0.15% or higher (on FDIC insured deposits), up from 0.04% a month ago. We review the latest money fund and brokerage sweep yields below.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 1.05%, up 5 basis points in the week through Friday. The Crane Money Fund Average is up 58 bps from 0.47% at the beginning of June. Prime Inst MFs were up 5 bps to 1.28% in the latest week, and up 64 bps since the start of June (now double from the month prior). Government Inst MFs rose by 4 bps to 1.12%, they are up 58 bps since the start of June. Treasury Inst MFs rose by 5 bps to 1.06%, up 56 bps since the beginning of June. Treasury Retail MFs currently yield 0.82%, (up 6 bps for the week, and up 52 bps since June), Government Retail MFs yield 0.81% (up 4 bp for the week, and up 55 bps since June started), and Prime Retail MFs yield 1.10% (up 7 bps for the week, and up 62 bps from beginning of June), Tax-exempt MF 7-day yields fell by 2 bps to 0.54%, they were up 14 bps since the start of June.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (most of which are swept into FDIC insured accounts; only Fidelity sweeps to a money market fund), inched higher to 0.15%. This follows increases over the past several weeks but also follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of July 1, shows numerous changes over the previous week.
Our latest Brokerage Sweep Intelligence reports that RW Baird hiked its Insured Deposit Sweep Program to 0.34% for balances under $250K, to 0.39% for balances between $250K and $1 million, to 0.51% for balances between $1 million and $2 million and to 0.68% for balances of $5 million and more.
We also show that Ameriprise Financial Services increased rates to 0.05% for balances under $100K, to 0.06% for balances between $100K and $1 million, to 0.07% for balances between $1 million and $5 million and to 0.08% for balances of $5 million and more. Also, Wells Fargo increased its sweep rates from 0.02% to 0.12% balances under $1 million, and to 0.15% for balances of $1 million to $10 million for the week ended July 1. Just four of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, and UBS.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (7/1), just 19 funds (out of 818 total) still yield 0.00% or 0.01% with assets of $8.5 billion, or 0.2% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 82 funds yielding between 0.02% and 0.49%, totaling $67.8B, or 1.4% of assets; 296 funds yield between 0.50% and 0.99% with $893.1 trillion in assets, or 17.9%; 194 funds yield between 1.00% and 1.24% with $1.237 trillion in assets or 24.8%; 205 funds yielded between 1.25% and 1.49% with $2.490 trillion or 50.0%; and 22 funds yielded over 1.50% ($284.9 billion, or 5.7%).
In related news, American Banker published the piece, "Pressure from commercial depositors is arriving faster than expected." They state, "With interest rates rising quickly, banks are starting to face pressure from business clients to pay more on their deposits. The landscape for commercial deposits has been changing rapidly since the Federal Reserve hiked rates at its most aggressive pace since 1994, according to bank consultants. The shift raises the risk that banks' funding costs could rise in the coming months, eroding their profits. For much of the pandemic, companies have parked their spare cash at the bank, since low interest rates meant that other safe options typically didn't offer much yield. Recently, that flood of deposits has made banks comfortable with some of the cash heading out the door."
The piece tells us, "But the outflows also mean that banks may need to start playing defense sooner -- by paying companies more for their deposits rather than see them exit for better-paying options." They quote Curinos' Peter Serene, "You're starting to see material outflows at some banks. You're seeing rate competition come back to the market a little bit sooner than we would have expected."
It adds, "Deposit pricing pressures are still far from widespread.... [T]he average interest rate on commercial customers' demand deposits jumped to 26 basis points in May, up from 16 basis points a month earlier, according to Curinos. The average rate remains below its pre-pandemic level of 88 basis points. Meanwhile, the rebates that banks pay on commercial clients' non-interest-bearing deposits have stayed flat, though a Curinos survey found that about 90% of bank liquidity managers expect them to increase this year."
Finally, Financial Advisor IQ writes "LPL Using 'Free Credits' as Main Cash Overflow Vehicle." It says, "LPL Financial will shift to so-called free credits as its primary cash overflow vehicle to help insulate the firm from the impact of fluctuating bank deposit demand. 'Currently, when we have more cash than third-party banks are willing to take, we utilize money market overflow contracts for excess capacity,' LPL says in a Q1 2022 Investor Presentation.... 'By instead implementing sweep deposit overflow to a brokerage cash account (commonly known as 'free credits') and investing the cash in short-term [U.S.] Treasuries, we are able to generate economics superior to money market funds, which are capped at ~45 bps [basis points], in most rate environments,' LPL adds."
They continue, "The use of free credits is new to LPL 'but a very common capability in the industry,' chief financial officer Matt Audette said Tuesday at a Morgan Stanley [conference].... 'The key is it's on our balance sheet, so we're not dependent on third-party banks to have space on their balance sheet for that. Our focus is in U.S. Treasuries, very short-term U.S. Treasuries, 90 days or less, little to no credit risk, little to no duration risk and therefore little to no capital required to do so,' he said."
The article concludes, "LPL may make changes to its cash sweep programs, according to an LPL disclosure on March 31. Specifically, the firm may use free credit balances 'in the ordinary course of its business subject to the requirements of Rule 15c3-3,' the disclosure states. Doing so 'generally generates revenue for LPL in the forms of interest and income,' which the firm 'retains as additional compensation for its services to its clients,' according to the disclosure."
Bloomberg explains, "Why This JPMorgan Strategist Says It's OK to Hoard Cash." They write, "It's a common motto among investors: Cash is trash. But Oksana Aronov, head of market strategy, alternative fixed income at J.P. Morgan Asset Management, says not so fast." She tells this week's episode of Bloomberg's 'What Goes Up' podcast, "I've been hearing about investors losing money sitting in cash, and that cash is trash for as long as I’ve been in this industry. But the reality is that if you have been in cash for the last five years, you've essentially outperformed the Bloomberg Barclays aggregate index year to date, over one year, three years, and, depending on the day, yes, even five years."
The piece adds, "Aronov says that risks are currently skewed to the downside, and that she and her team prefer to have a lot of liquidity in their portfolio because 'it serves as a free option, essentially, on any asset class in the world.' Opportunities will come by, perhaps in the coming months. 'For us, this is still a capital-preservation part of the cycle, although I think we're closer to the end of it than we were a couple months ago.'"
In other news, Barron's writes, "Crypto Took Wall Street on a Wild Ride. Now It's Ending in Tears." The piece briefly mentions money market funds, saying, "Beyond Bitcoin are legions of other tokens, trading platforms, and quasi-banks offering stupendously high yields on deposits. This parallel world of shadow banking and trading is straining to stay above water amid a series of crises, including the failure of a major 'stablecoin,' a hedge fund collapse, and a liquidity crunch at some large crypto lenders."
They explain, "With stablecoins, crypto is reinventing financial wallpaper that started in the 1970s: the money-market fund. Stablecoins, like money-market funds, aim to maintain a fixed $1 price. But unlike regulated funds, stablecoins can own whatever assets they want as reserves, including other tokens like Bitcoin."
The piece tells us, "The perils of this approach became apparent with the recent crash of an 'algorithmic' stablecoin called TerraUSD, wiping out $60 billion in a few weeks. The episode highlighted the system's fragility and contagion risks as Tether, the largest stablecoin, briefly 'broke the buck,' raising concerns that the industry wasn't prepared for a classic run on the bank."
It adds, "The term stablecoin is 'an effective marketing strategy but could really hurt if the stablecoin were to fail,' says Hilary Allen, a law professor at American University who has written critically about crypto. Money-market funds have broken the buck in stressful markets, such as the 2008 financial crisis, requiring bailouts and market stabilization measures, she adds. In stablecoins, owners of the tokens don't even have ironclad redemption rights, let alone a federal backstop."
Finally, a statement posted late last week, entitled, "Secretary of the Treasury Janet L. Yellen's Meeting with the President's Working Group on Financial Markets, the OCC, FDIC and CFPB on Stablecoins," comments, "U.S. Secretary of the Treasury Janet L. Yellen convened principals representing the President's Working Group on Financial Markets, in addition to the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau, today to discuss stablecoin risks and how legislation could contribute to the existing regulatory framework."
It states, "The participants discussed developments since the President's Working Group, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation released the Report on Stablecoins. The Secretary commended the steps that individual agencies have taken within the scope of their mandates and authorities. Secretary Yellen emphasized how recent events have underscored the urgent need to ensure that stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis."
The statement adds, "Secretary Yellen highlighted the need to continue to constructively engage in serious legislative efforts to promptly put in place a regulatory framework for stablecoins that would address current and future risks, such as those related to runs, safety and soundness, consumer protection, the payment system and the concentration of economic power, while complementing existing authorities with respect to market integrity, investor protection, and illicit finance." (See also CoinDesk's "Biden Official Says US Government Could Pass Stablecoin Rules by End of Year.")
Today, we again quote from our recent Money Fund Symposium conference, which took place in Minneapolis, June 20-22. This time we excerpt from the "Senior Portfolio Manager Perspectives" session, which featured J.P. Morgan Securities' Alex Roever moderating a discussion with SSGA's Todd Bean, J.P. Morgan Asset Management's Doris Grillo and U.S. Bancorp Asset Management's Jeff Plotnik. The PMs discussed a number of topics, including money market supply, rising rates, money fund regulation, Fed repo and more. (Note: Thanks again to those who attended Money Fund Symposium! The recordings and materials are available in our "Money Fund Symposium 2022 Download Center." Mark your calendars for next year's show, June 21-23, 2023, in Atlanta!)
Roever comments, "I'll take a couple of minutes here to ... set the stage. Obviously, last week we had a fairly big shock to the front end of the market in terms of the Fed shifting its view from ... doing a 50 basis point [to] a 75 basis point hike.... One of the big takeaways from that ... is that it dramatically shifted forward expectations for how high rates are going to go and how fast. I think it's more the pace than it is necessarily the altitude of the adjustment at this point.... I think that matters a lot in terms of in terms of our discussion today, because it changes how I think maybe portfolio managers are thinking about their portfolios and maybe what the risk around certain maturities might be."
He continues, "Then you can also see it has had a broader impact across the curve. Rising rates have obviously shaped the broader fixed income markets ... just absolutely, probably the most horrible year I can remember, total-return wise. The interesting thing though is, even though it's been a really tough return year, it's not necessarily been a bad credit story here. I think there's a general sort of theme ... that the credit has held up sort of remarkably well. So, we'll want to sort of touch on that as a theme."
Roever tells us, "The other thing I would say is that as we're thinking about money market funds versus other alternatives in the front end of the curve, money market funds have actually outperformed pretty much everything else.... But you can see more duration in this environment has hurt -- it kills.... As markets continue to have volatility, we're seeing cash come in from these from these other markets to some degree. But that's just sort of built on top of cash that we've had had already building up in the markets from the liquidity space.... The other place we're seeing inflows is from deposits.... The reality is, short term rates are going higher, and money market funds are more efficiently passing those through."
He adds, "In terms of the supply and demand imbalance [it's all about] the decline, relatively speaking, of T-bill outstandings relative to demand. And you can see the offsetting power of the RRP versus what's happening in T-bills space. It becomes sort of the parking place of last resort for money funds.... We're continuing to see ... crowding into short term assets. Unfortunately, we don't necessarily have enough short-term assets relative to the demand at this level.... So, bills and repo are the big categories.... How do you think it's changing your portfolio management approach?"
Bean responds, "I wouldn't say that we've changed our portfolio management approach much since November, to be honest with you. I think when the whole cycle first started to change and the rhetoric out of the Fed shifted with ... comments about retiring 'transitory,' that was a huge red flag that times were going to change, and you really did need to start to evaluate the risks and look at how you position portfolios.... We always take the kind of top-down approach to how we structure the portfolios. [W]e start with the macro level, with the way the economy was [and] the risk that rates are moving higher.... [T]he next level down in your investment process, you look at your portfolio characteristics and say, well, 'How can I best structure the portfolio to take advantage of higher rates?' You shorten durations; you build liquidity. So that doesn't really change either."
He continues, "Then in terms of our security selection, we use a relative value approach. When you look at the investment options out there, it's been really hard to beat Fed RRP. You know, when you look at the T-bill curve ... that's really hard to justify putting in your portfolios.... So, I wouldn't say that we've actually had to change our thinking or our process much. It's been very similar. We've been running our portfolios with extremely low WAMs, tons of liquidity, increasing amounts of repo as our other assets mature, and that's really benefited the returns."
Grillo tells us, "For the prime fund, it's challenging but manageable. For us, the mission on prime is preservation of capital, liquidity and a return. Obviously, our clients are happy with the return they're seeing [of late]. [But other factors are] making it a lot more difficult for us to manage a prime fund through this [buying] RRP and competing basically against our own government fund.... As far as liquidity, there definitely is liquidity in the marketplace. However, bids are never going to be available, whether it's a rising rate or decreasing rate environment, and also size seems to be a problem. Looking for bids in this marketplace, it's been challenging but it is manageable. It definitely makes you see the prime money market funds in a different spectrum."
Plotnik weighs in, "Our strategy hasn't changed. We saw that the Fed was going to raise rates [and] we started to shorten our portfolios. But we've seen throughout the course of the last five or six months that what we thought the Fed was going to do has changed dramatically.... Historically, in a rising rate environment, when you're unsure or something like this, you can buy some 3 months and hide out. And if you're wrong, you don't get slaughtered.... But everyone out here owns something yielding 25 basis points, and you've got to wait nine months for it to roll off. So, I think what's missing from maybe from historical tightening cycles is that there's not a lot of places to go.... It's a little riskier, and even more so on the prime side when you have NAV risk on top of it."
He says, "From a credit standpoint, were very comfortable with everything. It's just really running those break-evens, when you really think that you're getting close enough for that terminal rate, where you're not going to be really far underwater for a period of time. So ... maybe we get to the end of the year, [and] we're kind of going to get to the top and that point where you're going to have to start making some decisions on really maybe extending a little further out."
Asked about the $2.2 trillion in the Fed RRP, Plotnik answers, "I don't see any reason why it would go lower at this point in time. The things that we have rolling off are going to roll right into the RRP. There's not another investment option unless or until the time comes, we're going to start extending out into a longer paper. So, I would suspect that we're going to see continued increases in the RRP in the near future. It will probably start to turn at some point. I think they were expecting perhaps early next year, end of this year, we'll maybe start to see the peak and it start to come down. But we're going to be seeing increases for a period of time."
Bean adds, "I would just say there's no shame in investing in RRP. As balances increase, more and more clients are asking about it.... I just say it's the highest yielded repo option we have [and] the highest credit quality.... So why are you uncomfortable? ... Doing what we do for a living involves diversification. It's great, but it does feel uncomfortable at first. But when you really stop and think about it as a matter of perspective, there's no shame in being the best trade. Yeah, we [expect it to] continue to grow. We've got a quarter-end coming here in just a couple of weeks."
Finally, Grillo comments, "It's been, as I said, a really challenging time for us in Prime.... When you look at your six-month paper, you're like, wow, that's another mark to market you have to worry about.... So 'what sucks least?' just investing at the Fed is that at this point ... and SOFR. You have to buy floating rate in a rising rate environment and the only option is SOFR, whether you like it or not."
Bean adds, "When I look at the Prime space, one of the things that sucks least is asset-backed commercial paper. I don't feel like people talk about it a lot, but it has a lot of benefits for us. It's probably one of the few places where we actually added new names over the course of the last year. I think there's obviously a slight yield pickup to be in that versus some bank paper. But beyond that, the liquidity is really strong in the dealer community, really does step up."
