News Archives: December, 2023
The Investment Company Institute published its latest weekly "Money Market Fund Assets" report and its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for November 2023 on Thursday. The former shows MMF assets `rising $16.4 billion to $5.886 trillion in the past week. They fell the two previous weeks, and remain just $12 billion below their record level of $5.898 trillion level (set 12/6/23). Assets are up by $1.151 trillion, or 24.3%, year-to-date in 2023, with Institutional MMFs up $539 billion, or 17.6% and Retail MMFs up $612 billion, or 36.5%. Over the past 52 weeks (and for calendar 2023), money funds have risen a massive $1.151 trillion, or 24.3%, with Retail MMFs rising by $612 billion (36.5%) and Inst MMFs rising by $539 billion (17.6%).
The weekly release says, "Total money market fund assets increased by $16.35 billion to $5.89 trillion for the week ended Wednesday, December 27, the Investment Company Institute reported. Among taxable money market funds, government funds increased by $18.87 billion and prime funds decreased by $3.82 billion. Tax-exempt money market funds increased by $1.30 billion." ICI's stats show Institutional MMFs rising $3.4 billion and Retail MMFs rising $13.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.813 trillion (81.8% of all money funds), while Total Prime MMFs were $951.4 billion (16.2%). Tax Exempt MMFs totaled $122.1 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $13.00 billion to $2.29 trillion. Among retail funds, government money market fund assets increased by $8.88 billion to $1.49 trillion, prime money market fund assets increased by $3.20 billion to $686.48 billion, and tax-exempt fund assets increased by $920 million to $111.12 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.2% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $3.35 billion to $3.60 trillion. Among institutional funds, government money market fund assets increased by $9.99 billion to $3.32 trillion, prime money market fund assets decreased by $7.02 billion to $264.95 billion, and tax-exempt fund assets increased by $380 million to $10.95 billion." Institutional assets accounted for 61.1 % of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets rose $3.5 billion in the first 27 days of December to $6.271 trillion, slightly off their record $6.321 trillion level set on 12/12/23. Assets jumped $226.4 billion in November after falling by $31.9 billion in October and rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. 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 monthly Trends shows money fund totals jumping $213.9 billion in November to $5.881 trillion (after a decrease in October and increases in September, August, July, June, May and April). Prior to this, the March 2023 jump (a $371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Bond fund assets surged $170.5 billion to $4.609 trillion.
MMFs have increased by $1.210 trillion, or 25.9%, over the past 12 months (according to ICI's Trends through 11/30). Money funds' November asset increase follows a decrease of $13.6 billion in October and gains of $74.1 billion in September, $123.9 billion in August $31.4 billion in July, $30.6 billion in June, $172.7 billion in May, $8.4 billion in April, $371.0 billion in March, $60.0 billion in February, $31.5 billion in January and $105.3 billion in December. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.446 trillion as of 11/30, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $1.46 trillion, or 6.3 percent, to $24.70 trillion in November, 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 $12.79 billion in November, compared with an outflow of $34.44 billion in October.... Money market funds had an inflow of $196.66 billion in November, compared with an outflow of $28.54 billion in October. In November funds offered primarily to institutions had an inflow of $159.38 billion and funds offered primarily to individuals had an inflow of $37.28 billion."
The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower last month. Taxable MMFs increased by $214.4 billion in November to $5.758 trillion. Tax-Exempt MMFs decreased $0.6 billion to $122.5 billion. Taxable MMF assets increased year-over-year by $1.195 trillion (26.2%), and Tax-Exempt funds rose by $14.1 billion over the past year (13.0%). Bond fund assets increased by $170.5 billion (after decreasing $90.4 billion in October) to $4.609 trillion; they've increased by $43.2 billion (0.9%) over the past year.
Money funds represent 23.8% of all mutual fund assets (down 0.6% from the previous month), while bond funds account for 18.7%, according to ICI. The total number of money market funds was 275, down 1 from the prior month and down from 292 a year ago. Taxable money funds numbered 229 funds, and tax-exempt money funds numbered 46 funds.
ICI's "Month-End Portfolio Holdings" confirm a drop in Repo and a jump in Treasuries last month. Repurchase Agreements remained the largest composition segment in November but decreased $37.1 billion, or -1.5%, to $2.432 trillion, or 42.2% of holdings. Repo holdings have decreased $56.6 billion, or -2.3%, over the past year. (See our Dec. 12 News, "Dec. Portfolio Holdings: Treasuries Jump Again, Repo Slides; Assets Up.")
Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $234.2 billion, or 12.6%, to $2.087 trillion, or 36.2% of holdings. Treasury securities have increased by $973.9 billion, or 87.5%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $256 million, or 0.0%, to $661.5 billion, or 11.5% of holdings. Agency holdings have increased by $142.8 billion, or 27.5%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $965 million, or 0.3%, to $316.3 billion (5.5% of assets). CDs held by money funds rose by $98.0 billion, or 44.9%, over 12 months. Commercial Paper remained in fifth place, up $9.8 billion, or 4.3%, to $238.8 billion (4.1% of assets). CP increased $62.0 billion, or 35.1%, over one year. Other holdings increased to $19.2 billion (0.3% of assets), while Notes (including Corporate and Bank) decreased to $6.4 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 63.133 million, while the Number of Funds was down 1 at 229. Over the past 12 months, the number of accounts rose by 3.417 million and the number of funds decreased by 8. The Average Maturity of Portfolios was 34 days, up 4 from October. Over the past 12 months, WAMs of Taxable money have increased by 19.
As we enjoy the Holiday season and approach the New Year, Crane Data is ramping up preparations for its 2024 conference calendar. We just finished our "basic training" Money Fund University event last week, and we're getting ready for our next show, Bond Fund Symposium, which is March 25-26, 2024, in Philadelphia. But our focus will soon shift to our big show, Crane's Money Fund Symposium, which will take place June 12-14, 2024 at The Westin Convention Center, in Pittsburgh, Pa. The draft agenda for the largest gathering of money market fund managers and cash investors in the world is now available and registrations are now being taken. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. We review the MFS preliminary agenda, as well as Crane Data's other 2024 conferences, below. (Thanks once more to those who supported our Money Fund University in Jersey City last week! Attendees and subscribers may access the recordings and conference materials at the bottom of our "Content" page or via our "Money Fund University 2023 Download Center.")
Our MF Symposium Agenda kicks off on Wednesday, June 12 with a "Keynote: The Tide Has Turned in the MMF Battle" featuring Chris Donahue of Federated Hermes. The rest of the Day 1 Agenda includes: "Alt-Cash: Ultra-Shorts, LGIPs, SMAs & ETFs" with Teresa Ho of J.P. Morgan Securities, Jeffrey Rowe of PFM Asset Management and Jeff Weaver of Allspring Global; "Treasury, Agency & RRP Issues & Issuance," with Tom Katzenbach of the U.S. Dept. of the Treasury, Dina Marchioni of the Federal Reserve Bank of New York and Dave Messerly of Federal Home Loan Banks; and, a "Major Money Fund Issues 2024" panel with moderator Peter Crane of Crane Data, Laurie Brignac of Invesco, Doris Grillo of J.P. Morgan Asset Mgmt and John Tobin of Dreyfus. The evening's reception is sponsored by Bank of America.
Day 2 of Money Fund Symposium 2024 begins with "Strategists Speak '24: Fed, Rates & Reforms," with Joseph Abate of Barclays and Mark Cabana of BofA Securities; followed by a "Senior Portfolio Manager Perspectives" panel with Deborah Cunningham of Federated Hermes, Dan LaRocco of Northern Trust A.M. and Nafis Smith of Vanguard. Next up is "Government Money Fund & Repo Issues," with Mike Bird of Allspring Global Investments and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Mary Jo Ochson of Federated Hermes, John Vetter of Fidelity Investments, Sean Saroya and David Elmquist of J.P. Morgan Securities.
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply, New Securities & CP" with Robe Crowe of Citi Global Markets, John Kodweis of J.P. Morgan and Stewart Cutler of Barclays; "Ratings Agency Outlook & Trend Review" with Marissa Zuccaro of S&P Global, Robert Callagy of Moody's Investors Service and Peter Gargiulo of Fitch Ratings; "Regulations: Money Fund Reforms Round III" with Brenden Carroll of Dechert LLP, Jon-Luc Dupuy of K&L Gates LLP and Jamie Gershkow of Stradley Ronon; and "Online MMF Trading Portals & MM Platforms" with Greg Fortuna of State Street Fund Connect and Tory Hazard of ICD (The Day 2 reception is sponsored by Barclays.)
The third day of the Symposium features the sessions: "The State of the Money Fund Industry" with Peter Crane of Crane Data; "Brokerage Sweep, Deposits & MF Competitors" with Michael Berkowitz of Citi Treasury & Trade Solutions; "European & Asian Money Fund Update" with Rob Sabatino of UBS Asset Mgmt; and, "Money Fund Wisdom Demo & Training" with Peter Crane.
Visit the Money Fund Symposium website at www.moneyfundsymposium.com for more details. Registration is $1,000, and discounted hotel reservations are available. We hope you'll join us in Pittsburgh this June! Note that some of our speakers have yet to confirm their participation, and the agenda is still in the process of being finalized, so watch for tweaks in coming weeks. E-mail us at info@cranedata.com to request the full brochure.
We're also making plans for our seventh annual ultra-short bond fund event, Bond Fund Symposium, which will take place March 25-26, 2024 at the Loews Philadelphia Hotel. Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. Registrations are now being accepted ($1,000) and sponsorship opportunities are available. See the latest agenda here and details here.
Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Loews Philadelphia. We'd like to thank our past sponsors and exhibitors -- Wells Fargo Securities, Fitch Ratings, Fidelity Investments, J.P. Morgan Asset Management, Allspring Global, S&P Global Ratings, StoneX, Invesco, BofA Securities, Northern Trust, Bloomberg Intelligence, Goldman Sachs, Federated, GLMX, Payden & Rygel, PIMCO and Dechert -- for their support. (We'd love to get some new ones!) E-mail us for more details.
Finally, mark your calendars for our next European Money Fund Symposium, which is scheduled for Sept. 19-20, 2024, in London, and for our next Crane's Money Fund University, which is in Providence, Dec. 19-20, 2024. Let us know if you'd like more details on any of our events, and we hope to see you in Philadelphia in March, in Pittsburgh in June, in London in September or in Providence next December in 2024. Thanks for your patience and support in 2022, Happy Holidays and Happy New Year!
The Wall Street Journal asks, "Where Did Americans Put Their Money This Year? Everywhere." The article includes a number of charts sourcing Crane Data information, and explains, "This was the year investors could hardly go wrong. After years of seemingly nowhere to go but the stock market, investors faced a bonanza of choices in 2023. The Federal Reserve's aggressive interest-rate hiking campaign paved the way for the most tempting yields on ultrasafe assets in decades. Investors swiftly took advantage, sending torrents of cash to corners of the market that long seemed forgotten."
They explain, "In the final moments of the year, they are throwing money at virtually everything.... Assets in money-market funds surged to a record of more than $6 trillion, according to Crane Data. It is a pivot not seen in generations, one with wide-ranging implications for how much risk Americans are taking in markets. What this buildup means for markets is debatable. Some say the pile of cash gives investors ample reserves to put into stocks, which could buoy markets in the new year. Others say it gives Americans extra firepower to spend on everything from concert tickets to flights in coming months. Much of this hinges on the Federal Reserve’s path in 2024. If bond yields stay high, investors could keep hoarding cash. 'That's another reason I'm more bullish on the economy,' said `Laurie Brignac, a chief investment officer at Invesco. 'When this money gets put to work, it's going to have a big impact."
The article continues, "For now, investors are rushing to lock in higher yields.... Purchases of investments such as certificates of deposit and Treasurys have jumped this year to the highest levels since at least 2015, according to Tradeweb data. At Fidelity's retail brokerage, trades in bonds and CDs jumped around 10-fold since the end of 2021, far surpassing levels recorded over the past two decades, even in times of rising interest rates."
The Journal adds, "Investors parking cash in money-market funds reaped around $300 billion in interest income -- more than in the prior decade combined, according to estimates from Crane Data. That gave many Americans' wallets a boost in 2023. In 2024, many investors expect the Federal Reserve to shift to trimming rates after around two years of aggressive hikes. A drop in yields could dent the passive income generated by these safe investments and ripple through the economy in new ways."
In related news, CNBC writes "Money market funds were hot in 2023. Here's what to expect in 2024," which comments, "Next year should be another good one for money market funds, even amid anticipated rate cuts by the Federal Reserve, experts predict. The assets became a favorite place for Americans to stash cash this year, thanks to their historic yields. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds is currently 5.19%. It was 4.05% on Dec. 31, 2022, and 0.17% on Dec. 31, 2021, according to Crane Data, a firm that tracks money markets. Inflows ramped up as well. An estimated $950 billion has gone into money market funds so far this year, bringing the total net assets to $5.87 trillion as of Dec. 20, according to the Investment Company Institute."
They state, "The Federal Reserve has indicated three rate cuts for 2024, which means the yields in short-term assets like money market funds and online savings accounts will follow suit. While it's unclear when those cuts may start, fed funds futures pricing data suggests about a 76% probability that rates will decrease by 25 basis points in March, according to the CME FedWatch Tool."
Shelly Antoniewicz, deputy chief economist at the Investment Company Institute, comments, "Even if the Fed is going to ease, it is going to be very measured, very controlled.... Short-term yields may be a little lower, but will remain very attractive."
The CNBC update adds, "Peter Crane, founder of Crane Data, expects yields to go down at most to 4% by the end of 2024. 'With lower inflation rates, that is not exactly a bad deal,' he said. He anticipates retail money will continue to flow into the funds, even though some may drift back to the stock and bond markets. That's because money market funds are competing with bank savings accounts for cash, not necessarily equities and fixed income assets, he said."
Crane says, "Even if the Fed cuts a number of times, the spread between bank deposit yields and money market funds yield will still be huge <b:>`_.... The table will still be tilted in favor of money funds over bank deposits." Finally, CBNC tells us, "The funds that Crane tracks have seen inflows of $1.1 trillion this year, and he said it's not out of the realm of possibility that the funds could see another $1 trillion of inflows in 2024. Institutional money will also come in since there is generally a month or two lag between the rate cut and money market fund yields coming down, Crane said."
Last week, Investor's Business Daily published the article, "With Fed Set For Pivot, Have Money Market Funds Peaked? These Stock Market Alternatives Await." They tell us, "More than $1 trillion poured into money market funds in 2023 as investors took advantage of remarkable short-term interest rates. But with the Federal Reserve moving toward a pivot on monetary policy, it looks to be the time to be jumping onto a plethora of other investing opportunities. `This includes the stock market, despite its powerful gains this year. Money market funds yields are closely tied to the federal funds rate. This is the interest rate banks charge each other for overnight loans. It now looks almost certain the Federal Reserve will start cutting this rate next year, possibly as soon as March." (Note: Thanks again to those of you who supported our Money Fund University in Jersey City last week! Attendees and Crane Data subscribers may access the recordings and materials via our "Money Fund University 2023 Download Center.")
IBD's piece explains, "Sage Advisory Services Co-Chief Investment Officer Thomas Urano told Investor's Business Daily that alternatives have become more appealing following the latest Federal Open Market Committee meeting. 'I think what we've got is some clarity now about the Fed's view of policy -- where they think they are now, where they think they are likely going,' he said. 'The idea that some of the Fed members are expecting the policy rate to go lower in the coming year or 18 months has given a lot of comfort to investors that they can think about reallocating their money market fund position into duration, other areas of fixed income, (and) areas that might benefit in an environment where rates might be coming back down some."
It continues, "CFRA Chief Investment Strategist Sam Stovall told IBD that money markets will continue to offer elevated yields as long as the Fed funds rate stays where it is. But there could be a big reallocation around the corner when interest rates start to decline. 'When the Fed starts cutting rates, however, we could see a stampede out of cash and into higher yielding investments' he said. 'I think investors will flock to higher-yielding, high quality equities, since they serve as bond proxies and also offer upside price appreciation potential."
The article also tells us, "EPFR data shows that inflows for all U.S. Money Market Funds stands at $1.17 trillion year to date. The market intelligence company's director of research, Cameron Brandt, believes more cash could come into money market funds for a while. This is despite mammoth stock market gains."
Brandt comments, "Until U.S. interest rates start to decline, I think we'll see more inflows.... The alternatives come with question marks. U.S. equity markets are being driven by several themes such as 'soft landing' and AI that may not play out the way markets expect/hope, and the combination of U.S. borrowing requirements and the Fed's balance sheet runoff raise some questions about the dynamics for Treasuries."
In other news, Bloomberg featured a video interview with Wells Fargo's Head of Corporate and Public Entity Strategy Vanessa McMichael. Entitled, "2023 the Year for Money Market Funds," which says McMichael "makes the case for why money market funds will continue to be an attractive investment in 2024. She speaks to Bloomberg's Romaine Bostick and Katie Greifeld on "Bloomberg Markets: The Close."
McMichael says, "This year has undoubtedly been the year of the money market funds. Right now, money market funds are sitting at about $6 trillion. To put that number into perspective, at the end of 2019, total money market fund assets were only $3 trillion.... Still a large number, but we've since doubled year to date. There's been about $1 trillion in cash that has flown into money market funds throughout this year.... You can't deny the value. So when you look at the [yield] curve, the curve has been inverted. And over the past couple of months, money market fund yields have remained stable while the rest of the curve has continued ... to decline." Asked about `rollover risk, she responds, "So in my role, I'm helping corporate investors develop fixed income investment strategies that they're comfortable executing in-house.... Within that framework [the] goals [are] preservation of capital and liquidity. [M]oney market funds, they naturally fit those goals, so money market funds are a very active investment vehicle for these sorts of investors. But ... we think that these investors do need to think about extending duration."
McMichael continues, "We're seeing that even within the money market funds, the WAMs that have doubled year to date, because they get it every time the Fed is about to pivot and ease its policy rate. We see WAMs extend because they're trying to capture that yield.... While money market funds are extending WAM, which are going to keep yields a little bit more elevated versus other front end fixed income products, that's going to continue to add to the value proposition in money market funds. So no, I don't think we're going to see outflows in the near term because once the Fed begins to ease money market fund rates are only going to ease very slowly."
She explains, "Money market funds, their goals are really ... the same as the corporate investors that I talked to -- they're trying to earn current income by preserving capital and maintaining liquidity. So, what I'm talking about extending WAMs, we're talking about going from 13 days to 34 days, Right? It's relative. And they can only invest out to 13 months, at least those 2a-7 money market funds where most of our corporate clients are investing their operating funds. So [having the] same exact goals, ... means we're looking at a very defined list of fixed income alternatives that we even can invest in."
Finally, McMichael adds, "Well, you know, what's interesting is that growth that I shared about this past year-to-date and to 2023, that's total assets, so institutional and retail. As next year progresses and rates continue to fall. I do think that there are a number of corporate investors already invested in money market funds. They have excess cash. We're trying to convince them to consider extending themselves a little bit, but I think money market funds are comfortable. Again, they check those the preservation of capital box, they check the liquidity box in there same day liquid. There's substitute for bank deposits, which has been another really big conversation with the corporate investors I speak to because of what happened in March of this year.... `I don't I can't put a specific number on it, but I would not be surprised to see more inflows into money market funds next year."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets jumped by $225.7 billion in November to a record $6.338 trillion. The SEC shows Prime MMFs rising $32.5 billion in November to $1.319 trillion, Govt & Treasury funds increasing $193.7 billion to $4.888 trillion and Tax Exempt funds decreasing $0.5 billion to $130.2 billion. Taxable yields were mixed in November after rising in October. 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. (Month-to-date in November through 12/20, total money fund assets have decreased by $9.3 billion to $6.258 trillion, according to our separate, and slightly smaller, MFI Daily series.)
November's overall asset increase follows a decrease of $41.2 billion in October, an increase of $79.7 billion in September, $114.2 billion in August, $28.8 billion in July, $19.6 billion in June, $156.6 billion in May, $49.9 billion in April, $364.4 billion in March, $52.1 billion in February, $53.2 billion in January, $54.8 billion in December and $48.5 billion last November. Over the 12 months through 11/30/23, total MMF assets have increased by $1.158 trillion, or 22.4%, according to the SEC's series.
The SEC's stats show that of the $6.338 trillion in assets, $1.319 trillion was in Prime funds, up $32.5 billion in November. Prime assets were up $13.9 billion in October, $14.3 billion in September, $18.5 billion in August, $28.9 billion in July, $11.0 billion in June, $13.7 billion in May and $36.0 billion in April. They were down $22.2 billion in March, but up $35.4 billion in February, $86.2 billion in January, $10.5 billion in December and $28.0 billion last November. Prime funds represented 20.8% of total assets at the end of November. They've increased by $278.7 billion, or 26.8%, over the past 12 months. (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.)
Government & Treasury funds totaled $4.888 trillion, or 77.1% of assets. They increased $193.7 billion in November, decreased $62.4 billion in October, increased $64.6 billion in September, $92.2 billion in August, $3.1 billion in July, $4.9 billion in June, $137.4 billion in May, $19.3 billion in April, $387.9 billion in March and $16.1 billion in February. They decreased $33.2 billion in January but increased $41.3 billion in December and $23.1 billion last November. Govt & Treasury MMFs are up $864.9 billion over 12 months, or 21.5%. Tax Exempt Funds decreased $0.5 billion to $130.2 billion, or 2.1% of all assets. The number of money funds was 290 in November, unchanged from the previous month and down 9 funds from a year earlier.
Yields for Taxable MMFs inched higher while Tax Exempt MMFs fell in November. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Nov. 30 was 5.50%, unchanged from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.57%, up 1 bp from the previous month. Gross yields were 5.42% for Government Funds, unchanged from last month. Gross yields for Treasury Funds were unchanged at 5.43%. Gross Yields for Tax Exempt Institutional MMFs were down 64 basis points to 3.41% in November. Gross Yields for Tax Exempt Retail funds were down 48 bps to 3.45%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.44%, up 1 basis point from the previous month and up 153 bps from 11/30/22. The Average Net Yield for Prime Retail Funds was 5.30%, unchanged from the previous month, and up 147 bps since 11/30/22. Net yields were 5.18% for Government Funds, up 1 bp from last month. Net yields for Treasury Funds were unchanged from the previous month at 5.21%. Net Yields for Tax Exempt Institutional MMFs were down 62 bps from October to 3.31%. Net Yields for Tax Exempt Retail funds were down 48 bps at 3.21% in November. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly up in November. The average Weighted Average Life, or WAL, was 48.2 days (up 4.3 days) for Prime Institutional funds, and 50.9 days for Prime Retail funds (up 3.7 days). Government fund WALs averaged 80.6 days (up 3.7 days) while Treasury fund WALs averaged 73.2 days (up 6.2 days). Tax Exempt Institutional fund WALs were 6.9 days (down 0.5 days), and Tax Exempt Retail MMF WALs averaged 26.1 days (down 0.3 days).
The Weighted Average Maturity, or WAM, was 32.9 days (up 6.6 days from the previous month) for Prime Institutional funds, 35.6 days (up 4.7 days from the previous month) for Prime Retail funds, 33.1 days (up 4.2 days from previous month) for Government funds, and 36.7 days (up 5.7 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.4 days to 6.9 days, while Tax Exempt Retail WAMs were down 0.1 days from previous month at 25.0 days.
Total Daily Liquid Assets for Prime Institutional funds were 51.0% in November (unchanged from the previous month), and DLA for Prime Retail funds was 40.7% (down 1.5% from previous month) as a percent of total assets. The average DLA was 69.1% for Govt MMFs and 96.0% for Treasury MMFs. Total Weekly Liquid Assets was 65.1% (down 2.0% from the previous month) for Prime Institutional MMFs, and 58.4% (down 1.3% from the previous month) for Prime Retail funds. Average WLA was 80.8% for Govt MMFs and 99.0% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for November 2023," the largest entries included: Canada with $156.3 billion, the U.S. with $153.6B, Japan with $131.1 billion, France with $100.8 billion, the U.K. with $44.5B, the Netherlands with $42.0B, Aust/NZ with $36.8B, Germany with $33.6B and Switzerland with $10.8B. The gainers among the "Prime MMF Holdings by Country" included: Canada (up $19.7B), the U.S. (up $7.9B), Aust/NZ (up $5.0B), Japan (up $4.7B), France (up $1.9B), the U.K. (up $1.5B), Netherlands (up $0.7B) and Switzerland (up $0.5B). Decreases were shown by: Germany (down $3.9B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $309.8 billion (up $27.5B), while Eurozone had $200.3B (down $1.8B). Asia Pacific subset had $192.6B (up $12.9B), while Europe (non-Eurozone) had $112.1B (up $0.9B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.314 trillion in Prime MMF Portfolios as of Nov. 30, $550.5B (41.9%) was in Government & Treasury securities (direct and repo) (up from $526.4B), $351.5B (26.8%) was in CDs and Time Deposits (up from $347.0B), $206.2B (15.7%) was in Financial Company CP (up from $195.6B), $141.9B (10.8%) was held in Non-Financial CP and Other securities (down from $149.6B), and $63.7B (4.8%) was in ABCP (up from $61.1B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $381.5 billion, Canada with $201.4 billion, France with $167.0 billion, the U.K. with $139.6 billion, Germany with $32.4 billion, Japan with $138.5 billion and Other with $45.5 billion. All MMF Repo with the Federal Reserve was down $234.9 billion in November to $849.3 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.0%, Prime Retail MMFs with 7.0%, Tax Exempt Inst MMFs with 0.2%, Tax Exempt Retail MMFs with 5.7%, Govt MMFs with 13.6% and Treasury MMFs with 9.3%.
The Federal Reserve Bank of New York's Liberty Street Economics blog published a piece entitled, "Dropping Like a Stone: ON RRP Take-up in the Second Half of 2023." It explains, "Take-up at the Overnight Reverse Repo Facility (ON RRP) has halved over the past six months, declining by more than $1 trillion since June 2023. This steady decrease follows a rapid increase from close to zero in early 2021 to $2.2 trillion in December 2022, and a period of relatively stable balances during the first half of 2023. In this post, we interpret the recent drop in ON RRP take-up through the lens of the channels that we identify in our recent Staff Report as driving its initial increase." (Note: Thanks once again to those of you attended our Money Fund University in Jersey City earlier this week! Attendees and Crane Data subscribers may access the materials via our "Money Fund University 2023 Download Center.")
The update tells us, "As the Federal Reserve expanded its balance sheet in response to the COVID-19 pandemic, it increased the supply of reserves to the banking system and, as a result, banks' balance sheets also grew. Reserves increased from $1.6 trillion -- or 9 percent of banks assets -- in January 2020 to $3.2 trillion -- or 16 percent of bank assets -- over the following three months, reaching a historical maximum of 19 percent of banks' assets in September 2021.... [B]ank assets also grew from $18 trillion in January of 2020 to $20 trillion in April 2020, and continued to increase to $23 trillion in May 2023."
It continues, "As banks' balance sheets expand, regulatory ratios -- such as the supplementary leverage ratio (SLR) -- are likely to become tighter for some institutions. Banks react to increased balance-sheet costs by pushing some of their deposits toward the money market fund (MMF) industry -- for instance, by lowering the rate paid on bank deposits -- and reducing their demand for short-term debt. As we explain in our paper, both effects are likely to have boosted ON RRP take-up during March 2021 – May 2023, as most MMFs are eligible to invest in the ON RRP and do so especially when alternative investment options, such as banks' wholesale short-term debt -- including repos by dealers affiliated with a bank holding company -- dwindle."
The brief adds, "Likely, these effects have subsided relative to 2022. Indeed, since June 2023, bank assets have hovered around $23 trillion, slightly below their March 2023 peak.... Consistent with a decrease in banks' balance-sheet costs (and an increase in the supply of bank debt), the interest rates at which banks and broker dealers borrow via overnight Treasury-backed repos have increased since the fourth quarter of 2022 and are now a few basis points above the ON RRP rate. This positive rate differential pushes MMFs away from investing at the ON RRP facility and into private repos."
It explains, "Monetary policy can affect ON RRP take-up by MMFs in two ways. First, the interest-rate pass-through of MMF shares is higher than that of bank deposits; as a result, the size of the MMF industry comoves with the monetary policy cycle as investors switch from bank deposits to MMF shares when the policy rate increases. Though the assets of the MMF industry are at an all-time high, the pace of the increase has somewhat decreased recently, consistent with a slower pace of monetary policy tightening; moreover, the share of MMF assets managed by government funds -- the ones most likely to invest in the ON RRP -- has decreased since June 2022 by 7 percentage points."
The blog continues, "Second, monetary policy can affect MMFs' take-up at the ON RRP also through its effect on interest-rate uncertainty. Higher uncertainty leads MMFs to rebalance their portfolios toward investments with shorter duration; the ON RRP is one such investment as it is overnight. Indeed, interest rate uncertainty -- as measured by the MOVE index -- had increased substantially during the latest tightening cycle, raising from 57.3 in May 2021 to 136 in May 2023. Recently, however, the increase has been partially reversed. Indeed, the average level of the MOVE was 125.6 in the first half of 2023 but declined to 117.3 in the second half of the year."
Finally, it says, "A third driver of ON RRP take-up is the supply of T-bills. The Federal Government has expanded the supply of T-bills dramatically in 2023: T-bills outstanding increased from $3.7 trillion at the end of 2022 to $5.3 trillion at the end of September 2023, with a $1.3 trillion increase since June. As the supply of T-bills grows, the investment options of MMFs -- and especially of government funds, which represent 83 percent of the industry and can only invest in short-term government debt and repos backed by government debt—expand and, as a result, their investment in the ON RRP dwindles. In our staff report, we estimate that a $100 billion increase in the amount of T-bill issuance reduces the proportion of ON RRP investment in a government-MMF portfolio by 2.3 percentage points, relative to that in a prime-MMF portfolio; since average monthly T-bill issuance went from $1.12 trillion in the period from 2022:Q1-2023:Q1 to $1.53 trillion in 2023:Q2-2023:Q3, this effect on portfolio rebalancing amounts to an additional decrease in ON RRP investment of roughly $350 billion."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of December 15) includes Holdings information from 69 money funds (up 16 from two weeks ago), or $3.052 trillion (up from $2.527 trillion) of the $6.255 trillion in total money fund assets (or 48.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.287 trillion (up from $1.051 trillion two weeks ago), or 42.2%; Treasuries totaling $1.242 billion (up from $993.9 billion two weeks ago), or 40.7%, and Government Agency securities totaling $266.4 billion (up from $243.1 billion), or 8.7%. Commercial Paper (CP) totaled $91.2 billion (up from two weeks ago at $84.8 billion), or 3.0%. Certificates of Deposit (CDs) totaled $74.6 billion (up from $68.7 billion two weeks ago), or 2.4%. The Other category accounted for $63.1 billion or 2.1%, while VRDNs accounted for $28.9 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.242 trillion (40.7% of total holdings), Fixed Income Clearing Corp with $275.3B (9.0%), the Federal Reserve Bank of New York with $267.3 billion (8.8%), Federal Home Loan Bank with $205.1B (6.7%), RBC with $79.7B (2.6%), Citi with $72.1B (2.4%), JP Morgan with $67.1B (2.2%), Goldman Sachs with $66.3B (2.2%), BNP Paribas with $54.0B (1.8%) and Federal Farm Credit Bank with $51.5B (1.7%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($267.8B), Goldman Sachs FS Govt ($222.2B), Fidelity Inv MM: Govt Port ($183.0B), JPMorgan 100% US Treas MMkt ($182.9B), Morgan Stanley Inst Liq Govt ($143.7B), BlackRock Lq FedFund ($141.1B), State Street Inst US Govt ($139.8B), Allspring Govt MM ($119.7B), Fidelity Inv MM: MM Port ($118.2B) and Dreyfus Govt Cash Mgmt ($112.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
We wrote earlier this month on the U.K. Financial Conduct Authority's new consultation paper entitled, "Updating the regime for Money Market Funds." Today, we quote from the full paper on "Why we are consulting." The FCA explains, "This consultation sets out proposals to enhance the resilience of Money Market Funds (MMFs) domiciled in the UK, addressing vulnerabilities identified in the 2020 'dash for cash' and other times of market stress. We want there to be an effective market in MMFs. The proposals are intended to mitigate risks to wider financial stability and reduce the need for central bank support in the future, whilst maintaining cash management services that meet the needs of investors. The consultation also forms part of the Government's delivery of the Smarter Regulatory Framework (SRF) for financial services, replacing retained European Union (EU) law (REUL) with an approach to regulation tailored to the UK." (Note: Thanks again to those of you attended our Money Fund University in Jersey City earlier this week! Attendees and Crane Data subscribers may access the materials via our "Money Fund University 2023 Download Center.")
They tell us, "HM Treasury expects to lay a Statutory Instrument (SI) before Parliament which will replace UK Money Market Fund Regulation (UK MMFR) with provisions in new legislation which will set an overall framework for MMF regulation more suited to the needs of the UK market. Correspondingly, this consultation proposes new FCA Handbook rules to replace the provisions to be deleted from legislation. HM Treasury is publishing the draft SI and policy note at the same time as this consultation and the two documents should be read in conjunction with each other."
The paper says, "MMFs are a type of open-ended investment fund (OEF) used in many jurisdictions. MMFs are considered to be low-risk investments that give investors a way to diversify credit risk and a place to hold their assets, while aiming to yield a return in line with short-term money market rates. MMFs are an important cash management vehicle for investors to manage short-term liquidity and meet margin calls. There are few alternatives for larger corporate and financial institutions that meet their needs."
It continues, "Investments in an MMF are, however, not guaranteed. MMFs offer daily redemptions on demand, often with same day settlement, despite many of the assets that they invest in having a longer maturity and an illiquid secondary market. This creates a 'liquidity mismatch', with MMFs undertaking 'liquidity transformation' and can also lead to a first mover advantage -- an incentive for investors to redeem ahead of others. If heightened redemptions at one fund lead to redemptions in other funds, this can amplify the original liquidity stress."
The FCA writes, "MMFs are subject to regulation that places limits on the amount of liquidity transformation they can undertake, and that requires MMFs to hold minimum amounts of short-term liquidity, to promote MMFs' ability to meet redemption demands. Over the last few years there have been several instances where the resilience of MMFs has been tested: In March 2020, financial markets globally reacted to the unexpected effect on economic activity of the Covid pandemic and the public health measures that were introduced. This shock catalysed an abrupt and extreme dash for cash. MMFs came under severe strain as investors withdrew money to meet obligations elsewhere such as collateral calls, and out of fear of not being able to redeem at a future date. This in turn increased the pressure on MMFs, increasing the risk they would be unable to meet investors' redemption demands."
They tell us, "If multiple MMFs used by UK investors had suspended in March 2020 -- restricting investor access to cash -- there could have been a significant threat to wider UK financial stability; In late 2022, a rapid and unprecedented increase in UK gilt yields exposed vulnerabilities in Liability-Driven Investment (LDI) funds in which many pension schemes invest. This led to a spiral of collateral calls and forced gilt sales that risked further market dysfunction and a material risk to UK financial stability. Some MMFs saw a rapid wave of withdrawals as investors sought to raise cash including for collateral calls, followed by strong inflows in the period immediately following the market disruptions as investors rebuilt their short-term liquidity."
The FCA paper states, "Work internationally on addressing MMF vulnerabilities has been led by the Financial Stability Board (FSB). This follows on from international reforms to MMFs after the global financial crisis, when vulnerabilities in MMFs were also exposed. In October 2021, the FSB published its Final Report on possible policy proposals to enhance MMF resilience. Many of the FSB's policy options aim to enhance resilience through reducing the likelihood of destabilising redemptions by reducing liquidity transformation (for example by increasing MMF liquidity), imposing on redeeming investors the cost of their redemptions, absorbing losses, or reducing threshold effects. This consultation takes forward FSB proposals in a UK context."
It comments, "Many sterling denominated MMFs are domiciled outside the UK -- around 90% of total assets under management (AUM) in sterling MMFs are in MMFs domiciled in the EU. The Government SI being published alongside this CP sets out the Government's Overseas MMF Regime which will enable approved MMFs to market into the UK provided they apply to the FCA for recognition under either section 271A of FSMA (where applicable) or section 272 of FSMA, or notify the FCA under the UK's National Private Placement Regime. Irrespective of any designations under this regime, we consider it appropriate for the FCA to propose rules in this CP for UK MMFs that will support financial stability, investor protection and growth."
The introduction then says, "This work should be considered part of broader international efforts to address vulnerabilities and increase the resilience of MMFs, ensuring consistently high standards in the international financial system.... The UK authorities are looking to: Strengthen the resilience of MMFs and the financial system in supporting the UK economy and its international competitiveness; Reduce the need for future extraordinary central bank interventions of the kind that occurred in March 2020; Support the provision of sustainable and robust cash management financial services that meet the needs of investors including at times of financial stress."
The FCA tells us, "This consultation was preceded by Discussion Paper DP22/1 on the Resilience of Money Market Funds (DP22/1), in which we gathered feedback on the FSB policy options, seeking to understand how best to support financial stability in a UK context through enhancing the resilience of MMFs. The Bank of England's Financial Policy Committee (FPC) has also developed its view on how the risks are best addressed. Feedback to DP22/1 supports our analysis that our aim should be to mitigate and reduce risk associated with MMFs rather than restrict their operations. This is because the measures necessary to eliminate risk would prevent MMFs either being able to operate effectively or to provide the features such as same day settlement and a high degree of NAV per unit stability that are most valued by MMF investors. This would reduce the use of MMFs and move demand for cash management products and risk to other parts of the financial markets which may not necessarily have the capacity to absorb it."
They add, "The proposals in this consultation, prepared in close cooperation with the Bank of England and HM Treasury, prioritise strengthening the existing regulatory regime for MMFs while maintaining the broad current MMF operating model. The proposals increase MMF resilience principally by ensuring MMFs have usable liquidity sufficient to endure severe but plausible redemption stresses. The proposals include: A significant increase in the minimum liquid asset requirement for all MMFs, raising daily liquid assets (DLA) and weekly liquid assets (WLA) levels to 15% and 50% of their assets respectively. We also modify the assets eligible for WLA for Variable NAV (VNAV) MMFs; and The removal of the regulatory link between liquidity levels in MMFs that have the ability to offer subscriptions and redemptions at a constant Net Asset Value (NAV) (so-called 'stable NAV MMFs') and the need for the manager to consider or impose tools such as liquidity fees or redemption gates. This is known as 'delinking' and is intended to make those MMFs’ liquidity buffers more usable. Other enhancements include: Enhanced 'know your customer' (KYC) requirements: strengthened and broadened KYC requirements on MMF investor concentration; Enhanced stress testing for stable NAV MMFs; and Enhanced operational resilience for stable NAV MMFs."
Finally, they write, "We have considered other policy measures set out in DP22/1 but not adopted them -- either because they would prevent MMFs from being able to support the needs of investors -- or because we consider there to be more proportionate ways of achieving our desired outcomes. Policy measures not adopted include: Changing or removing stable NAV operation for the current stable NAV MMFs, so these MMFs would be no longer permitted to deal at a constant NAV; and Making changes to how MMFs currently operate in order to impose on redeeming investors the true cost of their redemptions in the absence of MMFs selling assets and crystallising losses. However, we are consulting on a requirement for all MMFs to have at least one Liquidity Management Tool (LMT) available for use when the fund is still trading if needed, and for all managers to have the ability to suspend their MMFs, with such tools to be deployed at the manager's discretion.... We welcome feedback on our proposals by 8 March 2024 using the details on the Contents page. We will consider all feedback, and subject to the responses received we will look to publish a final policy statement and final Handbook rules in line with HM Treasury's finalised SI."
Fitch Ratings published its "Global Money Market Funds Outlook 2024" recently, which explains, "Fitch Ratings' 2024 sector outlook for global money market funds (MMFs) is neutral, reflecting generally neutral credit environment, an expectation of manageable industry flows, and limited impact from regulatory changes. We expect MMFs to continue increasing weighted average maturity (WAM) and weighted average life (WAL) with managers selectively extending duration and maturity to lock in high yields in anticipation of rate cuts in the US and Europe. This may expose funds to valuation volatility from continued macroeconomic uncertainty, which may be exacerbated by geopolitical tensions." (Note: Thanks to those of you attended our Money Fund University in Jersey City this week! Attendees and Crane Data subscribers may access the materials via our "Money Fund University 2023 Download Center.")
The outlook continues, "Revision of a sizeable portion of key banking sectors' outlook to neutral from deteriorating, together with MMFs typical investment universe consisting of mostly high-quality banks which tend to carry stronger rating headroom, support a generally neutral credit environment for MMFs in 2024. We expect the macroeconomic environment to continue to be challenging due to the backdrop of tighter global credit conditions."
It tells us, "Fitch forecasts central banks in the major economies to hold rates at peak levels until 2H24, before reducing rates at different paces. We expect manageable industry flows for most of 2024 as MMFs tend to benefit from duration effect, allowing delays in policy rate cuts feeding through to funds' yields. As a result, there should be balanced industry flows at early stage of anticipated rate cuts across regions and we do not expect a meaningful acceleration of the MMF flows until late next year."
Fitch says, "We expect overall limited impact from regulation reforms in the China and US MMF industry, with Chinese rules focusing on large MMFs and US rules introducing mandatory liquidity fees, which may result in flows out from US prime likely into treasury or government MMFs. In Europe, there are different stances. The EC's review on MMF regulation adequacy did not recommend reform to regulation at this stage and the UK Financial Conduct Authority recently published a consultation paper setting out proposals to update UK MMF regulatory regime."
On "US Money Market Funds," they comment, "Fitch expects the Federal Reserve to maintain the policy rate until 2H24. In anticipation of rate cuts, we expect US MMF managers to selectively extend duration to lock in high yields, while maintaining sufficient liquidity to handle outflows that may result from rate cuts. US MMFs have seen substantial inflows from tightening monetary policy, with assets under management (AUM) in retail funds increasing nearly 40% in 2023. Fitch expects the Fed to maintain the policy rate until 2H24. In anticipation of rate cuts, we expect US MMF managers to extend duration, while maintaining sufficient liquidity."
Fitch also states, "The compliance date for mandatory liquidity fees and increased daily and weekly liquidity levels will be in July 2024. Prime institutional MMFs already maintain daily and weekly liquidity in excess of the new requirements. Unlike the implementation of the last round of '2a-7' reforms, there have been limited outflows from prime MMFs. If this were to materialise, we anticipate most outflows from prime institutional funds would result in inflows to treasury and government MMFs. Fund managers may also seek to merge their prime MMFs to maintain economies of scale."
They add, "We expect US MMFs managers to continue gradually and selectively extending their WAM and WAL to lock in high yields for investors in anticipation of rate cuts in the US and Europe. Increasing maturity rises the funds' market risk sensitivity. Unexpected events, such as a material acceleration in geopolitical tension, could lead to significant spread movements and market pricing volatility."
On "European Money Market Funds," Fitch writes, "Fitch's stable outlooks for the French, Canadian, Japanese, UK and German banking sectors support a more stable credit environment, as MMF portfolios are concentrated in these sectors. The US banking sector still has a deteriorating outlook, which could have a knock-on effect on MMFs with high exposure to US banks. However, vulnerabilities will be assessed on a case-by-case basis, and MMFs' typically invest in high-quality banks, which tend to carry stronger rating headroom."
They continue, "We expect overall balanced industry flows for most of 2024, in light of the anticipation of euro, sterling and US dollar policy rate cuts in 2H24. MMFs tend to benefit from the duration effect, allowing delays in policy rate cuts feeding through to funds' yields. As a result, we do not expect a meaningful acceleration of the MMF flows until late next year.... Fitch expects European MMFs managers to continue gradually and selectively extending their WAM and WAL to lock in high yields for investors in anticipation of rate cuts. Increasing maturity rises the funds’ market risk sensitivity. Unexpected events such as material acceleration in geopolitical tension could lead to significant spread movements and market pricing volatility."
Finally, on "Chinese Money Market Funds," they state, "Chinese MMF assets totalled CNY11.4 trillion at end-3Q23. We expect AUM to continue to grow steadily with interest rates set to stay unchanged and monetary policy unlikely to tighten. Although MMFs yield has been at a record low, investors are inclined to stick to safer assets due to the weak environment and volatility of riskier assets. Real yields in MMFs have been rising due to low inflation."
The U.S. Treasury's Office of Financial Research recently released its "2023 Annual Report to Congress," which for once spends more time on banking and other risks rather than on money market funds. The press release, "OFR Finds Elevated Threats to U.S. Financial Stability Due to Inflation, Ongoing Geopolitical Risks, and Global Conflicts explains, "The OFR published its 2023 Annual Report to Congress ..., which concluded that financial stability risks to the U.S. financial landscape have increased since last year and remain elevated in 2023. The report examined these risks to financial stability between Oct. 1, 2022 – Sept. 30, 2023.... The monetary tightening policies begun in 2022 by the Federal Reserve may have created stressors for the banking, funding, and real estate markets in 2023. Many banks' fixed-income securities portfolios showed large unrealized losses due to rising rates, which contributed to the demise of some of those banks. Following the regional banking crisis in the first half of 2023, banks' balance sheets shrunk and lending to small, medium, and (to a lesser extent) large corporations declined." (Note: For those of you attending our Money Fund University Monday and Tuesday, welcome to Jersey City! Attendees and Crane Data subscribers may access the materials via our "Money Fund University 2023 Download Center.")
Discussing "Short-term Funding," the report says, "The Federal Reserve is maintaining a monetary-tightening stance to combat inflation. From March 2022 to September 2023, the central bank increased the EFFR target range by 525 basis points. The rapid pace and magnitude of the rate increases created challenges for banks and nonbank financial institutions that rely on short-term funding markets. The Federal Reserve primarily controls the policy rate in the interbank market by adjusting the supply of reserves in the banking system through changes to the IORB (the ceiling on rates) and by engaging in repurchase agreements through its ON RRP to reinforce the floor on policy rates. The system transacts its ON RRP operations at a specified rate with eligible nonbank counterparties such as MMFs and GSEs."
It explains, "As the central bank continued to hike policy rates through 2022 and early 2023, commercial bank deposit rates increased slower than comparable market rates. For instance, the cost of interest-bearing deposits was about 0.26% at the end of 2020, compared to 0.75% at the end of 2022. Consequently, the gap between deposit rates and money-like assets widened. Some depositors began to move their cash balances away from banks to higher-yielding investments. The exodus of deposits accelerated in the second half of 2022. As a result, banks increased their reliance on other borrowings and used cash balances to meet liquidity needs. Some banks had to sell securities to fund deposit outflows. After the banking stress that began in March 2023, consumers moved deposits from banks to a combination of alternative financial products such as MMFs and Treasury bills."
The Report continues, "As deposits left several banks at a record pace, federal government agencies took action to restore confidence and minimize contagion risk to other regional and smaller banks. A number of banks tapped the Federal Reserve's emergency lending facilities to improve liquidity and or make up for funding shortfalls. The FDIC also protected uninsured deposits at certain failed banks. These actions appear to have eased depositor concerns."
It states, "Deposits are the largest source of funding for banks and a source of liquidity for individuals and corporations. Historically, banks have been slow to adjust deposit rates when the Federal Reserve is hiking interest rates, and there is typically a lag of several months between the first interest rate hike and when yield-sensitive cash investors begin to shift out of bank deposits and into alternative financial products, such as Treasury securities and MMFs. The size and speed of recent interest rate hikes were unprecedented and accelerated the shift. Total bank deposits at U.S. commercial banks peaked at over $18.1 trillion in April 2022 before declining to $17.3 trillion in September 2023."
The OFR writes, "As the risk of uninsured deposit flight from regional banks further accelerated following the failure of SVB and SB, some banks sold assets or replaced their deposit funding with relatively more expensive borrowings, such as FHLB advances. The bank deposits and borrowings series in Figure 30 includes deposits plus other borrowing sources. As the level of deposits fell, other borrowings rose. FHLB borrowing -- an indirect measure of the degree to which banks and other members turn to wholesale funding to meet liquidity needs -- rose over the past year by nearly $200 billion, or 19%. Secured borrowing from the FHLBs provides a lower-cost and more stable alternative to unsecured bank borrowing, such as the issuance of commercial paper. However, FHLB advances are indirectly funded by MMFs. Potentially, this creates stress on the FHLBs because MMF shares are redeemable on demand."
They explain, "With over $6 trillion in net assets as of September 30, 2023, MMFs are important lenders in short-term markets. OFR analysis indicates that money market mutual funds benefited from the continued differential between MMF yields and general deposit rates. MMFs compete for deposits with other cash management instruments and have historically experienced growth in periods of rising market rates because of their ability to quickly pass market rate increases on to fund investors."
The report tells us, "The first MMF was launched in 1971, but MMFs did not experience their first period of rapid growth until 1974 and early 1975. That was because of Regulation Q's strict ceiling on the interest rates that insured depository institutions were permitted to pay to depositors. In the high-interest-rate environment that existed during this period, money market rates of return rose well above this ceiling -- so to benefit from these higher rates, many customers withdrew their assets from deposit accounts and placed their funds into MMFs."
It states, "Explosive growth in MMFs occurred again in the late 1970s and early 1980s when very high money market rates produced large differences between the rates of return being paid by MMFs and depository institutions. This trend has persisted over most rate-hiking cycles. However, the increasing awareness of alternative money market rates through numerous internet sources and the utilization of mobile banking and information-sharing applications can accelerate bank customer deposit withdrawals because (1) these communication platforms can quickly coordinate customer sentiment and set off chain reactions and (2) the mobile banking platforms enable withdrawals at faster speeds."
The OFR report comments, "In the first nine months of 2023, MMF assets rose about $864 billion, or 17%, to a record $6.16 trillion. This was largely because MMF yields are six to eight times more than deposit rates. A portion of the increase in MMF assets circulated back into the banking system through the purchase of FHLB discount notes and lending through the tri-party and cleared bilateral repurchase agreement markets. However, some funds left the banking system as MMFs invested cash in the Federal Reserve's ON RRP, Treasury bills, and other short-term U.S. government obligations offering higher yields."
It adds, "MMFs are key participants in the repo markets, accounting for over 47% of the lending in this funding segment. MMFs are primarily active in three different repo markets: (1) the noncentrally cleared tri-party repo market, (2) the FICC-sponsored repo market, and (3) direct dealings with the Federal Reserve via the ON RRP. While volumes at the ON RRP facility are still large, they are not very elevated relative to Q4 2022. Instead, much of the extra funds were invested in other repo markets. The tri-party market saw a roughly $200 billion increase in daily transaction volume since the beginning of the year, while activity in the FICC-sponsored repo markets increased by approximately $400 billion over the past year."
The OFR also writes, "These other repo markets withstood the recent volatility in the banking sector relatively well. Rates in the interdealer markets briefly increased after the failure of SVB but quickly reverted to their previous levels. However, MMF repo lending to primary dealers may still pose a financial stability risk as dealers pass these dollars on to riskier institutions, such as hedge funds. Because it is difficult to see what kinds of risks are building up in these low-visibility markets, it is important for regulators to use market data to see what types of institutions dealers are lending cash to so that the regulators can properly assess sources of potential short-term funding disruptions."
They state, "The counterparties receiving these inflows from MMFs are very large dealers that are subsidiaries of commercial banks. These dealers are subject to interest rate and liquidity concerns similar to those of their commercial bank affiliates. Dealers typically take cash inflows from MMFs and lend them to clients in the FICC-sponsored and NCCBR markets. Cash borrowers in the NCCBR market are usually leveraged institutions such as hedge funds. Market volatility can prompt such borrowers to deleverage, which in turn can amplify price volatility in key asset markets, such as those for Treasuries."
Finally, the report says, "In summary, the repo markets have functioned effectively YTD, avoiding the volatility seen in bank deposit funding. However, it is important to highlight that while we have not seen any financial risks take shape in these markets, there may be unseen financial stability risks building up in the economy that are not easy to anticipate and that are invisible to policymakers and regulators. The OFR will continue to use its resources to track these potential risks and communicate them to other government agencies as they arise."
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds moved higher again over the past 30 days to a record $1.185 trillion, and yields also inched higher. Assets for USD, EUR and GBP MMFs all rose over the past month. Last month, European MMF assets broke above their previous record high of $1.101 trillion set in mid-December 2021, and they've now surpassed last month's record of $1.149 trillion. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $35.3 billion over the 30 days through 12/13. The totals are up $154.4 billion (15.0%) year-to-date. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. These funds are only available to qualified, non-U.S. investors.)
Offshore US Dollar money funds increased $10.3 billion over the last 30 days and are up $94.3 billion YTD to $643.9 billion. Euro funds increased E14.3 billion over the past month. YTD, they're up E42.7 billion to E223.0 billion. GBP money funds increased L7.6 billion over 30 days, and they're still down L23.5 billion YTD at L240.0B. U.S. Dollar (USD) money funds (209) account for over half (54.4%) of the "European" money fund total, while Euro (EUR) money funds (115) make up 20.2% and Pound Sterling (GBP) funds (139) total 25.5%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Thursday), below.
Offshore USD MMFs yield 5.32% (7-Day) on average (as of 12/13/23), unchanged from a month earlier. Yields averaged 4.20% on 12/30/22, 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 finally left negative yield territory in the second half of 2022 but they should remain flat until the ECB moves rates again. They're yielding 3.86% on average, up from 3.85% a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21, -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs broke the 5.0% barrier 5 months ago and now yield 5.24%, unchanged from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's December MFI International Portfolio Holdings, with data as of 11/30/23, show that European-domiciled US Dollar MMFs, on average, consist of 25% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 20% in Repo, 25% in Treasury securities, 13% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 42.8% of their portfolios maturing Overnight, 5.9% maturing in 2-7 Days, 8.8% maturing in 8-30 Days, 13.6% maturing in 31-60 Days, 9.2% maturing in 61-90 Days, 13.0% maturing in 91-180 Days and 6.7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.9%), France (11.5%), Canada (9.2%), Japan (8.2%), the U.K. (5.0%), Sweden (4.7%), the Netherlands (4.1%), Australia (3.0%), Germany (2.4%), and Belgium (2.1%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $171.8 billion (24.8% of total assets), Fixed Income Clearing Corp with $42.2B (6.1%), Credit Agricole with $22.7B (3.3%), Barclays with $20.8B (3.0%), Mizuho Corporate Bank Ltd with $18.4B (2.6%), RBC with $18.2B (2.6%), BNP Paribas with $17.4B (2.5%), JP Morgan with $14.0B (2.0%), Toronto-Dominion Bank with $13.4B (1.9%) and Bank of America with $13.2B (1.9%).
Euro MMFs tracked by Crane Data contain, on average 38% in CP, 21% in CDs, 21% in Other (primarily Time Deposits), 15% in Repo, 4% in Treasuries and 1% in Agency securities. EUR funds have on average 39.9% of their portfolios maturing Overnight, 7.3% maturing in 2-7 Days, 6.1% maturing in 8-30 Days, 18.6% maturing in 31-60 Days, 11.7% maturing in 61-90 Days, 9.6% maturing in 91-180 Days and 6.8% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.4%), Japan (13.1%), the U.S. (8.5%), Canada (6.9%), the U.K. (5.9%), Germany (5.2%), Austria (4.7%), Belgium (4.1%), the Netherlands (3.9%) and Sweden (3.5%).
The 10 Largest Issuers to "offshore" EUR money funds include: Republic of France with E14.7B (7.3%), Credit Agricole with E12.5B (6.2%), BNP Paribas with E9.6B (4.7%), Credit Mutuel with E8.0B (4.0%), Mitsubishi UFJ Financial Group Inc with E6.8B (3.4%), Erste Group Bank AG with E6.7B (3.3%), BPCE SA with E6.5B (3.2%), Societe Generale with E6.2B (3.1%), Mizuho Corporate Bank Ltd with E6.0B (3.0%), and DZ Bank AG with E5.2B (2.6%).
The GBP funds tracked by MFI International contain, on average (as of 11/30/23): 39% in CDs, 18% in CP, 22% in Other (Time Deposits), 17% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 34.1% of their portfolios maturing Overnight, 7.6% maturing in 2-7 Days, 4.0% maturing in 8-30 Days, 18.6% maturing in 31-60 Days, 13.5% maturing in 61-90 Days, 14.7% maturing in 91-180 Days and 7.5% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.8%), the U.K. (16.1%), Japan (16.0%), Canada (13.2%), the U.S. (7.6%), Australia (7.5%), the Netherlands (4.1%), Sweden (3.6%), Singapore (2.8%) and Spain (2.1%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L15.3B (7.5%), Toronto-Dominion Bank with L8.8B (4.3%), BNP Paribas with L8.3B (4.1%), Mitsubishi UFJ Financial Group Inc with L7.9B (3.9%), Mizuho Corporate Bank Ltd with L7.8B (3.9%), Sumitomo Mitsui Banking Corp with L6.7B (3.3%), Credit Agricole with L6.0B (3.0%), BPCE SA with L5.9B (2.9%), Sumitomo Mitsui Trust Bank with L5.9B (2.9%) and RBC with L5.6B (2.8%).
The December issue of our Bond Fund Intelligence, which will be sent to subscribers Thursday morning, features the stories, "Bond Funds See Huge Rally, But Short-Term Sees Outflows," which cites commentary on the recent bond market surge and "NY Fed Blogs on Bond Funds Following SVB Collapse; ICI," which explains how bond funds were affected by the market turmoil this past March. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in November while yields rose again. 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 "Bond Funds See Huge Rally" piece states, "After a brutal 2022 and a rough year-to-date in 2023, bond funds had their best month in history in November (at least since the launch of our Bond Fund Intelligence in 2015). Returns surged by 3.43% on average during the month, pushing 1-year returns solidly into the black for all categories of funds. But while markets have gone out of their mind for bonds of all stripes, investors still aren't showing much love to the short-term and ultra-short segments."
It continues: "Barron's article, 'Bonds Just Had Their Best Rally Since the 1980s. The Music’s About to Stop,' summarizes the huge about-face, saying, 'What a difference a month can make. Barron's Oct. 30 cover story declared flatly that it was 'Time to Buy Bonds' after a brutal decline in prices of fixed-income securities as the yield on the benchmark 10-year Treasury note touched 5%, nearly a two-decade high.'"
Our "NY Fed Blogs on Bond Funds" article states, "The Federal Reserve Bank of New York's 'Liberty Street Economics' features a piece entitled, 'Bond Funds in the Aftermath of SVB's Collapse.' They write, 'March 2023 will rightfully be remembered as a period of major turmoil for the U.S. banking industry. In this post, we go beyond banks to analyze how fixed-income, open-end funds (bond funds) fared in the days after the start of the banking crisis. We find that bond funds experienced net outflows each day for almost three weeks after the run on Silicon Valley Bank (SVB), and that these outflows were experienced diffusely across the entire segment. Our preliminary evidence suggests that the outflows from bond funds may have been an unintended consequence of the exceptional measures taken to strengthen the balance sheet of banks during this time.'"
It states: "The paper continues, 'The events of March 10, starting with the run on SVB's deposits and ending with SVB's failure and takeover by the FDIC, led to widespread turmoil in the banking industry. In response to the crisis, authorities acted swiftly by establishing the Bank Term Funding Program (BTFP) on Sunday, March 12, a measure that was designed to stave off further runs by bank depositors.'"
Our first News brief, "Returns Spike, Yields Fall in Nov.," states, "Bond fund returns had a huge monthly jump while yields fell last month. Our BFI Total Index increased 3.43% over 1-month and 3.78% over 12 months. The BFI 100 rose 3.67% in Nov. and 3.17% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.81% over 1-month and 5.34% for 1-year; Ultra-Shorts rose 0.81% and 5.50%. Short-Term rose 1.59% and 4.33%, and Intm-Term increased 4.01% in Nov. and 1.74% over 1-year. BFI's Long-Term Index rose 5.41% and 1.60%. High Yield jumped 3.37% in Nov. and is up 7.62% over 1-yr."
A second News brief, "WSJ's 'A New Era of Income Investing Is Turning Boomers Into Bond Buyers' explains, 'The recent surge in interest rates that sent bond yields near a 15-year high is the ‘single best economic and financial development in 20 years' for retirees, said Joe Davis, global chief economist at Vanguard. That shift is turning the stock-loving Woodstock generation into bond buyers. With current yields on 10-year U.S. Treasury notes at 4.23%, boomers, ages 59 to 77, have reason to move money into the more conservative investments. The Gen Xers behind them -- now around ages 43 to 58 -- are eyeing those moves, too. This moment presents new opportunities for investors in or near retirement to use bonds to reduce risk and generate steady income, financial advisers say.'"
Our next News brief, "John Hancock Bond Fund Turns 50," says, "A press release entitled, 'John Hancock Investment Management celebrates 50-year anniversary of Bond Fund,' explains, 'John Hancock Investment Management, a company of Manulife Investment Management, announced ... that John Hancock Bond Fund (JHBIX) has celebrated its 50-year anniversary.'"
A BFI sidebar, "Vanguard Core-Plus Bond ETF," says, "Barron's published, 'Vanguard Is Launching a New Bond Fund. It's Part of a Bigger Bet on Active ETFs.' It tells us, 'Vanguard is pushing deeper into active management with the launch today of its second active bond exchange-traded fund. A third will follow later this month. It's the latest sign of the growing popularity of ETFs as an alternative to mutual funds, where active managers have long held sway. It isn't hard to see why: Active bond ETFs offer investors access to pros who can pick investments across a universe of 65,000 fixed-income securities—and with a lower price tag.'"
Finally, another sidebar, "Barron's: High Rates to Stay," comments, "Barron's writes, 'Higher Interest Rates Are Here to Stay. What It Means for the Economy.' The article tell us, 'As Federal Reserve officials head into their final policy meeting of the year, on Dec. 12-13, both Wall Street and Main Street are fixated on the outlook for interest rates. With inflation falling steadily, how soon—and how aggressively—will the U.S. central bank cut rates in the coming year? ... The probable answer: below today's target range of 5.25%-5.50%, but higher than many economists and policy makers expected a year or two ago, and far higher than the near-zero rates of the past 15 years.'"
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Third Quarter 2023 edition shows that Total MMF Assets increased by $226 billion to $6.143 trillion in Q3'23. The Household Sector, by far the largest investor segment with $3.690 trillion, saw the biggest asset increase in Q3, followed by Nonfinancial Corporate Businesses. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also showed noticeable increases for the Other Financial Business (formerly Funding Corps), the Rest of World and the Private Pension Funds categories in Q3 2023. (Note: There's still time to register for our Money Fund University, which is Dec. 18-19, 2023 in Jersey City. We hope to see you next week!)
Rest of World, Private Pension Funds and State & Local Governments categories saw small asset increases in Q3. The Nonfinancial Noncorporate Business category was the only one to stay unchanged and the Property-Casualty Insurance, Mutual Funds, Life Insurance Companies, State and local govt. retirement funds and Exchange-traded funds categories saw assets decreases last quarter. Over the past 12 months, the Household Sector, Nonfinancial Corporate Business, Other Financial Business, Rest of World, State & Local Governments and Private Pension Funds categories showed the biggest asset increases, while Mutual Funds, Exchange-traded Funds and State and local govt. retirement funds saw the biggest asset decreases.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $226 billion, or 3.8%, in the third quarter to $6.143 trillion. The largest segment, the Household sector, totals $3.690 trillion, or 60.1% of assets. The Household Sector increased by $151 billion, or 4.3%, in the quarter. Over the past 12 months through September 30, 2023, Household assets were up $771 billion, or 26.4%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $882 billion, or 14.3% of the total. Assets here increased by $38 billion in the quarter, or 4.5%, and they've increased by $155 billion, or 21.3%, over the past year. Other Financial Business was the third-largest investor segment with $514 billion, or 8.4% of money fund shares. This category jumped $46 billion, or 9.7%, in the latest quarter. Other Financial Business, which we believe includes Securities Lending, has increased by $94 billion, or 22.5%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds held $237 billion (3.9%). Mutual Funds (a recent addition to the tables), was the 5th largest category with 3.6% of money fund assets ($219 billion); it was down by $9 billion (-4.0%) for the quarter and down $42 billion, or -16.1% over the last 12 months. The Rest of World remained sixth place in market share among investor segments with 3.5%, or $216 billion, while Nonfinancial Noncorporate Business held $139 billion (2.3%), Life Insurance Companies held $81 billion (1.3%), State & Local Governments held $78 billion (1.3%), Property-Casualty Insurance held $38 billion (0.8%), Exchange-traded Funds held $30 billion (0.5%), and State & Local Govt Retirement held $18 billion (0.3%) according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in “Security Repurchase Agreements” with $2.949 trillion, or 48.0% and "Debt Securities," or Credit Market Instruments, with $2.881 trillion, or 46.9% of the total. Debt securities includes: Open market paper ($293 billion, or 4.8%; we assume this is CP), Treasury securities ($1.767 trillion, or 28.8%), Agency and GSE-backed securities ($690 billion, or 11.2%), Municipal securities ($122 billion, or 2.0%) and Corporate and foreign bonds ($9 billion, or 0.1%).
Another large MMF position in the Fed's series includes `Time and savings deposits ($293 billion, or 4.8%). Money funds also hold minor positions in Miscellaneous assets ($9 billion, or 0.2%) and Foreign deposits ($11 billion, 0.2%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $44 billion.
During Q3, Debt Securities were up $489 billion. This subtotal included: Open Market Paper (up $30 billion), Treasury Securities (up $523 billion), Agency- and GSE-backed Securities (down $64 billion), Corporate and Foreign Bonds (down $1 billion) and Municipal Securities (up $1 billion). In the third quarter of 2023, Security Repurchase Agreements were down $284 billion, Foreign Deposits were up $8 billion, Time and Savings Deposits were up by $26 billion, and Miscellaneous Assets were down $13 billion.
Over the 12 months through 9/30/23, Debt Securities were up $768 billion, which included Open Market Paper (up $48B), Treasury Securities (up $511B), Agencies (up $198B), Municipal Securities (up $8B), and Corporate and Foreign Bonds (up $3B). Foreign Deposits (up $10 billion), Time and Savings Deposits were up $83B, Securities repurchase agreements were up $205 billion and Miscellaneous Assets were down $7B.
The L.121 table shows `Stable NAV money market funds with $5,498 billion, or 89.5% of the total (up $234.5 or 4.5% in Q3 and up $1.087 trillion or 24.6% over 1-year), and Floating NAV money market funds with $645 billion, or 10.5% (down $8.8B or -1.3% in Q3 and down $28B or -4.2% over 1-year). Government money market funds total $4.761 trillion, or 77.5% (up $164.5B or 3.6% in Q3 and up $750B or 18.7% over 1-year), Prime money market funds total $1.258 trillion, or 20.5% (up $59.9B or 5.0% in Q3 and up $292B or 30.3% over 1-year) and Tax-exempt money market funds $124B, or 2.0% (up $1.2B or 1.0% in Q3 and up $17B or 15.6% last year).
The Federal Reserve made changes to the Z.1 tables seven quarters ago. Describing a "Money market funds sector data source change," the report says, "The money market mutual funds (MMF) sector (tables F.121 and L.121) has been revised beginning 2010:Q4 to reflect a change in data source to Securities and Exchange Commission Form NMFP. The level of assets and shares outstanding of the sector have increased due to the inclusion of private placement MMFs in the source data. Changes in the level due to changes in the data source in 2010:Q4 are recorded as other volume changes in the Financial Accounts."
On "Mutual funds sector holdings of money market funds," Z.1 tells us, "The mutual funds sector (tables F.122 and L.122) has been revised beginning 2010:Q4 to reflect holdings of money market funds not previously reported on the tables. In addition, holdings of repurchase agreements, commercial paper, corporate bonds, and miscellaneous assets have been revised. Additional and revised holdings are estimated using data from Morningstar and Investment Company Institute.... The exchange-traded funds sector (tables F.124 and L.124) has been revised beginning 2010:Q4 to reflect holdings of money market funds not previously reported on the tables."
Crane Data's December Money Fund Portfolio Holdings, with data as of Nov. 30, 2023, show that Treasury holdings surged again in November while Repo fell. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $244.0 billion to $6.161 trillion, after decreasing $57.9 billion in October. Assets increased $56.1 in September, $106.7 billion in August and $78.3 billion in July. Repo fell again, dropping $20.3 billion, but it remains the largest portfolio segment. Treasuries jumped by over $250 billion, ranking in the No. 2 spot. The U.S. Treasury surpassed the Federal Reserve Bank of New York as the largest Issuer to MMFs three months ago. In November, U.S. Treasury holdings jumped to $2.179 trillion vs. the Fed RRP's $844.3 trillion (down $232.5 billion). 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. (Note: Register ASAP for our Money Fund University, Dec. 18-19 in Jersey City, New Jersey, at the Westin Jersey City Newport. Clients and friends are also welcome to crash Crane Data's Holiday Cocktail Party at MFU on 12/18 from 5-7:30pm!)
Among taxable money funds, Repurchase Agreements (repo) decreased $20.3 billion (-0.8%) to $2.572 trillion, or 41.7% of holdings, in November, after decreasing $329.2 billion in October, $84.0 billion in September and $96.8 billion in August. Treasury securities rose $250.1 billion (13.0%) to $2.179 trillion, or 35.4% of holdings, after increasing $178.1 billion in October, $164.9 billion in September and $163.3 billion in August. Government Agency Debt was up $4.4 billion, or 0.6%, to $716.0 billion, or 11.6% of holdings. Agencies increased $36.1 billion in October, decreased $8.3 billion in September and increased $16.4 billion in August. Repo, Treasuries and Agency holdings now total $5.466 trillion, representing a massive 88.7% of all taxable holdings.
Money fund holdings of CP and CDs increased in November while Time Deposits fell. Commercial Paper (CP) increased $5.5 billion (1.8%) to $306.3 billion, or 5.0% of holdings. CP holdings increased $17.6 billion in October, $3.0 billion in September and $4.8 billion in August. Certificates of Deposit (CDs) increased $6.9 billion (3.2%) to $221.1 billion, or 3.6% of taxable assets. CDs increased $11.2 billion in October, $0.5 billion in September and $14.4 billion in August. Other holdings, primarily Time Deposits, decreased $3.1 billion (-2.0%) to $156.1 billion, or 2.5% of holdings, after increasing $28.4 billion in October, decreasing $20.4 billion in September and increasing $4.3 billion in August. VRDNs rose to $11.0 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Tuesday around noon.)
Prime money fund assets tracked by Crane Data rose to $1.300 trillion, or 21.1% of taxable money funds' $6.161 trillion total. Among Prime money funds, CDs represent 17.0% (up from 16.9% a month ago), while Commercial Paper accounted for 23.6% (down from 23.8% in October). The CP totals are comprised of: Financial Company CP, which makes up 15.8% of total holdings, Asset-Backed CP, which accounts for 4.8%, and Non-Financial Company CP, which makes up 3.0%. Prime funds also hold 4.6% in US Govt Agency Debt, 8.9% in US Treasury Debt, 20.0% in US Treasury Repo, 0.3% in Other Instruments, 10.0% in Non-Negotiable Time Deposits, 5.3% in Other Repo, 8.1% in US Government Agency Repo and 0.6% in VRDNs.
Government money fund portfolios totaled $3.208 trillion (52.1% of all MMF assets), up from $3.065 trillion in October, while Treasury money fund assets totaled another $1.653 trillion (26.8%), up from $1.587 trillion the prior month. Government money fund portfolios were made up of 20.4% US Govt Agency Debt, 19.5% US Government Agency Repo, 28.7% US Treasury Debt, 31.2% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 69.1% US Treasury Debt and 30.8% in US Treasury Repo. Government and Treasury funds combined now total $4.861 trillion, or 78.9% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $44.7 billion in November to $737.4 billion; their share of holdings rose to 12.0% from last month's 11.7%. Eurozone-affiliated holdings increased to $479.6 billion from last month's $468.5 billion; they account for 7.8% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $299.3 billion (4.9% of the total) from last month's $270.3 billion. Americas related holdings rose to $5.116 trillion from last month's $4.946 trillion, and now represent 83.0% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $112.3 billion, or -6.0%, to $1.770 trillion, or 28.7% of assets); US Government Agency Repurchase Agreements (up $91.2 billion, or 14.2%, to $732.4 billion, or 11.9% of total holdings), and Other Repurchase Agreements (up $0.8 billion, or 1.1%, from last month to $69.1 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $10.6 billion to $204.9 billion, or 3.3% of assets), Asset Backed Commercial Paper (up $2.4 billion to $62.4 billion, or 1.0%), and Non-Financial Company Commercial Paper (down $7.5 billion to $39.0 billion, or 0.6%).
The 20 largest Issuers to taxable money market funds as of Nov. 30, 2023, include: the US Treasury ($2.179T, 35.4%), the Federal Reserve Bank of New York ($844.3B, or 13.7%), Federal Home Loan Bank ($580.0B, 9.4%), Fixed Income Clearing Corp ($416.1B, 6.8%), RBC ($182.0B, 3.0%), JP Morgan ($121.2B, 2.0%), BNP Paribas ($117.4B, 1.9%), Barclays PLC ($115.6B, 1.9%), Federal Farm Credit Bank ($114.1B, 1.9%), Citi ($113.3B, 1.8%), Bank of America ($112.5B, 1.8%), Goldman Sachs ($106.4B, 1.7%), Wells Fargo ($64.5B, 1.0%), Mitsubishi UFJ Financial Group Inc ($64.3B, 1.0%), Credit Agricole ($62.0B, 1.0%), Sumitomo Mitsui Banking Corp ($59.6B, 1.0%), Mizuho Corporate Bank Ltd ($48.2B, 0.8%), Bank of Montreal ($45.9B, 0.7%), Canadian Imperial Bank of Commerce ($42.0B, 0.7%), and Toronto-Dominion Bank ($38.6B, 0.6%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($844.3B, 32.8%), Fixed Income Clearing Corp ($416.1B, 16.2%), RBC ($152.0B, 5.9%), JP Morgan ($110.3B, 4.3%), Goldman Sachs ($105.4B, 4.1%), BNP Paribas ($104.9B, 4.1%), Citi ($97.5B, 3.8%), Barclays PLC ($97.0B, 3.8%), Bank of America ($90.3B, 3.5%) and Wells Fargo ($53.4B, 2.1%). The largest users of the $844.3 billion in Fed RRP include: Vanguard Federal Money Mkt Fund ($71.3B), JPMorgan US Govt MM ($48.4B), Fidelity Govt Money Market ($41.0B), Fidelity Cash Central Fund ($38.8B), Schwab Treasury Oblig MF ($36.9B), Goldman Sachs FS Govt ($31.6B), Schwab Value Adv MF ($30.1B), Fidelity Govt Cash Reserves ($29.0B), Fidelity Inv MM: Govt Port ($29.0B) and Fidelity Inv MM: MM Port ($28.2B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($31.8B, 5.2%), RBC ($30.0B, 4.9%), Bank of Montreal ($23.6B, 3.9%), Credit Agricole ($23.5B, 3.9%), Bank of America ($22.3B, 3.7%), Australia & New Zealand Banking Group Ltd ($22.0B, 3.6%), Mitsubishi UFJ Financial Group Inc ($20.4B, 3.3%), Skandinaviska Enskilda Banken AB ($18.9B, 3.1%), Sumitomo Mitsui Trust Bank ($18.8B, 3.1%) and Barclays PLC ($18.5B, 3.0%).
The 10 largest CD issuers include: Bank of America ($17.5B, 7.9%), Sumitomo Mitsui Banking Corp ($15.7B, 7.1%), Mitsubishi UFJ Trust and Banking Corporation ($14.5B, 6.6%), Mizuho Corporate Bank Ltd ($13.0B, 5.9%), Credit Agricole ($12.6B, 5.7%), Mitsubishi UFJ Financial Group Inc ($12.5B, 5.7%), Toronto-Dominion Bank ($11.9B, 5.4%), Sumitomo Mitsui Trust Bank ($11.7B, 5.3%), Wells Fargo ($11.1B, 5.0%), and Citi ($9.5B, 4.3%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($19.7B, 7.4%), Bank of Montreal ($16.8B, 6.3%), BPCE SA ($12.3B, 4.6%), Barclays PLC ($11.7B, 4.4%), JP Morgan ($10.9B, 4.1%), UBS AG ($10.3B, 3.9%), National Bank of Canada ($9.4B, 3.5%), Bank of Nova Scotia ($8.8B, 3.3%), Mitsubishi UFJ Financial Group Inc ($7.9B, 2.9%) and Skandinaviska Enskilda Banken AB ($7.5B, 2.8%).
The largest increases among Issuers include: US Treasury (up $249.7B to $2.179T), Fixed Income Clearing Corp (up $47.8B to $416.1B), RBC (up $43.7B to $182.0B), Goldman Sachs (up $43.2B to $106.4B), Barclays PLC (up $29.3B to $115.6B), BNP Paribas (up $16.1B to $117.4B), JP Morgan (up $10.4B to $121.2B), Sumitomo Mitsui Banking Corp (up $9.3B to $59.6B), Federal Farm Credit Bank (up $7.1B to $114.1B) and Nomura (up $5.6B to $38.6B).
The largest decreases among Issuers of money market securities (including Repo) in November were shown by: Federal Reserve Bank of New York (down $232.5B to $844.3B), Federal Home Loan Bank (down $5.3B to $580.0B), ING Bank (down $4.8B to $37.8B), Credit Agricole (down $3.6B to $62.0B), Societe Generale (down $3.5B to $38.2B), Toronto-Dominion Bank (down $2.4B to $38.6B), Swedbank AB (down $1.7B to $9.6B), ABN Amro Bank (down $1.2B to $14.2B), Banco Santander (down $0.8B to $19.7B) and Citi (down $0.7B to $113.3B).
The United States remained the largest segment of country-affiliations; it represents 77.2% of holdings, or $4.757 trillion. Canada (5.8%, $358.1B) was in second place, while France (4.5%, $277.4B) was No. 3. Japan (4.4%, $272.9B) occupied fourth place. The United Kingdom (3.0%, $185.6B) remained in fifth place. Netherlands (1.1%, $68.7B) was in sixth place, followed by Germany (1.1%, $65.5B), Sweden (0.8%, $50.2B), Australia (0.7%, $45.7B), and Spain (0.3%, $19.7B). (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 Nov. 30, 2023, Taxable money funds held 49.3% (down from 54.4%) of their assets in securities maturing Overnight, and another 10.8% maturing in 2-7 days (up from 9.9%). Thus, 60.1% in total matures in 1-7 days. Another 10.1% matures in 8-30 days, while 9.4% matures in 31-60 days. Note that over three-quarters, or 79.7% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 6.9% of taxable securities, while 9.7% matures in 91-180 days, and just 3.7% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Monday, and we'll be writing our regular monthly update on the new November 30 data for Tuesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Friday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Nov. 30, includes holdings information from 973 money funds (up 15 from last month), representing assets of $6.353 trillion (up from $6.119 trillion). Prime MMFs now total $1.314 trillion, or 20.7% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses flat and money fund revenues seeing a rebound in November. (Reminder: Last chance to register for our Money Fund University next week, Dec. 18-19 in Jersey City, New Jersey!)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $2.592 trillion (down from $2.627 trillion), or 40.8% of all assets. Treasury holdings totaled $2.198 trillion (up from $1.947 billion), or 34.6% of all holdings, and Government Agency securities totaled $731.1 billion (up from $725.0 billion), or 11.5%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.522 trillion, or a massive 86.9% of all holdings.
Commercial paper (CP) totals $316.6 billion (up from $309.6 billion), or 5.0% of all holdings, and the Other category (primarily Time Deposits) totals $167.0 billion (down from $169.1 billion), or 2.6%. Certificates of Deposit (CDs) total $221.2 billion (up from $214.4 billion), 3.5%, and VRDNs account for $126.4 billion (down from $126.6 billion last month), or 2.0% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $206.2 billion, or 3.2%, in Financial Company Commercial Paper; $63.0 billion or 1.0%, in Asset Backed Commercial Paper; and, $47.3 billion, or 0.7%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.798 trillion, or 28.3%), U.S. Govt Agency Repo ($718.4B, or 11.3%) and Other Repo ($75.8B, or 1.2%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $309.5 billion (up from $303.0 billion), or 23.6%; Repo holdings of $437.6 billion (up from $429.6 billion), or 33.3%; Treasury holdings of $120.3 billion (up from $104.8 billion), or 9.2%; CD holdings of $221.2 billion (up from $214.4 billion), or 16.8%; Other (primarily Time Deposits) holdings of $154.7 billion (down from $158.5 billion), or 11.8%; Government Agency holdings of $61.9 billion (up from $59.8 billion), or 4.7% and VRDN holdings of $8.6 billion (up from $8.1 billion), or 0.7%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $206.2 billion (up from $195.1 billion), or 15.7%, in Financial Company Commercial Paper; $63.0 billion (up from $60.1 billion), or 4.8%, in Asset Backed Commercial Paper; and $40.3 billion (down from $47.7 billion), or 3.1%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($262.5 billion, or 20.0%), U.S. Govt Agency Repo ($105.8 billion, or 8.1%), and Other Repo ($69.3 billion, or 5.3%).
In related news, money fund charged expense ratios (Exp%) were flat in November. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.37%, respectively, as of Nov. 30, 2023. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Friday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout, then.) 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 0.26%, unchanged from last month's level (but 18 bps higher than 12/31/21's 0.08%). The average is now back around the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (though they are waiving a minimal amount of fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.37% as of Nov. 30, 2023, unchanged from the month prior and slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.28% (unchanged from last month), Government Inst MFs expenses average 0.27% (unchanged from last month), Treasury Inst MFs expenses average 0.29% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.52%, (unchanged from last month), Government Retail MFs expenses yield 0.54% (unchanged from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were also unchanged at 0.40% on average.
Gross 7-day yields were mostly higher during the month ended Nov. 30, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 754), shows a 7-day gross yield of 5.46%, up 1 bp from the prior month. The Crane Money Fund Average was 1.72% at the end of 2019, 0.15% at the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was unchanged, ending the month at 5.46%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $16.600 billion (as of 11/30/23). Our estimated annualized revenue totals increased from $15.892B last month and are up from the previous record of $16.020B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their climb higher as money funds continue to see inflows in the last month of the year.
Crane Data's latest monthly Money Fund Market Share rankings show assets jumped among almost all of the largest U.S. money fund complexes in November, after experiencing their first decline in 12 months in the month of October. Money market fund assets rose by $219.7 billion, or 3.6%, last month to a record $6.280 trillion. Total MMF assets have increased by $263.2 billion, or 4.4%, over the past 3 months, and they've increased by $1.167 trillion, or 22.8%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by JPMorgan, Fidelity, BlackRock, SSGA and Goldman Sachs, which grew assets by $48.2 billion, $26.6B, $19.9B, $18.1B and $18.1B, respectively. Declines in November were seen by RBC and American Funds, which decreased by $2.6 billion and $2.3B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which inched higher in November. (Note: Last call to register for our Money Fund University, which is Dec. 18-19 in Jersey City, New Jersey, at the Westin Jersey City Newport. Clients and friends are also welcome to stop by Crane Data's Holiday Cocktail Party at MFU on 12/18 from 5-7:30pm!)
Over the past year through Nov. 30, 2023, Fidelity (up $277.0B, or 29.0%), JPMorgan (up $251.4B, or 61.9%), Schwab (up $217.7B, or 86.7%), Vanguard (up $99.0B, or 21.9%) and Federated Hermes (up $88.4B, or 26.2%) were the `largest gainers. Fidelity, JPMorgan, Schwab, SSGA and Vanguard had the largest asset increases over the past 3 months, rising by $69.3B, $51.8B, $47.7B, $25.1B and $19.8B, respectively. The largest declines over 12 months were seen by: American Funds (down $35.0B), HSBC (down $13.8B), Goldman Sachs (down $7.3B), Western (down $3.0B), and DFA (down $2.0B). The largest declines over 3 months included: American Funds (down $4.5B), Morgan Stanley (down $4.4B) and Invesco (down $2.8B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.231 trillion, or 19.6% of all assets. Fidelity was up $26.6B in November, up $69.3 billion over 3 mos., and up $277.0B over 12 months. JPMorgan ranked second with $658.0 billion, or 10.5% market share (up $48.2B, up $51.8B and up $251.4B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $551.2 billion, or 8.8% of assets (up $11.0B, up $19.8B and up $99.0B). BlackRock ranked fourth with $500.9 billion, or 8.0% market share (up $19.9B, up $5.4B and up $38.5B), while Schwab was the fifth largest MMF manager with $468.7 billion, or 7.5% of assets (up $13.6B, up $47.7B and up $217.7B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $426.1 billion, or 6.8% (up $3.7B, up $14.7B and up $88.4B), while Goldman Sachs was in seventh place with $424.1 billion, or 6.8% of assets (up $18.1B, up $2.7B and down $7.3B). Dreyfus ($261.3B, or 4.2%) was in eighth place (up $12.0B, up $1.3B and up $21.0B), followed by Morgan Stanley ($252.2B, or 4.0%; up $4.8B, down $4.4B and up $7.9B). SSGA was in 10th place ($213.3B, or 3.4%; up $18.1B, up $25.1B and up $55.2B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($204.9B, or 3.3%), American Funds ($172.3B, or 2.7%), Northern ($154.5B, or 2.5%), Invesco ($147.4B, or 2.3%), First American ($139.2B, or 2.2%), UBS ($96.0B, or 1.5%), HSBC ($50.8B, or 0.8%), T. Rowe Price ($50.6B, or 0.8%), DWS ($43.2B, or 0.7%) and Western ($28.9B, or 0.5%). Crane Data currently tracks 60 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: BlackRock moves up to the No. 3 spot, Goldman Sachs moves up to No. 4 and Vanguard moves down to the No. 5 spot. Schwab moves down to the No. 6 spot, while Federated Hermes moves down to the No. 7 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 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 ($1.242 trillion), JP Morgan ($890.3B), BlackRock ($745.3B), Goldman Sachs ($568.2B) and Vanguard ($551.2B). Schwab ($468.7B) was in sixth, Federated Hermes ($437.9B) was seventh, followed by Morgan Stanley ($334.3B), Dreyfus/BNY Mellon ($281.2B) and SSGA ($258.5B), 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 December issue of our Money Fund Intelligence and MFI XLS, with data as of 11/30/23, shows that yields increased again in November across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 754), rose to 5.09% (up 1 bp) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 5.08% (up 1 bp). The MFA's Gross 7-Day Yield was at 5.35% (unchanged), and the Gross 30-Day Yield also moved up to 5.35% (up 1 bp). (Gross yields will be revised Friday at noon, though, once we download the SEC's Form N-MFP data for 11/30/23.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 5.20% (up 1 bp) and an average 30-Day Yield at 5.19% (up 1 bp). The Crane 100 shows a Gross 7-Day Yield of 5.27% (up 1 bp), and a Gross 30-Day Yield of 5.26% (up 1 bp). Our Prime Institutional MF Index (7-day) yielded 5.28% (up 1 bp) as of Nov. 30. The Crane Govt Inst Index was at 5.15% (up 1 bp) and the Treasury Inst Index was at 5.14% (unchanged). Thus, the spread between Prime funds and Treasury funds is 14 basis points, and the spread between Prime funds and Govt funds is 13 basis points. The Crane Prime Retail Index yielded 5.11% (up 2 bps), while the Govt Retail Index was 4.88% (up 1 bp), the Treasury Retail Index was 4.91% (up 1 bp from the month prior). The Crane Tax Exempt MF Index yielded 3.10% (down 49 bps) as of November.
Gross 7-Day Yields for these indexes to end November were: Prime Inst 5.45% (up 1 bp), Govt Inst 5.36% (down 2 bps), Treasury Inst 5.37% (unchanged), Prime Retail 5.41% (up 1 bp), Govt Retail 5.33% (up 1 bp) and Treasury Retail 5.14% (unchanged). The Crane Tax Exempt Index fell to 3.50% (down 49 bps). The Crane 100 MF Index returned on average 0.43% over 1-month, 1.29% over 3-months, 4.45% YTD, 4.80% over the past 1-year, 1.96% over 3-years (annualized), 1.70% over 5-years, and 1.10% over 10-years.
The total number of funds, including taxable and tax-exempt, was up 2 in November to 883. There are currently 754 taxable funds, up 2 from the previous month, and 129 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 December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Thursday morning, features the articles: "Top 10 Stories of 2023: Assets Surge $1T to $6.2T; Yields 5%," which reviews the biggest news stories of 2023; "J.P. Morgan's 2024 Outlook: Cash to Remain Attractive," which covers JPM’s expectations for the year to come; and, "CFTC Proposal Allows Only Govt MMFs for Collateral," which reviews the potential changes to investments by FCMs. We also sent out our MFI XLS spreadsheet Thursday a.m., and we've updated our Money Fund Wisdom database with 11/30/23 data. Our December Money Fund Portfolio Holdings are scheduled to ship on Monday, December 11, and our December Bond Fund Intelligence is scheduled to go out on Thursday, December 14. (Note: Register ASAP for our Money Fund University, Dec. 18-19 in Jersey City, New Jersey, at the Westin Jersey City Newport. Clients and friends are also welcome to stop by Crane Data's Holiday Cocktail Party at MFU on 12/18 from 5-7:30pm!)
MFI's "Top 10 Stories of 2023: Assets Surge $1T to $6.2T; Yields 5%" article says, "Money fund assets soaring $1.1 trillion to a record $6.2 trillion was the biggest story of the year in 2023. With 3 weeks still to go, money funds will likely show the biggest annual increase in their 50+ year history. Last year, rising yields were the big news, and yields continuing to climb and breaking 5% was also major this year. Other top stories of 2023 included: the long-awaited passage of the SEC's Money Fund Reform Proposal, the continued growth of Social MMFs and the increase in yields in European and worldwide markets. Below, we excerpt from a number of these to highlight the major trends of the past year."
It continues, "Crane Data's Top 10 Stories of 2023 include: 'Schwab's Crawford Comments on Cash Sorting, Purchase Money Funds' (2/2/23); 'FT on Cash Pouring Into MMFs; MFs Record $5.4T; $9.2 Trillion Uninsured' (3/20/23); 'Fed Hikes Rates 10th Time to 5.0-5.25%' (5/4/23); 'SEC's Money Market Fund Reforms: Swing Pricing Out, More Liquidity In' (7/14/23); 'Money Fund Assets Resume Record Run, Up 20% in 12 Months; Repo Dip' (7/28/23); 'Crane 100 Money Fund Index Breaks 5.0%; WSJ on MF Reforms' (8/1/23); 'European Money Fund Assets Hit Record E1.5 Trillion; Yields Hit 5.15%' (8/22/23); 'Fund Companies Prep for Liquidity Fees Via Filings, Discretionary Fees' (10/26/23); 'HSBC Launches 'P' Purpose Share Class; Cavu Paper on DEI Money Funds' (11/2/23); and, 'Money Fund Assets Hit Record $6.2 Trillion' (11/29/23).
We write in our 2024 Outlook article, "J.P. Morgan published its 'Short-Term Fixed Income 2024 Outlook' last week, which is entitled, 'More of more and less of less.' Authors Teresa Ho, Pankaj Vohra and Holly Cunningham tell us, 'In contrast to the long end of the Treasury curve, it was a remarkably stable year in the money markets. Despite the regional banking crisis, massive T-bill issuance, finalization of MMF reform, all the while with QT going on in the background, spreads in the money markets traded mostly in a narrow range. That stability underscored the abundance of liquidity still in the financial system, most of which seemed to be sitting in the very front end. Indeed, MMF AUMs grew by nearly $1tn this year, with balances currently registering $6tn, as investors could not ignore the 5% yield on an overnight asset, a dynamic we haven't seen since 2007.'"
It tells us, "They continue, 'To be sure, markets have made use of that liquidity, as Fed ON RRP balances declined by a substantial $1.3tn. It helped too that the Fed was nearing the end of its tightening cycle, giving MMFs a reason to rotate out of the facility and into T-bills. As of the time of writing, usage at the Fed ON RRP has fallen below $1tn.'"
Our "CFTC" piece states, "A release entitled, 'CFTC Seeks Public Comment on a Proposal on Investment of Customer Funds' tells us, 'The Commodity Futures Trading Commission ... issued, for public comment, a proposed rule on the Investment of Customer Funds by Futures Commission Merchants and Derivatives Clearing Organizations. The proposal would amend the Commission's regulations governing the safeguarding and investment by futures commission merchants (FCMs) and derivatives clearing organizations of funds held for the benefit of customers engaging in futures, foreign futures, and cleared swaps transactions. The proposed amendments would specifically revise the list of permitted investments in Regulation 1.25 and introduce certain related changes and specifications."
It continues, "The 'Fact Sheet and Q&A' explain, 'Commission Regulation 1.25 permits FCMs to invest funds deposited by customers to margin futures, foreign futures, and cleared swap transactions ('Customer Funds') in specified categories of investments. Regulation 1.25 further permits DCOs to invest Customer Funds that FCMs post with the DCOs as margin for their customers' positions in the same specified categories of investments. Regulation 1.25(a)(1) currently lists seven specific investments that FCMs and DCOs may enter into with Customer Funds: (i) obligations of the U.S. and obligations fully guaranteed as to principal and interest by the U.S.; (ii) general obligations of any State or political subdivision; (iii) obligations of any U.S. government corporation or enterprise sponsored by the U.S.; (iv) certificates of deposit issued by a bank; (v) commercial paper fully guaranteed by the U.S. under the TLGP as administered by the FDIC; (vi) corporate notes and bonds fully guaranteed as to principal and interest by the U.S. under the TLGP; and (vii) interests in money market funds ('MMF').'"
MFI also includes the News brief, "MMMF Assets Surge in November," which says, "Our MFI XLS shows assets jumping $219.8 billion, or 3.6%, to a record $6.281 trillion. YTD, MMFs are up over $1.1 trillion (21.5%) with Taxable Retail MMFs up $557.0 (34.1%) and Taxable Inst MMFs up $544.1 (15.9%). Over 12 months, MMFs are up a massive $1.168 trillion, or 22.8%. Assets continue surging higher in December too, rising by $29.6 billion in the first 5 days of Dec., according to MFI Daily. (We should break the $6.3 trillion level this week.)"
Another News brief, "Money Fund Yields Inch Up to 5.20%," explains, "Yields rose by another basis point in the month ended 11/30 to 5.20%, as measured by our Crane 100, an average of 7-day yields for the 100 largest taxable money funds."
A third News brief, "Nov. Portfolio Holdings: Treasuries Continue Surge; Repos, Assets Slide," says, "Our latest Money Fund Portfolio Holdings show that Treasury holdings surged in October while Repo fell. Repo declined $329.2 billion but remains the largest portfolio segment. Treasuries jumped by over $175 billion, ranking in the No. 2 spot. In October, U.S. Treasury holdings jumped to $1.929 trillion vs. the Fed RRP's $1.077 trillion (down $400.8 billion). Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs."
A sidebar, "SSGA Reviews RRP Impact," says, "State Street Global Advisors' recent 'Monthly Cash Review,' tells us, 'As 'higher for longer' starts to bite the economy, we are keeping a close eye on the Fed's Reverse Repo Program (RRP), which is the best example of excess liquidity. The US Federal Reserve (Fed) must 'drain' this liquidity in order to keep market rates in line with its policy rate range.... This outcome was expected -- real yields and term premiums have done much of the work for the Fed (although it cautioned that it was too soon to tell if this was having an impact on economic growth and inflation).'"
Our December MFI XLS, with November 30 data, shows total assets increased $219.8 billion to $6.281 trillion, after decreasing $39.3 billion in October, increasing $77.8 billion in September, $104.2 billion in August, $21.0 billion in July, $20.3 billion in June, $152.7 billion in May, $56.5 billion in April, $345.1 billion in March, $56.0 billion in February, $22.5 billion in January and $70.2 billion in December."
Our broad Crane Money Fund Average 7-Day Yield was up 1 bp to 5.09%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 1 bp to 5.20% in November. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 5.35% and 5.27%, respectively. Charged Expenses averaged 0.37% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Friday once we upload the SEC's Form N-MFP data for 11/30/23.) The average WAM (weighted average maturity) for the Crane MFA was 34 days (up 3 days from previous month) and the Crane 100 WAM was also up 5 at 35 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Public Funds Investment Institute recently posted an update entitled, "A New LGIP in Georgia." Subtitled, "Georgia Will Roll Out a Prime LGIP Portfolio," it says, "The Georgia Treasurer is rolling out a new LGIP for local governments that will include credit-backed money market securities in its portfolio with the objective of producing a higher yield than its existing government portfolio (Georgia Fund 1). The offering, Georgia Fund 1 Prime, has a couple of unusual dimensions: A depositor representative of a local government must undergo mandatory training before investing funds in the prime pool; and, It is part of a program that will offer both government and prime fund options."
They state, "Georgia Fund 1 Prime is set to open December 4. It will be managed as a stable net asset fund with 30% invested in credit instruments (high grade commercial paper, corporate obligations, and negotiable certificates of deposit) and the balance in government obligations (including repurchase agreements). State Treasury staff expect the new portfolio will offer an enhanced yield as compensation for the risk associated with investing in credit-backed instruments. Risk management elements include limiting the maximum weighted average maturity of the new fund to 60 days, limiting credit exposure to 30% of its assets, and employing an external investment manager. The new portfolio is expected to maintain a rating of AAAmmf from Fitch Ratings."
The piece continues, "Federated Hermes will manage the new fund with oversight by the State Treasurer. The existing Georgia Fund 1 is managed internally. Treasury decided to use an external manager to bring extensive credit review/management resources to supplement the smaller, internal staff that manage and administer the government-oriented fund. The new portfolio will operate with an expense ratio of 5.5 basis points (the same as the existing portfolio). Treasury staff that conducted an RFP for the external manager were 'surprised at how aggressive the bids were.'"
It says, "State Treasurer Steve McCoy is a long-time advocate of investment training. Before investing funds in the new offering, at least one depositor representative of a local government will have to undergo training on investment risks and operations. The mandatory two-hour training as a pre-requisite for using the new fund is unusual and may be unique in the LGIP space. The training will be split between risk/liquidity issues and operations issues (Federated will provide client service and operations for the new portfolio, while the State Treasury provides these services for Georgia Fund 1)."
Author Marty Margolis explains, "The Georgia Treasury currently has three pooled programs, including two with credit-based investments, but until now local governments were permitted only to invest in the government-oriented Georgia Fund 1 portfolio. As of June 30, 2023, Georgia Fund 1 had assets of $30.7 billion, with about 10% in bank demand deposits and the balance in government obligations. About 58% of its assets were local government assets; the balance was state and state agency funds."
He adds, "LGIPs that offer both a government and a prime series are unusual, but not unheard of. Most sponsors apply a single investment policy to their portfolios. But TexPool, the State's $42 billion LGIP, Texas CLASS, a $23 billion pool, Colotrust, a $14 billion LGIP in Colorado, and Pennsylvania's $11 billion PLGIT, offer both government and prime options."
For more on LGIPs, or Local Government Investment Pools, see these Crane Data News stories: "LGIP Assets Lower in Q3 Says Fitch" (12/1/23); "S&P Global Updates on US MMFs, European MMFS, LGIPs Show Cash Is Hot" (8/4/23); and, "Federated Hermes Talks Record Assets, LGIPs, ETFs and More on Q1 Call" (5/1/23).
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 December 1) includes Holdings information from 53 money funds (down 21 from a week ago), or $2.527 trillion (down from $3.012 trillion) of the $6.253 trillion in total money fund assets (or 40.4%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.051 trillion (down from $1.242 trillion a week ago), or 41.6%; Treasuries totaling $993.9 billion (down from $1.147 trillion a week ago), or 39.3%, and Government Agency securities totaling $243.1 billion (down from $290.8 billion), or 9.6%. Commercial Paper (CP) totaled $84.8 billion (down from a week ago at $108.6 billion), or 3.4%. Certificates of Deposit (CDs) totaled $68.7 billion (down from $90.8 billion a week ago), or 2.7%. The Other category accounted for $58.6 billion or 2.3%, while VRDNs accounted for $26.8 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $993.9 billion (39.3% of total holdings), the Federal Reserve Bank of New York with $248.1 billion (9.8%), Fixed Income Clearing Corp with $217.6B (8.6%), Federal Home Loan Bank with $185.5B (7.3%), RBC with $58.7B (2.3%), JP Morgan with $50.0B (2.0%), Goldman Sachs with $48.7B (1.9%), Federal Farm Credit Bank with $48.5B (1.9%), BNP Paribas with $42.9B (1.7%) and Citi with $42.7B (1.7%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($268.9B), Goldman Sachs FS Govt ($249.4B), Fidelity Inv MM: Govt Port ($187.2B), JPMorgan 100% US Treas MMkt ($177.9B), Morgan Stanley Inst Liq Govt ($144.3B), State Street Inst US Govt ($128.0B), Allspring Govt MM ($122.5B), Fidelity Inv MM: MM Port ($119.4B), Dreyfus Govt Cash Mgmt ($103.9B) and Goldman Sachs FS Treas Instruments ($85.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
The Financial Times featured the article, "Gush of cash into money market funds tipped to continue in 2024," which tells us, "Money market fund managers see no end in sight to the record inflows they have garnered in 2023, as cash continues to pour in from investors hoping to take advantage of the highest yields available in years. Almost $1.19tn has flooded into US money market funds since January 1, according to flow tracker EPFR, fueled by the Federal Reserve's aggressive campaign of interest rate rises. That is a far cry from negligible inflows in 2022 and well above the average full-year net inflow figure of $179bn for 2012-2022." (Note: Register ASAP for our Money Fund University, Dec. 18-19 in Jersey City, New Jersey, at the Westin Jersey City Newport. Clients and friends are also welcome to stop by Crane Data's Holiday Cocktail Party at MFU on 12/18 from 5-7:30pm!)
The piece explains, "More than $257bn poured in between October 31 and November 30 alone, according to the latest available data -- the biggest monthly inflow since banking ructions in March sparked a flight from ordinary deposit accounts. Those inflows have persisted even as markets are pricing in bets that the Fed will not raise interest rates again this cycle, and will cut borrowing costs as soon as the spring."
The FT says, "Money market fund assets hit an all-time high of $5.8tn last week (Nov 29), as investors continue to harbour doubts about long dated debt. Now, major fund houses including Goldman Sachs and Federated Hermes are predicting that the torrent will carry through to 2024, fueled by institutional investors trying to lock in returns as interest rates stabilise, and before the Fed starts to cut."
They quote Federated Hermes' CEO Chris Donahue, "I'm not looking at a big spring back.... It's more likely they're going to get another trillion in than there's going to [be] a trillion out. If we're right that these rates are going to be here longer term, and that is the way it's going to be for a while ... then you're going to get paid for being in the money fund."
The article continues, "Much of this year's cascade into money market funds in the US has been driven by retail investors rather than corporate treasurers, mutual funds and insurance companies. The latter typically invests directly in Treasury bills and other short-dated debt instruments as interest rates are on the way up, because they can capture the rise in yields more immediately. But that changes, 'once the Fed stops and goes on a pause, and that interest rate has levelled out ... then institutional investors are attracted to money market funds, because they do have the same yield as the underlying short-term instruments [and] they offer a lot of diversification for institutional investors,' said Shelly Antoniewicz, ICI's deputy chief economist."
It also quotes Shaun Cullinan, global head of liquidity solutions at Goldman Sachs, "You typically find that as the easing cycle begins ... it's very likely that the yield on money market funds will exceed the yield on the direct market investments.... You can see institutional investors pivoting into funds to achieve that higher return, because those funds have some embedded duration in them."
The FT adds, "Cullinan said that 'the trillion that came in this year was surprising -- so we could certainly be surprised again next year.' While the Fed has not suggested it intends to cut interest rates anytime soon, slowing inflation and some signs of weaker economic data have prompted investors to bet on declines early next year. But those bets have been shifting rapidly as traders weigh the Fed's official commentary with hints of cooling off elsewhere in the economy. For Cullinan, the amount of cash that pours into money market funds 'depends on the pace of the easing cycle.'"
In other news, the Bank of England recently posted a speech, "Going with the flow: how liquidity risks have evolved in the higher rate environment − remarks by Dave Ramsden," which was, "Given at the European Systemic Risk Board annual conference." It summarizes, "Dave Ramsden considers the question: What are the implications of the end of the low interest environment for liquidity risk and what are the macroprudential policy options? These remarks provide insights into how liquidity risks have evolved and consider how policymakers can best identify and respond to these risks."
Ramsden states, "I want to focus my remarks today is the conjunction of structural changes, liquidity and interest rate risk. Recent events have revealed that shocks can uncover vulnerabilities, exacerbating rapid or sharp moves in market interest rates -- independent of the impact of monetary policy -- leading to additional liquidity stress in the financial system, harming the functioning of core markets. As I will go on to describe, there is ongoing work at central banks to address the vulnerabilities that these events revealed. At the Bank of England, we are leading or supporting a range of work both nationally and internationally to strengthen resilience in non-bank market participants and infrastructure. In addition, we are developing new backstop facilities to tackle severe instances of dysfunction that threaten UK financial stability, including through lending to eligible Non-Bank Financial Institutions (NBFIs) in exceptional circumstances. In that sense we at the Bank of England are going with the flow of market conditions but it is very important that in doing so we don't in some sense determine the flow."
He says, "Financial institutions often manage their interest rate risk via interest rate derivatives or repos. The widespread use of derivatives and repos as part of financial institutions' interest rate risk hedging strategies mitigates idiosyncratic risks from changes in interest rates but creates liquidity risks to manage. In particular, it creates exposure to liquidity risk via margin or collateral calls when asset prices move. In normal market conditions, these risks are smaller and easier to manage. But in volatile conditions, the vulnerability can be exposed, often materialising through mismatches in liquidity supply and demand, causing sharp price adjustments and further negative feedback loops."
Ramsden tells us, "This was seen in UK liability-driven investment (LDI) funds in autumn 2022. Following a very sharp fall in gilt prices, levered LDI funds saw falling net asset values and faced liquidity pressures from large collateral and margin calls. To stem the fall in their asset values and meet these margin calls, some funds delevered by selling, or preparing to sell, their gilts. This put further downward pressure on gilt prices and began a self-reinforcing spiral posing a material financial stability risk. It was to avert this systemic risk crystalising that the Bank of England intervened, through the use of a temporary and targeted buy/sell operation to ensure LDI funds and their pension fund investors had time to place themselves on a firmer footing."
He continues, "The 'dash for cash' in March 2020 provided another clear example. A range of financial institutions, and in particular non-banks, sought to raise cash by selling bonds during that period. In that context of an already volatile and illiquid market, hedge funds with leveraged positions in US Treasury cash-futures basis trades closed out their positions, amplifying the moves. There has been a lot of focus on the renewed growth in hedge fund short positioning in US Treasury futures over the course of this year."
Ramsden adds, "Some NBFI business models incorporate inherent maturity and liquidity mismatches, which can arise when assets are less liquid or longer dated than liabilities. These mismatches expose weaknesses in liquidity risk management and could, for example, lead to firms requiring additional cash to meet liquidity shortfalls, forcing them to liquidate assets rapidly and putting further pressure on asset prices. Accordingly, the Bank of England is working to develop a lending tool for NBFIs to backstop market functioning in core sterling markets in the exceptional circumstances where there is a threat to UK financial stability."
Banking Risk & Regulation first wrote on the speech in, "BoE builds 'backstop facility' for nonbanks over liquidity risk concerns." It states, "The Bank of England's deputy governor for markets and banking has said nonbanks will be able to tap up a backstop facility amid concerns over elevated liquidity risk hitting the fast-growing sector. Dave Ramsden used a speech earlier this month to say that nonbank financial institutions would be able to access such lending under 'exceptional circumstances' in the future."
Money market fund assets jumping by $1.0 trillion-plus to a record $6.2 trillion was no doubt the biggest story of the year in 2023. With still almost a month to go, money fund asset growth will likely even surpass 2020's Covid-driven record jump of $1.1 trillion. Last year, rising yields were the big news, and yields continuing to rise and breaking 5% were also among the top stories of this year. Other major headlines of the past year included: the long-awaited passage of the SEC's Money Fund Reform Proposal, the continued growth of Social MMFs and the increase in assets and yields in European and worldwide markets. Below, we excerpt from a number of our biggest and most representative news stories of 2023 to highlight the major trends of the past year. (Note: As a reminder, register ASAP for our Money Fund University, Dec. 18-19 in Jersey City, New Jersey, at the Westin Jersey City Newport. Clients and friends are also welcome to stop by Crane Data's Holiday Cocktail Party at MFU on 12/18 from 5-7:30pm!)
Crane Data's Top 10 Stories of 2023 include (in chronological order): "Schwab's Crawford Comments on Cash Sorting, Purchase Money Funds" (2/2/23); "FT on Cash Pouring Into MMFs; MFs Record $5.4T; $9.2 Trillion Uninsured" (3/20/23); "Fed Hikes Rates 10th Time to 5.0-5.25%; Vanguard Newsletter on Cash" (5/4/23); "SEC's Money Market Fund Reforms: Swing Pricing Out, More Liquidity In" (7/14/23); "Money Fund Assets Resume Record Run, Up 20% in 12 Months; Repo Dip" (7/28/23); "Crane 100 Money Fund Index Breaks 5.0%; WSJ Editorial on MF Reforms" (8/1/23); "European Money Fund Assets Hit Record E1.5 Trillion; Yields Hit 5.15%" (8/22/23); "Fund Companies Prep for Liquidity Fees Via Filings, Discretionary Fees" (10/26/23); "HSBC Launches "P" Purpose Share Class; Cavu Paper on DEI Money Funds" (11/2/23); and, "Money Fund Assets Hit Record $6.2 Trillion; Weekly Holdings; Moomoo" (11/29/23).
Our Feb. 2 story, "Schwab's Crawford Comments on Cash Sorting, Purchase Money Funds," discusses the shift from brokerage FDIC-insured sweeps into money funds, and tells readers, "Late last week, Charles Schwab hosted its 'Winter Business Update Agenda,' a week after releasing its Q4'22 earnings the previous week. (See the release, 'Schwab Reports Record Full-year Earnings Per Share.') CFO Peter Crawford comments in the earnings release, 'Net interest revenue reached $10.7 billion, an increase of 33% versus the prior year, as higher interest rates more than offset the impact of balance sheet contraction due to client cash sorting. Lower market valuations throughout the year pushed asset management and administration fees down slightly to $4.2 billion, or 1% year-over-year.'"
Our March 20 story describes cash pouring into money funds after the failure of SVB Bank. The piece, "FT on Cash Pouring Into MMFs; MFs Record $5.4T; $9.2 Trillion Uninsured." It says, "We continue to see a flurry of articles on money market funds and the flight from uninsured bank deposits. The Financial Times published, 'Cash pours into US money market funds as investors flee bank turmoil.' The FT article states, "Investors have funneled cash to US money market funds over the past week amid concerns over the safety of some bank deposits after the collapse of two large lenders. The funds had more than $120bn of net inflows in the week to Wednesday, according to data from the Investment Company Institute, the largest net weekly inflow since June 2020. The bulk of them poured into money market funds backed by government securities, according to the ICI. The cash moved into money market funds -- a type of mutual fund that invests in cash and safe securities -- during a week unsettled by the collapse of Silicon Valley Bank and Signature Bank. On Sunday federal regulators stepped in to protect all depositors from losses at the two lenders.'" See also our March 17 story, "Money Fund Assets Hit Record $5.0 Trillion, Says ICI; Bloomberg on MFs."
In May, we published, "Fed Hikes Rates 10th Time to 5.0-5.25%; Vanguard Newsletter on Cash," which reviews the next to last Fed hike of 2023. It starts, "The Federal Reserve's Open Market Committee raised short-term interest rates for the 10th straight time Wednesday, bringing its Federal funds rate target up a quarter-point to a range of 5.0-5.25%. The release, entitled, 'Federal Reserve issues FOMC statement,' tells us, 'Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low.... The Committee remains highly attentive to inflation risks.'"
Our July 14 news discussed the latest round of MMF reforms in, "SEC's Money Market Fund Reforms: Swing Pricing Out, More Liquidity In." This piece says, "We continue wading through the SEC's 424-page 'Money Market Fund Reforms' final rules, which were published Wednesday, and we continue to like what we see. (See the MMF Reforms press release here and the Fact Sheet here.) The rule's summary explains, 'The Securities and Exchange Commission is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. These amendments are designed to improve the resilience and transparency of money market funds. The amendments will revise the primary rule that governs money market funds to remove the ability for a fund board to temporarily suspend redemptions if the fund's liquidity falls below a threshold. In addition, the amendments will remove the tie between liquidity thresholds and the potential imposition of liquidity fees. The amendments will also require certain money market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors. In addition, the Commission is increasing the daily liquid asset and weekly liquid asset minimum requirements to 25% and 50%, respectively.'"
A July 28 story, "Money Fund Assets Resume Record Run, Up 20% in 12 Months; Repo Dip," also discuss the asset surge. It states, "The Investment Company Institute's latest 'Money Market Fund Assets' report shows MMF assets jumping back to record levels after declining for 3 weeks in a row. ICI's asset series is now poised to break $5.5 trillion and is up $666.4 billion, or 13.8%, over the past 22 weeks. ICI shows assets up by $752 billion, or 15.9%, year-to-date in 2023, with Institutional MMFs up $396 billion, or 13.0% and Retail MMFs up $356 billion, or 21.2%. Over the past 52 weeks, money fund assets have risen $897 billion, or 19.5%, with Retail MMFs rising by $557 billion (37.7%) and Inst MMFs rising by $340 billion (10.9%)."
Our August 1 update, "Crane 100 Money Fund Index Breaks 5.0%; WSJ Editorial on MF Reforms," explains, "Money fund yields rose over the past week, breaking the 5.0% level on average for the first time since August 2007. We expect them to keep rising in coming day and weeks following last Wednesday's 25 basis point hike by the Federal Reserve. Our Crane 100 Money Fund Index (7-Day Yield) was up 8 bps to 5.04% in the week ended Friday, 7/28, after increasing by just 1 bp the past week. Yields are up from 4.94% on June 30, 4.90% on May 31, 4.64% on April 30, 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. Almost three-quarters of money market fund assets now yield 5.0% or higher and one fund hit the 5.5% level on Friday."
Later in August, we wrote about a jump in MMF Assets outside the U.S in, "European Money Fund Assets Hit Record E1.5 Trillion; Yields Hit 5.15%." This piece says, "The European Central Bank published, 'Euro area investment fund statistics: second quarter of 2023,' which shows that total European money market mutual fund assets hit a record 1.5 trillion EUR in Q2'23. The statistical release says, 'For shares/units issued by money market funds the outstanding amount was 18 billion EUR higher than in the first quarter. This increase was accounted for by 11 billion EUR in net issuance of shares/units and 8 billion EUR in other changes (including price changes). The annual growth rate of shares/units issued by money market funds, calculated on the basis of transactions, was 11.9% in the second quarter of 2023.'" (See also our Sept. 25 News, "ICI: Worldwide MF Assets Jump in Q2'23 to Almost $10 Trillion; US Leads.")
Our October 26 News piece, "Fund Companies Prep for Liquidity Fees Via Filings, Discretionary Fees," starts off, "Now that the previous regime of emergency gates and liquidity fees has been removed from money market mutual funds (effective Oct. 2), advisors have begun changing disclosures and filing updates to prepare for the new round of pending regulations. As we mentioned in our Oct. 23 Link of the Day, 'Dreyfus Recaps 2a-7 Changes for AFP,' discretionary liquidity fees will become live on April 2, 2024 and mandatory liquidity fees for Prime Institutional MMFs will become active on Oct. 2, 2024. Below, we excerpt from a batch of the latest SEC filings, which shed more light on the rules and how fund managers are handling disclosures. (See the latest filings containing the term 'discretionary liquidity fee' here.)"
We covered the continued growth in Social or D&I share classes (and decline in ESG funds in our November 2 story, "HSBC Launches 'P' Purpose Share Class; Cavu Paper on DEI Money Funds." It states, "HSBC Global Asset Management launched new 'P' share classes for its HSBC US Government Money Market Fund (HGPXX) and US Treasury Money Market Fund (HTPXX), adding them to a growing list of 'D&I' or 'Social' money market fund share class options. A brochure for the funds, entitled, 'Diversity, Equity and Inclusion - The 'P' Share Class,' tells us, 'Our 'P' share class is designed to help investors align their day-to-day cash investment activities with their social ambitions. The share class is dedicated to charitable giving, with a focus on addressing issues at the intersection of gender, racial, and ethnic inequality in our societies. We allocate a proportion of the share class fee to go to select non-profit partners on your behalf.'"
Finally, we cover the year-end surge in MMF assets in "Money Fund Assets Hit Record $6.2 Trillion; Weekly Holdings." This article says, "Money fund assets jumped $22.3 billion on Monday, breaking the $6.2 trillion level for the first time ever and hitting a record $6.200 trillion, according to Crane Data's Money Fund Intelligence Daily series (as of November 27). Money fund assets have risen by $63.2 billion over the past week and by $159.0 billion in the first 27 days of November. Assets fell by $31.9 billion in October after rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Year-to-date (through 11/27), money fund assets have increased by $1.009 trillion, or 19.4%." (See also our Dec. 1 piece, "ICI Shows MMFs Surge to Record $5.8 Trillion; ICI Trends: Treasuries Up.")
For more 2023 (and soon 2024) News (and prior years going back to 2006), see Crane Data's News Archives. We'll continue to provide daily updates on the money fund marketplace in the coming year, so keep reading our News and Link of the Day commentaries in 2024. Let us know if you need web access (unlimited access is for subscribers only), or if you'd like to see our latest Money Fund Intelligence, Bond Fund Intelligence or MFI Daily publications. Thanks to all of our readers and subscribers for your support in 2023, and we wish you all the best in the coming year. Merry Christmas, Happy Holidays and Happy New Year!
The Investment Company Institute published its latest weekly "Money Market Fund Assets" report Thursday and its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for October 2023 on Wednesday. The former shows MMF assets surging for the 6th week in a row and hitting yet another new record level, breaking the $5.8 trillion level. ICI's asset series rose $73.0 billion to $5.836 trillion in the past week and have risen by $228.5 billion the past 6 weeks (after a drop of $98.8 billion the week ended 10/18). Assets are up by $1.101 trillion, or 23.3%, year-to-date in 2023, with Institutional MMFs up $533 billion, or 17.4% and Retail MMFs up $568 billion, or 33.9%. Over the past 52 weeks, money funds have risen a massive $1.165 trillion, or 25.0%, with Retail MMFs rising by $631 billion (39.1%) and Inst MMFs rising by $534 billion (17.5%). (Note: Register soon for our upcoming Money Fund University in Jersey City, Dec. 18-19!)
The weekly release says, "Total money market fund assets increased by $72.98 billion to $5.84 trillion for the eight-day period ended Wednesday, November 29, the Investment Company Institute reported. Among taxable money market funds, government funds increased by $71.53 billion and prime funds increased by $2.19 billion. Tax-exempt money market funds decreased by $747 million." ICI's stats show Institutional MMFs rising $71.1 billion and Retail MMFs rising $1.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.773 trillion (81.8% of all money funds), while Total Prime MMFs were $940.2 billion (16.1%). Tax Exempt MMFs totaled $122.5 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $1.85 billion to $2.25 trillion. Among retail funds, government money market fund assets increased by $93 million to $1.46 trillion, prime money market fund assets increased by $2.04 billion to $673.62 billion, and tax-exempt fund assets decreased by $274 million to $111.86 billion." Retail assets account for over a third of total assets, or 38.5%, and Government Retail assets make up 65.0% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $71.13 billion to $3.59 trillion. Among institutional funds, government money market fund assets increased by $71.44 billion to $3.31 trillion, prime money market fund assets increased by $158 million to $266.53 billion, and tax-exempt fund assets decreased by $473 million to $10.69 billion." Institutional assets accounted for 61.5% of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets surged $182.3 billion in the first 29 days of November to a record $6.224 trillion. Assets fell by $31.9 billion in October after rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. 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 monthly Trends shows money fund totals falling $13.6 billion in October to $5.667 trillion (after increases in September, August, July, June, May and April). Prior to this, the March jump (a $371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Bond fund assets decreased, dropping $90.4 billion to $4.438 trillion.
MMFs have increased by $1.059 trillion, or 23.0%, over the past 12 months (according to ICI's Trends through 10/31). Money funds' October asset decrease follows gains of $74.1 billion in September, $123.9 billion in August $31.4 billion in July, $30.6 billion in June, $172.7 billion in May, $8.4 billion in April, $371.0 billion in March, $60.0 billion in February, $31.5 billion in January, $105.3 billion in December, $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.369 trillion as of 10/31, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds decreased by $543.00 billion, or 2.3 percent, to $23.24 trillion in October, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $34.59 billion in October, compared with an outflow of $15.82 billion in September.... Money market funds had an outflow of $28.54 billion in October, compared with an inflow of $60.77 billion in September. In October funds offered primarily to institutions had an outflow of $88.99 billion and funds offered primarily to individuals had an inflow of $60.46 billion."
The Institute's latest statistics show that Taxable MMFs were lower while Tax Exempt MMFs were higher last month. Taxable MMFs decreased by $19.9 billion in October to $5.544 trillion. Tax-Exempt MMFs increased $6.4 billion to $123.1 billion. Taxable MMF assets increased year-over-year by $1.047 trillion (23.3%), and Tax-Exempt funds rose by $11.8 billion over the past year (10.6%). Bond fund assets decreased by $90.4 billion (after decreasing $109.7 billion in September) to $4.438 trillion; they've decreased by $8.1 billion (-0.0%) over the past year.
Money funds represent 24.4% of all mutual fund assets (up 0.5% from the previous month), while bond funds account for 19.1%, according to ICI. The total number of money market funds was 276, unchanged from the prior month and down from 291 a year ago. Taxable money funds numbered 230 funds, and tax-exempt money funds numbered 46 funds.
ICI's "Month-End Portfolio Holdings" confirm a drop in Repo and a jump in Treasuries last month. Repurchase Agreements remained the largest composition segment in October but decreased $303.0 billion, or -10.9%, to $2.469 trillion, or 44.5% of holdings. Repo holdings have decreased $12.4 billion, or -0.5%, over the past year. (See our Nov. 10 News, "Nov. Portfolio Holdings: Treasuries Continue Surge; Repos, Assets Slide.")
Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $190.0 billion, or 11.4%, to $1.853 trillion, or 33.4% of holdings. Treasury securities have increased by $687.6 billion, or 59.0%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $34.5 billion, or 5.5%, to $661.3 billion, or 11.9% of holdings. Agency holdings have increased by $179.8 billion, or 37.3%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $50.2 billion, or 18.9%, to $315.3 billion (5.7% of assets). CDs held by money funds rose by $105.9 billion, or 50.6%, over 12 months. Commercial Paper remained in fifth place, up $18.0 billion, or 8.5%, to $229.0 billion (4.1% of assets). CP increased $61.4 billion, or 36.6%, over one year. Other holdings increased to $18.4 billion (0.3% of assets), while Notes (including Corporate and Bank) decreased to $6.5 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 62.680 million, while the Number of Funds was unchanged at 230. Over the past 12 months, the number of accounts rose by 3.330 million and the number of funds decreased by 6. The Average Maturity of Portfolios was 30 days, up 4 from September. Over the past 12 months, WAMs of Taxable money have increased by 15.
