News Archives: February, 2023

The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for January 2023 Monday. ICI's monthly "Trends" report shows that money fund assets increased $31.5 billion in January to a record $4.808 trillion. Meanwhile, bond fund assets rebounded, increasing $146.2 billion to $4.638 trillion. Money fund assets, which surpassed bond fund assets in September 2022 for the first time since 2010, saw their lead over bond funds shrink last month. MMFs have increased by $188.6 billion over the past 12 months. (The bond fund totals don't include bond ETFs, which total $1.317 trillion as of 1/31, according to ICI.)

Money funds' January asset increase follows a gain of $105.3 billion in December, $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. MMFs decreased $6.4 billion in August, but they increased $34.3 billion in July and $25.0 billion in June. MMFs decreased $8.0 billion in May and $71.0 billion in April. They increased $9.6 billion in March, decreased $38.3 billion in February, and decreased $136.1 billion last January. For the 12 months through Jan. 31, 2023, money fund assets increased by $188.6 billion, or 4.1%. (For the month of February through 2/24, MMF assets have increased by $27.9 billion to $5.213 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI. Crane Data's Prime asset totals have increased by $52.8 billion in February to $1.152 trillion.)

ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $1.03 trillion, or 4.7 percent, to $23.14 trillion in January, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $17.56 billion in January, compared with an outflow of $53.28 billion in December.... Money market funds had an inflow of $22.25 billion in January, compared with an inflow of $96.43 billion in December. In January funds offered primarily to institutions had an outflow of $33.04 billion and funds offered primarily to individuals had an inflow of $55.29 billion."

The Institute's latest statistics show that both Taxable and Tax Exempt MMFs were higher last month. Taxable MMFs increased by $31.4 billion in January to $4.696 trillion. Tax-Exempt MMFs increased $0.1 billion to $112.5 billion. Taxable MMF assets increased year-over-year by $162.3 billion (3.6%), and Tax-Exempt funds rose by $26.3 billion over the past year (30.5%). Bond fund assets increased by $146.2 billion (after dropping by $73.4 billion in Dec.) to $4.638 trillion; they've decreased by $866.2 billion (-15.7%) over the past year.

Money funds represent 20.8% of all mutual fund assets (down 0.8% from the previous month), while bond funds account for 20.0%, according to ICI. The total number of money market funds was 281, down ten from the prior month and down from 305 a year ago. Taxable money funds numbered 232 funds, and tax-exempt money funds numbered 49 funds.

ICI's "Month-End Portfolio Holdings" confirm a drop in Repo and plunge in Treasuries last month. Repurchase Agreements remained the largest composition segment in January, decreasing $9.3 billion, or -0.3%, to $2.653 trillion, or 56.5% of holdings. Repo holdings have increased $525.5 billion, or 24.7%, over the past year. (See our Feb. 10 News, "Feb. MF Portfolio Holdings: Repo and T-Bills Fall; TDs, CP, CDs All Jump.")

Treasury holdings in Taxable money funds fell again, but they remained the second largest composition segment. Treasury holdings plunged $96.7 billion, or -8.9%, to $991.7 billion, or 21.1% of holdings. Treasury securities have decreased by $716.5 billion, or -41.9%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $28.0 billion, or 5.3%, to $560.2 billion, or 11.9% of holdings. Agency holdings have increased by $187.6 billion, or 50.4%, over the past 12 months.

Certificates of Deposit (CDs) remained in fourth place; they increased by $72.9 billion, or 42.6%, to $244.0 billion (5.2% of assets). CDs held by money funds rose by $60.1 billion, or 32.7%, over 12 months. Commercial Paper remained in fifth place, up $31.3 billion, or 18.3%, to $202.0 billion (4.3% of assets). CP increased $56.7 billion, or 39.0%, over one year. Other holdings decreased to $15.6 billion (0.3% of assets), while Notes (including Corporate and Bank) inched up to $4.8 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds decreased to 59.008 million, while the Number of Funds fell by four funds to 232. Over the past 12 months, the number of accounts rose by 10.734 million and the number of funds decreased by 13. The Average Maturity of Portfolios was a record low 14 days, unchanged from December. Over the past 12 months, WAMs of Taxable money have decreased by 17.

Morningstar writes about "5 Ultra-Short-Term Bond Funds With High Yields," and tells us, "For the first time in years, investors have more choices when looking for a place to store cash that is both low-risk and paying high yields. One of those options: ultra-short-term bond funds. After eight interest-rate hikes from the Federal Reserve, short-term rates have risen to decadelong high levels. The average fund in the ultrashort Morningstar Category currently yields around 4.2%; a year ago, it yielded less than 1%. As investors experienced quite painfully in 2022, when interest rates rise, bond prices fall. But an ultra-short-term bond fund limits the sensitivity to changes in interest rates." (Note: For more on ultra-short bond funds, visit our upcoming Bond Fund Symposium, March 23-24, 2023, in Boston, Mass. Click here for the latest agenda.)

The article warns, "It's critical for investors to know up front that ultra-short-term bond funds can lose money and so are not an exact substitute for cash or investments such as money market funds and bank-issued certificates of deposit. Many ultra-short-term bond funds did suffer losses in 2022. The average ultra-short-term bond fund lost 0.1% in 2022, while other corners of the bond universe experienced double-digit declines. But as was the case last year, losses on ultrashort bond funds have historically been very small because of the nature of the investments."

Morningstar adds, "Among the ultra-short-term funds rated Bronze, Silver, or Gold ... the $9 billion `BBH Limited Duration BBBIX carried the highest yield, with a 4.8% SEC yield as of Jan. 31.... Putnam Ultra Short Duration Income (PSDQX) also carries a higher yield that most funds in the category but does so without investing in bank loans.... The $5.8 billion Fidelity Conservative Income Bond (FCNVX) takes a cautious approach in the ultrashort category.... Among Pimco's offerings is Pimco Short Term (PTSHX), where the managers have a broad range of securities to choose from.... For a less risky approach, there is $8.4 billion Pimco Enhanced Short Maturity Active ETF MINT, which is also yielding 4.62%."

In other news, The Wall Street Journal story, "Stablecoins Attract Scrutiny in SEC's Drive to Control Crypto," explains, "Washington's battle to rein in crypto has a new front: stablecoins. The Securities and Exchange Commission is investigating whether stablecoins, cryptocurrencies that maintain a price of $1, are among the products that were issued in violation of investor-protection laws. SEC enforcement lawyers have told Paxos Trust Co. that regulators plan to take enforcement action over its stablecoin, BUSD, although that decision isn't final."

They tell us, "An SEC lawsuit over BUSD, the third-largest stablecoin by market value, would be a significant jolt to an industry that has suffered a series of shocks in recent weeks. After the failure of crypto exchange FTX, the SEC has already cut off the ability of some crypto middlemen to offer lending services that give crypto investors a way to earn interest by lending out their tokens."

The Journal piece states, "Stablecoin issuers say they are backed 1-for-1 by cash or cash equivalents such as U.S. dollars and Treasury securities. Tether Holdings Ltd., the largest stablecoin issuer, discloses most of its portfolio holdings but not all. It has invested in riskier assets such as corporate debt and has made money by lending tethers to customers, a practice it is winding down."

They add, "Coinbase Global Inc. has disclosed the SEC is also investigating its stablecoin product. Coinbase maintains a partnership on the operation of USDC, the second-largest stablecoin, with Circle Internet Financial Ltd. Circle also has disclosed it faces an SEC investigation. A Circle spokesman declined to comment on the probe's focus or status. The SEC also could allege BUSD is a security through the application of another Supreme Court test that governs notes, or securities that promise the repayment of money, often with interest."

Finally, the WSJ states, "Stablecoins also don't look too much like money-market funds, a comparison that SEC Chair Gary Gensler has made, Mr. Grewal and others said. Money funds promise to maintain a $1-a-share value but, unlike stablecoins, pay interest. The SEC's money-fund rules haven't always made those products as safe as investors expect. U.S. authorities had to prop up money funds in 2008 and 2020, when panicked investors stampeded out of some, creating the possibility of losses for slower-moving users. 'Money-fund regulation is not really designed to support something that is supposed to be a payments instrument,' said Jonah Crane [no relation to Crane Data], a partner at Klaros Group, a financial-services advisory firm."

See also, the WSJ's "U.S. Regulators Warn Banks of Heightened Liquidity Risks in Crypto-Related Deposits," which says, "A trio of regulators including the Federal Reserve warned banks to be mindful of liquidity risks related to cryptocurrencies, the latest move by U.S. officials to limit the economy's vulnerability to the tumultuous market. The Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. said in a joint statement Thursday that banks should apply effective risk management when dealing with deposits linked to crypto entities. These include robust due diligence and monitoring of crypto entities that establish deposit accounts, as well as incorporating the potential volatility of those deposits into routine stress tests."

It comments, "The first are deposits placed by crypto firms for the benefit of their customers, who may react swiftly to market events, media reports and uncertainty. As a result, the stability of these deposits may not be driven solely by the firm, particularly in times of stress or market volatility, the regulators said. The second type of deposits flagged by regulators is related to stablecoins, a class of cryptocurrencies that seek to maintain a 1:1 parity with the dollar or other official currencies. Issuers of stablecoins typically ensure this parity by holding reserves in the form of bank deposits and highly liquid Treasury securities."

The second Journal piece adds, "For banks, however, the stability of these deposits shouldn't be taken for granted, the regulators warned. They said stablecoin reserves 'can be susceptible to large and rapid outflows' if stablecoin holders decide to redeem the assets for cash, if broader crypto markets encounter turmoil or if confidence wanes in the stablecoin issuer. Because stablecoin issuers often maintain razor-thin buffers against potential losses, regulators have long warned of stability risks. Large-scale redemptions could force issuers to offload reserves in a fire sale, potentially resulting not only in losses to stablecoin investors, but a drop in prices for Treasury securities."

ICI's latest weekly "Money Market Fund Assets" report shows money fund assets increasing for the second week in a row; they're now just a hair under their previous record of $4.821 trillion set 3 weeks ago. Over the past 52 weeks, money fund assets are up by $266 billion, or 5.8%, with Retail MMFs rising by $313 billion (21.2%) and Inst MMFs falling by $48 billion (-1.5%). ICI shows assets up by $85 billion, or 1.8%, year-to-date in 2023, with Institutional MMFs down $28 billion, or -0.9% and Retail MMFs up $113 billion, or 6.7%. (Note: Register soon for Crane's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass. Click here for details.)

The weekly release says, "Total money market fund assets increased by $5.36 billion to $4.82 trillion for the week ended Wednesday, February 22, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $6.65 billion and prime funds increased by $6.11 billion. Tax-exempt money market funds increased by $5.89 billion." ICI's stats show Institutional MMFs falling $4.5 billion and Retail MMFs increasing $9.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.942 trillion (81.8% of all money funds), while Total Prime MMFs were $769.1 billion (16.0%). Tax Exempt MMFs totaled $109.7 billion (2.3%).

ICI explains, "Assets of retail money market funds increased by $9.90 billion to $1.79 trillion. Among retail funds, government money market fund assets decreased by $1.28 billion to $1.19 trillion, prime money market fund assets increased by $6.59 billion to $504.51 billion, and tax-exempt fund assets increased by $4.59 billion to $98.31 billion." Retail assets account for over a third of total assets, or 37.1%, and Government Retail assets make up 66.3% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $4.54 billion to $3.03 trillion. Among institutional funds, government money market fund assets decreased by $5.37 billion to $2.75 trillion, prime money market fund assets decreased by $481 million to $264.63 billion, and tax-exempt fund assets increased by $1.31 billion to $11.41 billion." Institutional assets accounted for 62.9% of all MMF assets, with Government Institutional assets making up 90.9% of all Institutional MMF totals. Month-to-date in February (through 2/22/23), money fund assets have increased by $21.5 billion to $5.207 trillion, according to Crane Data's Money Fund Intelligence Daily. (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.)

In other news, J.P. Morgan writes in a new "Mid-Week US Short Duration Update" about, "A dynamic shift of T-bill holders." They tell us, "The primary holders of T-bills changed substantially over the course of last year. Though T-bill outstandings are flat year-over-year, MMFs -- historically the largest buyers of T-bills -- significantly reduced their T-bill holdings in 2022, comprising 31% of the market in December 2021 to 16% in December 2022.... This is not surprising given their access to the Fed's ON RRP, which allowed MMFs to tap the facility to the extent it made sense from a supply, duration, and/or economic perspective."

JPM explains, "As a result, other buyers such as corporates, SMAs, etc. -- who do not have access to the RRP but still sought safety, liquidity, and yield (relative to deposits) -- stepped in as dominant buyers. In fact, we estimate that investors that do not have access to the Fed's balance sheet held 63% of total T-bills as of December-end, versus 48% from a year ago.... Interestingly, despite T-bills being so rich, as reflected in their negative spread to SOFR, investors with no access to the Fed's balance sheet still bought T-bills."

They say, "It goes without saying that the Fed's ON RRP has proven to be a valuable facility for MMFs to park their excess liquidity as they grappled with the Fed's interest rate policy and fluctuations in T-bill supply over the course of last year. Looking ahead, we suspect this will remain the case, particularly given continued uncertainty around the Fed's terminal rate and looming concerns about the debt ceiling, which will not only likely prompt a reduction in T-bill supply over the summer but also cheapen T-bills that mature around the drop-dead date. MMFs will likely tread carefully with extending T-bill maturities as the drop-dead date nears, which our Treasury strategists project Treasury will run out of available resources by the middle of August."

JPM adds, "Indeed, taxable money fund investors have started to position themselves from headline risk surrounding the debt ceiling, with the bulk of their T-bill holdings maturing before June.... Meanwhile, other investors that might not be subject to the same headline risk as MMFs could remain buyers of T-bills, until a resolution is passed, particularly if affected T-bills begin to look attractive. Overall, ON RRP should remain elevated and affected T-bills could cheapen, though given the amount of liquidity still in the system, we suspect the backup could be limited relative to prior debt ceiling episodes."

Also, a release entitled, "U.S. Debt Ceiling Uncertainty a Risk for Treasury Money Market Funds," states, "A default by the U.S. Treasury could pose liquidity and headline risks and ratings pressure for U.S. Treasury-only money market funds (MMFs), but would not necessarily result in downgrades, with considerations including the size of any exposure to defaulted securities and alternative sources of fund liquidity, Fitch Ratings says."

It explains, "The U.S. government debt limit was reached on Jan. 19, 2023. However, the Treasury Department is using 'extraordinary measures' to avoid defaulting on obligations, such as halting contributions and investment redemptions to government pension and healthcare funds. The Congressional Budget Office has calculated the x-date will fall sometime between July and September 2023, though it cautioned that extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July."

Fitch then says, "Treasury-only MMFs have higher relative risk to a U.S. government default than prime and government MMFs that can diversify investments into other instruments. Treasury-only MMFs have very limited investment options, including Treasury securities spread across maturities or cash balances for liquidity purposes. These funds could face increased volatility in the Treasury market and heightened investor redemptions as the debt ceiling deadline approaches, with uncertainty around the potential 'X-date' range, when extraordinary measures would be exhausted and the government would no longer be allowed to issue debt, although it could conceivably prioritize debt payments over other obligations."

They write, "MMFs with U.S. Treasury securities maturing around the potential X-date are exposed to headline and liquidity risk from a potential default. However, Treasury-only MMFs have significant liquidity cushions, with the 27 funds monitored by Fitch averaging 91% daily liquid assets and 96% monthly liquid assets as of Jan. 30, 2023, although much of this liquidity is comprised of Treasury securities. To reduce these associated risks, we would expect Treasury MMFs to actively manage around the potential X-date, cutting exposures to U.S. Treasury securities that are maturing on or near the expected date as fund managers have done in the past, although managing these exposures may be challenging given the uncertainty around the X-date. At the same time, some funds may purchase securities maturing around the X-date to take advantage of higher yields, with the expectation that Congress will resolve the debt ceiling before then."

The release adds, "Fitch believes the U.S. government debt limit will once again be raised or suspended to avoid a default. If we assess this risk differently ahead of the X-date and feel that political brinkmanship had increased the possibility of missing an interest payment, the U.S. sovereign rating would likely be placed on Rating Watch Negative to signal a possible rating action."

Finally, Fitch concludes, "If the limit were not raised or suspended in time to avoid a default, the U.S. sovereign rating would be assigned a Restricted Default rating, and affected Treasury securities would carry a Default rating until the default was cured. While it is unclear if the government has the ability or willingness to prioritize debt payments, such action might not be consistent with a 'AAA' rating. A default would likely lead to significant market volatility, and potential outflows for MMFs, which present an additional risk for MMFs. A default could also give rise to operational challenges for MMFs and other market participants, including in systems reporting of defaulted securities, or screening repo collateral for such securities."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $53.2 billion in January to an all-time record of $5.288 trillion. Assets at January month-end were above their previous record of $5.24 trillion in December 2022. The SEC shows that Prime MMFs increased by $86.2 billion in January to $1.137 trillion, Govt & Treasury funds decreased $33.2 billion to $4.031 trillion and Tax Exempt funds increased $0.2 billion to $119.2 billion. Taxable yields jumped again in January after surging in December. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

January's overall asset increase follows an increase of $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. But assets decreased $9.4 billion in September. MMFs increased $3.5 billion in August, $57.4 billion in July, and $26.6 billion in June. They decreased $19.7 billion in May and $63.3 billion in April, but increased $40.1 billion in March. MMFs decreased $29.3 billion in February and $125.1 billion last January. Over the 12 months through 1/31/23, total MMF assets have increased by $198.1 billion, according to the SEC's series. (Month-to-date in February through 2/21, total MMF assets have increased by $16.3 billion, according to our MFI Daily.)

The SEC's stats show that of the $5.288 trillion in assets, $1.137 trillion was in Prime funds, up $86.2 billion in January. Prime assets were up $10.5 billion in December, $28.0 billion in November, $36.6 billion in October, $15.8 billion in September, $43.5 billion in August, $56.6 billion in July, $8.5 billion in June and $9.4 billion in May. Prime was down $11.7 billion in April, up $29.5 billion in March, down $2.7 billion in February and up $10.7 billion in January. Prime funds represented 21.5% of total assets at the end of January. They've increased by $310.3 billion, or 37.5%, 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 $4.031 trillion, or 76.2% of assets. They decreased $33.2 billion in January, increased $41.3 billion in December and $23.1 billion in November. Govt MMFs decreased $12.8 billion in October, $20.8 billion in September and $47.1 billion in August. They increased $8.2 billion in July and $14.4 billion in June. But they decreased by $36.7 billion in May and $57.1 billion in April. They increased $8.7 billion in March, decreased by $25.8 billion in February and $135.2 billion in January. Govt & Treasury MMFs are down $137.8 billion over 12 months, or -3.3%. Tax Exempt Funds increased $0.2 billion to $119.2 billion, or 2.3% of all assets. The number of money funds was 298 in January, unchanged from the previous month and down 14 funds from a year earlier.

Yields for Taxable MMFs and Tax Exempt MMFs moved higher yet again in January. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on January 31 was 4.50%, up 8 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 4.60%, up 2 bps from the previous month. Gross yields were 4.36% for Government Funds, up 9 basis points from last month. Gross yields for Treasury Funds were up 20 bps at 4.38%. Gross Yields for Tax Exempt Institutional MMFs were down 202 basis points to 1.55% in January. Gross Yields for Tax Exempt Retail funds were down 171 bps to 1.84%.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 4.44%, up 9 bps from the previous month and up 436 basis points from 1/31/22. The Average Net Yield for Prime Retail Funds was 4.33%, up 2 bps from the previous month, and up 431 bps since 1/31/22. Net yields were 4.10% for Government Funds, up 7 bps from last month. Net yields for Treasury Funds were also up 18 bps from the previous month at 4.15%. Net Yields for Tax Exempt Institutional MMFs were down 202 bps from December to 1.44%. Net Yields for Tax Exempt Retail funds were down 171 bps at 1.59% in January. (Note: These averages are asset-weighted.)

WALs and WAMs were mostly down in January. The average Weighted Average Life, or WAL, was 37.8 days (down 1.1 days) for Prime Institutional funds, and 39.4 days for Prime Retail funds (down 1.9 days). Government fund WALs averaged 60.5 days (up 0.9 days) while Treasury fund WALs averaged 56.7 days (down 2.4 days). Tax Exempt Institutional fund WALs were 10.4 days (up 0.9 days), and Tax Exempt Retail MMF WALs averaged 15.8 days (down 0.4 days).

The Weighted Average Maturity, or WAM, was 16.4 days (down 0.9 days from the previous month) for Prime Institutional funds, 15.4 days (up 0.9 days from the previous month) for Prime Retail funds, 9.1 days (down 1.9 days from previous month) for Government funds, and 20.4 days (down 2.5 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 1.1 days to 10.3 days, while Tax Exempt Retail WAMs were down 0.6 days from previous month at 15.3 days.

Total Daily Liquid Assets for Prime Institutional funds were 53.0% in December (up 0.6% from the previous month), and DLA for Prime Retail funds was 45.8% (down 1.9% from previous month) as a percent of total assets. The average DLA was 74.5% for Govt MMFs and 98.8% for Treasury MMFs. Total Weekly Liquid Assets was 69.4% (up 3.1% from the previous month) for Prime Institutional MMFs, and 59.9% (up 3.1% from the previous month) for Prime Retail funds. Average WLA was 85.1% for Govt MMFs and 99.5% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for January 2023," the largest entries included: Canada with $115.7 billion, Japan with $98.8 billion, the U.S. with $89.0B, France with $71.9 billion, the Netherlands with $47.5B, the U.K. with $39.8B, Germany with $37.0B, Aust/NZ with $36.1B and Switzerland with $7.4B. The gainers among the "Prime MMF Holdings by Country" included: Netherlands (up $32.2B), Germany (up $23.3B), France (up $19.6B), the U.K. (up $12.1B), Japan (up $7.6B), the U.S. (up $7.6B) and Aust/NZ (up $0.0B). Decreases were shown by: Canada (down $7.7B) and Switzerland (down $0.9B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $204.7 billion (down $0.1B), while Eurozone had $177.8B (up $87.6B). Asia Pacific subset had $154.0B (up $10.0B), while Europe (non-Eurozone) had $102.8B (up $34.9B from last month).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.125 trillion in Prime MMF Portfolios as of January 31, $479.8B (42.6%) was in Government & Treasury securities (direct and repo) (down from $527.9B), $283.2B (25.1%) was in CDs and Time Deposits (up from $191.4B), $196.2B (17.4%) was in Financial Company CP (up from $170.9B), $118.2B (10.5%) was held in Non-Financial CP and Other securities (up from $109.8B), and $47.7B (4.2%) was in ABCP (up from $43.5B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $185.4 billion, Canada with $100.1 billion, France with $87.5 billion, the U.K. with $65.7 billion, Germany with $12.8 billion, Japan with $83.9 billion and Other with $25.1 billion. All MMF Repo with the Federal Reserve was down $350.7 billion in January to $1.989 trillion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 5.4%, Prime Retail MMFs with 4.7%, Tax Exempt Inst MMFs with 0.7%, Tax Exempt Retail MMFs with 1.5%, Govt MMFs with 12.0% and Treasury MMFs with 8.8%.

Money fund yields inched higher last week after jumping earlier in the month after the Fed's 25 basis point hike on Feb. 1. Our Crane 100 Money Fund Index (7-Day Yield) rose 2 basis points to 4.37% in the week ended Friday, 2/17. Yields rose by 12 basis points the previous week and they're up from 4.15% on Jan. 31, 2023. Money fund yields have risen from 4.05% on 12/31/22, and they're up from 3.59% on Nov. 30, 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should inch higher in coming days as they digest the last bits of the Fed's latest hike. The top-yielding money market funds have broken above 4.70% and should move towards 5.0% in coming weeks. (See our "Highest-Yielding Money Funds" table above).

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 681), shows a 7-day yield of 4.25%, up 3 bps in the week through Friday. Prime Inst MFs were up 2 bps at 4.49% in the latest week. Government Inst MFs rose by 3 bps to 4.30%. Treasury Inst MFs up 4 bps for the week at 4.27%. Treasury Retail MFs currently yield 4.05%, Government Retail MFs yield 4.02%, and Prime Retail MFs yield 4.32%, Tax-exempt MF 7-day yields were up at 3.29%.

According to Tuesday's Money Fund Intelligence Daily, with data as of Friday (2/17), No money funds (out of 816 total) are now yielding below the 2.00% mark this past week, as many continue to rise over 4.0%; 27 funds yield between 2.00% and 2.99% with $10.1 billion, or 0.2%; 230 funds yield between 3.00% and 3.99% ($201.2 billion, or 3.9%), and 559 funds yield 4.0% or more ($4.978 trillion, or 95.9%).

Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, increased last week to 0.55% from 0.52%. The latest Brokerage Sweep Intelligence, with data as of Feb. 17, shows that there were two changes over the past week. Fidelity raised rates to 2.32% (from 2.19%) for all balances between $1K and over $5 million. RW Baird also raised rates to 1.72% (from 1.58%) for balances between $1K and $999K, to 2.62% for balances between $1 million and $1.99 million, and to 3.36% for balances of $5 million or greater. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.

We also noticed that Interactive Brokers recently began advertising on The Wall Street Journal's WSJ.com, with a banner stating that they offer 4.08% on uninvested cash. The ad states, "IBKR pays 4.08% interest annualized daily on uninvested cash in your brokerage account. If the total market value of your account is less than $100,000 -- the interest payment will be proportionally less. There will be no interest paid on the first $10,000 of cash."

On their website," they explain under the title, "Earn Market Rate Interest on Your Uninvested Cash Balances," "Client accounts may receive credit interest on long settled cash balances in their securities accounts. Accounts with a Net Asset Value (NAV) of USD 100,000 (or equivalent) or more are paid interest at the full rate for which they are eligible. Accounts with NAV of less than USD 100,000 (or equivalent) receive interest at rates proportional to the size of the account."

Interactive Brokers' disclaimer continues, "For example, an account with a NAV of USD 50,000 earns credit interest at a rate equal to one-half the rate paid by IBKR to accounts with a NAV of USD 100,000 or more. Interest accrues daily. IBKR posts the interest payments on a monthly basis on the third business day of the following month. IBKR uses a blended rate based on the tiers outlined in the table below. The tiers on which interest rates are based are subject to change without prior notification."

It adds, "For balances held in CHF, JPY, or RUB, IBKR may apply an effective negative rate to long balances held. The negative rate applied to accounts holding these currencies is the same regardless of account size. For other currencies in which the effective rate is less than zero, the interest paid is 0%. Please note that credit interest is not paid on long-settled cash balances held in the commodities segment of a securities account." They list 26 different currencies all with the rates paid, and there is also a big rate difference between 'IBKR PRO' and 'IBKR LITE.'

Earlier this month, Federated Hermes' Deborah Cunningham wrote, "Yield curveball: The market is dismissing the Fed's determination to defeat inflation." She tells us, "Count us among those who question the assumption that inflation will continue to decline quickly. The robust labor market and resilient consumer suggests CPI could hover around 4% for a while. That will test the resolve of policymakers bent on avoiding a repeat of the '70s. It's important to remember they did not technically start tightening until July, when the target rate rose above 2%. Prior to that, they were simply normalizing monetary policy, pulling rates up from the ultra-accommodative zero bound."

Cunningham continues, "We think they will stay higher for longer, maintaining a 5-5.25% range into 2024, a scenario Powell laid out as his base case. In a 'read my lips' moment, he said it likely will not be appropriate to cut rates this year. Whether or not investors take him at his word, we are wary of longer-dated securities currently yielding less than what we think they should. The market has the choice to pay attention or whiff on a pitch the Fed said it would throw."

She tells us, "The situation portends continued support for the dash for cash. Investments into liquidity products historically garner inflows when rates stabilize after rising. That was the case in the tightening cycle of 2015-18, when industry money funds saw growth of around 11% (Investment Company Institute). After the Fed lowered rates in 2018, assets grew even more, showing a 14% increase. Past performance is no guarantee, of course, but if this trajectory is repeating, industry assets have grown ahead of schedule. Crane Data reports total money market fund assets hit an all-time high last month, rising $235 billion over the past 13 weeks to reach $4.82 trillion on Jan. 28."

Finally, Federated adds, "Another financial showdown is taking place in Washington. The battle over raising the federal debt limit will be messy and embarrassing, but the 'adults in the room,' as my colleague Susan Hill characterized them, will prevail over the politics of petulance to ensure the U.S. won't default. While financial institutions and investors are better prepared for this than in 2011, we don't think it will come down to the wire. Expect drama, not danger. We continue to position our portfolios with short Weighted Average Maturities to take advantage of the hikes and keep ample liquidity. Our prime money funds target a 15-25 day range, with our government and municipal products at 25-35 days."

A Reuters article, "China c.bank publishes rules regulating major money market funds," tells us that, "China's central bank published rules regulating major money market funds late on Friday, aiming to better supervise and monitor risks while promoting the smooth and healthy development of fund products. Money market funds with net assets of more than 200 billion yuan ($29.08 billion) or counting more than 50 million investors in 20 consecutive trading days should fall in the scope of the assessment, the People's Bank of China (PBOC) said in an online statement." (See our Dec. 20 News, "Worldwide MF Assets Plunge in Q3'​22, Led by China, France, Lux; US Up," for more.)

It explains, "The PBOC urged fund managers to comprehensively and prudently assess the impact of such major money market funds on investors, the broad capital markets and the financial system. Such funds 'must not expand their sizes blindly,' the central bank said in the statement, jointly issued with the China Securities Regulatory Commission."

Reuters adds, "Major money market funds with a net asset value of more than 500 billion yuan for 20 straight trading days should make adjustments to fulfil certain requirements, the PBOC added. It said that the rules will come into effect on May 16. Tianhong Yu'e Bao, controlled by Ant Group, an affiliate of Alibaba Group, is China's biggest money market fund with 689.3 billion in net assets as of Friday." See also, The Business Times of Singapore's piece, "China central bank publishes rules regulating major money market funds."

In other news, Allspring Money Market Funds writes in their latest "Overview, Strategy, and Outlook" on the Government sector, "The debt ceiling -- the second-most-famous ceiling in the world after the Sistine Chapel's, as hideous as Michelangelo's is beautiful -- has begun to affect the government money markets. As the nation's total borrowing began approaching the statutory limit in December, the Treasury pared back Treasury bill (T-bill) supply, cutting it by $117 billion that month. On January 19, the outstanding debt reached the limit, and after announcing that it would implement extraordinary measures, the Treasury built T-bill supply back up, increasing it by $191 billion in January."

They tell us, "The otherwise unnecessary supply gyrations that left investors searching for investments in December -- a month that is typically a struggle influenced by year-end reporting -- and briefly sighing with relief in January are just a taste of what awaits over the next few quarters. The Treasury's cash flow map looks something like this: First, use extraordinary measures to allow robust issuance and build up the cash balance, as we have seen in January. Second, use the extra cash for tax refunds in February and March, so the country's good citizens can take spring vacations. Third, receive large cash inflows in April as other citizens pay their tax bills, rebuilding Treasury's cash balance. Fourth, over the following months, gradually exhaust the extraordinary measures and watch the cash balance melt away as the nation spends more than it takes in."

Wells continues, "Over these months, T-bill supply will shrink and investors may strive to invest in any T-bills they can find, pushing yields lower, while also simultaneously attempting to avoid T-bills they view as potentially facing repayment challenges due to the debt ceiling, shunning them like limburger. We just don't know how long that fourth phase -- the gradual cash drawdown -- will last because the spring tax season cash flows are uncertain as of now."

They comment, "Last year, they surprised on the upside, but then again, last year had a booming stock market and people had gains to pay taxes on. This year, not so many gains. Treasury Secretary Yellen noted that cash and other measures should be sufficient to fund operations until at least early June, and Treasury watchers on Wall Street have widely ranging views, suggesting that cash runs out anywhere from July to November. Timing clarity should arrive as tax season ends."

Wells adds, "On the Treasury's map, the end of the fourth phase, when cash and extraordinary measures are exhausted but the debt ceiling has not been raised or suspended, represents the edge of the known world. Beyond that, as the medieval maps said of the unknown, 'Here there be monsters.'"

Finally, Morningstar U.K. writes "Disappointed by Cash? Here's a Thought...." The article asks, "[H]ow do the rates actually differ from current accounts and what kind of returns can investors expect there?" They answer, "So, for a U.K. investor, a UK buyer of a money market account, it will be roughly where the Bank of England base rate is, which at the moment is around 3.5%. In the US, you're more likely to get maybe 4.5% and in Europe, down to 2.5%. You compare this to a bank account. So, just scanning the papers this morning, HSBC's online saver account is offering a 0.65% return gross of fees. Lloyds are offering their investors 0.6%, Barclays around 0.6% as well. So, there's a big difference now today, that 3.5% compared to the 0.6% you can get off the high street."

The piece also asks, "What kind of things do these funds invest in?" It explains, "So, the instruments ... you scan the fact sheet, you can see names like time deposits, certificates of deposits, commercial paper, asset-backed commercial paper, repos or repurchase agreements, floating rate notes. These all sound incredibly complex and sophisticated instruments when ultimately the manager is buying up debt that is issued by typically a bank or a large corporation and in return is receiving interest commensurate with the prevailing market rate."

Moody's Investors Service published an update entitled, "Outlook stable as regulatory uncertainty clouds favorable operating environment." They summarize, "Our global outlook for money market funds (MMF) is stable, unchanged from last year. The industry benefits from record assets under management (AUM), solid revenues on the back of higher yields and conservatively managed portfolios, partly offset by a lack of clarity around upcoming regulatory reform." (Note: Please join us for Crane's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass. Click here for details.)

The report tells us, "Cash is king again. Higher short-term rates and volatility in long-term asset classes have made cash more attractive, supporting MMF revenues. The yield pick-up MMFs offer over bank deposits will help them maintain a competitive advantage. Macroeconomic uncertainty will also mitigate investors' shift towards riskier assets, particularly in H1 2023. Industry AUM will end 2023 at or above current record levels, with growth tempered by corporate investors' need to draw on cash balances as costs rise and earnings growth slows. MMFs will be able to charge full fees, as the end of the near-zero interest rate era has removed the need for waivers to keep clients' returns positive."

Moody's explains, "MMFs have significantly shortened the weighted average maturity (WAM) of their portfolios as interest rates have risen, allowing them to quickly reinvest capital at higher yields. WAMs will rise gradually during the year as MMFs reposition their portfolios for a likely end to the current cycle of rising rates. This will modestly increase their exposure to interest rate risk. They will however maintain ample liquidity buffers in case of unexpected events such as the September 2022 UK gilt crisis."

They tell us, "US prime MMFs have increased their allocation to Aaa rated securities. Their portfolios, which are exposed to bank debt, also benefit from the stable creditworthiness of the banking sector globally. In the US, MMFs are making heavy use of the Federal Reserve's reverse repo facility (RRP). This will likely moderate when an increase in the US debt ceiling increases the supply of Treasury bills. However, uncertainty over the outcome of deadlocked Congressional negotiations to raise the ceiling could trigger market volatility."

On "Regulatory reforms," they write, "Previous regulatory reforms in both the US and Europe drove a structural transformation of the industry. In the US, the requirement for institutional prime funds to convert from constant to variable net asset value and adopt liquidity fees and redemption gates by October 2016 resulted in a $1+ trillion asset rotation in favor of CNAV government funds. In Europe, the new LVNAV category attracted the bulk of the CNAV prime assets as prime CNAV products were phased out."

Moody's says, "The final content and timing of planned changes to MMF regulations in the US and Europe remain unclear. The current proposals, which are designed to limit large-scale preemptive redemptions during times of market stress, would make MMFs more resilient but less appealing to investors. In the US, the Securities and Exchange Commission (SEC) was scheduled to announce a final reform package last year, but changed its priorities because of turmoil in the cryptocurrency market. It might now do so in Q2 2023. The likely implementation period will likely be close to 2 years, as for previous regulatory changes."

They add, "In Europe, the European Commission was due to complete a review of MMF regulation in July last year. However, market dislocation due to COVID-19 has caused delays, and the review may be postponed further as regulators draw lessons from the UK gilt market crisis of September 2022, which showed once again how sensitive MMFs are to market shocks. European parliamentary elections in May 2024 cast further doubt over the timeline for the new rules, which must be approved by the Parliament as well as the European Commission and the Council of the European Union. There is a risk that UK and EU regulators may diverge in implementing Financial Stability Board recommendations. This could threaten the equivalence of fund regulations agreed on post-Brexit, which is valid until the end of 2025. In this scenario, EU fund managers could lose their license to sell to British investors, and new regulatory burdens would emerge."

Fitch Ratings also recently published "U.S. Money Market Funds: January 2023." They tell us, "Taxable MMFs decreased their exposure to all asset types except repo from November to December. Treasury holdings decreased by $77 billion from Nov. 30, 2022 to Dec. 31, 2022, while repo exposure increased by $253 billion over the same period, according to Crane Data. This is the largest shift into repo securities since September 2021. The shift toward repo follows the trend of managers shortening the weighted average maturities (WAMs) and WA lives (WALs) of their portfolios throughout 2022 in anticipation of Federal Reserve (Fed) interest rate increases. Repo remained the largest portfolio segment for the 16th consecutive month."

The piece continues, "As of Dec. 31, 2022, institutional government and prime MMF net yields were 3.95% and 4.22%, respectively, per Crane Data. Yields are up significantly and have continued a steady positive trend since the Fed began increasing interest rates in March, as seen in the charts below."

Finally, another Fitch article, "U.S. ESG Money Market Funds: 4Q22," comments, "On Oct. 14, 2022, Morgan Stanley announced their Institutional Liquidity ESG Money Market Portfolio would convert from an Institutional fund to a Retail fund, as defined in Rule 2a-7 under the Investment Company Act of 1940. The change became effective on Jan. 23, 2023. As a result, shareholders of the fund who were not eligible investors for a retail money market fund (MMF) were involuntarily redeemed from the fund."

It explains, "ESG MMFs had average weighted average maturities (WAMs) of 12 days for 4Q22, while non-ESG MMFs had average WAMs of 11 days; these are down from 14 days for both groups in 3Q22. Gross yields of ESG MMFs averaged 3.85%in 4Q22, the same as non-ESG MMFs. ESG MMFs' net yields averaged 3.62% during the quarter, which was 6 basis points (bps) higher than comparable non-ESG MMFs due to the lower expense ratios."

Finally, Fitch states, "The Fed continued tightening on Nov. 1st and Dec. 13th, raising rates by 75 and 50 bps, respectively. ESG MMFs' gross and net yields were up 165 bps and 136 bps, respectively, between Sept. 30, 2022 and Dec. 30, 2022, while non-ESG MMFs' gross and net yields rose 156 and 139 bps over the same period, respectively. Yields will continue to increase as the Fed's benchmark federal-funds rate is expected to reach 500 bps by the end of 2023."

They add, "Allocations in ESG MMFs remained relatively stable this quarter, but slightly increased allocations to Barclays, Bank of America and Svenska Handelsbanken during this period, a 5% increase in total, while non-ESG reduced exposure by 0.8%. Allocations to Federal Reserve Bank of New York and BNP Paribas increased quarter over quarter in non-ESG MMFs, while staying stable in ESG MMFs. Non-ESG MMF exposure to the Federal Reserve Bank of New York was 20.5% as of 4Q22, to take advantage of the Fed's Reverse Repurchase Program (RRP). This is up from 15.3% during the previous quarter. ESG MMFs continue to be ineligible for Fed RRP due to their smaller size."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Feb. 10) includes Holdings information from 45 money funds (down 8 from two weeks ago), which represent $1.359 trillion (down from $1.727 trillion) of the $5.197 trillion (26.1%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) (Note: Register soon for Crane's Bond Fund Symposium, which will be held March 23-24, 2023, in Boston, Mass.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $834.5 billion (down from $1.023 trillion two weeks ago), or 61.4%; Treasuries totaling $313.1 billion (down from $467.8 billion two weeks ago), or 23.0%, and Government Agency securities totaling $100.4 billion (down from $108.2 billion), or 7.4%. Commercial Paper (CP) totaled $49.6 billion (down from two weeks ago at $55.6 billion), or 3.6%. Certificates of Deposit (CDs) totaled $17.5 billion (down from $24.1 billion two weeks ago), or 1.3%. The Other category accounted for $33.5 billion or 2.5%, while VRDNs accounted for $10.3 billion, or 0.8%.

The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $521.1 billion (38.3%), the US Treasury with $313.1 billion (23.0% of total holdings), Fixed Income Clearing Corp with $78.0B (5.7%), Federal Home Loan Bank with $64.4B (4.7%), JP Morgan with $41.4B (3.0%), Federal Farm Credit Bank with $33.2B (2.4%), RBC with $27.5B (2.0%), Goldman Sachs with $19.8B (1.5%), Mitsubishi UFJ Financial Group Inc with $17.9B (1.3%), and BNP Paribas with $13.7B (1.0%).

The Ten Largest Funds tracked in our latest Weekly include: Fidelity Inv MM: Govt Port ($138.8B), Dreyfus Govt Cash Mgmt ($134.0B), Morgan Stanley Inst Liq Govt ($120.0B), Fidelity Inv MM: MM Port ($97.2B), Allspring Govt MM ($89.4B), Invesco Govt & Agency ($83.7B), State Street Inst US Govt ($73.1B), First American Govt Oblg ($67.3B), Dreyfus Treas Obligations Cash Mgmt ($50.2B), and Invesco Treasury Portfolio ($49.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

In related news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. The release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in January, prime money market funds held 40.7 percent of their portfolios in daily liquid assets and 58.5 percent in weekly liquid assets, while government money market funds held 84.6 percent of their portfolios in daily liquid assets and 90.6 percent in weekly liquid assets." Prime DLA was down from 46.0% in December, and Prime WLA was up from 56.4%. Govt MMFs' DLA was down from 84.7% and Govt WLA increased from 90.2% the previous month.

ICI explains, "At the end of January, prime funds had a weighted average maturity (WAM) of 16 days and a weighted average life (WAL) of 45 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 13 days and a WAL of 59 days." Prime WAMs were 2 days longer and WALs were unchanged from the previous month. Govt WAMs were 2 days shorter and WALs were 1 day shorter from December.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $409.79 billion in December to $358.08 billion in January. Government money market funds' holdings attributable to the Americas declined from $3,794.89 billion in December to $3,686.39 billion in January."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $358.1 billion, or 49.6%; Asia and Pacific at $123.0 billion, or 17.0%; Europe at $231.0 billion, or 32.0%; and, Other (including Supranational) at $9.2 billion, or 1.4%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.686 trillion, or 93.3%; Asia and Pacific at $76.3 billion, or 1.9%; Europe at $167.8 billion, 4.2%, and Other (Including Supranational) at $20.2 billion, or 0.5%.

Finally, a release entitled, "ICI: Mandatory Swing Pricing Would Harm Millions of American Investors," tells us, "Investment Company Institute (ICI) President and CEO Eric Pan released the following statement regarding the Securities and Exchange Commission's (SEC) proposal to amend open-end fund liquidity risk management programs and impose mandatory swing pricing for mutual funds: 'The SEC's liquidity, swing pricing, and hard close proposal would seriously harm the more than 100 million Americans who use mutual funds to invest for their financial future.'"

Pan explains, "Mutual funds have existed for almost a century. Over the years, they have withstood shocks ranging from depressions to global wars. Mutual funds work. They help people build financial security, and 68% of mutual fund-owning households earn less than $150,000 annually. The SEC's unworkable and costly proposal would severely damage these funds, targeting middle-class Americans and making it harder for families to achieve their financial goals. The Commission's rulemaking seeks to re-engineer the entire mutual fund product, fundamentally altering how mutual funds are managed, priced, bought, and sold by everyday investors. The agency wants to mandate that all mutual funds manage liquidity under prescriptive new rules. Even worse, the proposal would mandate that funds 'swing' their daily share price, artificially changing it on most business days, under SEC conditions, unseen by investors."

He continues, "The Commission presents scant evidence of a real problem to solve. ICI estimates that daily dilution for U.S. mutual funds is on average far too small -- typically just hundredths or tenths of a basis point per day -- to incentivize shareholders to redeem heavily, contrary to what the Commission assumes. Even a scenario where dilution amounted to a few basis points annually is highly unlikely to outweigh investors' other concerns, in particular the daily gyrations of the stock market. Over the longer-term, any potential dilution would be greatly offset by the returns investors earn in mutual funds. The data simply do not support the SEC's proposed heavy-handed approach."

Pan adds, "The SEC already has a mandatory liquidity risk management rule and an optional swing pricing rule on the books. The SEC has failed to demonstrate that the enormous changes they are contemplating, including the 4 p.m. hard close, would be beneficial to investors. Similarly, the agency has not fairly analyzed whether the changes would be workable for funds, given that they would require a complete overhaul of operational systems and the conscription of thousands of fund staff.... We are also seriously concerned by the burdensome obligations envisioned for Form N-PORT filers. The information would include public disclosure of holdings that the Commission has previously found could encourage predatory trading.... The SEC should leave the current liquidity risk management regime in place, letting each fund determine if an anti-dilution measure is needed, and which measure to use. We cannot support this costly proposal, as it would deny mutual fund investors a level playing field. ICI urges the Commission to study the data we have presented and put investors over academic theories and one-size-fits-all requirements."

Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds rose over the past month to $1.075 trillion, helped by currency adjustments. EUR & GBP MMFs declined over the past 30 days, while USD increased. European MMF assets remain below their record high of $1.101 trillion set in mid-December 2021. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $25.4 billion over the 30 days through 2/13. The totals are up $44.6 billion (4.3%) year-to-date. (Note that decreases in the U.S. dollar caused Euro and Sterling totals to jump when they're translated back into dollars. See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Offshore US Dollar money funds are up $8.4 billion over the last 30 days and are up $24.6 billion YTD to $574.2 billion. Euro funds decreased E10.5 billion over the past month. YTD, they're down E10.9 billion to E169.5 billion. GBP money funds decreased L12.3 billion over 30 days; they are down by L9.4 billion YTD to L254.0B. U.S. Dollar (USD) money funds (197) account for half (53.4%) of the "European" money fund total, while Euro (EUR) money funds (95) make up 17.3% and Pound Sterling (GBP) funds (127) total 29.2%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below.

Offshore USD MMFs yield 4.49% (7-Day) on average (as of 2/13/22), up from 4.23% a month earlier. Yields averaged 4.20% on 12/3/22, 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 5 months ago; they're yielding 2.17% on average, up from 1.70% a month ago and up from 1.48% on 12/31/22, -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 3.75%, up 47 bps from a month ago, and up from 3.17% on 12/31/22. 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 February MFI International Portfolio Holdings, with data as of 1/31/23, show that European-domiciled US Dollar MMFs, on average, consist of 32% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 28% in Repo, 8% in Treasury securities, 15% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 64.2% of their portfolios maturing Overnight, 9.2% maturing in 2-7 Days, 5.6% maturing in 8-30 Days, 7.0% maturing in 31-60 Days, 4.2% maturing in 61-90 Days, 6.7% maturing in 91-180 Days and 3.2% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (30.2%), France (14.6%), Canada (12.6%), Japan (9.9%), Sweden (7.0%), the Netherlands (5.1%), the U.K. (3.9%), Australia (3.6%), Germany (2.1%) and Belgium (1.7%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $50.7 billion (8.3% of total assets), Federal Reserve Bank of New York with $46.1B (7.5%), Fixed Income Clearing Corp with $30.3B (5.0%), Credit Agricole with $25.0B (4.1%), RBC with $23.8B (3.9%), BNP Paribas with $20.8B (3.4%), Sumitomo Mitsui Banking Corp with $18.1B (3.0%), Barclays PLC with $15.2B (2.5%), Toronto-Dominion Bank with $14.2B (2.3%) and Skandinaviska Enskilda Banken AB with $13.6B (2.2%).

Euro MMFs tracked by Crane Data contain, on average 48% in CP, 23% in CDs, 20% in Other (primarily Time Deposits), 7% in Repo, 1% in Treasuries and 1% in Agency securities. EUR funds have on average 36.8% of their portfolios maturing Overnight, 15.8% maturing in 2-7 Days, 22.1% maturing in 8-30 Days, 7.8% maturing in 31-60 Days, 6.2% maturing in 61-90 Days, 7.1% maturing in 91-180 Days and 4.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (32.2%), Japan (14.2%), the U.K. (6.1%), the U.S. (6.1%), Canada (5.6%), Germany (5.3%), the Netherlands (5.2%), Sweden (5.2%), Austria (5.2%) and Belgium (3.9%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E10.3B (6.4%), Credit Mutuel with E7.2B (4.5%), Societe Generale with E6.4B (4.0%), Erste Group Bank AG with E6.2B (3.9%), Republic of France with E6.1B (3.8%), BNP Paribas with E5.9B (3.7%), Mizuho Corporate Bank Ltd with E5.6B (3.5%), Barclays PLC with E5.3B (3.3%), Mitsubishi UFJ Financial Group Inc with E4.9B (3.0%) and Natixis with E4.8B (3.0%).

The GBP funds tracked by MFI International contain, on average (as of 1/31/23): 40% in CDs, 25% in CP, 21% in Other (Time Deposits), 12% in Repo, 1% in Treasury and 1% in Agency. Sterling funds have on average 36.1% of their portfolios maturing Overnight, 18.8% maturing in 2-7 Days, 16.3% maturing in 8-30 Days, 6.8% maturing in 31-60 Days, 8.6% maturing in 61-90 Days, 8.7% maturing in 91-180 Days and 4.8% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (17.2%), Japan (16.7%), Canada (15.1%), the U.K. (9.9%), Australia (6.3%), the Netherlands (6.0%), Sweden (4.4%), Germany (4.2%), the U.S. (4.2%) and Spain (2.7%).

The 10 Largest Issuers to "offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L9.4B (4.4%), Mizuho Corporate Bank Ltd with L8.3B (3.9%), RBC with L7.7B (3.6%), Bank of Nova Scotia with L7.6B (3.6%), Barclays PLC with L7.3B (3.4%), Toronto-Dominion Bank with L7.1B (3.3%), Nordea Bank with L6.9B (3.2%), Sumitomo Mitsui Trust Bank with L6.8B (3.2%), BNP Paribas with L6.2B (2.9%) and Sumitomo Mitsui Banking Corp with L6.0B (2.8%).

In related news, last week we quoted from the press release, "ESMA report finds EU MMF industry at close to E1.5tn" which told us, "The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, ... published its inaugural market report on European Union (EU) Money Market Funds (MMF). With this report ESMA provides for the first time a comprehensive market-level view of EU MMFs, based on supervisory information collected by National Competent Authorities (NCAs) and ESMA." (See our Feb. 9 LOTD, "ESMA: European MMFs E​1.44 Trillion.")

The full "ESMA Market Report: EU MMF market 2023," explains, "This Report provides, for the first time, a comprehensive market-level view of EU MMFs, based on the information reported by managers. Its primary objective is to contribute to our systemic risk assessment work at ESMA, supplementing the ESMA Report on Trends, Risks and Vulnerabilities, through which we will continue to monitor developments and risks, as well as other ESMA Market Reports such as the EU Alternative Investment Fund Report. In doing so, this Report also aims at informing our regulatory assessment of MMFs and contributing to supervisory convergence."

It tells us, "Based on data collected by National Competent Authorities (NCAs) and ESMA under Article 37 of the Money Market Fund Regulation (MMFR), EU MMFs held EUR 1.44tn in assets at the end of 2021. By MMF types, Low volatility NAV (LVNAV) MMFs account for 46% of the total assets, followed by Variable NAV (VNAV) MMFs (42%) and Constant NAV (CNAV) MMFs (12%). Most of EU MMFs (89%) are domiciled in one of the three following jurisdictions: France, Luxembourg and Ireland. All MMFs domicile in France are of the VNAV type and almost exclusively denominated in EUR. MMFs in Luxembourg and Ireland are mainly in non-EU currencies and set up mostly as CNAVs and LVNAVs. MMFs authorised in other EU jurisdictions are VNAVs denominated in other EU domestic currencies and account only for a small fraction of assets. The EU MMF industry shows a high degree of concentration as the 20 largest MMFs of each type hold close to 80% of total MMF assets."

Finally, ESMA writes, "Professional investors hold more than 90% of EU MMFs. They account for 95% of the NAV for CNAVs and 99% for LVNAVs. The share of retail investors is higher for VNAVs, with respectively 13% for short-term and 12% for standard VNAVs. This is driven by VNAVs domiciled in France, where retail clients account for 12% of NAV. Non-EU investors are dominant in Luxembourg and Ireland. Reflecting the importance of MMFs in non-EU currencies, non-EU investors account for 77% of the NAV of Irish MMFs (including 60% from the UK) and 63% for Luxembourg (including 30% from the UK and 10% from the US). In contrast, EU investors hold around 94% of NAV in France, with 76% being from domestic investors. Financial corporations are the main unitholders of MMF shares across regulatory types (70% of NAV). Insurances, pension funds and banks account together for 25% of NAV. Other financial institutions, a category that includes collective investment undertakings (CIUs), have the highest equity interest in MMFs with 45% of NAV."

The February issue of our Bond Fund Intelligence, which was sent to subscribers Tuesday morning, features the stories, "OFR Annual Report Cites Bond Funds as Big Systematic Risk," which reviews OFR's Annual Report to Congress 2022, and "J.P. Morgan Publishes Low Duration Bond Fund Update," which reviews the latest on ultra-short bond fund flows and returns." BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped in January while yields dropped. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also: Please join us for Crane's Bond Fund Symposium, which will be held March 23-24, 2023, in Boston, Mass.)

Our "OFR Annual Report" article says, "Last month, the U.S. Treasury's Office of Financial Research published its 'Annual Report to Congress 2022,' which contains a section relating to risks in bond mutual funds. They tell us, 'Open-end bond mutual funds share some similar inherent structural vulnerabilities as money market funds because they offer daily redemptions to fund investors while holding relatively less-liquid debt securities that may be challenging to sell in stress periods. In general, the limited liquidity of bond fund holdings is a product of broader liquidity concerns in U.S. bond markets, because most U.S. debt securities are traded over-the-counter, are transacted less frequently (except for U.S. Treasuries), and rely on dealer intermediation. These liquidity concerns explain both the appeal and the risks of bond funds, namely, that bond funds offer a more liquid alternative that is only possible because these funds engage in liquidity transformation.'"

It continues, "The report says, 'This liquidity mismatch can incentivize investors to redeem ahead of others ... in the face of a negative shock.... In addition, this liquidity mismatch can be exacerbated by dealers' shrinking securities inventories, particularly in over-the-counter fixed-income securities, relative to the growth in open-end fund assets.'"

Our "Low Duration" piece states, "A recent J.P. Morgan 'Mid-Week US Short Duration Update' includes a 'Low duration bond fund update.' They write, 'Consistent with the broader U.S. fixed income markets, total short-term funds (effective duration of 1.5-3.5y) and ultra-short term bond funds (effective duration of 0.5-1.5y) saw significant outflows last year prompted by the Fed's aggressive tightening agenda. Based on the bond funds we track, low duration bond fund AUMs declined by an estimated $150bn (or 15%) YoY, to $841bn as of December-end: short-term fund AUMs declined by $117bn, and ultra-short term fund AUMs declined by $33bn.'"

It continues, "The piece tells us, 'Not surprisingly, short-term credit funds saw most of the outflows last year (-$118bn) given their longer duration relative to ultra-short bond funds and money funds. In fact, total returns for short-term bond funds significantly underperformed last year, delivering substantial negative total returns on a 1y basis relative to ultra-short bond funds and MMFs.... In contrast, MMFs meaningfully outperformed as they benefitted from extremely low WAMs and quicker resets in an aggressively rising interest rate environment.'"

Our first News brief, "Returns Jump, Yields Plummet in Jan.," states, "Bond fund returns rebounded sharply in January while yields fell for all sectors beyond the short-term. Our BFI Total Index rose 2.52% over 1-month but is down 4.84% over 12 months. The BFI 100 rose 2.78% in Jan. and lost 5.92% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.70% over 1-month and is up 0.99% for 1-year; Ultra-Shorts rose 0.85% but are up just 0.11% over 12 mos. Short-Term returned 1.39% and -2.69%, and Intm-Term rose 3.11% and -7.62% over 1-year. BFI's Long-Term Index rose 3.98% and -10.10%. High Yield rose 3.28% in Jan. and fell 3.78% over 1-year."

A second News brief, "Reuters: U.S. Bond Funds Gain Inflows for Fourth Week in a Row," quotes, "U.S. bond funds drew money inflows for a fourth straight week in the seven days to Feb. 1, on hopes of slowing rate hikes, with its economy grappling against a slowdown. Refinitiv Lipper data showed investors purchased a net $197 million worth of U.S. bond funds, although a big drop from the previous week's $4.84 billion."

Another brief, "Barron's Says, 'Bonds Take Flight. But Investors Should Brace for Bumps Ahead.' The article explains, 'Fixed income is off to a flying start in 2023, a major turnaround from last year. But the path ahead looks bumpier. The rally has swept through nearly all fixed-income sectors. In investment-grade bonds, the iShares Core U.S. Aggregate Bond ETF <b:>`_(AGG) is up 4.1%. More impressive are gains in long-term bonds, with the `iShares 20+ Year Treasury Bond ETF (TLT) ahead 8.9%, clawing back a bit of last year's 31% fall.'"

A BFI sidebar, "New Vanguard Multi-Sector," cites the press release, "Vanguard Expands Fund Lineup with Multi-Sector Income Bond Fund." It explains, "Vanguard ... announced that the actively managed Vanguard Multi-Sector Income Bond Fund is now available for public investment, offering investors diversified exposure to fixed income credit sectors. The fund, managed by Vanguard Fixed Income Group, provides clients with a flexible, risk-controlled approach that enables portfolio managers to seek the best opportunities across various sectors and credit qualities."

Finally, another sidebar, "Federated Earnings on BFs," says, "Federated Hermes briefly discussed bond funds during its Q4'23 earnings call. CEO Chris Donahue comments, 'Federated Hermes' record assets at year-end 2022 were driven by money market asset increases and investor interest in our flagship Total Return Bond Fund and related separate accounts.... [I]nvestors valued our investment perspective as they sought haven from market volatility in a diverse range of Federated Hermes products -- from money market funds to low-duration fixed-income options.'"

Barron's writes on money market funds and sweeps in, "Money Markets Pay 4.5%. If You're Getting Less on a Sweep Account, It's Time for 'Cash Sorting.'" Columnist Jack Hough discusses Schwab's lower-yielding bank sweeps vs. purchased money funds and tells us, "[I]t's entirely normal for money-market funds to pay more than bank deposits. Bank accounts are FDIC insured, whereas money markets can dip in value. That has never happened at Schwab and has been exceptionally rare elsewhere, but even so, a bit more risk deserves slightly higher returns." (Note: Please join us for Crane's Bond Fund Symposium, which will be held March 23-24, 2023, in Boston, Mass. Click here for the agenda, and clients and ultra-short bond fund professionals are welcome to join us for the cocktail party at the Hyatt Regency March 23 from 5-7pm.)

Hough explains, "Now the natural order of things has been restored, and bank accounts are no longer the place to go for yield. But rates have gone up so quickly that savers might not realize how large the return for yield shopping has grown. The one-month Treasury yield has shot up from 0.04% two years ago to 4.66% this past week. Many banks and brokers are doing a dance called the Sweep Account Slow-Foot, raising payouts at a near imperceptible pace. If you're getting less than 4% on anything more than spending money, you can do better."

The Barron's piece says, "Sweep policies vary widely. Fidelity says that its default option is Fidelity Government Money Market fund (SPAXX), which recently yielded 4.18%. But it also offers two other choices for its brokerage accounts: a Treasury money market, and something called FCASH, described as a taxable interest-bearing cash option."

It adds, "Last month, BofA Securities double-downgraded Schwab shares to Underperform, citing the risk of 'cash sorting.' That's what Schwab calls customers leaving low-interest deposits for more competitive rates.... Money leaving low-interest sweep funds, even if it's headed to Schwab's own money-market funds, could obviously cut into profits."

In other news, the SEC released its latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q2'22) at $328 billion (up from $313 billion in Q1'22 and up from $319 billion in Q2'21).

The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Third Calendar Quarter 2020 through Second Calendar Quarter 2022 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools.)

The tables in the SEC's "Private Funds Statistics: Second Calendar Quarter 2022," with the most recent data available, show 80 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 1 from last quarter and up 4 from a year ago. (There are 52 Section 3 Liquidity Funds out of the 80 Liquidity Funds.) The SEC receives Form PF reports from 40 Liquidity Fund advisers (22 of which are Section 3 Liquidity Fund advisers), up 1 from last quarter and up 3 from a year ago.

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $328 billion, up $15 billion from Q1'22 and up $9 billion from a year ago (Q2'21). Of this total, $324 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $335 billion, up $17 billion from Q1'22 and up $5 billion from a year ago (Q2'21). Of this total, $331 billion in is Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $100 billion is held by Other (30.8%), $65 billion is held by Private Funds (19.9%), $64 billion is held by Unknown Non-U.S. Investors (19.9%), $16 billion is held by SEC-Registered Investment Companies (4.9%), $5 billion in held by Pension Plans (1.5%), $9 billion is held by Insurance Companies (2.8%) and $3 billion is held by Non-Profits (0.9%).

The tables also show that 66.4% of Section 3 Liquidity Funds have a liquidation period of one day, $310 billion of these funds may suspend redemptions, and $281 billion of these funds may have gates. WAMs average a short 31 days (30 days when weighted by assets), WALs are 49 days (51 days when asset-weighted), and 7-Day Gross Yields average 1.35% (1.30% asset-weighted). Daily Liquid Assets average about 50% (53% asset-weighted) while Weekly Liquid Assets average about 60% (65% asset-weighted).

Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (36.5%) are fully compliant with Rule 2a-7. When calculating NAVs, 71.2% are "Stable" and 28.8% are "Floating." For more, see our Jan. 27 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting."

Crane Data's February Money Fund Portfolio Holdings, with data as of Jan. 31, 2023, show that Repo holdings dropped after reaching a record $2.94 trillion last month, while everything else increased except Treasuries (which continued an 11-month slide). Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $49.7 billion to $5.089 trillion in January, after increasing $72.6 billion in December and decreasing $24.6 billion in November. MMFs increased $57.7 billion in October and $15.2 billion in September. Repo remained the largest portfolio segment after hitting record levels a month ago, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York, which surpassed the U.S. Treasury as the largest "Issuer" eight months ago, saw RRP issuance held by MMFs drop $345.3 billion to $1.974 trillion. Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among taxable money funds, Repurchase Agreements (repo) decreased $111.2 billion (-3.8%) to $2.828 trillion, or 55.6% of holdings, in January, after increasing $253.2 billion in December. Repo decreased $24.4 billion in November and $6.0 billion in October, but increased $74.4 billion in September. Treasury securities fell $17.8 billion (-1.7%) to $1.051 trillion, or 20.7% of holdings, after decreasing $77.5 billion in December. Treasury holdings fell $65.0 billion in November, $41.8 billion in October and $84.8 billion in September. Government Agency Debt was up $51.8 billion, or 9.2%, to $614.0 billion, or 12.1% of holdings. Agencies decreased $24.5 billion in December, but increased $53.6 billion in November, $55.0 billion in October and $35.9 billion in September. Repo, Treasuries and Agency holdings now total $4.494 trillion, representing a massive 88.3% of all taxable holdings.

Money fund holdings of CP and CDs increased in January. Commercial Paper (CP) increased $36.3 billion (14.8%) to $282.0 billion, or 5.5% of holdings. CP holdings decreased $16.9 billion in December, increased $7.7 billion in November and $19.3 billion in October, and decreased $7.8 billion in September. Certificates of Deposit (CDs) increased $24.1 billion (16.2%) to $173.6 billion, or 3.4% of taxable assets. CDs fell $4.3 billion in December, increased $4.4 billion in November and $15.5 billion in October, and decreased $1.6 billion in September. Other holdings, primarily Time Deposits, increased $66.5 billion (104.3%) to $130.3 billion, or 2.6% of holdings, after decreasing $57.0 billion in December and $1.0 billion in November. Other holdings increased $16.0 billion in October, but decreased $1.1 billion in September. VRDNs fell to $9.4 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Friday around noon.)

Prime money fund assets tracked by Crane Data jumped to $1.111 trillion, or 21.8% of taxable money funds' $5.089 trillion total. Among Prime money funds, CDs represent 15.6% (up from 14.5% a month ago), while Commercial Paper accounted for 25.4% (up from 24.0% in December). The CP totals are comprised of: Financial Company CP, which makes up 17.6% of total holdings, Asset-Backed CP, which accounts for 4.2%, and Non-Financial Company CP, which makes up 3.6%. Prime funds also hold 5.7% in US Govt Agency Debt, 3.5% in US Treasury Debt, 28.4% in US Treasury Repo, 0.3% in Other Instruments, 9.7% in Non-Negotiable Time Deposits, 4.5% in Other Repo, 4.8% in US Government Agency Repo and 0.5% in VRDNs.

Government money fund portfolios totaled $2.694 trillion (52.9% of all MMF assets), down from $2.722 trillion in December, while Treasury money fund assets totaled another $1.284 trillion (25.2%), down from $1.288 trillion the prior month. Government money fund portfolios were made up of 20.4% US Govt Agency Debt, 13.4% US Government Agency Repo, 12.3% US Treasury Debt, 53.7% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 53.1% US Treasury Debt and 46.2% in US Treasury Repo. Government and Treasury funds combined now total $3.978 trillion, or 78.2% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $181.0 billion in January to $505.4 billion; their share of holdings jumped to 9.9% from last month's 6.4%. Eurozone-affiliated holdings increased to $333.3 billion from last month's $211.4 billion; they account for 6.6% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $211.1 billion (4.2% of the total) from last month's $189.3 billion. Americas related holdings fell to $4.367 trillion from last month's $4.523 trillion, and now represent 85.8% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $210.7 billion, or -8.2%, to $2.355 trillion, or 46.3% of assets); US Government Agency Repurchase Agreements (up $99.3 billion, or 30.6%, to $423.6 billion, or 8.3% of total holdings), and Other Repurchase Agreements (up $0.2 billion, or 0.4%, from last month to $49.8 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $25.0 billion to $195.5 billion, or 3.8% of assets), Asset Backed Commercial Paper (up $4.2 billion to $47.0 billion, or 0.9%), and Non-Financial Company Commercial Paper (up $7.1 billion to $39.6 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of Jan. 31, 2023, include: the Federal Reserve Bank of New York ($1.974T, 38.8%), US Treasury ($1.051T, 20.7%), Federal Home Loan Bank ($506.9B, 10.0%), Fixed Income Clearing Corp ($179.9B, 3.5%), Federal Farm Credit Bank ($97.8B, 1.9%), JP Morgan ($91.7B, 1.8%), RBC ($89.6B, 1.8%), Barclays ($73.3B, 1.4%), Citi ($64.3B, 1.3%), BNP Paribas ($62.9B, 1.2%), Mitsubishi UFJ Financial Group Inc ($46.2B, 0.9%), Bank of America ($44.9B, 0.9%), Credit Agricole ($41.9B, 0.8%), Sumitomo Mitsui Banking Corp ($40.0B, 0.8%), Goldman Sachs ($37.0B, 0.7%), Toronto-Dominion Bank ($35.7B, 0.7%), Mizuho Corporate Bank Ltd ($32.9B, 0.6%), Bank of Montreal ($30.9B, 0.6%), Societe Generale ($29.6B, 0.6%) and ING Bank ($26.7B, 0.5%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($1.974T, 69.8%), Fixed Income Clearing Corp ($179.9B, 6.4%), JP Morgan ($84.4B, 3.0%), RBC ($65.4B, 2.3%), Barclays PLC ($51.6B, 1.8%), BNP Paribas ($49.9B, 1.8%), Citi ($49.3B, 1.7%), Bank of America ($37.4B, 1.3%), Goldman Sachs ($36.5B, 1.3%) and Sumitomo Mitsui Banking Corp ($26.0B, 0.9%). The largest users of the $1.974 trillion in Fed RRP include: Fidelity Govt Money Market ($139.4B), Goldman Sachs FS Govt ($135.9B), Fidelity Govt Cash Reserves ($125.3B), Vanguard Federal Money Mkt Fund ($118.9B), JPMorgan US Govt MM ($88.0B), Dreyfus Govt Cash Mgmt ($87.4B), Fidelity Inv MM: Govt Port ($80.6B), Northern Instit Treasury MMkt ($55.4B), Vanguard Cash Reserves Federal MM ($49.2B) and Federated Hermes Govt ObI ($48.8B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($24.9B, 4.8%), Toronto-Dominion Bank ($24.5B, 4.7%), RBC ($24.2B, 4.7%), Mizuho Corporate Bank Ltd ($23.7B, 4.6%), Barclays PLC ($21.7B, 4.2%), Skandinaviska Enskilda Banken AB ($21.2B, 4.1%), Mitsubishi UFJ Financial Group Inc ($20.7B, 4.0%), Bank of Nova Scotia ($18.3B, 3.5%), Sumitomo Mitsui Trust Bank ($15.7B, 3.0%) and Australia & New Zealand Banking Group Ltd ($15.4B, 3.0%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($12.9B, 7.4%), Sumitomo Mitsui Banking Corp ($11.6B, 6.7%), Credit Agricole ($11.0B, 6.4%), Toronto-Dominion Bank ($10.9B, 6.3%), Sumitomo Mitsui Trust Bank ($9.0B, 5.2%), Mizuho Corporate Bank Ltd ($8.9B, 5.1%), Citi ($8.6B, 5.0%), Landesbank Baden-Wurttemberg ($8.4B, 4.8%), Canadian Imperial Bank of Commerce ($7.2B, 4.1%) and Barclays PLC ($7.0B, 4.0%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($14.4B, 5.8%), Bank of Nova Scotia ($11.8B, 4.7%), Barclays PLC ($10.2B, 4.1%), Toronto-Dominion Bank ($10.1B, 4.0%), Bank of Montreal ($9.0B, 3.6%), BNP Paribas ($8.9B, 3.6%), National Australia Bank Ltd ($8.8B, 3.5%), Mitsubishi UFJ Financial Group Inc ($7.7B, 3.1%), Australia & New Zealand Banking Group Ltd ($7.5B, 3.0%) and Mizuho Corporate Bank Ltd ($7.3B, 2.9%).

The largest increases among Issuers include: Fixed Income Clearing Corp (up $70.4B to $179.9B), Federal Home Loan Bank (up $52.9B to $506.9B), Barclays PLC (up $35.0B to $73.3B), JP Morgan (up $28.5B to $91.7B), Citi (up $23.7B to $64.3B), Credit Agricole (up $21.0B to $41.9B), Goldman Sachs (up $19.3B to $37.0B), BNP Paribas (up $15.8B to $62.9B), ING Bank (up $14.4B to $26.7B) and Bank of America (up $12.2B to $44.9B).

The largest decreases among Issuers of money market securities (including Repo) in January were shown by: Federal Reserve Bank of New York (down $345.3B to $1.974T), US Treasury (down $17.8B to $1.051T), RBC (down $9.1B to $89.6B), Nomura (down $4.8B to $25.5B), Canadian Imperial Bank of Commerce (down $4.2B to $23.5B), UBS AG (down $0.9B to $6.4B), Lloyds Banking Group (down $0.6B to $8.0B), Federal Farm Credit Bank (down $0.3B to $97.8B), HSBC (down $0.2B to $10.0B) and Australia & New Zealand Banking Group Ltd (down $0.2B to $17.9B).

The United States remained the largest segment of country-affiliations; it represents 81.5% of holdings, or $4.148 trillion. Canada (4.3%, $219.1B) was in second place, while Japan (3.7%, $186.8B) was No. 3. France (3.4%, $171.2B) occupied fourth place. The United Kingdom (2.1%, $105.4B) remained in fifth place. Netherlands (1.2%, $59.8B) was in sixth place, followed by Sweden (1.0%, $50.5B) Germany (0.9%, $46.6B), Australia (0.8%, $39.3B), and Spain (0.3%, $12.8B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Jan. 31, 2023, Taxable money funds held 73.0% (up from 8.5%) of their assets in securities maturing Overnight, and another 6.5% maturing in 2-7 days (down from 71.4%). Thus, 79.5% in total matures in 1-7 days. Another 6.8% matures in 8-30 days, while 6.3% matures in 31-60 days. Note that over three-quarters, or 92.6% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 3.3% of taxable securities, while 3.4% matures in 91-180 days, and just 0.8% 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 Thursday, and we'll be writing our regular monthly update on the new Jan. 31 data for Friday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Wednesday. (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 Jan. 31, includes holdings information from 992 money funds (up 1 from last month), representing assets of (a record) $5.258 trillion (up from $5.212 trillion). Prime MMFs now total $1.125 trillion, or 21.4% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses and money fund revenues flat in January. (Note: We hope you'll join us for our upcoming Crane's Bond Fund Symposium, which will take place March 23-24, 2023, in Boston, Mass. Click here for details.)

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds decreased to $2.862 trillion (from $2.977 trillion), or 54.4% of all assets. Treasury holdings totaled $1.048 trillion (down from $1.067 trillion), or 19.9% of all holdings, and Government Agency securities totaled $630.6 billion (up from $579.8 billion), or 12.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.541 trillion, or a massive 86.3% of all holdings.

Commercial paper (CP) totals $290.7 billion (up from $253.7 billion), or 5.5% of all holdings, and the Other category (primarily Time Deposits) totals $167.5 billion (up from $100.2 billion), or 3.2%. Certificates of Deposit (CDs) total $173.9 billion (up from $149.7 billion), 3.3%, and VRDNs account for $85.6 billion (up from $84.7 billion last month), or 1.6% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $193.2 billion, or 3.7%, in Financial Company Commercial Paper; $47.5 billion or 0.9%, in Asset Backed Commercial Paper; and, $47.1 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.394 trillion, or 45.5%), U.S. Govt Agency Repo ($415.8B, or 7.9%) and Other Repo ($52.3B, or 1.0%).

The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $284.5 billion (up from $247.7 billion), or 25.3%; Repo holdings of $420.0 billion (down from $477.4 billion), or 37.3%; Treasury holdings of $42.5 billion (up from $32.8 billion), or 3.8%; CD holdings of $173.9 billion (up from $149.7 billion), or 15.5%; Other (primarily Time Deposits) holdings of $130.8 billion (up from $62.0 billion), or 11.6%; Government Agency holdings of $67.1 billion (down from $67.4 billion), or 6.0% and VRDN holdings of $6.3 billion (down from $6.4 billion), or 0.6%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $196.2 billion (up from $170.9 billion), or 17.4%, in Financial Company Commercial Paper; $47.5 billion (up from $43.3 billion), or 4.2%, in Asset Backed Commercial Paper; and $40.8 billion (up from $33.5 billion), or 3.6%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($317.0 billion, or 28.2%), U.S. Govt Agency Repo ($53.2 billion, or 4.7%), and Other Repo ($49.9 billion, or 4.4%).

In related news, money fund charged expense ratios (Exp%) were unchanged in January. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.38%, respectively, as of Jan. 31, 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 Wednesday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout, yesterday.) Visit our "Content" page for the latest files.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.26%, unchanged from last month's level (18 bps higher than 12/31/21's 0.08%). The average is roughly back at the level (0.27%) as it was on Dec. 31, 2019, so we estimate that funds are now charging normal expenses (but 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 0.38% as of Jan. 31, 2023, unchanged from the month prior and now slightly below the 0.40% at year-end 2019.

Prime Inst MFs expense ratios (annualized) average 0.31% (down 1 bp from last month), Government Inst MFs expenses average 0.27% (unchanged from last month), Treasury Inst MFs expenses average 0.30% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.53%, (unchanged from last month), Government Retail MFs expenses yield 0.54% (unchanged from last month). Prime Retail MF expenses averaged 0.48% (down 2 bps from last month). Tax-exempt expenses were unchanged at 0.40% on average.

Gross 7-day yields rose again during the month ended Jan. 31, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 740), shows a 7-day gross yield of 4.35%, up 9 bps 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 up 10 bps, ending the month at 4.28%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $13.746 billion (as of 1/31/23). Our estimated annualized revenue totals increased from $13.527B last month and are up from $13.550B two months ago. Revenue levels are still more than four times larger than May's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should remain relatively flat as we enter a seasonally weak period for assets.

Crane Data's latest monthly Money Fund Market Share rankings show assets were mostly higher among the largest U.S. money fund complexes in January. Money market fund assets increased $22.4 billion, or 0.4%, last month to a record $5.190 trillion, as Fidelity Investments became the first manager ever to break the $1.0 trillion level with its MMFs. Total MMF assets increased by $125.7 billion, or 2.5%, over the past 3 months, and they've increased by $148.8 billion, or 2.9%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Fidelity, Schwab, JPMorgan, Dreyfus and UBS, which grew assets by $27.4 billion, $26.2B, $19.0B, $17.6B and $9.2B, respectively. Large declines in January were seen by Morgan Stanley and SSGA, which decreased by $24.3 billion and $17.5B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which rose yet again in January, below.

Over the past year through Jan. 31, 2023, Schwab (up $160.3B, or 109.4%), Fidelity (up $89.6B, or 9.7%), Invesco (up $59.9B, or 63.2%), UBS (up $35.2B, or 72.4%), and Dreyfus (up $34.0B, or 13.4%) were the largest gainers. Schwab, Fidelity, Dreyfus, JPMorgan and Invesco had the largest asset increases over the past 3 months, rising by $71.8B, $58.9B, $36.5B, $35.7B and $31.9B, respectively. The largest declines over 12 months were seen by: Northern (down $68.0B), Morgan Stanley (down $62.5B), BlackRock (down $61.9B), Allspring (down $36.1B) and First American (down $21.0B). The largest decliners over 3 months included: American Funds (down $42.4B), SSGA (down $31.5B), Goldman Sachs (down $29.9B), HSBC (down $25.2B) and Morgan Stanley (down $20.1B).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.005 trillion, or 19.4% of all assets. Fidelity was up $27.4B in January, up $58.9 billion over 3 mos., and up $89.6B over 12 months. BlackRock ranked second with $464.9 billion, or 9.0% market share (down $8.6B, down $7.5B and down $61.9B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $461.1 billion, or 8.9% of assets (down $1.8B, up $9.7B and up $1.5B). JPMorgan ranked fourth with $444.5 billion, or 8.6% market share (up $19.0B, up $35.7B and down $18.0B), while Goldman Sachs was the fifth largest MMF manager with $385.5 billion, or 7.5% of assets (down $7.0B, down $29.9B and up $19.4B for the past 1-month, 3-mos. and 12-mos.).

Federated Hermes was in sixth place with $354.4 billion, or 6.9% (down $13.0B, up $20.1B and up $26.0B), while Schwab was in seventh place with $305.1 billion, or 5.9% of assets (up $26.2B, up $71.8B and up $160.3B). Dreyfus ($279.5B, or 5.4%) was in eighth place (up $17.6B, up $36.5B and up $34.0B), followed by Morgan Stanley ($219.2B, or 4.2%; down $24.3B, down $20.1B and down $62.5B). American Funds was in 10th place ($169.0B, or 3.3%; down $318M, down $42.4B and up $25.5B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Invesco ($154.8B, or 3.0%), Allspring (formerly Wells Fargo) ($146.7B, or 2.8%), SSGA ($140.3B, or 2.7%), Northern ($139.5B, or 2.7%), First American ($112.3B, or 2.2%), UBS ($81.0B, or 1.6%), T. Rowe Price ($49.8B, or 1.0%), Western ($38.7B, or 0.7%), HSBC ($37.5B, or 0.7%) and DWS ($33.8B, or 0.7%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from last month. (Harbor Money Fund liquidated last month.)

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: JPMorgan moves up to the No. 3 spot, Goldman Sachs moves up to No. 4, Vanguard moves down to the No. 5 spot, and SSGA replaces American Funds at the No. 10 spot. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($1.015 trillion), BlackRock ($655.5B), JP Morgan ($641.6B), Goldman Sachs ($517.3B) and Vanguard ($461.1B). Federated Hermes ($363.3B) was in sixth, Schwab ($305.1B) was seventh, followed by Dreyfus/BNY Mellon ($298.8B), Morgan Stanley ($280.7B) and SSGA ($174.6B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The February issue of our Money Fund Intelligence and MFI XLS, with data as of 1/31/23, shows that yields increased again in January across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 740), rose to 4.02% (up 8 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 3.95% (up 21 bps). The MFA's Gross 7-Day Yield rose to 4.33% (up 8 bps), and the Gross 30-Day Yield also moved up to 4.26% (up 20 bps). (Gross yields will be revised Wednesday at noon, though, once we download the SEC's Form N-MFP data for 1/31/23.)

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.15% (up 10 bps) and an average 30-Day Yield at 4.10% (up 24 bps). The Crane 100 shows a Gross 7-Day Yield of 4.28% (up 10 bps), and a Gross 30-Day Yield of 4.24% (up 23 bps). Our Prime Institutional MF Index (7-day) yielded 4.26% (up 4 bps) as of January 31. The Crane Govt Inst Index was at 4.05% (up 7 bps) and the Treasury Inst Index was at 4.07% (up 16 bps). Thus, the spread between Prime funds and Treasury funds is 19 basis points, and the spread between Prime funds and Govt funds is 21 basis points. The Crane Prime Retail Index yielded 4.09% (up 4 bps), while the Govt Retail Index was 3.80% (up 6 bps), the Treasury Retail Index was 3.83% (up 14 bps from the month prior). The Crane Tax Exempt MF Index yielded 1.41% (down 174 bps) as of January 31.

Gross 7-Day Yields for these indexes to end January were: Prime Inst 4.50% (up 2 bps), Govt Inst 4.29% (up 7 bps), Treasury Inst 4.32% (up 16 bps), Prime Retail 4.45% (up 3 bps), Govt Retail 4.28% (up 6 bps) and Treasury Retail 4.16% (up 12 bps). The Crane Tax Exempt Index dropped to 1.38% (down 121 bps). The Crane 100 MF Index returned on average 0.35% over 1-month, 0.96% over 3-months, 0.35% YTD, 1.81% over the past 1-year, 0.69% over 3-years (annualized), 1.16% over 5-years, and 0.69% over 10-years.

The total number of funds, including taxable and tax-exempt, dropped by 13 in January to 877. There are currently 740 taxable funds, down 7 from the previous month, and 137 tax-exempt money funds (down 6 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Money Fund Yields Attracting More Attention in Early 2023," which reviews the most recent news on MMFs; "Federated Q4 Earnings on Record Assets, No Waivers," which reviews Federated's latest comments on MMFs; and, "Treasury's OFR Posts Annual Report: Money Funds, Risks," which excerpts from OFR's 2022 Annual Report. We also sent out our MFI XLS spreadsheet Tuesday a.m., and we've updated our Money Fund Wisdom database with 1/31/23 data. Our February Money Fund Portfolio Holdings are scheduled to ship on Thursday, Feb. 9, and our February Bond Fund Intelligence is scheduled to go out on Tuesday, Feb. 14.

MFI's "Money Fund Yields Attracting More Attention" article says, "The Wall Street Journal again mentions money market funds in, 'Jittery Investors Turn to Cash in Hunt for Yield.' They explain, 'The dash for cash on Wall Street is back on. Investors have added about $135 billion to global money-market funds over the past four weeks, according to EPFR data through Jan. 18. That is the best stretch since the four-week period ended May 2020, when those funds logged roughly $175 billion in net inflows.'"

The piece continues, "Increased cash allocations are the latest sign of caution among investors who are questioning whether the recent rebound in stocks and bonds will continue after last year's steep selloff. Many expect markets to remain volatile because Federal Reserve officials have repeatedly said they are committed to fighting inflation with higher interest rates. The flows are also an indication that investors are hungry for yield. They shunned cash for years when interest rates were low and returns on money-market funds were meager."

Our "Federated Q4 Earnings" piece states, "Federated Hermes released its Q4'22 earnings and hosted its quarterly earnings call late last week, which discussed record money fund assets and seasonal flows, the end of fee waivers and money funds vs. bank deposits. The earnings press release quotes President & CEO J. Christopher Donahue, 'Federated Hermes' record assets at year-end 2022 were driven by money market asset increases and investor interest in our flagship Total Return Bond Fund and related separate accounts.... In addition, investors valued our investment perspective as they sought haven from market volatility in a diverse range of Federated Hermes products -- from money market funds to low-duration fixed-income options to market neutral and bear market alternative strategies.'"

The release explains, "Federated Hermes' money market assets were a record $476.8 billion at Dec. 31, 2022, up $28.9 billion or 6% from $447.9 billion at Dec. 31, 2021 and up $35.5 billion or 8% from $441.3 billion at Sept. 30, 2022. Money market mutual fund assets were $335.9 billion at Dec. 31, 2022, up $23.1 billion or 7% from $312.8 billion at Dec. 31, 2021 and up $26.0 billion or 8% from $309.9 billion at Sept. 30, 2022. Federated Hermes’ money market separate account assets were $140.9 billion at Dec. 31, 2022, up $5.8 billion or 4% from $135.1 billion at Dec. 31, 2021 and up $9.5 billion or 7% from $131.4 billion at Sept. 30, 2022.'"

Our "Treasury's OFR" piece states, "The U.S. Treasury's Office of Financial Research published 'OFR 2022 Annual Report to Congress,’ which analyzes threats to the financial stability of the U.S. and contains a section discussing money market funds. Under 'Financial Markets and Liquidity, Short-term Funding,' they write, 'Funding markets are relatively stable, but market liquidity remains fragile. Market volatility and the impact of Federal Reserve interest rate increases are magnified in short-term markets. First, a protracted period of low interest rates and the Federal Reserve's quantitative easing facilitated risk taking. Second, investors may have taken market liquidity and low price volatility for granted and underestimated the speed and pace of interest rate increases. Third, the market remains vulnerable to liquidity and maturity transformation mismatches for banks and nonbanks.'"

MFI writes, "The OFR tells us, 'To broaden support for the floor of overnight rates, the Federal Reserve uses the Overnight Reverse Repo Facility (ON RRP) to support a floor on short-term rates by providing an alternative investment for nonbank financial institutions such as money market funds (MMFs) and government-sponsored enterprises (GSEs). The ON RRP level is very high at $2.4 trillion as of Sept. 30, 2022, an increase of $846.4 billion since the start of 2022.... Traditionally, ON RRP usage tends to spike around month- and quarter-end reporting dates when some banks shrink their balance sheets.... As a result, eligible money market participants invested substantially in the ON RRP, with prime and government MMFs accounting for up to 92% of the total lending to the ON RRP.'"

MFI also includes the News brief, "Money Fund Assets Hit Record Again." It says, "ICI's <b:>`_ latest weekly 'Money Market Fund Assets' report shows money fund assets bouncing back to record levels following two weeks of modest declines. Money funds saw their biggest weekly increase since April 29, 2020 during the first week of 2023, and they've risen by $237.1 billion (or 5.2%) over the past 13 weeks."

Another News brief, "Fed Hikes Rates 25 bps to 4.50-4.75%," tells us, "A release entitled, 'Federal Reserve issues FOMC statement' tells us, 'The Committee ... decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent."

A sidebar, "SSGA's '23 Outlook, Reforms," states, "State Street Global Advisors published a 'Global Cash Outlook,' entitled, 'The Year Ahead -- Chaos or Calm?' Will Goldthwait writes, 'The overall theme of 2023 will be confusion. The current geopolitical macro-economic back drop could deliver such a broad array of outcomes that it's anyone's guess where we will be at the end of the year.'"

Another sidebar, "Schwab on Cash Sorting," quotes Schwab CFO Peter Crawford comments in the earnings release, 'Schwab's record financial performance in 2022 highlighted the resiliency of our diversified financial model. Sustained business momentum ... helped drive 12% growth in ... revenues. 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 February MFI XLS, with January 31 data, shows total assets increased $22.5 billion to $5.191 trillion, after increasing $70.2 billion in December, $55.4 billion in November, $42.2 billion in October, $1.7 billion in September, $2.3 billion in August, $26.0 billion in July and $31.9 billion in June. They decreased $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion in March, but decreased $34.6 billion last February.

Our broad Crane Money Fund Average 7-Day Yield was up 15 bps to 4.02%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 10 bps to 4.15% in January. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 4.33% and 4.28%, respectively. Charged Expenses averaged 0.38% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Wednesday once we upload the SEC's Form N-MFP data for 1/31/23.) The average WAM (weighted average maturity) for the Crane MFA was 17 days (up 1 day from previous month) while the Crane 100 WAM remained the same at 14 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Money market mutual fund complexes continue to gradually merge away tiny funds and fine-tune their fund lineups. A Prospectus Supplement filing for JPMorgan Prime Money Market Fund, JPMorgan Liquid Assets Money Market Fund and JPMorgan U.S. Treasury Plus Money Market Fund (Class C Shares) describes the "Conversion of Class C Shares to Reserve Shares." It says, "The Board of Trustees of the J.P. Morgan Funds approved the automatic conversion of each Fund's Class C Shares into Reserve Class Shares, effective as of the close of business on January 31, 2023. Beginning January 31, 2023, Class C Shares of the Fund will no longer be available for purchase." (See too our Jan. 26 Link of the Day, "Invesco Liquidating T-F Cash Reserves," and our Jan. 5 LOTD, "Harbor Money Market Fund Liquidates.")

JPM's filing adds, "Prior to the Conversion Date, shareholders of Class C Shares may redeem or exchange their investments as described in each Fund's Prospectus. No contingent deferred sales charges were assessed in connection with this automatic conversion. Depending on the tax status of the shareholder and whether or not the account is invested through a tax-deferred arrangement such as a 401(k) plan account, such redemption or exchange may be a taxable event resulting in taxable income to the shareholder. Please consult your tax advisor on this issue. The conversion will not be considered a taxable event for federal income tax purposes."

A filing for American Century US Govt MM G (AGGXX) tells us, "The advisor has determined to no longer offer G Class shares of the U.S. Government Money Market Fund. Therefore, all references to the fund's G Class shares are hereby deleted." All of these funds have been removed from the pending issue of Money Fund Intelligence.

In other news, The Wall Street Journal covers cash yet again in, "The Best Investment Idea Is Also the Most Obvious." They ask, "Why take the risk and hassle of investing, when a nice safe money-market fund or Treasury bill is so attractive?" The piece says, "Investing is all about risk and reward, but at the moment it's mostly about risk and not very much reward. Some risks aren't just badly rewarded, but are more expensive than holding the very safest forms of money. The extra yield that can be earned above cash by buying risky junk bonds is the lowest outside the credit bubble of 2007, in data that go back to 1986. A standard, albeit flawed, Wall Street valuation measure shows the smallest extra reward for the risk of holding stocks over cash since the dot-com bubble burst two decades ago."

It queries, "So why take the risk and hassle of investing, when a nice safe money-market fund or Treasury bill is so attractive? There are two basic answers. One is that investors don't expect cash to stay so appealing, and want to lock in future yields. The second is that after a decade when cash was trash with a zero yield, few think of cash as anything other than a temporary place to park money. That thinking needs to go, at least for now. There's little reward for venturing out of cash."

The article states, "The Federal Reserve pays 4.55% to money-market funds on its reverse-repurchase facilities, part of its effort to soak up cash from the economy and keep rates high. That's more than the yield on safe AA-rated bonds, such as those from Apple or Berkshire Hathaway. These are companies that are rock-solid -- but they still carry far more risk than cash held at the Fed or in T-bills, where the three-month yield is 4.54%."

It adds, "Indeed, just because risky assets are expensive compared with cash doesn't mean cash is sure to outperform. If everything goes as markets expect, interest rates will fall, stocks rise and those who locked in their yield on longer-maturity corporate bonds will be happy. But think about reward for risk taken. Risk-free cash -- debt-ceiling-driven default aside -- looks very attractive." (See also, the WSJ's "`The Unusual Crew Behind Tether, Crypto's Pre-Eminent Stablecoin.")

The Journal also writes about brokerage sweep accounts in "Some Investors Are Missing Out on Higher Yields -- and Don't Know It." Their latest update says, "Stocks and bonds both fell sharply last year. But one bright spot in financial markets was the rising interest rates on money-market funds, which in December topped 4% on average for the first time in 15 years. Money-fund rates have stayed high so far this year, now averaging 4.18%, according to Crane Data LLC. That's a big increase from just a few months ago, and investors who aren't aware of the climb in rates -- or who don't act on it -- could be missing out on an opportunity for much higher returns than they're getting now on the cash in their brokerage accounts."

It says, "To see why, you have to understand so-called bank cash-sweep vehicles, which most big Wall Street brokerage firms use to handle the cash that comes into investors' accounts. Firms that use these programs sweep the proceeds of investors' securities sales and interest and dividend payments into a bank-deposit vehicle that typically pays a fraction of what investors could earn on a money-market fund.... At these and other firms, cash generated by an investor's account is automatically swept into the bank vehicles in most cases."

The Journal comments, "Sweeps also buoyed Morgan Stanley's results. The firm's bank sweep deposits held $198 billion in the fourth quarter, or 4.7% of the $4.2 trillion assets of Morgan Stanley wealth-management customers. At Schwab, the $482 billion in sweep assets as of last September represented 7.3% of customer assets, according to a company presentation at a quarterly session with analysts."

Finally, Barron's also mentions money market funds in their update, "Vanguard Quietly Drops Its Money-Market Fee Waivers." They write, "Vanguard isn't in the habit of waiving fees temporarily to attract new investors like many of its competitors do. However, in recent years, expense ratio limitations -- don't call them 'waivers' -- for its money-market funds seem to have emerged out of nowhere, with little explanation or fanfare. And now that interest rates have gone up, they've returned to nowhere."

The article explains, "Vanguard Municipal Money Market had the biggest change. In its annual report dated Oct. 31, 2022, its expense ratio jumped from 0.08% in fiscal 2021 to 0.13% in fiscal 2022. In a footnote, Vanguard says: 'Vanguard and the board of trustees have agreed to temporarily limit certain net operating expenses in excess of the fund's daily yield in order to maintain a zero or positive yield for the fund.... The ratio of total expenses to average net assets before an expense reduction was 0.15% for 2022 and 0.15% for 2021."

It adds, "Many money fund managers such as Fidelity and Charles Schwab also waived their fees and covered the costs of their money-market funds out of their overall profits. The problem for Vanguard is it is ostensibly run 'at-cost' without any profits to cover extraneous costs. So where did the money to cover them come from? ... Maybe now that Vanguard Federal Money Market Fund yields 4.3% and Municipal Money Market 1.6% tax-free, investors won't care if the true costs of managing them remain a mystery."

The GAO, or Government Accountability Office, published a "Report to Congressional Committees on Money Market Mutual Funds yesterday. Subtitled, "Pandemic Revealed Unresolved Vulnerabilities," its summary explains, "In 2010 and 2014, the Securities and Exchange Commission (SEC) revised its money market mutual fund (MMF) rules after some MMFs experienced runs (heavy redemptions) during the 2007–2009 financial crisis. For example, SEC required MMFs to hold minimum levels of liquid assets that they could sell to meet redemptions. If these liquidity levels fell below the minimum, SEC allowed certain MMFs to charge investors a liquidity fee for redeeming shares or to impose a redemption gate to temporarily suspend redemptions."

The report continues, "Evidence indicates that SEC's reforms did not prevent runs during the COVID-19 pandemic. For example, prime MMFs -- which can invest in all types of short-term debt instruments -- held by institutional investors experienced net redemptions of about 30 percent of their total assets in a 2-week period in March 2020. Some evidence also indicates SEC's reforms may have contributed to the runs. Some investors may have preemptively redeemed MMF shares to avoid incurring a liquidity fee or losing access to their funds under a redemption gate. To stabilize the financial system during the pandemic, the federal government created lending and liquidity programs, including one to help support prime and tax-exempt MMFs."

The GAO comments, "In February 2022, SEC proposed a rule intended to reduce run risk by removing fees and gates, increasing minimum liquidity requirements, and adopting a new method to price certain MMF shares. Industry, academic, and other stakeholders generally support removing the link between gates and fees and minimum liquid asset levels and increasing minimum liquidity requirements. Moreover, a few stakeholders maintain that the proposed new pricing method could reduce run risk, but stakeholders generally have raised concerns about the method's complexity and cost. Consistent with its guidance, SEC staff conducted economic analyses to support the proposed rulemaking. The analyses were largely qualitative because SEC does not have data to quantify most of the proposed rule's benefits and costs. As part of the rulemaking, SEC has proposed amending an MMF reporting form, which could provide it with additional data to monitor run risk at MMFs. SEC currently plans to complete the rulemaking in April 2023."

A sidebar entitled, "Why GAO Did This Study," states, "The COVID-19 pandemic highlighted the ongoing vulnerability of certain MMFs to runs. Currently holding around $5 trillion in assets, MMFs act as intermediaries between investors seeking liquid, safe investments and corporate and government entities that issue short-term debt. If investors perceive a risk that their MMFs will suffer losses, they have an incentive to be the first to redeem their shares. A run on MMFs can spread to other entities and financial markets because MMFs are interconnected to financial firms, the financial system, and the economy."

It says, "The CARES Act and the American Rescue Plan Act included provisions for GAO to monitor the federal government's efforts to respond to the COVID-19 pandemic. This report reviews (1) SEC's reforms designed to reduce run risk at MMFs exposed by the 2007–2009 financial crisis, (2) available evidence on the effectiveness of MMF reforms in reducing run risk during the pandemic, and (3) current actions SEC is taking to reduce run risk at MMFs."

The sidebar adds, "GAO reviewed studies and reports by federal agencies and other stakeholders about the vulnerability of MMFs to runs, analyzed MMF data on changes in fund assets, and reviewed SEC rule releases and related materials. GAO also interviewed officials from SEC and other federal agencies, three industry associations, and three MMFs."

The report says, "Like the 2007–2009 financial crisis, the COVID-19 pandemic exposed the vulnerability of certain money market mutual funds (MMF) to large and unexpected redemptions by investors (called runs). Holding around $5 trillion in assets at the end of November 2022, MMFs buy securities that underlie the short-term funding markets -- such as short-term U.S. Treasury securities, short-term municipal securities, and commercial paper -- which help support the broader financial markets and economy. The types of MMFs that were vulnerable to runs -- prime and tax-exempt MMFs as described below -- hold around $1 trillion in assets. During periods of market stress, MMF shareholders may be motivated to redeem shares to avoid potential losses or redemption-related costs. If MMFs sell securities at reduced prices to meet such redemptions, the sales can contribute to stress in the underlying short-term funding markets and affect the ability of financial and nonfinancial firms to raise capital in such markets."

It continues, "In response to market disruptions caused by the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (Federal Reserve) created an MMF liquidity facility in March 2020, similar to the actions it took during the 2007–2009 financial crisis. The liquidity facility helped MMFs meet investor redemptions, which enhanced the functioning of the short-term funding markets and provision of credit to the broader economy. The facility ceased extending credit in March 2021. Although the facility and other actions helped stabilize the markets, some stakeholders have raised concerns that the Federal Reserve's repeated MMF interventions could increase moral hazard and systemic risk."

The GAO report summarizes, "After the 2007–2009 financial crisis, the Securities and Exchange Commission (SEC) enacted a series of reforms designed to make MMFs more resilient and less vulnerable to runs. For example, in 2014, SEC issued regulations to enable certain MMFs to mitigate runs by giving them the discretion to impose a liquidity fee or to suspend redemptions temporarily if a fund's liquidity level falls below a specified threshold. In light of the MMF runs during the recent pandemic, SEC proposed in February 2022 MMF reforms that would remove or revise some of the prior reforms and add new requirements designed to help prevent runs and improve the resilience and transparency of MMFs."

It also says, "[W]e reviewed reports, rulemakings, and other pertinent materials issued by SEC, the President's Working Group on Financial Markets, the Financial Stability Oversight Council, and other federal agencies that analyzed the MMF runs that occurred in September 2008 or March 2020. To examine available evidence about the effect of SEC's MMF reforms on the March 2020 runs, we conducted a literature review to identify relevant journal articles, working papers, and other studies published from March 2020 onward. Specifically, we conducted key-word searches of scholarly, legal, and other databases, including Fed in Print, Dialog, ProQuest, Social Science Research Network, and Westlaw Edge. We identified 11 articles relevant to our research objective. To assess the methodological quality of the selected studies, we obtained information about each study and about the features of the evaluation methodology."

The report tells us, "In addition, we used data from the Office of Financial Research's U.S. Money Market Fund Monitor and the Investment Company Institute to analyze changes in MMF assets during the financial crisis and the onset of the pandemic. We assessed the reliability of these data by (1) performing electronic testing, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for analyzing changes in MMF assets for certain periods."

It adds, "For the third objective, we reviewed SEC's proposed MMF rule, documentation SEC staff prepared about the proposed rule for the Financial Stability Oversight Council, and relevant federal agency, academic, and industry studies on MMFs. We reviewed SEC's guidance on economic analysis for rulemakings and evaluated whether SEC staff followed the guidance in conducting economic analysis for the proposed MMF rule. We also analyzed public comment letters on the proposed rule. We reviewed SEC forms that MMFs use to report information to SEC and evaluated SEC's procedures for analyzing and reporting on the information. Finally, we interviewed three industry associations (Investment Company Institute, Securities Industry and Financial Markets Association, and Better Markets) and three MMFs, which we judgmentally selected based on their involvement in the comment process and expertise. The views of the selected associations and MMFs are not generalizable and, thus, do not necessarily reflect the views of all stakeholders commenting on the proposed rule."

Finally, the GAO writes, "For all three objectives, we interviewed staff of other Financial Stability Oversight Council members -- including the Department of the Treasury, Federal Reserve, Commodity Futures Trading Commission, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation -- about MMFs, including their risks and regulation. We conducted this performance audit from November 2021 to February 2023 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives."

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, "Schwab's record financial performance in 2022 highlighted the resiliency of our diversified financial model. Sustained business momentum through an uneven macroeconomic environment helped drive 12% growth in total net revenues. 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."

He explains, "Over the course of the year, our approach to balance sheet management prioritized flexibility to help navigate through a dynamic environment. As rates rose from the ultra-low levels observed during the most recent period of the Federal Reserve's Zero Interest-rate Policy, clients allocated a growing portion of their assets to higher yielding cash and fixed income alternatives. As a result of this expected sorting activity, the balance sheet shrank by $115 billion, a decline of 17% versus December 31, 2021. To facilitate these movements, we took steps to further bolster liquidity by limiting new portfolio investments to help build available cash and utilizing a limited amount of short-term funding sources such as Federal Home Loan Bank Advances and retail certificates of deposit."

On the Winter Business Update, Crawford tells us, "I'll ... provide some more empirical data and some more information analysis around our clients' behavior with regard to their cash, and explain why we're confident that this behavior will abate during 2023 and we'll see at some point this year a resumption of deposit growth."

He says, "Turning our attention to the balance sheet, our balance sheet reflected the reaction by our clients to the dramatic increase in rates as they move some of their uninvested cash off our balance sheet into higher yielding alternatives, oftentimes with our active help and encouragement. Total balance sheet assets declined 17% for the year, driven by declines in both bank deposits as well as payables to brokerage clients. [W]e finished the year with roughly $17 billion of FHLB advances and other short-term borrowings. [W]ithin interest earning assets, we saw a 28% reduction in margin balances, a function of the lower equity markets and more negative investor sentiment as well as higher rates."

Crawford explains, "I mentioned in the CFO commentary last week that we've entered what we believe is the later innings of the client cash sorting cycle.... This is not necessarily the last inning, but the later innings of this cycle. So, we wanted to build off the commentary provided at the fall business update to explain why we're confident this is the case and why, again, we'll see a resumption of the balance sheet or the deposit growth over the course of 2023." (See our Nov. 1, 2022 Crane Data News, "Schwab CFO Crawford Says Cash Sorting Will Abate, in the Middle Innings.")

He continues, "So, our clients, recall, tend to keep a certain level of transactional cash in their accounts for liquidity purposes, and as their cash levels approach that sort of minimum floor of transactional cash. As more accounts approach that level, the cash that we receive from new accounts offsets any lingering sorting activity that we see in the existing accounts."

The Schwab CFO shows a graph of cash balances by tier, and says, "Now, this [graph] is a particular wealth tier, particular tier of clients who have, for example, between, let's say $1 million to $2.5 million dollars of total assets in their account. We've done this analysis across 30 different wealth tiers, across five different client segments. And the pattern is exactly the same. What you see and what these lines represent is different cohorts of clients within that wealth tier, based off on how much cash they had at the beginning of the of the rising rate cycle. So, the upper one, of course has more cash, lower one has less cash. And again, we've done this for multiple ... cohorts of clients based off of their cash levels."

He continues, "What you see, of course, is that as interest rates increase, those cash balances for that entire cohort start declining, but they don't decline to zero. They decline, they sort of converge around this. We call here an equilibrium line, or we called previously [a] floor. [I]mportantly, the pace of that decline, the pace of that sorting roughly corresponds to the distance they are from. Their cash flows are from that equilibrium level. Now, that may not be totally surprising. But what may be more surprising is what happens with client cash, with clients whose cash balances are below that level at the outset of the of the rising rates. What we see there is their cash balances actually increase. And this is why we say this is better to think of this more as an equilibrium versus a floor."

Crawford explains, "The point is, even clients who start out with low cash, even as rates are increasing, ... rates have increased by 400 plus basis points in the last year, they're actually increasing the level of transactional cash, the level of cash on our balance sheet during that period of time, which supports this idea that there is this equilibrium level of transactional cash that clients want to maintain. Now, we saw this pattern in the last rising rate cycle and we've seen in this rising rate cycle as well. The same pattern is holding true here."

He adds, "Here's another demonstration of the existence of that equilibrium level. Each of these lines represent a group of clients who placed their first purchase money fund trade during that month. What you see is a place where they start using purchase money funds and they basically reduce their cash level to a certain equilibrium level and then they are content with that. It doesn’t go to zero. You stay at that level.... Regardless of when they start that process, they all end up basically in the same place. So again, we're very confident there is this level of transactional cash within the different accounts. And of course, it varies based on how much assets they have in their account, but it should be at each of those have a pretty consistent level of equilibrium transaction cash they want to have in their account."

Finally, Crawford states, "So, what we've seen is that the sorting activity that that we have seen thus far follows almost identically to the analytical models that we developed based off of the last rising rate cycle and following the same behavior ... that we saw from the 2015 to 2019 cycle. And we continue to believe that the magnitude of this sorting activity for existing clients will be not that much different from what we saw in the previous cycle. And therefore, at some point during 2023, that sorting activity will continue to will slow and it will be offset by organic cash that comes in via new accounts and we'll see a return of deposit growth."

S&P Global Ratings published three updates on the cash investment space yesterday, including: "U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2022)," "European 'AAAm' Money Market Fund Trends (Fourth-Quarter 2022)" and "'AAAm' Local Government Investment Pool Trends (Fourth-Quarter 2022)." The first update tells us, "Money market funds (MMFs) received significant regulatory and market attention in 2022, following indicated U.S. MMF reforms, yet to be finalized, and climbing yields that have spotlighted this asset class for investors. Rated U.S. government MMFs had a slight decline in assets during the fourth quarter, and outflows of 9% for 2022, as some investors moved funds into higher yielding products. Rated prime MMFs benefited from higher yields and attracted flows. Assets under management (AUM) in prime fund strategies grew nearly 15% in 2022, landing at $418 billion in the fourth quarter."

It explains, "The Federal Reserve policy was at the forefront of formulating investment strategies throughout the year. The Fed raised rates 425 basis points in 2022, to a target rate of 4.25%-4.50%, making rates challenging to predict. S&P Global economists currently expect the Fed Funds rate to peak at 5.00%-5.25% by second-quarter 2023.... Despite the Fed's aggressive rate path making it difficult to forecast, managers welcomed higher yields not seen in recent history. During the fourth quarter, the seven-day and 30-day net yields for government funds grew to 3.88% and 3.67%, respectively. The seven-day and 30-day net yield for prime funds exceeded those levels, reaching 4.12% and 3.89%, respectively. The spread between government and prime funds continued to widen, reaching a spread of 24 basis points (bps) for the seven-day yield, in the fourth quarter."

S&P writes, "Government MMFs fueled record usage of the Fed's Reverse Repo Program (RRP), which hit $2.5 trillion in December 2022. The RRP remained an attractive avenue to obtain higher rates relative to other counterparties, and to access liquidity, especially at year-end when liquidity is seasonally lean. Consequently, repo exposure in government funds grew to their highest levels in the past 12 months, while allocation to Treasury bills and notes dropped. Elevated concentration in repo may persist in the near-term based on Treasury bill supply, which is affected by Treasury's ability to issue debt."

They add, "In line with previous quarters, the composition of prime funds changed around the margins. Managers slowed purchases of bank deposits and added to their corporate bond positions. Like government funds, but to a lesser degree, prime funds utilized the Fed's RRP more so than in prior quarters, resulting in heavier weighting in repo and lower Treasury exposure. Managers of government and prime strategies shortened their maturity profiles materially over the course of 2022, citing lack of clarity around the level of rate hikes as the driving factor."

S&P's "European 'AAAm' Money Market Fund Trends" piece says, "European-domiciled money market funds rated by S&P Global Ratings totaled €894 billion ($959 billion) in assets under management (AUM) as of Dec. 31, 2022. Notably, we observed net asset growth across the three major currencies in 2022. Euro- and sterling-denominated MMFs had significant inflows of 24% and 23% in the fourth quarter and were up 4.5% and 6.9% from 2021, with AUMs at €132.5 billion and £253.9 billion, respectively. This is the highest year-end euro level since 2011, and largest on record for sterling funds. U.S. dollar funds saw moderate inflows in the fourth quarter of 2%, up 0.78% year over year, with AUM of $510.1 billion at year-end 2022, which is the highest December total registered by S&P Global Ratings."

It continues, "During fourth-quarter 2022, seven-day net yield averages continued to climb in euro, sterling, and U.S dollar funds. The European Central Bank (ECB), Bank of England (BOE), and U.S Federal Reserve (the Fed) each hiked interest rates two times in the quarter. The latest interest rate increases brought the yearly total to 250 basis points (bps) by the ECB, 325 bps by the BOE, and 425 bps by the Fed. We already observed seven-day net yields reaching decade-long highs in third-quarter 2022, and the additional monetary tightening by central banks pushed them even higher. Euro-denominated MMFs ended the year with seven-day net yields of 1.59%, versus sterling MMFs at 3.0%, and U.S. MMFs at 4.23%."

S&P states, "Weighted-average maturities (WAM) declined during the fourth quarter in euro and sterling-denominated funds, while U.S. MMFs remained at 18 days. Euro WAMs dropped sharply to 21 days in December from 26 days in September and Sterling WAMs lowered to 24 days from 27 days over the same period. WAMs across all three currencies were significantly lower at year-end 2022. For comparison, WAMs for euro-, sterling-, and U.S.-dollar-denominated funds were 42 days, 45 days, and 39 days, respectively, at the end of 2021. During a time of aggressive monetary tightening, the recorded WAMs of our rated funds illustrate that portfolio managers are not seeing the appeal of extending further out on the curve."

Finally, S&P's quarterly on "'AAAm' Local Government Investment Pool Trends" comments, "U.S. LGIPs we rate have substantial influence on the management and demand of high credit quality money-market instruments. Such investment pools, with assets collectively exceeding $280 billion, follow a prime or government strategy and are rated under our PSFR criteria. Over the year to December 2022, rated LGIPs following a government strategy (government LGIPs) saw assets increase by 20.6%, while asset growth for rated prime LGIPs was 14.8%, due to improving tax receipts from increased home values."

It says, "Combined with asset growth, the most notable element that all LGIP investors would value is higher LGIP returns. Looking back to December 2021, seven-day yields for government LGIPs and prime LGIPs were a paltry 0.02% and 0.07%, respectively. 12 months later, after several interest rate hikes by the U.S. Federal Reserve Bank (the Fed), LGIP seven-day yields have broken through the 4% barrier for the first time since the global financial crisis.... They are now well on their way to providing a rate of return that can compete with interest on bank deposits."

S&P writes, "Weighted average maturities, key indicators to interest rate risk, have almost halved over the last 18 months. The bulk of the decline in 2022 ... can be attributed to fluctuations in global market conditions caused by geopolitical uncertainty and the rise in inflation that prompted corrective action from the Fed."

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