News Archives: June, 2023
The Investment Company Institute's latest "Money Market Fund Assets" report shows MMF assets declining for the 3rd week in a row, a period which includes the June 15 quarterly tax payment date and Juneteenth long holiday weekend. MMFs had hit records for 7 straight weeks (and 13 weeks out of the past 15) prior to this pause. Assets have declined by $25.8 billion over the past 3 weeks but they rose by $636 billion, or 13.2%, over the prior 15 weeks (breaking the $5.4 billion barrier 4 weeks ago). ICI shows assets up by $696 billion, or 14.7%, year-to-date in 2023, with Institutional MMFs up $374 billion, or 12.2% and Retail MMFs up $322 billion, or 19.2%. Over the past 52 weeks, money fund assets have risen $900 billion, or 19.9%, with Retail MMFs rising by $548 billion (37.7%) and Inst MMFs rising by $352 billion (11.4%). (Note: Thanks to those who attended our Money Fund Symposium last week in Atlanta! Conference materials are available in our "Money Fund Symposium 2023 Download Center," and register soon and make hotel reservations for our next event, European Money Fund Symposium, which is Sept. 25-26, 2014 in Edinburgh, Scotland.)
Their weekly release says, "Total money market fund assets decreased by $2.89 billion to $5.43 trillion for the week ended Wednesday, June 28, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $2.77 billion and prime funds decreased by $1.16 billion. Tax-exempt money market funds increased by $1.04 billion." ICI's stats show Institutional MMFs dropping $8.7 billion but Retail MMFs rising $5.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.495 trillion (82.8% of all money funds), while Total Prime MMFs were $821.8 billion (15.1%). Tax Exempt MMFs totaled $114.0 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $5.81 billion to $2.00 trillion. Among retail funds, government money market fund assets increased by $362 million to $1.34 trillion, prime money market fund assets increased by $3.94 billion to $558.44 billion, and tax-exempt fund assets increased by $1.52 billion to $103.93 billion." Retail assets account for over a third of total assets, or 36.8%, and Government Retail assets make up 66.9% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $8.71 billion to $3.43 trillion. Among institutional funds, government money market fund assets decreased by $3.13 billion to $3.16 trillion, prime money market fund assets decreased by $5.10 billion to $263.37 billion, and tax-exempt fund assets decreased by $474 million to $10.11 billion." Institutional assets accounted for 63.2% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals. (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $4.6 billion in June through 6/28 to $5.830 trillion. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
ICI also released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for May 2023 on Thursday. The monthly Trends shows money fund totals hitting record levels again in May after April's slight increase and March's historic jump. The March jump ($371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. ICI's monthly "Trends" report shows that money fund assets increased $172.7 billion in May to a record $5.420 trillion. Bond fund assets also decreased, dropping $37.9 billion to $4.615 trillion.
MMFs have increased by $903.6 billion, or 20.0%, over the past 12 months. Money funds' May asset increase follows gains of $8.4 billion in April, $371.0 billion in March, $60.0 billion in February, $31.5 billion in January, $105.3 billion in December, $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. 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 last May. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.363 trillion as of 5/31, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds decreased by $20.40 billion, or 0.1 percent, to $23.52 trillion in May, 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 $415 million in May, compared with an inflow of $1.52 billion in April.... Money market funds had an inflow of $161.00 billion in May, compared with an outflow of $2.59 billion in April. In May funds offered primarily to institutions had an inflow of $101.96 billion and funds offered primarily to individuals had an inflow of $59.04 billion."
The Institute's latest statistics show that Taxable MMFs and Tax Exempt MMFs were both higher last month. Taxable MMFs increased by $168.0 billion in May to $5.307 trillion. Tax-Exempt MMFs increased $4.7 billion to $112.4 billion. Taxable MMF assets increased year-over-year by $891.1 billion (20.2%), and Tax-Exempt funds rose by $12.6 billion over the past year (12.6%). Bond fund assets decreased by $38.2 billion (after increasing $23.3 billion in April) to $4.615 trillion; they've decreased by $354.9 billion (-7.1%) over the past year.
Money funds represent 23.0% of all mutual fund assets (up 0.7% from the previous month), while bond funds account for 19.6%, according to ICI. The total number of money market funds was 280, unchanged from the prior month and down from 300 a year ago. Taxable money funds numbered 232 funds, and tax-exempt money funds numbered 48 funds.
ICI's "Month-End Portfolio Holdings" confirm a jump in Repo and a decrease in Treasuries last month. Repurchase Agreements remained the largest composition segment in May, increasing $139.7 billion, or 4.6%, to $3.151 trillion, or 59.4% of holdings. Repo holdings have increased $923.3 billion, or 41.4%, over the past year. (See our June 12 News, "June Portfolio Holdings: Repo, Agencies, TDs Jump; Treasuries Plunge.")
Treasury holdings in Taxable money funds decreased again last month; they remain the second largest composition segment. Treasury holdings decreased $111.9 billion, or -11.6%, to $852.9 billion, or 16.1% of holdings. Treasury securities have decreased by $597.2 billion, or -41.2%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $62.6 billion, or 8.6%, to $786.6 billion, or 14.8% of holdings. Agency holdings have increased by $401.2 billion, or 104.1%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $13.0 billion, or 5.1%, to $265.5 billion (5.0% of assets). CDs held by money funds rose by $95.2 billion, or 55.9%, over 12 months. Commercial Paper remained in fifth place, up $9.9 billion, or 5.7%, to $185.0 billion (3.5% of assets). CP increased $56.4 billion, or 43.8%, over one year. Other holdings increased to $56.3 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $9.9 billion (0.2% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased to 55.282 million, while the Number of Funds was unchanged at 232. Over the past 12 months, the number of accounts fell by 2.221 million and the number of funds decreased by 9. The Average Maturity of Portfolios was 21 days, up 5 from April. Over the past 12 months, WAMs of Taxable money have decreased by 7.
Last week, Crane Data hosted its big Money Fund Symposium conference in Atlanta, where over 530 money market professionals discussed rates, pending reforms, asset inflows and a number of other hot topics in cash. The opening session, "Keynote: The Elevation of Money Funds II," featured `Invesco's Laurie Brignac and Tony Wong. Asked about the recent AFP Liquidity Survey, Brignac replies, "It's our fourth year sponsoring the survey.... I think it's a tremendously important survey because it's just a great opportunity for companies to benchmark themselves against their peers…. We know cash and know how important it is, and we know [that] you should never take it for granted. But a lot of people do. It's just that asset class people never want to think about." (Note: Conference materials are available in our "Money Fund Symposium 2023 Download Center." Watch for more highlights and excerpts in coming days and in the next Money Fund Intelligence.)
She explains, "The AFP survey is terrific because it basically reminds people to take a look and ask, 'How are we benchmarking versus our peers?' It was interesting because this year they were doing the survey in March, right in the middle of the banking crisis. So this was the first time that I've seen in years where cash in bank deposits is down below 50%. It's like 47%, down 8% from last year." (For more, see our June 20 News, "AFP 2023 Liquidity Survey: Deposits Plunge from 55 to 47%, MMFs Jump.")
Brignac asks, "Where did that money go? We're all talking about the flows into money funds, which is great, but it's not all going into the money market funds. Half of it went into money funds. The other half went into direct securities, because these are large corporates, they buy securities, Treasuries and agencies. So, that was an interesting takeaway."
She says, "The other thing, too, that I thought was interesting is the companies are planning to hold even more cash, which I think is going to bode well for the industry. Those companies that actually have seen a decrease in cash, the main reason was really around inflationary pressures. It's probably the highest risk out there. So, when we look at money fund balance and the tremendous growth that we saw in March of 2020, we thought it was going to leave a lot faster. But it really didn't. Companies are just holding onto cash and that trend is going to continue for the foreseeable future."
When asked to comment further on fund flows, Brignac responds, "Talking about the liquidity business, obviously we've seen a tremendous amount of growth over the last few years. I mean, we saw that first [Covid] runup. But we've been very fortunate to continue to receive flows. Even, pre-SVB, when the industry was down, we were actually up. So, a part of this, too, is, I think, a testament to the team, performance, distribution, and I know we'll talk about some of the D&I and our partnership with Cavu, which has been tremendously successful. We are primarily an institutional shop, about 70% of our AUM is in in U.S. money funds. But we did see, quite a bit of growth on the retail side. One of our retail prime funds has pretty much doubled in size."
She adds, "So, you're right, there was a difference in [retail vs. inst] flows. When you started to see the Fed raise rates as quickly as they did, obviously, we know the storyline around bank deposits. But also, the volatility in the market spiked, and you also saw retail investors turn more risk-off. That's when you saw the retail flows. So, yeah, it has been a story of two sets of flows for different reasons."
Asked about fears over bank deposits and money funds, Wong tells us, "I think the fear factor was very high. From folks that were in money market liquidity products, we certainly had a number of calls. I personally went and had conversations with policymakers, regulators in this period.... We need a healthy and strong banking sector to impact credit creation and economic [growth].... I think it's manageable, but if we continue to see tightening by the Fed.... We all have years of experience and when you see tightening ... things usually break.... Something tells me maybe that's [SBV and Credit Suisse] not the final chapter of the movie. It's something we're watching very carefully."
Brignac states, "This is not our crisis.... But somehow it always seems to loop back. So, it's like, 'What is the second, third derivative of this thing? Where it's going to come back on? Thankfully, the names that we buy [are solid], and I know as an industry, we're very transparent. It is a different environment. So, we had to go through a lot of those questions with clients. Then, of course, we had the debt ceiling.... It's not our first rodeo.... [We focus on] reminding clients, this is how it works. This is how we kind of manage through this thing."
Asked about D&I share classes of money funds, Brignac says, "If you look at the AFP survey too, one of the things that it highlighted is that a lot of the corporate treasurers are saying, 'We need to write ESG into our investment guidelines. We need to start looking at these types of money market funds, because as we all know, in money funds two-thirds of the assets are institutional, and the majority of the assets, 75+%, are government. So how do I integrate that into my cash management?' I think that the D&I share classes are just a terrific way to do it."
She explains, "With Cavu, what resonated with us is that they are a veteran, minority owned firm, and we liked: number one, their impact and how they set up their programs. They will take the revenues, that the corporations treasurers can help generating, and they put it towards specific charities, like Boys Club of America, Girls that Code, Dog Tag Inc., which helps veterans, and they can actually give corporate treasurers, you know, a statement this is how your money actually helped the community. Right. It's not only what do you do with your time, your talent, your treasure, so it really does resonate with us.... And you've seen the growth ... I think [we're up] to $16.5 billion since we launched this in 2020. So, I think it's obviously picking up steam as it is I think with the other D&I share classes. I think it's a great way our community can give back."
Finally, on pending money fund reforms, Brignac comments, "Honestly, at this point, we're just going to roll with it and see what they're going to bring. We were expecting something last year, but obviously there's been a lot of moving parts since last fall. The SEC and really all of the regulators are quite busy. So, I don't think it's going away. I understand that it's probably going to come out this fall.... Hopefully, we won't have to deal with that nuclear button [concerning intermediaries accounting for] negative interest rates.... There's going to probably be increased transparency.... The way we work, the way we communicate, that's going to continue to change. So, we're going to have to stay on top of it and stay relevant and roll with the punches."
The New York Times writes about money funds again in, "Yes, There Are Alternatives to Stocks." Subtitled, "At the moment, money market funds and many bonds are not only less risky, but at current interest rates, they are compelling," the piece explains, "The stock market has been strutting into the spotlight lately, with talk -- however premature -- of a new A.I.-driven bull market popping up nearly everywhere you turn. Amid all the hoopla, you can easily miss the solid returns being posted by far less glamorous but always important and, at the moment, compelling asset classes: fixed-income investments, including bonds and cash." (Note: Thanks again to those who attended and supported our Money Fund Symposium last week in Atlanta! Conference materials are available in our "Money Fund Symposium 2023 Download Center." Watch for highlights and excerpts in coming days and in the upcoming issue of Money Fund Intelligence.)
The Times says, "Especially for those with short time horizons -- whether you're in retirement or close to it, or saving for a house, education, a car, a vacation or any other worthwhile purpose -- these lower-risk investments are worth a close look. Until a little over a year ago, when interest rates were about as low as they could go, a mantra on Wall Street was TINA. It's an acronym for 'there is no alternative' to the stock market, certainly not from fixed-income investments. Now, though, it's a different world: Interest rates, or yields, have risen significantly."
They tell us, "That's bad if you're borrowing, but if you have money to invest or stash somewhere safe so you can pay your bills, there are plenty of appealing options. It is debatable whether it's wise to lock in higher interest rates now, or stick with shorter-term holdings until it's clear that the Federal Reserve is done raising interest rates. But the time to appreciate the benefits of fixed-income holdings like money market funds and Treasury bills is already here. Even if you are just starting out in your first job, it's a good idea to try to keep an emergency fund in short-term, interest-bearing accounts.... For the moment, it's possible to get safe returns that are beating inflation."
The article continues, "Bonds are more reliable than they were last year because yields are already high. Even if they elevate further, there is a plush cushion now, and any potential price declines should be offset, and then some, by the income that bonds are generating. Bond mutual funds and exchange-traded funds aren't likely to experience declines in last year's range either. 'Bond math tells us it won't happen,' Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, said in an interview."
It comments, "With the federal funds rate above 5 percent, rich yield has spilled into money market funds and Treasury bills of up to one year in duration. Now that the debt ceiling battle is behind us, and the Treasury is issuing a huge amount of fresh debt, it's fair to say, once again, that those investments are safe. You can't make that claim about tech stocks."
The NY Times piece also says, "With yields above 5 percent, money market funds have a powerful allure. They have been pulling in funds, with total money-market assets in the United States exceeding $5.8 trillion in June, according to Crane Data. Interest rates offered by the nation's banks are rising, too, but generally trail those of money market funds. The question, for opportunistic fixed-income investors, is whether it's time to lock in higher yields by holding bonds with durations of 10 or more years. I'm not sure that it is. The Federal Reserve has already told investors that short-term interest rates are likely to rise half a percent further this year. Rising yields would hurt the prices of current long-term bonds, as a matter of basic bond math."
Finally, it adds, "The only real change in my financial life in recent years is that I moved much of my emergency money from bank accounts to money market funds because of superior yields. But with inflation above 4 percent, I try not to kid myself. Even at today's interest rates, money market funds are barely keeping ahead of rising prices. That's why I keep putting money in the stock market. But money market funds and savings accounts and, to a lesser extent, bonds, all serve a critical purpose. The money should be waiting, ready for use, even when the stock market is rocky."
In other news, a press release entitled, "Federated Hermes Launches New Short-Term Euro Prime Fund," tells us, "Federated Hermes, Inc. (FHI), a global leader in active, responsible investing, today announces the launch of the Federated Hermes Short-Term Euro Prime Fund. The new fund is now available to investors and offers a portfolio of high-quality euro-denominated short-term debt instruments. The Federated Hermes Short-Term Euro Prime Fund is the first European-domiciled liquidity product the firm has launched, following the completion of Federated Investors' acquisition of Hermes Investment Management in July 2018."
It explains, "As Federated Hermes' first euro-denominated money markets solution, the Fund is an extension of the asset manager's currency offering from its $505.8 billion AUM (as of 31 March, 2023) global liquidity platform, sitting alongside its Short-Term USD Prime and Short-Term Sterling Prime Funds. Interest rate increases by the European Central Bank have reignited investor demand for the asset class in recent months, following years of near-zero rates. The Fund offers asset allocators with daily euro liquidity requirements an opportunity to deliver an improved return profile on their bank deposits."
Federated adds, "The Fund is co-managed by Gary Skedge, Senior Portfolio Manager, and Joanne Bartell, Portfolio Manager, overseen by Deborah Cunningham, Chief Investment Officer of Global Liquidity Markets, and Paige Wilhelm, Senior Portfolio Manager and Head of the Prime Liquidity Group. Both Skedge and Bartell are highly experienced portfolio managers with a proven track record of delivering strong investment performance. The Fund will initially be available to investors in Austria, Finland, Germany, Ireland, Italy, Luxembourg, Portugal, Spain, Netherlands and the United Kingdom."
Cunningham comments, "We are delighted to launch the Federated Hermes Short-Term Euro Prime Fund for investors seeking income. In an uncertain and volatile market environment, short-term debt can offer investors a low-risk, highly liquid solution, invested in high-quality assets. We believe that the European short-term debt market offers particularly attractive investment opportunities amid higher interest rates as well as protection from inflation."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $156.6 billion in May to a record high of $5.911 trillion. Assets at May month-end broke $5.9 trillion for the first time ever and were well above their previous $5.75 trillion April 2023 record. The SEC shows that Prime MMFs increased by $13.7 billion in May to $1.200 trillion, Govt & Treasury funds increased $137.4 billion to $4.592 trillion and Tax Exempt funds increased $5.5 billion to $118.6 billion. Taxable yields jumped again in May after surging in April. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Month-to-date in June through 6/23, total MMF assets have dropped by $8.3 billion to $5.817 trillion, according to our MFI Daily.)
May's overall asset increase follows an increase of $49.9 billion in April, $364.4 billion in March, $52.1 billion in February, $53.2 billion in January, $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. Assets decreased $9.4 billion in September, but 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. Over the 12 months through 5/31/23, total MMF assets have increased by $893.1 billion, or 17.8%, according to the SEC's series.
The SEC's stats show that of the $5.911 trillion in assets, $1.200 trillion was in Prime funds, up $13.7 billion in May. Prime assets were up $36.0 billion in April, down $22.2 billion in March, up $35.4 billion in February, $86.2 billion in January, $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. Prime funds represented 20.3% of total assets at the end of May. They've increased by $348.5 billion, or 40.9%, 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 $4.592 trillion, or 77.7% of assets. They increased $137.4 billion in May, $19.3 billion in April, $387.9 billion in March, $16.1 billion in February, decreased $33.2 billion in January and 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. Govt & Treasury MMFs are up $533.8 billion over 12 months, or 13.2%. Tax Exempt Funds increased $5.5 billion to $118.6 billion, or 2.0% of all assets. The number of money funds was 293 in May, down 1 from the previous month and down 15 funds from a year earlier.
Yields for Taxable MMFs moved higher yet again in May while Tax Exempt MMFs were lower. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on May 31 was 5.18%, up 22 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.25%, up 23 bps from the previous month. Gross yields were 5.15% for Government Funds, up 25 basis points from last month. Gross yields for Treasury Funds were up 35 bps at 5.09%. Gross Yields for Tax Exempt Institutional MMFs were down 1 basis point to 3.54% in May. Gross Yields for Tax Exempt Retail funds were down 3 bps to 3.42%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.12%, up 23 bps from the previous month and up 429 basis points from 5/31/22. The Average Net Yield for Prime Retail Funds was 4.99%, up 24 bps from the previous month, and up 434 bps since 5/31/22. Net yields were 4.92% for Government Funds, up 26 bps from last month. Net yields for Treasury Funds were up 35 bps from the previous month at 4.87%. Net Yields for Tax Exempt Institutional MMFs were down 1 bp from April to 3.42%. Net Yields for Tax Exempt Retail funds were down 3 bps at 3.17% in May. (Note: These averages are asset-weighted.)
WALs and WAMs were up in May. The average Weighted Average Life, or WAL, was 44.9 days (up 0.8 days) for Prime Institutional funds, and 38.3 days for Prime Retail funds (up 0.7 days). Government fund WALs averaged 66.0 days (up 2.0 days) while Treasury fund WALs averaged 56.2 days (up 7.7 days). Tax Exempt Institutional fund WALs were 10.3 days (up 0.8 days), and Tax Exempt Retail MMF WALs averaged 16.8 days (up 1.5 days).
The Weighted Average Maturity, or WAM, was 20.3 days (up 0.5 days from the previous month) for Prime Institutional funds, 17.3 days (up 1.0 days from the previous month) for Prime Retail funds, 20.6 days (up 2.2 days from previous month) for Government funds, and 21.8 days (up 7.2 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 0.9 days to 10.3 days, while Tax Exempt Retail WAMs were up 1.1 days from previous month at 15.8 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.2% in May (up 0.5% from the previous month), and DLA for Prime Retail funds was 48.4% (up 2.2% from previous month) as a percent of total assets. The average DLA was 68.2% for Govt MMFs and 95.9% for Treasury MMFs. Total Weekly Liquid Assets was 65.4% (down 1.8% from the previous month) for Prime Institutional MMFs, and 63.3% (down 0.4% from the previous month) for Prime Retail funds. Average WLA was 81.0% for Govt MMFs and 99.0% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for May 2023," the largest entries included: Canada with $115.7 billion, the U.S. with $109.5B, France with $91.9 billion, Japan with $91.1 billion, the Netherlands with $45.3B, Germany with $40.5B, the U.K. with $40.4B, Aust/NZ with $23.0B and Switzerland with $5.4B. The gainers among the "Prime MMF Holdings by Country" included: the U.S. (up $11.8B), France (up $10.3B), the U.K. (up $5.8B), Germany (up $4.5B), Netherlands (up $3.7B) and Canada (up $1.8B). Decreases were shown by: Aust/NZ (down $3.3B), Japan (down $3.2B) and Switzerland (down $0.2B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $225.2 billion (up $13.6B), while Eurozone had $200.4B (up $22.8B). Asia Pacific subset had $140.6B (down $1.5B), while Europe (non-Eurozone) had $101.0B (up $9.5B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.189 trillion in Prime MMF Portfolios as of May 31, $544.0B (45.8%) was in Government & Treasury securities (direct and repo) (down from $557.4B), $297.3B (25.0%) was in CDs and Time Deposits (up from $281.3B), $170.2B (14.3%) was in Financial Company CP (up from $164.4B), $129.9B (10.9%) was held in Non-Financial CP and Other securities (up from $126.4B), and $47.6B (4.0%) was in ABCP (up from $44.8B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $306.0 billion, Canada with $142.6 billion, France with $131.7 billion, the U.K. with $93.3 billion, Germany with $18.4 billion, Japan with $102.6 billion and Other with $37.1 billion. All MMF Repo with the Federal Reserve was down $169.8 billion in May to $2.044 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.9%, Prime Retail MMFs with 4.2%, Tax Exempt Inst MMFs with 0.6%, Tax Exempt Retail MMFs with 1.8%, Govt MMFs with 13.4% and Treasury MMFs with 7.6%.
During the session on "Regulations: Money Fund Reforms Round III" at our Money Fund Symposium last week in Atlanta, Brenden Carroll from Dechert mentioned a new recent posting to the SEC's "Comments on Money Market Fund Reforms" website. While we'll review highlights from the conference and this session in coming days (and in our next Money Fund Intelligence newsletter), we quote from the latest posting below. Federated Hermes' Chief Legal Officer Peter Germain writes in a letter entitled, "Re: Supplemental Comment Letter of Federated Hermes, Inc. Responding to Chair Gensler Speech on May 25, 2023 to the Investment Company Institute on the U.S. Securities and Exchange Commission's Proposed Amendment to Rule 2a-7 Requiring the Use of Swing Pricing in Institutional Prime and Tax-Exempt Money Market Funds," "Dear Chair Gensler: In your remarks to the Investment Company Institute on May 25, 2023, you invited additional comments on MMF reform. I happened to be there in person and want to thank you for this opportunity to provide further commentary. Below, I have provided responses to certain points you made in your speech. I've also provided further thoughts on the proverbial elephant in the room that you neglected to mention: the current banking crisis." (Note: Thanks again to those who attended and supported our Money Fund Symposium last week in Atlanta! Conference materials are available in our "Money Fund Symposium 2023 Download Center.")
Germain says, "In your remarks, you said that MMFs, like banks, engage in maturity transformation. Not like banks they don't. MMFs came through the past year without a scratch in spite of sudden, large interest rate increases well in excess of what the markets had anticipated or the Federal Reserve had warned banks to prepare for in February 2022. The nation experienced three of the largest bank failures in history this Spring, and the FDIC had to cover all depositors to prevent further contagion. Not because of credit risk, but because upward movements in interest rates caused the market value of bank portfolio assets to plummet."
He explains, "The current value of fixed-rate instruments varies inversely to interest rates. The price impact is significantly larger for longer duration instruments. In addition, short-term debt instruments convert to cash at maturity and, therefore, do not need to be sold to raise cash. The duration of bank portfolios is measured in years and the portfolios are not marked to market. This is true even for banks' so-called 'high quality liquid assets' ('HQLAs') whose regulatory purpose is to provide cash as needed to pay near-term withdrawals and funding outflows. In contrast, MMF portfolio duration is measured in days and weeks and for institutional prime and tax-exempt MMFs, portfolio securities with remaining maturities greater than 60 days are carried at current market value. One of these things is not like the other."
Germain tells the SEC Chair, "In your remarks, you suggest that the Federal Reserve was forced to 'bail out' MMFs in 2008 and 2020 and that this is not the statutory purpose of the Federal Reserve. In your words as regards investment funds: 'Congress never authorized for direct open support from the Fire Department.' Instead, you indicate the Federal Reserve is only intended by Congress to be a lender to banks. First, there was no bail-out. The Federal Reserve provided liquidity to the commercial paper markets, including MMFs, in 2008 and 2020 exactly as intended by Congress. Second, Congress did not preclude the Federal Reserve from non-bank lending. After the Financial Panic of 1907, in which the commercial paper markets froze, Congress studied various solutions to provide liquidity in those markets as needed to prevent future panics. The Federal Reserve System was created not simply as a clearing house for bank payments or a lender to banks or a global interest rate manager."
He continues, "The central role that Congress tasked the Federal Reserve with is making liquidity available in the commercial paper and short-term credit markets when needed to prevent a financial crisis. It is quite evident in the full formal name of the legislation we think of as the Federal Reserve Act of 1913 which created the Federal Reserve System: 'An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.' Contrary to your suggestion, the Federal Reserve did not act outside of its power in 2008 and 2020. The Federal Reserve acted exactly as intended by Congress. The 'Fire Department,' as you called the Federal Reserve, did its job, and it turned a massive profit for the U.S. Treasury on these emergency credit market funding facilities, as they almost always do in these situations."
Germain also writes, "In your remarks, you note that key statutory objectives of the Investment Company Act of 1940 (the '1940 Act') included protecting shareholders from dilution and illiquidity, drawing from the experiences with investment trusts in the 1920s and 1930s. We note that there is no evidence that MMF shareholders have suffered material dilution from the cost of investor redemptions during March of 2020 or at any other time. Nor is it clear that Congress intended the 1940 Act to address this particular type of potential dilution by swing pricing or otherwise."
He states, "You then make a great leap of faith right over the 'protecting shareholders' part of that thought to a conclusion that somehow the 1940 Act's overriding purpose is to lock investors in place to deter redemptions and thereby prevent recognition of market losses by use of 'swing pricing.' But there is no basis in the 1940 Act for pricing shares below market prices to deter redemptions, and there is no logical nexus in the absence of material dilution for doing so in the name of investor protection."
The Federated counsel adds, "Indeed, swing pricing would create an opportunity for dilution of existing MMF shareholders by persons who buy shares at the reduced swing price during an outflow period. Simply put, in a 'Dash for Cash' scenario, investors want out and wouldn't be deterred by a fee or a swung price. And why shouldn't they be able to get out? The real question is, will the prospect of such a fee actually exacerbate redemptions? Imposing mandatory redemption fees or swing pricing will not make mutual funds generally -- or MMFs in particular -- better, safer, or more attractive from an investor perspective. That will make them less so."
He also comments, "Similarly, imposing a requirement for intermediaries to transact at a 4-digit NAV on U.S. government and retail MMFs will not serve any purpose other than reducing their efficiency and utility to investors as a cash management tool. The real objective here seems to be to finish the job the Financial Stability Oversight Council (FSOC) started in 2014 to destroy what is left of MMFs as a useful tool to cash managers and force investors to park their short-term cash balances at below-market rates in bank deposits. At the same time, this approach forces state and local governments and businesses as short-term cash borrowers to borrow only from banks and similarly subsidize their high-risk inefficient balance sheets. Harming investors, deterring capital formation, and making markets less efficient and less competitive is precisely the opposite of the SEC's statutory mandate in the 1940 Act."
Discussing "The Unmentioned Banking Crisis," the letter tells us, "We note that you made no comment on the current banking crisis and its relation to your MMF proposals. Since 2010, some banks have operated their balance sheets by financing with essentially zero-rate deposits their investments in long-term portfolio assets. As long as short-term interest rates remained low and funding remained stable, a good profit could be had. This worked until it didn't. The fundamental cause of the current crisis is that many banks were unprepared for a five hundred basis point upward shock to interest rates that the Federal Reserve conducted in 2022-2023. The Federal Reserve utterly failed to coordinate between its policy objectives in combatting inflation and its supervisory responsibilities over the banking system in making sure the system could withstand the magnitude of rate shocks the Federal Reserve imposed."
Germain writes, "The lesson of 1980 had been forgotten. This failure to coordinate manifested itself in at least two key regards: (1) the proscriptive stress test scenarios published by the Federal Reserve and FDIC in February 2022 for the tests to be conducted by large banks assumed interest rate increases that were four hundred basis points below what the Federal Reserve actually did, and (2) the Federal Reserve's liquidity rules (net stable funding ratio and liquidity coverage ratio) fail to require that HQLAs be marked to market and treat large payroll and similar business deposits well above deposit insurance limits that are 'operational deposits' as not being subject to sudden outflow. When rates rose suddenly, this hot money flew out of the most exposed banks and the HQLAs held by the banks contained significant unrecognized losses from rising interest rates because they were not marked to market. When HQLAs were needed to meet these cash outflows, their sales triggered recognition of massive losses that wiped out bank capital."
He adds, "Had more large corporate deposits above FDIC insurance limits been swept off bank balance sheets into MMFs over the past few years, this hot money would not have caused the damage that it did to the banking system and the FDIC. MMFs are designed to handle large fast outflows, and massive interest rate shocks. Banks are not designed to handle these types of rate shocks or funding losses. Rather than recognizing this truth, or the damage caused by the 2014 amendments to the utility of MMFs that contributed to their replacement in cash sweep programs by businesses holding very large short-term cash balances as bank deposits, in your remarks, you appear to be toeing the FSOC party line that all the wreckage in the banking sector means we have to do something about MMFs."
Finally, Germain comments, "The solution is not to cause further harm to MMFs and force cash investors to place more money in bank deposits. Instead the solution is to allow MMFs to do the job for which they were designed, to provide a safer (for everyone, including investors, taxpayers and the banks) and more efficient alternative for holding short-term cash balances. The only change required at this point to MMF regulation is to allow MMFs to use liquid assets for their intended purpose of meeting investor redemptions by de-linking gates and fees from daily and weekly liquid asset ratios."
The Investment Company Institute's latest "Money Market Fund Assets" report shows MMF assets declining again following the June 15 quarterly tax payment date and Juneteenth long holiday weekend, after hitting records for 7 straight weeks (and 13 weeks out of the past 15). Assets have risen by $613 billion, or 12.7%, over the past 17 weeks, breaking the $5.4 billion barrier three weeks ago. ICI shows assets up by $699 billion, or 14.8%, year-to-date in 2023, with Institutional MMFs up $383 billion, or 12.5% and Retail MMFs up $316 billion, or 18.9%. Over the past 52 weeks, money fund assets have risen $891 billion, or 19.6%, with Retail MMFs rising by $549 billion (38.0%) and Inst MMFs rising by $342 billion (11.0%). (Note: Thanks to those who attended our Money Fund Symposium this week in Atlanta! Conference materials are available in our "Money Fund Symposium 2023 Download Center," and recordings will be posted in coming days.)
Their weekly release says, "Total money market fund assets decreased by $18.23 billion to $5.43 trillion for the week ended Wednesday, June 21, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $22.35 billion and prime funds increased by $4.55 billion. Tax-exempt money market funds decreased by $431 million." ICI's stats show Institutional MMFs dropping $24.9 billion but Retail MMFs rising $6.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.498 trillion (82.8% of all money funds), while Total Prime MMFs were $823.0 billion (15.1%). Tax Exempt MMFs totaled $113.0 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $6.66 billion to $1.99 trillion. Among retail funds, government money market fund assets increased by $2.82 billion to $1.34 trillion, prime money market fund assets increased by $4.19 billion to $554.51 billion, and tax-exempt fund assets decreased by $346 million to $102.41 billion." Retail assets account for over a third of total assets, or 36.7%, and Government Retail assets make up 67.1% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $24.89 billion to $3.44 trillion. Among institutional funds, government money market fund assets decreased by $25.16 billion to $3.16 trillion, prime money market fund assets increased by $359 million to $268.47 billion, and tax-exempt fund assets decreased by $84 million to $10.58 billion." Institutional assets accounted for 63.3% of all MMF assets, with Government Institutional assets making up 91.9% of all Institutional MMF totals. (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $10.2 billion in June through 6/21 to $5.836 trillion. 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, we wrote yesterday and earlier this week about the Association for Financial Professionals' "2023 AFP Liquidity Survey. (See AFP's press release; our June 20 News, "AFP 2023 Liquidity Survey: Deposits Plunge from 55 to 47%, MMFs Jump;" and our June 14 Link of the Day, "AFP Releases 2023 Liquidity Survey.") Today, we quote from the section on ESG.
AFP's survey says, "Thirteen percent of respondents report that their organizations are considering ESG parameters for operating cash -- a significant decrease from the 25 percent reported last year, and the 17 percent in 2021, but up slightly from the 14 percent in 2019. This result also contrasts with the investment policy changes noted in earlier (see page 18); putting ESG parameters in place for an organization's overall investment portfolio as well as for money market funds are the two parameters most-often considered when making investment policy changes."
It explains, "Nearly three-fourths of respondents indicate their organizations are not considering ESG parameters for their operating cash holdings (again, in contrast to anticipated Investment policy changes noted earlier for money funds), while 12 percent are unsure if their organizations do so. Both net borrowers and non-investment grade organizations are less likely to consider ESG criteria than are other organizations."
AFP writes, "Of those companies considering ESG parameters, only 5 percent do not have any of their operating cash in ESG investments, while 41 percent have less than 5 percent and 32 percent have between 5 and 10 percent of operating cash in their short-term investments. This is a significant difference from the survey results last year: 48 percent of organizations did not have any of their operating cash in ESG Investments. The percentage of organizations that have over 10 percent of their operating cash in ESG investments increased from 6 percent in 2022 to 22 percent this year."
On "ESG Investments," they tell us, "Of those organizations investing in ESG investments, ESG money funds (including D&I Categorized funds) are most popular, with 57 percent of organizations choosing to invest in them. In this year’s survey, AFP expanded the minority-owned answer choices to allow for a more nuanced reporting of ESG investment options. This year, women-owned (WBE or WOSB) broker providers are the second-most cited choice for investors, selected by 35 percent of organizations. Separately managed accounts and minority-owned (MBE) broker providers each attracted 26 percent of organizations. Some respondents mention the use of Qualified Opportunity Funds, designed to invest in real estate opportunity zones, as ESG investment options which help with development of economically distressed areas while providing investors with certain tax benefits."
The Investment Company Institute published, "Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2023," last week, which shows that money fund assets globally jumped by $610.0 billion, or 6.9%, in Q1'23 to $9.461 trillion. The increases were led by sharp jumps in money funds in U.S., China, France and Luxembourg. Meanwhile, money funds in Ireland were lower. MMF assets worldwide increased by $825.6 billion, or 9.6%, in the 12 months through 3/31/22, and money funds in the U.S. now represent 55.4% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Welcome to Atlanta! For those attending this week's Money Fund Symposium, June 21-23, conference materials have been posted to our "Money Fund Symposium 2023 Download Center." We hope you all have a great show and enjoy your visit!)
ICI's release says, "Worldwide regulated open-end fund assets increased 5.0 percent to $63.12 trillion at the end of the first quarter of 2023, excluding funds of funds. Worldwide net cash inflow to all funds was $706 billion in the first quarter, compared with $122 billion of net inflows in the fourth quarter of 2022. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the first quarter of 2023 contains statistics from 46 jurisdictions."
It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the first quarter of 2023. For example, on a US dollar–denominated basis, fund assets in Europe increased by 4.7 percent in the first quarter, compared with an increase of 2.6 percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets increased by 5.8 percent to $28.52 trillion at the end of the first quarter of 2023. Bond fund assets increased by 4.0 percent to $11.99 trillion in the first quarter. Balanced/mixed fund assets increased by 2.8 percent to $7.23 trillion in the first quarter, while money market fund assets increased by 6.9 percent globally to $9.46 trillion."
The release also tells us, "At the end of the first quarter of 2023, 45% of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 19% and the asset share of balanced/mixed funds was 11%. Money market fund assets represented 15% of the worldwide total. By region, 53% of worldwide assets were in the Americas in the first quarter of 2023, 32% were in Europe, and 15 percent were in Africa and the Asia-Pacific regions."
ICI adds, "Net sales out of regulated open-end funds worldwide were $706 billion in the first quarter of 2023..... Globally, bond funds posted an inflow of $145 billion in the first quarter of 2023, after recording an outflow of $123 billion in the fourth quarter.... Money market funds worldwide experienced an inflow of $573 billion in the first quarter of 2023 after registering an inflow of $332 billion in the fourth quarter of 2022."
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. sustained its position as the largest money fund market in Q1'23 with $5.238 trillion, or 55.4% of all global MMF assets. U.S. MMF assets increased by $461.7 billion (9.7%) in Q1'23 and have increased by $646.2 billion (14.1%) in the 12 months through March 31, 2023. China remained in second place among countries overall. China saw assets increase $78.9 billion (5.2%) in Q1 to $1.595 trillion (16.9% of worldwide assets). Over the 12 months through March 31, 2023, Chinese MMF assets have increased by $15.1 billion, or 1.0%.
Ireland remained third among country rankings, ending Q1 with $718.5 billion (7.6% of worldwide assets). Irish MMFs were down $19.4B for the quarter, or -2.6%, and up $39.6B, or 5.8%, over the last 12 months. Luxembourg remained in fourth place with $490.6 billion (5.2% of worldwide assets). Assets there increased $26.0 billion, or 5.6%, in Q1, and were up $42.0 billion, or 9.4%, over one year. France was in fifth place with $413.5B, or 4.4% of the total, up $29.9 billion in Q1 (7.8%) and up $47.7B (13.0%) over 12 months.
Australia was listed in sixth place with $253.7 billion, or 2.7% of worldwide assets. Its MMFs decreased by $1.2 billion, or -0.5%, in Q1. Korea was the 7th ranked country and saw MMF assets increase $16.4 billion, or 13.5%, in Q1'23 to $137.9 billion (1.5% of the total); they've increased $11.0 billion (8.7%) for the year. Brazil was at 8th place with $110.6 billion (1.2%); assets there increased $13.4 billion (13.8%) in Q1 and decreased by $2.0 billion (-1.8%) over 12 months. Japan was 9th place, as assets decreased $5.2 billion, or -4.9%, to 101.0 billion (1.1% of total assets) in Q1. They've decreased $10.9 billion (-9.7%) over the previous 12 months. ICI's statistics show Mexico remained in 10th place with $99.5B, or 1.1% of total assets, up $13.8 billion (16.1%) for the quarter.
India was in 11th place, decreasing $7.9 billion, or -12.9%, to $53.7 billion (0.6% of total assets) in Q1 and decreasing $7.1 billion (-11.6%) over the previous 12 months. Canada ($43.0B, up $5.5B and up $15.5B over the quarter and year, respectively) ranked 12th ahead of Switzerland. ($33.9B, up $3.5B and up $10.9B). Chile ($27.8B, up $2.8B and up $1.1B) and Chinese Taipei ($26.3B, up $596M and down $2.2B), rank 14th and 15th, respectively. The United Kingdom, South Africa, Argentina, Belgium and Germany round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $5.045 trillion, unchanged in Q1. Asian MMFs increased by $80.3 billion to $2.177 trillion, and Europe saw its money funds jump $27.3 billion in Q1'23 to $1.719 trillion. Africa saw its money funds decrease $642M to $21.9 billion.
Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data. (Let us know too if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)
The Association for Financial Professionals, a group representing corporate treasurers, published its "2023 AFP Liquidity Survey" last week. (See AFP's press release, "Survey: Organizations' Cash and Short-Term Allocation to Bank Deposits Drop to 47%, Lowest in Four Years," and our June 14 Link of the Day, "AFP Releases Liquidity Survey.") The cover letter to the report says, "Invesco is very proud to partner once again with the Association for Financial Professionals (AFP) to sponsor the 2023 AFP Liquidity Survey Report, the 18th annual exploration of current and emerging corporate cash management trends. This marks our fourth year underwriting this informative research, and liquidity investors once again continued to face a remarkable – and quickly changing -- investment landscape, from aggressive monetary tightening by central banks around the globe to sharply higher stock and bond market volatility to the collapse of several high-profile banks." (Reminder: For those attending our Money Fund Symposium this week, June 21-23, conference materials have been posted to our "Money Fund Symposium 2023 Download Center." See you all in Atlanta on Wednesday!)
Invesco's Laurie Brignac explains, "This year's survey identifies a number of interesting, high-level themes: Corporate liquidity reserves remain near record highs, taking advantage of rapidly rising yields and principal safety in the uncertain market environment.`Cash allocations have been shifting from bank deposits to money market funds in response to the 2023 banking crisis <b:>`_. Caution remains a dominant theme, as companies continue to navigate inflationary pressures, slowing global economies and elevated uncertainties around macro risks." (Note: Brignac will also give the keynote at this weeks' Money Fund Symposium along with Invesco's Tony Wong.)
AFP's Introduction tells us, "To understand current and emerging trends in organizations' cash and short-term investment holdings, investment policies and strategies in the current economic environment, the Association for Financial Professionals (AFP) conducted its 18th annual AFP Liquidity Survey Report in March 2023. The survey generated 222 responses which are the basis of this report. Results from this survey will provide treasury and finance professionals with critical benchmarks on short-term investment holdings and strategies. AFP thanks Invesco for underwriting the 2023 AFP Liquidity Survey Report for the fourth consecutive year. The Research Department of AFP designed the survey questionnaire, analyzed the survey results and produced the report and is solely responsible for its content."
Discussing "Cash and Short-Term Investments/Securities," the AFP says, "A similar percentage of respondents report larger cash and short-term balances in the U.S. over the past 12 months (through March 2023). Thirty-six percent of corporate practitioners report an increase in their organizations' cash holdings within the U.S. in the past 12 months -- just one percentage point lower than the 37 percent reported in the 2022 AFP Liquidity Survey Report. The share of those respondents reporting a decrease in their companies' cash holdings within the U.S. rose by 6 percentage points -- from 17 percent in last year's survey to 23 percent in the current survey. This result suggests organizations do not feel the need to hold tightly onto cash balances, signaling some cautious optimism. Forty one percent of respondents indicate that there was no significant change in their cash and short-term balances within the U.S. over the past 12 months, a decrease from 46 percent last year."
They write, "Sixty-two percent of respondents indicate that in the past 12 months their organizations' investments outside the U.S. were unchanged -- slightly higher than the 57 percent last year. Twenty-four percent report an increase in cash and short-term balances, lower than the 33 percent in last year's survey. Fourteen percent report a decrease -- higher than the 10 percent in last year's survey. Here too, organizations appear willing to invest and increase outlays outside of the U.S."
AFP's report continues, "Nearly 60 percent of organizations hold some amount of cash outside of the U.S. -- similar to the 62 percent reported last year. Seventy-three percent of publicly owned organizations hold cash outside of the U.S.; 24 percent of these companies hold at least half of their cash outside the U.S. Sixty-two percent of large organizations -- those with at least $1 billion in annual revenue -- hold cash outside the U.S., significantly higher than the 50 percent of organizations with annual revenue less than $1 billion that do so. These findings suggest that larger companies are more likely to have cash in their operations outside the U.S. than are smaller companies."
The survey also tells us, "Changes in cash holdings are driven by various factors. Sixty-eight percent of respondents report that increased operating cash flow has had either a significant impact or some impact on the increase in their organization's cash holdings in the past 12 months -- a 14-percentage-point decrease from the 82 percent in last year's survey. Other drivers contributing to increased cash holdings at organizations include pandemic planning and contingencies (cited by 47 percent of respondents), increased debt outstanding/accessed best markets (44 percent) and acquired company/subsidiary/launched new operations (42 percent)."
On the topic of "Objectives of Cash Investment Policy," the survey says, "Organizations are continuously working to balance their desire for safety and liquidity against a competitive rate of return. Safety continues to be the most-valued short-term investment objective for 63 percent of organizations -- unchanged from last year's survey. It is not surprising that organizations are continuing to choose safety over liquidity given the current economic environment, inflationary pressures, numerous interest-rate increases by the Federal Reserve, a potential banking crisis and geopolitical concerns. Thirty-three percent of survey respondents indicate that their organizations' most important objective is liquidity -- slightly lower than the 34 percent reported in 2022, but one percent higher than the 32 percent reported in 2021.... Yield continues to be the least important objective of an organization's cash investment policy. The share of organizations ranking yield as most important has increased by one percentage point -- from three percent in 2022 to four percent in 2023."
AFP comments, "Fifty-seven percent of organizations with investment policies call out and/or separate cash holdings used for day-to-day liquidity from the rest of the company's cash and short-term investment holding -- a four-percentage-point increase from last year. Those policies include guidance stipulating the amount of cash holdings that is set aside for day-to-day liquidity versus other uses. Over 60 percent of respondents from organizations with annual revenue less than $1 billion and privately held organizations call out/separate cash holdings, while 43 percent of respondents from publicly owned organizations call out/separate cash holdings."
They also state, "Twenty-three percent of financial professionals report that their organizations have neither a percentage nor a dollar limit on short-term investment holdings by asset manager or fund.... A majority (83 percent) of organizations' investment policies requires money market funds be rated. Thirty-three percent of organizations require at least one rating agency assign a AAA rating, and 36 percent mandate that their money market funds earn a AAA rating from at least two agencies."
AFP explains, "Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2.7 vehicles for their cash and short-term investments -- more than the 2.5 reported in 2022 and 2021. Most organizations continue to allocate a large share of their short-term investment balances -- an average of 79 percent -- in safe and liquid investment vehicles: bank deposits, money market funds (MMFs) and Treasury securities. This is just two percentage points lower than the 81 percent reported in 2022, the highest figure on record since AFP began tracking the data. The typical organization currently maintains 47 percent of its short-term investments in bank deposits. This allocation is 8 percentage points lower than the 55 percent reported last year, lower than the 52 percent reported in 2021 and the 51 percent in 2020. This year's allocation is similar to percentages reported in 2019 (46 percent) and 2018 (49 percent)."
They tell us, "The larger shares of short-term investments allocated to bank deposits in the past three years were likely pandemic (COVID-19) driven. During the pandemic, companies were focused on liquidity planning and cash flow from operations. While one can interpret this shift in the past year as a result of the economy having gained more stable footing after the liquidity crisis during the pandemic, it may also be due to bank failures in the first quarter of 2023; organizations are more focused on concentration risk of their deposits. Organizations are trying to avoid any challenges they may face if their deposits are not accessible -- and so may have started diversifying their investments."
AFP adds, "The allocations in Government/Treasury money market mutual funds increased by four percentage points to 18 percent in the past year; the allocation is higher for larger, publicly held companies and net investor companies than for other organizations. Investment allocations to Treasury bills also increased -- by two percentage points -- and this allocation is more common for companies with annual revenue less than $1 billion and those that are net investors and investment grade than for other organizations. These shifts in investment vehicles signal that organizations continue to be cautious and are leaning towards allocating their investments in those vehicles which offer stability and safety in the current uncertain economic environment. Allocations to agency securities increased two percentage points to four percent since last year. The change in bank deposits is largely due to the obligations of the U.S. Government and its agencies, a flight to quality and the objective to diversify their deposits away from their banks."
Finally, AFP comments, "The anticipated changes in investment mix are more likely to be observed in Government/Treasury money market funds; 38 percent of respondents anticipate an increase and only 8 percent expect a decrease. Other investments likely to be impacted by shifts in an organization's investment mix are Treasury bills and bank deposits. As stated earlier, the increase in the investment mix towards Government/Treasury money funds and Treasury bills signals a flight to quality from organizations' bank exposures. But in addition, as money funds' durations shrink, there is additional yield to capture as rates are expected to increase and the shorter maturities will capture the rise in rates more quickly. The 25 percent anticipated decrease in bank deposits reflects the decreasing confidence in banks post-banking crisis. One of the advantages money funds have over bank deposits is transparency and reporting -- money funds absorb rate increases while bank deposits are subject to earnings credit rates or interest rates. Bank deposits did not move in step with Fed Funds rate increases over the last year as did money funds, thus explaining the shift to money funds. Additionally, the transparency in reporting that money funds offer is another reason for the move to money funds <b:>`_."
The Investment Company Institute's latest "Money Market Fund Assets" report shows MMF assets inching lower ahead of the June 15 quarterly tax payment date, after hitting records for 7 straight weeks (and 13 weeks out of the past 15). Once the June weakness (quarter-end is normally weak too) passes though, we expect the asset tear to resume. Assets have risen by $632 billion, or 13.1%, over the past 16 weeks, broking the $5.4 billion barrier two weeks ago. ICI shows assets up by $717 billion, or 15.1%, year-to-date in 2023, with Institutional MMFs up $407 billion, or 13.3% and Retail MMFs up $310 billion, or 18.5%. Over the past 52 weeks, money fund assets have risen $911 billion, or 20.1%, with Retail MMFs rising by $553 billion (38.6%) and Inst MMFs rising by $358 billion (11.5%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $31.1 billion to $5.857 trillion. 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.)
Their weekly release says, "Total money market fund assets decreased by $4.66 billion to $5.45 trillion for the week ended Wednesday, June 14, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $8.26 billion and prime funds increased by $5.38 billion. Tax-exempt money market funds decreased by $1.78 billion." ICI's stats show Institutional MMFs dipping $8.5 billion but Retail MMFs rising $3.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.520 trillion (82.9% of all money funds), while Total Prime MMFs were $818.4 billion (15.0%). Tax Exempt MMFs totaled $113.4 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $3.80 billion to $1.99 trillion. Among retail funds, government money market fund assets increased by $978 million to $1.33 trillion, prime money market fund assets increased by $3.99 billion to $550.31 billion, and tax-exempt fund assets decreased by $1.17 billion to $102.76 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.1% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $8.46 billion to $3.46 trillion. Among institutional funds, government money market fund assets decreased by $9.24 billion to $3.19 trillion, prime money market fund assets increased by $1.39 billion to $268.11 billion, and tax-exempt fund assets decreased by $612 million to $10.67 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.
ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in May, prime money market funds held 47.1 percent of their portfolios in daily liquid assets and 61.5 percent in weekly liquid assets, while government money market funds held 78.0 percent of their portfolios in daily liquid assets and 84.6 percent in weekly liquid assets." Prime DLA was up from 44.5% in April, and Prime WLA was down from 61.9%. Govt MMFs' DLA was down from 81.6% and Govt WLA decreased from 88.3% the previous month.
ICI explains, "At the end of May, prime funds had a weighted average maturity (WAM) of 19 days and a weighted average life (WAL) of 46 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 21 days and a WAL of 63 days." Prime WAMs and WALs were both 1 day longer from the previous month. Govt WAMs were 4 days longer and WALs were 4 days longer from April.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $404.07 billion in April to $403.71 billion in May. Government money market funds’ holdings attributable to the Americas rose from $4,079.75 billion in April to $4,114.34 billion in May."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $403.7 billion, or 51.1%; Asia and Pacific at $116.8 billion, or 14.8%; Europe at $256.0 billion, or 32.4%; and, Other (including Supranational) at $14.2 billion, or 1.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.114 trillion, or 91.7%; Asia and Pacific at $94.0 billion, or 2.1%; Europe at $266.6 billion, 5.9%, and Other (Including Supranational) at $10.0 billion, or 0.2%.
Finally, a third release from the Investment Company Institute tells us that, "Retirement Assets Total $35.4 Trillion in First Quarter 2023." It includes data tables showing that money market funds held in retirement accounts rose to $632 billion (from $602 billion) in total, or 12% of the total $5.238 trillion in money funds. MMFs represent just 5.9% of the total $10.690 trillion of mutual funds in retirement accounts.
This release says, "Total US retirement assets were $35.4 trillion as of March 31, 2023, up 3.5 percent from December 31, 2022. Retirement assets accounted for 31 percent of all household financial assets in the United States at the end of March 2023. Assets in individual retirement accounts (IRAs) totaled $12.5 trillion at the end of the first quarter of 2023, an increase of 4.3 percent from the end of the fourth quarter of 2022. Defined contribution (DC) plan assets were $9.8 trillion at the end of the first quarter, up 5.0 percent from December 31, 2022. Government defined benefit (DB) plans -- including federal, state, and local government plans -- held $7.7 trillion in assets as of the end of March 2023, a 0.5 percent increase from the end of December 2022. Private-sector DB plans held $3.2 trillion in assets at the end of the first quarter of 2023, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion."
The ICI tables also show money funds accounting for $451 billion, or 9%, of the $5.244 trillion in IRA mutual fund assets and $181 billion, or 3%, of the $5.446 trillion in defined contribution plan holdings. (Money funds in 401k plans totaled $122 billion, or 3% of the $4.299 trillion of mutual funds in 401k's.)
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds fell over the past 30 days to $1.063 trillion. USD and GBP MMFs fell, while EUR MMFs rose. While still up year-to-date, European MMF assets remain well 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, decreased by $4.8 billion over the 30 days through 6/13. The totals are up $33.2 billion (3.2%) year-to-date. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Offshore US Dollar money funds decreased $891 million over the last 30 days but are up $33.5 billion YTD to $583.0 billion. Euro funds increased E276 million over the past month. YTD, they're up E1.1 billion to E181.4 billion. GBP money funds decreased L3.4 billion over 30 days; they are down by L30.7 billion YTD to L232.8B. U.S. Dollar (USD) money funds (200) account for over half (54.8%) of the "European" money fund total, while Euro (EUR) money funds (99) make up 18.3% and Pound Sterling (GBP) funds (130) total 26.9%. 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 5.01% (7-Day) on average (as of 6/13/23), up from 4.93% a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs finally left negative yield territory in the second half of 2022; they're yielding 3.10% on average, up from 2.89% a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21, -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 4.39%, up 22 bps from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's May MFI International Portfolio Holdings, with data as of 5/31/23, show that European-domiciled US Dollar MMFs, on average, consist of 21% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 39% in Repo, 6% in Treasury securities, 16% in Other securities (primarily Time Deposits) and 3% in Government Agency securities. USD funds have on average 65.1% of their portfolios maturing Overnight, 5.7% maturing in 2-7 Days, 7.7% maturing in 8-30 Days, 4.0% maturing in 31-60 Days, 5.0% maturing in 61-90 Days, 7.9% maturing in 91-180 Days and 4.7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (32.0%), France (15.7%), Canada (11.8%), Japan (9.4%), Sweden (5.9%), the U.K. (5.5%), the Netherlands (4.3%), Australia (2.6%), Germany (2.4%) and Austria (1.5%).
The 10 Largest Issuers to "offshore" USD money funds include: Fixed Income Clearing Corp with $39.1B (6.3%), the US Treasury with $38.6 billion (6.2% of total assets), BNP Paribas with $27.5B (4.4%), RBC with $26.5B (4.3%), Federal Reserve Bank of New York with $26.3B (4.2%), Credit Agricole with $24.8B (4.0%), Bank of America with $24.0B (3.9%), Barclays with $22.4B (3.6%), Citi with $17.8B (2.9%) and Sumitomo Mitsui Banking Corp with $16.6B (2.7%).
Euro MMFs tracked by Crane Data contain, on average 42% in CP, 19% in CDs, 28% in Other (primarily Time Deposits), 10% in Repo, 1% in Treasuries and 0% in Agency securities. EUR funds have on average 43.6% of their portfolios maturing Overnight, 10.2% maturing in 2-7 Days, 17.7% maturing in 8-30 Days, 9.5% maturing in 31-60 Days, 7.6% maturing in 61-90 Days, 7.1% maturing in 91-180 Days and 4.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (34.4%), Japan (12.4%), the U.S. (8.4%), Germany (6.7%), the U.K. (5.5%), Sweden (5.3%), Austria (5.1%), Canada (5.0%), the Netherlands (4.7%) and Belgium (3.1%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E12.1B (7.1%), Republic of France with E10.4B (6.1%), BNP Paribas with E7.6B (4.4%), Erste Group Bank AG with E7.4B (4.3%), Credit Mutuel with E7.3B (4.3%), Societe Generale with E6.4B (3.7%), Mitsubishi UFJ Financial Group with E5.2B (3.0%), BPCE SA with E4.9B (2.9%), Mizuho Corporate Bank Ltd with E4.7B (2.7%), and Sumitomo Mitsui Banking Corp with E4.7B (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 5/31/23): 34% in CDs, 20% in CP, 29% in Other (Time Deposits), 15% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 39.8% of their portfolios maturing Overnight, 9.4% maturing in 2-7 Days, 11.1% maturing in 8-30 Days, 11.5% maturing in 31-60 Days, 10.6% maturing in 61-90 Days, 12.2% maturing in 91-180 Days and 5.2% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (17.7%), France (15.6%), Canada (14.5%), the U.K. (11.4%), Australia (6.7%), the Netherlands (6.4%), the U.S. (5.3%), Sweden (4.4%), Spain (3.7%) and Singapore (2.9%).
The 10 Largest Issuers to "offshore" GBP money funds include: Mizuho Corporate Bank Ltd with L9.6B (5.2%), Mitsubishi UFJ Financial Group Inc with L8.7B (4.7%), RBC with L7.4B (4.0%), Toronto-Dominion Bank with L7.2B (3.9%), Banco Santander with L6.9B (3.7%), Sumitomo Mitsui Trust Bank with L6.8B (3.7%), BPCE SA with L6.0B (3.2%), BNP Paribas with L5.4B (2.9%), Barclays PLC with L5.2B (2.8%) and Credit Agricole with L5.2B (2.8%).
The June issue of our Bond Fund Intelligence, which will be sent to subscribers Wednesday morning, features the stories, "Barron's Profiles Vanguard Fixed-Income Head Devereux," which reviews a piece on one of the largest bond fund manager's outlook on the market, and "ICI's 2023 Fact Book Reviews '22 Bond Fund Trends, Flows," which excerpts from the Institute's annual trends compilation. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in May while yields inched higher. 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.) (Reminder: Tickets are still available for our big Money Fund Symposium show, which will take place next week, June 21-23, 2023 in Atlanta, Ga.)
Our lead article states, "Barron's features, 'Bonds Are Back. Where Vanguard's Bond Boss Sees Value Now." They write, 'After a lousy year for bonds in 2022, the outlook is better. So much better that Sara Devereux, global head of the fixed-income group at Vanguard, has taken to sporting a button around the office declaring, 'Bonds Are Back.'" She tells the magazine, 'I haven't seen this kind of opportunity in a long time, after a decade of yields at the zero lower bound.'" ` It continues, "The piece explains, 'Vanguard is the world's second-largest asset manager, with $7.7 trillion in assets under management. In bonds it is best known for index funds. But it is also one of the biggest providers of U.S. active bond funds, with $890 billion in assets, and Devereux is helping lead the charge in active management.'"
Our "Fact Book" piece states: "The ICI recently published its '2023 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2022 and a wealth of statistics on bond funds. They write, 'Bond funds ... experienced a major shift in net sales, going from net inflows of $1.2 trillion in 2021 to net outflows of $261 billion in 2022.... This reversal was primarily driven by developments in inflation and interest rates. Inflation across the globe rose considerably during 2022 -- reaching 40-year highs in many countries.... In response, central banks tightened monetary policy by engaging in earlier and steeper-than-expected interest rate hikes.'"
ICI continues, 'The cycle of tightening monetary policy among these developed economies is important because when interest rates rise, bond prices fall. This caused the value of bonds in these jurisdictions to decrease, which led to capital losses on bond funds. Like the experience with equity fund returns and flows, net flows to bond funds have historically been related to bond returns (see Figure 3.5).'"
Our first News brief, "Returns Move Lower, Yields Up in May," says, "Bond fund returns fell while yields were mostly higher last month. Our BFI Total Index fell 0.66% over 1-month and is down 0.42% over 12 months. The BFI 100 fell 0.80% in May and lost 1.00% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.34% over 1-month and is up 3.01% for 1-year; Ultra-Shorts rose 0.22% and are up 2.49% over 12 mos. Short-Term fell 0.34% and rose 0.32%, and Intm-Term fell 1.02% and -2.05% over 1-year. BFI's Long-Term Index fell 1.37% and -2.68%. High Yield fell 0.74% in May but rose 0.68% over 1-year.
A second News brief, "Morningstar on '6 Top-Performing Core Bond Funds,' says, 'In recent years, becoming a top-performing bond fund has required weathering some of the biggest extremes in bond market history.... For bond investors, 2022 was a grim year.... The bond market as measured by the Morningstar US Core Bond Index lost 12.9%, while funds in the intermediate-term core bond Morningstar Category lost 13.4% on average. So far, 2023 has been a smoother ride for bond investors, as core bonds have on average returned 2.4%, compared with a 2.2% gain for the Morningstar Core Bond Index. But for the past 12 months, bond investors have still been nursing losses. Core bond funds are down 1.6% for the 12-month trailing period ending June 8.'"
Our next News brief, "Forbes Advisors on the 'Best Total Bond Market Index Funds Of 2023,' tells readers, 'You know you should be investing in fixed income, but the bond market can be a challenging puzzle for many people. Choosing a total market bond index fund is an easy way to answer this riddle. When you own shares in a total bond market fund, you get exposure to the entire bond market. You're investing in U.S. Treasury bonds, agency bonds, corporate bonds and a variety of other fixed-income investments -- and the best options charge rock-bottom fees.' The piece mentions: TIAA-CREF Bond Index Advisor (TBIAX), Northern Bond Index (NOBOX), Vanguard Total Bond Market Index (VBTLX), Schwab U.S. Aggregate Bond Index Fund (SWAGX), Fidelity Sustainability Bond Index Fund (FNDSX), Fidelity U.S. Bond Index Fund (FXNAX), Fidelity Flex US Bond Index Fund (FIBUX)."
Another brief, "VettaFi's Advisor Perspectives Posts, 'Gundlach: Buy Bonds, Not Stocks,' quotes VettaFi, 'There is plenty of opportunity in the bond market, particularly in low-risk Treasury bonds and in the mortgage markets, according to Jeffrey Gundlach.... 'Bonds are absolutely cheap relative to stocks.' Gundlach spoke to investors via a webcast, titled 'Dust in the Crevices,' and the focus was on his flagship total-return fund (DBLTX).'"
A BFI sidebar, "SEC's Gensler on Open-End," says, "Securities & Exchange Commission Chair Gary Gensler spoke last month before the '2023 ICI Leadership Summit.' His talk, 'Bear in the Woods,' tells us, 'There is a saying when you're in the woods. 'You don't have to outrun the bear; you just have to outrun one of your fellow campers.' [T]his helps explain why investors might try to cash out of investments before the proverbial bear -- of dilution and illiquidity -- catches them.'"
Finally, another sidebar, "BlackRock Launches BINC," comments, "A release entitled, 'BlackRock Expands Access to Award-Winning Alpha-Seeking Expertise With Latest Active ETFs' tells us, 'BlackRock expanded access to its award-winning investment platform with the launch of two active ETFs managed by Rick Rieder and Tony DeSpirito. This milestone provides clients with the best of BlackRock's investment insights in a liquid, transparent, and tax-efficient ETF wrapper.'"
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the First Quarter 2023 edition shows that Total MMF Assets increased by $470 billion to $5.693 trillion in Q1'23. The Household Sector, by far the largest investor segment with $3.366 trillion, saw the biggest asset increase in Q1, followed by Nonfinancial Corporate Businesses. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also showed noticeable increases for the Other Financial Business (formerly Funding Corps), the Rest of World and the Mutual Fund categories in Q1 2023.
Private Pension Funds, State & Local Governments, Life Insurance Companies, Exchange-traded funds and the Nonfinancial Noncorporate Business categories saw small asset increases in Q1. The State & Local Govt Retirement and Property-Casualty Insurance categories were the only ones that saw assets decrease last quarter. Over the past 12 months, the Household Sector, Nonfinancial Corporate Business, Private Pension Funds, Rest of World and State & Local Governments categories showed the biggest asset increases, while Other Financial Business, Mutual Funds and State & Local Govt Retirement saw the biggest asset decreases.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $470 billion, or 9.0%, in the first quarter to $5.693 trillion. The largest segment, the Household sector, totals $3.366 trillion, or 59.1% of assets. The Household Sector increased by $300 billion, or 9.8%, in the quarter. Over the past 12 months through March 31, 2023, Household assets were up $600 billion, or 21.7%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $810 billion, or 14.2% of the total. Assets here increased by $71 billion in the quarter, or 9.5%, and they've increased by $44 billion, or 5.7%, over the past year. Other Financial Business was the third-largest investor segment with $435 billion, or 7.6% of money fund shares. This category jumped $53 billion, or 13.8%, in the latest quarter. Other Financial Business, which we believe includes Securities Lending, has decreased by $79 billion, or -15.4%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds, held $266 billion (4.7%). Mutual Funds (a recent addition to the tables), was the 5th largest category with 4.3% of money fund assets ($237 billion); it was up by $11 billion (4.8%) for the quarter and down $62 billion, or -20.8% over the last 12 months. The Rest of World remained sixth place in market share among investor segments with 3.5%, or $200 billion, while Nonfinancial Noncorporate Business held $138 billion (2.4%), Life Insurance Companies held $77 billion (1.4%), State & Local Governments held $71 billion (1.3%), Property-Casualty Insurance held $42 billion (0.7%), Exchange-traded Funds held $29 billion (0.5%), and State & Local Govt Retirement held $22 billion (0.4%) according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in “Security Repurchase Agreements” with $3.235 trillion, or 56.8% and "Debt Securities," or Credit Market Instruments, with $2.207 trillion, or 38.8% of the total. Debt securities includes: Open market paper ($251 billion, or 4.4%; we assume this is CP), Treasury securities ($1.041 trillion, or 18.3%), Agency and GSE-backed securities ($792 billion, or 13.9%), Municipal securities ($114 billion, or 2.0%) and Corporate and foreign bonds ($9 billion, or 0.2%).
Another large MMF position in the Fed's series includes `Time and savings deposits ($227 billion, or 4.0%). Money funds also hold minor positions in Miscellaneous assets ($22 billion, or 0.4%) and Foreign deposits ($2 billion, 0.0%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $43 billion.
During Q1, Debt Securities were up $185 billion. This subtotal included: Open Market Paper (down $3 billion), Treasury Securities (down $23 billion), Agency- and GSE-backed Securities (up $212 billion), Corporate and Foreign Bonds (up $3 billion) and Municipal Securities (down $4 billion). In the first quarter of 2023, Security Repurchase Agreements were up $259 billion, Foreign Deposits were unchanged, Time and Savings Deposits were up by $37 billion, and Miscellaneous Assets were down $12 billion.
Over the 12 months through 3/31/23, Debt Securities were down $308 billion, which included Open Market Paper (up $18B), Treasury Securities (down $719B), Agencies (up $389B), Municipal Securities (up $1B), and Corporate and Foreign Bonds (up $4B). Foreign Deposits (unchanged), Time and Savings Deposits were up $52B, Securities repurchase agreements were up $858 billion and Miscellaneous Assets were down $1B.
The L.121 table shows `Stable NAV money market funds with $5,045 billion, or 88.6% of the total (up $455.3 or 9.9% in Q1 and up $619B or 14.0% over 1-year), and Floating NAV money market funds with $648 billion, or 11.4% (up $14.3B or 2.3% in Q1 and down $17B or -2.5% over 1-year). Government money market funds total $4.435 trillion, or 77.9% (up $371B or 9.1% in Q1 and up $284B or 6.8% over 1-year), Prime money market funds total $1.139 trillion, or 20.0% (up $99B or 9.5% in Q1 and up $295B or 34.9% over 1-year) and Tax-exempt money market funds $119B, or 2.1% (down $0.5B or -0.4% in Q1 and up $24B or 25.1% last year).
The Federal Reserve made changes to the Z.1 tables five quarters ago. Describing a "Money market funds sector data source change," the report says, "The money market mutual funds (MMF) sector (tables F.121 and L.121) has been revised beginning 2010:Q4 to reflect a change in data source to Securities and Exchange Commission Form NMFP. The level of assets and shares outstanding of the sector have increased due to the inclusion of private placement MMFs in the source data. Changes in the level due to changes in the data source in 2010:Q4 are recorded as other volume changes in the Financial Accounts."
On "Mutual funds sector holdings of money market funds," Z.1 tells us, "The mutual funds sector (tables F.122 and L.122) has been revised beginning 2010:Q4 to reflect holdings of money market funds not previously reported on the tables. In addition, holdings of repurchase agreements, commercial paper, corporate bonds, and miscellaneous assets have been revised. Additional and revised holdings are estimated using data from Morningstar and Investment Company Institute.... The exchange-traded funds sector (tables F.124 and L.124) has been revised beginning 2010:Q4 to reflect holdings of money market funds not previously reported on the tables."
Crane Data's June Money Fund Portfolio Holdings, with data as of May 31, 2023, show that Repo, Agencies and Time Deposits (Other) all showed big increases while Treasury holdings plunged in May. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $92.6 billion to a record $5.688 trillion, after increasing $81.2 billion in April, $390.5 billion in March, $34.5 billion in February and $49.7 billion in January. Repo extended its lead as the largest portfolio segment, jumping by over $100 billion and hitting new record levels, while Treasuries fell by over $100 billion but remained in the No. 2 spot. The Federal Reserve Bank of New York's RRP issuance held by MMFs fell $170.1 billion to $2.036 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. (Note: We look forward to seeing you at our upcoming Money Fund Symposium, June 21-23, 2023 in Atlanta, Ga!)
Among taxable money funds, Repurchase Agreements (repo) increased $111.8 billion (3.5%) to $3.348 trillion, or 58.9% of holdings, in May, after increasing $33.1 billion in April, $276.3 billion in March and $98.2 billion in February. Repo decreased $111.2 billion in January. Treasury securities fell $116.9 billion (-11.7%) to $881.2 billion, or 15.5% of holdings, after decreasing $32.3 billion in April, increasing $20.7 billion in March and decreasing $41.2 billion in February. Government Agency Debt was up $58.8 billion, or 7.4%, to $853.1 billion, or 15.0% of holdings. Agencies increased $18.5 billion in April and $188.8 billion in March, but decreased $27.0 billion in February. Repo, Treasuries and Agency holdings now total $5.082 trillion, representing a massive 89.4% of all taxable holdings.
Money fund holdings of CP and CDs increased in May. Commercial Paper (CP) increased $6.5 billion (2.6%) to $255.7 billion, or 4.5% of holdings. CP holdings increased $7.4 billion in April, but decreased $33.0 billion in March and $7.3 billion in February. Certificates of Deposit (CDs) increased $2.1 billion (1.2%) to $172.9 billion, or 3.0% of taxable assets. CDs increased $18.8 billion in April, but decreased $17.1 billion in March and $4.5 billion in February. Other holdings, primarily Time Deposits, increased $30.4 billion (22.2%) to $167.4 billion, or 2.9% of holdings, after increasing $35.0 billion in April, decreasing $43.9 billion in March, and increasing $15.6 billion in February. VRDNs fell to $9.6 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Monday around noon.)
Prime money fund assets tracked by Crane Data rose to $1.175 trillion, or 20.7% of taxable money funds' $5.688 trillion total. Among Prime money funds, CDs represent 14.7% (unchanged from a month ago), while Commercial Paper accounted for 21.8% (up from 21.4% in March). The CP totals are comprised of: Financial Company CP, which makes up 14.4% of total holdings, Asset-Backed CP, which accounts for 4.0%, and Non-Financial Company CP, which makes up 3.4%. Prime funds also hold 6.8% in US Govt Agency Debt, 1.3% in US Treasury Debt, 30.7% in US Treasury Repo, 0.9% in Other Instruments, 10.6% in Non-Negotiable Time Deposits, 4.7% in Other Repo, 6.6% in US Government Agency Repo and 0.6% in VRDNs.
Government money fund portfolios totaled $3.082 trillion (54.2% of all MMF assets), up from $2.914 trillion in April, while Treasury money fund assets totaled another $1.431 trillion (25.2%), down from $1.522 trillion the prior month. Government money fund portfolios were made up of 24.3% US Govt Agency Debt, 14.5% US Government Agency Repo, 7.9% US Treasury Debt, 52.8% in US Treasury Repo, 0.3% in Other Instruments. Treasury money funds were comprised of 43.5% US Treasury Debt and 54.5% in US Treasury Repo. Government and Treasury funds combined now total $4.513 trillion, or 79.3% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $76.5 billion in May to $601.2 billion; their share of holdings jumped to 10.6% from last month's 9.4%. Eurozone-affiliated holdings increased to $405.0 billion from last month's $359.1 billion; they account for 7.1% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $222.1 billion (3.9% of the total) from last month's $213.1 billion. Americas related holdings rose to $4.854 trillion from last month's $4.850 trillion, and now represent 85.4% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $202.9 billion, or 7.9%, to $2.767 trillion, or 48.7% of assets); US Government Agency Repurchase Agreements (down $94.1 billion, or -15.2%, to $525.7 billion, or 9.2% of total holdings), and Other Repurchase Agreements (up $3.0 billion, or 5.7%, from last month to $54.9 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $5.9 billion to $169.5 billion, or 3.0% of assets), Asset Backed Commercial Paper (up $3.0 billion to $46.4 billion, or 0.8%), and Non-Financial Company Commercial Paper (down $2.3 billion to $39.7 billion, or 0.7%).
The 20 largest Issuers to taxable money market funds as of May 31, 2023, include: the Federal Reserve Bank of New York ($2.036T, 35.8%), the US Treasury ($881.2B, 15.5%), Federal Home Loan Bank ($728.2B, 12.8%), Fixed Income Clearing Corp ($342.0B, 6.0%), RBC ($111.6B, 2.0%), Federal Farm Credit Bank ($102.8B, 1.8%), Bank of America ($99.3B, 1.7%), JP Morgan ($98.9B, 1.7%), Barclays PLC ($90.3B, 1.6%), BNP Paribas ($90.0B, 1.6%), Citi ($83.9B, 1.5%), Goldman Sachs ($73.9B, 1.3%), Sumitomo Mitsui Banking Corp ($50.4B, 0.9%), Credit Agricole ($49.4B, 0.9%), Societe Generale ($47.8B, 0.8%), Mitsubishi UFJ Financial Group Inc ($47.5B, 0.8%), Toronto-Dominion Bank ($41.4B, 0.7%), Wells Fargo ($40.3B, 0.7%), ING Bank ($39.3B, 0.7%), and Bank of Montreal ($37.3B, 0.7%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($2.036T, 60.8%), Fixed Income Clearing Corp ($332.0B, 9.9%), JP Morgan ($92.6B, 2.8%), RBC ($90.3B, 2.7%), Bank of America ($82.0B, 2.4%), Citi ($78.0B, 2.3%), Barclays PLC ($75.8B, 2.3%), Goldman Sachs ($73.3B, 2.2%), BNP Paribas ($70.2B, 2.1%) and Sumitomo Mitsui Banking Corp ($39.2B, 1.2%). The largest users of the $2.036 trillion in Fed RRP include: Goldman Sachs FS Govt ($144.1B), JPMorgan US Govt MM ($133.1B), Vanguard Federal Money Mkt Fund ($117.2B), Fidelity Govt Money Market ($106.3B), Fidelity Inv MM: Govt Port ($95.3B), Fidelity Govt Cash Reserves ($89.2B), American Funds Central Cash ($64.7B), BlackRock Lq FedFund ($60.2B), Northern Instit Treasury MMkt ($58.8B) and Morgan Stanley Inst Liq Govt ($56.4B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($25.6B, 4.9%), Credit Agricole ($24.6B, 4.7%), Mizuho Corporate Bank Ltd ($23.4B, 4.5%), RBC ($21.3B, 4.1%), BNP Paribas ($19.9B, 3.8%), Bank of America ($17.3B, 3.3%), ING Bank ($16.3B, 3.1%), Bank of Nova Scotia ($16.2B, 3.1%), Bank of Montreal ($16.1B, 3.1%) and Skandinaviska Enskilda Banken AB ($15.9B, 3.1%).
The 10 largest CD issuers include: Credit Agricole ($12.5B, 7.2%), Toronto-Dominion Bank ($12.1B, 7.0%), Mizuho Corporate Bank Ltd ($11.7B, 6.8%), Sumitomo Mitsui Banking Corp ($10.0B, 5.8%), Mitsubishi UFJ Financial Group Inc ($9.8B, 5.7%), Sumitomo Mitsui Trust Bank ($8.9B, 5.2%), Canadian Imperial Bank of Commerce ($8.1B, 4.7%), Bank of America ($7.7B, 4.5%), BNP Paribas ($6.8B, 3.9%) and Svenska Handelsbanken ($6.3B, 3.6%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Bank of Montreal ($12.3B, 5.6%), Bank of Nova Scotia ($11.8B, 5.4%), RBC ($10.4B, 4.7%), Barclays PLC ($9.9B, 4.5%), Societe Generale ($9.7B, 4.4%), Toronto-Dominion Bank ($9.1B, 4.1%), BNP Paribas ($8.5B, 3.9%), BPCE SA ($8.1B, 3.7%), JP Morgan ($6.3B, 2.9%) and Svenska Handelsbanken ($6.0B, 2.7%).
The largest increases among Issuers include: Fixed Income Clearing Corp (up $114.5B to $342.0B), Federal Home Loan Bank (up $45.6B to $728.2B), Bank of America (up $23.9B to $99.3B), Barclays PLC (up $22.6B to $90.3B), Goldman Sachs (up $22.2B to $73.9B), RBC (up $20.6B to $111.6B), JP Morgan (up $18.6B to $98.9B), BNP Paribas (up $15.4B to $90.0B), Citi (up $9.2B to $83.9B) and Federal Home Loan Mortgage Corp (up $9.1B to $14.7B).
The only decreases among Issuers of money market securities (including Repo) in May were shown by: Federal Reserve Bank of New York (down $170.1B to $2.036T), US Treasury (down $116.9B to $881.2B), Sumitomo Mitsui Trust Bank (down $3.3B to $14.2B), Australia & New Zealand Banking Group Ltd (down $1.6B to $14.2B), DNB ASA (down $0.5B to $8.1B) and Nordea Bank (down $0.2B to $7.3B).
The United States remained the largest segment of country-affiliations; it represents 80.8% of holdings, or $4.593 trillion. Canada (4.6%, $261.4B) was in second place, while France (4.2%, $236.2B) was No. 3. Japan (3.4%, $193.5B) occupied fourth place. The United Kingdom (2.3%, $131.7B) remained in fifth place. Netherlands (1.3%, $71.2B) was in sixth place, followed by Germany (0.9%, $53.7B), Sweden (0.8%, $47.7B) Australia (0.5%, $27.8B), and Spain (0.3%, $14.3B). (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 May 31, 2023, Taxable money funds held 73.5% (up from 72.4%) of their assets in securities maturing Overnight, and another 7.3% maturing in 2-7 days (down from 8.6%). Thus, 80.7% in total matures in 1-7 days. Another 4.3% matures in 8-30 days, while 4.6% matures in 31-60 days. Note that over three-quarters, or 89.7% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 2.7% of taxable securities, while 5.1% matures in 91-180 days, and just 2.6% 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 Friday, and we'll be writing our regular monthly update on the new May 31 data for Monday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Thursday. (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 May 31, includes holdings information from 979 money funds (down 8 from last month), representing record assets of $5.859 trillion (up from $5.760 trillion). Prime MMFs now total $1.189 trillion, or 20.3% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses mostly flat but money fund revenues up again in May. (Note: Please join us for our upcoming Money Fund Symposium, which is scheduled for June 21-23, 2023 in Atlanta, Ga.)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds increased to $3.379 trillion (up from $3.270 trillion), or 57.7% of all assets. Treasury holdings totaled $886.1 billion (down from $998.7 billion), or 15.1% of all holdings, and Government Agency securities totaled $867.6 billion (up from $808.7 billion), or 14.8%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.132 trillion, or a massive 87.6% of all holdings.
Commercial paper (CP) totals $264.4 billion (up from $257.4 billion), or 4.5% of all holdings, and the Other category (primarily Time Deposits) totals $171.6 billion (up from $141.1 billion), or 2.9%. Certificates of Deposit (CDs) total $173.3 billion (up from $171.1 billion), 3.0%, and VRDNs account for $117.5 billion (up from $112.5 billion last month), or 2.0% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $170.2 billion, or 2.9%, in Financial Company Commercial Paper; $47.0 billion or 0.8%, in Asset Backed Commercial Paper; and, $47.2 billion, or 0.8%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.752 trillion, or 47.0%), U.S. Govt Agency Repo ($568.5B, or 9.7%) and Other Repo ($58.3B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $258.2 billion (up from $251.7 billion), or 21.7%; Repo holdings of $497.8 billion (down from $504.0 billion), or 41.9%; Treasury holdings of $17.4 billion (down from $23.0 billion), or 1.5%; CD holdings of $173.3 billion (up from $171.1 billion), or 14.6%; Other (primarily Time Deposits) holdings of $152.4 billion (up from $135.8 billion), or 12.8%; Government Agency holdings of $83.3 billion (up from $81.9 billion), or 7.0% and VRDN holdings of $6.7 billion (unchanged from month prior), or 0.6%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $170.2 billion (up from $164.4 billion), or 14.3%, in Financial Company Commercial Paper; $47.0 billion (up from $44.2 billion), or 4.0%, in Asset Backed Commercial Paper; and $41.0 billion (down from $43.1 billion), or 3.4%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($365.4 billion, or 30.7%), U.S. Govt Agency Repo ($77.9 billion, or 6.6%), and Other Repo ($54.6 billion, or 4.6%).
In related news, money fund charged expense ratios (Exp%) were mostly flat in May. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.38%, respectively, as of May 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 Thursday 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%, down 1 bp from last month's level (but 18 bps higher than 12/31/21's 0.08%). The average is close to back at the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (though they are waiving a minimal amount of fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.38% as of May 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% (unchanged from last month), Government Inst MFs expenses average 0.26% (unchanged from last month), Treasury Inst MFs expenses average 0.30% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.52%, (unchanged from last month), Government Retail MFs expenses yield 0.55% (unchanged from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were also unchanged at 0.40% on average.
Gross 7-day yields rose again during the month ended May 31, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 753), shows a 7-day gross yield of 5.06%, up 24 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 24 bps, ending the month at 4.98%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $15.403 billion (as of 5/31/23). Our estimated annualized revenue totals increased from $15.143B last month and are up from $14.927B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their climb higher as money funds continue to rake in assets from uninsured bank deposits.
Crane Data's latest monthly Money Fund Market Share rankings show assets were again higher among the largest U.S. money fund complexes in May. Money market fund assets jumped $152.7 billion, or 2.7%, last month to a record $5.845 trillion. Total MMF assets increased by $577.2 billion, or 11.0%, over the past 3 months, and they've increased by $881.3 billion, or 17.7%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by JPMorgan, Fidelity, Schwab, BlackRock and Invesco, which grew assets by $55.0 billion, $31.8B, $16.6B, $16.0B and $8.9B, respectively. Declines in May were seen by Morgan Stanley and Dreyfus, which decreased by $7.9 billion and $2.8B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which rose yet again in May, below. (Note: Last call to register for our upcoming Money Fund Symposium conference, June 21-23, 2023 at The Hyatt Regency Atlanta, in Atlanta, Ga!)
Over the past year through May 31, 2023, Schwab (up $234.8B, or 167.8%), Fidelity (up $221.3B, or 24.7%), JPMorgan (up $104.4B, or 23.0%), Federated Hermes (up $82.9B, or 27.1%) and Goldman Sachs (up $79.1B, or 20.6%) were the `largest gainers. JPMorgan, Fidelity, Schwab, Goldman Sachs and BlackRock had the largest asset increases over the past 3 months, rising by $133.1B, $87.0B, $52.7B, $50.0B and $40.2B, respectively. The largest declines over 12 months were seen by: Morgan Stanley (down $28.0B), BlackRock (down $23.6B), Northern (down $14.2B), SSGA (down $13.9B) and HSBC (down $5.6B). The largest decliners over 3 months included: Dreyfus (down $15.6B) and Western (down $5.7B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.125 trillion, or 20.0% of all assets. Fidelity was up $31.8B in May, up $87.0 billion over 3 mos., and up $221.3B over 12 months. JPMorgan ranked second with $576.1 billion, or 10.2% market share (up $55.0B, up $133.1B and up $104.4B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $511.9 billion, or 9.1% of assets (up $1.1B, up $31.4B and up $58.6B). BlackRock ranked fourth with $501.3 billion, or 8.9% market share (up $16.0B, up $40.2B and down $23.6B), while Goldman Sachs was the fifth largest MMF manager with $443.0 billion, or 7.9% of assets (up $4.2B, up $50.0B and up $79.1B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $391.7 billion, or 7.0% (up $94M, up $26.5B and up $82.9B), while Schwab was in seventh place with $382.2 billion, or 6.8% of assets (up $16.6B, up $52.7B and up $234.8B). Dreyfus ($259.2B, or 4.6%) was in eighth place (down $2.8B, down $15.6B and up $26.9B), followed by Morgan Stanley ($252.0B, or 4.5%; down $7.9B, up $27.0B and down $28.0B). American Funds was in 10th place ($196.0B, or 3.5%; up $5.2B, up $26.0B and up $8.6B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Invesco ($163.5B, or 2.9%), Allspring (formerly Wells Fargo) ($161.0B, or 2.9%), SSGA ($157.9B, or 2.8%), Northern ($156.2B, or 2.8%), First American ($125.5B, or 2.2%), UBS ($86.1B, or 1.5%), T. Rowe Price ($49.0B, or 0.9%), HSBC ($39.3B, or 0.7%), DWS ($32.9B, or 0.6%) and Western ($32.1B, or 0.6%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: BlackRock moves up to the No. 3 spot, Goldman Sachs moves up to No. 4 and Vanguard moves down to the No. 5 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 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 ($1.134 trillion), JP Morgan ($793.5B), BlackRock ($711.1B), Goldman Sachs ($586.0B) and Vanguard ($511.9B). Federated Hermes ($401.1B) was in sixth, Schwab ($382.2B) was seventh, followed by Morgan Stanley ($316.0B), Dreyfus/BNY Mellon ($278.8B) and SSGA ($196.1B), 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 June issue of our Money Fund Intelligence and MFI XLS, with data as of 5/31/23, shows that yields increased again in May across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 753), rose to 4.75% (up 23 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 4.68% (up 18 bps). The MFA's Gross 7-Day Yield rose to 5.05% (up 22 bps), and the Gross 30-Day Yield also moved up to 4.97% (up 16 bps). (Gross yields will be revised Thursday at noon, though, once we download the SEC's Form N-MFP data for 5/31/23.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.90% (up 27 bps) and an average 30-Day Yield at 4.84% (up 21 bps). The Crane 100 shows a Gross 7-Day Yield of 4.99% (up 26 bps), and a Gross 30-Day Yield of 4.93% (up 20 bps). Our Prime Institutional MF Index (7-day) yielded 4.95% (up 22 bps) as of May 31. The Crane Govt Inst Index was at 4.83% (up 21 bps) and the Treasury Inst Index was at 4.79% (up 30 bps). Thus, the spread between Prime funds and Treasury funds is 16 basis points, and the spread between Prime funds and Govt funds is 12 basis points. The Crane Prime Retail Index yielded 4.78% (up 22 bps), while the Govt Retail Index was 4.53% (up 16 bps), the Treasury Retail Index was 4.57% (up 30 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.06% (up 2 bps) as of May.
Gross 7-Day Yields for these indexes to end May were: Prime Inst 5.17% (up 22 bps), Govt Inst 5.06% (up 21 bps), Treasury Inst 5.04% (up 30 bps), Prime Retail 5.10% (up 20 bps), Govt Retail 5.00% (up 15 bps) and Treasury Retail 4.83% (up 27 bps). The Crane Tax Exempt Index fell to 2.45% (down 1 bp). The Crane 100 MF Index returned on average 0.41% over 1-month, 1.16% over 3-months, 1.83% YTD, 3.25% over the past 1-year, 1.11% over 3-years (annualized), 1.37% over 5-years, and 0.84% over 10-years.
The total number of funds, including taxable and tax-exempt, was up 2 in May to 883. There are currently 753 taxable funds, up 2 from the previous month, and 130 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The June issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Money Fund Assets Break $5.8 Trillion; $6.0 Trillion or Bust," which discusses the continued growth of MMFs; "ICI 2023 Fact Book Shows Money Fund Trends in '22," which quotes from the Institute's annual statistics summary; and, "SEC Chair Gensler on Bears, Runs, Money Funds at ICI," which covers Gary Gensler's recent speech. We also will send out our MFI XLS spreadsheet Wednesday a.m., and we've updated our Money Fund Wisdom database with 5/31/23 data. Our June Money Fund Portfolio Holdings are scheduled to ship on Friday, June 9, and our June Bond Fund Intelligence is scheduled to go out on Wednesday, June 14.
MFI's "MMFs Break $5.8 Trillion" article says, "Money fund assets continue their rise to record levels; they broke the $​5.​8 trillion level in late May and ended the month at $5.845 trillion. Crane Data's `Money Fund Intelligence XLS shows assets increasing by $152.7 billion in May, following gains of $64.2 billion in April and $360.4 billion in March. YTD, MMFs have increased by $676.7 billion, or 13.1%, and they've jumped by $881.4 billion, or 17.8% over 12 months. Today's MFI Daily shows assets hitting a record $5.858 trillion, so we expect the $6.0 trillion barrier to fall within a month or two."
The piece continues, "Taxable Retail MMFs increased by $55.7 billion in May and have grown by $278.1 billion (17.0%) YTD. They've increased by a shocking $515.4 billion, or 36.9%, over 12 months. Inst MMFs increased $92.6 billion last month. They're up $400.0B (11.7%) YTD and $356.3B (10.3%) over one year. Tax Exempt MMFs were up $4.5 billion in May but down $1.5B YTD. Prime MMFs were up $49.7 billion, Govt MMFs were up $144.4 billion, and Treasury MMFs were down $9.4 billion in May."
Our Fact Book article states, "The Investment Company Institute released its '2023 Investment Company Fact Book' an annual compilation of statistics and commentary on the mutual fund space. Subtitled, 'A Review of Trends and Activities in the Investment Company Industry,' the latest edition tells us, 'With stock markets down across the globe in 2022 ... worldwide total net assets of equity funds ... decreased by 20% to $26.9 trillion at year-end 2022. Bond funds -- which invest primarily in fixed-income securities -- saw their total net assets decrease 16% over the same period.... In contrast, net assets of money market funds -- which are generally understood to be regulated funds that are restricted to holding short-term, high-quality debt instruments -- increased slightly.'"
It continues, "Discussing 'Worldwide' mutual funds (page 12), ICI writes, 'Worldwide net sales of money market funds totaled $171 billion in 2022, down from $673 billion in 2021.... The decline in worldwide demand for money market funds was largely driven by a decrease in net sales in the United States and the Asia-Pacific region. Investor demand for money market funds in the United States decreased from $424 billion in 2021 to $10 billion in 2022; and in the Asia-Pacific region, money market funds experienced net inflows of $132 billion in 2022, down from $254 billion in 2021.'"
Our "SEC Chair Gensler" piece states, "Securities & Exchange Commission Chair Gary Gensler spoke recently at the '2023 ICI Leadership Summit.' His talk, entitled, 'Bear in the Woods,' tells us, 'There is a saying when you're in the woods. 'You don't have to outrun the bear; you just have to outrun one of your fellow campers.' ... It also helps explain why savers might try to cash out of deposits before that proverbial bear catches them at the bank.... Runs, when otherwise uncorrelated actors suddenly become correlated, have brought down many a financial firm over time.'"
MFI states, "He explains, 'Registered investment funds have grown to more than $30 trillion, with more than 16,000 funds. More than half of American households and more than 120 million individual Americans own ... funds.... Money market funds came about in the early 1970s.'"
MFI also includes the News brief, "Money Fund Yields Rise to 4.90%; Sweeps Up to 0.46%." It states, "Money fund yields moved higher yet again over the past month as they digested the Federal Reserve's latest 25 basis point rate increase (on 5/2). Our Crane 100 Money Fund Index (7-Day Yield) was up 26 bps to 4.90% in May. Yields are up from 4.64% on April 30, 4.61% on 3/31, 4.05% on 12/31/22 and 2.66% on 9/30/22."
Another News brief, "Money Fund Revenue Hits Record $15.65 Billion (Annualized)," states, "According to our latest asset and charged expense numbers, we estimate that annualized revenue for money funds is at a record $15.646 billion pace (as of 5/31/23), up from $15.143 billion last month and up from $14.135B 3 months ago."
A sidebar, "More ICI Fact Book: Data," states, "On page 1, we review the ICI's '2023 Investment Company Fact Book.' But it also contains numerous 'Data Tables' involving 'Money Market Mutual Funds.' ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution."
Another sidebar, "BlackRock's Fink on MMFs," states, "Last week, Deutsche Bank hosted its 13th annual 'Global Financial Services Conference,' which featured a discussion with BlackRock's Larry Fink. Fink comments, 'More fear means more savings in the short run.' Fink tells the DB event, 'Related to money markets, most of the money went into government funds, almost 95% went into government funds.... The big problem we had over that SVB weekend was, 'Should every corporation who had excess cash sitting in a bank, should they be sweeping it into the holding company every night?' By the way, some companies are now doing that. 'They're sweeping it in ... whether they're using the money market funds of a bank or they're outsourcing a lot more of that.'"
Our June MFI XLS, with May 31 data, shows total assets increased $152.7 billion to $5.845 trillion, after increasing $56.5 billion in April, $345.1 billion in March, $56.0 billion in February, $22.5 billion in January, $70.2 billion in December and $55.4 billion in November. MMFs rose $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 2022.
Our broad Crane Money Fund Average 7-Day Yield was up 23 bps to 4.75%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 26 bps to 4.90% in May. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 5.05% and 4.99%, respectively. Charged Expenses averaged 0.38% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Thursday once we upload the SEC's Form N-MFP data for 5/31/23.) The average WAM (weighted average maturity) for the Crane MFA was 22 days (up 4 days from previous month) while the Crane 100 WAM was up 4 at 20 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
With just 2 weeks to go until Crane's Money Fund Symposium, which will be held in Atlanta, June 21-23, we are also starting preparations for our 9th Annual European Money Fund Symposium. The preliminary agenda has been released and registrations are now being taken for this year's European event, which will take place Sept. 25-26 at the Radisson Blu Hotel in Edinburgh, Scotland. We provide more details on both shows below, and feel free to contact us for more information. (Note: If you haven't registered yet for the U.S. Money Fund Symposium, you can still do so via www.moneyfundsymposium.com. We look forward to seeing many of you in Atlanta in 2 weeks, or in Edinburgh this fall!)
Our 2022 European Symposium event in Paris attracted over 160 money fund professionals, sponsors and speakers. Given the return of live events, rising rates and expectations for another round of regulatory changes in Europe, we expect our show in Edinburgh to once again be the largest gathering of money market professionals outside the U.S. "European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue," says Crane Data President Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he adds.
Registration for European Money Fund Symposium is $1,000 USD. EMFS will be held at the Radisson Blu Hotel. Hotel rooms must be booked before August 18 to receive our discounted rate of E320. Visit www.craneeurosymposium.com to register, and contact us to request the PDF brochure. (Let us know too if you'd like information on speaking or sponsorships.)
The EMFS agenda features sessions conducted by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane's European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" with Peter Crane of Crane Data; followed by a "Global, Irish & European Money Fund Overview" with Corrado Camera of ICI Global and Irish Funds' President Pat Lardner; "Sterling, U.K. & Scottish MMF Issues" with Harm Carstens of DWS Investments, Paul Mueller of Invesco and Aman Samra of Abrdn; and, "Senior Portfolio Manager Perspectives," featuring Joe McConnell of J.P. Morgan AM and Douglas McPhail of Morgan Stanley I.M., and moderated by Dan Singer of J.P. Morgan Securities.
The afternoon will consist of: "U.S. Money Fund & European USD Update," with Peter Crane of Crane Data and Deborah Cunningham of Federated Hermes; "ESG & Euro Money Fund Update & Issues" with James Vincent of Goldman Sachs AM, David Callahan of Lombard Odier I.M. and Marc Fleury of BNP Paribas A.M.; "French & European MMF Overview" with Vanessa Robert of Moody's Investors Service and Rudolf Siebel of BVI; and lastly, "Chinese Money Funds & Asian Markets" with Andrew Paranthoiene of S&P Global Ratings and Minyue Wang of Fitch Ratings.
The Day Two Agenda includes: "IMMFA Update: The State of MMFs in Europe" with Veronica Iommi of IMMFA; "Ultra-Short Bond Funds & Standard MMFs" with Abis Soetan of Fitch Ratings, Mhammed Belfaida of Aviva Investors and Neil Hutchison of J.P. Morgan Asset Mgmt.; and, "Money Fund Reforms: Latest US & Pending EU" with Brenden Carroll of Dechert LLP, Dennis Gepp of Federated Hermes (UK) and John Hunt of Sullivan & Worcester LLP.
The afternoon of day 2 will include: "Strategists Speak: ECB & Repo in Europe" with Soniya Sadeesh of Deutsche Bank and Cassandra Jones of State Street; "Dealer & Issuer Supply Roundtable" with George MacKenzie of Rabobank, Marianne Medora of Groupe BPCE/Natixis, Shane O'Neill of BRED Banque Populaire and Kieran Davis of TD Securities; and, "Offshore Information & Data" with Peter Crane and Tom Cullum of Bloomberg.
Also, with just two weeks to go, Crane Data is making final preparations for our big show, Money Fund Symposium, which is June 21-23, 2023 at The Hyatt Regency Atlanta in Atlanta, Georgia. The agenda is all set and registrations are still being taken.
Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators for 2 1/2 days of sessions, socializing and networking. Visit the MF Symposium website at www.moneyfundsymposium.com for more details. Registration is $1000, and discounted hotel reservations may still be available. We hope you'll join us in Atlanta! (E-mail us at info@cranedata.com to request the full brochure.)
Also, mark your calendars for our next Crane's Money Fund University, which will be held in Jersey City, NJ, Dec. 18-19, 2023. Money Fund University covers the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and Treasuries, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. Money Fund University's comprehensive program is good for both beginners and experienced professionals looking for a refresher.
Finally, our next Bond Fund Symposium will be held in Philadelphia, Pa., on March 25-26, 2024. (Click here to see last year's agenda.) Bond Fund Symposium is the only conference devoted entirely to bond mutual funds, bringing together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers. The majority of the content is aimed at the growing ultra-short and conservative ultra-short bond fund marketplace. Let us know if you'd like more details on any of our events, and we hope to see you in in Atlanta soon, in Edinburgh in September, in Jersey City in December or in Philadelphia in March 2024. Thanks to all of our speakers and sponsors and for your patience and support over the past two rough years!
Last week, Deutsche Bank hosted its 13th annual "Global Financial Services Conference," which featured a discussion with BlackRock's Larry Fink. The CEO talked about rate hikes, capital markets, and money market funds, among other things. Fink comments, "More fear means more savings in the short run." Asked about the growth of money markets, Fink says, "So I would say two things: as more and more money moves to the capital markets, whether in the short and long end, first of all, the net positive is -- and I think the Federal Reserve wrote a piece on this recently -- it actually is more liability backed. When you think about private credit for a second, I mean, we're liability matching everything. We're taking less duration mismatch, and, or more importantly, we don't have leverage, like banks." (Note: Register ASAP for our Money Fund Symposium, which takes place June 21-23, 2023 in Atlanta, Ga. See you in 2 weeks!)
He continues, "But that's the negative side [of banks] as more activity goes to the capital markets. The problem is: capital markets cannot leverage ... like the banking system. The banking system's beauty is the ability to leverage 8-to-1, 9-to-1 depending on its capital ratios. So the banking system does provide that economic stimulus that the capital markets can't provide. That's why we have to have a strong banking system at the same time, and really strong capital markets, and they have to play off each other."
Fink tells the DB event, "Related to money markets, most of the money went into government funds, almost 95% went into government funds.... The big problem we had over that SVB weekend was, 'Should every corporation who had excess cash sitting in a bank, should they be sweeping it into the holding company every night?' By the way, some companies are now doing that. They're sweeping it in ... whether they're using the money market funds of a bank or they're outsourcing a lot more of that."
He states, "That's always a problem when you have fearful [investors] frightened of your payrolls being met and your cash being frozen.... It leads to a lot of corporate treasurers asking themselves, 'Do I want to have that much exposure even in my, short-term liquidity pool to the bank for my payrolls?' You know, it was an existential problem."
Fink explains, "Let's be clear ... that one day problem raised a lot of questions with a lot of corporate treasurers. What should I do with my excess liquidity and how should I play that out?' That's why we saw this surge of money. It's going to take time and all that. But do I see any embedded risk that money went into a lot of government funds? Not necessarily."
Shifting to MMF risks, he says, "I'm not witnessing [among] competitive money market funds vast credit arbitrage. You think about in '07 and '08, you had Reserve Fund -- they were able to give you three extra basis points of return, and people ran there. Obviously, that was in the form of owning a lot of Lehman [Brothers] paper, and it blew up. You don't have that credit arbitrage."
Fink adds, "The range between the top ten money market providers, maybe it's a basis point, and it's generally based on where they are on the yield curve. Do they have a 28-day average [maturity], a 32-day average? That's shaping it differently, or you're keeping it all the shorter in 7 to 10 day.... We're going to see a big shift ... when the debt ceiling is all passed and the Treasury is issuing a lot of short-term bills. You're going to see a lot of movement in the money market funds. And ... let's be clear, money market funds are paying higher than most bank deposits and that's only going to be enhanced with a surge of bill issuance in the next few weeks."
Mutual fund news source ignites references Fink's comments in its piece, "'Truckload' of New Treasurys to Prompt Money Fund Flows." They tell us, "BlackRock Chief Executive Larry Fink expects assets to flow into money market funds once a debt-ceiling deal is passed. The House of Representatives passed a bill on Wednesday night to suspend the country's debt ceiling -- which currently stands at $31.4 trillion – through Jan. 1, 2025, by a vote of 314-117. The Senate passed the bill on Thursday with a 63-36 vote, and the measure now goes to the president for his signature [he signed Friday]. The legislation passed just days before June 5, the date that Treasury Secretary Janet Yellen indicated that the government could run out of money to pay its bills."
The piece says, "Fink expects the Treasury Department to issue more short-term bills once the debt ceiling is raised, he said Wednesday at Deutsche Bank's annual global financial services conference. 'You're going to see a lot of movement in the money market funds,' he said. '[L]et's be clear, money market funds are paying higher than most bank deposits. And that's only going to be enhanced with this surge in bill issuance in the next few weeks.' The funds in the Crane 100 Money Fund Index had an average seven-day yield of 4.90% during the week ended May 31, according to Crane Data."
The ignites article continues, "It's clear that 'truckloads' of Treasury bills will be issued, said Peter Crane, chief executive of Crane Data. 'With money market funds, supply had been shrinking and money funds had been steering clear of them because of the debt ceiling, so that certainly will reverse,' he said. 'The supply to money market funds will be welcomed, but that won't drive money fund assets on a trip to the moon.' Still, he said, money market fund assets hit a record high this week and will continue to climb as long as interest rates stay around 5%. Money market fund assets increased by $31.7 billion during the week ended May 31, reaching $5.42 trillion, according to data from the Investment Company Institute. Assets in government funds increased by $29.6 billion, to $4.51 trillion, during the period."
Finally, it adds, "The debt-ceiling arrangement is a 'big positive where you have both supply and demand increasing at the same time,' said Deborah Cunningham, executive VP and CIO for global liquidity markets at Federated Hermes. 'That's been the opposite of what we've had so far this year, where you had the demand increasing but not the supply,' she said. 'In fact, it was going quite the opposite, in the negative direction.' Overall, money market funds are poised to continue gathering assets, she added. 'Typically speaking, assets come into money market funds when rates have kind of plateaued or actually start to decrease,' Cunningham said. But over the last year and a half, retail investors have been piling money into the products, she added. Retail money funds added $8 billion in assets during the week ended May 31, according to ICI data, putting their total size at $1.33 trillion."
The Investment Company Institute's latest "Money Market Fund Assets" report shows MMF assets hitting a record for the sixth week in a row and the 11th week out of the past 13, breaking the $5.4 trillion barrier for the first time ever. Assets have risen by $600 billion, or 12.4%, over the past 14 weeks! ICI shows assets up by $685 billion, or 14.5%, year-to-date in 2023, with Institutional MMFs up $392 billion, or 12.8% and Retail MMFs up $293 billion, or 17.5%. Over the past 52 weeks, money fund assets have risen $894 billion, or 19.7%, with Retail MMFs rising by $550 billion (38.7%) and Inst MMFs rising by $344 billion (11.1%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record $5.825 trillion on Wednesday, 5/31, after dipping around the Holiday weekend. 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.)
The weekly release says, "Total money market fund assets increased by $31.74 billion to $5.42 trillion for the week ended Wednesday, May 31, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $29.59 billion and prime funds increased by $1.46 billion. Tax-exempt money market funds increased by $691 million." ICI's stats show Institutional MMFs jumping $19.8 billion and Retail MMFs rising $12.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.510 trillion (83.2% of all money funds), while Total Prime MMFs were $797.3 billion (14.7%). Tax Exempt MMFs totaled $112.4 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $11.97 billion to $1.97 trillion. Among retail funds, government money market fund assets increased by $8.09 billion to $1.33 trillion, prime money market fund assets increased by $3.25 billion to $540.20 billion, and tax-exempt fund assets increased by $628 million to $101.85 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.4% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $19.77 billion to $3.45 trillion. Among institutional funds, government money market fund assets increased by $21.50 billion to $3.18 trillion, prime money market fund assets decreased by $1.80 billion to $257.06 billion, and tax-exempt fund assets increased by $63 million to $10.52 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 92.2% of all Institutional MMF totals.
In other news, Federal Reserve Governor Philip Jefferson spoke yesterday on "Financial Stability and the U.S. Economy." He comments, "The Federal Reserve monitors and assesses potential vulnerabilities that may develop because of interactions among key participants. We do that by focusing on the safety and soundness of individual supervised institutions and by looking across the entire financial and nonfinancial system for potential risks and vulnerabilities. These risks and vulnerabilities can include elevated valuation pressures, excessive borrowing by households and businesses, excessive leverage in the financial system, and elevated funding risks. In other words, at the Federal Reserve, we use both microprudential and macroprudential approaches to monitor the health of financial institutions and the financial sector."
Jefferson says, "The recent banking stress events remind us that risks and vulnerabilities in financial markets are continuously changing. That is why the staff at the Federal Reserve is constantly monitoring domestic and foreign financial markets and institutions, as well as the financial condition of households and businesses, with the goal of identifying current and future vulnerabilities. Such forward-looking financial stability monitoring helps inform policymakers about ongoing vulnerabilities in the financial system that may amplify a range of potential adverse events or shocks."
He continues, "U.S. financial markets and institutions remain resilient even though financial stability risks and vulnerabilities in the U.S. financial system have increased since the recent stress events. Conditions in the banking sector have stabilized thanks, in part, to decisive emergency actions taken in March by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury. The Federal Reserve, using existing regulatory and supervisory tools, is working to ensure that banks improve and update their liquidity, commercial real estate, and interest rate risk-management practices."
The Fed Governor tells us, "Short-term interest rates are 5 percentage points higher than they were a little over a year ago. History shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect of higher interest rates.... [H]igher interest rates and lower earnings could test the ability of businesses to service debt. In addition, and perhaps more in focus given the recent events affecting certain areas of the banking sector, higher interest rates could further exacerbate stress at banking organizations, especially those that are highly exposed to longer-duration assets and have a relatively high ratio of uninsured deposits to total deposits."
He states, "As we have seen in the past couple of months, the failure of a large banking organization, even if not deemed individually systemically important under our regulations, can cause markets to reassess the condition of other firms with roughly similar size and risk profiles, and the resulting spillovers can generate significant negative consequences for the broader economy. As I mentioned earlier, conditions in the banking sector have stabilized. Moreover, broader U.S. financial markets and the overwhelming majority of financial institutions have been resilient to the recent stress events."
Jefferson also comments, "The resilience of the financial system to current salient risks can be appreciated by contrasting it to the 2008 Global Financial Crisis. Leading up to the Global Financial Crisis, housing markets were substantially overvalued, mortgage underwriting standards were weak, and home mortgages were at substantial risk of falling underwater if house prices fell. Yet banks had limited loss-absorbing capacity and were heavily reliant on wholesale short-term funding, and interconnections across the financial system were opaque. When housing markets weakened, opacity contributed to investors' fears, short-term funding pulled away, and excessive leverage led to fire sales as financial institutions experienced losses and major firms failed or were rescued by the government. The economy experienced a deep recession, and unemployment ultimately reached 10 percent."
He adds, "The current resilience of the financial sector points to substantially more limited spillovers from recent events. The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank showed excessive reliance at those institutions on uninsured deposits and excessive exposure to interest rate risk. Even so, the overwhelming majority of banks have strong balance sheets with limited leverage, high levels of loss-absorbing capacity, and healthy liquidity. Moreover, household and business balance sheets are generally strong, and the credit quality of loans is generally much better than on the eve of the Global Financial Crisis. Leverage across key parts of the financial sector, including especially the largest banks and broker-dealers, is much lower than in the mid-2000s."
Finally, Ferguson says, "Even so, we remain vigilant to the potential for vulnerabilities to emerge. Three areas of potential concern have been the focus of our supervisory and regulatory work. First, recent stresses highlighted the importance of effective liquidity and interest rate risk management, including both reliance on uninsured deposits and exposure to duration risk in asset holdings. While the resilience of the financial sector will limit the spillovers from recent events, I expect those strains to lead to a further tightening in credit supply from banks that will weigh on economic activity. Second, it is also important to assess how changes in the financial sector, including expanded use of online banking and shifts in behavior that may be driven by access to social media, may alter the potential speed of deposit flows."
The website "Markets Insider writes, "Here's why the $5 trillion piled up in money market funds might not flow back into the stock market." The piece explains, "Inflows into money market funds have soared over the past year as investors take advantage of high cash yields above 4%, and they might not flow back into the stock market for a long time. According to Ned Davis Research, money market funds over the past 13 weeks saw the fastest pace of asset inflows since July 2020. The surge was in part driven by the regional banking crisis that saw the downfall of Silicon Valley Bank and First Republic Bank." (Note: Register ASAP for our Money Fund Symposium, which takes place June 21-23, 2023 in Atlanta, Ga. See you in 3 weeks!)
The article continues, "When cash floods money market funds, 'from a sentiment standpoint, it is a vote of extreme pessimism toward risk-on assets by investors. From a flows perspective, the assets represent potential buying power when investors become less risk averse," Ned Davis Research said in a Wednesday note. But this time could be different, according to NDR. That's because there's a big difference between investors stashing cash due to an uncertain macro environment and investors stashing cash to take advantage of interest rates above 4%."
They quote NDR, "Investors selling stocks to buy money market funds, which can logically be reversed once the coast is clear, is one thing. People moving funds from banks getting less than 0.5% to money market funds offering several percent higher is another."
They add, "And even if the cash in money market funds eventually does flow back into the stock market, it might not have as big of an impact that some investors think, according to NDR. Money market assets represent just 13% of the US stock market capitalization, compared to 46.9% in February 2009 and 24.0% in February 2003 -- two periods when the stock market went on to stage multi-year rallies. '$5.3 trillion does not buy what it used to,' NDR says."
In other news, MarketWatch writes, "Money-market funds own only 15% of the Treasury bill market, but that could change dramatically once Congress passes a debt ceiling deal." It tells us, "Money-market funds haven't been huge players in the U.S. Treasury bill market lately, but that could change in the aftermath of a U.S. debt-ceiling resolution, according to investors and analysts. Goldman Sachs strategists recently pegged money-market holdings as only about 15% of the Treasury bill market, a fraction of what foreigners and other investors currently own."
The piece comments, "Rather than snap up Treasury bills at some of the highest yields in years, money-market funds instead have been parking cash overnight at the Federal Reserve's reverse repo facility, currently earning 5.05%, a level that's kept daily usage of the program above $2 trillion for the past year. But with Congress expected to vote this week on a debt-ceiling deal agreement reached over the weekend, dimming the threat of a catastrophic default, investors have begun bracing for a flood of Treasury bill issuance to refill government coffers."
It adds, "BofA Global analysts see potential for $1 trillion in Treasury issuance in short order once the debt-ceiling deal is written into law, while Goldman strategists forecast up to $700 billion of bill issuance over roughly two months, once the $31.4 trillion borrowing limit is increased."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 26) includes Holdings information from 66 money funds (down 21 from a week ago), which totals $2.515 trillion (down from $3.252 trillion) of the $5.788 trillion in total money fund assets (or 43.5%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.458 trillion (down from $1.895 trillion a week ago), or 58.0%; Treasuries totaling $630.3 billion (down from $741.4 billion one week ago), or 25.1%, and Government Agency securities totaling $237.3 billion (down from $330.2 billion), or 9.4%. Commercial Paper (CP) totaled $57.1 billion (down from a week ago at $96.8 billion), or 2.3%. Certificates of Deposit (CDs) totaled $48.7 billion (down from $70.5 billion a week ago), or 1.9%. The Other category accounted for $62.7 billion or 2.5%, while VRDNs accounted for $21.2 billion, or 0.8%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $850.6 billion (33.8%), the US Treasury with $630.3 billion (25.1% of total holdings), Federal Home Loan Bank with $182.6B (7.3%), Fixed Income Clearing Corp with $169.4B (6.7%), JP Morgan with $50.0B (2.0%), Federal Farm Credit Bank with $47.5B (1.9%), Citi with $41.0B (1.6%), Barclays PLC with $39.7B (1.6%), RBC with $31.0B (1.2%) and Goldman Sachs with $30.0B (1.2%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($270.8B), JPMorgan US Govt MM ($267.4B), Morgan Stanley Inst Liq Govt ($158.9B), BlackRock Lq FedFund ($145.8B), JPMorgan 100% US Treas MMkt ($132.2B), Dreyfus Govt Cash Mgmt ($116.6B), BlackRock Lq Treas Tr ($99.6B), Allspring Govt MM ($99.2B), BlackRock Lq T-Fund ($99.0B) and State Street Inst US Govt ($89.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
