News Archives: October, 2024
The Investment Company Institute published its latest monthly "Trends in Mutual Fund Investing" for August 2024, as well as its monthly "Month-End Portfolio Holdings of Taxable Money Funds" Wednesday. ICI's monthly Trends shows money fund totals rising $158.6 billion, or 2.5%, in September to $6.425 trillion. MMFs have increased by $743.9 billion, or 13.1%, over the past 12 months (through 9/30/24). Money funds' September asset increase follows an increase of $124.8 billion in August, $46.6 billion in July, $13.0 billion in June, $90.9 billion in May and $4.3 billion in April. They decreased $73.0 billion in March, but increased $55.1 billion in February, $82.4 billion in January, $34.9 billion in December and $213.9 billion in November. MMFs decreased $13.6 billion last October. Bond fund assets increased $75.1 billion to $5.111 trillion, and bond ETF assets surged to $1.75 trillion. (Note: Crane Data's separate and more comprehensive asset series shows money funds rising by $90.7 billion in October, through 10/28, to a record $6.856 trillion!)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $470.81 billion, or 1.7 percent, to $28.45 trillion in September, 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 $14.03 billion in September, compared with an inflow of $3.74 billion in August.... Money market funds had an inflow of $143.23 billion in September, compared with an inflow of $107.41 billion in August. In September funds offered primarily to institutions had an inflow of $107.46 billion and funds offered primarily to individuals had an inflow of $35.77 billion."
The Institute's latest statistics show that Taxable MMFs and Tax Exempt MMFs were both higher from last month. Taxable MMFs increased by $157.8 billion in September to $6.295 trillion. Tax-Exempt MMFs increased $0.8 billion to $129.7 billion. Taxable MMF assets increased year-over-year by $730.9 billion (13.1%), and Tax-Exempt funds rose by $13.0 billion over the past year (11.1%). Bond fund assets increased by $75.1 billion (after increasing by $61.0 billion in August) to $5.111 trillion; they've increased by $583.2 billion (12.9%) over the past year.
Money funds represent 22.6% of all mutual fund assets (up 0.2% from the previous month), while bond funds account for 18.0%, according to ICI. The total number of money market funds was 263, down 5 from the prior month and down from 276 a year ago. Taxable money funds numbered 217 funds, and tax-exempt money funds numbered 46 funds.
ICI's "Month-End Portfolio Holdings" confirms a jump in Repo and Treasuries last month. Treasury holdings in Taxable money funds remained the largest composition segment last month, they increased $100.8 billion, or 4.2%, to $2.509 trillion, or 39.9% of holdings. Treasury securities have increased by $846.6 billion, or 50.9%, over the past 12 months. (See our Oct. 10 News, "October Money Fund Portfolio Holdings: Repo Surges, Reclaims Top Spot.")
Repurchase Agreements were the second largest composition segment this past month, increasing $128.6 billion, or 5.4%, to $2.501 trillion, or 39.7% of holdings. Repo holdings have decreased $271.2 billion, or -9.8%, over the past year. U.S. Government Agency securities were the third largest segment; they increased $22.4 billion, or 3.1%, to $744.4 billion, or 11.8% of holdings. Agency holdings have increased by $117.7 billion, or 18.8%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $35.6 billion, or -10.3%, to $311.2 billion (4.9% of assets). CDs held by money funds rose by $46.1 billion, or 17.4%, over 12 months. Commercial Paper remained in fifth place, up $1.4 billion, or 0.5%, to $272.8 billion (4.3% of assets). CP increased $61.7 billion, or 29.2%, over one year. Other holdings increased to $19.1 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $29.3 billion (0.5% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 72.652 million, while the Number of Funds was down 6 at 217. Over the past 12 months, the number of accounts rose by 10.530 million and the number of funds decreased by 13. The Average Maturity of Portfolios was 30 days, down 3 days from August. Over the past 12 months, WAMs of Taxable money have increased by 4.
In other news, ignites writes "Fidelity Sued Over $351B Money Fund." They explain, "Fidelity has been sued for keeping certain clients in a pricier share class of its $351 billion Government Money Market Fund, rather than automatically moving them into a cheaper version that they were eligible to buy.... [Two] New York residents with Fidelity retirement accounts held retail shares of the money fund, even though they had account balances that exceeded the investment minimum to qualify them for the cheaper premium class shares, the complaint states. The premium share class has an investment minimum of $10,000 for retirement accounts and $100,000 for taxable brokerage accounts and offers an expense ratio cap of 32 basis points compared with 42 bps for the retail class."
The piece quotes, "Fidelity emphatically denies the allegations and will defend against the complaint vigorously.... Halley Josephs, Lisa Jing and Shawn Rabin, partners at Susman Godfrey, a law firm, represent [the clients]. 'Our clients are the first to assert these class wide claims involving Fidelity's largest money market mutual fund, and it is the result of months-long research and analysis into the failure of Fidelity and the fund's management to act in the best interests of the fund's shareholders,' Josephs said."
The ignites piece adds, "Fidelity is the largest provider of money market funds, with more than $1.4 trillion in such products as of Sept. 30, representing more than 20% of total market share, according to Pete Crane, president of Crane Data."
The Wall Street Journal's "Heard on the Street" columns discusses brokerage sweeps vs. money market funds in "Cash Is No Longer King, but It's Hardly Trash. That's Trouble for Brokers." It tells us, "Since the Federal Reserve began raising interest rates in 2022, brokerages have seen a key revenue source come under big pressure: What they can earn on customers' uninvested cash. When rates were super low, brokers could earn a good margin by sweeping that money into banks, either for fees from partners or as an ultra-low-cost deposit in their own banks to then deploy for a higher yield." (Note: Please join us for our "basic training" conference, Money Fund University, which will take place Dec. 19-20 in Providence, R.I. Click here to register or for more information.)
The piece explains, "But as rates rose, investors started seeing that cash not as trash, but as a serious asset that could generate a return. So instead of letting it sit, people moved more of their cash to higher-yielding savings accounts, or out of bank accounts and into money-market funds."
It tells us, "Now, as the Fed starts to cut rates, that flow appears to be slowing or reversing course. Charles Schwab reported that transactional sweep cash had a net inflow of $17 billion in the month of September. At Morgan Stanley third-quarter brokerage sweep deposits were still down $12 billion from a year prior, but were up $2 billion from the second quarter. Bank of America Chief Executive Brian Moynihan told analysts that its wealth management deposits have 'basically been flat' for the past several weeks."
The article says, "But while the huge outrush of cash might be finished, it isn’t yet clear that investors are ready to give up their yield-seeking altogether. Some of this stabilization also followed moves by brokers to improve their pricing on sweeps and other wealth deposits. Brokers’ net interest margin, or the difference in what they earn on customers’ cash versus what they pay for it, should be closely watched in the quarters ahead."
They quote Stifel Chief Executive Ronald Kruszewski from "the firm's third-quarter results call," "I don't think we're going back to a zero-rate environment. So, I wouldn't be baking in something that says that we're going to drive [net interest margin] because people are going to go back into sweep. Sweep will always be there for transactional cash, but savings cash is the new normal."
Finally, the WSJ adds, "But the bottom line is the days of being able to play with vast pools of cash paying little might not return for a while. If they ever do."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Oct. 25) includes Holdings information from 73 money funds (up 19 from a week ago), or $3.786 trillion (up from $3.254 trillion) of the $6.833 trillion in total money fund assets (or 55.4%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Oct. 10 News, "October Money Fund Portfolio Holdings: Repo Surges, Reclaims Top Spot.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.709 trillion (up from $1.544 trillion a week ago), or 45.1%; Repurchase Agreements (Repo) totaling $1.369 trillion (up from $1.153 trillion a week ago), or 36.2%, and Government Agency securities totaling $348.5 billion (up from $277.9 billion), or 9.2%. Commercial Paper (CP) totaled $139.9 billion (up from a week ago at $97.1 billion), or 3.7%. Certificates of Deposit (CDs) totaled $79.5 billion (up from $54.4 billion a week ago), or 2.1%. The Other category accounted for $92.7 billion or 2.4%, while VRDNs accounted for $47.4 billion, or 1.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.709 trillion (45.1% of total holdings), Fixed Income Clearing Corp with $432.0B (11.4%), the Federal Home Loan Bank with $242.0 billion (6.4%), BNP Paribas with $100.7B (2.7%), JP Morgan with $94.4B (2.5%), Citi with $90.4B (2.4%), Federal Farm Credit Bank with $80.1B (2.1%), RBC with $66.9B (1.8%), the Federal Reserve Bank of New York with $51.6B (1.4%) and Goldman Sachs with $50.9B (1.3%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($274.0B), Goldman Sachs FS Govt ($249.0B), Fidelity Inv MM: Govt Port ($223.4B), JPMorgan 100% US Treas MMkt ($220.3B), State Street Inst US Govt ($173.1B), BlackRock Lq FedFund ($167.9B), Federated Hermes Govt ObI ($167.4B), Morgan Stanley Inst Liq Govt ($139.9B), Fidelity Inv MM: MM Port ($137.9B) and BlackRock Lq Treas Tr ($128.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Money fund yields declined by 2 basis points to 4.66% on average during the week ended Friday, Oct. 25 (as measured by our Crane 100 Money Fund Index) after inching down 2 bps the week prior. They've declined by 40 bps since the Fed cut its Fed funds target rate by 50 bps percent on Sept. 18. Yields were 4.75% on 9/30, 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. Yields should continue to bottom out as they digest the final remnants of the Fed cut, and they await the results of the next Fed meeting on Nov. 7.
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 664), shows a 7-day yield of 4.56%, down 2 bps in the week through Friday. Prime Inst money fund yields were unchanged at 4.79% in the latest week. Government Inst MFs were down 1 bp at 4.66%. Treasury Inst MFs were down 2 bps at 4.60%. Treasury Retail MFs currently yield 4.38%, Government Retail MFs yield 4.37%, and Prime Retail MFs yield 4.56%, Tax-exempt MF 7-day yields were up 2 bps to 3.22%.
Assets of money market funds rose by $25.6 billion last week to $6.833 trillion according to Crane Data's Money Fund Intelligence Daily. Assets reached its record high Tuesday Oct. 22 at $6.847 trillion. For the month of October, MMF assets have increased by $67.7 billion, after increasing by $149.8 billion in September. Weighted average maturities were unchanged at 34 days for the Crane MFA and up 1 day at 35 days for the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (10/25), 25 money funds (out of 781 total) yield under 3.0% with $14.2 billion in assets, or 0.2%; 128 funds yield between 3.00% and 3.99% ($150.1 billion, or 2.2%), 625 funds yield between 4.0% and 4.99% ($6.578 trillion, or 96.3%) and just 3 funds now yield 5.0% or more ($90.5 billion, or 1.3%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.51%, after dropping 2 basis points two weeks prior. The latest Brokerage Sweep Intelligence, with data as of Oct. 25, shows that there was only one change over the past week. Merrill Lynch lowered rates again for their advisory accounts, now at 4.69% (down 4 bps). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley. (Note: Five weeks prior we added advisory rates to Brokerage Sweep Intelligence for Merrill Lynch and Morgan Stanley.)
In other news, Ameriprise Financial reported Q3'24 Earnings last week (see the transcript here). CFO Walter Berman comments, "Wrap flows were strong in the quarter at $8 billion or 6% on an annualized flow rate. Pre-tax adjusted operating earnings increased 13% to $826 million, driven by quite strong year-over-year core wealth management earnings growth, offset by lower cash sweep earnings and margin remained strong at 30%. Adjusted operating net revenues increased 14% to $2.7 billion from growth in client assets, increased transactional activity, and a 6% increase in net investment income in the bank. This drove revenue per adviser to a new high of $997,000 up 11% from a year ago."
He explains, "Total cash balances, including third-party money market funds and broker CDs was $83 billion, which was over 8% of the clients' assets. Clients remain heavily concentrated in yield-oriented products with highly liquid products like money market funds being more in favor than the term products like certificates and brokered CDs. We are beginning to see clients put more money back to work in wrap and other products on our platform, and we expect this to continue over time as markets and rates normalize, which creates a significant opportunity."
Berman adds, "Client cash sweep balances were stable at approximately $28 billion. Bank assets grew to $23.2 billion, providing sustainable net investment income in this forecasted lower rate environment. These trends continued in October."
During the Q&A, one analyst asks, "On the comment that you made about client cash moving into money market funds as opposed to the term products, what is your read in terms of what's going on there? Is it that the advisers are sort of positioning for a rotation into these other longer-duration sort of wealth wrap products?"
CEO Jim Cracchiolo responds, "So, we saw like a 50% increase into wrap flows again in diversified portfolios, which includes fixed income, so it's a nice rebalancing occurring there.... What we did see just more broadly is a move out of brokered CDs and certificates, even though the cash levels didn't go down in total, it moved into money markets. What that says is really the people ... are locking less up in those, what I would call just pure interest-earning assets, and [are moving] into vehicles that then they could possibly move back into things like wrap or other fixed income products that have longer duration."
Goldman Sachs' Alex Blostein says, "I was hoping you guys could talk about your outlook for cash revenues within AWM in totality.... You made some comments earlier this morning regarding ... ways you could still aim to kind of keep NII stable to growing within the bank. Maybe just expand that a little bit ... given the forward curve trajectory and current cash balances. What are your thoughts for the revenue trends there for 2025?"
Berman replies, "For the bank, yes, on the revenue trends and the net interest income, we do see that is going to be stable -- or would actually increase and we feel very good about that positioning. We do see, as Jim mentioned, ... we're hoping that money will stop moving, and we believe it will, from the third party -- money market and third-party CDs. And [you'll] probably see some continued softening in CDs depending on again how drastic the rate [reduction] is. But overall, I think the bulk of our earnings ... will be from the bank, and certainly sweep will be impacted as the rates come down. But ... then hopefully we will get that rotation out of the money market and third-party CDs to ... go back into product."
Cracchiolo adds, "From the bank perspective, we will be launching bank CDs that would be another cash alternative where clients are holding cash out in the banks.... So, again, that could bring more cash activities from current bank accounts that our clients are holding to having more cash here ... that they can utilize or save. Those things ... will be gradual builds, but I think they'll be nice and complementary. And we think we can garner both savings as well as lending activities from our clients because we know they have a lot out there."
Federated Hermes reported Q3'24 earnings and hosted its Q3'24 earnings call late last week. On the call, President & CEO J. Christopher Donahue, comments, "We ended Q3 with record assets under management of $800 billion, driven by money market assets of $593 billion, and record fixed income assets of $100 billion.... Moving to money markets, in Q3 we reached another record high for money market fund assets of $440 billion and total money market assets of the aforementioned $593 billion. Total money market assets increased by $6.4 billion in Q3, as money market fund gains of $14.8 billion were partially offset by seasonal money market separate account asset decreases of $8.4 billion. Our money market fund assets peaked at about $447 billion on September 23rd and decreased by about $7 billion over the last couple of days of the quarter. We believe a late quarter jump in SOFR rates, led to certain investors shifting some assets into the direct market. We also saw certain large clients using money market fund assets to pay down debt going into quarter end."
He explains, "Q3 saw the first of several expected reductions in the Fed funds target rate, driving substantial growth in industry money market fund asset levels, particularly in August and September. Looking ahead for the rest of '24 and into '25, we believe that market conditions for money market strategies will continue to be favorable and that money market fund yields will continue to be attractive compared to the direct market and bank deposit rates. Our estimate of money market mutual fund market share, including sub-advised funds was about 7.32% at the end of Q3, down from about 7.45% at the end of the second quarter."
Donahue continues, "Looking now at recent asset totals sales of a few days ago, managed assets were approximately $799 billion including $594 billion in money markets, $83 billion in equities, $99 billion in fixed income, $20 billion in alternative private markets, $3 billion in multi-asset. Money and market mutual fund assets were $441 billion."
Asked about market share during the Q&A, he responds, "Well, first of all, over a longer-term period, as you've heard me say 100 times, we end up with higher highs and higher lows over the 50 years we've been doing the money market funds. So a little noise here in the quarter does not disturb us. I mean, we have one client who took $6 billion out because they were paying down debt. And that's the kind of lumpy things that happen that you've got to be ready for and that's just part of normal life."
Money Market CIO Deborah Cunningham weighs in, "The information that was provided with regard to the quarter explanation of SOFR rates, that's a very real one. We have a lot of institutional clients who go between the direct market on an overnight basis and money funds. And really since the Fed rate cut in mid-September, most of those flows have come into the fund side of the market. However, with the jump in SOFR rates at the end of the quarter, there were some that went back out into that sector of the market temporarily on a direct basis. We also are comparing ourselves against a very large group of competitors in the marketplace. In particular, it seems as though some of the larger retail players that are in the direct retail market have been gaining market share on a little bit faster basis."
She adds, "I believe that might have something to do with some of the heat that they've been taking with regard to deposit rates and the customers that have been earning the lower deposit rates rather than money funds. I believe some of that has been more directed into the money fund sector. Obviously, that's not something we can control or are necessarily even really part of. And then it also looks like in some of our banking competitors, there are some internal funds that have been going along those ways. So in general, I think there are lots of explanations, [but] we are not seeing anything on a client basis that would lead us to have concern. In fact, I would say exactly the opposite. When you look at the complexity and the variation of the client base that we have -- broker dealer, RIA, trust, wealth management, family offices -- they all seem to be very pleased and continuing their increased participation with us."
Asked about the recent implementation of money fund reforms, Donahue answers, "So we have seen, unlike the last round back in the day where basically almost $1 trillion left those funds, the customers are basically sticking with it, and our Prime funds are up. And if you look at the stats for, say, a year, the industry assets are up to over $1 trillion and that's up 17% over the year. Our assets on that category are up 25%. We're ahead of the industry on that category. So our clients, I think, were quite appreciative of the fact that we hung in there with those funds, even though we did consolidate from three [Prime Inst] funds down to two. But we went through all the work to make the extra so many basis points available."
Federated President Ray Hanley comments, "If we isolate just the Prime money market funds for the first three weeks or so of October, they're up just a fraction. So, if there have been any changes, we would have had puts and takes because the Prime funds are still very attractive from a Retail standpoint. We're still getting considerable interest there. Even post the rate cut, yields are very attractive and -- but there's no discernible impact in October from the last of the rule changes going into effect."
Donahue says, "I'd like to add a couple of other things about the rules.... Well, remember that they told us we had to have 25% in daily cash. Well, that has a big impact on how these funds work and how people look at them. The other thing is these funds were already a variable net asset value type of fund. So people aren't keeping the money they need tomorrow here. They're willing to deal with these modest changes in NAV. So I think those are important dynamics."
Cunningham responds, "You're always very thorough, Chris. But I think ultimately, in the end, we had absolutely no shareholders leave our Institutional Prime or our Institutional Muni sectors because of the rule changes that went into effect on October 2.... I might note [that these] are the smallest sector in the total universe of money funds. But on a daily basis, we on a continuous monitoring basis, and have to review where we are from a flow activity, whether we're in a net purchase or a net redemption phase. If we get beyond a 5% net redemption phase, we also have a simultaneous process that is running that would look at the price, the cost of redeeming what that greater than net 5% redemption phase would be."
She continues, "If the price [fluctuation] is greater than one basis point -- [and note that the] 50% now that's in weekly liquid assets is always at par -- that's a very difficult hurdle to exceed. Then we would have to review the potential for adding some sort of a fee to those who are redeeming. In the end, this is a process that we are running daily. We are monitoring on a continuous basis. We did historical ... back-testing on it prior to the implementation of the rule, and we're very comfortable that the impact of this on the marketplace and the actual implementation of this that would result in a fee very, very [rarely], if any times."
She states, "On the institutional cash side, that was probably only 5% to 10% of the asset flow in the money markets that we saw. We would expect that as the Fed cuts rates, which we are not expecting to be in that 50 bps clip and which was sort of a surprise in a start to this declining rate cycle, [as we go] down to what we think is a terminal rate of around 3%, you're going to see that institutional flow pick up <b:>`_. It's not going to reduce the strength or it's not going to match the strength that we saw in the retail flow, but it will still be a positive. So that ultimately in the end, when we look at industry assets as reported by Crane at this point as an industry source at $6.8 trillion, I can still see $7 trillion by the end of this year, growing further into 2025 and ultimately FHI [will] catch a good portion of those flows."
Hanley adds, "In terms of your question about the mix ... between Retail and Institutional, an estimate of that for us would be about 60% of the money market fund assets, including what we sub-advise ... would be considered Institutional and 40% Retail, which for us is still coming through an intermediary. And by the way, that 60-40 split would be about what the industry split is as well using ICI data."
Asked about clients shifting between money funds and direct money market instruments, Cunningham answers, "For the vast majority of our clients, it is not an easy switch because they don't [do] repo -- basically the SOFR rate indicates what type of return you can get on an overnight repo in the marketplace. Overnight repo is not really a security, it's a contract. As such, you have to have repo contracts in-place with dealers and banks in order to go into that sector of the market. So for the vast majority of our clients, that is not possible. But for very large clients, large tech firms ... large energy firms, ... large banks that are players in our market, they have those contracts available and usable by them on a daily basis, and they are able to switch pretty easily. So even though it's only a small minority of the actual customers that have that capability to do that switch on a daily basis if they choose to do so, it's still a large volume when that dynamic in the market comes into play."
Saker Nusseibeh, CEO of Federated Hermes Limited, tells us, "We're also doing other stuff that's exciting. I mean, when we talk about money markets funds, generally speaking, Federated Hermes has tended to concentrate mostly on the U.S. for the money markets. What we're now doing is bringing those to our sales force here out of Europe, and we've seen lots of the positive responses to the presentations. The Sterling Prime Money Market Fund has hit an all-time high with GBP 8.4 billion. So ... there's a potential of growth of money markets here and in Asia, by the way, where we've seen flows coming in from 23 new family offices totaling approximately $300 million in money market flows. [That's] not a huge amount yet, but it tells you about the potential."
Finally, when asked about shifts and flows, Donahue replies, "My answer to you is one word: trillions, period.... We could go through catalogs of where all that money is, but it's so much that we're certainly optimistic about our ability to play in that game."
ICI's latest weekly "Money Market Fund Assets" report shows money funds jumping $40.4 billion to a record $6.508 trillion, after dipping $6.6 billion last week. Assets have risen in 10 of the last 12, and 21 of the last 27 weeks, increasing by $204.6 billion (or 3.2%) since the Fed cut on 9/18 and increasing by $530.7 billion (or 8.9%) since April 24. MMF assets are up by $622 billion, or 13.1%, year-to-date in 2024 (through 10/23/24), with Institutional MMFs up $289 billion, or 9.5% and Retail MMFs up $333 billion, or 19.8%. Over the past 52 weeks, money funds have risen by $876 billion, or 15.5%, with Retail MMFs up by $433 billion (19.8%) and Inst MMFs rising by $443 billion (12.9%). (Note: Thank you to everyone that stopped by our booth at at AFP's Annual Conference in Nashville earlier this week!)
ICI's weekly release says, "Total money market fund assets increased by $40.41 billion to $6.51 trillion for the week ended Wednesday, October 23, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $33.35 billion and prime funds increased by $4.90 billion. Tax-exempt money market funds increased by $2.16 billion. " ICI's stats show Institutional MMFs increasing $31.2 billion and Retail MMFs rising $9.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.317 trillion (81.7% of all money funds), while Total Prime MMFs were $1.059 trillion (16.3%). Tax Exempt MMFs totaled $132.5 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $9.23 billion to $2.62 trillion. Among retail funds, government money market fund assets increased by $4.87 billion to $1.67 trillion, prime money market fund assets increased by $2.74 billion to $834.71 billion, and tax-exempt fund assets increased by $1.62 billion to $121.02 billion." Retail assets account for over a third of total assets, or 40.3%, and Government Retail assets make up 63.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $31.18 billion to $3.89 trillion. Among institutional funds, government money market fund assets increased by $28.48 billion to $3.65 trillion, prime money market fund assets increased by $2.16 billion to $224.00 billion, and tax-exempt fund assets increased by $538 million to $11.50 billion." Institutional assets accounted for 59.7% of all MMF assets, with Government Institutional assets making up 93.9% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $75.1 billion in October through 10/23 to $6.840 trillion. Assets rose by $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion last October. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
In other news, a Prospectus Supplement filing for BNY Mellon National Municipal Money Market Fund states, "The Board of Trustees of BNY Mellon Funds Trust has approved the liquidation of BNY Mellon National Municipal Money Market Fund, a series of the Trust, effective on or about October 21, 2024. Before the Liquidation Date, and at the discretion of Fund management, the Fund's portfolio securities will be sold and/or allowed to mature in their normal course and the Fund may cease to pursue its investment objective and policies. The liquidation of the Fund may result in one or more taxable events for shareholders subject to federal income tax."
It explains, "Accordingly, effective on or about September 18, 2024, the Fund will be closed to any investments for new accounts, except that new accounts may be established for 'sweep accounts' and by participants in group retirement plans (and their successor plans), provided the plan sponsor has been approved by BNY Mellon Investment Adviser, Inc. ('BNYM Adviser'), in the case of BNYM Adviser-sponsored retirement plans, or BNY Wealth ('BNYW'), in the case of BNYW-sponsored retirement plans, and has established the Fund as an investment option in the plan before the Closing Date."
BNY writes, "The Fund will continue to accept subsequent investments until the Liquidation Date, except that subsequent investments made by check or pursuant to TeleTransfer or Automatic Asset Builder no longer will be accepted after October 11, 2024. However, subsequent investments made by BNYW-sponsored retirement accounts and BNYM Adviser-sponsored retirement accounts, if any, pursuant to TeleTransfer or Automatic Asset Builder (but not by check) will be accepted after October 11, 2024. Please note that checks presented for payment to the Fund's transfer agent pursuant to the Fund's Checkwriting Privilege on or after the Liquidation Date will not be honored."
They add, "Fund shares held on the Liquidation Date in BNYW Retirement Accounts will be reallocated to other previously approved investment vehicles designated in account documents as determined by BNYW and/or a client's trustee or other fiduciary, where required, within BNYW's investment discretion should the consent of a client's third-party fiduciary not be obtained prior to the Liquidation Date. Fund shares held on the Liquidation Date in BNYM Adviser Retirement Accounts will be exchanged for Wealth shares of Dreyfus Government Cash Management ('DGCM')."
For more on recent liquidations, see these Crane Data News stories: "UBS Files to Liquidate Tax-Free Fund (10/15/24), "Alight Money Fund Liquidates; Bloomberg Law on Brokerage Sweep Suits (9/19/24), "Dreyfus NY Muni MMF Liquidating" (8/14/24), "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24) and "DWS Liquidating ESG Liquidity Fund, 7th Prime Inst to Exit; MM Basics" (5/22/24).
Finally, we learned about another change involving Dreyfus from the Federal Reserve Bank of New York, who via its brief, "Reverse repo counterparties list updated," tells us, "JNL/WMC Government Money Market Fund is changed to JNL/Dreyfus Government Money Market Fund, effective October 21."
The filing for the Jackson National Life Insurance Company of New York says, "Effective October 21, 2024, the following changes were made to the Funds available under the Contract: Fund Name Changes ... JNL/WMC Government Money Market Fund to JNL/Dreyfus Government Money Market Fund." (WMC is Wellington Management Company.)
Crane Data continues to prepare for its next live event, our "basic training" Money Fund University, which will take place in less than 2 months, December 19-20, 2024, at The Renaissance Hotel in Providence, Rhode Island. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers, and the Providence show will include a Holiday cocktail party Dec. 19 and a free training session for Crane Data clients. We review the MFU agenda and some other upcoming conferences, below. (Note: Thank you to those who visited our booth in Nashville earlier this week at AFP's Annual Treasury Conference! We look forward to seeing you next year in Boston!)
Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Registrations are $750 are still being taken, and the latest agenda is available here. (E-mail us to request the latest brochure, and make your hotel reservations soon!)
The morning of Day One (12/19/24) of the 2024 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane of Crane Data; The Federal Reserve & Money Markets with Katie Craig of BofA; Ratings, Monitoring & Performance with Steven Johnson of Fitch Ratings, Rahul Ghai of S&P Global and Peter Crane of Crane Data; and, Instruments of the Money Markets Intro with Pankaj Vohra of J.P. Morgan Securities and Peter Crane of Crane Data.
Day One's afternoon agenda includes: Repurchase Agreements with Dan Boate of J.P. Morgan Secs; Treasuries & Govt Agencies with Sue Hill of Federated Hermes and Matt Lachance of TD Securities; Commercial Paper & ABCP with Rob Crowe of Citi Global Markets and Greg Jensen of Citi Global Markets; CDs, TDs & Bank Debt with Vanessa McMichael of Wells Fargo Securities; and, Credit Analysis & Portfolio Management with Sean Lussier of SSGA and Peter Hajjar of SSGA. (Note: Crane Data will host its Holiday Party alongside MFU. Clients and friends are welcome to join us at the Renaissance Hotel on Monday, Dec. 19 from 5-7:30pm!)
Day Two's (12/20) agenda includes: Money Fund Regulations: 2a-7 Basics & History with Stephen Cohen of Dechert LLP and Jamie Gershkow of Stradley Ronon; Money Fund Reforms: Latest 2a-7 Changes with Jon-Luc Dupuy of K&L Gates LLP and Stephen Cohen of Dechert LLP; European MMFs & Ultra-Short Funds with John Hunt of Sullivan & Worcester LLP and Peter Crane of Crane Data; and Money Fund Data & Wisdom Demo/Training with Peter Crane. The conference ends with its annual MFU "Graduation" ceremony (where diplomas are given to attendees).
New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $750, exhibit space is $2,000, and sponsorship opportunities are $3K (Bronze), $4K (Silver), and $5K (Gold). A block of rooms has been reserved at The Renaissance Hotel. (Please reserve before 11/16.)
We'd like to thank our MFU sponsors – Fitch Ratings, CastleOak Securities, Silicon Valley Bank, BlackRock, TD Securities, Capitolis, Northern Trust, Dechert LLP, J.P. Morgan Asset Management, K&L Gates, Dreyfus, Citi and GLMX -- for their support, and we look forward to seeing you in Providence in December! E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details.
Crane Data is also preparing the preliminary agenda for our next Bond Fund Symposium, which will be held March 27-28, 2025, at the Hyatt Regency Hotel in Newport Beach, CA. Our Bond Fund Symposium offers a concentrated program for fixed-income managers and dealers with a focus on the ultra-short segment. Registration for Bond Fund Symposium is $1000; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors.
We'll also soon be making plans for our next "big show," Money Fund Symposium, which will be held June 23-25, 2025, at The Renaissance Boston Seaport in Boston. (Let us know if you'd like details on speaking or sponsoring.) Also, mark your calendars for next year's European Money Fund Symposium, which will be held Sept. 25-26 in Dublin, Ireland. Watch for details on these shows in coming weeks and months.
In other news, MarketWatch writes that, "Bond yields aren't high enough yet to help entice investor out of money-market funds." They tell us, "Don't hold your breath waiting for cash to come flooding out of money-market funds. That's the message from `Hong Mu, a portfolio manager at Penn Mutual Asset Management, while speaking by phone with MarketWatch on Wednesday. Bond yields have been rising on a soft-landing scenario for the economy, but because investors recently also have been bracing for a potential victory for former President Donald Trump in November, which could put his tariff and tax-cut proposals into motion."
The piece explains, "But the Federal Reserve likely would need to cut rates below 1% to spur significant money-market outflows, a level that likely would coincide with fears of a recession. Or bond yields would need to climb much higher than they are now."
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Oct. 18) includes Holdings information from 54 money funds (down 7 from a week ago), or $3.254 trillion (down from $3.375 trillion) of the $6.807 trillion in total money fund assets (or 47.8%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Oct. 10 News, "October Money Fund Portfolio Holdings: Repo Surges, Reclaims Top Spot.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.544 trillion (down from $1.561 trillion a week ago), or 47.5%; Repurchase Agreements (Repo) totaling $1.153 trillion (down from $1.244 trillion a week ago), or 35.4%, and Government Agency securities totaling $277.9 billion (down from $286.6 billion), or 8.5%. Commercial Paper (CP) totaled $97.1 billion (down from a week ago at $109.2 billion), or 3.0%. Certificates of Deposit (CDs) totaled $54.4 billion (down from $61.2 billion a week ago), or 1.7%. The Other category accounted for $95.5 billion or 2.9%, while VRDNs accounted for $32.2 billion, or 1.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.544 trillion (47.5% of total holdings), Fixed Income Clearing Corp with $330.4B (10.2%), the Federal Home Loan Bank with $201.1 billion (6.2%), JP Morgan with $86.4B (2.7%), BNP Paribas with $81.5B (2.5%), the Federal Reserve Bank of New York with $73.3B (2.3%), Citi with $72.5B (2.2%), Federal Farm Credit Bank with $57.7B (1.8%), Goldman Sachs with $52.3B (1.6%) and RBC with $47.9B (1.5%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($270.9B), Goldman Sachs FS Govt ($245.1B), Fidelity Inv MM: Govt Port ($226.5B), JPMorgan 100% US Treas MMkt ($222.1B), State Street Inst US Govt ($173.8B), BlackRock Lq FedFund ($169.8B), Morgan Stanley Inst Liq Govt ($147.0B), Fidelity Inv MM: MM Port ($139.4B), BlackRock Lq Treas Tr ($134.3B) and Dreyfus Govt Cash Mgmt ($123.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
In other news, Bloomberg writes, "SEC Rules Offer Safety Net as Fed Liquidity Facility Usage Slips," which tells us, "Declining demand for a key Federal Reserve liquidity facility is near a point of resistance thanks to recent regulatory changes that force certain US money-market funds to keep more cash on hand. Demand for the Fed's overnight reverse repurchase agreement facility, or RRP, dropped on Tuesday to $238 billion -- the lowest since May 2021 -- from $261 billion the prior session, according to New York Fed data. It's the latest in a string of declines since usage of the RRP spiked in late 2022, drawing into question the outlook for the central bank's balance-sheet runoff."
The piece says, "For now, however, this year's changes by the Securities and Exchange Commission underscore potential limitations at play in the $6.47 trillion US money market industry, notably affecting prime funds. The funds, which tend to invest in higher-risk assets such as commercial paper and certificates of deposit, have increased their share of the RRP to about 31% of the total as of the end of September, up from 18% a year ago, Office of Financial Research data show. But that may be close to stabilizing as new rules governing the industry force funds to boost liquidity requirements to protect against market turmoil."
Bloomberg writes, "Overall use of the reverse repo facility has declined by more than $2 trillion since its peak in December 2022. Meanwhile, prime funds' increasing share suggests that while a majority of counterparties are keen to shift cash away from the RRP in favor of higher yielding short-term assets, some are content to continue parking funds at the central bank."
They add, "Dallas Fed President Lorie Logan said Monday at the Securities Industry and Financial Markets Association's annual meeting in New York that it would be appropriate to operate with only 'negligible balances' in the reverse repo facility, though she acknowledged some demand may be stickier as users value overnight assets or face counterparty credit limits for repo in the private market."
State Street reported its Q3 2024 Earnings last week, where they reported record cash levels and also commented on FICC repo. CEO Ron O'Hanley tells us, "We are also very pleased with the momentum at Global Advisors this quarter. Our cash, ETF and institutional businesses all had positive net flows, including record quarterly flows in cash and strong ETF flows. In aggregate, quarterly total net flows of $100 billion and quarter-end assets under management of $4.7 trillion both reached record levels in 3Q. Importantly, we expanded our market share in a number of key product areas and geographies. For example, we improved our institutional money market fund rank this quarter, while Spider also gained share in both U.S. low cost and commodities, as well as in the EMEA region."
CFO Eric Aboaf comments, "Third quarter NII increased 16% year-on-year to $723 million as higher investment security yields and higher loan growth more than offset continued deposit rotation. On a sequential basis, NII was 2% lower, primarily driven by continued deposit rotation, as well as by the impact of lower short-end rates stemming from Central Bank actions. This dynamic was partially offset by higher investment security yields, as well as additional lending and sponsored repo activity. The market dynamics for the sponsored repo product were constructive in the quarter."
He says, "Average investment portfolio balances increased both sequentially and year-on-year. We also opportunistically repositioned a small portion of the book late in the quarter, which has a payback of approximately five quarters, benefiting NII over the next two years. Average deposits increased 14% year-on-year and 2% quarter-on-quarter, as we continue to realize the benefits of our client engagement efforts. As we move into 4Q, we'd expect to generally operate around these levels, albeit with a bit of continued noninterest-bearing deposit rotation."
During the Q&A, Aboaf replies, "The repo product is one of many that we offer for clients, right? We offer them cash on deposit in various forms. Money market sweep repo is a collateralized activity. So, in a way, think of it as one of the broad range of elements that we offer. What we found is as the Fed has trended down its reversed repo operation, there's been more repo activity in the market and we've obviously wanted to be there to help our clients."
He continues, "That said, ... the sponsored repo activity that we do is 10%, 11%, 12% of our NII typically. It will bounce around by 1 or 2 percentage points. This quarter, I called it out because I think we added about 1 percentage point of NII due to the increase in repo activity. And what you're working through is sometimes balances are up a bit, sometimes margins are up a bit, and we just found more activity in the market. There's more cash out there as you've seen. And there are also more borrowers who are looking for cash and have collateral to post. And those are markets where we're happy to serve our clients on both sides of that transaction and stepped in and stepped up for them."
Aboaf adds, "We're operating through deposit levels, interest-bearing, noninterest-bearing, our portfolio composition, quarter by quarter by quarter. And so, we don't have additional information really to share regarding next year other than what we've said before, right? We've said that we continue for this past quarter and into the fourth quarter, expect some modest or slight amount of deposit rotation. That's a headwind. We've got the investment portfolio rolling through, but some quarters you get a bigger or smaller benefit just depending on the exact bond. And then, you've got lending activity. And then, you've got repo, as we talked about earlier on the call, bouncing up and down."
Aboaf states, "Deposits in the system have generally been trending up 1 point or 1.5 point a quarter. That's across the banking system. You've seen our results are a little more of that. And we didn't really see a lot of changes. We continue just to see a market environment where there's a fair amount of cash in the system. Part of that is positioning. Part of that is, I think, carefulness on our investors -- that our investors have given the political and economic uncertainty. And so, the cuts didn't have a discernible impact on deposit levels. And in general, we think we're going to operate in and or around this level for the time being."
In related news, J.P. Morgan's latest "Short-Term Market Outlook & Strategy" writes, "The latest MMF holdings data revealed a surge in repo usage (ex-RRP) by MMFs at quarter-end. For a statement date, this is somewhat atypical as repo balances tend to decline at quarter-ends due to dealer balance sheet constraints. However, at the end of September, the majority of repos transacted by MMFs were conducted via FICC-sponsored repo ($149bn), marking the highest monthly increase in usage over the past five years."
They say, "This substantial rise aligns with the growing use of FICC-sponsored repo among dealers to help alleviate balance sheet constraints. In fact, FICC-sponsored repo usage by MMFs rose from 13% in September 2023 to 29% in September 2024 of total repo (ex-RRP) exposure by counterparty type.... Simultaneously, MMFs' repo exposure to dealers, mainly in the UK and France, decreased by $36bn month-over-month at the end of September."
JPM continues, "Given the increase in non-Fed repo allocations among MMFs at quarter-end, the ON RRP facility only saw a modest increase of about $40bn MoM. Although government funds still make up the majority of the ON RRP facility's balance, their usage has been steadily declining, now comprising just under 65%.... Meanwhile, prime funds experienced a slight uptick, reaching just under 30% of usage. In terms of concentration, the top 10 individual funds continue to dominate the facility, accounting for 57% of total usage."
They explain, "More broadly, taxable MMFs experienced another strong month of inflows, with total balances rising by $231bn MoM, driven predominately by government MMFs. Despite the uptick in government MMF AUMs, supply was sufficient to meet demand: Treasury exposure increased by $114bn MoM, with the majority of the uptick in T-bills at $76bn, followed by Treasury coupons at $20bn, and Treasury FRNs at $18bn; repo exposure also increased by $100bn MoM.... Importantly, ON RRP balances were flat MoM. Meanwhile, Agency exposure declined by about $20bn. Regarding T-bills allocation, government MMFs significantly increased their holdings of bills maturing in less than 31 days by $221bn, but also allocated an additional $70bn to T-bills maturing in over 90 days."
Finally, they add, "Prime funds, on the other hand, experienced a stable month in terms of AUM growth. Despite this, they reduced credit exposure and increased repo allocations.... Most of the month-over-month reduction in credit exposure was in the form of time deposits, which is expected as banks often trim balance sheets for regulatory purposes at quarter-end. Overall, as we enter the last quarter of the year, MMF balances are likely to keep rising, fueled by seasonal inflows and an inverted money market yield curve. With an anticipated bill supply increase in October and November (our Treasury strategists expect it to rise by approximately $270bn), MMFs are expected to absorb some of this supply, potentially drawing cash from the RRP facility."
Last week, both Charles Schwab and Morgan Stanley reported Q3 earnings, and, as usual, both earnings calls discussed brokerage sweeps in detail. Schwab's retiring CEO `Walter Bettinger says on the latest earnings call, "In the quarter, we made strong progress across virtually all key areas.... Our clients are growing transactional sweep cash balances. We've made meaningful progress in paying down supplemental funding.... We all know that net new asset levels can be fickle as multiple factors influence them, from investor sentiment to market performance, interest rates and even the level of promotional cash for assets temporarily offered by some competitors. But, when we dig through the various factors that do influence net new assets, we remain quite confident in our plans to build our way back to our historical ranges." (Note: We look forward to seeing those of you headed down to Nashville for AFP's Annual Conference. Come visit us at booth #432!)
Retiring CFO Peter Crawford comments, "With Ameritrade related attrition receding and ceasing to be a major drag on our organic growth, a continued moderation of client cash realignment activity, which allowed for sequential growth in client transactional cash in the third quarter due to strong net inflows during September, [we've seen] sequential growth in both net interest revenue and overall revenue and ... a steady and continued increase in our capital levels.... And, while we all appreciate the uncertain nature of the world we live in, our positive momentum sets the stage for what we expect will be even better operating and financial performance in the quarters and years ahead."
He explains, "As Walt mentioned, 2024 has been characterized by strong equity markets and consistent client engagement.... And ... `client cash realignment activity continues to decelerate enabling strong growth in overall client cash and transactional cash for the quarter and especially robust growth in the month of September. Now, while we repeatedly cautioned against overreacting to a specific month's or even quarter's transactional cash flows, this recent activity is further evidence that we are at or near truly transactional levels of client cash, enabling us to pay down a meaningful amount of supplemental borrowing at the banks and creating a good launching off point for Q4 as Mike will discuss in a moment."
New Schwab CFO Michael Verdeschi tells us, "As Peter alluded to earlier, we saw a healthy rebound in transactional sweep cash during the quarter, including $17 billion of net inflows in September. This positive development in cash enabled us to reduce high-cost supplemental funding at the banks by $9 billion. At the same time, we also continued to take proactive steps at the broker dealer to both support sustained client activity in areas such as margin lending and further diversify our funding profile. Those actions included transferring $4 billion of client cash sweep balance to the broker dealer, bringing the total year-to-date transfers to $14 billion. This allows us to align funding where it's needed to support the large and growing activity of our former Ameritrade clients."
He continues, "The trends in transactional sweep were quite encouraging for the third quarter with total sweep cash balances growing $9 billion, including a $17 billion net inflow during the month of September. This result reflects the continued slowdown of rate related realignment activity. Cash trends during September also benefited from anticipated seasonal trends as well. Moving forward, it's important to keep in mind that while cash trends do not move in a straight line month-over-month, we anticipate making further progress over time, ultimately resulting in cash balances growing in proportion with client accounts and assets. So, while we will continue to monitor factors that can influence the trajectory of cash, such as interest rates, investor engagement, as well as seasonality, these encouraging trends help support our strategy and momentum into the end of the year."
Verdeschi adds, "The cash trends also positioned us to make incremental progress on reducing the amount of outstanding supplemental funding at the banks. We reduced the balances by $9 billion from the June 30, 2024 level to just under $65 billion at the end of the third quarter. Supplemental funding balances are now down over 30% from peak levels back in May 2023. Further pay down progress remains a priority as cash as well as principal and interest proceeds from the bank securities portfolio continue to be key drivers in paying down borrowings. The exact timing for achieving our pay down goal will also be influenced by some of the same factors that we see in our transactional cash trends."
During the Q&A session, Verdeschi replies, "In the quarter, we did see organic growth of cash. And I would say, we also saw some of the variability that we typically see in client activity as they engage us. So, as you highlight, we did see that pick up in September. But over the course of the quarter, as we've been saying, this is further evidence of that realignment activity normalizing. So, a combination of organic growth and some of that variability as well. So, we feel good about this progress."
Replying to another sweep question, Bettinger says, "We have cautioned for a long time an excessive focus on monthly cash movements, because you can simply have a one day difference making a huge impact in a monthly number depending on when fixed income maturities mature. Although the numbers are big, if you look at these numbers as a percentage of a $10 trillion client base, they are actually quite modest. And so the right way to look at it is at a quarter, not at a month. And we feel very good about where we ended up for the quarter. I don’t think there is anything unique or one off in the results for the quarter. And that's why we feel confident about the fact that we continue to make progress in building of our balance sheet cash and anticipate that as we move forward taking into account the seasonality that Mike previously referenced."
On Morgan Stanley's call, CFO Sharon Yeshaya states, "Total deposits increased sequentially to $358 billion. While average sweeps were down slightly, ... we've seen recent signs of stabilization, particularly as the Fed began cutting rates. This is encouraging. Net interest income was $1.8 billion. Looking ahead to the fourth quarter, we would expect NII to be modestly down from the third quarter results, largely on the back of lower rate expectations, consistent with the forward curve."
She comments, "I'd say actually all the KPIs [key performance indicators] and all the underlying is strong, sweeps being one that I called out, as the deposit trends are certainly encouraging, especially since the Fed began to cut rates. We've seen that over the back end of September and even as we look into the beginning of the fourth quarter on a relative basis in terms of expectations. So, that has been positive.... There continues to be investments into markets on a monthly level from brokerage sweeps, which you didn't see last year."
Asked about deposits shifting, Yeshaya says, "When we look at where we've been and the types of language that we've used historically, I'd say that just to put it in context, the rate environment has changed. It's changed since the second quarter and I'd say it's changed pretty materially. So, we don't have control as we all know in terms of where interest rates are going. What I can speak to is where we are from a deposit level. And as I said, the trends that we've seen are extremely encouraging. If you think about where we've come from and where we are over the course of the last couple of weeks, especially ... since the Fed has cut interest rates."
She tells us, "The near-term guidance that I gave is that we will likely be modestly down ... on a quarter-over-quarter basis. And where we will be as we look into 2025, I think we will re-evaluate based on where sweeps are [and] where interest rates are ... when we sit at the beginning of January. But I just want to put a little bit of perspective around the conversations that we've had about sweeps and NII over the course of the last couple of years. I understand that it's been a very important topic for investors, especially when you think about sweeps, in particular. But sweeps, as I said, have been, to some degree, stabilizing."
Finally, Yeshaya adds, "So, we just need to gain a bit of perspective now that we see where sweeps are, that the markets are coming back and that we continue to see asset management fees rise and that is the durable revenue and what we expect to see from this business model as we move forward.... Things like a savings product will have a much higher beta than something like a sweeps product, which will have a much lower beta. They ... are two different products with two different purposes in terms of the dynamics of what they're used for."
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money market mutual fund assets fell $6.6 billion to $6.468 trillion, following an increase of $11.3 billion the week prior and a jump of $120.8 billion three weeks prior -- the 6th largest weekly increase ever and the largest non-Covid or non-SVB related increase. Assets have risen in 9 of the last 11 and 20 of the last 26 weeks, increasing by $490.3 billion (or 8.2%) since April 24. MMF assets are up by $581 billion, or 12.3%, year-to-date in 2024 (through 10/16/24), with Institutional MMFs up $258 billion, or 8.4% and Retail MMFs up $324 billion, or 19.3%. Over the past 52 weeks, money funds have risen by $860 billion, or 15.3%, with Retail MMFs up by $432 billion (19.8%) and Inst MMFs rising by $428 billion (12.5%). (Note: We look forward to seeing those of you headed down to Nashville for AFP's Annual Conference! Come visit us at booth #432!)
ICI's weekly release says, "Total money market fund assets decreased by $6.56 billion to $6.47 trillion for the week ended Wednesday, October 16, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $8.11 billion and prime funds increased by $1.51 billion. Tax-exempt money market funds increased by $43 million. " ICI's stats show Institutional MMFs decreasing $14.6 billion and Retail MMFs rising $8.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.284 trillion (81.7% of all money funds), while Total Prime MMFs were $1.054 trillion (16.3%). Tax Exempt MMFs totaled $130.4 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $8.00 billion to $2.61 trillion. Among retail funds, government money market fund assets increased by $5.60 billion to $1.66 trillion, prime money market fund assets increased by $2.25 billion to $831.97 billion, and tax-exempt fund assets increased by $145 million to $119.40 billion." Retail assets account for over a third of total assets, or 40.4%, and Government Retail assets make up 63.6% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $14.56 billion to $3.85 trillion. Among institutional funds, government money market fund assets decreased by $13.71 billion to $3.62 trillion, prime money market fund assets decreased by $743 million to $221.84 billion, and tax-exempt fund assets decreased by $102 million to $10.96 billion." Institutional assets accounted for 59.6% of all MMF assets, with Government Institutional assets making up 94.0% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $29.1 billion in October through 10/16 to $6.794 trillion. Assets rose by $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion last October. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $300 billion lower than Crane's asset series.
In other news, Yahoo wrote earlier this week that, "Cash doesn't always come off the sidelines." They explain, "The Federal Reserve held interest rates at a multi-decade high for more than a year. `Investors took notice, piling into money market accounts to grab yields that haven't been available in more than a decade. But since the Fed slashed rates by half a percentage point on Sept. 18, the flows into money market accounts haven't stopped. In fact, through Oct. 10, research provided to Yahoo Finance from Crane Data shows that money market fund assets have increased by about $180 billion since the Fed began cutting rates."
The piece says, "This reveals several truths about the surge of 'cash on the sidelines' some have argued could be a reason for the stock market rally to continue. For starters, it could be a nod to the uncertainty some feel about where things will head over the next year. On Friday, Goldman Sachs chief equity strategist David Kostin wrote in a note to clients that 'history does not lend much support to expectations of a cash-to-equity rotation.' Kostin's research shows that since 1984, over the first three-, six-, and 12-month periods after the Fed begins cutting, flows into money market funds are greater than into equity or bond funds."
They quote Kostin, "Money market funds have historically experienced inflows following rate cuts regardless of the economic backdrop.... On the other hand, equity funds typically recorded inflows if the US economy avoided a recession and outflows if the US economy entered a recession shortly after the start of the cutting cycle."
The piece tells us, "This would tell us that some folks in cash may just be in wait-and-see mode. Just because the Fed is cutting doesn't mean the money needs to leave the sidelines and play in the game. The continued surge into money market funds is also a reminder that while rates are lower than they were a month ago and are expected to continue falling, they're still higher than they've been in years. For instance, a Fidelity Government Money Market Fund is currently offering an average annual return of more than 4.5%, compared to the 10-year average of about 1.4%."
The article says, "Dating back to 1980, on average, flows into cash start declining 14 months after the Fed starts cutting. Cash on the sidelines is often referred to as a reason to be bullish about the backdrop for future buying of equities. The logic is that all this money moving into money market funds will eventually be put to work. And while Cox believes this argument could go on a list of reasons to be bullish about the stock market, 'it's not at the top. There's a lot of opportunistic cash in money markets that could make its way out over time but I think that's when people have overestimated the effects of that,' Cox said."
Finally, it adds, "So eventually, the money usually leaves cash. It could either move into bonds as the economic backdrop weakens and investors want to grab an attractive yield before they fall lower. Or, it could move into equities if the fundamental story surrounding the Fed's rate-cutting cycle continues to scream soft landing. If the prospect of not knowing which scenario will win out scares you, there is still a reasonable option to earn nearly 5% a year. And you don't have to look beyond the growing pile of cash on the sidelines to see that plenty of investors are continuing to choose that path."
Barron's writes, "5% Money-Market Rates Are Done. Where to Put Cash Now." The piece says, "Short-term interest rates are coming down. Money-market investors haven't gotten the memo -- and financial advisors say they may be missing out on the chance to earn better returns by moving money into longer-dated bonds and riskier assets like stocks.... The move was supposed to trigger a rush out of cash vehicles, such as online savings accounts and money-market funds.... Indeed, interest rates for market leading money-market funds, which stood at around 5.1% before the Fed's recent move, have tumbled to about 4.75%, according to Crane Data, a company that follows the industry." (Note: Please join us for our "basic training" event, Money Fund University, which will take place Dec. 19-20 in Providence, R.I. Click here to register or for more information.)
The article explains, "Money-market investors don't seem to be sweating the Fed's move. Assets in money-market funds hit a record $6.47 trillion for the week ended Oct. 9, according to the Investment Company Institute, a trade group. While much of that money is from large institutions, individual investors poured an additional $8 billion into retail money-market funds, which now hold more than $2.61 trillion."
It tells us, "Notions of a stampede out of money-market funds may be misplaced, says Crane Data President Peter Crane. There are good reasons for investors to pump money into the funds, even as rates decline. First, while short-term oriented, money funds tend to buy Treasury bills with durations of around a month, so while their yields generally follow the federal-funds rate, they often do so at a lag of a few weeks. Some investors aim to take advantage of this slow fade following Fed cuts."
Barron's quotes, "He also notes that while money-market rates are declining, yields remain higher than what investors can find on most savings accounts and sweep accounts that brokerages use as default vehicles to hold clients' temporarily uninvested cash. Sweep accounts, which often pay less than 1%, have come under fire recently, with lawsuits charging a number of prominent brokerages, including Schwab, Morgan Stanley and others, are shortchanging customers. Crane says investors have gotten wise and started moving money out of sweep accounts into higher-yielding money funds, a trend he expects to continue."
They add, "It doesn't help that, with the yield curve inverted, investors often need to accept lower interest rates on more volatile longer-date bonds. (See too the WSJ's "Money-Market Fund Assets Surge to Record," which states, "Assets in money-market funds have increased by around $160 billion since the Federal Reserve trimmed interest rates for the first time since 2020. The flood of money into the ultra-safe funds, illustrated this week in new numbers from Crane Data, is an unexpected twist for many investors who expected that such interest-rate cuts would lead to a rush out of the funds. Instead, the opposite has happened.")
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Oct. 11) includes Holdings information from 61 money funds (unchanged from two weeks ago), or $3.375 trillion (up from $3.361 trillion) of the $6.794 trillion in total money fund assets (or 49.7%) 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 and our Oct. 10 News, "October Money Fund Portfolio Holdings: Repo Surges, Reclaims Top Spot.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.561 trillion (up from $1.494 trillion two weeks ago), or 46.3%; Repurchase Agreements (Repo) totaling $1.244 trillion (down from $1.312 trillion two weeks ago), or 36.9%, and Government Agency securities totaling $286.6 billion (up from $280.1 billion), or 8.5%. Commercial Paper (CP) totaled $109.2 billion (up from two weeks ago at $104.9 billion), or 3.2%. Certificates of Deposit (CDs) totaled $61.2 billion (down from $62.6 billion two weeks ago), or 1.8%. The Other category accounted for $81.3 billion or 2.4%, while VRDNs accounted for $31.0 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.561 trillion (46.3% of total holdings), Fixed Income Clearing Corp with $351.9B (10.4%), the Federal Home Loan Bank with $201.7 billion (6.0%), JP Morgan with $92.1B (2.7%), BNP Paribas with $88.6B (2.6%), the Federal Reserve Bank of New York with $87.8B (2.6%), Citi with $79.5B (2.4%), Federal Farm Credit Bank with $66.2B (2.0%), RBC with $57.0B (1.7%) and Goldman Sachs with $53.5B (1.6%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($266.1B), Goldman Sachs FS Govt ($246.5B), Fidelity Inv MM: Govt Port ($233.9B), JPMorgan 100% US Treas MMkt ($226.7B), State Street Inst US Govt ($169.5B), BlackRock Lq FedFund ($168.4B), Morgan Stanley Inst Liq Govt ($140.5B), Fidelity Inv MM: MM Port ($138.7B), BlackRock Lq Treas Tr ($134.3B) and Dreyfus Govt Cash Mgmt ($125.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Finally, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in September, prime money market funds held 42.3 percent of their portfolios in daily liquid assets and 61.7 percent in weekly liquid assets, while government money market funds held 77.5 percent of their portfolios in daily liquid assets and 87.9 percent in weekly liquid assets." Prime DLA was down from 46.5% in August, and Prime WLA was down from 63.6%. Govt MMFs' DLA fell from 77.9% and Govt WLA increased from 87.7% the previous month.
ICI explains, "At the end of September, prime funds had a weighted average maturity (WAM) of 24 days and a weighted average life (WAL) of 47 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 32 days and a WAL of 81 days." Prime WAMs were 4 days shorter and WALs were unchanged from the previous month. Govt WAMs were 2 days shorter and WALs were 2 days shorter from August.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $492.19 billion in August to $532.92 billion in September. Government money market funds' holdings attributable to the Americas rose from $4,618.30 billion in August to $4,870.02 billion in September." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $532.9 billion, or 51.6%; Asia and Pacific at $184.6 billion, or 17.9%; Europe at $291.2 billion, or 28.2%; and, Other (including Supranational) at $23.0 billion, or 2.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.870 trillion, or 91.0%; Asia and Pacific at $136.2 billion, or 2.5%; Europe at $323.7 billion, 6.0%, and Other (Including Supranational) at $23.5 billion, or 0.4%.
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds moved higher again over the past 30 days to a record $1.363 trillion, while yields inched down. Assets for EUR and GBP MMFs rose over the past month while USD MMFs fell. Like U.S. money fund assets, European MMFs have repeatedly hit record highs in 2023 and 2024. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $17.1 billion over the 30 days through 10/11. The totals are up $166.4 billion (13.9%) year-to-date for 2024, they were up $166.9 billion (16.2%) for the year 2023. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. These funds are only available to qualified, non-U.S. investors and are almost entirely institutional.) (Note too: We look forward to seeing some of you next week at the AFP conference, which will take place Oct. 20-23, 2024 in Nashville!)
Offshore US Dollar money funds decreased $10.7 billion over the last 30 days and are up $57.6 billion YTD to $707.2 billion; they increased $100.0 billion in 2023. Euro funds increased E3.3 billion over the past month. YTD, they're up E47.1 billion to E282.1 billion, for 2023, they increased by E54.5 billion. GBP money funds increased L13 million over 30 days, and they're up L24.5 billion YTD at L259.9B, for 2023, they fell L28.1 billion. U.S. Dollar (USD) money funds (218) account for over half (51.9%) of the "European" money fund total, while Euro (EUR) money funds (130) make up 22.8% and Pound Sterling (GBP) funds (146) total 25.3%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Tuesday), below.
Offshore USD MMFs yield 4.82 (7-Day) on average (as of 10/11/24), down 36 basis points from a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs, which left negative yield territory in the second half of 2022, yield 3.39% on average, down 20 bps from a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21, -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs broke above the 5.0% barrier 14 months ago, they broke back below 5.0% 3 months ago; they now yield 4.90%, down 4 bps from a month ago, but 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 October MFI International Portfolio Holdings, with data as of 9/30/24, show that European-domiciled US Dollar MMFs, on average, consist of 27% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 23% in Repo, 23% in Treasury securities, 11% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 44.7% of their portfolios maturing Overnight, 5.7% maturing in 2-7 Days, 8.7% maturing in 8-30 Days, 11.5% maturing in 31-60 Days, 8.1% maturing in 61-90 Days, 16.2% maturing in 91-180 Days and 5.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (38.3%), France (11.9%), Canada (9.6%), Japan (9.1%), the Netherlands (4.6%), Australia (4.5%), the U.K. (3.6%), Sweden (3.2%), Finland (3.0%) and Germany (2.9%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $171.1 billion (23.1% of total assets), Fixed Income Clearing Corp with $40.1B (5.4%), Nordea Bank with $21.4B (2.9%), BNP Paribas with $20.6B (2.8%), Toronto-Dominion Bank with $17.4B (2.3%), Credit Agricole with $17.4B (2.3%), Mitsubishi UFJ Financial Group Inc with $16.4B (2.2%), Mizuho Corporate Bank with $15.0B (2.0%), Bank of America with $14.6B (2.0%) and RBC with $14.3B (1.9%).
Euro MMFs tracked by Crane Data contain, on average 43% in CP, 24% in CDs, 14% in Other (primarily Time Deposits), 17% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 34.0% of their portfolios maturing Overnight, 11.2% maturing in 2-7 Days, 15.5% maturing in 8-30 Days, 12.4% maturing in 31-60 Days, 5.8% maturing in 61-90 Days, 15.8% maturing in 91-180 Days and 5.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (28.4%), Japan (12.6%), the U.S. (8.4%), Canada (7.4%), the Netherlands (7.0%), Germany (6.7%), the U.K. (5.0%), Austria (4.3%), Australia (3.8%) and Sweden (3.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E14.9B (6.1%), BNP Paribas with E11.5B (4.7%), JP Morgan with E9.4B (3.9%), Republic of France with E8.5B (3.5%), Societe Generale with E8.2B (3.4%), Mitsubishi UFJ Financial Group Inc with E7.6B (3.1%), Mizuho Corporate Bank Ltd with E7.3B (3.0%), Toronto-Dominion Bank with E6.8B (2.8%), Sumitomo Mitsui Banking Corp with E6.4B (2.6%) and Credit Mutuel with E6.3B (2.6%).
The GBP funds tracked by MFI International contain, on average (as of 9/30/24): 37% in CDs, 19% in CP, 21% in Other (Time Deposits), 19% in Repo, 3% in Treasury and 1% in Agency. Sterling funds have on average 37.2% of their portfolios maturing Overnight, 7.4% maturing in 2-7 Days, 9.6% maturing in 8-30 Days, 13.8% maturing in 31-60 Days, 7.0% maturing in 61-90 Days, 20.1% maturing in 91-180 Days and 4.9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (17.7%), Japan (13.4%), the U.K. (12.5%), Canada (12.3%), Australia (9.9%), the U.S. (8.9%), the Netherlands (4.7%), Singapore (3.7%), Finland (3.0%), and Spain (2.7%).
The 10 Largest Issuers to "offshore" GBP money funds include: BNP Paribas with L10.4B (5.2%), UK Treasury with L9.4B (4.7%), Toronto-Dominion Bank with L7.8B (3.9%), JP Morgan with L7.4B (3.7%), Mizuho Corporate Bank Ltd with L7.3B (3.7%), Commonwealth Bank of Australia with L6.8B (3.4%), Sumitomo Mitsui Trust Bank with L6.7B (3.4%), National Australia Bank Ltd with L6.1B (3.1%), RBC with L6.1B (3.0%) and Mitsubishi UFJ Financial Group Inc with L6.1B (3.0%).
The October issue of our Bond Fund Intelligence, which was sent to subscribers Tuesday morning, features the stories, "Worldwide BF Assets Jump to $13.3 Trillion, Led by U.S.," which reviews the latest statistics on bond fund markets outside the U.S., and "Vanguard Plans Push Into Active Bond Funds Says FT," which covers recent articles quoting CEO Salim Ramji on plans to launch more ETFs. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose again in September while yields were lower. 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.)
BFI's "Worldwide" article states, "Bond fund assets worldwide increased in the latest quarter to $13.26 trillion, led higher by four of the largest bond fund markets -- the U.S., Luxembourg, Ireland and China. We review the ICI's 'Worldwide Regulated Open-End Fund Assets and Flows, Second Quarter 2024,' release and statistics below."
The piece says, "ICI's report says, 'Worldwide regulated open-end fund assets increased 1.5% to $70.20 trillion at the end of the second quarter of 2024.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).'"
Our Vanguard article states, "Barron's writes on 'Vanguard's Second Wind,' explaining, 'Almost three months into his new job as Vanguard Group's CEO, Salim Ramji stepped onto a conference stage in New York.... Ramji shared plans that include spurring more innovation and growth in a somewhat surprising area: active management, specifically in fixed income. 'I think we can bring what Vanguard has brought to indexing to active fixed income, and give [clients] access to better performance at lower fees,' Ramji said at the conference, organized by the Financial Times.'"
It states, "The article continues, 'Indeed, he noted that the company has already started moving in that direction. In the past six years, Vanguard added eight new exchange-traded funds, with expense ratios ranging from 0.10% to 0.20%. It plans to launch two more bond ETFs later this year. It has hired more staff members and invested in its technology. And it poached bond maven Sara Devereux from Goldman Sachs to be its global head of fixed income.'"
Our first News brief, "Returns Up Again, Yields Lower in Sept." explains, "Bond fund returns were higher for the 5th month in a row in September, while yields were again lower. Our BFI Total Index rose 1.05% over 1-month and is up 10.41% over 12 months. (Money funds rose 5.26% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 1.14% in Sept. and 10.77% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.56% over 1-month and 6.41% for 1-year; Ultra-Shorts rose 0.59% and 6.95%. Short-Term returned 0.91% and 8.54%, and Intm-Term rose 1.25% in Sept. and 11.20%. BFI's Long-Term Index was up 1.39% and 12.35%. High Yield rose 1.12% in Sept. and 12.73% for 12 mos."
A second News brief, "The Journal Writes, 'How to Invest in Bonds in a World of Falling Rates.'" It says, "The article states, 'Falling rates have Wall Street recommending bonds again. Once considered a boring safe play, bonds have lately felt like anything but. Rising interest rates drove returns to their worst year on record in 2022. Now, with rates coming down, many investors have had gains instead. But buying bonds can confront investors with a bewildering array of options: Treasurys, company bonds or municipal debt? Individual bonds or funds?'"
Our next News brief comments, "Barron's Says 'Bond Funds Often Beat the Indexes.'" They tell us, "If there's one thing fund investors know by now, it's that actively managed funds don't beat the market. When it comes to bonds, that might not be as true as you think. More than two out of three active bond funds beat comparable index funds for the 12 months ended in June, according to Morningstar's most recent comparison of active and passive strategies. The story was even better for key bond funds that form the bedrock of many investors' portfolios: Nearly three in four intermediate-term core bond funds beat similar index funds, Morningstar found."
A BFI sidebar, "European MFS on Ultra-Short," says, "Crane Data hosted its European Money Fund Symposium in London last month. The event included a session titled 'Ultra‐Short Bond Funds & Beyond Short MMFs,' which featured Valerio Lupini of Fitch Ratings, Alastair Sewell of Aviva Investors and Rustam Muradov of J.P. Morgan A.M. Muradov tells us, 'In our funds, we believe in a more diversified portfolio, so we like to keep things granular. We still do invest in money market products, and we do invest in bonds, ABS, ABCP, etc. However, while corporate paper and the bank paper [are part of the allocation], we liked ABS more last year. Now we are a little bit more picky in ABS. It has to be at the right valuation and at the right spread.'"
Finally, another sidebar, "Barron's on Best Bond Moves," tells readers, "Barron's writes 'The Best Bond Moves to Make in an Era of Lower Interest Rates.' The piece states, 'The Federal Reserve has finally started cutting interest rates. That doesn't mean bond volatility is going away. The Fed cut rates on Sept. 18 by a surprisingly large amount -- half a percentage point, instead of the quarter-point move widely expected. Bond prices move inversely to yields, so bond prices should have risen, right? Wrong.'"
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money market mutual fund assets rising another $11.3 billion to a record $6.474 trillion, following an increase of $38.7 billion the week prior and a jump of $120.8 billion two weeks prior -- the 6th largest weekly increase ever and the largest non-Covid or non-SVB related increase. Assets have risen in 20 of the last 25 weeks, increasing by $496.9 billion (or 8.3%) since April 24. MMF assets are up by $588 billion, or 12.4%, year-to-date in 2024 (through 10/9/24), with Institutional MMFs up $272 billion, or 8.9% and Retail MMFs up $316 billion, or 18.8%. Over the past 52 weeks, money funds have risen by $768 billion, or 13.5%, with Retail MMFs up by $434 billion (20.0%) and Inst MMFs rising by $334 billion (9.4%). (Note: Crane Data's separate and more comprehensive asset series shows money funds hitting a record $6.816 trillion on October 3 but closing just shy of this mark on Wednesday, 10/9.)
ICI's weekly release says, "Total money market fund assets increased by $11.26 billion to $6.47 trillion for the week ended Wednesday, October 9, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $4.72 billion and prime funds increased by $7.22 billion. Tax-exempt money market funds decreased by $675 million. " ICI's stats show Institutional MMFs rising $3.2 billion and Retail MMFs rising $8.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.292 trillion (81.7% of all money funds), while Total Prime MMFs were $1.052 trillion (16.3%). Tax Exempt MMFs totaled $130.3 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $8.07 billion to $2.61 trillion. Among retail funds, government money market fund assets increased by $3.81 billion to $1.66 trillion, prime money market fund assets increased by $4.76 billion to $829.72 billion, and tax-exempt fund assets decreased by $493 million to $119.26 billion." Retail assets account for over a third of total assets, or 40.2%, and Government Retail assets make up 63.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $3.19 billion to $3.87 trillion. Among institutional funds, government money market fund assets increased by $915 million to $3.64 trillion, prime money market fund assets increased by $2.46 billion to $222.58 billion, and tax-exempt fund assets decreased by $181 million to $11.06 billion." Institutional assets accounted for 59.8% of all MMF assets, with Government Institutional assets making up 94.0% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $44.9 billion in October (through 10/9) to $6.810 trillion. Assets rose by $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion last October. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $300 billion lower than Crane's asset series.
In other news, ICI also wrote a comment letter to ESMA, the European Securities and Markets Authority titled, "Re: Draft Regulatory Technical Standards and Guidelines on Liquidity Management Tools under the AIFMD and UCITS Directive. They state, "The Investment Company Institute is submitting its views on the European Securities and Markets Authority's (ESMA) consultations regarding draft regulatory technical standards (RTS) and guidelines on liquidity management tools (LMTs), which have been proposed as part of the amendments to the Alternative Investment Fund Management Directive (AIFMD) and Undertakings for Collective Investment in Transferrable Securities (UCITS) Directive (the Directives)."
The letter tells us, "Our comments specifically address UCITS, ETFs, and related fund structures, including money market funds (MMFs), that our members manage in the European Union and in global markets. These funds are integral in supporting economic growth, fostering capital formation, and providing the benefits of collective investment to a wide range of investors, particularly long-term individual investors."
It continues, "While we are generally supportive of the draft RTS and Guidelines set forth in the Consultations, which are aligned with the recent international work on LMTs, we have concerns about prescriptive and rigid elements of the approach that ESMA may be considering. In addition to our detailed responses to the Consultations' questions, we offer the following overarching comments on themes that arise across our responses."
These include: "1. Use of LMTs should be consistent with the fund's policies and legal requirements..... 2. The mechanistic approaches in the draft Guidelines and RTS lack flexibility and feasibility. We support ESMA's recognition that anti-dilution LMTs do not need to be permanently activated. ICI research shows that the average dilution for UCITS is minimal, and applying anti-dilution tools daily would increase costs without substantial benefits. However, we do not endorse mandatory or automatic activation thresholds, especially for quantitative LMTs, which are deployed only after a fund manager conducts a fact-specific analysis in response to unpredictable and unusual events."
They also include: "3. Prescriptive LMT requirements could constrain effective liquidity risk management. We acknowledge ESMA's recognition of fund managers' responsibility for managing liquidity risk, including decisions around the selection, calibration, and activation/deactivation of LMTs. We support the flexible aspects of the draft RTS and Guidelines that recognise there is no homogeneous approach to liquidity risk management, as Article 18a of the Directive states that ESMA 'should not restrict the ability of UCITS to use any appropriate liquidity management tool for all asset classes, jurisdictions and market conditions.'"
It adds, "4. Disclosures should avoid triggering opportunistic investor behaviour. We fully support ESMA's objective of promoting fairness and transparency to protect investors. However, it is crucial that disclosures do not unintentionally trigger counterproductive investor behaviour, such as premature redemptions in anticipation of LMT activation. To mitigate this risk, we recommend that the disclosure provisions be revised. Instead of requiring disclosure of specific activation thresholds (e.g., for imposing gates), funds would provide general factors they would consider when making LMT decisions, including activation. This approach would enable funds to offer useful guidance to investors regarding LMTs without setting and disclosing rigid thresholds that could prompt premature investor actions."
The original press release, "ESMA consults on Liquidity Management Tools for funds," explains, "The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, is seeking input on draft guidelines and technical standards under the revised Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Both Directives aim to mitigate potential financial stability risks and promote harmonisation of liquidity risk management in the investment funds sector."
Verena Ross, ESMA Chair, comments, "The revised AIFMD and UCITS Directive have introduced long-awaited provisions on the availability and use of Liquidity Management Tools. ESMA is now consulting on how to apply these provisions in practice. These new rules being proposed are in line with the latest global standards provided by the FSB and IOSCO, and will contribute to the strengthening of the EU regulatory and supervisory regime for investment funds. By having the right implementing rules in place, we can make the EU framework for investment funds both more resilient and more efficient, supporting the development of attractive, effective and stable EU capital markets."
The release adds, "In the draft Regulatory Technical Standards (RTS) on the characteristics of Liquidity Management Tools (LMTs) ESMA defines the constituting elements of each LMT, such as calculation methodologies and activation mechanisms. ESMA also publishes draft Guidelines on LMTs of UCITS and open-ended AIFs, providing guidance on how managers should select and calibrate LMTs, in light of their investment strategy, their liquidity profile and the redemption policy of the fund. These draft RTS and guidelines are designed to promote convergent application of the Directives for both UCITS and open-ended AIFs and make EU fund managers better equipped to manage the liquidity of their funds, in preparation for market stress situations. Additionally, they intend to clarify the functioning of specific LMTs, such as the use of side pockets, a practice that currently varies significantly across the EU."
Finally, under "Next Steps," they state, "The publication of the two consultations is a key step in the implementation of the new AIFMD and UCITS Directive. ESMA welcomes responses to the consultations by 8 October. Following this, ESMA will deliver the final RTS and guidelines by 16 April 2025."
Crane Data's October Money Fund Portfolio Holdings, with data as of Sept. 30, 2024, show that Repo and Treasuries jumped sharply while Other (mostly Time Deposits) holdings dropped last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $233.8 billion to $6.727 trillion in September, after increasing $57.2 billion in August and $90.4 billion in July, but decreasing by $0.4 billion in June. Holdings increased $105.6 billion in May but decreased $61.4 billion in April. Repo, now the largest segment, increased $151.7 billion in September after decreasing $40.2 billion in August and $21.5 billion in July (but increasing $99.3 billion in June). Treasuries increased by $92.0 billion, but moved down to the No. 2 spot for largest portfolio segment. 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. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Among taxable money funds, Repurchase Agreements (repo) increased $151.7 billion (6.0%) to $2.670 trillion, or 39.7% of holdings, in September, after decreasing $40.2 billion in August and $21.5 billion in July. But they increased $99.3 billion in June and $26.8 billion in May. Treasury securities increased $92.0 billion (3.6%) to $2.631 trillion, or 39.1% of holdings, after increasing $85.8 billion in August and $24.3 billion in July. T-bills decreased $17.3 billion in June but increased $51.0 billion in May. Government Agency Debt was up $20.9 billion, or 2.8%, to $779.1 billion, or 11.6% of holdings. Agencies increased $11.2 billion in August and $22.9 billion in July, but decreased $16.9 billion in June. Repo, Treasuries and Agency holdings now total $6.080 trillion, representing a massive 90.4% of all taxable holdings.
Money fund holdings of Other (Time Deposits) and CD decreased in September while CP rose. Commercial Paper (CP) increased $0.3 billion (0.1%) to $281.5 billion, or 4.2% of holdings. CP holdings increased $4.5 billion in August and $8.2 billion in July, but decreased $2.0 billion in June. Certificates of Deposit (CDs) decreased $1.7 billion (-0.9%) to $185.1 billion, or 2.8% of taxable assets. CDs decreased $13.9 billion in August, increased $6.9 billion in July, and decreased $5.6 billion in June. Other holdings, primarily Time Deposits, decreased $29.4 billion (-14.9%) to $168.2 billion, or 2.5% of holdings, after increasing $9.3 billion in August and $49.0 billion in July. VRDNs increased to $13.0 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday around noon.)
Prime money fund assets tracked by Crane Data decreased to $1.137 trillion, or 16.9% of taxable money funds' $6.727 trillion total. Among Prime money funds, CDs represent 16.3% (down from 16.4% a month ago), while Commercial Paper accounted for 24.8% (up from 24.6% in August). The CP totals are comprised of: Financial Company CP, which makes up 16.6% of total holdings, Asset-Backed CP, which accounts for 6.9%, and Non-Financial Company CP, which makes up 1.3%. Prime funds also hold 0.4% in US Govt Agency Debt, 1.6% in US Treasury Debt, 24.5% in US Treasury Repo, 1.0% in Other Instruments, 11.6% in Non-Negotiable Time Deposits, 7.6% in Other Repo, 11.0% in US Government Agency Repo and 0.9% in VRDNs.
Government money fund portfolios totaled $3.679 trillion (54.7% of all MMF assets), up from $3.553 trillion in August, while Treasury money fund assets totaled another $1.912 trillion (28.4%), up from $1.799 trillion the prior month. Government money fund portfolios were made up of 21.1% US Govt Agency Debt, 16.8% US Government Agency Repo, 32.4% US Treasury Debt, 29.3% in US Treasury Repo, 0.4% in Other Instruments. Treasury money funds were comprised of 74.3% US Treasury Debt and 25.5% in US Treasury Repo. Government and Treasury funds combined now total $5.590 trillion, or 83.1% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $59.5 billion in September to $698.3 billion; their share of holdings fell to 10.4% from last month's 11.7%. Eurozone-affiliated holdings decreased to $480.4 billion from last month's $494.0 billion; they account for 7.1% of overall taxable money fund holdings. Asia & Pacific related holdings fell to $298.8 billion (4.4% of the total) from last month's $320.6 billion. Americas related holdings rose to $5.724 trillion from last month's $5.406 trillion, and now represent 85.1% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $129.0 billion, or 7.5%, to $1.843 trillion, or 27.4% of assets); US Government Agency Repurchase Agreements (up $24.7 billion, or 11.0%, to $741.1 billion, or 11.0% of total holdings), and Other Repurchase Agreements (down $1.9 billion, or -2.2%, from last month to $85.9 billion, or 1.3% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $2.7 billion to $189.1 billion, or 2.8% of assets), Asset Backed Commercial Paper (up $3.7 billion at $77.9 billion, or 1.2%), and Non-Financial Company Commercial Paper (down $0.7 billion to $14.6 billion, or 0.2%).
The 20 largest Issuers to taxable money market funds as of Sept. 30, 2024, include: the US Treasury ($2.631T, 39.1%), Fixed Income Clearing Corp ($789.6B, 11.7%), Federal Home Loan Bank ($599.9B, 8.9%), the Federal Reserve Bank of New York ($428.7B, or 6.4%), JP Morgan ($201.4B, 3.0%), RBC ($153.3B, 2.3%), Citi ($152.0B, 2.3%), BNP Paribas ($150.7B, 2.2%), Federal Farm Credit Bank ($141.0B, 2.1%), Goldman Sachs ($129.0B, 1.9%), Bank of America ($104.9B, 1.6%), Mitsubishi UFJ Financial Group Inc ($81.5B, 1.2%), Barclays PLC ($76.3B, 1.1%), Wells Fargo ($72.8B, 1.1%), Sumitomo Mitsui Banking Corp ($62.7B, 0.9%), Toronto-Dominion Bank ($56.3B, 0.8%), Canadian Imperial Bank of Commerce ($55.1B, 0.8%), Bank of Montreal ($51.5B, 0.8%), Credit Agricole ($48.8B, 0.7%) and Societe Generale ($41.7B, 0.6%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Corp ($767.2B, 28.7%), the Federal Reserve Bank of New York ($428.7B, 16.1%), JP Morgan ($192.9B, 7.2%), Citi ($139.3B, 5.2%), BNP Paribas ($137.9B, 5.2%), Goldman Sachs ($128.5B, 4.8%), RBC ($121.4B, 4.5%), Bank of America ($86.0B, 3.2%), Wells Fargo ($69.9B, 2.6%) and Barclays PLC ($66.7B, 2.5%).
The largest users of the $428.7 billion in Fed RRP include: Vanguard Federal Money Mkt Fund ($65.4B), Fidelity Cash Central Fund ($45.6B), Fidelity Inv MM: MM Port ($30.5B), Fidelity Money Market ($26.9B), Vanguard Market Liquidity Fund ($24.7B), Fidelity Sec Lending Cash Central Fund ($24.0B), Vanguard Cash Reserves Federal MM ($21.9B), Dreyfus Govt Cash Mgmt ($18.5B), Fidelity Inv MM: Treas Port ($15.6B) and Fidelity Inv MM: Govt Port ($13.4B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($31.8B, 5.5%), Toronto-Dominion Bank ($31.8B, 5.5%), Mitsubishi UFJ Financial Group Inc ($30.9B, 5.4%), Fixed Income Clearing Corp ($22.4B, 3.9%), ING Bank ($21.8B, 3.8%), Skandinaviska Enskilda Banken AB ($21.5B, 3.8%), Mizuho Corporate Bank Ltd ($21.1B, 3.7%), Canadian Imperial Bank of Commerce ($21.0B, 3.7%), Australia & New Zealand Banking Group Ltd ($20.2B, 3.5%) and DNB ASA ($20.0B, 3.5%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($24.5B, 13.2%), Sumitomo Mitsui Trust Bank ($13.6B, 7.4%), Bank of America ($12.7B, 6.9%), Toronto-Dominion Bank ($11.1B, 6.0%), Credit Agricole ($9.5B, 5.1%), Sumitomo Mitsui Banking Corp ($9.4B, 5.1%), Canadian Imperial Bank of Commerce ($8.0B, 4.3%), Mitsubishi UFJ Trust and Banking Corporation ($7.6B, 4.1%), Mizuho Corporate Bank Ltd ($7.0B, 3.8%) and Bank of Nova Scotia ($6.7B, 3.6%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($19.4B, 7.5%), RBC ($18.7B, 7.2%), Bank of Montreal ($14.2B, 5.4%), Australia & New Zealand Banking Group Ltd ($8.9B, 3.4%), Citi ($8.8B, 3.4%), ING Bank ($8.6B, 3.3%), Barclays PLC ($8.5B, 3.3%), JP Morgan ($8.5B, 3.3%), BSN Holdings Ltd ($8.4B, 3.2%) and BPCE SA ($8.3B, 3.2%).
The largest increases among Issuers include: Fixed Income Clearing Corp (up $155.6B to $789.6B), US Treasury (up $92.0B to $2.631T), the Federal Reserve Bank of New York (up $38.9B to $428.7B), Goldman Sachs (up $18.6B to $129.0B), Federal Home Loan Mortgage Corp (up $11.1B to $18.5B), RBC (up $8.8B to $153.3B), Rabobank (up $6.2B to $12.9B), Federal Farm Credit Bank (up $5.5B to $141.0B), Federal National Mortgage Association (up $5.2B to $15.5B) and Nomura (up $4.4B to $29.1B).
The largest decreases among Issuers of money market securities (including Repo) in September were shown by: Barclays PLC (down $23.1B to $76.3B), Credit Agricole (down $19.5B to $48.8B), JP Morgan (down $19.3B to $201.4B), Mizuho Corporate Bank Ltd (down $16.7B to $34.5B), Citi (down $8.0B to $152.0B), Societe Generale (down $7.0B to $41.7B), Canadian Imperial Bank of Commerce (down $4.4B to $55.1B), ING Bank (down $4.1B to $34.5B), HSBC (down $3.9B to $29.5B) and Svenska Handelsbanken (down $2.8B to $7.1B).
The United States remained the largest segment of country-affiliations; it represents 79.8% of holdings, or $5.365 trillion. Canada (5.3%, $358.9B) was in second place, while France (4.3%, $286.0B) was No. 3. Japan (4.1%, $272.3B) occupied fourth place. The United Kingdom (2.2%, $149.6B) remained in fifth place. Netherlands (1.0%, $65.4B) was in sixth place, followed by Australia (0.8%, $53.4B), Germany (0.7%, $46.5B), Sweden (0.5%, $35.2B), and Spain (0.4%, $27.6B). (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 Sept. 30, 2024, Taxable money funds held 51.1% (up from 49.7%) of their assets in securities maturing Overnight, and another 10.3% maturing in 2-7 days (up from 10.1%). Thus, 61.4% in total matures in 1-7 days. Another 11.5% matures in 8-30 days, while 9.6% matures in 31-60 days. Note that over three-quarters, or 82.5% 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 4.9% of taxable securities, while 10.2% matures in 91-180 days, and just 2.5% matures beyond 181 days.
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our regular monthly update on the new September 30 data for Thursday's News. But we also already uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (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 September 30, includes holdings information from 1,011 money funds (down 9 from last month), representing assets of $6.872 trillion (up from $6.644 trillion). Prime MMFs rose to $1.139 trillion (up $10.0 billion), or 16.6% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses were mostly flat and money fund revenues rose to $18.3 billion (annualized) in September. (Note: We're still adjusting to the SEC's new Form N-MFP format, so there continue to be some distortions in our data. Let us know if you see any issues or questions!)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreements (Repo) and Treasuries remain the largest types of portfolio holdings in money market funds. Repo holdings in money market funds now total $2.478 trillion (up from $2.355 trillion), or 36.1% of all assets, while Treasury holdings rose to $2.402 trillion (up from $2.333 billion), or 35.0% of all holdings. Government Agency securities total $757.6 billion (up from $738.8 billion), or 11.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.638 trillion, or a massive 82.1% of all holdings.
The Other category (primarily Time Deposits) totals $689.9 billion (up from $664.8 billion), or 10.0%, and Commercial paper (CP) totals $256.0 billion (down from $261.3 billion), or 3.7% of all holdings. Certificates of Deposit (CDs) total $158.3 billion (down from $161.0 billion), 2.3%, and VRDNs account for $129.5 billion (unchanged from last month), or 1.9% of money fund securities. (Note: We believe our "Other" totals are still too high and we expect to adjust these as we recategorize some of the underlying holdings.)
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $168.8 billion, or 2.5%, in Financial Company Commercial Paper; $62.8 billion or 0.9%, in Asset Backed Commercial Paper; and, $24.4 billion, or 0.4%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.704 trillion, or 24.8%), U.S. Govt Agency Repo ($695.5B, or 10.1%) and Other Repo ($78.7B, or 1.1%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $246.0 billion (down from $248.7 billion), or 21.6%; Repo holdings of $463.9 billion (up from $404.5 billion), or 40.7%; Treasury holdings of $16.6 billion (down from $41.9 billion), or 1.5%; CD holdings of $158.3 billion (down from $160.9 billion), or 13.9%; Other (primarily Time Deposits) holdings of $239.9 billion (down from $259.2 billion), or 21.1%; Government Agency holdings of $5.2 billion (up from $4.6 billion), or 0.5% and VRDN holdings of $9.2 billion (up from $9.0 billion), or 0.8%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $168.7 billion (down from $176.1 billion), or 14.8%, in Financial Company Commercial Paper; $62.4 billion (up from $56.3 billion), or 5.5%, in Asset Backed Commercial Paper; and $14.8 billion (down from $16.3 billion), or 1.3%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($270.2 billion, or 23.7%), U.S. Govt Agency Repo ($119.0 billion, or 10.4%), and Other Repo ($74.7 billion, or 6.6%).
In related news, money fund charged expense ratios (Exp%) were mostly flat in September. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.38%, respectively, as of Sept. 30, 2024. 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 Tuesday 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.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.27%, unchanged from last month's level (also 19 bps higher than 12/31/21's 0.08%). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.38% as of Sept. 30, 2024, up 1 bp from the month prior and slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.26% (down 2 bps from last month), Government Inst MFs expenses average 0.26% (up 1 bp from last month), Treasury Inst MFs expenses average 0.30% (up 2 bps from last month). Treasury Retail MFs expenses currently sit at 0.53%, (up 1 bps from last month), Government Retail MFs expenses yield 0.54% (unchanged from last month). Prime Retail MF expenses averaged 0.49% (unchanged from last month). Tax-exempt expenses were also up 1 bp at 0.40% on average.
Gross 7-day yields were down during the month ended September 30, 2024. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 713), shows a 7-day gross yield of 5.02%, down 35 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 also down 35 bps, ending the month at 5.02%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $18.265 billion (as of 9/30/24), a new record high. Our estimated annualized revenue totals increased from $17.620B last month, and are still higher from the $17.269B seen 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 inflows resume to money funds following a pause around April 15.
Crane Data's latest monthly Money Fund Market Share rankings show assets increasing among most of the largest U.S. money fund complexes in September, after rising in August, July, June and May. Assets fell in March and April. Money market fund assets rose by $155.2 billion, or 2.3%, last month to a record $6.776 trillion. Total MMF assets have increased by $283.2 billion, or 4.4%, over the past 3 months, and they've increased by $676.0 billion, or 11.1%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by SSGA, Fidelity, BlackRock, JPM and Schwab, which grew assets by $45.3 billion, $38.4B, $17.4B, $12.7B and $12.2B, respectively. Declines in September were seen by Allspring, DWS, Western, First American and Columbia, which decreased by $11.7 billion, $3.5B, $3.0B, $301M and $121M, 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 were lower in September.
Over the past year through Sept. 30, 2024, Fidelity (up $223.3B, or 18.9%), Schwab (up $131.0B, or 30.0%), Vanguard (up $82.8B, or 15.4%), JPMorgan (up $80.6B, or 13.2%) and BlackRock (up $72.8B, or 14.4%) were the `largest gainers. Fidelity, BlackRock, SSGA, Schwab and JPMorgan, and had the largest asset increases over the past 3 months, rising by $87.3B, $59.6B, $48.7B, $33.7B and $28.7B, respectively. The largest declines over 12 months were seen by: Invesco (down $26.1B), American Funds (down $16.5B), Morgan Stanley (down $13.0B), Goldman Sachs (down $12.6B) and PGIM (down $9.5B). The largest declines over 3 months included: Invesco (down $14.4B), American Funds (down $9.6B) and PGIM (down $4.3B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.405 trillion, or 20.7% of all assets. Fidelity was up $38.4B in September, up $87.3 billion over 3 mos., and up $223.3B over 12 months. JPMorgan ranked second with $691.0 billion, or 10.2% market share (up $12.7B, up $28.7B and up $80.6B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $620.2 billion, or 9.2% of assets (up $5.3B, up $7.9B and up $82.8B). BlackRock ranked fourth with $577.6 billion, or 8.5% market share (up $17.4B, up $59.6B and up $72.8B), while Schwab was the fifth largest MMF manager with $567.3 billion, or 8.4% of assets (up $12.2B, up $33.7B and up $131.0B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $454.2 billion, or 6.7% (up $4.5B, up $1.6B and up $39.4B), while Goldman Sachs was in seventh place with $409.6 billion, or 6.0% of assets (up $11.1B, up $12.9B and down $12.6B). Dreyfus ($282.8B, or 4.2%) was in eighth place (up $8.6B, up $12.4B and up $18.0B), followed by SSGA ($259.8B, or 3.8%; up $45.3B, up $48.7B and up $57.1B). Morgan Stanley was in 10th place ($248.4B, or 3.7%; up $7.4B, up $3.8B and down $13.0B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($197.6B, or 2.9%), Northern ($172.1B, or 2.5%), American Funds ($157.5B, or 2.3%), First American ($148.7B, or 2.2%), Invesco ($126.2B, or 1.9%), UBS ($108.4B, or 1.6%), T. Rowe Price ($50.1B, or 0.7%), HSBC ($39.0B, or 0.6%), DWS ($36.4B, or 0.5%) and Western ($31.5B, or 0.5%). Crane Data currently tracks 61 U.S. MMF managers, down 1 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, and Vanguard moves down to No. 4. Goldman Sachs moves up to the No. 6 spot, while Federated Hermes moves down to the No. 7 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 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 ($1.422 trillion), JP Morgan ($934.1B), BlackRock ($859.5B), Vanguard ($620.2B) and Schwab ($567.3B). Goldman Sachs ($552.7B) was in sixth, Federated Hermes ($466.3B) was seventh, followed by Morgan Stanley ($335.5B), SSGA ($313.6B) and Dreyfus/BNY Mellon ($308.2B), 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 October issue of our Money Fund Intelligence and MFI XLS, with data as of 9/30/24, shows that yields were lower in September across most Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 713), was 4.65% (down 34 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also down 16 bps at 4.83%. The MFA's Gross 7-Day Yield was at 5.04% (down 33 bps), and the Gross 30-Day Yield was down 16 bps at 5.21%. (Gross yields will be revised once we download the SEC's Form N-MFP data for 9/30/24 on Tuesday.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.75% (down 35 bps) and an average 30-Day Yield at 4.94% (down 16 bps). The Crane 100 shows a Gross 7-Day Yield of 5.01% (down 35 bps), and a Gross 30-Day Yield of 5.21% (down 16 bps). Our Prime Institutional MF Index (7-day) yielded 4.82% (down 34 bp) as of Sept. 30. The Crane Govt Inst Index was at 4.75% (down 35 bps) and the Treasury Inst Index was at 4.73% (down 31 bps). Thus, the spread between Prime funds and Treasury funds is 9 basis points, and the spread between Prime funds and Govt funds is 7 basis points. The Crane Prime Retail Index yielded 4.61% (down 38 bps), while the Govt Retail Index was 4.47% (down 33 bps), the Treasury Retail Index was 4.50% (down 30 bps from the month prior). The Crane Tax Exempt MF Index yielded 2.94% (up 11 bps) as of September.
Gross 7-Day Yields for these indexes to end September were: Prime Inst 5.09% (down 35 bps), Govt Inst 5.01% (down 34 bps), Treasury Inst 5.02% (down 31 bps), Prime Retail 5.11% (down 37 bps), Govt Retail 5.05% (down 30 bps) and Treasury Retail 5.02% (down 30 bps). The Crane Tax Exempt Index rose to 3.34% (up 11 bps). The Crane 100 MF Index returned on average 0.42% over 1-month, 1.28% over 3-months, 3.76% YTD, 5.26% over the past 1-year, 3.36% over 3-years (annualized), 2.17% over 5-years, and 1.50% over 10-years.
The total number of funds, including taxable and tax-exempt, was down 23 in September at 833. There are currently 713 taxable funds, down 22 from the previous month, and 120 tax-exempt money funds (down 1 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The October issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "Assets Spike to Record $6.8T; Yields Plunge to 4.7% on Cut," which reviews the jump in assets and drop in yields following the big Fed cut; "European MF Symposium: Breaking Records in London," which quotes from our recent offshore MMF conference; and, "Worldwide MMFs Jump in Q2'24, Hit Record $10.6 Tril.," which recaps the latest statistics on money fund markets outside the U.S. We also sent out our MFI XLS spreadsheet Monday a.m., and we've updated our Money Fund Wisdom database with 9/30/24 data. Our Oct. Money Fund Portfolio Holdings are scheduled to ship on Wednesday, October 9, and our Oct. Bond Fund Intelligence is scheduled to go out on Tuesday, October 15 (a day late due to the Columbus Day Holiday). (Note: Please join us for our "basic training" event, Money Fund University, which takes place Dec. 19-20 in Providence, R.I.)
MFI's "Assets Spike" article says, "Money fund yields moved sharply lower following the Federal Reserve's Sept. 18 50 basis point rate cut. They quickly fell below 5.0% and are now stabilizing at around 4.75% on average. Meanwhile, money market mutual fund assets jumped to all-time records, rising $155.2 billion in September to a record $6.777 trillion, according to MFI. They've continued rising in October, breaking the $6.8 trillion level on Thursday (10/3)."
It continues, "Money fund yields fell 35 basis points to 4.75% on average in September (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds). Yields were 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23. Yields should continue to inch lower as they digest the final remnants of the Fed cut, then they should stabilize until the next cut."
We write in our European MF Symposium article, "Crane Data recently hosted its 10th annual European Money Fund Symposium in London, England, which featured record attendance (210) and two days of discussions on offshore money funds denominated in USD, EUR and GBP. Veronica Iommi, Secretary General of IMMFA, the Institutional Money Market Funds Association, presented on 'The State of MMFs in Europe.' She began by looking at the current MMF landscape in Europe, including a brief reminder of how IMMFA MMFs have performed in recent years followed by a review of where we are on the regulatory front, what this might mean for us looking forwards and IMMFA's role as a voice of the Money Market Fund industry."
It states, "She tells the audience, 'Since last year, there have also been some developments at IMMFA ... including the decision to increase our focus on technology and the tokenization of money market funds. We welcomed four new associate members specializing in fin-tech to the IMMFA family, namely Cachematrix, Calastone, Fund Connect and Morgan Money. These new associate members joined existing members in a working group which has already been very actively engaged in discussions with regulators and policymakers.'"
Our "Worldwide" piece says, "The Investment Company Institute's 'Worldwide Regulated Open-Fund Assets and Flows, Second Quarter 2024,' shows that money fund assets globally rose by $201.6 billion, or 1.9%, in Q2’24 to $10.643 trillion. Increases were led by a sharp jump in money funds in U.S. and China, while Luxembourg and India also rose. Meanwhile, money funds in Brazil and Japan were lower. MMF assets worldwide increased by $923.8 billion, or 9.5%, in the 12 months through 6/30/24."
The piece states, "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 Q2'24 with $6.092 trillion, or 57.2% of all global MMF assets. U.S. MMF assets increased by $172.7 billion (2.9%) in Q2'24 and have increased by $642.1 billion (11.8%) in the 12 months through June 30, 2024. China remained in second place among countries overall. China saw assets increase $226.3 billion (14.2%) in Q2 to $1.815 trillion (17.1% of worldwide assets). Over the 12 months through June 30, 2024, Chinese MMFs have increased $231.3 billion, or 14.6%."
MFI also includes the News brief, "Fed Goes Big, Cuts Rates by 50 Bps. A release titled, 'Federal Reserve issues FOMC statement,' tells us, 'In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.'"
Another News brief, "Bloomberg Says, 'Money-Market Funds Stay in Vogue Even as Reforms Go Into Effect.' They write, 'Money-market funds are attracting record amounts of cash, even as a regulatory overhaul [goes live].... The [SEC] approved measures last year.... The final piece of the reform requiring fund managers to impose mandatory liquidity fees went into effect [Oct. 2]."
A third News brief, "Texas Capital Launches Govt MM ETF," states, "A release, 'Texas Capital Launches Government Money Market Exchange Traded Fund,' claims, 'Texas Capital Bank Private Wealth Advisors, a subsidiary of Texas Capital Bank, and the Texas Capital Funds Trust … announced the launch of the Texas Capital Government Money Market ETF (MMKT).'"
A sidebar, "Janus MMF to Support ACS," says, "A press release titled, 'Janus Henderson Offers Money Market Fund to Support the American Cancer Society,' states, 'Janus Henderson ... and the American Cancer Society (ACS) ... announced an innovative partnership to support cancer research, advocacy, and patient support. Through this pioneering initiative, Janus Henderson will donate an amount equal to half of its management fees for all assets under management from Janus Henderson’s Government Money Market Fund to ACS. Janus Henderson has committed to donating a minimum of $1 million per year to ACS for the next three years through this innovative partnership to support the fight against cancer.'"
Our October MFI XLS, with Sept. 30 data, shows total assets increased $155.2 billion to a record $6.777 trillion, after increasing $105.6 billion in August, $19.7 billion in July, $11.8 billion in June and $79.7 billion in May. They decreased $17.6 billion in April and $66.7 billion in March, but increased $50.0 billion in February, $87.0 billion in January, $24.5 billion in December and $219.8 billion in November. Assets decreased $39.3 billion last October and increased $77.8 billion last September.
Our broad Crane Money Fund Average 7-Day Yield was down 34 bps at 4.65%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was also down 35 bps at 4.75% in September. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 averaged 5.04% and 5.01%. Charged Expenses averaged 0.38% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses once we upload the SEC's Form N-MFP data for 9/30/24 on Tuesday, 10/8.) The average WAM (weighted average maturity) for the Crane MFA was 31 days (down 2 bp) and the Crane 100 WAM was down 3 bps from the previous month at 30 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money market mutual fund assets jumping another $38.7 billion to a record $6.463 trillion, following an increase of $120.8 billion the week prior -- the 6th largest weekly increase ever and the largest non-Covid or non-SVB related increase. Assets have risen in 19 of the last 24 weeks, increasing by $485.6 billion (or 8.1%) since April 24. MMF assets are up by $577 billion, or 12.2%, year-to-date in 2024 (through 10/2/24), with Institutional MMFs up $269 billion, or 8.8% and Retail MMFs up $307 billion, or 18.3%. Over the past 52 weeks, money funds have risen by $755 billion, or 13.2%, with Retail MMFs up by $438 billion (20.3%) and Inst MMFs rising by $317 billion (8.9%). (Note: Crane Data's separate and more comprehensive asset series shows money funds hitting a record $6.799 trillion on September 26!)
ICI's weekly release says, "Total money market fund assets increased by 38.67 billion to $6.46 trillion for the week ended Wednesday, October 2, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $42.47 billion and prime funds decreased by $5.78 billion. Tax-exempt money market funds increased by $1.99 billion. " ICI's stats show Institutional MMFs rising $14.2 billion and Retail MMFs rising $24.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.287 trillion (81.8% of all money funds), while Total Prime MMFs were $1.045 trillion (16.2%). Tax Exempt MMFs totaled $131.0 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $24.48 billion to $2.60 trillion. Among retail funds, government money market fund assets increased by $19.16 billion to $1.65 trillion, prime money market fund assets increased by $3.84 billion to $824.94 billion, and tax-exempt fund assets increased by $1.48 billion to $119.73 billion." Retail assets account for over a third of total assets, or 40.2%, and Government Retail assets make up 63.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $14.19 billion to $3.87 trillion. Among institutional funds, government money market fund assets increased by $23.30 billion to $3.63 trillion, prime money market fund assets decreased by $9.62 billion to $220.14 billion, and tax-exempt fund assets increased by $509 million to $11.26 billion." Institutional assets accounted for 59.8% of all MMF assets, with Government Institutional assets making up 94.0% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $29.8 billion in October (through 10/2) to $6.795 trillion. Assets rose by $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion last October. 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, BankRate posted an article titled, "What happens to idle cash in your portfolio? Sweep accounts, explained." They write, "You might not think about the idle cash in your brokerage account very often. But behind the scenes, your money may be earning your brokerage company a lot more interest than it is earning you.... For the brokerage company and its affiliated banks, your money is earning relatively high interest. Yet many major brokers are returning less than 0.2 percent of that interest to customers."
The piece explains, "A growing number of financial firms are coming under fire -- and facing lawsuits -- for their behind-the-scenes cash sweep accounts and the extremely low yields paid to customers, especially as the federal funds rate increased in recent years and banks presumably earned more interest. By understanding how cash sweeps work, you can make informed decisions about your investments and ensure you’re getting the best possible return on your money."
Bankrate asks, "What is a cash sweep account? Many brokerage firms offer a service known as a cash sweep, which automatically collects and deposits uninvested cash from your account into affiliated bank accounts, where the brokerage earns interest on it. In other words, many brokerages use your idle cash as a low-cost source of funding for their operations. Interest they earn from swept funds can be substantial, especially when compared to the rates you, the individual customer, receive."
They state, "For example, in March 2024, Charles Schwab reported about $399 billion in client sweep cash balances -- a huge sum of money to earn interest on. In fact, Charles Schwab generated nearly half of its $18.8 billion in revenue in 2023 from net interest income, according to Barron's."
Bankrate tells us, "Low-yielding cash sweeps have become more common in recent years, as several large brokers have transitioned clients from money market funds to lower-yielding bank sweeps. While some companies, such as Fidelity, still offer a money market sweep program, most full-service brokerage firms offer only a bank sweep program."
They add, "Several major wealth management firms -- including Morgan Stanley, Wells Fargo and Charles Schwab -- are facing lawsuits over their low-yield cash sweep accounts. These lawsuits accuse the brokerages of violating their duty to act in the best interest of their clients.... Lawsuits were filed against at least eight financial firms between late June and early September 2024, according to Bloomberg Law. While the outcome of these lawsuits is uncertain, the legal action is shining a bright light on the murky practices behind cash sweep accounts."
Bloomberg published an article titled, "Money-Market Funds Stay in Vogue Even as Reforms Go Into Effect," which recapped the latest changes to the Prime Institutional money fund space. They write, "Money-market funds are attracting record amounts of cash, even as a regulatory overhaul pins the industry with costly mandatory fees. The US Securities and Exchange Commission approved measures last year designed to make the $6.42 trillion industry more transparent and prevent investors from yanking money from such funds during market volatility or financial stress like in March 2020. The final piece of the reform requiring fund managers to impose mandatory liquidity fees went into effect on Wednesday."
The piece explains, "While such a charge threatened to scare off investments, high yields have continued to lure money -- leaving most of the largest institutional prime funds intact. There were, however, at least a dozen institutional prime funds that shut down or converted to government vehicles this year." (Note: The article includes a table with the changes, which looks suspiciously like our "bigsort2" file, though they don't list a source. Let us know if you'd like to see our table though!)
They quote Bank of America's Mark Cabana, "The most striking to me is how smooth it appears to have gone. The total size of prime institutional funds decreased but it's quite remarkable how little market impact it had, especially if you compare this to 2016. This is essentially a whimper, not even leaving as much of a mark."
Bloomberg also quotes John Donohue, head of global liquidity at JPMorgan Asset Management, "This time it's been much much more settled. We see clients in prime funds willing to stay through reform and changes."
They tell us, "Ahead of the new mandate, JPMorgan Asset Management on Aug. 1 adjusted the parameters of its institutional prime fund to a one-strike net asset value, that is, pricing shares once a day and earlier so they have more time to calculate any potential fees to meet the new rule. Other operational changes were instituted to track redemptions throughout the day, according to Donohue. JPMorgan's prime money-market fund is one of the largest in the industry growing to nearly $86 billion of assets under management as of Sept. 30, from just roughly $19 billion in October 2016."
The piece adds, "Money-market funds have seen nearly $1.87 trillion of inflows since the Fed started its aggressive interest-rate hiking cycle in March 2022, eventually pushing rates well over 5% and making cash an attractive asset class. Although the central bank has begun reducing rates ... investors continue piling into money-market funds given that they tend to be slower to pass the lower rates on to investors."
Mutual fund news source ignites also writes about shift in, "Prime Institutional Funds: 'Juice Isn't Worth the Squeeze'." They comment, "Asset managers of all sizes have dissolved their prime institutional funds ahead of Wednesday's implementation date of the Securities and Exchange Commission's new liquidity and fee requirements, compliance professionals said. Just a handful of firms have opted to continue to offer the funds, with most deciding that the compliance challenges, such as daily portfolio pricing and redemption fee calculations, are too burdensome."
They explain, "The December 2021 proposal was a response to the stress that money market funds faced at the start of the Covid-19 pandemic, when investors rapidly pulled more than $130 billion from those funds in the month of March 2020, Ignites previously reported. The proposal ultimately passed with a 3-2 vote by the SEC commissioners, with commissioner Hester Peirce asking if the agency was 'trying to kill' the product before that vote. The reforms going into effect on Wednesday include a requirement for funds to charge a liquidity fee when daily net redemptions exceed 5% of net assets [and when prices move noticeably]."
Amy Lynch of FrontLine Compliance tells ignites, "It's not a cost-effective product to really offer unless you have made a huge presence in the market and have a certain amount of market share. It's going to be one of those scenarios where the bigger players are going to benefit as the smaller players get out of the market."
They state, "American Funds, which at one point had the largest prime fund on the market, filed to convert its $144 billion central cash fund to a government money market fund in February 2024.... Vanguard also liquidated its prime funds, converting its last prime institutional fund into a money market fund this past March. Other firms, such as Allspring, BlackRock, Schwab and UBS, have also converted their prime institutional funds, according to Peter Crane, president of Crane Data."
The article says, "More than $355 billion in prime institutional funds assets had exited the market as of Aug. 31, according to Crane Data. At least 19 prime funds, which constituted 42.8% of all available products in the category, have been liquidated or converted in 2024, the data showed. Despite the exodus, total money fund assets are at an all-time high, and the products remain attractive to both investors and the providers willing to take on the compliance challenges."
They too quote JPMAM's John Donohue, "Prime money market funds are already floating NAV funds, unlike a government or a Treasury market fund, so the clients in these funds are already comfortable with floating NAV. They understand the product, and they are happy to look at a product that has a higher yield."
Fred Teufel, a director at Vigilant Compliance, says to ignites, "The juice just isn't worth the squeeze. The rules and requirements basically outweigh the benefits from using hourly pricing in the marketplace."
They also quote Dechert's Stephen Cohen, "Maintaining the products under the new rules is 'time consuming and costly' ... There's never been a system where you have to measure your net redemptions at the end of the day and then run in the background a calculation to determine liquidity costs for liquidating a pro rata share of your portfolio."
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Sept. 27) includes Holdings information from 61 money funds (up 1 from a week ago), or $3.361 trillion (up from $3.091 trillion) of the $6.791 trillion in total money fund assets (or 49.5%) 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 and our Sept. 12 News, "September Money Fund Portfolio Holdings: Treasuries Jump; Repo Slides.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.494 trillion (up from $1.342 trillion a week ago), or 44.4%; Repurchase Agreements (Repo) totaling $1.312 trillion (up from $1.169 trillion a week ago), or 39.0%, and Government Agency securities totaling $280.1 billion (up from $259.5 billion), or 8.3%. Commercial Paper (CP) totaled $104.9 billion (down from a week ago at $109.5 billion), or 3.1%. Certificates of Deposit (CDs) totaled $62.6 billion (down from $68.6 billion a week ago), or 1.9%. The Other category accounted for $76.4 billion or 2.3%, while VRDNs accounted for $31.7 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.494 trillion (44.4% of total holdings), Fixed Income Clearing Corp with $389.9B (11.6%), the Federal Home Loan Bank with $197.4 billion (5.9%), the Federal Reserve Bank of New York with $130.1B (3.9%), JP Morgan with $98.7B (2.9%), BNP Paribas with $81.9B (2.4%), Citi with $73.0B (2.2%), Federal Farm Credit Bank with $65.7B (2.0%), RBC with $55.0B (1.6%) and Goldman Sachs with $52.1B (1.6%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($259.2B), Goldman Sachs FS Govt ($242.0B), Fidelity Inv MM: Govt Port ($234.1B), JPMorgan 100% US Treas MMkt ($223.6B), BlackRock Lq FedFund ($169.0B), State Street Inst US Govt ($155.9B), Morgan Stanley Inst Liq Govt ($145.4B), Fidelity Inv MM: MM Port ($137.3B), BlackRock Lq Treas Tr ($131.1B) and Dreyfus Govt Cash Mgmt ($129.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
In other news, The Wall Street Journal writes "That 5% CD Is a Great Deal -- Until the Bank Calls It Back," which tells us, "The era of 5% cash returns is ending early for some investors. Before the Federal Reserve began cutting rates in September, banks offered certificates of deposit promising high yields for locking up cash years into the future. The highest-yielding ones, with returns in excess of 5%, had features allowing the bank to 'call' them before they mature, handing back the cash and accrued interest. Those features got little attention when rates were rising because banks weren't about to call their CDs and borrow money at even higher rates."
The piece explains, "Now, banks including JPMorgan Chase and U.S. Bank are calling back more high-yielding CDs before they mature to save on interest as rates begin to fall, according to people familiar with the matter. In the rush to lock in easy returns, many everyday investors likely purchased callable CDs without understanding what they were signing up for, according to Kathy Jones, chief fixed-income strategist at Charles Schwab."
It states, "Most CDs aren't callable, but the ones that are typically offer the highest rates. Advertised yields on callable CDs tend to be about 0.4% higher than noncallable CDs with the same duration, according to deposit research firm Curinos. They are generally sold through brokerages such as Fidelity and Charles Schwab, which offer them on behalf of banks. About 18% of CDs bought and sold through Fidelity this year were callable, according to the brokerage."
The Journal says, "Savers poured more than $650 billion into brokered CDs since rates started rising in 2022, hoping to lock in risk-free returns, which peaked above 5%. The amount of brokered deposits in the banking system more than doubled in the past two years, according to FDIC data. Many regional banks loaded up on high-cost brokered deposits to ride out the banking crisis of 2023. Unlike traditional CDs sold directly by retail banks to customers, brokered deposits are usually managed by bookkeeping teams at the bank that are more focused on keeping costs low than fostering long-term relationships."
It adds, "What happens to your money after a CD gets called depends on your brokerage and its default settings. One option is to set up your account so that deposits go into a money-market account, which can still offer a competitive return on uninvested cash. With interest rates falling, it pays to quickly decide where to reinvest your funds. Look for other investments, such as noncallable CDs, Treasurys or high-yield savings accounts. You'll likely need to reinvest at a lower rate unless you're willing to explore riskier investments like corporate bonds or municipal bonds. As Jones said: '5% money with no risk is gone.'"
Finally, the Federal Reserve Bank of New York published a Liberty Street Economics blog titled, "Are Nonbank Financial Institutions Systemic?" It states, "Recent events have heightened awareness of systemic risk stemming from nonbank financial sectors. For example, during the COVID-19 pandemic, liquidity demand from nonbank financial entities caused a 'dash for cash' in financial markets that required government support. In this post, we provide a quantitative assessment of systemic risk in the nonbank sectors."
The post explains, "Even though these sectors have heterogeneous business models, ranging from insurance to trading and asset management, we find that their systemic risk has common variation, and this commonality has increased over time. Moreover, nonbank sectors tend to become more systemic when banking sector systemic risk increases."
It adds, "The systemic risk of diverse nonbank sectors has common variation that increases when banking sector systemic risk increases, consistent with recent crisis episodes where both bank and nonbank sectors have become stressed. In future work, we plan to explore the robustness of these findings to other measures of systemic risk."
Money fund yields moved lower following the Federal Reserve's Sept. 18 50 basis point rate cut, while money market mutual fund assets jumped to all-time records last week (though they eased off Friday). Money fund yields slid 18 basis points to 4.75% on average in the week ended Sept. 27 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds), after falling 12 bps the week prior. Yields were 5.10% on 8/31, 5.13% on 7/31 and 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. Yields should continue to inch lower as they digest the final remnants of the Fed cut, then they should stabilize until the next cut.
The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 655), shows a 7-day yield of 4.66%, down 18 bps in the week through Friday. (Three weeks prior was the first time our Crane MFA fell below 5.0% since July 2023.) Prime Inst money fund yields were down 20 bps at 4.83% in the latest week. Government Inst MFs were down 20 bps at 4.75%. Treasury Inst MFs were down 14 bps at 4.74%. Treasury Retail MFs currently yield 4.51%, Government Retail MFs yield 4.46%, and Prime Retail MFs yield 4.62%, Tax-exempt MF 7-day yields were down 30 bps to 2.96%.
Assets of money market funds rose by $73.9 billion last week to $6.791 trillion according to Crane Data's Money Fund Intelligence Daily. Assets reached its record high Thursday Sept. 26 at $6.799 trillion. For the month of September, MMF assets increased by $175.8 billion, after increasing by $109.7 billion in August. Weighted average maturities were unchanged at 32 days for the Crane MFA and down 1 day at 31 days for the Crane 100 Money Fund Index.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (9/27), 55 money funds (out of 774 total) yield under 3.0% with $23.9 billion in assets, or 0.4%; 84 funds yield between 3.00% and 3.99% ($119.7 billion, or 1.8%), 614 funds yield between 4.0% and 4.99% ($6.126 trillion, or 90.2%) and just 21 funds now yield 5.0% or more ($521.1 billion, or 7.7%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was down (3 bps) at 0.54%. The latest Brokerage Sweep Intelligence, with data as of Sept. 27, shows that there was two changes over the past week. Merrill Lynch lowered rates to 0.05% for accounts between $1 million and $9.9 million, and lowered rates to 0.15% for accounts of $10 million and greater. Merrill Lynch also lowered rates to 4.82% for all advisory accounts. RW Baird lowered rates to 1.66% for all accounts up to $999K and lowered rates to 2.62% for accounts between $1 million and $1.9 million, they also lowered rates to 3.40% for accounts of $5 million and greater. Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley. (Note: This past week we added advisory rates to Brokerage Sweep Intelligence for Merrill Lynch and Morgan Stanley.)
Federated Hermes Deborah Cunningham's latest monthly commentary is titled, "Sky high." She explains, "The Chicken Little predictions that the Federal Reserve easing cycle would lead to an exodus of assets from liquidity products have been proven wrong. Money market funds across the industry alone have experienced inflows of around $150 billion since the Fed cut rates by 50 basis points in mid-September to a range of 4.75-5%."
Cunningham continues, "It's another case of the disconnect between some media pundits and investors. The former want their opinions heard, and bad news gets more attention. The latter simply want the highest possible return across their portfolio, whether they invest in liquidity products to offset riskier holdings or for future deployment to other investment opportunities."
She says, "Historically, in a falling-rate environment, yields of cash management products lag the direct security market. Why? Because some of their holdings have locked in higher rates, and most of those won't mature until later, at some point in the next 12 months -- referred to as a laddered strategy. In contrast, some securities in the direct market -- especially overnight securities and those with floating rates -- trace Fed moves immediately, as does the Reverse Repurchase Facility, which now sits at 4.80%. History is only a guide, of course, but we think this will be the case as the easing continues."
Cunningham tells us, "Some cynics channeling Henny Penny -- the original name of that apocalyptic-minded chicken in the European folk tale -- characterize the magnitude of the half-point reduction as a mortal blow. We think that actually helps cash-like vehicles because the decline in their yields traditionally has been proportional to the cut. Had the Fed trimmed the target range by a quarter-point, liquidity yields likely would have a spread of around 12 basis points initially. As it stands, that difference is closer to 25 basis points due to the oversized cut, and gets more attractive out the inverted yield curve. No wonder the inflows."
Finally, she adds, "The implementation of the SEC's money fund rules is finally upon us. On Oct. 2, we get the last phase, which imposes mandatory liquidity fees on institutional prime and institutional municipal money market funds. A fee would only be charged only if net redemptions exceed 5% of a fund's net assets and the cost of liquidity (including, transaction costs and market impact costs) exceeds 0.01% of the value of the total shares redeemed on that day. Despite our lasting opinion that the 'reforms' were not necessary, it is good to finally close the chapter. The liquidity industry has risen to the occasion despite the operational challenges, and we believe the inflows this year show that the efficacy of these products remains intact."
