News Archives: February, 2024

The Investment Company Institute published its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for January 2024 on Wednesday. ICI's monthly Trends shows money fund totals jumping $82.4 billion in January to a record $6.002 trillion (after a jump in December and November, a decrease in October and increases in September, August, July, June, May and April). Prior to this, the March 2023 jump (a $371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Bond fund assets surged $34.5 billion to $4.779 trillion and bond ETF assets broke the $1.5 trillion level for the first time ever. (Note: Register and make hotel reservations soon for our Bond Fund Symposium, which is March 25-26 in Philadelphia. We hope to see you in Philly next month!)

MMFs have increased by $1.194 trillion, or 24.8%, over the past 12 months (according to ICI's Trends through 1/31). Money funds' January asset increase follows an increase of $34.9 billion in December, $213.9 billion in November, a decrease of $13.6 billion in October and gains of $74.1 billion in September, $123.9 billion in August $31.4 billion in July, $30.6 billion in June, $172.7 billion in May, $8.4 billion in April, $371.0 billion in March, $60.0 billion in February and $31.5 billion in January. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.516 trillion as of 1/31, according to ICI.)

ICI's monthly release states, "The combined assets of the nation's mutual funds increased $140.83 billion, or 0.6 percent, to $25.66 trillion in January, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $32.34 billion in January, compared with an outflow of $8.38 billion in December.... Money market funds had an inflow of $61.61 billion in January, compared with an inflow of $23.40 billion in December. In January funds offered primarily to institutions had an inflow of $30.81 billion and funds offered primarily to individuals had an inflow of $30.79 billion."

The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower last month. Taxable MMFs increased by $87.0 billion in January to $5.883 trillion. Tax-Exempt MMFs decreased $4.5 billion to $119.1 billion. Taxable MMF assets increased year-over-year by $1.188 trillion (25.3%), and Tax-Exempt funds rose by $6.6 billion over the past year (5.9%). Bond fund assets increased by $34.5 billion (after increasing $135.5 billion in December) to $4.779 trillion; they've increased by $140.7 billion (3.0%) over the past year.

Money funds represent 23.4% of all mutual fund assets (up 0.2% from the previous month), while bond funds account for 18.6%, according to ICI. The total number of money market funds was 274, down 1 from the prior month and down from 281 a year ago. Taxable money funds numbered 229 funds, and tax-exempt money funds numbered 45 funds.

ICI's "Month-End Portfolio Holdings" confirms a jump in Treasuries and CDs last month. Repurchase Agreements remained the largest composition segment in January having decreased $147.2 billion, or -5.9%, to $2.369 trillion, or 40.3% of holdings. Repo holdings have decreased $284.0 billion, or -10.7%, over the past year. (See our Feb. 12 News, "February MF Portfolio Holdings Show Plunge in Repo, Jump in Treasury.")

Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $85.0 billion, or 4.0%, to $2.224 trillion, or 37.8% of holdings. Treasury securities have increased by $1.232 billion, or 124.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $50.5 billion, or 7.7%, to $703.7 billion, or 12.0% of holdings. Agency holdings have increased by $143.7 billion, or 25.7%, over the past 12 months.

Certificates of Deposit (CDs) remained in fourth place; they increased by $77.3 billion, or 29.0%, to $343.7 billion (5.8% of assets). CDs held by money funds rose by $99.7 billion, or 40.9%, over 12 months. Commercial Paper remained in fifth place, up $19.6 billion, or 8.5%, to $250.3 billion (4.3% of assets). CP increased $48.3 billion, or 23.9%, over one year. Other holdings increased to $22.9 billion (0.4% of assets), while Notes (including Corporate and Bank) increased to $6.8 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 65.226 million, while the Number of Funds was unchanged at 229. Over the past 12 months, the number of accounts rose by 6.218 million and the number of funds decreased by 3. The Average Maturity of Portfolios was 37 days, unchanged from December. Over the past 12 months, WAMs of Taxable money have increased by 23.

In other news, The Wall Street Journal writes that, "Treasury Markets Are Losing Their Shock Absorber." They explain, "Participation is dwindling in a Federal Reserve program that has helped the U.S. government limit its borrowing costs, a development that many investors say presages higher interest rates and larger swings in the $26 trillion Treasury market. The overnight reverse repurchase facility, known on Wall Street as reverse repo, enables large financial firms such as money-market funds to briefly swap extra cash for high-quality securities on the central bank's balance sheet and pocket some interest. The Fed program has been used heavily in recent years, at one point hitting $2.5 trillion of daily balances, but that number has shrunk steadily and recently fell below $500 billion."

They explain, "Though obscure, reverse repo has long been at the center of the operation of the financial system and the U.S. economy. A committee that advises the Treasury suggested last fall that the heap of money-market fund cash sitting at the Fed could finance a flood of short-term bill issuance -- an unusual shift that in recent months has enabled the government to keep long-term interest rates relatively low despite the quickening drumbeat of U.S. debt issuance."

The Journal piece oddly adds, "While the central bank has been trying to tighten banking conditions to help cool the economy and therefore inflation, money-market funds have pulled cash out of reverse repo and back into the economy, counteracting that tightening. Officials are eager to avoid reserves becoming substantially scarcer, which would increase the risk of snafus in the multitrillion-dollar cash markets that can cascade into the broader financial system. Lehman Brothers' collapse in 2008, the Fed's attempt at quantitative tightening in 2019 and the onset of Covid-19 are all top of mind. The Fed is expected to slow the pace of quantitative tightening this year so it can watch for potential strains. [But] not everyone thinks a smaller reverse repo cash pile is much of an issue."

A press release titled, "FSB review finds uneven implementation of money market fund reforms, tells us, "The Financial Stability Board (FSB) ... published its "Thematic Review on Money Market Fund (MMF) Reforms." The review takes stock of the measures adopted or planned by FSB member jurisdictions in response to the 2021 FSB report, Policy Proposals to Enhance MMF Resilience. The review does not assess the effectiveness of those policy measures in addressing risks to financial stability, as this will be the focus of separate follow-up work by the FSB in 2026." The Financial Stability Board is "an international body that monitors and makes recommendations about the global financial system" comprised primarily of bank regulators. (Note: Register and make hotel reservations soon for our Bond Fund Symposium, which is March 25-26 in Philadelphia. We hope to see you in Philly!)

Their release claims, "The main MMF vulnerability identified by jurisdictions is the mismatch between the liquidity of fund asset holdings and the redemption terms offered to investors, which makes MMFs susceptible to runs from sudden and disruptive redemptions. To address vulnerabilities, the 2021 FSB report provided a menu of policy options including: imposing on redeeming investors the cost of their redemptions; enhancing the ability to absorb credit losses; addressing regulatory thresholds that may give rise to cliff effects; and reducing liquidity transformation."

It explains, "The review finds that progress in implementing the 2021 FSB policy proposals has been uneven across FSB member jurisdictions. Authorities in all jurisdictions reported that they had implemented policies aimed at addressing MMF vulnerabilities prior to the 2021 FSB Report. Since then, some jurisdictions have introduced new policy tools or recalibrated existing ones (China, India, Indonesia, Japan, Korea, Switzerland, US), while others are still in the process of developing or finalising their reforms (EU, South Africa, UK). The review concludes that, given the vulnerabilities reported in individual jurisdictions, further progress on implementing the FSB policy toolkit would be needed to enhance MMF resilience and limit the need for extraordinary central bank interventions during times of stress."

The FSB says, "The review calls on FSB member jurisdictions that have not yet done so to review their policy frameworks and adopt tools to address identified MMF vulnerabilities, taking into consideration the 2021 FSB policy proposals. Where relevant tools, such as minimum liquidity requirements, are already available, the review recommends that FSB jurisdictions consider whether these need to be re-calibrated to ensure their effective use and to maintain a sufficient level of MMF resilience. It also recommends that IOSCO consider the findings of this review when it revisits its 2012 Policy Recommendations for MMFs in light of the 2021 FSB Report. The FSB will take these findings into account in its monitoring of the vulnerabilities and policy tools for MMFs."

Ryozo Himino, Chair of the FSB's Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review comments, "This report summarises the progress made to date by FSB member jurisdictions in implementing the 2021 FSB policy proposals to address MMF vulnerabilities, identifies remaining areas for further work, and lays the ground for the assessment of the reforms' effectiveness that the FSB plans to conduct in 2026."

The full "Thematic Review on Money Market Fund Reforms" report says in its Executive Summary, "Addressing vulnerabilities in money market funds (MMFs) is a key element of the FSB's work programme to enhance the resilience of the non-bank financial intermediation (NBFI) sector. Drawing primarily from responses to a questionnaire, this peer review takes stock of the measures adopted or planned by FSB member jurisdictions in response to the 2021 FSB report on Policy Proposals to Enhance Money Markey Fund Resilience (2021 FSB Report), including those jurisdictions' evidence-based explanations of relevant MMF vulnerabilities and policy choices made. The review does not assess the effectiveness of those policy measures, as this will be the focus of separate follow-up work by the FSB in 2026."

Among its "Main Findings," they state, "MMFs are important providers of short-term financing for financial institutions, corporations, and governments. MMFs are also used by retail and institutional investors to invest excess cash and manage their liquidity. Global MMF assets reached US$9 trillion at end-2022, following growth of 8.6% in 2021 and 1.3% in 2022, and are heavily concentrated in the United States (US), the European Union (EU, particularly in Ireland, France and Luxembourg) and China. Between 2020 and 2022, overall MMF assets increased in the US and China but decreased slightly in the EU."

The FSB paper explains, "MMFs differ across FSB jurisdictions in terms of definition, structure, eligible assets, investors, currency denomination (local or foreign), liquidity and maturity limitations. MMFs with 'stable' net asset value (NAV) account for 82% of global MMF assets but are currently offered in less than half of FSB member jurisdictions. In some jurisdictions, the types of assets in which the MMF may invest depend on the structure and type of NAV of the MMF. MMFs are often denominated only in local currency, with important exceptions in the EU, Hong Kong, Mexico and Switzerland."

Discussing "Assessing MMF vulnerabilities," the FSB says, "Authorities from China, EU, France, India, Indonesia, Japan, Korea, Mexico, Saudi Arabia, South Africa, UK and US identified some vulnerabilities associated with MMFs in their jurisdictions. The main identified vulnerability is the mismatch between the liquidity of MMF asset holdings and the redemption terms offered to investors, which makes MMFs susceptible to runs from sudden and disruptive redemptions. This is particularly the case for the non-public or non-government bond MMFs that invest in riskier assets, such as corporate debt. This vulnerability can be amplified by the presence of a high share of institutional investors and a stable or low-volatility NAV, and by other rules that may give rise to threshold effects that provide incentives for investors to pre-emptively redeem their MMF holdings in times of stress. Authorities that did not identify this vulnerability cited the high quality and liquidity of the assets held by MMFs in their jurisdiction."

It continues, "While MMFs in most jurisdictions exhibit a strong home bias in both their asset portfolios and investor bases, there are some cases of significant cross-border funding and investing flows -- particularly in Europe -- that can transmit vulnerabilities across borders and markets. These vulnerabilities are often difficult to assess given data gaps on MMF investors and on the issuers of the instruments in which the MMFs invest. The existence of these cross-border flows, as well as differences in availability or calibration of policy tools, creates the potential for regulatory arbitrage and cross-border spillovers, raising the need in such cases for international cooperation in closing data gaps and implementing policy reforms to ensure resilience."

The report also says, "A subset of the respondents that identified some vulnerabilities associated with MMFs (China, EU, France, Japan, Korea, Mexico, South Africa, UK and US) reported that such vulnerabilities could raise financial stability concerns under certain conditions. Some other authorities (India, Indonesia and Saudi Arabia) reported that identified vulnerabilities could not raise such concerns, citing the size of the MMF sector, the liquidity of MMF assets and regulation."

The section, "Addressing MMF vulnerabilities," comments, "Several jurisdictions report policy tools aiming to address MMF vulnerabilities linked to the impact of large redemptions and first-mover advantage, including many that were already in place before 2021. Anti-dilution liquidity management tools (LMTs) -- such as swing pricing, anti-dilution fees and liquidity fees -- that allow fund managers to pass on the cost of redemptions to redeeming investors were reported as available in 21 jurisdictions, though no information was collected in the course of the peer review on their actual design and use. With the exception of India, where authorities can impose the use of swing pricing for specified periods in the event of market dislocation, no jurisdiction had mandated the use of these tools for MMFs; rather, their use was generally at the full discretion of the fund manager. Only the US has introduced new LMTs since 2021, while reforms in the EU (which are applicable to all open-ended funds, rather than specifically for MMFs) and UK are still in progress."

Federated Hermes filed its latest "10-K Annual Report" with the SEC last Friday, and the 105-page document contains a wealth of information on money market mutual funds, including lengthy discussions on "Regulatory Matters". The report tells us, "Federated Hermes ... is a global leader in active, responsible investing with $757.6 billion in assets under management (AUM or managed assets) at December 31, 2023. Federated Hermes has been in the investment management business since 1955 and is one of the largest investment managers in the United States.... Federated Hermes provides investment advisory services to 180 Federated Hermes Funds as of December 31, 2023.... Of the 180 Federated Hermes Funds, Federated Hermes' investment advisory subsidiaries managed 24 money market funds with $406.2 billion in AUM, 41 equity funds with $42.5 billion in AUM, 56 fixed-income funds with $43.9 billion in AUM, 54 alternative/private markets funds with $12.4 billion in AUM and five multi-asset funds with $2.7 billion in AUM. As of December 31, 2023, Federated Hermes provided investment strategies to $249.9 billion in Separate Account assets. These Separate Accounts represent assets of government entities, high-net-worth individuals, pension and other employee benefit plans, corporations, trusts, foundations, endowments, sub-advised funds and other accounts or products owned or sponsored by third parties." (Note: Register and make hotel reservations soon for Bond Fund Symposium, Crane Data's ultra-short bond fund conference, which will take place March 25-26 in Philadelphia. We hope to see you next month in Philly!)

It explains, "Federated Hermes, which began selling money market fund products to institutions in 1974, is one of the largest U.S. managers of money market assets, with $560.0 billion in AUM at December 31, 2023. Federated Hermes has developed expertise in managing cash for institutions, which typically have strict requirements for regulatory compliance, relative safety, liquidity and competitive yields. Federated Hermes also manages retail money market products that are typically distributed through broker/dealers and other financial intermediary customers. At December 31, 2023, Federated Hermes managed money market assets across a wide range of categories: government ($352.1 billion); prime ($195.2 billion); and municipal (or tax-exempt) ($12.7 billion)."

Discussing "Distribution Channels and Product Markets," the 10-K says, "Federated Hermes' distribution strategy is to provide investment management products and strategies to more than 10,000 institutions, financial intermediaries and other customers, including, among others, banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments. Federated Hermes uses its trained sales force of more than 200 representatives and managers, backed by an experienced support staff, to offer its products and strategies, add new customer relationships and strengthen and expand existing relationships. Federated Hermes' investment products and strategies are offered and distributed in three markets. These markets, and the relative percentage of managed assets at December 31, 2023 attributable to such markets, are as follows: U.S. financial intermediary (63%); U.S. institutional (28%); and international (9%)."

They write on "U.S. Financial Intermediaries," "Federated Hermes offers and distributes its products and strategies in this market through a large, diversified group of over 6,300 national, regional and independent financial intermediary customers, including broker/dealers, banks and registered investment advisors. Financial intermediaries use Federated Hermes' products and strategies to meet the needs of their customers, who are often retail investors. Federated Hermes offers a full range of products and strategies to these customers, including Federated Hermes Funds and Separate Accounts (including private funds). As of December 31, 2023, managed assets in the U.S. financial intermediary market included $381.1 billion in money market assets, $51.6 billion in equity assets, $41.5 billion in fixed-income assets, $2.5 billion in multi-asset and $0.5 billion in alternative/private markets assets."

Under "U.S. Institutional," they tell us, "Federated Hermes offers and distributes its products and strategies to a wide variety of domestic institutional customers including, among others, government entities, not-for-profit entities, corporations, corporate and public pension funds, foundations, endowments and non-Federated Hermes investment companies or other funds. As of December 31, 2023, managed assets in the U.S. institutional market included $159.0 billion in money market assets, $48.5 billion in fixed-income assets, $3.2 billion in equity assets, $0.6 billion in alternative/private markets assets and $0.4 billion in multi-asset."

Under "International," they say, "Federated Hermes manages assets from non-U.S. institutional and financial intermediary customers through subsidiaries focused on gathering assets in Europe, the Middle East, Canada, Latin America and the Asia Pacific region. As of December 31, 2023, managed assets in the international market included $24.5 billion in equity assets, $19.9 billion in money market assets, $19.4 billion in alternative/private markets assets and $4.9 billion in fixed-income assets."

Discussing "Regulatory Matters," the 10-K says, under "Money Market Reform," "In July 2023, the SEC adopted additional rule and form amendments imposing certain reforms on money market funds. The final rule amendments purport to improve the resiliency and transparency of money market funds by: (1) de-linking and removing the regulatory tie between the imposition of redemption gates and liquidity fees and the 30% threshold for a money market fund's weekly liquid assets; (2) removing provisions from Rule 2a-7 under the 1940 Act that permit a money market fund to temporarily suspend redemptions; (3) increasing minimum portfolio liquidity requirements from 10% to 25% for daily liquid assets and from 30% to 50% for weekly liquid assets to provide a more substantial buffer in the event of rapid redemptions from money market funds; (4) requiring institutional prime and institutional tax-exempt money market funds to impose mandatory liquidity fees when such a fund experiences daily net redemptions that exceed 5% of its net assets, unless the fund's liquidity costs are de minimis; (5) requiring non-government money market funds to impose a discretionary liquidity fee if the fund's board (or its delegate) determines that a fee is in the best interest of the fund; (6) allowing retail and government money market funds to handle a negative interest rate environment either by converting from a stable NAV or share price to a floating NAV or share price or by using a reverse distribution mechanism or share cancellation to reduce the number of shares outstanding to maintain a stable NAV per share, subject to certain board determinations and disclosures to shareholders; and (7) enhancing certain reporting requirements that are intended to improve the SEC's ability to monitor and assess money market fund data."

It adds, "The amendments adopted in the final rule became effective on October 2, 2023. The compliance date for the discretionary liquidity fee, increased minimum liquidity requirements, changes to the stress testing requirements and amendments specifying the method for calculating weighted average maturity and weighted average life, is April 2, 2024. The reporting amendments will become effective June 11, 2024. Money market funds have until October 2, 2024, to comply with the mandatory liquidity fee requirement."

The filing continues, "Federated Hermes believes money market funds provide, and will continue to provide, a more attractive investment opportunity compared to other competing products, such as insured and uninsured deposit account alternatives. Federated Hermes also believes that money market funds are investment products that have proven their resiliency. Federated Hermes believes, however, that the mandatory liquidity fee required by the rule amendments could precipitate runs on money market funds during periods of high redemptions and have an effect similar to the effect swing pricing would likely have had on money market funds. The SEC's action of adopting a mandatory liquidity fee requirement, without specifically proposing it in its money market fund reform proposing release and seeking public comment on it, may be challenged in court due to its unworkability and lack of supporting data. As of February 23, 2024, Federated Hermes anticipates minimal impact to retail and government money market funds, while institutional prime money market funds and institutional municipal (or tax exempt) money market funds will be subject to some new or adjusted requirements. Federated Hermes continues to review and assess the rule amendments, plan for changes to its money market fund business required by the rule amendments and assess the impact of compliance with the rule amendments by the requisite compliance date (including increased costs of compliance) on Federated Hermes' business, prospects, reputation, results of operations, financial condition, cash flows and/or stock price (collectively, as applicable, Financial Condition)."

The report says, "Also, while Federated Hermes agrees with certain of the money market fund rule amendments adopted by the SEC (such as de-linking the imposition of redemption gates and liquidity fees and the weekly liquid asset threshold) Federated Hermes also supports efforts to permit the use of amortized cost valuation by money market funds, and to override the floating NAV and certain other requirements imposed under prior money market fund rule amendments and related guidance that became effective in 2016 for institutional and municipal (or tax-exempt) money market funds. In a continuing effort to implement these desired changes, proposed legislation has been re-introduced in the U.S. House of Representatives, and work continues to re-introduce proposed legislation in the U.S. Senate."

Under the section "Current Regulatory Environment – International," Federated states, "The regulation of money market funds in the EU and UK is another example of potential divergence between the EU and UK post-Brexit. EU and UK money market fund regulation is considered 'equivalent' until December 31, 2025. Accordingly, UK-domiciled money market funds currently remain on par with current EU regulatory requirements. As a result, EU-based funds can still use passports to sell to UK investors. However, following various consultations, reports, and speeches by representatives of the IOSCO and the FSB in 2020, 2021, 2022, and 2023 similar to the SEC in the U.S., ESMA, the BoE, the European Systemic Risk Board, the European Banking Authority, and the International Monetary Fund (IMF), among other regulators, have been re-examining existing money market fund regulation, soliciting public comment on proposed money market fund reforms, and issuing reports and recommendations."

They continue, "In September 2023, ESMA published Working Paper No. 2, 2023 titled, 'Bang for (breaking) the buck: Regulatory constraints and money market funds reforms' wherein the authors: (1) set out a framework to assess money market fund resilience; (2) demonstrate that the maximum redemptions a money market fund can face depends on regulatory constraints and asset liquidity; and (3) utilize the framework to assess the impact of regulatory reforms, such as an increase in liquidity requirements, changes to the allowed price deviation for money market funds using amortized cost or requirements to invest in more liquid assets, to, among other things, conclude that removing the use of amortized cost has the largest positive effect in terms of resilience, while higher liquidity requirements have more limited effects. In a September 2023 progress report, 'Enhancing the Resilience of Non-Bank Financial Intermediation' (FSB Progress Report), the FSB reviewed its 2021 money market reform recommendations, discussed perceived vulnerabilities of money market funds, and recognized that individual jurisdictions need flexibility to tailor measures to their specific circumstances. In its FSB Progress Report, the FSB also indicated that: (1) through its 'Thematic Peer Review of Money Market Fund Reforms' announced on August 14, 2023, it will take stock of the money market fund policy measures adopted by FSB member jurisdictions by the end of 2023; (2) it will be working with IOSCO to assess the functioning and resilience of commercial paper and negotiable certificates of deposits markets by the end of 2023; and (3) it will be working with IOSCO to complete an assessment of the effectiveness of money market fund reforms in addressing risks to financial stability by the end of 2026."

The report says, "In December 2023, the FCA published a consultation paper in which it sets out proposals to enhance the resilience of Money Market Funds domiciled in the UK, and addressing vulnerabilities identified in March 2020 and other times of market stress. The proposals are intended to mitigate risks to wider financial stability and reduce the need for central bank support in the future, while maintaining cash management services that meet the needs of investors. HMT expects to lay a Statutory Instrument (SI) before UK Parliament which will replace the UK Money Market Fund Regulation with provisions in new legislation which will purportedly set an overall framework for money market fund regulation more suited to the needs of the UK market. HMT published the draft SI and policy note at the same time as the FCA's consultation paper."

They explain, "The proposals in the FCA's consultation paper prioritize strengthening the existing regulatory regime for money market funds while maintaining the broad current money market fund operating model. The proposals increase money market fund resilience principally by seeking to ensure money market funds have usable liquidity sufficient to endure severe but plausible redemption stresses. The proposals include: (1) increasing the minimum liquid asset requirement for all money market funds, raising daily liquid assets and weekly liquid assets (WLA) levels to 15% and 50% of their assets respectively; (2) modifying the assets eligible for WLA for Variable NAV (VNAV) money market funds; (3) removing the regulatory link between liquidity levels in money market funds that have the ability to offer subscriptions and redemptions at a constant NAV (so-called 'stable NAV money market funds') and the need for the manager to consider or impose tools such as liquidity fees or redemption gates; (4) enhancing 'know your customer' requirements; (5) enhancing stress testing for stable NAV money market funds; and (6) enhancing operational resilience for stable NAV money market funds. Measures not proposed include: (1) changing or removing stable NAV operation for the current stable NAV money market funds, so these money market funds would be no longer permitted to deal at a constant NAV; and (2) making changes to how money market funds currently operate in order to impose on redeeming investors the true cost of their redemptions in the absence of money market funds selling assets and crystallizing losses (however, the FCA is consulting on a requirement for all money market funds to have at least one Liquidity Management Tool available for use when the fund is still trading if needed, and for all managers to have the ability to suspend their money market funds, with such tools to be deployed at the manager's discretion."

Finally, Federated adds, "In December 2023, ESMA also published a 'Final Report: Guidelines on stress test scenarios under the MMF Regulation' that included: (1) updated guidelines on the methodology to implement scenarios related to hypothetical changes in the level of liquidity of the assets held in the portfolio of a money market fund; and (2) updated guidelines on specifications on the type of stress tests and their calibration for reporting purposes. As noted above, Federated Hermes believes money market funds provide, and will continue to provide, a more attractive investment opportunity compared to other competing products, such as insured and uninsured deposit account alternatives. Federated Hermes also believes that money market funds are investment products that have proven their resiliency."

A second U.S. money market mutual fund attempting to use blockchain technology launched recently, while the first European money fund to be "tokenized" has also gone live. The $5 million WisdomTree Government Money Market Digital Fund (WTGXX) joins the $333 million Franklin OnChain US Govt Money Fund, which launched in 2019, in what appears to be another experiment attempting to take advantage of the buzz surrounding digital assets and currencies. WisdomTree says on its website, "Why WTGXX? Provide investors a high level of current income consistent with the preservation of capital and liquidity and the maintenance of a stable net asset value through investments in short-term government securities. It has a 0.25% expense ratio and only a $1 minimum to invest. Shares will be secondarily recorded using on-chain recordkeeping on the Stellar or Ethereum blockchain. The Fund will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies. The Fund uses blockchain technology to maintain a secondary record of its shares. The Fund will be available exclusively through the WisdomTree Prime financial app."

The website explains, "Digital funds, which we also refer to as blockchain-enabled funds, offer a way for investors to track traditional investment assets where the investor's ownership of digital fund shares is maintained on blockchain as a secondary record, which is truly a novel characteristic for registered investment funds. Digital funds provide access to a broad range of exposures, from equities to fixed income, and while they have a blockchain component, they do not invest in cryptocurrencies." (See our Crane Data News stories: "Franklin Files for Blockchain Enabled U.S. Govt Money Market Fund" (9/4/19), "Franklin Blockchain MF Picks Curv" (11/22/19) and "Concerns Over Stablecoin Reserves, Tether; Money Funds on Blockchain" (6/2/22).)

The WisdomTree Digital Trust Prospectus explains, "As described further below, through its transfer agent, the Fund uses blockchain technology to maintain a secondary record of its shares. The following 'Use of Blockchain' section describes what blockchain technology is and how the Fund uses it for the recording of its shares. Although WisdomTree Transfers, Inc., the Fund's transfer agent, will maintain the official record of share ownership in book-entry form, the ownership of the Fund's shares will also be recorded -- or digitized -- on the Stellar or Ethereum blockchains. The Transfer Agent will reconcile secondary blockchain transactions with the Fund's records on at least a daily basis."

It tells us, "A blockchain is an open, distributed ledger that digitally records transactions in a verifiable and immutable (i.e., permanent) way using cryptography. A distributed ledger is a database in which data is stored in a decentralized manner. Cryptography is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. A blockchain stores transaction data in 'blocks' that are linked together to form a 'chain', and hence the name blockchain."

The filing continues, "In order to facilitate the use of blockchain technology, a potential shareholder must have a blockchain wallet. WisdomTree Digital Movement, Inc. provides a hosted Stellar-based wallet through a mobile application, WisdomTree Prime.... A blockchain wallet is a software application which stores a user's 'private key' and related digital assets and is used to facilitate sending digital assets on a particular blockchain."

It tells us, "In order to maintain the Secondary Record, WisdomTree Transfers registers blockchain wallet addresses and associates them with relevant personal identifying information at the control location resulting in a registry of addresses that can participate in transactions. The personal identifying information necessary to associate a given share with the record owner of that share will be maintained by the Transfer Agent in a separate database that is not available to the public. In this manner, WisdomTree Transfers prevents transactions between unknown persons or unknown blockchain wallets."

Finally, the filing warns about "Blockchain Technology Risk," writing, "Blockchain technology is a relatively new and untested technology which operates as a distributed ledger. The risks associated with blockchain technology may not emerge until the technology is widely used. Blockchain systems could be vulnerable to fraud, particularly if a significant minority of participants colluded to defraud the rest.... Any future regulatory developments could affect the viability and expansion of the use of blockchain technology. There are currently a number of competing blockchain platforms with competing intellectual property claims.... Lastly, technological developments may lead to technical or other flaws (including undiscovered flaws) in the underlying blockchain technology, including in the process by which transactions are recorded to a blockchain, or by which the validity of a copy of such blockchain can be proven, or the development of new or existing hardware or software tools or mechanisms that could negatively impact the functionality of the blockchain systems, all of which could negatively impact transactions in Fund shares."

The Prospectus adds, "WisdomTree Digital Management, Inc. serves as investment adviser to the Fund. Voya Investment Management Co. LLC serves as sub-adviser to the Fund.... Mr. David S. Yealy has served as portfolio manager of the Fund since its inception in October 2023."

In related news, a press release entitled, "tradias GmbH Tokenizes First Money Market Fund" tells us, "tradias GmbH, one of the leading European trading houses for cryptocurrencies and digital assets, has tokenized a money market fund that is now tradable 24/7. The money market fund in question is the Allianz Securicash SRI Fund (EUR). As the inaugural client, a Dutch trading platform is utilizing this token for its treasury management."

The release continues, "In a dynamic market environment, treasury units face the challenge of efficiently and swiftly managing their liquidity. The use of tokenized money market funds offers a product that enables dynamic liquidity control 24 hours a day, seven days a week.... The benefits of tokenizing money market funds lie in continuous tradability, an efficient cost structure, and tailored solutions for all liquidity requirements, all while maintaining full transparency. This allows access to innovative products that meet the ever-changing demands of the modern financial market. Through this product, platforms can now offer their customers a liquid interest-bearing investment, providing flexibility to respond to market events."

Michael Reinhard, CEO of tradias, comments, "We're offering a forward-thinking solution for managing liquidity with tokenized money market funds. Investors and individuals investing in cryptocurrencies and digital assets now have the opportunity to manage their liquid funds based on a token while achieving money market equivalent returns."

Money market mutual fund assets inched lower for the second week in a row, declining $5.3 billion to $6.009 trillion. ICI's latest weekly "Money Market Fund Assets" report shows MMF assets down slightly after jumping to break $6.0 trillion for the first time ever three weeks ago. Assets remain up by $122 billion, or 2.6%, year-to-date in 2024, with Institutional MMFs up $46 billion, or 1.5% and Retail MMFs up $76 billion, or 4.5%. Over the past 52 weeks, money funds have risen a massive $1.188 trillion, or 24.7%, with Retail MMFs rising by $576 billion (32.1%) and Inst MMFs rising by $613 billion (20.2%). (Note: Register and make hotel reservations soon for Bond Fund Symposium, Crane Data's ultra-short bond fund conference, which will take place March 25-26 in Philadelphia. We hope to see you next month in Philly!)

The weekly release says, "Total money market fund assets decreased by $5.33 billion to $6.01 trillion for the week ended Wednesday, February 21, the Investment Company Institute reported. Among taxable money market funds, government funds decreased by $8.92 billion and prime funds increased by $2.84 billion. Tax-exempt money market funds increased by $747 million." ICI's stats show Institutional MMFs dipping $9.0 billion and Retail MMFs rising $3.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.873 trillion (81.1% of all money funds), while Total Prime MMFs were $1.015 trillion (16.9%). Tax Exempt MMFs totaled $120.6 billion (2.0%).

ICI explains, "Assets of retail money market funds increased by $3.64 billion to $2.37 trillion. Among retail funds, government money market fund assets decreased by $1.07 billion to $1.53 trillion, prime money market fund assets increased by $4.55 billion to $727.34 billion, and tax-exempt fund assets increased by $158 million to $109.15 billion." Retail assets account for over a third of total assets, or 39.4%, and Government Retail assets make up 64.6% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $8.97 billion to $3.64 trillion. Among institutional funds, government money market fund assets decreased by $7.85 billion to $3.34 trillion, prime money market fund assets decreased by $1.71 billion to $288.15 billion, and tax-exempt fund assets increased by $590 million to $11.45 billion." Institutional assets accounted for 60.6% of all MMF assets, with Government Institutional assets making up 91.8% of all Institutional MMF totals.

According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $14.03 billion in February to $6.408 trillion. (Assets hit a record $6.430 trillion on 2/13 but have inched lower over the past week.) Assets rose $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.

In other news, Kiplinger Personal Finance recently published an article entitled, "How to Earn a Decent Yield From Your Sweep Account." It tells us, "Gone are the days when cash was trash. Now, it's a valued asset that can earn 5% a year. That's why it's important to make sure the ready money in your brokerage account is earning a competitive yield. A brokerage sweep account, sometimes called a core or settlement account, holds your uninvested cash. When you sell a security ... the proceeds are placed in the sweep account. And when you buy a security, cash in the account pays for the trade. It all happens automatically. But here's the rub: Some brokerage firms park your cash in accounts with good yields, while others put it in holding places with not-so-good yields."

The article explains, "At Fidelity, for instance, cash in retail brokerage and retirement accounts sits in a money market mutual fund that yields a healthy 5.0%. Vanguard's default settlement account, a government money market fund, yields 5.3%. By contrast, Charles Schwab offers a choice of two sweep accounts. Both yield 0.45%. And E*Trade offers little choice -- most customers land in a bank deposit program that currently yields 0.01% for balances of $499,999 or less."

It tells us, "If your brokerage firm offers a government money market fund as its default sweep account, you probably don't need to worry about your settlement account yield or make a change. But if your brokerage account cash isn't earning 4% or better, it may pay to consider alternatives. Finding the right place for your idle cash isn't just about getting the best yield, however, says Peter Crane, president of money-fund-tracker Crane Data. Other factors matter too, such as how soon you plan to use your cash and how much of it you have. Keep these tips in mind before you move your money out of a sweep account."

Kiplinger's writes, "Schwab guides investors who want to boost their cash yield to money market funds, including money funds that hold government debt or municipal bonds. The taxable money fund yields range from 5.06% to 5.25%, and they have no transaction fees or investment minimums. But you don't get instant access -- the money will be available in your sweep account the next day if you sell shares in the money fund by 4 pm Eastern time."

The piece continues, "Where you hold your money matters, depending on how you plan to use it. 'Convenience is the most important factor,' says Crane. Funds you want to put to work immediately in the event the stock market takes a dip are best held at the ready in your brokerage account, even if that's in a low-yielding sweep account. Otherwise, 'you could miss a buying opportunity of a lifetime,' says Crane."

The piece adds, "The caveat is how much money you're sitting on and how long you plan to hold it. If it's $100,000, $20,000 or even $10,000, a 5.0% yield over one year can be meaningful ($500 to $5,000). Unless you're planning to invest the whole pot in short order, it may be worthwhile to shift some of the cash to a higher-yielding money fund.... The vast majority of money market funds invest in short-term government debt, says Crane, and 'it really doesn't matter which one you pick.' The two biggest are the Fidelity Government Money Market Fund (SPAXX, expense ratio 0.42%, seven-day yield 5.0%) and the Vanguard Federal Money Market Fund (VMFXX, 0.11%, 5.3%)."

Finally, it says, "People tend to dither over choosing a fund with a 5.25% yield or one at 5.00%, says Crane. That's annualized. You'd have to leave the cash for 12 months to earn the full yield, and even if you do, the difference in earnings may not amount to much. Over the course of a year, for instance, you'd earn $1,050 on a $20,000 balance at 5.25% and $1,000 at 5.00%. That said, money market funds with yields that seem too high are a red flag."

Moody's Investors Service recently published a report entitled, "Money Market Funds - Cross Region: Continued asset growth drives stable outlook," which states, "Our global outlook for money market funds (MMFs) is stable, unchanged from last year. Interest rates will likely decline in 2024, and a negative outlook for the global banking sector will weigh on prime MMFs, which invest mainly in bank securities. However, geopolitical uncertainty will likely drive a further increase in MMFs' assets under management (AUM). Regulatory uncertainty has diminished in the US and EU, but the UK has proposed new liquidity rules for MMFs that diverge from the EU's. Tokenization is a promising technology for MMFs, but it will take time for its benefits to filter through."

It continues, "AUM and revenue will keep growing. In 2023, MMFs' assets reached record levels as rising yields reestablished them as a portfolio 'building block'. While interest rates will likely decline in 2024, we foresee further moderate AUM growth as regional military conflicts and electoral uncertainty make investors more risk-averse. This will drive continued growth in MMF sponsors' revenues.... In anticipation that interest rates will soon fall, MMFs in 2023 extended the weighted average maturity (WAM) of their portfolios to lock in higher yields for longer, reducing their liquidity. This trend will likely continue into 2024, although fund managers will remain cautious in case of potential market shocks."

Moody's tells us, "In July 2023, the US and EU authorities finalized planned reforms of their regulatory regimes for MMFs along lines that are broadly favorable to the industry. In December, the UK regulator proposed liquidity thresholds above those in force in the EU. If these are implemented in their current form, some EU-domiciled funds may need to increase their liquidity to maintain access to UK markets, reducing their yields."

The report tells us, "Assets under management grew strongly in 2023 as a rebound in yields reestablished MMFs as a standalone asset class with a role as an investment portfolio 'building block'. US Government MMFs and Prime MMFs achieved AUM growth of 24% and 46% respectively during the year. In Europe, the AUM of public debt constant net asset value (CNAV) and low volatility net asset value (LVNAV) funds grew by 32% and 7% respectively.... The operating environment for MMFs will become less supportive as central banks globally prepare to lower interest rates after around two years of monetary tightening.... Even so, we expect MMFs' AUM to keep growing, albeit at a more moderate pace. This is because military conflicts in Ukraine and the Middle East and elections with uncertain outcomes in many countries will encourage continued investment in 'safe haven' asset class."

It states, "In the US, MMF revenue grew at an annual compound rate of 106% in the two years to December 2023, driven by rising AUM and the elimination of fee waivers that were required to keep clients' overall returns positive during the low interest rate era.... We expect further moderate growth in revenue in 2024 as AUM continue to rise."

Moody's writes, "During 2023, MMFs began to extend the weighted average maturity (WAM) of their assets, reducing their liquidity, to lock in high yields on the basis that interest rates had reached their peak in this tightening cycle. While portfolio managers have some room for further WAM extension, we expect them to remain cautious amid uncertainty over when monetary loosening will begin. In addition, prime MMF managers in the US will need to comply with upcoming increased daily and weekly liquidity regulatory requirements. The increase in WAMs has reduced MMFs' holdings of liquid assets."

They say, "Inflows into the US Federal Reserve's reverse repurchase (RRP) facility were down 60% year on year at $1.02 trillion as of December 2023. They reached a record $2.55 trillion a year earlier, with MMFs accounting for 90% of the total. The decrease partly reflects a recovery in Treasury Bill (T-bill) rates, which were 3 basis points (bps) above the RRP rate at year end 2023. At year end 2022, the RRP rate exceeded the T-bill rate by 35 bps. The surge in RRP inflows at year end 2022 was also driven by a shortage of T-bills because congressional negotiations to lift the US sovereign debt ceiling had reached deadlock. The subsequent agreed increase in the debt ceiling boosted the supply of T-bills by 54% year-over-year. US government MMFs' exposure to US Treasury debt increased sharply in 2023."

Moody's also states, "Our outlook for global banks for 2024 is negative. The sector faces more difficult operating conditions in 2024 because of below-trend economic growth and higher interest rates, which will limit loan demand and squeeze loan quality. This is negative for the asset quality of prime MMFs, which mainly invest in short term bank debt. Prime MMFs will however benefit from an increase in the supply of bank debt as central banks reverse the quantitative easing programs they put in place during the low rate era. This will allow MMFs to diversify their portfolios, partly offsetting the impact of lower bank credit quality."

They add, "The credit quality of prime MMFs' investment portfolios deteriorated slightly in 2023, with Aaa-rated securities' share of onshore US prime funds declining by 10 percentage points. The credit profile of European prime funds slightly improved."

Moody's then writes, "While previous regulatory reforms in the US (2016) and Europe (2019) drove a structural transformation of the industry ..., we do not expect recent regulatory changes to alter the landscape. In July 2023, the US and EU authorities finalized reforms of their MMF regulatory regimes along lines that were broadly favorable to the industry. The European Commission confirmed that the low volatility net asset value (LVNAV) and public debt constant net asset value (CNAV) fund structures, which account for over 50% of the industry, would remain in their current form. An earlier proposal would have barred both fund types from using amortized cost accounting when calculating net asset values. This would have made it more difficult for LVNAV funds to maintain stable net asset values, significantly reducing their appeal to investors."

They tell us, "The US Securities and Exchange Commission's (SEC) final reform package omitted 'swing pricing', a mechanism that discourages preemptive fund redemptions by passing on their full price impact and transaction costs to investors that depart first. The MMF industry had opposed swing pricing on the grounds that it would be difficult and expensive to implement. The SEC's final package instead opted to impose a liquidity fee on redemptions under certain conditions, in addition to increased daily and weekly liquidity requirements, at 25% and 50% respectively."

Finally, they say, "In December 2023, the UK's Financial Conduct Authority (FCA) proposed minimum daily (15%) and weekly (50%) liquidity thresholds for MMFs above those that apply in the EU. If implemented in their current form, the new thresholds could force some EU-domiciled funds to increase their liquidity to retain access to the UK market, reducing their yields. Funds domiciled in France would be most affected as their liquidity falls short of the proposed UK threshold by the widest margin. The gap would be less significant for the Moody's Aaa-rated funds."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets jumped by $87.7 billion in January to a record $6.459 trillion. The SEC shows Prime MMFs rising $52.5 billion in January to $1.373 trillion, Govt & Treasury funds increasing $39.7 billion to $4.960 trillion and Tax Exempt funds decreasing $4.5 billion to $126.8 billion. Taxable yields inched lower in January after inching up in December. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Month-to-date in February through 2/16, total money fund assets have decreased by $914 million to $6.393 trillion, according to our separate, and slightly smaller, MFI Daily series.)

January's overall asset increase follows an increase of $34.0 billion in December and $225.7 billion in November. MMFs decreased $41.2 billion in October, but increased $79.7 billion in September, $114.2 billion in August and $28.8 billion in July. Assets rose $19.6 billion in June, $156.6 billion in May, $49.9 billion in April, $364.4 billion in March and $52.1 billion in February. Over the 12 months through 1/31/24, total MMF assets increased by a record $1.171 trillion, or 22.2%, according to the SEC's series.

The SEC's stats show that of the $6.459 trillion in assets, $1.373 trillion was in Prime funds, up $52.5 billion in January. Prime assets were up $1.2 billion in December, $32.5 billion in November, $13.9 billion in October, $14.3 billion in September, $18.5 billion in August, $28.9 billion in July, $11.0 billion in June, $13.7 billion in May and $36.0 billion in April. They were down $22.2 billion in March, but up $35.4 billion in February. Prime funds represented 21.3% of total assets at the end of January. They've increased by $235.6 billion, or 20.7%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)

Government & Treasury funds totaled $4.960 trillion, or 76.8% of assets. They increased $39.7 billion in January, $31.7 billion in December, $193.7 billion in November, decreased $62.4 billion in October, increased $64.6 billion in September, $92.2 billion in August, $3.1 billion in July, $4.9 billion in June, $137.4 billion in May, $19.3 billion in April, $387.9 billion in March and $16.1 billion in February. Govt & Treasury MMFs are up $928.2 billion over 12 months, or 23.0%. Tax Exempt Funds decreased $4.5 billion to $126.8 billion, or 2.0% of all assets. The number of money funds was 290 in January, down 1 from the previous month and down 8 funds from a year earlier.

Yields for Taxable MMFs mostly inched lower while Tax Exempt MMFs jumped in January. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Jan. 31 was 5.49%, down 1 bp from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.55%, down 4 bps from the previous month. Gross yields were 5.39% for Government Funds, down 3 bps from last month. Gross yields for Treasury Funds were down 2 bps at 5.38%. Gross Yields for Tax Exempt Institutional MMFs were up 16 basis points to 4.30% in January. Gross Yields for Tax Exempt Retail funds were up 20 bps to 4.24%.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.41%, down 2 basis points from the previous month and up 97 bps from 1/31/23. The Average Net Yield for Prime Retail Funds was 5.28%, down 4 bps from the previous month, and up 95 bps since 1/31/23. Net yields were 5.15% for Government Funds, down 3 bps from last month. Net yields for Treasury Funds were down 4 bps from the previous month at 5.16%. Net Yields for Tax Exempt Institutional MMFs were up 16 bps from December to 4.19%. Net Yields for Tax Exempt Retail funds were up 20 bps at 4.00% in January. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in January. The average Weighted Average Life, or WAL, was 48.4 days (down 0.6 days) for Prime Institutional funds, and 44.5 days for Prime Retail funds (down 2.8 days). Government fund WALs averaged 84.4 days (up 1.3 days) while Treasury fund WALs averaged 80.4 days (up 3.0 days). Tax Exempt Institutional fund WALs were 6.4 days (down 0.9 days), and Tax Exempt Retail MMF WALs averaged 25.9 days (up 0.5 days).

The Weighted Average Maturity, or WAM, was 31.7 days (down 1.7 days from the previous month) for Prime Institutional funds, 29.6 days (down 4.3 days from the previous month) for Prime Retail funds, 35.3 days (down 1.2 days from previous month) for Government funds, and 44.2 days (up 2.6 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.8 days to 6.4 days, while Tax Exempt Retail WAMs were up 0.6 days from previous month at 25.1 days.

Total Daily Liquid Assets for Prime Institutional funds were 53.8% in January (up 0.5% from the previous month), and DLA for Prime Retail funds was 43.8% (up 2.0% from previous month) as a percent of total assets. The average DLA was 69.6% for Govt MMFs and 95.6% for Treasury MMFs. Total Weekly Liquid Assets was 67.8% (up 2.7% from the previous month) for Prime Institutional MMFs, and 59.1% (up 1.9% from the previous month) for Prime Retail funds. Average WLA was 80.8% for Govt MMFs and 98.8% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for January 2024," the largest entries included: the U.S. with $162.5B,Canada with $160.4 billion, Japan with $134.7 billion, France with $110.1 billion, the U.K. with $60.0B, the Netherlands with $40.5B, Aust/NZ with $39.1B, Germany with $37.9B and Switzerland with $8.6B. The gainers among the "Prime MMF Holdings by Country" included: the U.K. (up $27.1B), France (up $21.3B), Netherlands (up $20.1B), Germany (up $18.6B), Japan (up $8.3B) and the U.S. (up $2.6B). Decreases were shown by: Canada (down $23.0B), Aust/NZ (down $3.9B) and Switzerland (down $1.5B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $322.9 billion (down $20.4B), while Eurozone had $210.5B (up $68.0B). Asia Pacific subset had $200.6B (up $11.2B), while Europe (non-Eurozone) had $141.0B (up $63.0B from last month).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.363 trillion in Prime MMF Portfolios as of Jan. 31, $569.2B (41.8%) was in Government & Treasury securities (direct and repo) (down from $618.2B), $373.5B (27.4%) was in CDs and Time Deposits (up from $294.5B), $199.4B (14.6%) was in Financial Company CP (up from $188.9B), $144.2B (10.6%) was held in Non-Financial CP and Other securities (up from $132.7B), and $76.3B (5.6%) was in ABCP (up from $72.1B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $451.8 billion, Canada with $182.6 billion, France with $188.7 billion, the U.K. with $132.7 billion, Germany with $31.7 billion, Japan with $141.4 billion and Other with $45.8 billion. All MMF Repo with the Federal Reserve was up $151.1 billion in January to $1.175 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.0%, Prime Retail MMFs with 6.4%, Tax Exempt Inst MMFs with 0.1%, Tax Exempt Retail MMFs with 3.6%, Govt MMFs with 15.0% and Treasury MMFs with 12.2%.

The Federal Reserve Bank of Kansas City recently published a working paper entitled, "Explaining the Life Cycle of Bank-Sponsored Money Market Funds: An Application of the Regulatory Dialectic." Its "Abstract" states, "In this paper, we present empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. The 'regulatory dialectic', developed by Kane (1977, 1981), describes how banks and regulators react to each other. For decades, a cap on commercial deposit interest rates fueled dramatic growth in bank-sponsored PI-MMFs as a form of shadow banking. During the growth period, banks with more commercial deposits were more likely to enter the PI-MMF industry in an effort to keep their commercial customers in affiliated subsidiaries. However, the 2008 crisis and subsequent regulatory changes halted the rapid growth of PI-MMFs. In the post-crisis regulatory regime, bank-sponsored funds were more likely to exit the industry than nonbank-sponsored funds. Simultaneously, the industry shifted from PI-MMFs to government institutional MMFs as substitute products. We conjecture that the collapse of the PI-MMF can lead further to the emergence of substitute products, such as stablecoins as part of the continuing dialectical process."

The paper's Introduction says, "Bank-sponsored prime institutional money market funds (PI-MMFs) grew dramatically in the 1990s, followed by a precipitous decline in the 2010s. In August 1987, bank-sponsored PI-MMFs accounted for only 0.7 percent of the market share in the PI-MMFs industry. Over the next decade, however, bank-sponsored PI-MMFs reached a 50 percent market share, peaking in 2009 with more than $600 billion aggregate total net assets (TNA). In the first quarter of 2009, 25 bank holding companies (BHCs) sponsored 153 share classes of PI-MMFs. By the fourth quarter of 2016, however, only 14 BHCs, sponsoring just 59 share classes with a TNA of $51 billion, remained in the industry."

It explains, "In this paper, we show how the rise and the decline of the bank-sponsored PI-MMF industry provide the first empirical evidence of the regulatory dialectic framework proposed by Kane (1977) and developed by Kane (1981). Kane (1981, p. 355) describes the interplay between banks and their regulators as a balance between the 'political processes of regulation and the economic process of regulatee avoidance [that], like riders on a seesaw, adapt continually to each other.' He argues that if banks are prohibited from performing a profitable activity, they have a strong incentive to circumvent the prohibition by developing a less regulated substitute product or service that closely mimics the regulated activity. After recognizing this behavior, regulators re-regulate the novel ways of performing the activity. Banks then seek to avoid the new regulation, and the process starts once again (see Eisenbeis [2023] for a retrospective)."

The paper tells us, "The evolution of the bank-sponsored PI-MMF industry between 1988 and 2016 exemplifies how banks and regulators react to one another. We show that the growth of bank-sponsored PI-MMFs can be traced to the regulatory restrictions that prevented banks from paying interest on demand deposits. Banks faced disintermediation by commercial depositors who kept their funds in noninterest-bearing demand deposits. Because these deposits offered only implicit returns in the form of account services, commercial depositors had an incentive to move funds to accounts offering higher net (implicit and explicit) returns at money market funds. Bank sponsorship of PI-MMFs emerged as an alternative to keep bank commercial customers under a bank's corporate umbrella, countering the threat of disintermediation. In this way, the bank-sponsored MMF could pay interest on a product similar to commercial deposit, while keeping the revenue generated within the corporate parent, thus increasing the size of the so-called 'shadow banking system.'"

It continues, "In aggregate, between 1986 and 2001, the banking industry experienced a massive reduction in noninterest-bearing deposits (our proxy for commercial deposits), while bank-sponsored PI-MMFs showed rapid growth. Fund-level analysis shows that BHCs that relied relatively more on commercial deposits and were thus more exposed to the threat of disintermediation posed by interest-bearing MMFs, were more likely to start and sponsor a PI-MMF."

The KC Fed writes, "The 2008 crisis had a profound impact on the PI-MMF industry, as government actions corroborated implicit safety-net coverage for 'shadow banks' such as MMFs. For example, bank-sponsored shadow banks had no reserve or capital requirements and paid no fees to the FDIC for the risks their MMF affiliates created for the sponsoring banks (Acharya, Schnabl, and Suarez, 2013; Jacewitz, Unal, and Wu, 2022). Consequently, federal regulation was then extended to control the expansion of systemic risk inherent in these 'loophole' deposit substitutes -- again consistent with the regulatory dialectic hypothesis."

They explain, "Regulatory changes during the crisis and post-crisis reforms made sponsorship of PI-MMFs less attractive to banks. Basel III required BHCs to hold additional liquidity against lines of credit to sponsored nonbank entities. In addition, the Dodd-Frank Act of 2010 repealed the statutory prohibition of interest rate payments on demand deposits and banks were allowed to pay market rates to their commercial depositors in 2011, decreasing the attractiveness of MMFs to investors. In addition, the Temporary Liquidity Guarantee Program (TLGP) also fundamentally changed MMF's competitive environment and hampered the attractiveness of MMFs by extending unlimited deposit insurance coverage from October 2008 through 2010 to transaction accounts, a close MMF substitute, among other changes. Following TLGP, noninterest bearing transaction accounts remained temporarily covered under a provision of the Dodd-Frank Act starting in 2010 until the end of 2012."

The paper also says, "The regulatory changes made the bank-sponsorship of MMFs less lucrative and opened avenues for substitute products. Consistent with the regulatory dialectic, our empirical tests show that, from 2010 to 2013, when the regulations took form, bank sponsors were more likely to close their PI-MMF affiliates than nonbank sponsors. Importantly, institutional investors did not switch from bank-sponsored to nonbank-sponsored funds; we do not observe any increase in the number or asset size of nonbank-sponsored funds. Instead, as further evidence of the regulatory dialectic, our analysis on asset flows suggests that bank sponsors resorted to substitute products such as government institutional MMFs (GI-MMFs) in response to regulatory changes."

It adds, "In addition to these regulatory reforms affecting bank-sponsorship, the Securities and Exchange Commission (SEC) brought 'structural and operational reforms' in 2014, and new mechanisms that could restrict investors' access to non-government funds. However, in contrast to the earlier bank regulatory changes, these SEC reforms affected primarily the MMF investors and not the bank sponsors of MMFs. The new rules discouraged investor redemptions, while granting fund sponsors new tools, like liquidity fees and redemption gates that allowed them to limit their run exposure. Taken together, these measures shifted the run risk from the sponsor, who may have needed to cover asset losses, to the investor. Having much more restrictive portfolios, GI-MMFs were exempt from the regulatory changes that applied to PI-MMFs. Therefore, while the SEC reforms may have contributed to the decline in PI-MMFs, we would not expect any differential response between bank and nonbank sponsors. Consistent with this expectation, we observe no differences in the exit decisions between bank and nonbank sponsors from 2014 to 2016."

The paper comments, "While the evolution of the PI-MMF market provides an illustrative historical example of the regulatory dialectic in action, Kane's logic around the interplay between the financial industry and financial regulators continues to hold. Demand for less regulated, but close substitute, financial products remains in the economy. For example, many have noted that there are close structural similarities between the established MMF investment product and a relatively new creation: stablecoins (for instance, see Fed Chair Powell, 2021; Gorton and Zhang, 2022; and Anadu, et. al, 2023). Both products provide a money-like investment opportunity, designed to maintain a steady nominal value, while performing liquidity transformation (see Anadu, et. al, 2023). Both PI-MMFs and stablecoins are also demonstrably susceptible to runs (for instance, the runs on IRON in 2021, terraUSD in 2022, and USDC in 2023).... Of course, given the paucity of data, we make no conclusions, other than to state that these observations are consistent with a modern, active regulatory dialectic."

Finally, they state, "We organize the paper as follows. In Section 2, we present the data used in the analysis. In Section 3, we examine the rise of the bank-sponsored PI-MMFs. Section 4 discusses the regulatory changes that contributed to the decline of these funds. Section 5 empirically examines the eventual decline of bank-sponsored PI-MMFs and asset flows into substitute products. Section 6 concludes."

Money market mutual fund assets paused their record run in the latest week inching lower by just $4.3 billion to $6.014 trillion. ICI's latest weekly "Money Market Fund Assets" report shows MMF assets roughly flat after jumping to break $6.0 trillion for the first time ever three weeks ago. Assets are up by $128 billion, or 2.7%, year-to-date in 2024, with Institutional MMFs up $55 billion, or 1.8% and Retail MMFs up $73 billion, or 4.3%. Over the past 52 weeks, money funds have risen a massive $1.199 trillion, or 24.9%, with Retail MMFs rising by $582 billion (32.7%) and Inst MMFs rising by $617 billion (20.3%).

The weekly release says, "Total money market fund assets decreased by $4.29 billion to $6.01 trillion for the week ended Wednesday, February 14, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $11.07 billion and prime funds increased by $6.55 billion. Tax-exempt money market funds increased by $225 million." ICI's stats show Institutional MMFs dipping $5.3 billion and Retail MMFs rising $1.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.882 trillion (81.2% of all money funds), while Total Prime MMFs were $1.013 trillion (16.8%). Tax Exempt MMFs totaled $119.9 billion (2.0%).

ICI explains, "Assets of retail money market funds increased by $1.01 billion to $2.36 trillion. Among retail funds, government money market fund assets decreased by $2.30 billion to $1.53 trillion, prime money market fund assets increased by $3.63 billion to $722.79 billion, and tax-exempt fund assets decreased by $324 million to $108.99 billion." Retail assets account for over a third of total assets, or 39.3%, and Government Retail assets make up 64.8% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $5.30 billion to $3.65 trillion. Among institutional funds, government money market fund assets decreased by $8.77 billion to $3.35 trillion, prime money market fund assets increased by $2.93 billion to $289.86 billion, and tax-exempt fund assets increased by $549 million to $10.86 billion." Institutional assets accounted for 60.7% of all MMF assets, with Government Institutional assets making up 91.8% of all Institutional MMF totals.

According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $12.83 billion in February to $6.407 trillion. (Assets hit a record $6.430 trillion on 2/13 but eased off by $22.7 billion on 2/14.) Assets rose $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.

ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in January, prime money market funds held 39.1 percent of their portfolios in daily liquid assets and 57.9 percent in weekly liquid assets, while government money market funds held 78.7 percent of their portfolios in daily liquid assets and 87.9 percent in weekly liquid assets." Prime DLA was down from 41.3% in December, and Prime WLA was up from 56.0%. Govt MMFs' DLA was down from 80.6% and Govt WLA decreased from 88.8% the previous month.

ICI explains, "At the end of January, prime funds had a weighted average maturity (WAM) of 33 days and a weighted average life (WAL) of 50 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 38 days and a WAL of 83 days." Prime WAMs were 3 days shorter and WALs were 2 days shorter from the previous month. Govt WAMs were unchanged and WALs were 2 days longer from December.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas declined from $562.39 billion in December to $481.38 billion in January. Government money market funds' holdings attributable to the Americas declined from $4,496.18 billion in December to $4,406.65 billion in January."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $481.4 billion, or 48.8%; Asia and Pacific at $171.2 billion, or 17.4%; Europe at $316.4 billion, or 32.1%; and, Other (including Supranational) at $17.4 billion, or 1.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.407 trillion, or 89.4%; Asia and Pacific at $129.0 billion, or 2.6%; Europe at $369.0 billion, 7.5%, and Other (Including Supranational) at $22.8 billion, or 0.5%.

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 $1.239 trillion, while yields inched lower. Assets for USD & EUR MMFs rose over the past month, while assets for GBP MMFs fell. Last month, European MMF assets broke above last month's previous record high of $1.210 trillion. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $28.4 billion over the 30 days through 2/13. The totals are up $41.4 billion (3.5%) 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.)

Offshore US Dollar money funds increased $20.8 billion over the last 30 days and are up $27.1 billion YTD to $676.7 billion; they increased $100.0 billion in 2023. Euro funds increased E6.7 billion over the past month. YTD, they're up E3.2 billion to E238.1 billion, for 2023, they increased by E54.5 billion. GBP money funds decreased L1.8 billion over 30 days, and they're up L6.4 billion YTD at L241.8B, for 2023, they fell L28.1 billion. U.S. Dollar (USD) money funds (211) account for over half (54.6%) of the "European" money fund total, while Euro (EUR) money funds (117) make up 20.7% and Pound Sterling (GBP) funds (140) total 24.7%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Thursday), below.

Offshore USD MMFs yield 5.27 (7-Day) on average (as of 2/13/24), down 3 bps from a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs finally left negative yield territory in the second half of 2022 but they should remain flat until the ECB moves rates again. They're yielding 3.88% on average, up 2 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 the 5.0% barrier 7 months ago and now yield 5.21%, down 2 bps from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.

Crane's February MFI International Portfolio Holdings, with data as of 1/31/24, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 16% in Certificates of Deposit (CDs), 23% in Repo, 23% in Treasury securities, 14% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 46.1% of their portfolios maturing Overnight, 5.3% maturing in 2-7 Days, 10.4% maturing in 8-30 Days, 7.8% maturing in 31-60 Days, 8.2% maturing in 61-90 Days, 14.6% maturing in 91-180 Days and 7.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (39.5%), France (10.5%), Canada (8.9%), Japan (8.6%), Sweden (7.1%), the U.K. (5.6%), the Netherlands (3.9%), Australia (3.1%), Germany (2.2%), and Belgium (2.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $163.8 billion (23.0% of total assets), Fixed Income Clearing Corp with $42.8B (6.0%), Barclays PLC with $25.3B (3.5%), BNP Paribas with $18.2B (2.6%), Credit Agricole with $17.6B (2.5%), Mizuho Corporate Bank Ltd with $16.9B (2.4%), Nordea Bank with $16.6B (2.3%), RBC with $16.3B (2.3%), JP Morgan with $15.2B (2.1%) and Toronto-Dominion Bank with $13.5B (1.9%).

Euro MMFs tracked by Crane Data contain, on average 42% in CP, 22% in CDs, 19% in Other (primarily Time Deposits), 16% in Repo, 1% in Treasuries and 0% in Agency securities. EUR funds have on average 41.2% of their portfolios maturing Overnight, 6.5% maturing in 2-7 Days, 16.1% maturing in 8-30 Days, 11.4% maturing in 31-60 Days, 11.0% maturing in 61-90 Days, 8.3% maturing in 91-180 Days and 5.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.3%), Japan (14.2%), the U.S. (10.0%), Canada (6.7%), the U.K. (6.7%), Germany (5.4%), the Netherlands (4.6%), Austria (4.3%), Sweden (4.0%) and Belgium (3.4%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E12.9B (6.1%), BNP Paribas with E12.4B (5.8%), Credit Mutuel with E9.2B (4.3%), Republic of France with E8.2B (3.9%), Mizuho Corporate Bank Ltd with E7.9B (3.7%), Mitsubishi UFJ Financial Group Inc with E7.8B (3.7%), Erste Group Bank AG with E7.2B (3.4%), Societe Generale with E6.7B (3.2%), JP Morgan with E6.7B (3.2%) and Sumitomo Mitsui Banking Corp with E6.2B (2.9%).

The GBP funds tracked by MFI International contain, on average (as of 1/31/24): 38% in CDs, 18% in CP, 23% in Other (Time Deposits), 19% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 38.5% of their portfolios maturing Overnight, 8.1% maturing in 2-7 Days, 11.2% maturing in 8-30 Days, 8.5% maturing in 31-60 Days, 12.6% maturing in 61-90 Days, 16.3% maturing in 91-180 Days and 4.9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.9%), Japan (16.1%), the U.K. (15.0%), Canada (12.8%), the U.S. (9.3%), Australia (7.4%), the Netherlands (4.2%), Sweden (4.1%), Singapore (3.0%) and Spain (2.6%).

The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L14.9B (6.5%), BNP Paribas with L9.7B (4.2%), Toronto-Dominion Bank with L9.6B (4.2%), Mizuho Corporate Bank Ltd with L9.5B (4.1%), Mitsubishi UFJ Financial Group Inc with L8.4B (3.6%), Sumitomo Mitsui Trust Bank with L8.4B (3.6%), Credit Agricole with L7.9B (3.5%), BPCE SA with L7.2B (3.1%), Sumitomo Mitsui Banking Corp with L6.9B (3.0%) and JP Morgan with L6.8B (3.0%).

The February issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the stories, "S&P on Bond Index Funds, 'The Hare and the Tortoise'," which features a new study from S&P Dow Jones Indices on bond index funds and "Bloomberg Profiles Capital Group, Bond Fund of America," which reviews how Capital Group is making a name in bond funds. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped again in January while yields plunged once more. 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.) (Note: Please join us for our upcoming Bond Fund Symposium, which is March 25-26 in Philadelphia!)

Our "S&P on Bond Index Funds" piece states, "FT Alphaville’s article 'The Passive Attack on Bond Markets' alerted us to a new study from S&P Dow Jones Indices on bond index funds. They write, 'The first passive bond fund launched nearly four decades ago, and ever since then people have mostly made fun of the whole idea as preposterous. To be fair, there are some solid reasons for scepticism: The bond market is less efficient, which means more opportunities for active managers. Their fees are also generally lower, making cost a milder headwind.'"

The piece continues, "And yet: Passive bond funds have seen cumulative inflows of nearly $2.8tn since the beginning of 2007. In contrast, active bond funds have only taken in a net $1tn over the same period, after taking a beating in the 2022 bear market. This is astonishing, both in scale and steadiness. Which is why this new report from S&P Dow Jones Indices caught FT Alphaville's eye. Although it's primarily an equity benchmarking shop, S&PDJI's 'The Hare and the Tortoise: Assessing Passive's Potential in Bonds' is fascinating.'"

Our "Capital Group" article states, "Bloomberg published the article, 'Capital Group Builds Bond Team to Chase Pimco in Fixed Income,' which tells us, 'Capital Group Inc., better known as a behemoth in stock picking, is putting up some of the best results and strongest growth among actively run bond funds, elbowing past fixed-income rivals who are enduring a siege from cheaper index funds and rising interest rates. By the end of last year, Capital Group had amassed $498 billion in its fixed-income holdings, more than doubling assets since 2015. It now runs the second-largest actively managed bond mutual fund in the US -- Bond Fund of America -- trailing only an income fund offered by ... Pacific Investment Management Co. As for returns, one measure tracked by Morningstar shows a specific share class of Bond Fund of America has beaten all other peers over the past four years, when a new manager took over."

It states: "Ryan Murphy, head of fixed-income business development, tells Bloomberg, 'We snuck up on people's radars over the last couple years.' They write, 'Capital Group made an enormous investment in people, technology and infrastructure to increase its presence in bond funds over the past decade, Murphy said, capped by a 'big push over the last 18 months into the ETF market.'"

Our first News brief, "Returns & Yields Inch Higher in Jan. Bond fund returns were up slightly after two monster return months while yields rose slightly last month. Our BFI Total Index increased 0.14% over 1-month and 4.21% over 12 months. The BFI 100 rose 0.07% in Jan. and 3.94% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.47% over 1-month and 5.42% for 1-year; Ultra-Shorts rose 0.59% and 5.73%. Short-Term rose 0.51% and 4.84%, and Intm-Term increased 0.00% in Jan. and 2.72% over 1-year. BFI's Long-Term Index fell 0.21% and 2.53%. High Yield rose 0.31% in Jan. and 7.99% over 12 months."

A second News brief, "Morningstar Takes a 'A Closer Look at Vanguard's Newest Core Bond ETFs.' They write, 'Vanguard launched two actively managed bond exchange-traded funds in December 2023: Vanguard Core Bond ETF VCRB and Vanguard Core-Plus Bond ETF VPLS. The ETF wrapper is the only thing that's new about the pair. They're the second and third actively managed fixed-income ETFs from Vanguard, and the underlying strategies mimic those that Vanguard has offered through mutual funds for several years.'"

Our next News brief, "WSJ's 'Want a Tax Shelter? Buy a Bond Fund' says, 'Bond investors are still trying to recover from 2022, arguably the worst year in history for fixed income. After that 13% annual loss in the aggregate U.S. bond market, fixed-income funds still have billions of dollars of unrealized losses on their books. That, in turn, has created a highly unusual opportunity. Because of those losses, a substantial chunk of many bond funds' current and future returns won’t be subject to the tax treatment that historically was typical.'"

A BFI sidebar, "Q4 Earnings F-I Comments," says, "Asset managers reported fourth-quarter earnings over the past 2 weeks, and several shed light on the strength of the bond fund marketplace. On BlackRock's latest earnings release and earnings call, CFO Martin Small tells us, 'The last two years have been a character-building and awe-inspiring time for investors, for clients, and certainly for us at BlackRock. The monetary policy shock of a rapid rate-rising campaign upended 10 years of asset allocation practices and spurred repositioning of portfolios into cash and money market funds at the expense of risk assets.... We've spoken throughout the year about what conditions we'd expect to bring investors out of cash and into risk assets. It's generally unfolding as we described. With greater clarity on terminal rates in the fourth quarter, we saw evidence of portfolio 're-risking', and we expect this trend to accelerate in 2024.'"

Finally, another sidebar, "Barron's Claims Cash Is Over," comments, "Barron's writes, 'King Cash Is Being Dethroned. What to Buy Now.' The article comments, 'The mantra 'cash is king' reigned supreme last year. Now it's time to dethrone the king and start putting cash to work. Lured by 5% yields, investors have flooded into money-market funds and other cash proxies, plowing more than $7 trillion into the holdings. But the outlook for cash is dimming. The Federal Reserve is widely expected to cut its benchmark federal-funds rate this year; the timing and magnitude are a coin toss, but even small rate cuts would erode yields on cash.'"

S&P Global Ratings published its latest "U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2023)," which tells us, "Assets in MMFs grew to record levels once again in the fourth quarter. Rated government and prime MMFs both increased roughly 3% to $3.3 trillion and $263 billion, respectively. Annual growth in 2023 was higher than in prior years, mainly because cash was a highly attractive asset class and banking stress in the U.S. drove investors to diversify their liquidity sources. Rated government MMF assets grew 18% and prime MMF assets rose 25% during the year." (Note: Please join us for our upcoming Bond Fund Symposium, which is March 25-26 in Philadelphia! See the latest agenda here and click here to register. We hope to see you late next month in Philly!)

The brief explains, "Yields for rated MMFs didn't move quarter-over-quarter for the first time since 2021. However, over the course of the year, yields increased approximately 140 basis points (bps) for rated government and prime MMFs. Quarter-end yields ranged from 4.4% to 5.4% for rated government funds and 5.3% to 5.6% for prime funds."

S&P writes, "Treasury bill issuance remained robust in the fourth quarter.... Managers of rated government funds absorbed much of this issuance. Average Treasury bill exposure increased to 32% from 25% over the quarter. Consequently, repurchase agreements (repo) purchases declined, with average weightings reduced to 44% from 55%. This was also reflected in use of the Fed's Reverse Repo Program (RRP)."

They explain, "Rated prime funds also purchased a small portion of the Treasury bill issuance, with average exposure increasing to approximately 2% throughout the fourth quarter. Managers bought additional asset-backed commercial paper, of which there was higher net issuance during the last quarter relative to the prior three quarters, based on SIFMA data. Weightings in repo, certificates of deposits (CDs), and commercial paper (CP) were stable. However, managers moved into fixed CDs and CP as floating-rate positions matured. The most notable allocation change for the year overall was a slow shift out of overnight bank deposits and into CDs, reflecting managers' intentions to extend maturities and add yield."

The report adds, "With greater conviction about the direction of interest rates, managers further extended the maturity profiles of rated government and prime MMFs by rolling off floating-rate positions and purchasing longer-dated fixed tenors. We previously predicted that weighted average maturities (WAMs) could extend rapidly if Fed rate policy reversed. The Fed hasn't begun cutting rates, but portfolio managers of rated MMFs increased WAM 13 days for government funds and eight days for prime funds, demonstrating their view that the hiking cycle is likely over. Extension in rated government funds exceeded that of prime funds in the fourth quarter, but prime strategies began extending earlier in the year relative to government funds.... The distribution of NAV per share for rated MMFs remained in a tight range. NAV movement of rated funds was biased towards the upside on a quarter-over-quarter basis. At quarter-end, the range for rated fund NAVs was 0.9994-1.0010."

Another S&P quarterly update, "European 'AAAm' Money Market Fund Trends (Fourth Quarter 2023)," comments, "Europe-domiciled MMFs rated by S&P Global Ratings reached an all-time high in terms of assets under management (AUM) as of Dec. 31, 2023, totalling €1.01 trillion (about $1.11 trillion). Net assets in euro and U.S. dollar-denominated funds had also peaked as of year-end 2023. Euro MMF assets reached €200 billion, up 40% in the fourth quarter and up 51% from the end of 2022. One fund added €25.1 billion of AUM to this index during the quarter. Yet even without the inclusion of this fund, assets would have still increased significantly. Net assets in U.S. dollar MMFs totalled $611.9 billion in December, up 5.3% from the third quarter and 20.0% year over year. Although sterling-denominated assets were down 13.9% versus the figure on Dec. 31, 2022, AUM was up 6.2% from the third quarter at £219.5 billion."

It explains, "The interest rate hiking cycle appears to have come to an end, as committee members of the European Central Bank (ECB), Bank of England (BOE), and the U.S. Federal Reserve (the Fed) all voted to hold rates during their monetary policy meetings in the fourth quarter. Despite this, MMF yields continued to rise during that quarter. Seven-day yields on euro MMFs averaged 3.81%, in sterling MMFs 5.23%, and in U.S. dollar-denominated funds 5.35%."

S&P writes, "Since interest rate cuts are on the horizon in 2024, it will be interesting to see whether more investors will place their cash in MMFs rather than bank deposits. In anticipation of such a trend, portfolio managers typically extend portfolio credit and duration attributes to lock in higher yields. Investors may see MMFs as an alternative option for additional yield, while still getting the liquidity, diversification, and safety of principal of managed MMFs."

They state, "Weighted-average maturities (WAM) increased in euro and U.S. dollar-denominated funds, while that for sterling funds remained the same at 34 days. The WAM for U.S. dollar funds lengthened more significantly, to 40 days from 30, while for euro-denominated funds the increase was modest, to 33 days from 32 days in the third quarter. With the rate hiking cycle currently paused, and cuts expected through 2024, we could see different duration strategies being implemented this year instead of the central bank's meeting-to-meeting approach we observed in 2023."

Finally, a third S&P update, "'AAAm' Local Government Investment Pool Trends (Fourth-Quarter 2023)," says, "Both government and prime LGIPs' assets under management increased during the fourth quarter, which is typical for the season. Seasonal inflows at year-end are common among LGIPs because the participants receive tax revenues at the beginning of the quarter. Through the end of the quarter, government funds increased $7.8 billion, totaling $88.7 billion, and prime funds increased by $13.9 billion to $256.8 billion. We also note that like prime money market funds, prime LGIPs can invest in corporate credit securities."

It continues, "The average net asset value (NAV) per share increased above 1.00 to 1.00018 at the end of the fourth quarter, which is well above our minimum threshold of 0.9975 for 'AAAm' rated PSFRs.... This is a trending improvement on the heels of the prior year's policy rate hikes and the current plateau that began in July. Additionally, credit quality has remained stable, and rated LGIP managers continued to focus on conservative investments, maintaining liquidity and high-quality investments. Apart from factors like credit quality, LGIP managers position portfolios for the level of rates."

S&P adds, "Managers continued to expect a plateauing of the policy rate hiking cycle through the end of the quarter. Accordingly, increases in weighted average maturities (WAM) have continued to trend higher from much lower levels during the trailing four quarters, with WAMs finishing the fourth quarter at 36 days and 46 days for government and prime funds, respectively. Much of the maturity extension in government funds can be attributed to reallocation from repurchase agreement securities into Treasuries, and the continuing downward trend of agency floater holdings."

Finally, they comment, "Our WAM index for prime funds increased by five days, quarter-over-quarter, and is 20 days higher from the prior year's end. The government funds WAM index increased even more notably, ending the quarter higher by 11 days, three times more than at the end of 2022.... We note that further maturity extension will be meaningfully affected by how much monetary tightening further deters aggregate consumption. Market participants are uncertain on the expected number range and timing of potential rate cuts."

Crane Data's February Money Fund Portfolio Holdings, with data as of Jan. 31, 2024, show that Repo holdings plummeted while Treasuries, Time Deposits and Agencies jumped. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $86.6 billion to $6.299 trillion, after increasing $51.1 billion in December and $244.0 billion in November, but decreasing $57.9 billion in October. Assets increased $56.1 in September, $106.7 billion in August and $78.3 billion in July. Repo continued its steep slide, dropping $163.2 billion, after a brief rebound the month prior; it remains the largest portfolio segment. Treasuries increased by $104.7 billion, still ranking in the No. 2 spot, but barely. The U.S. Treasury surpassed the Federal Reserve Bank of New York as the largest Issuer to MMFs five months ago. In January, U.S. Treasury holdings jumped to $2.353 trillion vs. the Fed RRP's $582.6 billion (down $384.3 billion). Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among taxable money funds, Repurchase Agreements (repo) decreased $163.2 billion (-6.2%) to $2.483 trillion, or 39.4% of holdings, in January, after increasing $74.8 billion in December. Repo fell $20.3 billion in November, $329.2 billion in October and $84.0 billion in September. Treasury securities rose $104.7 billion (4.7%) to $2.353 trillion, or 37.4% of holdings, after increasing $69.6 billion in December, $250.1 billion in November, $178.1 billion in October and $164.9 billion in September. Government Agency Debt was up $43.9 billion, or 6.3%, to $738.1 billion, or 11.7% of holdings. Agencies decreased $21.8 billion in December, increased $4.4 billion in November and $36.1 billion in October, but they decreased $8.3 billion in September. Repo, Treasuries and Agency holdings now total $5.575 trillion, representing a massive 88.5% of all taxable holdings.

Money fund holdings of CP, CDs and Time Deposits increased in January. Commercial Paper (CP) increased $18.6 billion (6.4%) to $310.1 billion, or 4.9% of holdings. CP holdings decreased $14.8 billion in December, but increased $5.5 billion in November, $17.6 billion in October and $3.0 billion in September. Certificates of Deposit (CDs) increased $19.5 billion (9.1%) to $235.3 billion, or 3.7% of taxable assets. CDs decreased $5.4 billion in December, but increased $6.9 billion in November, $11.2 billion in October and $0.5 billion in September. Other holdings, primarily Time Deposits, increased $63.4 billion (61.0%) to $167.5 billion, or 2.7% of holdings, after decreasing $52.1 billion in December and $3.1 billion in November. VRDNs fell to $11.3 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Monday around noon.)

Prime money fund assets tracked by Crane Data rose to $1.350 trillion, or 21.4% of taxable money funds' $6.299 trillion total. Among Prime money funds, CDs represent 17.4% (up from 16.7% a month ago), while Commercial Paper accounted for 23.0% (up from 22.5% in December). The CP totals are comprised of: Financial Company CP, which makes up 14.7% of total holdings, Asset-Backed CP, which accounts for 5.6%, and Non-Financial Company CP, which makes up 2.7%. Prime funds also hold 3.4% in US Govt Agency Debt, 12.8% in US Treasury Debt, 16.7% in US Treasury Repo, 0.3% in Other Instruments, 10.2% in Non-Negotiable Time Deposits, 5.3% in Other Repo, 8.7% in US Government Agency Repo and 0.6% in VRDNs.

Government money fund portfolios totaled $3.260 trillion (51.8% of all MMF assets), up from $3.219 trillion in December, while Treasury money fund assets totaled another $1.689 trillion (26.8%), up from $1.631 trillion the prior month. Government money fund portfolios were made up of 21.2% US Govt Agency Debt, 20.4% US Government Agency Repo, 29.5% US Treasury Debt, 28.6% in US Treasury Repo, 0.1% in Other Instruments. Treasury money funds were comprised of 72.2% US Treasury Debt and 27.8% in US Treasury Repo. Government and Treasury funds combined now total $4.949 trillion, or 78.6% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $245.3 billion in January to $793.1 billion; their share of holdings rose to 12.6% from last month's 8.9%. Eurozone-affiliated holdings increased to $511.4 billion from last month's $369.5 billion; they account for 8.1% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $305.0 billion (4.8% of the total) from last month's $277.8 billion. Americas related holdings fell to $5.191 trillion from last month's $5.315 trillion, and now represent 82.4% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $252.5 billion, or -13.4%, to $1.628 trillion, or 25.8% of assets); US Government Agency Repurchase Agreements (up $80.1 billion, or 11.4%, to $780.8 billion, or 12.4% of total holdings), and Other Repurchase Agreements (up $9.2 billion, or 13.9%, from last month to $75.0 billion, or 1.2% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $10.8 billion to $198.6 billion, or 3.2% of assets), Asset Backed Commercial Paper (up $4.0 billion to $75.0 billion, or 1.2%), and Non-Financial Company Commercial Paper (up $3.7 billion to $36.5 billion, or 0.6%).

The 20 largest Issuers to taxable money market funds as of Jan. 31, 2024, include: the US Treasury ($2.357T, 37.4%), Federal Home Loan Bank ($600.0B, 9.5%), the Federal Reserve Bank of New York ($582.6B, or 9.3%), Fixed Income Clearing Corp ($475.0B, 7.5%), RBC ($171.8B, 2.7%), JP Morgan ($158.4B, 2.5%), Citi ($140.3B, 2.2%), BNP Paribas ($138.7B, 2.2%), Barclays PLC ($127.3B, 2.0%), Federal Farm Credit Bank ($119.7B, 1.9%), Bank of America ($113.9B, 1.8%), Goldman Sachs ($107.9B, 1.7%), Mitsubishi UFJ Financial Group Inc ($67.4B, 1.1%), Credit Agricole ($64.5B, 1.0%), Sumitomo Mitsui Banking Corp ($64.2B, 1.0%), Wells Fargo ($62.3B, 1.0%), Mizuho Corporate Bank Ltd ($50.2B, 0.8%), Canadian Imperial Bank of Commerce ($48.5B, 0.8%), Societe Generale ($44.7B, 0.7%) and Toronto-Dominion Bank ($42.0B, 0.7%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($582.6B, 23.5%), Fixed Income Clearing Corp ($475.0B, 19.1%), JP Morgan ($146.7B, 5.9%), RBC ($141.6B, 5.7%), Citi ($125.9B, 5.1%), BNP Paribas ($125.3B, 5.0%), Goldman Sachs ($107.3B, 4.3%), Barclays PLC ($101.6B, 4.1%), Bank of America ($94.6B, 3.8%) and Wells Fargo ($52.0B, 2.1%). The largest users of the $582.6 billion in Fed RRP include: Vanguard Federal Money Mkt Fund ($60.9B), Fidelity Govt Money Market ($49.8B), Fidelity Inv MM: Govt Port ($40.5B), Fidelity Cash Central Fund ($38.9B), Fidelity Govt Cash Reserves ($37.5B), Schwab Treasury Oblig MF ($24.5B), JPMorgan US Govt MM ($24.4B), Fidelity Inv MM: Treas Port ($21.9B), Vanguard Cash Reserves Federal MM ($19.7B) and Northern Instit Treasury MMkt ($19.5B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($34.9B, 5.5%), RBC ($30.2B, 4.7%), Credit Agricole ($27.2B, 4.3%), Barclays PLC ($25.7B, 4.0%), DNB ASA ($25.4B, 4.0%), Mitsubishi UFJ Financial Group Inc ($23.6B, 3.7%), Australia & New Zealand Banking Group Ltd ($21.2B, 3.3%), Toronto-Dominion Bank ($20.8B, 3.3%), Bank of Montreal ($20.7B, 3.3%), and Canadian Imperial Bank of Commerce ($20.1B, 3.2%).

The 10 largest CD issuers include: Mizuho Corporate Bank Ltd ($17.7B, 7.5%), Credit Agricole ($17.1B, 7.3%), Mitsubishi UFJ Financial Group Inc ($15.1B, 6.4%), Bank of America ($13.6B, 5.8%), Sumitomo Mitsui Banking Corp ($13.2B, 5.6%), Toronto-Dominion Bank ($12.7B, 5.4%), Mitsubishi UFJ Trust and Banking Corporation ($11.7B, 5.0%), Sumitomo Mitsui Trust Bank ($11.3B, 4.8%), Wells Fargo ($10.3B, 4.4%) and Bank of Nova Scotia ($8.9B, 3.8%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($19.5B, 7.3%), Bank of Montreal ($13.2B, 4.9%), BPCE SA ($12.8B, 4.8%), Barclays PLC ($12.5B, 4.7%), JP Morgan ($11.8B, 4.4%), Bank of Nova Scotia ($8.5B, 3.2%), Mitsubishi UFJ Financial Group Inc ($8.5B, 3.2%), DNB ASA ($8.3B, 3.1%), Australia & New Zealand Banking Group Ltd ($7.9B, 3.0%) and Toronto-Dominion Bank ($7.8B, 2.9%).

The largest increases among Issuers include: US Treasury (up $108.9B to $2.357T), Barclays PLC (up $61.1B to $127.3B), Federal Home Loan Bank (up $44.7B to $600.0B), JP Morgan (up $44.4B to $158.4B), BNP Paribas (up $40.1B to $138.7B), Fixed Income Clearing Corp (up $25.0B to $475.0B), Credit Agricole (up $22.7B to $64.5B), Morgan Stanley (up $20.0B to $21.9B), DNB ASA (up $17.7B to $25.4B) and Citi (up $16.4B to $140.3B).

The largest decreases among Issuers of money market securities (including Repo) in January were shown by: Federal Reserve Bank of New York (down $384.3B to $582.6B), RBC (down $36.7B to $171.8B), Goldman Sachs (down $29.8B to $107.9B), Bank of Montreal (down $7.0B to $41.0B), Toronto-Dominion Bank (down $5.2B to $42.0B), National Bank of Canada (down $3.8B to $8.4B), Australia & New Zealand Banking Group Ltd (down $2.7B to $29.2B), Wells Fargo (down $2.1B to $62.3B), Bank of Nova Scotia (down $2.0B to $30.7B) and UBS AG (down $1.6B to $9.3B).

The United States remained the largest segment of country-affiliations; it represents 76.9% of holdings, or $4.843 trillion. Canada (5.5%, $347.8B) was in second place, while France (4.9%, $306.1B) was No. 3. Japan (4.4%, $278.6B) occupied fourth place. The United Kingdom (3.1%, $197.6B) remained in fifth place. Germany (1.1%, $68.0B) was in sixth place, followed by Netherlands (1.0%, $65.7B), Australia (0.8%, $48.6B), Sweden (0.8%, $48.3B), and Spain (0.3%, $20.8B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Jan. 31, 2024, Taxable money funds held 48.9% (down from 50.8%) of their assets in securities maturing Overnight, and another 8.9% maturing in 2-7 days (down from 9.0%). Thus, 57.8% in total matures in 1-7 days. Another 12.2% matures in 8-30 days, while 9.6% matures in 31-60 days. Note that over three-quarters, or 79.5% 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 6.5% of taxable securities, while 9.6% matures in 91-180 days, and just 4.4% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Friday, and we'll be writing our regular monthly update on the new January 31 data for Monday'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 Thursday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Jan. 31, includes holdings information from 968 money funds (down 12 from last month), representing assets of $6.479 trillion (up from $6.401 trillion). Prime MMFs now total $1.362 trillion, or 21.0% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses flat and money fund revenues seeing a jump in January.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $2.497 trillion (down from $2.666 trillion), or 38.5% of all assets. Treasury holdings totaled $2.377 trillion (up from $2.270 billion), or 36.7% of all holdings, and Government Agency securities totaled $750.2 billion (up from $708.2 billion), or 11.6%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.624 trillion, or a massive 86.8% of all holdings.

Commercial paper (CP) totals $320.1 billion (up from $301.3 billion), or 4.9% of all holdings, and the Other category (primarily Time Deposits) totals $174.4 billion (up from $110.9 billion), or 2.7%. Certificates of Deposit (CDs) total $235.4 billion (up from $215.8 billion), 3.6%, and VRDNs account for $125.5 billion (down from $129.6 billion last month), or 1.9% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $199.2 billion, or 3.1%, in Financial Company Commercial Paper; $75.3 billion or 1.2%, in Asset Backed Commercial Paper; and, $45.6 billion, or 0.7%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.658 trillion, or 25.6%), U.S. Govt Agency Repo ($760.7B, or 11.7%) and Other Repo ($78.4B, or 1.2%).

The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $312.7 billion (up from $294.1 billion), or 23.0%; Repo holdings of $416.5 billion (down from $504.9 billion), or 30.6%; Treasury holdings of $177.9 billion (up from $130.4 billion), or 13.1%; CD holdings of $235.4 billion (up from $215.8 billion), or 17.3%; Other (primarily Time Deposits) holdings of $162.9 billion (up from $102.4 billion), or 12.0%; Government Agency holdings of $47.6 billion (down from $49.5 billion), or 3.5% and VRDN holdings of $8.9 billion (down from $9.3 billion), or 0.7%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $199.2 billion (up from $188.9 billion), or 14.6%, in Financial Company Commercial Paper; $75.3 billion (up from $71.5 billion), or 5.5%, in Asset Backed Commercial Paper; and $38.2 billion (up from $33.7 billion), or 2.8%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($228.0 billion, or 16.7%), U.S. Govt Agency Repo ($115.6 billion, or 8.5%), and Other Repo ($73.0 billion, or 5.4%).

In related news, money fund charged expense ratios (Exp%) were flat in January. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.37%, respectively, as of Jan. 31, 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 Thursday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout, then.) Visit our "Content" page for the latest files.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.26%, unchanged from last month's level (but 18 bps higher than 12/31/21's 0.08%). The average is now back around the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (though they are waiving a minimal amount of fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.37% as of Jan. 31, 2024, unchanged from the month prior and slightly below the 0.40% at year-end 2019.

Prime Inst MFs expense ratios (annualized) average 0.29% (up 1 bp from last month), Government Inst MFs expenses average 0.27% (unchanged from last month), Treasury Inst MFs expenses average 0.29% (up 1 bp from last month). Treasury Retail MFs expenses currently sit at 0.52%, (unchanged from last month), Government Retail MFs expenses yield 0.54% (up 1 bp from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were also unchanged at 0.40% on average.

Gross 7-day yields were mostly lower during the month ended Jan. 31, 2024. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 755), shows a 7-day gross yield of 5.43%, down 2 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 down 3 bps, ending the month at 5.43%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $16.855 billion (as of 1/31/24), a new all-time high. Our estimated annualized revenue totals increased from $16.573B last month and are now above the previous record of $16.600B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their climb higher as money funds continue to see inflows to start the new year.

Crane Data's latest monthly Money Fund Market Share rankings show assets increased among most of the largest U.S. money fund complexes in January, after jumping in December. Money market fund assets rose by $87.0 billion, or 1.4%, last month to a record $6.405 trillion. Total MMF assets have increased by $344.5 billion, or 5.7%, over the past 3 months, and they've increased by $1.200 trillion, or 23.1%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Fidelity, Schwab, SSGA, American Funds and JPMorgan, which grew assets by $19.5 billion, $15.8B, $13.3B, $12.3B and $11.6B, respectively. Declines in January were seen by Morgan Stanley and Goldman Sachs, which decreased by $12.9 billion and $11.1B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which inched lower in January.

Over the past year through Jan. 31, 2024, Fidelity (up $279.7B, or 27.8%), JPMorgan (up $213.3B, or 48.1%), Schwab (up $187.1B, or 61.3%), SSGA (up $98.9B, or 71.3%) and Vanguard (up $98.1B, or 20.7%) were the `largest gainers. Fidelity, JPMorgan, SSGA, Schwab and Vanguard had the largest asset increases over the past 3 months, rising by $82.9B, $46.6B, $42.6B, $37.2B and $32.1B, respectively. The largest declines over 12 months were seen by: Invesco (down $23.0B), Western (down $7.3B), Dreyfus (down $2.9B), and Goldman Sachs (down $2.2B). The largest declines over 3 months included: Goldman Sachs (down $23.4B), Morgan Stanley (down $9.4B) and Invesco (down $9.0B).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.287 trillion, or 20.1% of all assets. Fidelity was up $19.5B in January, up $82.9 billion over 3 mos., and up $279.7B over 12 months. JPMorgan ranked second with $656.4 billion, or 10.2% market share (up $11.6B, up $46.6B and up $213.3B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $572.3 billion, or 8.9% of assets (up $3.4B, up $32.1B and up $98.1B). BlackRock ranked fourth with $509.9 billion, or 8.0% market share (up $146M, up $28.9B and up $45.0B), while Schwab was the fifth largest MMF manager with $492.2 billion, or 7.7% of assets (up $15.8B, up $37.2B and up $187.1B for the past 1-month, 3-mos. and 12-mos.).

Federated Hermes was in sixth place with $443.8 billion, or 6.9% (up $7.1B, up $21.5B and up $89.4B), while Goldman Sachs was in seventh place with $382.6 billion, or 6.0% of assets (down $11.1B, down $23.4B and down $2.2B). Dreyfus ($276.4B, or 4.3%) was in eighth place (up $10.2B, up $27.2B and down $2.9B), followed by Morgan Stanley ($238.0B, or 3.7%; down $12.9B, down $9.4B and up $18.9B). SSGA was in 10th place ($237.8B, or 3.7%; up $13.3B, up $42.6B and up $98.9B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($201.1B, or 3.1%), American Funds ($174.4B, or 2.7%), Northern ($169.6B, or 2.6%), First American ($148.3B, or 2.3%), Invesco ($131.8B, or 2.1%), UBS ($102.8B, or 1.6%), T. Rowe Price ($49.6B, or 0.8%), HSBC ($48.9B, or 0.8%), DWS ($39.8B, or 0.6%) and Western ($31.4B, or 0.5%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: BlackRock moves up to the No. 3 spot, Vanguard moves down to the No. 4 spot and Goldman Sachs moves up to No. 5. Schwab moves down to the No. 6 spot, while Federated Hermes moves down to the No. 7 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 spot. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($1.299 trillion), JP Morgan ($901.3B), BlackRock ($757.0B), Vanguard ($572.3B) and Goldman Sachs ($527.5B). Schwab ($492.2B) was in sixth, Federated Hermes ($455.5B) was seventh, followed by Morgan Stanley ($322.9B), Dreyfus/BNY Mellon ($298.7B) and SSGA ($282.4B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The February issue of our Money Fund Intelligence and MFI XLS, with data as of 1/31/24, shows that yields were mostly down in January across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 755), was 5.06% (down 2 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was down 2 bps at 5.06%. The MFA's Gross 7-Day Yield was at 5.43% (down 2 bps), and the Gross 30-Day Yield also was down 1 bp at 5.43%. (Gross yields will be revised Friday at noon, though, once we download the SEC's Form N-MFP data for 1/31/24.)

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 5.17% (down 3 bps) and an average 30-Day Yield at 5.17% (down 2 bps). The Crane 100 shows a Gross 7-Day Yield of 5.43% (down 3 bps), and a Gross 30-Day Yield of 5.43% (down 2 bps). Our Prime Institutional MF Index (7-day) yielded 5.26% (down 3 bps) as of Jan. 31. The Crane Govt Inst Index was at 5.12% (down 3 bps) and the Treasury Inst Index was at 5.10% (down 2 bps). Thus, the spread between Prime funds and Treasury funds is 16 basis points, and the spread between Prime funds and Govt funds is 14 basis points. The Crane Prime Retail Index yielded 5.08% (down 3 bps), while the Govt Retail Index was 4.85% (down 2 bps), the Treasury Retail Index was 4.86% (down 3 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.84% (up 16 bps) as of January.

Gross 7-Day Yields for these indexes to end January were: Prime Inst 5.54% (down 3 bps), Govt Inst 5.39% (down 3 bps), Treasury Inst 5.38% (down 2 bps), Prime Retail 5.56% (down 3 bps), Govt Retail 5.40% (unchanged) and Treasury Retail 5.38% (down 3 bps). The Crane Tax Exempt Index rose to 4.23% (up 16 bps). The Crane 100 MF Index returned on average 0.44% over 1-month, 1.31% over 3-months, 0.44% YTD, 5.01% over the past 1-year, 2.25% over 3-years (annualized), 1.80% over 5-years, and 1.19% over 10-years.

The total number of funds, including taxable and tax-exempt, was down 5 in January at 878. There are currently 755 taxable funds, up 1 from the previous month, and 123 tax-exempt money funds (down 6 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "MMF Assets Jump in January; Hitting Record $6.4 Trillion," which reviews the continued inflows into MMFs; "Federated Money Market Celebrates 50th; Q4 Earnings," which covers Federated Hermes' most recent earnings and their 50th year in MMFs; and, "BlackRock, Schwab Shed Light on MMF Shifts in Q4 Earnings," which reviews the latest earnings calls mentioning MMFs. We also sent out our MFI XLS spreadsheet Wednesday a.m., and we've updated our Money Fund Wisdom database with 1/31/24 data. Our February Money Fund Portfolio Holdings are scheduled to ship on Friday, February 9, and our February Bond Fund Intelligence is scheduled to go out on Wednesday, February 14.

MFI's "MMF Assets Jump" article says, "Money fund assets continued their record run in January, normally the weakest month of the year, after rising by a record $1.1 trillion in 2024. Our MFI XLS shows assets rising $87.0 billion, or 1.4%, to a record $6.405 trillion in the latest month. Assets continue higher in February too, rising $18.3B in the first 5 days of the new month, according to our MFI Daily."

It continues, "Over the past 12 months through 1/31/24, money fund assets have jumped by $1.200 trillion, or 23.0%. Taxable Retail MMFs increased by $591.3 billion, or 34.8% to $2.289 trillion, while Taxable Inst MMFs increased by $601.7 billion, or 17.8% to $3.990 trillion. Tax Exempt MFs inched up $7.4 billion, or 6.2% to $126.5 billion <b:>`_."

We write in our Federated 50th article, "Federated Hermes announced the 50th anniversary of Money Market Management, the company's first and one of the industry's oldest money market mutual funds. A press release entitled, 'Federated Hermes, Inc. celebrates 50 years of money market innovation' explains, 'Federated Hermes, Inc. (FHI), a global leader in active, responsible investing, today celebrates 50 years of money market innovations focused on improving client experiences and investment outcomes. Over five decades, Federated Hermes has maintained a steadfast dedication to products and services that are vetted through diligent credit analysis and broad diversification -- providing clients with competitive yields and daily liquidity.'"

It tells us, "President & CEO J. Christopher Donahue comments, 'For 50 years, through seasons of volatility and calm, Federated Hermes has confidently managed money market funds as the ballast in our ship. Our team of investment management professionals has maintained an unwavering focus on providing sound and innovative cash management solutions for our clients. With an average of 25 years of investment experience, the investment professionals on our liquidity team have provided rigorous money market management through a variety of interest-rate environments, regulatory changes, bull and bear economies and changing geopolitical conditions.'"

Our "BlackRock, Schwab" piece states, "BlackRock and Schwab both discussed money funds on their latest earnings calls, and show that 'cash sorting,' or the shift into money funds from bank deposits, remains alive and well. On BlackRock's latest earnings and earnings call, CFO Martin Small explains, 'BlackRock's cash management platform saw $33 billion of net inflows in the fourth quarter and $79 billion of net inflows in 2023. We're pleased with the continued strong growth in our cash and liquidity business. With year-end AUM up 14%, or over $90 billion year on year, we're leveraging our scale and integrated cash offerings to engage with clients who are using these products not only to manage liquidity but also to earn attractive returns.'"

It continues, "During the Q&A, one analyst asked about fixed income inflows, and President Rob Kapito responds, 'I wake up every morning salivating about the $7 trillion that's sitting in money market accounts that's waiting to move. And in order for it to move, you have to have a wide plate of products.... ETFs are becoming the investor's preferred vehicle with access to investments.... So, I think there's a huge, huge runway for fixed income.... The wind is right behind our back for that.'"

MFI also includes the News brief, "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees." which says, "Capital Group's $144.4 billion American Funds Central Cash fund, the largest Prime Inst money market fund, has filed to convert to a Government MMF, making it the first major casualty of the latest round of the SEC's pending Money Fund Reforms. Its Form N-1A filing tells us, 'On or about June 7, 2024, the fund intends to operate as a government money market fund pursuant to rule 2a-7 under the 1940 Act.'"

Another News brief quotes, "Investors' Business Daily on 'How The Best Online Brokers Boost Your Cash Holdings.' They state, 'Online brokers face stiff competition when it comes to paying clients to park their idle cash. They've had to up the ante as interest rates have risen and investors had plenty of cash ... options to choose from. Cash management options are a priority for online investors.'"

A third News brief, "The WSJ's 'Charles Schwab Just Survived a Year From Hell. The Trouble Isn’t Over Yet,' tells us, 'Schwab, founded some 50 years ago, grew from a discount brokerage for Main Street into a personal-finance supermarket.... While Schwab cut fees and made less revenue from trading, it minted money sweeping cash from its brokerage customers into bank deposits that paid out little interest. When rates were low, it worked well for Schwab. Customers were content keeping their money at the bank when there were few alternatives for better yield.'"

A sidebar, "Worldwide MF Assets $9.9T," says, "The Investment Company Institute's, 'Worldwide Regulated Open-Fund Assets and Flows, Third Quarter 2023' shows that money fund assets globally jumped by $225.3 billion, or 2.3%, in Q3'23 to $9.944 trillion. The increases were led by a sharp jump in money funds in U.S., while Ireland, Luxembourg, Mexico and Canada also rose. Meanwhile, money funds in China and Australia were lower. MMF assets worldwide increased by $1.639 trillion, or 19.7%, in the 12 months through 9/30/23, and money funds in the U.S. now represent 57.1% of worldwide assets."

Our February MFI XLS, with January 31 data, shows total assets increased $87.0 billion to a record $6.405 trillion, after increasing $24.5 billion in December and $219.8 billion in November. Assets decreased $39.3 billion in October, but increased $77.8 billion in September, $104.2 billion in August, $21.0 billion in July, $20.3 billion in June, $152.7 billion in May, $56.5 billion in April, $345.1 billion in March and $56.0 billion in February."

Our broad Crane Money Fund Average 7-Day Yield was down 2 bps to 5.06%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 3 bps to 5.17% in January. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both averaged 5.43%. Charged Expenses averaged 0.37% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Thursday once we upload the SEC's Form N-MFP data for 1/31/24.) The average WAM (weighted average maturity) for the Crane MFA was 38 days (up 1 day from previous month) and the Crane 100 WAM was also unchanged at 38 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Capital Group's $144.4 billion American Funds Central Cash fund, the largest Prime Inst money market fund, has filed to convert to a Government MMF, making it the first major Prime MMF casualty of the latest round of the SEC's pending Money Fund Reforms. A Form N-1A filing for the Capital Group Central Fund Series' American Funds Central Cash M (CMQXX) tells us, "On or about June 7, 2024 (the 'Effective Date'), the fund intends to operate as a government money market fund pursuant to rule 2a-7 under the 1940 Act. Under rule 2a-7, a government money market fund is a money market fund that invests at least 99.5% of its total assets in cash, U.S. Treasury securities and other government securities guaranteed or issued by an agency or instrumentality of the U.S. government, and repurchase agreements that are fully collateralized by cash or government securities."

It explains, "As a government money market fund, the fund will no longer be subject to a liquidity fee. However, although the fund will operate as a government money market fund, the calculation of the fund's net asset value will not change. Accordingly, the net asset value of the fund's shares will continue to 'float,' fluctuating with changes in the value of the fund's portfolio securities."

The Capital Group filing says, "Beginning on the Effective Date, the fund's investment objective and investment strategies and risks will be revised as follows: The investment objective of the fund is to provide you with a way to earn income on your cash reserves while preserving capital and maintaining liquidity. The fund is a government money market fund. The net asset value of the fund's shares will 'float,' fluctuating with changes in the value of the fund's portfolio securities. Shares of the fund are currently only available for investment by (a) other funds and investment vehicles and accounts managed by the fund's investment adviser and its affiliates and (b) the fund's investment adviser and its affiliates. Shares of the fund are not available to the public."

Under "Investment strategies and risks," it comments, "The fund will invest at least 99.5% of its total assets in cash, U.S. Treasury securities and other government securities guaranteed or issued by an agency or instrumentality of the U.S. government, and repurchase agreements that are fully collateralized by cash or government securities. Additionally, at least 80% of the fund's assets will normally be invested in securities that are issued or guaranteed by the U.S. government, its agencies and instrumentalities, and repurchase agreements that are fully collateralized by government securities."

The filing continues, "Repurchase agreements are agreements under which the fund purchases a security from a bank or broker-dealer and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Because the security purchased by the fund constitutes collateral for the seller's repurchase obligation, a repurchase agreement is effectively a loan by the fund that is collateralized by the security purchased. The fund will only enter into repurchase agreements involving securities of the type (excluding any maturity limitations) in which it could otherwise invest. In practice, the fund expects to enter only into repurchase agreements that are fully collateralized by cash or U.S. government securities."

It states, "The fund relies on the professional judgment of its investment adviser to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek to provide current income while preserving capital and maintaining liquidity. The investment adviser believes that an important way to accomplish this is by analyzing various factors, including the credit strength of the issuer, prices of similar securities issued by comparable issuers, current and anticipated changes in interest rates, general market conditions and other factors pertinent to the particular security being evaluated."

Capital Group adds, "While it has no present intention to do so, the fund's board may change the fund's objective without shareholder approval upon 60 days' prior written notice to shareholders. In accordance with applicable rules and regulations relating to money market funds, the fund will maintain a dollar-weighted average maturity of 60 days or less and its dollar-weighted average life will not exceed 120 days. Additionally, the fund will hold at least 25% of its total assets in daily liquid assets and at least 50% of its total assets in weekly liquid assets. For purposes of these limits, daily liquid assets and weekly liquid assets are generally defined to include cash, U.S. Treasuries, certain other government securities, as well as other securities that can be readily converted to cash within one or five business days, respectively."

Finally, the filing says, "Floating net asset value - The fund does not maintain a constant net asset value per share of $1.00. The fund transacts at a market-based net asset value calculated to four decimal places or an equivalent value for the fund depending on the share price (e.g., $10.000 or $100.00). Accordingly the fund's net asset value will vary as a result of changes in the value of the securities in which the fund invests. Liquidity fee - The fund will not be subject to a liquidity fee."

The largest Prime Inst MMFs (who will be subject to the new emergency liquidity fee regime) tracked by Crane Data currently include: American Funds Central Cash (CMQXX, $144.4B), Vanguard Market Liquidity Fund (VAN01, $72.5B), BlackRock Cash Inst MMF SL (BISXX, $68.5B), Fidelity Cash Central Fund (FID01, $50.6B), JPMorgan Prime MM Capital (CJPXX, $40.0B), Fidelity Sec Lending Cash Central Fund (FID05, $25.7B), Federated Hermes Inst Prime Obligs IS (POIXX, $21.3B), JPMorgan Prime MM Institution (JINXX, $18.3B), Columbia Short-Term Cash Fund (COL01, $17.6B), PGIM Inst Money Market Fund (PRU01, $14.8B), Morgan Stanley Inst Liq Prime Inst (MPFXX, $14.8B), Federated Hermes Inst Prime Value Obl IS (PVOXX, $14.8B), State Street Inst Liquid Res Prem (SSIXX, $13.8B), DFA Short Term Investment Fund (DFA01, $13.7B), BlackRock Lq TempCash Inst (TMCXX, $13.6B), JPMorgan Prime MM IM (JIMXX, $12.2B), UBS Select Prime Money Mkt Inst (SELXX, $10.4B), UBS Select Prime Money Mkt Pref (SPPXX, $9.3B), Schwab Variable Share MF Ultra (SVUXX, $5.9B) and MFS Inst Money Market A (MFS01, $4.9B).

The largest Prime Retail MMFs (who won't be subject to liquidity fees) include: Schwab Value Adv MF Inv (SWVXX, $175.5B), Schwab Value Adv MF Ultra (SNAXX, $98.3B), Fidelity Money Market Fund Premium (FZDXX, $92.2B), Fidelity Inv MM: MM Port Inst (FNSXX, $67.9B), Federated Hermes Prime Cash Oblig WS (PCOXX, $58.7B), Fidelity Inv MM: MM Port I (FMPXX, $53.5B), Allspring MMF Prm (WMPXX, $32.7B), JPMorgan Liquid Assets Premier (PJLXX, $24.8B), JPMorgan Liquid Assets Capit (CJLXX, $14.5B), Fidelity Money Market Fund (SPRXX, $10.6B), JPMorgan Liquid Assets Instit (IJLXX, $10.2B), UBS Prime Reserves Fund (UPRXX, $7.4B), JPMorgan Liquid Assets Morgan (MJLXX, $6.7B), Goldman Sachs Investor MM Inst (FMJXX, $6.5B), UBS Prime Preferred Fund (UPPXX, $6.4B), Invesco Premier Institutional (IPPXX, $6.1B), T Rowe Price Cash Reserves (TSCXX, $4.7B), Federated Hermes Capital Reserves (FRFXX, $3.9B), JPMorgan Liquid Assets Agen (AJLXX, $3.8B) and Federated Hermes Prime Cash Oblig SS (PRCXX, $3.7B).

For more info, see these Crane Data News stories: "More from the SEC's Money Market Fund Reforms: Liquidity Fee Excerpts" (7/24/23) and "Big Shift Out of Prime and Muni MMFs Hits $1 Trillion" (9/30/16).

The Wall Street Journal makes the outrageous claim that, "All Money-Market Funds Have the Same Yield, Right? Not Even Close," which goes through a number of odd hoops to try and show that money funds have a wide disparity in returns. It says, "Money-market mutual funds were ignored by many investors over the past decade or so as their yields hovered near zero. That has changed since the Federal Reserve began to raise its benchmark interest rate in 2022 -- but there has been wide variance between the top and bottom funds." (Editor's Note: The article is ridiculous -- almost all money fund yields are currently clustered between 5.50% and 4.40%.)

The article explains, "Money-market funds invest in short-term debt instruments like three-month Treasury bills and repurchase agreements, or repos. These instruments are highly liquid, have low default risk and low interest-rate risk. And most important, their return usually follows the yield on the federal-funds rate, the central bank's short-term benchmark rate. But despite the perception that money-market funds are all investing in the same instruments and nearly identical, my research assistants (Sarmad Mirza and Yewon Choi) and I find significant differences between the top and bottom funds over the past year."

It says, "To study this issue, we pulled data on all dollar-denominated money-market funds listed in the U.S. We then looked at the annualized returns for these funds over a recent six-month span (June 2023 to November 2023), the past year (December 2022 to November 2023) and the 10 years before 2022. Within each of these time frames, we looked at the distribution of returns -- pulling out the minimum, the 10th percentile, the 25th percentile, the median, the 75th percentile, the 90th percentile and the maximum."

The piece adds, "In other words, if you made the mistake of not doing your homework on money-market funds back in the 2010s and picked a poor-performing one, you might have lost out on about 1 percentage point in returns in a given year. The cost of not doing your homework today: 5 percentage points."

In other news, the European Funds and Asset Management Association, published a press release entitled, "Households continue to keep a disproportionate amount of money in bank deposits in most European countries." It explains, "EFAMA published a report analysing the progress made in recent years by European households in recent years in allocating more of their financial wealth to capital market instruments (pension plans, life insurance, investment funds, debt securities and listed shares) and less in cash and bank deposits."

The release tells us, "Some key findings include: European households increased their holdings of cash and bank deposits from EUR 10,260 billion in 2015 to EUR 13,944 billion in 2022, or from 36.7% of their financial wealth to 41.1%. In parallel, the ratio between the capital market instruments and the cash and bank deposits held by households fell from 1.73 in 2015 to 1.43 in 2022. The massive increase of savings in deposits was driven by the pandemic in 2020 (EUR 1,054 billion) and the financial market downturn in 2022."

It continues, "Households increased their investments in capital markets to EUR 578 billion in 2021 and EUR 574 billion in 2022, compared to an annual average of EUR 303 billion in 2015-2019. However, the increase in bank deposits remained substantial: EUR 713 billion in 2021 and EUR 486 billion in 2022. There remain considerable differences in the way households allocate their savings across Europe. In Denmark, Sweden and the Netherlands, households hold less than 30% of their financial wealth in deposits. However, in 2022 the share of deposits exceeded 70% in Malta, Portugal, Lithuania, Bulgaria, Slovenia, Poland, Cyprus and Greece."

EFAMA writes, "There are five elements that explain the varied composition of household portfolio across Europe: The role of funded pensions in national pension systems; The extent to which households can expect a large State pension; The level of gross national income per capita; The level of financial literacy; and, The tax incentives available for investments."

They comment, "Some countries made more headway between 2020-2022 than others. Slovakia, Germany, Norway, Denmark, Luxembourg, Finland, Italy, Austria, Belgium, and the Czech Republic made the most progress. The fact that these countries are quite different in terms of total population, economic weight, and financial development confirms that progress toward greater participation in capital markets can be achieved in any country."

The release continues, "The report also makes several policy recommendations, including: Boosting access to, and coverage of, funded occupational and personal pensions, including: Developing pension tracking systems to inform citizens about what retirement income they can expect, Implementing mechanisms of auto-enrolment for occupational pension plans, Revising the Pan-European Personal Pension Product to allow the PEPP market to take off, Integrating the European Retirement Week into the EU official calendar to enhance awareness about the need to save more for retirement. Keeping access to affordable and quality financial advice for all EU citizens. This requires that the Retail Investment Strategy preserves the existing distribution system for investment products which allows EU citizens to have access to affordable and quality financial advice no matter the size of their investment."

EFAMA Senior Director Bernard Delbecque comments, "If Member States want to foster retail investments in capital markets in a meaningful way, their priority should be to create the right conditions for EU citizens to save more for their pensions. By pursuing this approach in a determined way, Member States would adequately respond to the triple challenge of reducing pension inadequacy risks, advancing the Capital Markets Union, and mobilizing an important source of capital for the European economy to take up the sustainability challenge."

EFAMA Director General Tanguy van de Werve <p:>v_ adds, "`Our report shows that decisive actions are needed at European and national level to encourage more Europeans to become long term investors. The Commission's Retail Investment Strategy should ensure that European investors have access to affordable and quality advice, that the digital distribution of investment products is facilitated and that disclosures are understandable and decision useful. Also, we encourage regulators to stress the benefits of investing instead of putting off people by constantly focusing on costs and risks, especially as costs are overall decreasing and risks can be diversified away and generate higher real returns."

Money market mutual fund assets continued their record run in the first month of 2024, normally the weakest month of the year seasonally for MMFs. ICI's latest weekly "Money Market Fund Assets" report shows MMF assets jumped to break $6.0 trillion for the first time ever over the past week. Assets are up by $115 billion, or 2.4%, year-to-date in 2024, with Institutional MMFs up $57 billion, or 1.4% and Retail MMFs up $57 billion, or 3.4%. Over the past 52 weeks, money funds have risen a massive $1.180 trillion, or 24.5%, with Retail MMFs rising by $585 billion (33.2%) and Inst MMFs rising by $595 billion (19.4%).

The weekly release says, "Total money market fund assets increased by $41.68 billion to $6.00 trillion for the week ended Wednesday, January 31, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $31.58 billion and prime funds increased by $7.32 billion. Tax-exempt money market funds increased by $2.78 billion." ICI's stats show Institutional MMFs rising $33.1 billion and Retail MMFs rising $8.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.888 trillion (81.5% of all money funds), while Total Prime MMFs were $993.7 billion (16.6%). Tax Exempt MMFs totaled $119.0 billion (2.0%).

ICI explains, "Assets of retail money market funds increased by $8.62 billion to $2.35 trillion. Among retail funds, government money market fund assets increased by $4.72 billion to $1.53 trillion, prime money market fund assets increased by $2.07 billion to $713.48 billion, and tax-exempt fund assets increased by $1.83 billion to $107.66 billion." Retail assets account for over a third of total assets, or 39.1%, and Government Retail assets make up 65.0% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $33.06 billion to $3.65 trillion. Among institutional funds, government money market fund assets increased by $26.86 billion to $3.36 trillion, prime money market fund assets increased by $5.25 billion to $280.22 billion, and tax-exempt fund assets increased by $948 million to $11.37 billion." Institutional assets accounted for 60.9% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.

According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $93.9 billion in January to a record $6.394 trillion. Assets rose $32.7 billion in December, jumped $226.4 billion in November but fell by $31.9 billion in October. They rose $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.

In other news, Investment News writes, "Client assets in cash products ended 2023 at twice the normal level: Ameriprise." The article tells us, "The stock market has been surging this year, but investors had started out 2024 with a lot of money in cash products, Ameriprise executives said during the firm's earnings call Thursday. Cash-related holdings totaled $81.5 billion among the clients of Ameriprise advisors at the end of 2023, representing about 9 percent of the total client assets of $901 billion reported by the firm."

They quote Ameriprise CFO Walter Berman, "It is sort of the double the amount clients are holding compared to where they used to be. They're getting a 5-plus [percentage] yield on it just to sit tight, unsure about the market moves ... It's not an uncomfortable thing for clients of our advisors to keep cash there."

The piece says, "Of the $81.5 billion in cash-related products, more than half was in third-party money market products or brokered CDs, according to the firm. As it develops more bank products, there will be an opportunity to capture a bigger share of those client assets, Berman said. But Ameriprise also expects that a considerable portion of the assets currently in cash will go to wrap accounts and asset allocation products as advisors and their clients seek higher returns through stock exposure."

See the company's press release, "Ameriprise Financial Reports Fourth Quarter 2023 Results," and the "Ameriprise Financial, Inc. Q4 2023 Earnings Call Transcript" for more. On the call, CFO Berman states, "Total cash balance, including third-party money market funds and brokered CDs reached a new high this quarter at $81.5 billion. We have seen stability in our underlying client cash positions with free cash up 4% sequentially. This stabilization has continued into January. Additionally, we continue to see new money flowing into money market funds and brokered CDs as well as into our certificates. This creates a significant redeployment opportunities as markets normalize for clients to put money back to work in wrap and other products on our platform over time."

During the Q&A on the call, Berman tells us, "So right now, we are seeing stability and really little growth in our sweep accounts. So we feel very comfortable about it. And we still have buffer there. So we are evaluating that, but we'll be more measured as we go forward because we've certainly placed and shifted a substantial amount. But you would see that it will be increasing but at a slower pace as we evaluate these sweep balances that support that. So I would say that it will be increasing but at a slower pace."

Asked another question on cash on the sidelines, CEO James Cracchiolo responds, "So those balances are in money markets and brokerage CDs short term that will roll off. And so as they do, I think advisers will evaluate whether they put that back into the market. And if they did, I would probably say a portion of that would go back, a reasonable portion, will go back most likely into wrap type programs, imbalanced type portfolios, which would include both equities and fixed income, et cetera, alternatives. On the other side of it, there, we’ve seen a bit of a pickup in some transactional activity as well in the fourth quarter. So some of that will go back into transactional type activities as they look at longer duration type products as well. So again, that's really as advisers look at the market and they put money to work over time for their clients."

Cracchiolo continues, "It is sort of like double the amount that clients are holding usually compared to where they used to be. And again, advisers look at it with their clients and they're getting a 5-plus yield on it, just to sit tight, with unclear about the market moves, etc. So I do believe that over time, that money will be redeployed, but holding at higher rates right now, it's not an uncomfortable thing for clients that are advised us to keep extra cash there."

Berman adds, "In the sweep accounts, and this is as of 2 days ago, we have seen a complete stabilization from that standpoint, a little increase. So we're obviously observing -- understand the seasonality of it. But certainly, it's what I indicated, and that’s through 2 days ago."

The Federal Reserve held short-term interest rates steady at 5.25-5.5% Wednesday, issuing the FOMC statement, which says, "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."

They explain, "In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."

The FOMC adds, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

In other news, Strategic Treasurer recently published a "Liquidity Risk Survey Report," which explains, "Welcome to the 11th Liquidity Risk Survey Report. This research was conducted with over 160 senior treasury professionals around the globe. We started our research on this topic in 2011, and we are encouraged by the continued enthusiasm and interest surrounding this critical area over the years. We are pleased to welcome Allspring Global as the underwriters of this research."

They write, "Managing liquidity has been a critical responsibility for treasurers and investment managers for many decades. The increasing concerns about counterparty risks for deposits and investments are starting to drive more actions on the asset side of the house. On the borrowing side, companies have experienced significant increases in costs over the past few years. This has been coupled with an overall tightening of the debt markets, making borrowing more challenging for many organizations. This leads to increased concerns about liquidity."

The piece explains, "Many treasury leaders want to better understand key aspects of managing their risks around liquidity. What are others doing? What are they focusing on now? Has this been changing over time? What are the drivers of these changes? How are companies improving their monitoring activities or reducing their risks? This research is focused on these topics. We are sharing different aspects of this information via this report, a podcast episode, and a joint webinar. There is a wealth of good information to unpack. Here are a few headlines to get you started, but as you scroll through a few pages, you will find ten key findings and significant additional details."

It states, "Companies Started Using Bank Deposit (DDA, Sweep, MMDA) and Government MMFs in the Past Year for Stashing Short-Term Cash: With interest rates rising over the past year, the investment vehicles with the greatest uptick in use were: (1) Bank Sweeps: 52% (2) Government MMFs: 35% (3) Certificates of Deposits (CDs): 13% of companies overall, 19% of smaller companies."

The survey says, "Safety the Top Priority Overall, but Small Companies Prioritize Liquidity in This Market," explaining, "The priority for most companies overall is safety, liquidity, and yield, in that order (SLY). More than twice as many companies selected safety compared to liquidity. This skew is even more pronounced in larger companies, with three-quarters selecting safety compared to just 19% and 7% respectively placing liquidity and yield first. For smaller companies, on the other hand, liquidity narrowly edged safety out (50% to 47%) for the top category."

Discussing the "Decade-Long Trend of Declining Actions in Monitoring Counterparty Exposures for Bank Deposits," it comments, "In 2013, 60% of companies were reviewing counterparty exposure for bank deposits and CDs. In the intervening years, however, this gradually trended downward. Just 52% track either informally or formally in 2023, and for larger firms, the trend has moved from 76% monitoring in 2013 to 59% in 2023."

They study also cites, "ESG Increases in Importance for 49% of All Respondents, with EMEA and Large Companies Most Heavily Vested." Strategic Treasurer explains, "Forty-five percent have an ESG program in place, and 18% are working to implement one. For EMEA and ROW, 75% indicated an increase in importance over the past year."

They state, "Bank Portals the Most Common Way to Invest in MMFs (63%), Followed by the Use of an Institutional Broker (33%)." It continues, "The third most common way of investing in MMFs was directly through the fund (21%), and the independent portals are used by 13% of respondents. When combining small and medium-sized firms, the independent portals move up a position to third, but the use increases to one in four companies (25%)."

Another result says, "Forty Percent of Companies Have No Policy on Investment Limits for Uninsured Bank Deposits," which tells us, "The difference in policy limits by company size is negligible, as 47% of small companies have no formal limit, and 38% of medium and large are also without limits. Thirty-six percent have limits of six million dollars or less." The survey question asks, "What is the maximum dollar value exposure to uninsured bank deposits allowed by your investment policy?" The responses are as follows: Less than $1 million 25%, $1-3 million 8%, $3-6 million 3%, $6-10 million 7%, Greater than $10 million 17%, and No policy limits 40%.

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