News Archives: August, 2024
The Investment Company Institute published its latest weekly "Money Market Fund Assets" report and its latest monthly "Trends in Mutual Fund Investing" for July 2024, as well as its monthly "Month-End Portfolio Holdings of Taxable Money Funds" Thursday. The former shows money market mutual fund assets jumping for the fourth week in a row (up $21.0 billion) to a record $6.263 trillion. Assets have risen in 15 of the last 19 weeks, increasing by $285.5 billion (or 4.8%) since April 24. MMF assets are up by $376 billion, or 8.0%, year-to-date in 2024 (through 8/28/24), with Institutional MMFs up $131 billion, or 4.3% and Retail MMFs up $245 billion, or 14.6%. Over the past 52 weeks, money funds have risen by $680 billion, or 12.2%, with Retail MMFs up by $447 billion (21.4%) and Inst MMFs rising by $232 billion (6.7%). (Note: Crane Data's separate and more comprehensive asset series shows money funds hitting a record $6.6 trillion this week!)
ICI's weekly release says, "Total money market fund assets increased by $21.05 billion to $6.26 trillion for the week ended Wednesday, August 28, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $21.14 billion and prime funds increased by $535 million. Tax-exempt money market funds decreased by $618 million." ICI's stats show Institutional MMFs rising $17.9 billion and Retail MMFs rising $3.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.079 trillion (81.1% of all money funds), while Total Prime MMFs were $1.054 trillion (16.8%). Tax Exempt MMFs totaled $129.9 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $3.16 billion to $2.54 trillion. Among retail funds, government money market fund assets increased by $1.98 billion to $1.61 trillion, prime money market fund assets increased by $1.53 billion to $810.62 billion, and tax-exempt fund assets decreased by $352 million to $118.53 billion." Retail assets account for over a third of total assets, or 40.5%, and Government Retail assets make up 63.4% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $17.89 billion to $3.73 trillion. Among institutional funds, government money market fund assets increased by $19.15 billion to $3.47 trillion, prime money market fund assets decreased by $996 million to $243.44 billion, and tax-exempt fund assets decreased by $266 million to $11.33 billion." Institutional assets accounted for 59.5% of all MMF assets, with Government Institutional assets making up 93.2% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $99.1 billion in August (through 8/28) to $6.604 trillion. They hit a record $6.613 trillion on 8/27 but fell slightly on 8/28. Assets rose by $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September and $98.3 billion last August. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
ICI's monthly Trends shows money fund totals rising $46.6 billion in July to $6.139 trillion. MMFs have increased by $657.3 billion, or 12.0%, over the past 12 months (according to ICI's Trends through 7/31). Money funds' July asset increase follows an increase of $13.0 billion in June, $90.9 billion in May, $4.3 billion in April, a decrease of $73.0 billion in March, an increase of $55.1 billion in February, $82.4 billion in January, $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 and $123.9 billion last August. Bond fund assets increased $103.8 billion to $4.975 trillion, and bond ETF assets increased and still remain above the $1.5 trillion level (after passing it for the first time ever 7 months ago).
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 $1.657 trillion as of 7/31, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $388.84 billion, or 1.4 percent, to $27.48 trillion in July, 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 $13.67 billion in July, compared with an outflow of $6.06 billion in June.... Money market funds had an inflow of $26.37 billion in July, compared with an outflow of $6.53 billion in June. In July funds offered primarily to institutions had an outflow of $2.50 billion and funds offered primarily to individuals had an inflow of $28.87 billion."
The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower from last month. Taxable MMFs increased by $47.3 billion in July to $6.010 trillion. Tax-Exempt MMFs decreased $0.7 billion to $128.6 billion. Taxable MMF assets increased year-over-year by $640.8 billion (11.9%), and Tax-Exempt funds rose by $16.5 billion over the past year (14.7%). Bond fund assets increased by $103.8 billion (after increasing by $38.2 billion in June) to $4.975 trillion; they've increased by $312.5 billion (6.7%) over the past year.
Money funds represent 22.3% of all mutual fund assets (down 0.2% from the previous month), while bond funds account for 18.1%, according to ICI. The total number of money market funds was 275, down 1 from the prior month and down from 279 a year ago. Taxable money funds numbered 230 funds, and tax-exempt money funds numbered 45 funds.
ICI's "Month-End Portfolio Holdings" confirms a drop in Repo last month. Repurchase Agreements remain the largest composition segment, decreasing $24.0 billion, or -1.0%, to $2.407 trillion, or 40.1% of holdings. Repo holdings have decreased $542.6 billion, or -18.4%, over the past year. (See our Aug. 12 News, "August Money Fund Portfolio Holdings: TDs, Treasuries Up; Repo Slides.")
Treasury holdings in Taxable money funds increased $40.7 billion, or 1.8%, to $2.316 trillion, or 38.5% of holdings. Treasury securities have increased by $979.9 billion, or 73.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $23.4 billion, or 3.4%, to $711.3 billion, or 11.8% of holdings. Agency holdings have increased by $98.3 billion, or 16.0%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $52.9 billion, or 17.7%, to $351.7 billion (5.9% of assets). CDs held by money funds rose by $95.8 billion, or 37.4%, over 12 months. Commercial Paper remained in fifth place, up $6.9 billion, or 2.7%, to $260.0 billion (4.3% of assets). CP increased $60.5 billion, or 30.4%, over one year. Other holdings decreased to $16.6 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $24.4 billion (0.4% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 70.574 million, while the Number of Funds was down 1 at 230. Over the past 12 months, the number of accounts rose by 10.681 million and the number of funds decreased by 1. The Average Maturity of Portfolios was 33 days, down 1 from June. Over the past 12 months, WAMs of Taxable money have increased by 10.
State Street Global Advisors (SSGA) recently confirmed that they'll be sticking with their Prime Institutional money fund offering. They published an update titled, "Money Market Reform 2024," which reviews the current round of regulatory changes impacting money market mutual funds. It explains, "During March of 2020 and the onset of the pandemic, there was broader stress in the short-term funding markets and significant redemptions of Prime Fund assets. In response, the SEC proposed additional regulations to further strengthen the Institutional Prime Fund space during periods of volatility with the goal to disincentivize any first mover advantage. In October 2024, the final wave of the SEC's money market fund reform rule changes will take effect, marking the most substantial shift since the 2016 reforms. These changes are set to redefine the landscape of Institutional Prime Money Market funds. This transition signifies a pivotal moment for the industry, reflecting the evolving regulatory environment and the drive for greater stability and transparency in the financial markets." (Note: We're still taking registrations for our European Money Fund Symposium, which will be held Sept. 19-20, 2024 in London, England. See you in 3 weeks in London!)
SSGA writes, "The 2024 reforms are expected to have a profound impact on Institutional Prime Money Market funds, which, as of June, held approximately $650 billion in assets under management (AUM) according to Crane Data. Many fund managers have already announced closures or conversions, accounting for over two-thirds of the AUM. The remaining balance will hinge on how comfortable shareholders are with the new rules and the potential application of fees to their redemptions. It is important to note that for those Institutional Prime Fund Investors who understand their cash flows, have multiple sources of liquidity and view Prime Funds as a strategic cash allocation -- they may be largely unaffected. Effective October 2, 2024, the SEC's new rule will impact Institutional Prime and Institutional Municipal Money Market Funds. Retail Prime and Municipal Money Market funds will remain unaffected. This distinction underscores the focus the SEC has on Institutional investors."
They continue, "The new rule states that a when a fund experiences total daily net redemptions of 5% or more of its net assts in a single day, then it must calculate the cost of selling a vertical slice of the portfolio. If the estimated liquidity costs are less than one basis point (.01%) of the value of the shares redeemed, the fund is not required to apply a fee. If the costs are higher, the mandatory liquidity fee must be applied to all redeeming shareholders. Shareholders who are not redeeming, are not charged the fee. The fee could be zero or more. If, when pricing the vertical slice of the portfolio, it is determined that there is no change to the prices of those securities then the fee would be zero. The SEC mandates that if a fund company cannot establish pricing or determine the fee, the fund company could apply a default fee of 1%."
The piece states, "Historically, it has been [rare] for institutional prime money market funds to lose 5% or more of their AUM in a single day. However, the SEC believes that in most instances, normal market conditions, such redemptions will not materially impact the NAV, and thus, the fee would not be applied. Fees are most likely to be applied during periods of market stress, similar to the liquidity-driven event in March 2020. During such times, NAVs of institutional money market funds can fluctuate by more than $0.0001, highlighting the importance of understanding the market conditions under which fees might be imposed. While most fund closing times are not expected to change, prime funds are expected to convert to a single NAV strike per day. In preparation for these changes, we will convert to a single NAV strike on September 16, 2024. The NAV strike time will be 3 PM ET."
It tells us, "As the reform approaches, it is essential for investors to consider whether Institutional Prime Money Market Funds can still serve their liquidity needs. Given the potential for fees and the uncertainty surrounding redemption costs, these funds may no longer be viable as same-day liquidity vehicles. Instead, they could be viewed as tactical allocations for yield advantage over government or treasury funds. They can continue to offer value as a cash and cash equivalent investment that provides safety and liquidity while generating a yield above a government or treasury money market fund."
Finally, SSGA adds, "The SEC's latest rule changes mark a transformative moment for Institutional Prime Money Market Funds. The reforms aim to enhance market stability but also signal the end of these funds' traditional role. The new regulations, driven by investor behavior during periods of market stress, remove the discretionary power of fund managers to implement fees or gates. Investors must now navigate this new era with a keen understanding of the risks and opportunities presented by these regulatory changes."
An SEC filing for the $15.3 billion State Street Institutional Liquid Reserves Fund, including its Administration Class (SSYXX), Bancroft Capital Class (VTDXX), Institutional Class (SSHXX), Investment Class (SSVXX), Investor Class (SSZXX), Opportunity Class (OPIXX), Premier Class (SSIXX), Service Class (LRSXX) and Trust Class (TILXX), says, "Effective September 16, 2024, the Fund's Summary Prospectuses, Prospectuses, and the SAIs are revised as follows: The second paragraph of the section titled 'Principal Investment Strategies' is hereby deleted and replaced with the following: Although the Fund is a money market fund, the net asset value ('NAV') of the Fund's Shares 'floats,' fluctuating with changes in the values of the Fund's portfolio securities."
It also comments, "The first paragraph of the sub section titled 'Determination of Net Asset Value – For the ILR Fund' in the section titled 'Shareholder Information' is hereby deleted and replaced with the following: The ILR Fund determines its NAV per share once each day on which the New York Stock Exchange (the 'NYSE'), The Federal Reserve banks and State Street are open for business at 3:00 p.m. ET. The price for Fund shares is the NAV next calculated after the purchase order is accepted by a Fund. The Fund calculates its NAV to four decimal places."
SSGA also published a piece named, "Benchmarking Your Cash: Part 1," which states, "Since 2015 the Fed has moved interest rates by almost 1,000 basis points: up, down, back up and most likely back down this year. With the emergence of new liquidity products (deposits, DEI share classes, earnings & tech credits) and the evolving rate environment, institutional cash investors are faced with a difficult question, 'Is my approach to managing our organization's liquidity competitive?'. We at SSGA receive this question continuously and work closely with our clients and prospects to help them benchmark their cash based on liquidity type, whether that be operating, core, or strategic."
They discuss, "Benchmarks for Cash Investments," writing, "The overarching goal of a traditional cash product is to preserve principal and provide liquidity. As such, they do not tend to have benchmarks in the more traditional sense, where a portfolio's aim may be to match or exceed the performance of its benchmark index. The benchmark rate or index chosen for a cash product is more indicative in nature, and can help to measure a portfolio's performance over a risk-free rate of return or against a pool of similar products."
SSGA explains, "Commonly used benchmarks in the cash space include: SOFR (Secured Overnight Financing Rate): The leading replacement for LIBOR, SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. It's considered risk-free, as it's based on actual transactions rather than estimates; T-Bill Rates (U.S. Treasury Bills): The yield on short-term U.S. government debt serves as a benchmark for risk-free returns. Investors often compare their cash yields to the relevant T-Bill maturity to gauge whether they're being adequately compensated for credit risk; [and the] Fed Funds Rate: The target rate set by the Federal Reserve for overnight loans between banks. It influences other short-term rates, including those on bank deposits and money market funds."
They also mention, "Money Market Funds and Money Market Fund Indices: Relevant money market funds or money market fund indices which track average yields can be a reliable way to measure a market rate of return. Indices are categorized by asset type (e.g., government, prime) or share class (e.g., institutional, retail). Providers include: Crane Data, iMoney[Net], S&P, and others. Note that these options may not perfectly align with your specific portfolio strategy."
Bloomberg writes "'T-Bill and Chill' Is a Hard Habit for Investors to Break," which is more about money market funds and cash investing than T-bills. They tell us, "It's been the ultimate no-brainer for more than a year: Park your money in super-safe Treasury bills, earn yields of more than 5%, rinse and repeat. Or as billionaire bond investor Jeffrey Gundlach put it last October, 'T-bill and chill.' Even now, with Federal Reserve officials poised to ease benchmark interest rates from a two-decade high -- a move that would instantly push down yields on bills and other short-term debt -- money-market funds are thriving. They raked in $106 billion this month alone and their balances, at $6.24 trillion, have never been higher." (Note: Crane Data's MFI Daily asset series broke $6.6 trillion for the first time ever on Monday, August 26, hitting a record $6.608 trillion.)
The piece continues, "Investors in cash equivalents appear to be perfectly happy to stay where they are for now, despite repeated advice to add exposure to longer-term bonds from the likes of Pimco and BlackRock Inc. -- admittedly bond managers themselves. But their point is that while cash returns have nowhere to go but down, debt with longer maturities stands to benefit from capital gains in an environment of deep rate cuts."
It says, "During this year's bouts of bond volatility, cash has been a good place to be. Money-market rates, which are keyed off of the Fed's current 5.25%-to-5.5% policy band, have held steady and offered no surprises.... Money markets may continue to appeal, it's the scope of rate cuts matters. Just 1 percentage point of reductions, for instance, would still leave bill rates in the range of 4%, an appealing return -- especially after years of near-zero rates before the most recent tightening cycle, and at a time when longer-term US bonds are yielding far less. This may explain why retail investors are in no hurry to shift their holdings."
Bloomberg explains, "Of the $6.24 trillion of cash parked in money market funds, roughly 60% of that is from corporations that have been stockpiling cash following the pandemic, while the rest is from mom-and-pop investors who are content to continue earning more yield than what they can earn by merely keeping that money in the bank. Those yields are also significantly higher than what investors can get by moving into longer-term Treasury bonds -- though nothing like the stock market's gains. Even after the Fed starts lowering borrowing costs, money-market funds should continue to lure at least some cash from retail investors. That's because they will still offer higher yields than banks and attract institutions that prefer to outsource cash management."
They state, "Of course, for some the choice isn't just between bills and longer-term bonds. Warren Buffett's Berkshire Hathaway Inc. increased its holdings of Treasury bills to $234 billion in the second quarter after cashing in on investments in equities including Apple Inc. For investors like him, holding cash equivalents while rates are still reasonable makes sense until fresh bargains in stocks appear."
Finally, the article adds, "Don't tell that to Bill Eigen, manager of the $10 billion JPMorgan Strategic Income Opportunities Fund. For him, the idea of moving money into a US 10-year note currently yielding around 3.82% has little appeal. His fund held 54% in cash at the end of July, according to the latest filing. 'You can get mid-5% in cash, get 6% in short-term investment grade floating rate,' Eigen said. 'I won't lend to the government for 10 years and get paid less.'"
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Aug. 23) includes Holdings information from 79 money funds (up 11 from a week ago), or $3.638 trillion (up from $3.207 trillion) of the $6.577 trillion in total money fund assets (or 55.3%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Aug. 12 News, "August Money Fund Portfolio Holdings: TDs, Treasuries Up; Repo Slides.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.561 trillion (up from $1.428 trillion a week ago), or 42.9%; Repurchase Agreements (Repo) totaling $1.420 trillion (up from $1.239 trillion a week ago), or 39.0%, and Government Agency securities totaling $296.4 billion (up from $257.3 billion), or 8.1%. Commercial Paper (CP) totaled $127.5 billion (up from a week ago at $80.3 billion), or 3.5%. Certificates of Deposit (CDs) totaled $82.2 billion (up from $61.4 billion a week ago), or 2.3%. The Other category accounted for $106.4 billion or 2.9%, while VRDNs accounted for $44.8 billion, or 1.2%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.561 trillion (42.9% of total holdings), Fixed Income Clearing Corp with $430.4B (11.8%), the Federal Home Loan Bank with $218.3 billion (6.0%), JP Morgan with $109.1B (3.0%), Citi with $96.8B (2.7%), the Federal Reserve Bank of New York with $93.4B (2.6%), BNP Paribas with $87.4B (2.4%), Federal Farm Credit Bank with $68.5B (1.9%), RBC with $61.1B (1.7%) and Goldman Sachs with $54.7B (1.5%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($260.9B), Goldman Sachs FS Govt ($238.6B), Fidelity Inv MM: Govt Port ($227.1B), JPMorgan 100% US Treas MMkt ($208.5B), Federated Hermes Govt ObI ($168.5B), BlackRock Lq FedFund ($167.0B), Fidelity Inv MM: MM Port ($134.5B), State Street Inst US Govt ($133.8B), BlackRock Lq Treas Tr ($130.5B) and Morgan Stanley Inst Liq Govt ($126.5B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
While we haven't seen any more SEC filings announcing exits from the Prime Institutional money fund sector since early this month (see our Aug. 6 News, "DFA Short-Term Investment Fund Converts to Ultra-Short; FT on Flows"), we have seen a number of previously announced exits and mergers take place over the past 2 weeks. On Friday, the Prime Institutional UBS Select Prime Money Mkt Inst (SELXX, $5.196B) merged into the Prime Retail UBS Prime Reserves Fund and the Prime Inst UBS Select Prime Money Mkt Pref (SPPXX, $3.215B) merged into the Prime Retail UBS Prime Preferred Fund. Earlier in August, DWS ESG Liquidity Cap (ESIXX), DWS ESG Liquidity Inst (ESGXX) and DWS Liquidity Inst Res (ESRXX) all liquidated on 8/14/2024. Also, on 8/16, Allspring Heritage Adm (SHMXX) merged into Allspring Govt MM Adm (WGAXX), Allspring Heritage I (SHIXX) merged into Allspring Govt MM Inst (GVIXX), Allspring Heritage Sel (WFJXX) merged into Allspring Govt MM Sel (WFFXX) and Allspring Heritage Svc (WHTXX) merged into Allspring Govt MM Svc (NWGXX). We've made these changes in our Money Fund Intelligence Daily product, and they will also be reflected in the upcoming MFI XLS monthly when it ships in early September. Later this week, we'll see Invesco Liquid Assets Institutional (LAPXX), Invesco STIC Prime Institutional (SRIXX) and UBS Limited Purpose Cash Inv Fund (UBS03) liquidate.
One way to monitor the exits and changes (besides watching our products) is to watch the Federal Reserve Bank of New York's list of "Reverse Repo Counterparties." Their most recent statement says, "Prime Master Fund managed by UBS Asset Management is no longer a reverse repo counterparty, effective August 26." They wrote about previous changes, "Allspring Heritage Money Market Fund is no longer a reverse repo counterparty, effective August 19," "DFA Short Term Investment Fund of The DFA Investment Trust Company is no longer a reverse repo counterparty, effective August 1," and "Federated Hermes Institutional Prime Value Obligations Fund is no longer a reverse repo counterparty, effective July 29."
The NY Fed's current list of "Money Market Funds" now includes: AllianceBernstein: AB Fixed-Income Shares, Inc., AB Government Money Market Portfolio; Allspring Funds Management: Allspring Government Money Market Fund, Allspring Money Market Fund and Allspring Treasury Plus Money Market Fund; BlackRock Liquidity Funds: FedFund, T-Fund, TempCash, TempFund, Money Market Master Portfolio and Treasury Money Market Master Portfolio; BNY Mellon Investment Adviser: Dreyfus Cash Management, Dreyfus Government Cash Management, Dreyfus Institutional Preferred Government Money Market Fund, Dreyfus Treasury and Agency Liquidity Money Market Fund, Dreyfus Treasury Obligations Cash Management; Capital Research and Management Company: American Funds U.S. Government Money Market Fund and Capital Group Central Fund Series, Capital Group Central Cash Fund; Cavanal Hill Investment Management: Cavanal Hill Government Securities Money Market Fund and Cavanal Hill U.S. Treasury Fund; Charles Schwab Investment Management: Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab Treasury Obligations Money Fund, Schwab US Treasury Money Fund, Schwab Value Advantage Money Fund and Schwab Variable Share Price Money Fund.
The list also includes: Columbia Management Investment Advisers: Columbia Short-Term Cash Fund, a series of Columbia Funds Series Trust II; DWS Investment Management Americas: DWS Government & Agency Fund and Government Cash Management Portfolio; Federated Investment Management: Edward Jones Money Market Fund, Federated Hermes Capital Reserves Fund, Federated Hermes Government Obligations Fund, Federated Hermes Government Obligations Tax-Managed Fund, Federated Hermes Government Reserves Fund, Federated Hermes Inst Prime Obligations Fund, Federated Hermes Municipal Obligations Fund, Federated Hermes Prime Cash Obligations Fund, Federated Hermes Tax-Free Obligations Fund, Federated Hermes Treasury Obligations Fund and Federated Hermes Trust for U.S. Treasury Obligations; Fidelity Management & Research Company: Fidelity Colchester Street Trust: Government Portfolio, Fidelity Colchester Street Trust: Money Market Portfolio, Fidelity Colchester Street Trust: Treasury Portfolio, Fidelity Hereford Street Trust: Fidelity Government Money Market Fund, Fidelity Hereford Street Trust: Fidelity Money Market Fund, Fidelity Newbury Street Trust: Fidelity Treasury Money Market Fund, Fidelity Phillips Street Trust: Fidelity Government Cash Reserves, Fidelity Revere Street Trust: Fidelity Cash Central Fund, Fidelity Revere Street Trust: Fidelity Securities Lending Cash Central Fund, Fidelity Salem Street Trust: Fidelity Series Government Money Market Fund and VIP Government Money Market Portfolio.
The Fed RRP list continues: Franklin Advisers: The Money Market Portfolio; Goldman Sachs Asset Management: Goldman Sachs Financial Square Government Fund, Goldman Sachs Financial Square Money Market Fund, Goldman Sachs Financial Square Prime Obligations Fund, Goldman Sachs Financial Square Treasury Obligations Fund, Goldman Sachs Financial Square Treasury Solutions Fund and Goldman Sachs Investor Money Market Fund; HSBC Global Asset Management (USA): HSBC U.S. Government Money Market Fund; Invesco Advisers: Invesco Government & Agency Portfolio, Invesco Government Money Market Fund, Invesco Premier U.S. Government Money Portfolio and Invesco Treasury Portfolio; Jackson National Asset Management: JNL Government Money Market Fund and JNL/WMC Government Money Market Fund; J.P. Morgan Investment Management: JPMorgan Liquid Assets Money Market Fund, JPMorgan Prime Money Market Fund, JPMorgan Tax Free Money Market Fund, JPMorgan U.S. Government Money Market Fund and JPMorgan U.S. Treasury Plus Money Market Fund.
It includes: Legg Mason Partners Fund Advisor: Western Asset/Government Portfolio, Western Asset/Liquid Reserves Portfolio and Western Asset/U.S. Treasury Reserves Portfolio; Morgan Stanley Investment Management: Morgan Stanley Institutional Liquidity Funds Government Portfolio, Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio, Morgan Stanley Institutional Liquidity Funds Prime Portfolio, Morgan Stanley Institutional Liquidity Funds Treasury Portfolio and Morgan Stanley Institutional Liquidity Funds Treasury Securities Portfolio; Northern Trust Investments: NTAM Treasury Assets Fund, Northern Funds - U.S. Government Money Market Fund, Northern Funds - U.S. Government Select Money Market Fund, Northern Institutional Funds - Government Portfolio, Northern Institutional Funds - Government Select Portfolio and Northern Institutional Funds - Treasury Portfolio; Pacific Investment Management Company LLC: PIMCO Funds: PIMCO Government Money Market Fund; PGIM Investments LLC: Prudential Government Money Market Fund, Inc. - PGIM Core Government Money Market Fund and Prudential Investment Portfolios 2 - PGIM Institutional Money Market Fund; Principal Global Investors, LLC: Principal Funds, Inc. - Government Money Market Fund; RBC Global Asset Management (U.S.): RBC Funds Trust, U.S. Government Money Market Fund; SSgA Funds Management: Institutional Liquid Reserve Portfolio, Institutional US Gov. Money Market Fund, a series of the State Street Master Funds, State Street Navigator Securities Lending Government Money Market Portfolio and State Street Treasury Plus Money Market Portfolio.
Finally, it also includes: T. Rowe Price Associates: T. Rowe Price Cash Reserves Fund, T. Rowe Price Government Money Fund, Inc., T. Rowe Price Government Reserve Fund, T. Rowe Price Treasury Reserve Fund and T. Rowe Price U.S. Treasury Money Fund; UBS Asset Management (Americas): Government Master Fund, Limited Purpose Cash Investment Fund and Treasury Master Fund; U.S. Bancorp Asset Management: First American Government Obligations Fund and First American Treasury Obligations Fund; The Vanguard Group: Vanguard Treasury Money Market Fund, Vanguard Market Liquidity Fund, Vanguard Cash Reserves Federal Money Market Fund, Vanguard Federal Money Market Fund and Vanguard Money Market Portfolio; and Wilmington Funds Management: Wilmington U.S. Government Money Market Fund.
The NY Fed describes the "Eligibility criteria of the program, "In order to be eligible to become a reverse repo counterparty, a firm must be either: A state or federally chartered bank or savings association (or a state or federally licensed branch or agency of a foreign bank) with total assets equal to or greater than $30 billion, or reserve balances equal to or greater than $10 billion on the last quarter for which relevant FFIEC reports are available; or A government-sponsored enterprise; or An SEC-registered 2a-7 fund that has, measured at each month-end for the most recent six consecutive months, either net assets of no less than $2 billion or an average outstanding amount of RRP transactions of no less than $500 million. Firms must already have arrangements in place to operate in the triparty repo market, in transactions collateralized by U.S. government debt, agency debt and agency mortgage-backed securities. Firms must be able to execute RRPs with securities margined at 100% (i.e. the value of the securities provided by the New York Fed will equal the funds provided by the counterparty)."
For more, see the Crane Data News updates, "First American Inst Prime Obligations to Invest Solely in Liquid Assets" (7/23/24), "Schwab, JPM, Meeder Announce Prime Inst Conversions to Government" (7/18/24), "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24), "BlackRock Liquidates TempFund, LEAF" (6/10/24), "Federated Hermes Merging Prime Inst Money Funds; Prime Value To POF" (6/6/24), "Allspring to Merge Heritage MMF Into Govt MMF; UBS Converting Fund" (6/3/24), "DWS Liquidating ESG Liquidity Fund, 7th Prime Inst to Exit" (5/22/24), "Dreyfus Files to Liquidate Cash Management Prime Inst MMF, Tax Exempt" (5/13/24), "Goldman Files to Liquidate Prime Inst MMFs; Barron's: MMFs Tempting" (4/22/24), "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).
Western Asset tells us in a "July 2024 Liquidity" update, "In the money markets, the front-end yield curve flattened significantly in July, while longer dated yields fell sharply with rate cuts drawing closer. Three-month Treasury bill yields fell by around 0.10% to 5.28% while three-month commercial paper yields fell by 0.10%-0.15% to a range between 5.30% and 5.35%. Usage of the Fed's Reverse Repurchase Program (RRP) ended July at $413 billion, with market expectations of a continued gradual decline in RRP balances as ongoing issuance in Treasury bills presents an attractively yielding source of supply for money market investors." (Note: There's still time to register for European Money Fund Symposium, which will be held Sept. 19-20, 2024 in London, England! We hope to see you there!)
They write, "Over the month of July, weighted average maturities (of Western Asset Treasury Liquidity portfolios gradually increased from the mid 40-day range to around 50 days, while also increasing weighted average life (days) to a little under 90 days. Net yields remained steady over the month, reflecting general stability in the money markets with the FOMC continuing to hold the overnight target range at 5.25% to 5.50%."
The update continues, "Western Asset's Government Liquidity portfolios moderately increased their WAMs over the month to the mid 30 days level, while WALs also held at slightly higher levels than the previous month, ending July at around 100 days. With economic data in July showing continued progress in disinflation and a softening labor market, the WAM and WAL positioning reflected the market's firmer expectations that the Fed would cut rates as soon as September."
It says, "Western Asset's Prime Liquidity portfolios moderately shortened their WAMs to the mid 30 days level, with WAL levels also decreasing from around the 70 to mid 80-day level to the mid 60-day level. Money market yields, including commercial paper, fell as July ended, while the yield advantage of Prime Liquidity portfolios over government portfolios continued to hold at around the 0.08% to 0.10% levels. Financial and banking sectors remained stable, and liquidity in commercial paper, certificates of deposit and other instruments used in the portfolios remained sufficient."
The piece adds, "In July, municipal money market fund yields ended the month at slightly higher levels than the prior month. The average 7-day tax free SIFMA rate decreased to 3.51% at July month end, down from 3.88% at June month end. Higher broker/dealer inventories and quarter end technical factors contributed to the higher yields and underperformance versus SOFR. Western Asset maintained an up in quality bias amid the volatility, and still deems the front end of the yield curve as attractive versus intermediate maturities."
In other news, Citi's Jason Williams writes on "Estimating where repo needs are going" in his latest "Short-End Notes." He says, "Repo financing needs have grown materially over the past two years on the back of increased Treasury supply and larger dealer holdings. We estimate where repo financing needs may be going into 2025 based on our supply projections and what it may mean for repo.... Repo rates had a light respite the past few days, but we still see stress in the future as eventually banks become the marginal lender. We do not think increasing MMF AUM, which again hit highs this week, will keep repo rates pinned."
The update tells us, "Money market fund (MMF) AUM climbed higher the past few weeks on the back of the recent risk-off. We've previously expected balances to grow into 2025 as commercial deposit rates remain significantly below MMF yields.... Does this mean repo must remain pinned to RRP, making MMF AUM a better proxy for front-end 'demand' than bank reserves (which we discussed above)? We don't think so, since increases in MMF AUM are not 'new' money introduced to the financial system but rather money moved from one pot to another. For instance, if MMF AUM rises due to a decline in bank deposits, the bank portfolio needs to choose between 1) moving a reserve, 2) reducing an asset (perhaps repo or UST holdings), or 3) increasing a liability (e.g., issue CP/CD). As a simple toy example, if a bank portfolio pulls money from repo to fund the MMF transfer, and then the MMF invests in repo, that is a net wash."
It continues, "The QT period from 2018 to 2019 is a great example of this, with reserve scarcity occurring in September 2019 despite MMF AUM still moving higher. In our view, bank deposits (and assets) rose from banks increasing their securities holdings, making reserves more important for banks, as their only true source of liquidity.... In other words, MMF inflows from 2018 to 2019 effectively moved money from one pot to another pot. Meanwhile, in today's landscape, the decline in RRP usage does add new cash to the banking system. This is one reason repo rates should not move too non-linearly (for now), barring intermediation challenges."
Citi's note states, "Bank portfolios eventually become the end game as the marginal cash lender in repo markets. The timing is a function of when RRP cash empties out, or intermediation challenges stop RRP from being utilized in the repo market (although presumably MMFs will eventually spend their RRP cash on T-bills as the supply grows over time). At some point, when RRP is unable to move lower due to heightened intermediation challenges (perhaps December), expect bank portfolios to step in and become the marginal lender into repo. Last December, cash lenders were able to utilize cleared bilateral repo, presumably funded by RRP cash, to help alleviate repo stress. This time around, due to the intermediation constraints, we do not think that channel can be utilized.... Large domestic banks did step in in December 2023 and around the last quarter-end as repo moved above IORB."
Finally, The Wall Street Journal writes, "Charles Schwab Wants to Fix Its Struggling Bank. Investors Are Skeptical." They comment, "Charles Schwab's biggest moneymaker is its bank. It is also a sore spot the company is trying to fix. Schwab's playbook of making easy money on customer deposits was upended when interest rates rose rapidly and people moved their cash to chase higher yields. Now, Schwab is looking to change how it uses customer deposits, and make more money from lucrative services including loans and financial advice."
The piece tells us, "Banks make money off customer deposits in a variety of ways. At Schwab, the focus has largely been on investing the cash in such assets as Treasurys and mortgage-backed securities, and less so on making loans directly to consumers and businesses. That strategy was squeezed when rates rose. The value of the longer-term bonds in Schwab's investment portfolio declined, just as many customers moved their deposits into higher-yielding alternatives such as money-market funds. To avoid taking losses on its longer-term investments, Schwab had to turn to pricier short-term funding sources, such as borrowing from the Federal Home Loan Bank system."
It adds, "Schwab is now looking to make its bank more nimble. On the company's earnings call last month, Walt Bettinger, chief executive officer and co-chairman, said Schwab plans to put more of its investment portfolio into shorter-term assets. It might also offload more of its deposits to third-party banks."
The Investment Company Institute published its latest weekly "Money Market Fund Assets" report Thursday, which shows money market mutual fund assets jumping for the third week in a row (up $107.4 billion) to a record $6.242 trillion. Assets have risen in 14 of the last 18 weeks, increasing by $264.4 billion (or 4.4%) since April 24. MMF assets are up by $355 billion, or 7.5%, year-to-date in 2024 (through 8/21/24), with Institutional MMFs up $113 billion, or 3.7% and Retail MMFs up $242 billion, or 14.4%. Over the past 52 weeks, money funds have risen by $673 billion, or 12.1%, with Retail MMFs up by $448 billion (21.5%) and Inst MMFs rising by $226 billion (6.5%). (Note: Please join us for European Money Fund Symposium, which will be held Sept. 19-20, 2024 in London, England!)
The weekly release says, "Total money market fund assets increased by $24.89 billion to $6.24 trillion for the week ended Wednesday, August 21, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $19.53 billion and prime funds increased by $3.02 billion. Tax-exempt money market funds increased by $2.34 billion." ICI's stats show Institutional MMFs rising $3.5 billion and Retail MMFs rising $21.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.058 trillion (81.0% of all money funds), while Total Prime MMFs were $1.054 trillion (16.9%). Tax Exempt MMFs totaled $130.5 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $21.44 billion to $2.53 trillion. Among retail funds, government money market fund assets increased by $6.59 billion to $1.60 trillion, prime money market fund assets increased by $12.72 billion to $809.09 billion, and tax-exempt fund assets increased by $2.13 billion to $118.88 billion." Retail assets account for over a third of total assets, or 40.6%, and Government Retail assets make up 63.4% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $3.45 billion to $3.71 trillion. Among institutional funds, government money market fund assets increased by $12.94 billion to $3.45 trillion, prime money market fund assets decreased by $9.70 billion to $244.44 billion, and tax-exempt fund assets increased by $214 million to $11.59 billion." Institutional assets accounted for 59.4% of all MMF assets, with Government Institutional assets making up 93.1% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $75.6 billion in August (through 8/21) to $6.581 trillion. They hit a record $6.586 trillion on 8/20 but have since fallen. Assets rose by $16.6 billion in July, $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September and $98.3 billion in August. 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, Coindesk published an article titled, "Avalanche Becomes Latest Blockchain to Support Franklin Templeton's Tokenized Money Market Fund," which tells us, "Franklin Templeton's OnChain U.S. Government Money Market Fund (FOBXX) has expanded its availability to the Avalanche network in a bid to expand the fund's base. 'I think the Avalanche ecosystem represents a super robust network that allows us to deliver high quality attributes and characteristics to our customers,' Roger Bayston, head of digital assets at Franklin Templeton told CoinDesk.... Avalanche is the latest blockchain in Franklin's effort to expand access to the fund."
They quote Ava Labs' Morgan Krupetsky, "For us, why we're very excited to have Franklin Templeton's Benji app and platform deployed on Avalanche is really twofold. On the one hand, the money market funds contract in and of itself and potentially as a payment mechanism represents a foundational and fundamental piece to a broader tokenized asset ecosystem and capabilities. But two, being able to ... deliver and bring to bear real world utilities and use cases for users ... they don't have today."
The release adds, "FOBXX launched in 2021 and became the first money market fund to use a public blockchain to record transactions and ownership. Three years later, it currently stands at a $420 million market cap."
Finally, a press release entitled, "Prometheum Capital Adds Two New Digital Asset Securities to Custodial Platform" states, "Prometheum Ember Capital LLC, a subsidiary of Prometheum Inc., announced today the addition of digital asset securities ('DAS') Uniswap (UNI) and Arbitrum (ARB) to its custodial platform."
They write, "Institutional and corporate clients in the U.S. will be able to custody Ethereum's ether (ETH) token, along with the above digital assets, through Prometheum Capital, a FINRA member firm and SEC-registered special purpose broker-dealer for digital assets.... Prometheum Capital uses blockchain technology for recording on chain ownership of digital assets, eliminating the need for traditional intermediaries such as transfer agents."
The release adds, "Prometheum Capital plans to launch its custodial services to institutional investors in Q3 2024. Prometheum Capital will continue to expand its digital asset offerings for custody, and in the future trading, to support digital assets including debt, equities, ETFs, mutual funds, options, money market funds, and other investment contract products that are issued and transferred on a blockchain."
For more, see these Crane Data News articles: "FT on MMF Inflows Ahead of Rate Cuts; Bloomberg on Stablecoins, T-Bills" (8/22/24), "Franklin MF Adds Arbitrum Blockchain" (8/12/24), "Fidelity Intl Tokenizes MF, Paxos" (6/14/24), "J.P. Morgan on Weekly Holdings, Treasury Repo Clearing; Fitch; OnChain" (5/2/24), "European Money Fund Symposium London, Sept. 19-20; Tokenized MMFs" (4/25/24), "CoinDesk on Tether Stablecoin; Paxos" (2/5/24), "Forbes: SEC Targets PayPal Stablecoin" (11/13/23), "J.P. Morgan on Stablecoin Shrinkage, Risks; Bloomberg, WSJ and NY Fed" (9/28/23), "CNBC on PayPal, Paxos' Stablecoin" (8/10/23) and "NY Fed on 'Runs on Stablecoins'" (7/19/23).
Yesterday, the Financial Times published the article, "Nearly $90bn pours into US money market funds ahead of expected rate cuts," which, contrary to popular belief, describes how money market fund assets should jump once the Federal Reserve cuts interest rates. It says, "Almost $90bn poured into US money market funds in the first half of August as investors sought to lock in attractive yields that could outlast an expected interest rate cut by the Federal Reserve next month. Money market funds, which hold cash and short-dated assets including government debt, pulled in net inflows of $88.2bn between August 1 and August 15, according to flow tracker EPFR -- the highest figures for the first half of a month since November last year." (Note: Register ASAP for our European Money Fund Symposium, which will be held Sept. 19-20, 2024 in London, England. Registration is $1,000.)
The FT piece explains, "Most of the inflows originated with institutional investors -- large entities investing on behalf of others -- rather than retail investors, the data shows. Industry participants said the rush of money reflected institutional investors positioning for a fall in interest rates from the current level of 5.25 to 5.5 percent as soon as next month. Yields on Treasury bills typically decline ahead of an expected interest rate cut, and drop further immediately after rates go down, they added, but money market funds can offer higher rates for longer because they have more diversified holdings."
They quote Shelly Antoniewicz, deputy chief economist at the Investment Company Institute, "The institutional increase that we've seen has really only just been the last couple of weeks.... The reason for that is it's pretty clear now that there is a much greater chance that the Fed will ease in September." The FT adds, "Money markets funds had a blowout 2023 as rates rose to a 23-year high to combat inflation. Net inflows reached a record $1.2tn last year, according to EPFR data, helped by significant demand from retail investors. Industry participants say institutional investors are following suit."
The article then quotes Deborah Cunningham, CIO of Liquidity at Federated Hermes, "This is something that happens quite regularly when interest rates start to go down. As those direct securities' yields have ratcheted down with expectations of further Fed rate cuts, [investors] would rather keep the yield of a money-market fund for a longer period of time." It states, "US money market funds are allowed a so-called weighted average maturity of up to 60 days, meaning they can hold a diverse range of securities -- from debt maturing in three or six months' time to much shorter-dated assets."
The piece tells readers, "The average US money market fund currently yields 5.1 percent, according to Crane Data. By comparison, a one-month T-bill yields a slightly higher 5.3 percent and a three-month bill 5.2 percent. So far, the overnight lending rate is 5.32 per cent."
The FT also says, "John Tobin, CIO at Dreyfus, noted that 'every rate cut in recent history has been a function of lowering rates to get to zero because there's been a financial crisis.' By contrast, he said, 'here, assuming that's not the case, we're now talking about terminal rates with at least a 3 [percent] handle.' That implied that money market funds could continue to attract assets long after the Fed cuts rates. This time, 'money funds are better positioned,' he said."
They comment, "Cunningham described rates above 3 percent as 'the magic hurdle.' 'If you start dipping below 3 percent, that's when people start getting a bit itchy about it and going into other products.'"
In other money market news, Bloomberg writes that, "Bond-Market Pros Are Unimpressed With Baby Whales From Crypto," which looks at stablecoins and the largest holders of Treasury bills. They explain, "They are turning into the strangest of bedfellows in the financial world: The famously safe securities issued by the US Treasury and the notoriously not-so-safe world of cryptocurrencies. Issuers of crypto stablecoins meant to track the dollar one-for-one have become noticeable players in the Treasury market as they seek the safest and most-liquid assets to back the value of their tokens."
Bloomberg states, "[R]oughly $81 billion in Treasury bills [is] directly owned by Tether.... At the moment, stablecoins are far from major whales in US debt markets, accounting for only about 1% of all Treasury bill purchases. The $6.19 trillion money-market mutual fund industry remains the largest buyer of bills. At the end of June, those funds held about $2.4 trillion of government debt, according to Crane Data. And demand from them is likely to grow as new regulatory requirements that take effect in October impose mandatory liquidity fees on some funds during times of financial stress."
They continue, "There are also corporate whales in traditional finance that dwarf the Tethers of the world: Warren Buffett's Berkshire Hathaway Inc. increased its holdings of T-bills to $234 billion in the second quarter, almost triple Tether's holdings and accounting for about 4% of T-bill purchases. The entire market cap for stablecoins is currently about $167 billion, of which Tether accounts for about $117 billion, according to data tracker CoinGecko. Whether stablecoin issuers do develop into major whales capable of influencing the T-bill market depends largely on how fast the crypto market itself continues to grow, and if the US Congress ever passes legislation regarding them."
Bloomberg's piece says, "Tether Chief Executive Officer Paolo Ardoino, for his part, is confident his firm will become an even more important player in Treasury securities. He believes the growth of the stablecoin market will be strong enough to make Tether, which is known as USDT, the biggest owner of three-month T-bills in the next few years, and perhaps the largest owner of all T-bills within a decade. Eventually, he expects Tether to be 100% backed by US T-bills, and only its excess reserves will be invested in other asset classes."
Finally, they tell us, "Meanwhile, lingering high interest rates have made Tether's pivot to T-bills a lucrative move that helped earn the company a record $5.2 billion in net profit in the first half of this year, according to its latest attestation report. And the relationship with Cantor Fitzgerald, which also allows Tether access to liquidity through the overnight reverse repo market, has helped erase some of the skepticism toward the stablecoin."
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Aug. 16) includes Holdings information from 68 money funds (unchanged from two weeks ago), or $3.207 trillion (up from $3.162 trillion) of the $6.559 trillion in total money fund assets (or 48.9%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here and our Aug. 12 News, "August Money Fund Portfolio Holdings: TDs, Treasuries Up; Repo Slides.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.428 trillion (up from $1.426 trillion two weeks ago), or 44.5%; Repurchase Agreements (Repo) totaling $1.239 trillion (up from $1.194 trillion two weeks ago), or 38.6%, and Government Agency securities totaling $257.3 billion (down from $261.5 billion), or 8.0%. Commercial Paper (CP) totaled $80.3 billion (down from two weeks ago at $95.0 billion), or 2.5%. Certificates of Deposit (CDs) totaled $61.4 billion (down from $67.2 billion two weeks ago), or 1.9%. The Other category accounted for $87.8 billion or 2.7%, while VRDNs accounted for $52.8 billion, or 1.6%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.428 trillion (44.5% of total holdings), Fixed Income Clearing Corp with $331.6B (10.3%), the Federal Home Loan Bank with $189.1 billion (5.9%), JP Morgan with $101.4B (3.2%), the Federal Reserve Bank of New York with $96.3B (3.0%), Citi with $85.6B (2.7%), BNP Paribas with $78.4B (2.4%), Federal Farm Credit Bank with $61.6B (1.9%), RBC with $56.7B (1.8%) and Goldman Sachs with $54.0B (1.7%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($255.2B), Goldman Sachs FS Govt ($240.1B), Fidelity Inv MM: Govt Port ($221.5B), JPMorgan 100% US Treas MMkt ($211.7B), BlackRock Lq FedFund ($164.5B), Morgan Stanley Inst Liq Govt ($134.9B), Fidelity Inv MM: MM Port ($133.8B), State Street Inst US Govt ($133.0B), BlackRock Lq Treas Tr ($124.8B) and Allspring Govt MM ($118.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
In other news, Federated Hermes published a brief titled, "Short-term markets during rate cuts." Written by Senior Portfolio Manager and Head of Low Duration Nicholas Tripodes, it says, "Inflation and the labor market now appear to fit the Federal Reserve requirements for a rate cut. But with only three Federal Open Market Committee (FOMC) meetings left this year, it isn't a question of if policymakers will ease in 2024, but when and by how much. The markets are currently predicting a cut at each remaining meeting, some of the 50 basis-point variety. Our Short Term Investments Committee (STIC) is predicting the first cut to be a quarter-point cut arriving in September, though August data could adjust our opinion and sentiment is building for a 50 basis-point cut among some committee members."
The update tells us, "All predictions aside, it might be more helpful to talk about the impact this guessing game is having on short-term markets and what we expect whenever the easing begins. Treasury yields have already dropped substantially in anticipation of policy change. For example, the 2-year Treasury was over 5% in April -- just four months ago -- and is now near 4%. At this level, the market is projecting about 300 basis points of cuts over the next two years as, in theory, the 2-year Treasury yield is the average of the federal funds rate over the next two years plus a term premium."
It says, "[W]e carefully consider 'duration management' when making investment decisions because it can substantially impact relative performance compared to a benchmark, especially during periods of interest-rate volatility. As of late, we have seen attractive relative value in AAA-rated asset-backed securities, which are outyielding A-rated corporates and in some cases BBB-rated corporates. Mortgage-backed securities issued by Agencies such as Freddie Mac also can provide good relative value considering their attractive spreads above Treasuries."
Federated's Tripodes continues, "When the FOMC does cut the target range of the federal funds rate, we expect the Secured Overnight Financing Rate (SOFR) to decrease in lockstep. Floating-rate notes, which are primarily indexed to SOFR, will follow. What does this mean for investments across the short end? Well, distribution yields will likely dip. Liquidity yields should drop faster than short-term bond yields. Direct security yields will probably adjust the fastest due to their shorter nature. This mismatch in the change of rates could lead to a normalization where we eventually see bond yields above money markets, and potentially well above direct securities and bank deposits. How much rates are cut, i.e., 25 or 50 basis points at a time, will impact how quickly and dramatically the normalization comes into being."
He adds, "In that environment, we anticipate investors will transition out of direct securities and FDIC insured bank deposits into potentially higher yielding money market investments. Additionally, we could see those who can, move out further into short-duration investments to capture even higher potential yields. While this trend likely won't be seen broadly until the first cut occurs, I can't claim to know when and by how much we will see these changes either. I will say this, though, in the guessing game with the Fed, markets tend to move earlier. When the time comes, investors may wish that they too had proactively adjusted their investments to capture any additional benefits possible prior to official policy changes."
Finally, Morningstar wrote recently that, "This JPMorgan ETF Is a Great Extended Cash Choice." They state, "Launched in May 2017, JPMorgan Ultra-Short Income ETF (JPST) has grown to more than $24.5 billion, making it now the largest actively managed fixed-income exchange-traded fund. Higher short-term yields no doubt have helped fuel this ETF's popularity, but so too have the ETF's team, investment approach, and reliable performance pattern. Depth, stability, and solid decisions help this ETF's tenured team stand out from rivals."
They comment, "James McNerny has led this offering since its inception and leads this strategy day to day. He joined J.P. Morgan in 2000 and focuses exclusively on short-term strategies. McNerny collaborates with managers David Martucci, Cecilia Junker, and Kyongsoo Noh, who average more than 25 years of industry experience. The comanagers also draw on the vast resources of the firm's Global Fixed Income, Currency, and Commodities platform, which includes 21 investment-grade corporate-bond and eight securitized analysts who inform security selection. They are thus able to make effective and thoughtful decisions across traditional cash markets and bonds that mature beyond one year."
Brokerage sweep accounts using low-yielding bank deposit options continue to attract the interest of regulators, lawyers and the financial press. A new posting on the website JDSupra from lawyers at Katten, Muchin, Rosenman, titled, "SEC Scrutiny into Cash Sweep Programs: What Investment Advisers Need to Know," explains, "In recent years, the US Securities and Exchange Commission (SEC) has initiated several probes into how advisory firms manage their cash sweep programs, which are designed to transfer idle cash from investment advisory accounts into interest-earning sweep vehicles to generate additional interest income for the investors. While broker-dealers also provide cash sweep programs, the SEC probes have been limited to an investment advisor's use of cash sweep accounts and potential breaches of an advisor's fiduciary duty to its managed accounts. The most common sweep options offered by investment advisors are bank deposit accounts and money market funds."
It continues, "Cash sweep programs have been on the SEC's radar since July 2016, when the SEC Division of Examinations (then named the Office of Compliance Inspections and Examinations (OCIE)) issued a risk alert -- 'OCIE's 2016 Share Class Initiative' -- giving notice of a sweep exam focused on conflicts disclosure and compliance with fiduciary duties. In February 2018, the SEC's Division of Enforcement Asset Management Unit launched a Share Class Selection Disclosure Initiative."
The piece says, "Around that same time, the SEC also took a deep interest in disclosures and conflicts related to cash sweep arrangements, with a particular focus on the potential for breaches of fiduciary duties, undisclosed conflicts, and revenue-sharing payments received in connection with cash sweep programs. In recent weeks, there have been reports of ongoing probes by the SEC into how advisory firms are managing their bank deposit sweep programs. While these inquiries are said to focus on an advisor's fiduciary duties relating to the interest rates clients receive through such sweep programs, recent SEC exams and public comments by the regulator point to eight areas of focus for the agency."
These include: "Conflicts of Interest — Failure to disclose conflicts of interest where revenue-sharing payments incentivize advisers to recommend cash sweep options to clients; Inappropriate Advisory Fees — Charging advisory fees on cash balances where arguably no investment advice is offered on cash positions; Low Rates of Return — Sweep programs paying below-market interest rates when other investments offer significantly higher rates; and, One-Size Fits All — Programs in which the only automatic sweep option available to clients does not allow the firm to manage client-specific risk tolerance/investment objectives."
The brief adds, "Separately, cash sweep programs are subject to the watchful eye of the Financial Industry Regulatory Authority (FINRA), albeit for different reasons. FINRA's 2020 Risk Monitoring and Examination Priorities Letter focuses on operational matters for cash sweep programs (such as proper customer reserve formula computations), but also reminds FINRA member firms to properly disclose the manner in which their brokerage cash sweep programs operate, including the availability of alternatives and the extent to which FDIC protection applies. Finally, recently filed class action lawsuits by investment account customers allege breaches of contractual and fiduciary duties and, in some instances, state consumer protection laws for failing to pay reasonable interest rates on sweep account assets, presenting yet another risk for financial firms that employ a cash sweep program."
Investment News also wrote again last week on sweeps in, "After UBS earnings, is cash sweep drama over?" They comment, "UBS Group ... became the latest wealth management firm to declare it was increasing yields on clients' cash held in advisory accounts, joining Wells Fargo & Co., Morgan Stanley and others who also recently raised rates due to competitors paying substantially better yields on cash. Todd Tuckner, UBS Group's chief financial officer, said during a conference call with investors to discuss company earnings that by the middle of the fourth quarter the wirehouse and global bank intends to adjust the sweep deposit rates in U.S. advisory accounts, with the company expecting a reduction in pretax profits by around $50 million annually."
This article says, "Ever since interest rates began rising in 2022 post the Covid-19 pandemic, wealth management firms have faced questions about low interest rates they continued to pay clients on cash deposits.... `The broader wealth management industry, which for decades has toggled back and forth between charging clients commissions in brokerage accounts and fees in advisory accounts, has been wrestling with rate of interest in pays clients for cash for some time now, most recently for the past month during this recent earnings season."
It adds, "These events do not 'permanently remove the overhang' facing brokerage firms, particularly as risk from litigation about the interest rate issue remains, [analyst] Chubak noted. 'But it does bolster the case made by bulls that the IBDs could be largely insulated from this risk,' he added. Another analyst echoed the positive sentiment for Schwab. 'As we look ahead, we continue to believe we are close to stabilization in sweep cash,' wrote Jeff Schmitt, an analyst with William Blair Equity Research ... particularly as the Federal Reserve appears to be on the verge of easing interest rates."
UBS's Tuckner says on their latest earnings call (see transcript here, "The outlook for net interest income in our U.S. wealth business is expected to be influenced by competitive dynamics affecting the pricing of sweep deposits. By the middle of 4Q '24 we intend to adjust the sweep deposit rates in our U.S. Advisory accounts, which net of offsetting factors, are expected to reduce pretax profits by around $50 million annually."
Tuckner comments, "Advisory is about a third of the total that we have in sweeps ... and then as far as the pricing goes ... it's a function of interest rates.... So we have to see also where interest rates are, so in terms of an absolute price that I can offer."
See also Reuters' "Cash sweep scrutiny threatens wealth managers' credit ratings, Moody's says," which states, "The spate of regulatory investigations into wealth managers' cash sweep programs could hurt their credit ratings, Moody's warned on Thursday, underscoring the threat to the high-margin business for firms like Morgan Stanley and Wells Fargo."
For more on recent Brokerage Sweep News, see too these CraneData.com stories: "Law Firm Says Bolster Disclosures, Rates on Sweeps; Crane Index 5.11%" (8/13/24), "Barron's: BofA Cites Risk from Sweeps" (8/8/24), "Tradeweb Completes ICD Acquisition; AdvisorHub on Wells Sweep Suit" (8/2/24), "IN: Ameriprise Sued Over Sweeps" (7/31/24), "Federated Hermes' Donahue, Cunningham Call Hits Sweeps, Flows, Rates" (7/29/24), "Ameriprise, Raymond James Discuss Sweeps Issues on Earnings Call Q&As" (7/26/24), "Barron's Writes on Pressure on Sweeps" (7/25/24), "WSJ, Investment News on Brokerage Deposit, Advisory Sweep Pressures" (7/19/24), "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues" (7/17/24).
S&P Global Ratings published, "U.S. Domestic 'AAAm' Money Market Fund Trends (Second-Quarter 2024)," which tells us, "Rated money market fund (MMF) assets rose from the previous quarter, reaching $3.6 trillion between government and prime funds. Managers again shortened the maturity profiles of rated government and prime MMFs. Fund sponsors announced the closure of certain prime funds." (Note: Register and make hotel reservations soon for our European Money Fund Symposium, which takes place Sept. 19-20, 2024 in London, England. Registration is $1,000.)
They comment, "Flows into rated MMFs were net positive for another consecutive quarter. Rated government MMFs picked up 1% of inflows, and prime MMF assets were flat. While rates remain elevated, asset growth in government MMFs may persist from institutional investors placing excess cash. We see less certainty for flows for rated prime funds, but think they will likely experience declines as the new SEC 2a-7 rules are implemented, with a number of fund sponsors electing to reduce or eliminate their offerings of prime MMFs via conversions to government strategies and fund closures. Since the final rules were announced in 2023, the mandatory liquidity fee rule has posed the highest hurdle for fund sponsors. Outside of the operational challenges of calculating and applying a liquidity fee, investor appetite was another consideration for closing certain prime funds."
S&P says, "Seven-day net yields were stable for rated government MMFs and decreased slightly for rated prime MMFs over the quarter, as anticipated rate cuts priced in by markets became more realistic.... Repurchase agreements (repo) were more heavily used in rated government MMFs during the quarter. Average repo exposure increased to 43% from 40%.... With reduced Treasury bill supply, managers of rated government MMFs moved mainly into repo and partially into Treasury floaters. Managers utilized the Fed's Reverse Repo Program (RRP) as needed, particularly at quarter-end, but often achieved better rates with other non-RRP repo counterparties."
They add, "Treasury bill exposure was also lower in rated prime MMFs quarter over quarter. With more asset classes available to prime funds, managers moved into commercial paper, bank deposits, and corporate bonds rather than repo. Exposure to certificates of deposits (CDs) decreased slightly, but managers still demonstrated a preference for fixed-rate exposure."
S&P also posted, "European 'AAAm' Money Market Fund Trends (Second Quarter 2024)," which states, "Europe-domiciled MMFs rated by S&P Global Ratings recorded €1.06 trillion in assets under management as of June 30, 2024. In the 12 months to June 30, 2024, net assets in all three currencies covered in this report have seen asset increases, with euro-denominated funds up 49%, sterling-denominated funds up 4.5%, and U.S. dollar-denominated funds up 16%."
It continues, "During the second quarter, the European Central Bank (ECB) lowered its deposit rate by 25 basis points (bps), settling at 3.75%. The subsequent effect is already noticeable on euro-denominated funds with their average seven-day net yield falling 20bps over the quarter. There were no interest rate movements from the Bank of England or Federal Reserve during the second quarter, but interest rates' direction seems clear as inflation continues to decline toward targets. The market anticipation of future rate cuts is already impacting fund yields, with sterling dropping 4bps and the U.S. dollar dropping 2bps."
S&P says, "In response to the ECB's cut, euro-denominated funds extended their weighted-average maturities (WAM) profiles by six days during the quarter, rising to their highest level since March 2022. Over the last 12 months, euro-denominated funds have averaged a 33-day WAM, so the extension to 40 days ... is portfolios' action to navigate the drop in fund returns since the ECB's rate cut. For sterling-denominated and U.S. dollar-denominated funds, WAMs remained flat over the quarter but have extended over the last 12 months by 13 and 15 days, respectively."
Finally, S&P also produced the brief, "'AAAm' Local Government Investment Pool Trends (Second-Quarter 2024)." It explains, "Prime LGIPs continued to grow in second-quarter 2024, while government strategies saw a slight decline, with overall asset growth plateauing. Prime LGIPs expanded to $286 billion (a 2.5% increase from the prior quarter), and government LGIPs fell to $93 billion (a 5% decrease)."
The article comments, "Outflows and stabilization typically occur in the second quarter, owing to the cyclical nature of LGIPs. We think state and local government spending trends could lead to drawdowns and limit growth in the third quarter.... LGIPs yields experienced minimal change.... In second-quarter 2024, there was a minimal decrease in both prime (4-basis-point [bps] decline) and government net yields (1-bps decline). With small to no change in asset allocation, the slight decline can be attributed to a small drop in Treasury yields in addition to a slight decline in yields for other investments (such as commercial paper and deposits)."
It also states, "The net asset value (NAV) per share averaged 0.99991 in second-quarter 2024. NAV strength demonstrates managers continuing to prioritize liquidity and high-quality investments. Weekly liquid assets (assets maturing in less than seven days) remained near 45% for government funds while prime funds remained unchanged at 40%.... We think the decline in WAMs may imply minimal value in extending, or perhaps funds are staying liquid as managers anticipate drawdowns for the third quarter."
S&P adds, "LGIPs are present in many U.S. states where, generally, the state treasurer oversees a pooled investment vehicle that operates in a similar way to a money market fund. Typically a cost-effective investment option, LGIPs allow municipalities and public entities to combine their idle cash and operating balances to obtain economies of scale, through a diversified range of investments, to earn an incremental rate of return."
After a long delay, the Securities and Exchange Commission published its latest monthly "Money Market Fund Statistics" summary for June, which shows that total money fund assets rose by $21.3 billion in June to a record $6.550 trillion, after jumping $89.7 billion the month prior. The SEC shows Prime MMFs decreasing $204.6 billion in June to $1.200 trillion (due to the reclassification of Vanguard Market Liquidity Fund and American Funds Central Cash from Prime Inst to Govt Inst), Govt & Treasury funds increasing $229.2 billion to $5.218 trillion and Tax Exempt funds decreasing $3.3 billion to $132.5 billion. Taxable yields mostly inched lower in June after rising in May. 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 August through 8/14, total money fund assets increased by $62.8 billion to $6.568 trillion, according to Crane Data's separate, and slightly smaller, MFI Daily series.)
June's overall asset increase follows an increase of $89.7 billion in May, a decrease of $17.7 billion in April, $68.5 billion in March, an increase of $65.9 billion in February, $87.7 billion in January, $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. Over the 12 months through 6/30/24, total MMF assets increased by $619.8 billion, or 10.5%, according to the SEC's series.
The SEC's stats show that of the $6.550 trillion in assets, $1.200 trillion was in Prime funds, down $204.6 billion in June. Prime assets were up $19.7 billion in May, down $30.0 billion in April, up $8.1 billion in March, $33.5 billion in February, $52.5 billion in January, $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 and $28.9 billion in July. Prime funds represented 18.3% of total assets at the end of June. They've decreased by $11.3 billion, or -0.9%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $5.218 trillion, or 79.7% of assets. They increased $229.2 billion in June, $65.5 billion in May, increased $9.3 billion in April, decreased $78.8 billion in March, increased $33.1 billion in February, $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 and $3.1 billion in July. Govt & Treasury MMFs are up $620.9 billion over 12 months, or 13.5%. Tax Exempt Funds decreased $3.3 billion to $132.5 billion, or 2.0% of all assets. The number of money funds was 289 in June, unchanged from the previous month and down 4 funds from a year earlier.
Yields for Taxable MMFs were mixed while Tax Exempt MMFs were higher in June. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on June 30 was 5.47%, up 3 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.48%, down 1 bp from the previous month. Gross yields were 5.38% for Government Funds, unchanged from last month. Gross yields for Treasury Funds were down 1 bp at 5.36%. Gross Yields for Tax Exempt Institutional MMFs were up 67 basis points to 4.17% in June. Gross Yields for Tax Exempt Retail funds were up 48 bps to 3.99%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.36%, down 1 bp from the previous month and up 19 bps from 6/30/23. The Average Net Yield for Prime Retail Funds was 5.21%, down 1 bp from the previous month, and up 19 bps since 6/30/23. Net yields were 5.16% for Government Funds, up 1 bp from last month. Net yields for Treasury Funds were unchanged from the previous month at 5.16%. Net Yields for Tax Exempt Institutional MMFs were up 65 bps from May to 4.03%. Net Yields for Tax Exempt Retail funds were up 48 bps at 3.75% in June. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly down in June. The average Weighted Average Life, or WAL, was 41.4 days (down 6.2 days) for Prime Institutional funds, and 48.1 days for Prime Retail funds (down 1.7 days). Government fund WALs averaged 82.9 days (down 1.9 days) while Treasury fund WALs averaged 80.1 days (down 0.8 days). Tax Exempt Institutional fund WALs were 6.4 days (down 0.6 days), and Tax Exempt Retail MMF WALs averaged 30.8 days (up 5.4 days).
The Weighted Average Maturity, or WAM, was 24.9 days (down 3.7 days from the previous month) for Prime Institutional funds, 29.5 days (down 2.3 days from the previous month) for Prime Retail funds, 33.6 days (down 1.2 days from previous month) for Government funds, and 38.9 days (down 2.5 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.6 days to 6.4 days, while Tax Exempt Retail WAMs were up 5.5 days from previous month at 30.1 days.
Total Daily Liquid Assets for Prime Institutional funds were 55.0% in June (down 8.4% from the previous month), and DLA for Prime Retail funds was 45.3% (down 0.9% from previous month) as a percent of total assets. The average DLA was 66.6% for Govt MMFs and 92.8% for Treasury MMFs. Total Weekly Liquid Assets was 69.0% (down 6.7% from the previous month) for Prime Institutional MMFs, and 61.0% (down 1.3% from the previous month) for Prime Retail funds. Average WLA was 78.5% for Govt MMFs and 98.4% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for June 2024," the largest entries included: the U.S. with $178.8B, Canada with $161.1 billion, Japan with $116.6 billion, France with $88.2 billion, the U.K. with $46.8B, the Netherlands with $37.5B, Aust/NZ with $33.6B, Germany with $29.3B and Switzerland with $8.0B. The gainers among the "Prime MMF Holdings by Country" included: Aust/NZ (up $5.9B). Decreases were shown by: France (down $22.0B), Japan (down $7.9B), the U.K. (down $5.3B), Canada (down $4.6B), Netherlands (down $3.3B), the U.S. (down $1.4B), Germany (down $0.4B) and Switzerland (down $0.1B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $339.9 billion (down $5.9B), while Eurozone had $170.5B (down $32.3B). Asia Pacific subset had $182.4B (up $0.4B), while Europe (non-Eurozone) had $105.2B (down $37.1B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.180 trillion in Prime MMF Portfolios as of June 30, $477.4B (40.5%) was in Government & Treasury securities (direct and repo) (down from $628.6B), $309.8B (26.2%) was in CDs and Time Deposits (down from $371.4B), $178.7B (15.1%) was in Financial Company CP (down from $179.9B), $140.9B (11.9%) was held in Non-Financial CP and Other securities (up from $140.2B), and $73.4B (6.2%) was in ABCP (up from $70.9B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $477.0 billion, Canada with $208.1 billion, France with $183.4 billion, the U.K. with $101.0 billion, Germany with $12.5 billion, Japan with $148.7 billion and Other with $44.3 billion. All MMF Repo with the Federal Reserve was up $202.4 billion in June to $618.2 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.0%, Prime Retail MMFs with 7.1%, Tax Exempt Inst MMFs with 0.0%, Tax Exempt Retail MMFs with 4.8%, Govt MMFs with 14.1% and Treasury MMFs with 11.9%.
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds moved higher over the past 30 days to a record $1.307 trillion, while yields were mostly flat. Assets for EUR, GBP and USD MMFs rose over the past month. Like U.S. money fund assets, European MMFs have repeatedly hit record highs in 2023 and 2024. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $15.3 billion over the 30 days through 8/13. The totals are up $109.8 billion (9.2%) year-to-date for 2024, they were up $166.9 billion (16.2%) for the year 2023. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. These funds are only available to qualified, non-U.S. investors and are almost entirely institutional.) (Note too: Please join us for our European Money Fund Symposium, which will take place Sept. 19-20, 2024 in London, England. Registrations are $1,000.)
Offshore US Dollar money funds increased $4.5 billion over the last 30 days and are up $39.5 billion YTD to $689.1 billion; they increased $100.0 billion in 2023. Euro funds increased E4.4 billion over the past month. YTD, they're up E40.1 billion to E275.0 billion, for 2023, they increased by E54.5 billion. GBP money funds increased L4.8 billion over 30 days, and they're up L19.3 billion YTD at L254.7B, for 2023, they fell L28.1 billion. U.S. Dollar (USD) money funds (214) account for over half (53.0%) of the "European" money fund total, while Euro (EUR) money funds (122) make up 22.6% and Pound Sterling (GBP) funds (143) total 24.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below.
Offshore USD MMFs yield 5.22 (7-Day) on average (as of 8/13/24), down one basis point from a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs, which left negative yield territory in the second half of 2022, yield 3.63% on average, down 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 above the 5.0% barrier 12 months ago broke back below 5.0% last month; they now yield 4.98%, down 15 bps from a month ago, but up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's July MFI International Portfolio Holdings, with data as of 7/31/24, show that European-domiciled US Dollar MMFs, on average, consist of 24% in Commercial Paper (CP), 16% in Certificates of Deposit (CDs), 22% in Repo, 25% in Treasury securities, 12% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 43.8% of their portfolios maturing Overnight, 5.5% maturing in 2-7 Days, 9.7% maturing in 8-30 Days, 8.7% maturing in 31-60 Days, 9.0% maturing in 61-90 Days, 15.9% maturing in 91-180 Days and 7.3% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (39.1%), France (12.1%), Japan (9.1%), Canada (8.7%), the U.K. (4.7%), Australia (4.2%), the Netherlands (3.8%), Sweden (3.4%), Finland (2.6%) and Germany (2.2%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $169.4 billion (24.7% of total assets), Credit Agricole with $21.3B (3.1%), Fixed Income Clearing Corp with $20.7B (3.0%), BNP Paribas with $18.2B (2.7%), Barclays with $17.3B (2.5%), Nordea Bank with $16.5B (2.4%), Toronto-Dominion Bank with $16.1B (2.4%), JP Morgan with $15.9B (2.3%), Mizuho Corporate Bank with $15.4B (2.3%), and Bank of America with $14.4B (2.1%).
Euro MMFs tracked by Crane Data contain, on average 43% in CP, 22% in CDs, 15% in Other (primarily Time Deposits), 18% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 37.0% of their portfolios maturing Overnight, 9.3% maturing in 2-7 Days, 12.0% maturing in 8-30 Days, 12.3% maturing in 31-60 Days, 10.0% maturing in 61-90 Days, 12.6% maturing in 91-180 Days and 6.7% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (31.3%), Japan (12.0%), the U.S. (10.0%), Germany (7.0%), Canada (6.1%), the U.K. (4.8%), Austria (4.6%), the Netherlands (4.3%), Australia (3.9%) and Sweden (3.5%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E15.1B (6.3%), BNP Paribas with E11.4B (4.8%), Republic of France with E11.2B (4.6%), JP Morgan with E9.5B (4.0%), Credit Mutuel with E8.6B (3.6%), DZ Bank AG with E8.3B (3.4%), Societe Generale with E8.2B (3.4%), Erste Group Bank AG with E7.3B (3.0%), Mitsubishi UFJ Financial Group Inc with E6.8B (2.8%) and Agence Central de Organismes de Securite Sociale with E6.6B (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 7/31/24 ): 41% in CDs, 15% in CP, 22% in Other (Time Deposits), 18% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 37.1% of their portfolios maturing Overnight, 8.2% maturing in 2-7 Days, 9.1% maturing in 8-30 Days, 10.2% maturing in 31-60 Days, 10.0% maturing in 61-90 Days, 16.3% maturing in 91-180 Days and 9.2% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (15.4%), Japan (15.3%), the U.K. (13.9%), Canada (12.1%), Australia (10.4%), the U.S. (10.1%), the Netherlands (3.4%), Singapore (3.2%), Finland (2.9%), and Spain (2.3%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L15.9B (6.8%), BNP Paribas with L11.2B (4.8%), Sumitomo Mitsui Trust Bank with L9.8B (4.2%), Toronto-Dominion Bank with L9.4B (4.0%), JP Morgan with L8.6B (3.7%), National Australia Bank Ltd with L8.4B (3.6%), Commonwealth Bank of Australia with L7.3B (3.1%), RBC with L7.2B (3.1%), BPCE with L6.6B (2.8%) and Mitsubishi UFJ Financial Group Inc with L6.5B (2.8%).
The August issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the stories, "WSJ Says Bond Funds Draw Record Amounts (or ETFs Do)," which quotes from coverage of recent bond ETF inflows, and "Income Matters Interviews Columbia's Gene Tannuzzo," which excerpts from a recent bond fund manager interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in July while yields were lower. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
BFI's "WSJ" article states, "The Wall Street Journal recently wrote, 'Bond Funds Draw in Record Amounts,' which tells us, 'The stock market may be roaring, but 2024 has been Wall Street's year of the bond fund. Bonds are paying the highest yields in a generation and interest rates are poised to come down. Meanwhile, a record number of retirees are looking to cut risk in their portfolios. That combination has investors pouring money into both indexed and actively managed funds. Wall Street is seeing dollar signs.'"
The piece says, "The article continues, 'U.S.-listed fixed-income exchange-traded funds have taken in nearly $150 billion through late July, a record through this point in a year. When looking at mutual funds and ETFs together, taxable bond funds were responsible for nearly 90% of net U.S. fund inflows in the first half, according to Morningstar. After more than a decade of paltry bond yields, and just two years removed from the worst year for bonds on record, the combination of high rates and falling inflation offers investors a rare opportunity for investment income. Rick Rieder, who oversees more than $2 trillion as BlackRock's chief investment officer for fixed income, is calling the current period 'the golden age of fixed income.'"
Our second article states, "The website Income Matters Today, run by former Barron's reporter Lawrence Strauss, recently interviewed Columbia Threadneedle Investments Senior Portfolio Manager and Global Head of Fixed Income Gene Tannuzzo. The piece, entitled, 'Finding Avenues in the Bond Market,' quotes Tannuzzo, 'I think it's true that credit is expensive, if we look at the risk premium or the additional yield that you get for corporate bonds above Treasuries. So when we look at ... the investment grade, the high grade corporate bond market, right now you get about 0.9% [or] ... 90 basis points more yield than similar maturity Treasuries. That's [an] expensive level.... But you can also say it reflects an investment community that is comfortable with the current state of the economy and corporate fundamentals.'"
It states, "He continues, 'So I think there's information value in looking at, the pricing or the valuations in credit markets. And what the market is telling you is we've been through a pandemic, but that feels like a long time ago.... America is generally in a strong fundamental position.... But the problem with really, really good fundamentals is that you don't get paid a lot of extra yield, a lot of extra juice, for that. So that that's true from a risk premium perspective.'"
Our first News brief, "Returns Up Again, Yields Lower in July," explains, "Bond fund returns were higher yet again in July, while yields continued lower. Our BFI Total Index rose 1.52% over 1-month and is up 6.36% over 12 months. (Money funds rose 5.27% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 1.87% in July and 6.37% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.63% over 1-month and 5.73% for 1-year; Ultra-Shorts rose 0.85% and 6.22%. Short-Term returned 1.28% and 6.67%, and Intm-Term rose 2.21% in July and 5.91%. BFI's Long-Term Index was up 2.36% and 5.80%. High Yield rose 1.40% in July and 9.77% for 12 mos."
A second News brief, "Bloomberg Tells Us, 'Bond Kings Draw Record $44 Billion to Actively Managed ETFs.' It says, 'The moment bond powerhouses have been waiting for is coming into view, and the payoff is record sums of client cash flowing into actively managed ETFs. With the Federal Reserve poised to cut rates as soon as September, investors poured $245 billion overall into active and index mutual funds and exchange-traded funds in the first half of the year, according to Morningstar Direct.'"
Our next News brief comments, "Vanguard's 'Active Fixed Income Perspectives Q3 2024: The High Road,' explains, 'In recent months, the worst fears for bonds—a reacceleration in inflation and likely higher interest rates—have faded. We believe we are approaching a turning point in the economic cycle, which historically has been a good environment for higher-quality bonds. Real ... interest rates remain near recent highs.'"
A BFI sidebar, "Schwab Launching US ETF," says, "Charles Schwab recently published a release titled, 'Schwab to Launch the Schwab Ultra-Short Income ETF.' it states, 'Schwab Asset Management, the asset management arm of The Charles Schwab Corporation, announced the launch of the Schwab Ultra-Short Income ETF (SCUS), its first actively managed fixed income ETF. The first day of trading is expected to be on or about August 13.'"
Finally, another sidebar, "MStar on 5 Bond Funds" tells readers, "Morningstar's article, 'Five Bond Funds That Look Outside the Box for Yield,' says, 'With interest rates at their highest levels in years and the Federal Reserve gearing up for its first interest rate cut, many investors are still looking for ways to add yield to their portfolios. While bond funds pay out income by nature, some offer more than others. Higher yields generally come with greater risks, but some funds that Morningstar analysts have awarded Medalist Ratings rank highest at generating income.'"
The National Law Review posted a brief titled, "Scrutiny of Cash Sweep Programs Intensifies as Brokers Face Wave of Class Action Suits." Written by Thomas Panoff and Matt Benz of Sheppard, Mullin, Richter & Hamilton, it states, "On August 5, a prominent investment brokerage firm disclosed in a quarterly filing that it has been responding to requests from the SEC since April related to the firm's practice of sweeping uninvested customer account balances into interest-bearing deposit programs at affiliate banks in order to generate income. This disclosure comes on the heels of the firm being named in two separate class action lawsuits earlier this year, both alleging that the firm breached customer agreements and its fiduciary duties to account holders by failing to pay reasonable interest rates on cash balances swept to affiliate bank deposit programs."
The update continues, "These cases are representative of the broader wave of recent class action litigation accusing several large brokerage firms of unlawfully profiting off of their 'cash sweep' programs. The class actions generally allege that defendant firms breached their fiduciary duties to account holders by failing to adequately disclose that customers could realize greater returns if they moved their cash into other accounts or cash-alternatives like money market funds with higher interest rates. In addition, certain of the class actions also involve contractual claims alleging that the failure to pay reasonable interest rates to account holders in connection with cash sweep programs constitutes a breach of the firms' brokerage agreements with customers."
It tells us, "While class actions based on breach of fiduciary duty in connection with cash sweep programs date back as far back as 2007, the number of such cases brought in recent months, along with the mounting scrutiny from regulators, indicate a more discernable trend than has been seen in the past."
The brief adds, "Given that the current wave of class action litigation aimed at cash sweep programs is relatively new, it is difficult to assess the plaintiffs' likelihood of success, especially given the many meritorious defenses that exist. However, considering the scope of the legal theory being advanced in support of the plaintiffs' claims, other brokerage firms employing similar cash sweep programs face a potential risk as the class action suits continue to snowball.... In light of the potential exposure, firms should be proactive in considering mitigation strategies, such as bolstering disclosures made to customers and increasing the interest rates paid back to account holders on swept funds."
Also, a website called Banking Dive discussed the issue in a column, "Dive Deposits: It might be the season of the cash sweep." The piece says, "A look at Morgan Stanley and Wells Fargo's most recent 10-Qs might indicate it's the season of the cash sweep. For the uninitiated, a cash sweep happens when uninvested funds from brokerage or bank accounts are transferred into options that earn higher interest on the thought that investors would get a better return than if they simply held cash."
It continues, "Morgan Stanley, in its quarterly filing Monday, told investors that, since April, it 'has been engaged with and is responding to requests for information from the Enforcement Division of the SEC regarding advisory account cash balances swept to affiliate bank deposit programs and compliance with the Investment Advisers Act of 1940.'"
This brief states, "Wells Fargo, however, may be the bellwether for cash sweep season. It indicated Friday that it's 'in resolution discussions with the SEC' on the matter. The bank first flagged the regulator's probe -- into which cash sweep options Wells offers its investment advisory clients when they open accounts -- last October."
For more on recent Brokerage Sweep News, see these CraneData.com stories: "Barron's: BofA Cites Risk from Sweeps" (8/8/24), "Tradeweb Completes ICD Acquisition; AdvisorHub on Wells Sweep Suit" (8/2/24), "IN: Ameriprise Sued Over Sweeps" (7/31/24), "Federated Hermes' Donahue, Cunningham Call Hits Sweeps, Flows, Rates" (7/29/24), "Ameriprise, Raymond James Discuss Sweeps Issues on Earnings Call Q&As" (7/26/24), "Barron's Writes on Pressure on Sweeps" (7/25/24), "WSJ, Investment News on Brokerage Deposit, Advisory Sweep Pressures" (7/19/24), "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues" (7/17/24).
In related news, money fund yields inched down to 5.11% on average in the week ended Aug. 9 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds) after falling 1 bp the week prior. Yields were 5.13% on 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $24.9 billion last week to $6.556 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were down 1 day at 33 days. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 706), shows a 7-day yield of 5.01%, down 2 bps in the week through Friday. Brokerage sweep rates also remained unchanged, contrary to the discussions on a number of brokerage earnings calls in recent weeks.
Prime Inst money fund yields were down 3 bps at 5.15% in the latest week. Government Inst MFs were down 1 bp at 5.10%. Treasury Inst MFs were down 2 bps at 5.05%. Treasury Retail MFs currently yield 4.83%, Government Retail MFs yield 4.81%, and Prime Retail MFs yield 5.00%, Tax-exempt MF 7-day yields were down 26 bps to 2.91%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (8/9), 69 money funds (out of 826 total) yield under 3.0% with $39.5 billion in assets, or 0.6%; 55 funds yield between 3.00% and 3.99% ($93.2 billion, or 1.4%), 266 funds yield between 4.0% and 4.99% ($1.360 trillion, or 20.7%) and 436 funds now yield 5.0% or more ($5.063 trillion, or 77.2%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged (again) at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Aug. 9, shows that there was one change over the past week. RW Baird increased rates to 1.96% for accounts up to $999K, 3.07% for accounts of $1 million to $1.99 million, and 3.98% for accounts of $5 million and greater. (We haven't seen many of the changes mentioned on earnings calls, which apparently only apply to a narrow slice of "advisory" accounts. Only a couple of brokerages report these rates, which aren't included on our BSI report.) Eleven weeks ago, we removed the rates for TD Ameritrade from the listings, which completed its merger with Charles Schwab and which pushed the averages higher (2 bps). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Crane Data's August Money Fund Portfolio Holdings, with data as of July 31, 2024, show that Other, Treasuries and Agencies jumped while, Repo holdings dropped last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $90.4 billion to $6.437 trillion in July, after decreasing by $0.4 billion in June, increasing $105.6 billion in May and decreasing $61.4 billion in April. Repo decreased $21.5 billion in July after increasing $99.3 billion in June. It remains the largest portfolio segment. Treasuries increased by $24.3 billion, staying at the No. 2 spot. (The U.S. Treasury continues to be the single largest Issuer to MMFs. `In July, U.S. Treasury holdings increased to $2.453 trillion, while NY Fed Repo decreased by $234.3 billion to $380.6 billion.) Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: Register soon for our European Money Fund Symposium, which is Sept. 19-20, 2024 in London, England. Our discounted hotel rate expires on Wednesday!)
Among taxable money funds, Repurchase Agreements (repo) decreased $21.5 billion (-0.8%) to $2.559 trillion, or 39.8% of holdings, in July, after increasing $99.3 billion in June, $26.8 billion in May, and $94.9 billion in April. Treasury securities increased $24.3 billion (1.0%) to $2.453 trillion, or 38.1% of holdings, after decreasing $17.3 billion in June, increasing $51.0 billion in May and decreasing $144.9 billion in April. Government Agency Debt was up $22.9 billion, or 3.2%, to $747.0 billion, or 11.6% of holdings. Agencies decreased $16.9 billion in June, increased $19.9 billion in May and $3.8 billion in April, but decreased $14.2 billion in March and $6.7 billion in February. Repo, Treasuries and Agency holdings now total $5.758 trillion, representing a massive 89.5% of all taxable holdings.
Money fund holdings of Other (Time Deposits), CP and CDs increased in July. Commercial Paper (CP) increased $8.2 billion (3.1%) to $276.7 billion, or 4.3% of holdings. CP holdings decreased $2.0 billion in June, $2.8 billion in May and $30.7 billion in April. Certificates of Deposit (CDs) increased $6.9 billion (3.6%) to $200.7 billion, or 3.1% of taxable assets. CDs decreased $5.6 billion in June, $15.8 billion in May and $2.2 billion in April. Other holdings, primarily Time Deposits, increased $49.0 billion (35.2%) to $188.2 billion, or 2.9% of holdings, after decreasing $57.5 billion in June and increasing $26.2 billion. VRDNs increased to $12.4 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Monday around noon.)
Prime money fund assets tracked by Crane Data increased to $1.171 trillion, or 18.2% of taxable money funds' $6.437 trillion total. Among Prime money funds, CDs represent 17.1% (up from 16.6% a month ago), while Commercial Paper accounted for 23.6% (up from 23.0% in June). The CP totals are comprised of: Financial Company CP, which makes up 15.9% of total holdings, Asset-Backed CP, which accounts for 6.3%, and Non-Financial Company CP, which makes up 1.4%. Prime funds also hold 0.4% in US Govt Agency Debt, 4.5% in US Treasury Debt, 20.9% in US Treasury Repo, 0.8% in Other Instruments, 13.5% in Non-Negotiable Time Deposits, 7.6% in Other Repo, 10.3% in US Government Agency Repo and 0.8% in VRDNs.
Government money fund portfolios totaled $3.503 trillion (54.4% of all MMF assets), up from $3.426 trillion in June, while Treasury money fund assets totaled another $1.762 trillion (27.4%), up from $1.754 trillion the prior month. Government money fund portfolios were made up of 21.2% US Govt Agency Debt, 17.0% US Government Agency Repo, 31.7% US Treasury Debt, 29.6% in US Treasury Repo, 0.4% in Other Instruments. Treasury money funds were comprised of 73.2% US Treasury Debt and 26.5% in US Treasury Repo. Government and Treasury funds combined now total $5.265 trillion, or 81.8% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $140.9 billion in July to $798.0 billion; their share of holdings rose to 12.4% from last month's 10.4%. Eurozone-affiliated holdings increased to $510.9 billion from last month's $438.2 billion; they account for 7.9% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $336.1 billion (5.2% of the total) from last month's $293.1 billion. Americas related holdings fell to $5.293 trillion from last month's $5.391 trillion, and now represent 82.2% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $39.2 billion, or -2.2%, to $1.747 trillion, or 27.1% of assets); US Government Agency Repurchase Agreements (up $17.5 billion, or 2.5%, to $717.5 billion, or 11.1% of total holdings), and Other Repurchase Agreements (up $0.3 billion, or 0.3%, from last month to $94.0 billion, or 1.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $8.2 billion to $186.0 billion, or 2.9% of assets), Asset Backed Commercial Paper (up $2.0 billion to $74.2 billion, or 1.2%), and Non-Financial Company Commercial Paper (down $1.9 billion to $16.6 billion, or 0.3%).
The 20 largest Issuers to taxable money market funds as of July 31, 2024, include: the US Treasury ($2.453T, 38.1%), Fixed Income Clearing Corp ($646.3B, 10.0%), Federal Home Loan Bank ($598.6B, 9.3%), the Federal Reserve Bank of New York ($380.6B, or 5.9%), JP Morgan ($201.1B, 3.1%), Citi ($162.4B, 2.5%), BNP Paribas ($144.2B, 2.2%), RBC ($140.8B, 2.2%), Federal Farm Credit Bank ($133.2B, 2.1%), Barclays PLC ($126.2B, 2.0%), Bank of America ($125.1B, 1.9%), Goldman Sachs ($110.2B, 1.7%), Mitsubishi UFJ Financial Group Inc ($83.3B, 1.3%), Credit Agricole ($72.4B, 1.1%), Wells Fargo ($67.9B, 1.1%), Sumitomo Mitsui Banking Corp ($65.5B, 1.0%), Mizuho Corporate Bank Ltd ($57.4B, 0.9%), Societe Generale ($56.7B, 0.9%), Toronto-Dominion Bank ($54.1B, 0.8%) and Canadian Imperial Bank of Commerce ($54.1B, 0.8%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Corp ($630.3B, 24.6%), the Federal Reserve Bank of New York ($380.6B, 14.9%), JP Morgan ($192.7B, 7.5%), Citi ($150.6B, 5.9%), BNP Paribas ($133.2B, 5.2%), RBC ($111.8B, 4.4%), Barclays PLC ($111.7B, 4.4%), Goldman Sachs ($110.0B, 4.3%), Bank of America ($104.7B, 4,1%) and Wells Fargo ($63.1B, 2.5%). The largest users of the $380.6 billion in Fed RRP include: Vanguard Federal Money Mkt Fund ($71.8B), Fidelity Cash Central Fund ($46.5B), Vanguard Cash Reserves Federal MM ($22.7B), Fidelity Govt Money Market ($20.2B), Fidelity Sec Lending Cash Central Fund ($20.0B), Fidelity Inv MM: MM Port ($17.6B), Fidelity Inv MM: Treas Port ($15.9B), Fidelity Money Market ($15.4B), American Funds Central Cash ($14.5B) and Vanguard Market Liquidity Fund ($13.6B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mitsubishi UFJ Financial Group Inc ($33.4B, 5.6%), RBC ($29.1B, 4.8%), Mizuho Corporate Bank Ltd ($28.9B, 4.8%), Toronto-Dominion Bank ($28.4B, 4.7%), Credit Agricole ($23.2B, 3.9%), Skandinaviska Enskilda Banken AB ($22.5B, 3.7%), Sumitomo Mitsui Trust Bank ($21.6B, 3.6%), Canadian Imperial Bank of Commerce ($20.8B, 3.5%), Bank of America ($20.4B, 3.4%) and ING Bank ($19.8B, 3.3%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($23.9B, 11.9%), Credit Agricole ($13.9B, 6.9%), Bank of America ($13.5B, 6.7%), Sumitomo Mitsui Banking Corp ($12.8B, 6.4%), Sumitomo Mitsui Trust Bank ($12.2B, 6.1%), Toronto-Dominion Bank ($10.6B, 5.3%), Canadian Imperial Bank of Commerce ($8.4B, 4.2%), Mitsubishi UFJ Trust and Banking Corporation ($8.2B, 4.1%), Mizuho Corporate Bank Ltd ($7.2B, 3.6%) and Bank of Montreal ($6.7B, 3.3%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($17.7B, 7.0%), RBC ($16.8B, 6.6%), Barclays PLC ($12.4B, 4.9%), Bank of Montreal ($11.0B, 4.3%), BPCE SA ($10.4B, 4.1%), BSN Holdings Ltd ($9.4B, 3.7%), Sumitomo Mitsui Trust Bank ($9.3B, 3.7%), Bank of Nova Scotia ($8.6B, 3.4%), Canadian Imperial Bank of Commerce ($8.5B, 3.3%) and JP Morgan ($8.4B, 3.3%).
The largest increases among Issuers include: Fixed Income Clearing Corp (up $110.5B to $646.3B), Barclays PLC (up $45.0B to $126.2B), Citi (up $26.9B to $162.4B), Credit Agricole (up $25.1B to $72.4B), US Treasury (up $24.3B to $2.453T), Mitsubishi UFJ Financial Group Inc (up $18.8B to $83.3B), Societe Generale (up $16.2B to $56.7B), Federal Home Loan Bank (up $15.5B to $598.6B), Mizuho Corporate Bank Ltd (up $13.6B to $57.4B) and Bank of America (up $10.1B to $125.1B).
The largest decreases among Issuers of money market securities (including Repo) in July were shown by: the Federal Reserve Bank of New York (down $234.3B to $380.6B), RBC (down $31.4B to $140.8B), Wells Fargo (down $12.5B to $67.9B), JP Morgan (down $8.9B to $201.1B), Sumitomo Mitsui Banking Corp (down $5.2B to $65.5B), Bank of Nova Scotia (down $2.4B to $27.9B), BPCE SA (down $1.2B to $10.4B), HSBC (down $0.8B to $32.7B), Canadian Imperial Bank of Commerce (down $0.7B to $54.1B) and Norinchukin Bank (down $0.7B to $7.3B).
The United States remained the largest segment of country-affiliations; it represents 77.0% of holdings, or $4.956 trillion. Canada (5.2%, $336.3B) was in second place, while France (5.0%, $322.4B) was No. 3. Japan (4.7%, $300.5B) occupied fourth place. The United Kingdom (3.2%, $204.4B) remained in fifth place. Netherlands (1.0%, $61.3B) was in sixth place, followed by Australia (0.8%, $49.1B), Germany (0.8%, $48.8B), Sweden (0.8%, $48.0B), and Spain (0.4%, $26.4B). (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 July 31, 2024, Taxable money funds held 50.3% (up from 48.6%) of their assets in securities maturing Overnight, and another 10.1% maturing in 2-7 days (down from 12.2%). Thus, 60.4% in total matures in 1-7 days. Another 11.2% matures in 8-30 days, while 9.0% matures in 31-60 days. Note that over three-quarters, or 80.6% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 5.9% of taxable securities, while 9.6% matures in 91-180 days, and just 3.9% 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 July 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 July 31, includes holdings information from 1,000 money funds (up 6 from last month), representing assets of $6.602 trillion (up from $6.474 trillion). (We think these totals are too high and are working to revise these.) Prime MMFs inched up to $1.153 trillion (up $8.2 billion), or 17.5% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses were mostly the same and money fund revenues slightly rose to $17.3 billion (annualized) in July. (Note: We're still adjusting to the SEC's new Form N-MFP formats, so there continue to be some distortions in our data.)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) remaining the top spot for largest type of portfolio holding in money market funds, Repo holdings in money market funds now total $2.440 trillion (up from $2.417 trillion), or 37.0% of all assets, while Treasury holdings rose to $2.242 trillion (up from $2.226 billion), or 34.0% of all holdings. Government Agency securities total $724.2 billion (up from $698.8 billion), or 11.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.407 trillion, or a massive 81.9% of all holdings.
The Other category (primarily Time Deposits) totals $645.4 billion (up from $596.7 billion), or 9.8%, and Commercial paper (CP) totals $249.2 billion (up from $239.6 billion), or 3.8% of all holdings. Certificates of Deposit (CDs) total $173.3 billion (up from $166.9 billion), 2.6%, and VRDNs account for $127.8 billion (down from $129.4 billion last month), or 1.9% of money fund securities. (Note: We believe our "Other" totals are too high and we expect to adjust these as we recategorize some of the underlying holdings.)
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $165.1 billion, or 2.5%, in Financial Company Commercial Paper; $58.1 billion or 0.9%, in Asset Backed Commercial Paper; and, $26.1 billion, or 0.4%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.682 trillion, or 25.5%), U.S. Govt Agency Repo ($675.4B, or 10.2%) and Other Repo ($83.5B, or 1.3%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $237.5 billion (up from $228.2 billion), or 20.6%; Repo holdings of $433.0 billion (down from $438.1 billion), or 37.6%; Treasury holdings of $46.5 billion (down from $79.8 billion), or 4.0%; CD holdings of $173.3 billion (up from $166.9 billion), or 15.0%; Other (primarily Time Deposits) holdings of $249.1 billion (up from $217.6 billion), or 21.6%; Government Agency holdings of $4.6 billion (down from $5.6 billion), or 0.5% and VRDN holdings of $8.6 billion (up from $8.3 billion), or 0.8%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $164.1 billion (up from $155.8 billion), or 14.2%, in Financial Company Commercial Paper; $58.1 billion (up from $55.0 billion), or 5.0%, in Asset Backed Commercial Paper; and $15.3 billion (down from $17.3 billion), or 1.3%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($237.1 billion, or 20.6%), U.S. Govt Agency Repo ($116.1 billion, or 10.1%), and Other Repo ($79.8 billion, or 6.9%).
In related news, money fund charged expense ratios (Exp%) were mostly unchanged in July. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.37%, respectively, as of July 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 0.27%, up 1 bp from last month's level (also 19 bps higher than 12/31/21's 0.08%). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.37% as of July 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% (unchanged from last month), Government Inst MFs expenses average 0.26% (unchanged from last month), Treasury Inst MFs expenses average 0.28% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.51%, (down 2 bps from last month), Government Retail MFs expenses yield 0.53% (down 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 also mixed during the month ended July 31, 2024. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 756), shows a 7-day gross yield of 5.39%, unchanged from the prior month. The Crane Money Fund Average was 1.72% at the end of 2019, 0.15% at the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was unchanged, ending the month at 5.40%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $17.269 billion (as of 7/31/24). Our estimated annualized revenue totals increased from $17.189B last month, and are still higher from the $16.953B seen two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their climb higher as inflows resume to money funds following a pause around April 15.
Crane Data's latest monthly Money Fund Market Share rankings show assets increased among most of the largest U.S. money fund complexes in July, after rising in June and May and falling in March and April. Money market fund assets rose by $16.7 billion, or 0.3%, last month to a record $6.509 trillion. Total MMF assets have increased by $124.0 billion, or 1.9%, over the past 3 months, and they've increased by $607.2 billion, or 10.3%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Fidelity, Schwab, BlackRock, HSBC and JPMorgan, which grew assets by $12.2 billion, $11.2B, $8.8B, $7.3B and $5.6B, respectively. Declines in July were seen by Invesco, Goldman Sachs, Vanguard, Federated Hermes and Morgan Stanley, which decreased by $13.1 billion, $6.8B, $5.8B, $4.9B and $3.3B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which were flat in July.
Over the past year through July 31, 2024, Fidelity (up $191.7B, or 16.8%), Schwab (up $142.3B, or 35.3%), Vanguard (up $80.6B, or 15.3%), JPMorgan (up $76.1B, or 12.9%) and Federated Hermes (up $52.8B, or 13.4%) were the `largest gainers. Schwab, Fidelity, JPMorgan, BlackRock and Vanguard had the largest asset increases over the past 3 months, rising by $29.4B, $26.6B, $19.7B, $16.9B and $14.3B, respectively. The largest declines over 12 months were seen by: Invesco (down $30.1B), Goldman Sachs (down $29.5B), Morgan Stanley (down $16.1B), American Funds (down $10.9B) and PGIM (down $7.8B). The largest declines over 3 months included: Dreyfus (down $6.8B), Invesco (down $5.1B) and PGIM (down $4.0B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.330 trillion, or 20.4% of all assets. Fidelity was up $12.2B in July, up $26.6 billion over 3 mos., and up $191.7B over 12 months. JPMorgan ranked second with $668.0 billion, or 10.3% market share (up $5.6B, up $19.7B and up $76.1B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $606.5 billion, or 9.3% of assets (down $5.8B, up $14.3B and up $80.6B). Schwab ranked fourth with $544.8 billion, or 8.4% market share (up $11.2B, up $29.4B and up $142.3B), while BlackRock was the fifth largest MMF manager with $526.9 billion, or 8.1% of assets (up $8.8B, up $16.9B and up $31.9B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $447.8 billion, or 6.9% (down $4.9B, up $771M and up $52.8B), while Goldman Sachs was in seventh place with $390.0 billion, or 6.0% of assets (down $6.8B, up $7.5B and down $29.5B). Dreyfus ($270.0B, or 4.1%) was in eighth place (down $384M, down $6.8B and up $16.8B), followed by Morgan Stanley ($241.2B, or 3.7%; down $3.3B, down $657M and down $16.1B). SSGA was in 10th place ($215.3B, or 3.3%; up $4.3B, up $5.0B and up $43.7B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($199.0B, or 3.1%), American Funds ($168.4B, or 2.6%), Northern ($167.2B, or 2.6%), First American ($145.3B, or 2.2%), Invesco ($127.5B, or 2.0%), UBS ($103.3B, or 1.6%), T. Rowe Price ($47.4B, or 0.7%), DWS ($40.1B, or 0.6%), HSBC ($36.4B, or 0.6%) and Western ($27.7B, or 0.4%). Crane Data currently tracks 62 U.S. MMF managers, up 1 from last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: Vanguard moves up to the No. 3 spot, Schwab moves up to the No. 4 spot and BlackRock moves down to No. 5. Federated Hermes moves up to the No. 6 spot, while Goldman Sachs moves down to the No. 7 spot. Dreyfus moves up to the No. 8 spot while Morgan Stanley 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 ($1.346 trillion), JP Morgan ($905.5B), BlackRock ($794.9B), Vanguard ($606.5B) and Schwab ($544.8B). Goldman Sachs ($522.0B) was in sixth, Federated Hermes ($459.2B) was seventh, followed by Morgan Stanley ($323.8B), Dreyfus/BNY Mellon ($293.4B) and SSGA ($261.9B), 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 August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/31/24, shows that yields were mostly unchanged in July across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 756), was 5.02% (unchanged) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also unchanged at 5.02%. The MFA's Gross 7-Day Yield was at 5.40% (up 1 bp), and the Gross 30-Day Yield was unchanged at 5.39%. (Gross yields will be revised once we download the SEC's Form N-MFP data for 7/31/24. It should be Thursday, but we're still adjusting to the SEC's new data formats.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 5.13% (unchanged) and an average 30-Day Yield at 5.12% (unchanged). The Crane 100 shows a Gross 7-Day Yield of 5.40% (unchanged), and a Gross 30-Day Yield of 5.39% (unchanged). Our Prime Institutional MF Index (7-day) yielded 5.17% (unchanged) as of July 31. The Crane Govt Inst Index was at 5.12% (up 1 bp) and the Treasury Inst Index was at 5.08% (unchanged). Thus, the spread between Prime funds and Treasury funds is 9 basis points, and the spread between Prime funds and Govt funds is 5 basis points. The Crane Prime Retail Index yielded 5.01% (down 1 bp), while the Govt Retail Index was 4.84% (up 1 bp), the Treasury Retail Index was 4.84% (up 1 bp from the month prior). The Crane Tax Exempt MF Index yielded 3.30% (down 33 bps) as of July.
Gross 7-Day Yields for these indexes to end July were: Prime Inst 5.46% (unchanged), Govt Inst 5.38% (up 1 bp), Treasury Inst 5.36% (unchanged), Prime Retail 5.50% (unchanged), Govt Retail 5.39% (up 1 bp) and Treasury Retail 5.36% (unchanged). The Crane Tax Exempt Index fell to 3.70% (down 32 bps). The Crane 100 MF Index returned on average 0.43% over 1-month, 1.29% over 3-months, 2.90% YTD, 5.27% over the past 1-year, 3.10% over 3-years (annualized), 2.08% over 5-years, and 1.43% over 10-years.
The total number of funds, including taxable and tax-exempt, was down 4 in July at 876. There are currently 756 taxable funds, down 4 from the previous month, and 120 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Prime Inst MMF Conversions, Shifts Continue: FAF Does WLA," which breaks down the latest shifts in the Prime Inst space; "Q2 Earnings Calls: Sweep Rates Take Center Stage," which quotes from recent questions over brokerage sweep programs; and, "Deposits Under Pressure from Insurance, Funding," which covers a recent speech by Lorie Logan, President of the Federal Reserve Bank of Dallas. We also sent out our MFI XLS spreadsheet Wednesday a.m., and we've updated our Money Fund Wisdom database with 7/31/24 data. Our Aug. Money Fund Portfolio Holdings are scheduled to ship on Friday, August 9, and our Aug. Bond Fund Intelligence is scheduled to go out on Wednesday, August 14. (Note: We'll be publishing our latest Form N-MFP files and revisions on Thursday, August 8. The SEC has changed the format of these files as their new regulations go into effect, so there may still be issues with our programs and collections.)
MFI's "Prime Inst." article says, "We've now seen 16 Prime Institutional money funds with over $265 billion in assets (over 1/3 of the sector) announce exits from the space to date (see the News brief on DFA at right). But now comes a decision by one to live with the new rules in a unique way. A Prospectus Supplement for First American's Institutional Prime Obligations Fund tells us, 'In July 2023, the SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940.... [T]he Amendments will require institutional prime and institutional tax-exempt money market funds, including First American Institutional Prime Obligations Fund, to impose a mandatory liquidity fee when [they] experience daily net redemptions that exceed 5% of assets on a day. Funds subject to the mandatory liquidity fee will not be required to apply such fee if the amount of the fee is less than 0.01% of the value of the shares redeemed.'"
They continue, "It explains, 'The mandatory liquidity fee requirement will become effective on Oct. 2, 2024. In calculating the amount of the mandatory liquidity fee under Rule 2a-7, the fee amount must be based on a good faith estimate, supported by data available, of the costs the fund would incur if it sold a pro rata amount of each security in its portfolio to satisfy the amount of net redemptions. The calculation must factor in the spread costs and market impacts for each portfolio security, as described further in this supplement. A fund may assume a market impact of zero for its daily and weekly liquid assets.'"
We write in our Q2 Earnings article, “This past month, a number of earnings calls and articles discuss the continued shift from bank deposits into money market funds, and questions focused on brokerages facing pressure to pay higher rates on 'advisory' sweeps due to lawsuits and regulatory pressure."
It tells us, "Schwab's Peter Crawford was asked about 'scrutiny of advisory sweeps.' He answers, 'With respect to the Wells Fargo issue, we have provided money market fund sweep cash and -- or money market yields on bank cash for all of our fiduciary-driven investment advisory solutions already. So, I don't really see the Wells Fargo report having any kind of meaningful implications for us. We've been doing this for an extended period of time already.'"
Our "Deposits Under Pressure" piece says, "Federal Reserve Bank of Dallas President Lorie Logan recently gave a speech titled, 'A level playing field for deposit insurance,' which discussed increasing the FDIC deposit limit and other means of preventing bank deposit runs. She tells us, 'Funding risk is both one of the oldest challenges in banking and one of the most timely.... [B]ankers have long understood the importance of being prepared to meet withdrawals -- and of maintaining depositors' confidence so they don't withdraw money based on unfounded fears.'"
It continues, "Logan explains, 'But as we saw in 2023, maintaining depositors' confidence can be challenging in today's highly networked society that allows bank runs to propagate with unprecedented speed. Now ... it’s a good time to consider whether adjustments in banks' liquidity risk management or in related public policies can support a strong and vibrant banking system.'"
MFI also includes the News brief, "MMF Assets Eke Out Record $6.510 Trillion in July; Fasten Your Seatbelts." It says, Crane Data's Money Fund Intelligence XLS shows money fund assets rising by $16.8 billion in July to a (monthly) record $6.510 trillion. Over 12 months (through 7/31/24), money fund assets have increased by $607.5 billion, or 10.3%. (Our MFI Daily shows assets up $32.3 billion in August through 8/5 to $6.5384 trillion. We expect MMF totals to break $7.0 trillion by year end.)
Another News brief, "DFA Short-Term Investment Fund Converts to Ultra-Short," tells us, "An SEC filing for the DFA Short Term Investment Fund indicates that yet another internal money market fund is abandoning the Prime Institutional sector ahead of the implementation of emergency mandatory liquidity fees in October. The $15.1 billion DFA Short Term Investment Fund is converting to an ultra-short bond fund, though we couldn't confirm this with Dimensional Fund Advisors."
A third News brief, "BNY Mellon Govt MMF Liquidates," tells readers, "BNY announced that it is liquidating its MLMXX, explaining, 'The Board of Trustees of BNY Mellon Funds Trust has approved the liquidation of BNY Mellon Government Money Market Fund, a series of the Trust, effective on or about August 27, 2024.'"
A sidebar, "WSJ on Bank NIM Squeeze," says, "The Wall Street Journal covers the Q2 earnings news in, 'Yield-Hungry Wealth Management Clients Are Becoming a Headache for Big Banks,' They explain, 'Brokerage customers are still demanding more for their cash. And banks are scrambling to keep up. Across several banks with large wealth-management businesses, a common theme in second-quarter earnings reports was continuing to have to pay higher rates to hang on to brokerage customers' cash that isn't invested in things like stocks and bonds. Wells Fargo and Morgan Stanley called out increases in some of the rates they pay on certain brokerage account deposit products, and Bank of America noted a rise in rates paid on wealth-management deposits.'"
Our August MFI XLS, with July 31 data, shows total assets increased $19.7 billion to $6.513 trillion, after increasing $11.8 billion in June, $79.7 billion in May, decreasing $17.6 billion in April, $66.7 billion in March, increasing $50.0 billion in February, $87.0 billion in January, $24.5 billion in December and $219.8 billion in November. Assets decreased $39.3 billion in October, but increased $77.8 billion in September and $104.2 billion in August.
Our broad Crane Money Fund Average 7-Day Yield was unchanged at 5.02%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was also unchanged at 5.13% in July. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both averaged 5.40%. Charged Expenses averaged 0.37% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses once we upload the SEC's Form N-MFP data for 7/31/24, though this may take some time as we adjust to the new N-MFP format.) The average WAM (weighted average maturity) for the Crane MFA was 34 days (unchanged) and the Crane 100 WAM was down 1 bp from previous month at 33 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
An SEC filing for the DFA Investment Trust's DFA Short Term Investment Fund appears to indicate that yet another internal money market fund is abandoning the Prime Institutional sector ahead of the implementation of emergency mandatory liquidity fees in October. We believe the $15.1 billion DFA Short Term Investment Fund is converting to an ultra-short bond fund, though we could not confirm this with Dimensional Fund Advisors. The POS AMI filing states, "The investment objective of the Short Term Series is to seek to provide a high level of current income consistent with liquidity and the preservation of capital. The Short Term Series will pursue its investment objective by investing in U.S. dollar-denominated short-term debt securities."
It continues, "The Short Term Series' investments will include: direct obligations issued by the U.S. Treasury ('U.S. Treasury Obligations'); obligations issued or guaranteed by the U.S. Government or any of its agencies, authorities or instrumentalities ('U.S. Government Obligations'); obligations of U.S. thrift institutions, savings and loans, banks, and foreign banks (including U.S. subsidiaries and branches of foreign banks); corporate obligations; commercial paper and other instruments; U.S. dollar-denominated obligations of foreign issuers, including U.S. dollar-denominated securities that trade outside of the United States ('Eurodollar Securities'); repurchase agreements; and shares of money market funds."
DFA writes, "The fixed income securities in which the Short Term Series invests are considered investment grade at the time of purchase (e.g., rated AAA to BBB- by S&P Global Ratings ('S&P') or Fitch Ratings Ltd. ('Fitch') or Aaa to Baa3 by Moody's Investor's Service, Inc. ('Moody's')). The Short Term Series will acquire obligations that have remaining maturities of 397 calendar days or less (with certain exceptions such as U.S. Treasury Obligations). The Series will maintain a dollar-weighted average portfolio maturity of 60 calendar days or less and will maintain a dollar-weighted average life ('weighted average life') of 120 calendar days or less. 'Weighted average life' is the dollar-weighted average portfolio maturity calculated using the final maturities of the securities held by the Short Term Series rather than using such securities' next interest rate reset dates. The Short Term Series will limit its purchases of any one issuer's securities (other than U.S. government securities) to 5% of the Series' total assets."
They then state, "The Short Term Series is not a money market fund and is not subject to the strict rules that govern the quality, maturity, liquidity and other features of securities that money market funds may purchase. The Short Term Series does not seek to maintain a stable share price of $1.00. As a result, the Short Term Series' share price, which is its net asset value per share, will fluctuate due to the Series' own investment experience and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."
DFA adds, "Further, because the Short Term Series does not seek to maintain a stable share price, investors should expect the value of their investment to vary and reflect the value of the Short Term Series' holdings. The following is a description of the categories of investments that may be acquired by the Short Term Series: U.S. Treasury Obligations; U.S. Government Agency Obligations; Corporate Debt Obligations; Bank Obligations; Commercial Paper; Repurchase Agreements; Foreign Government and Agency Obligations; Supranational Organization Obligations; Foreign Issuer Obligations; Eurodollar Securities; and, Money Market Funds." The Federal Reserve Bank of New York also published a brief titled, "Reverse repo counterparties list updated," which says, "DFA Short Term Investment Fund of The DFA Investment Trust Company is no longer a reverse repo counterparty, effective August 1."
For more, see the Crane Data News updates, "First American Inst Prime Obligations to Invest Solely in Liquid Assets" (7/23/24), "Schwab, JPM, Meeder Announce Prime Inst Conversions to Government" (7/18/24), "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24), "BlackRock Liquidates TempFund, LEAF" (6/10/24), "Federated Hermes Merging Prime Inst Money Funds; Prime Value To POF" (6/6/24), "Allspring to Merge Heritage MMF Into Govt MMF; UBS Converting Fund" (6/3/24), "DWS Liquidating ESG Liquidity Fund, 7th Prime Inst to Exit" (5/22/24), "Dreyfus Files to Liquidate Cash Management Prime Inst MMF, Tax Exempt" (5/13/24), "Goldman Files to Liquidate Prime Inst MMFs; Barron's: MMFs Tempting" (4/22/24), "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).
In other news, the Financial Times published the article, "Asset managers fret over lost gains as investor cash piles up on sidelines," which tells us, "Top asset managers are struggling with investor reluctance to embrace risk and put money into the markets, as interest rates and yields on cash savings remain at their highest level in more than a decade. Investors have been stubbornly sitting in cash, hurting bottom lines for asset managers and forgoing gains on more than $1.5tn during a record bull run that until recently pushed markets to all time highs."
They comment, "Several factors are driving the caution. Risk-free yields are outpacing inflation for the first time in decades. A narrow stock market riding high on a handful of volatile tech stocks, widespread geopolitical conflict, poor economic sentiment and an uncertain US election are all keeping investors firmly on the sidelines. Asset managers, who have been frustrated with what they've called 'tremendous' amounts of investor capital in cash for more than a year, are eager for rate cuts to ease pressure on their bottom lines."
The piece says, "More than $6.1tn is held in US money market funds where investors can earn about 5 percent on their cash with little risk, according to the Investment Company Institute, up from roughly $4.5tn before the US Federal Reserve began to raise interest rates. It is estimated that investors have missed out on $225bn in stock market gains on $1.5tn in so-called excess cash as markets charged ahead this year. The S&P 500 is up more than 15 percent since the start of the year. That cash earned roughly $75bn sitting in money market funds over the same period."
It continues, "Investor reluctance to put cash to work has tested asset managers, who rely on management fees for invested capital and are in constant competition for assets. The excess in uninvested savings potentially translates to billions in lost fee income for the asset management industry. While rate cuts are predicted later this year, they are also expected to remain attractively high to investors for some time."
The FT adds, "The reticence has confounded managers, who thought the broad rebound in markets (until recent weeks) would bring investors back into their funds, helping improve what have been modest flows across the sector. But despite markets hitting all time highs this year, investor's risk appetite remains muted.... Frustrated companies hope a Fed rate cut will drive investors out of cash and back into the market. 'As we get closer to the Fed's rate cutting cycle, we expect traditional fixed income sectors to regain their place as the primary source of yield as cash begins to look less attractive,' said Jenny Johnson, the chief executive of Franklin Templeton."
Finally, money fund yields inched down to 5.12% on average in the week ended Aug. 2 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds). Yields were 5.13% on 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $18.5 billion last week to $6.531 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged at 34 days. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 706), shows a 7-day yield of 5.03%, unchanged in the week through Friday. Brokerage sweep rates also remained unchanged, contrary to the discussions on a number of brokerage earnings calls in recent weeks.
Prime Inst money fund yields were unchanged at 5.18% in the latest week. Government Inst MFs were down 1 bp at 5.11%. Treasury Inst MFs were unchanged at 5.07%. Treasury Retail MFs currently yield 4.85%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.02%, Tax-exempt MF 7-day yields were up 24 bps to 3.17%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (8/2), 28 money funds (out of 827 total) yield under 3.0% with $7.9 billion in assets, or 0.1%; 96 funds yield between 3.00% and 3.99% ($126.8 billion, or 1.9%), 253 funds yield between 4.0% and 4.99% ($1.126 trillion, or 17.2%) and 450 funds now yield 5.0% or more ($5.270 trillion, or 80.7%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged (again) at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Aug. 2, shows that there were no changes over the past week. (We haven't seen many of the changes mentioned on earnings calls, which apparently only apply to a narrow slice of "advisory" accounts. Only a couple of brokerages report these rates, which aren't included on our BSI report.) Ten weeks ago, we removed the rates for TD Ameritrade from the listings, which completed its merger with Charles Schwab and which pushed the averages higher (2 bps). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
The Central Bank of Ireland recently published a discussion paper titled, "An approach to macroprudential policy for investment funds." It explains, "The objective of this Discussion Paper is to advance the debate on a potential approach to the development and operationalisation of a macroprudential framework for the investment funds sector.... While macroprudential policy is well developed in the banking sector, it remains nascent beyond banks, including the funds sector. This is despite the growing role of the funds sector in global financial intermediation and recent episodes, including the COVID-19 shock and last year's Gilt market disruption, highlighting the potential for the funds sector globally to amplify shocks in the face of financial vulnerabilities. Investment funds, though, are different to banks, so a macroprudential approach to the funds sector cannot simply be an extension or replication of the macroprudential framework applied to banks. This Discussion Paper therefore aims to inform and aid the ongoing international and European regulatory debate on macroprudential policy for the funds sector." (Note: Please join us for our European Money Fund Symposium, which takes place Sept. 19-20, 2024 in London, England.)
It continues, "The global non-bank financial intermediaries (NBFI) sector, and particularly the investment fund component of it, has grown significantly since the Global Financial Crisis (GFC). The absolute size of the global NBFI sector grew from €72 trillion in 2008 to €212 trillion in 2021 and this growth can be largely attributed to the rise of investment funds. The NBFI sector now represents approximately half of all global financial assets in 2021 and just over half for the EU.... The funds sector is playing an increasingly important role in the wider global financial system. The sector, both globally and in Ireland, is now a larger part of overall financial intermediation and has strong linkages to other sectors of the financial system ... and also has increased linkages to the real economy."
The CBI paper continues, "There has been increasing focus by policymakers and regulators globally on addressing systemic risk in the funds sector. International bodies such as the Financial Stability Board (FSB), the International Organisation of Securities Commissions (IOSCO), the European Systemic Risk Board (ESRB) and the European Securities and Markets Authority (ESMA) have all progressed work in recent years covering the role of investment funds and their relevance from a systemic risk perspective. These have included analytical and policy work on issues such as Money Market Fund ('MMFs') resilience, liquidity mismatch in Open-Ended Funds ('OEFs') and Exchange Traded Funds ('ETFs')."
It says, "The Irish-resident funds sector intermediates financing to the global financial system, supporting the funding of financial institutions. Around half of Irish funds' investments provide financing to other financial institutions, through holdings of debt and equity securities issued by such institutions.... For example, Irish resident MMFs provide significant financing to the euro area banking sector. The amount of money market instruments issued by euro area banks held by Irish resident MMFs increased to almost €80 billion by of the third quarter of 2022, or approximately 18% of these institutions' outstanding money market debt securities. The funds sector in Ireland also holds almost €45 billion in long-term debt securities, or roughly 1.5% of the total long-term debt securities issued by euro area banks as of the third quarter of 2022."
The piece explains, "During the early months of the GFC, MMFs in the United States also experienced large redemptions from investors. Funds were being forced to sell their assets into an illiquid market in order to meet the redemption requests. In particular, the market for asset-backed commercial papers (ABCP) -- a type of security held by many US MMFs at the time -- became highly illiquid. This led to increased stress in money markets, resulting in further MMF redemptions leading to more forced sales of assets. To prevent this fire-sale mechanism from spiraling further, the Federal Reserve introduced the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) on September 22nd 2008. The AMLF provided nonrecourse loans the US financial institutions to purchase ABCP from MMFs."
It states, "UCITS and the money market fund regulation (MMFR) also have requirements that could partially address the amplification mechanisms and/or transmission channels of investment funds. Specifically, they both have requirements for risk management and asset concentration limits. For example, UCITS stipulates that no single asset can represent more than 10% of the fund's assets and holdings of more than 5% cannot in aggregate exceed 40% of the fund's assets."
On "Central Bank Interventions in Markets," they write, "The two most recent episodes of such markets interventions were in light of significant market dysfunction at the onset of the COVID-19 shock in 2020 and the Gilt market disruption in the UK in 2022. During the COVID-19 shock, and in the context of a sudden 'dash for cash' in global markets, a number of central banks internationally engaged in large asset purchases programmes. In the case of the US, there were also direct interventions by the Federal Reserve to provide liquidity to MMFs, through the introduction of the Money Market Mutual Fund Liquidity Facility (MMLF). Many of these operations were aimed, in part, and at least initially, at restoring market functioning. During the UK Gilt market episode, the Bank of England commenced an asset purchase programme, to safeguard UK financial stability in light of risks stemming from a dysfunction in the Gilt markets."
In other news, Investment News writes again on brokerage sweep lawsuits in, "Wells Fargo sued twice over cash sweep rates, LPL sued again." They state, "In the span of two days, three more lawsuits have been brought against brokerages over their cash sweep rates, including two cases against Wells Fargo and another against LPL. Those add to other recent lawsuits over sweep rates filed against Merrill Lynch, Morgan Stanley, and Ameriprise, as well as a separate one LPL is facing. The cases also come as Wells Fargo last month indicated that it has changed pricing for cash sweeps at the cost of its net interest income and as the firm deals with an SEC investigation into its rates."
LPL said in a statement, "Designed primarily for short-term cash holdings, our FDIC-insured cash sweep vehicles prioritize security, liquidity, and yield -- in that order. We also offer investment options suitable for a longer-term horizon, such as money market funds, CDs, and fixed income funds. This flexibility allows our clients to tailor their investment strategies to align with their risk tolerance and financial goals."
The article tells us, "The recent lawsuit against that firm cites its cash sweep rates as a range from 0.35 percent to 2.2 percent, depending on the size of the account. Meanwhile, sweep rates at Vanguard and Interactive Brokers are 4.6 percent and 4.83 percent, regardless of account size, according to the complaint. One of the lawsuits against Wells Fargo points to a range of 0.05 percent to 0.5 percent for the default cash option for Wells Fargo Advisors clients. Wells Fargo declined to comment on the lawsuits."
It says, "Given that the deluge of cases is relatively new, it's hard to gauge how successful the plaintiffs could be. But two factors will likely affect whether the complaints overcome the hurdle of motions to dismiss, said one lawyer who asked not to be named because similar litigation could affect clients. The first factor is how well the rates and options for cash are disclosed to customers.... The second factor is the brokerage's relationship with the client and whether a financial advisor works with them."
Investment News quotes an anonymous lawyer, "Whenever you have a financial advisor involved, fiduciary duties come into play." They add, "Outside of the lawsuits, it's worth noting the effect that customers' demands for higher-yielding cash options, as well as regulatory scrutiny is having on brokerages' business, as at least several have responded by increasing sweep rates, that source said. 'The impact's going to go beyond litigation. It's going to affect some of the business models going forward.'"
For more on recent Brokerage Sweep News, see these CraneData.com stories: "Tradeweb Completes ICD Acquisition; AdvisorHub on Wells Sweep Suit (8/2/24), "IN: Ameriprise Sued Over Sweeps" (7/31/24), "Federated Hermes' Donahue, Cunningham Call Hits Sweeps, Flows, Rates" (7/29/24), "Ameriprise, Raymond James Discuss Sweeps Issues on Earnings Call Q&As" (7/26/24), "Barron's Writes on Pressure on Sweeps" (7/25/24), "WSJ, Investment News on Brokerage Deposit, Advisory Sweep Pressures" (7/19/24), "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues" (7/17/24).
A press release titled, "Tradeweb Completes Acquisition of ICD," tells us, "Tradeweb Markets Inc. (TW), a leading, global operator of electronic marketplaces for rates, credit, equities and money markets, today announced it has completed its acquisition of Institutional Cash Distributors ('ICD'), an investment technology provider for corporate treasury organizations trading short-term investments. The $785 million, all-cash transaction was announced in April 2024. With the acquisition of ICD, Tradeweb adds corporate treasury professionals as a fourth client channel, complementing its existing focus on institutional, wholesale and retail clients, and giving it access to a $2+ billion addressable market. Tradeweb expects the ICD acquisition to be accretive to its adjusted earnings per share over the next 12 months." (Note: Register soon for our European Money Fund Symposium, which is Sept. 19-20, 2024 in London, England. Registration is $1,000 and our discounted hotel rate expires August 14.)
Tradeweb CEO Billy Hult says, "We are excited to complete the acquisition of ICD and launch corporates as a new client channel, offering a key new avenue for growth and building on our strong presence across our other core markets. Corporate treasurers represent an increasingly large and underserved opportunity within fixed income markets, and ICD's differentiated technology offers the perfect gateway between corporates and global fixed income markets. The ICD team shares our commitment to continuous innovation and exceptional client service, and it is a pleasure to officially welcome them to Tradeweb."
The release continues, "As a part of Tradeweb, ICD will provide an increasingly comprehensive solution for corporate treasury organizations worldwide, enhancing its leadership in this space with a range of Tradeweb integration opportunities. In the future, ICD clients will have the ability to optimize yield and duration via Tradeweb's existing suite of products and partnerships, as well as manage liquidity needs and related FX risk. In addition to cross-selling its products to ICD's clients, Tradeweb will leverage its international presence to aim to accelerate ICD's growth and expansion."
It adds, "ICD is one of the largest U.S. institutional money market fund portals, enabling more than 500 corporate treasury organizations from growth and blue-chip companies (including approximately 17% of the S&P 100 as of December 31, 2023) across 65 industries and more than 45 countries to invest in money market funds and other short-term products to manage liquidity."
In other news, the website AdvisorHub published the piece, "Wells Fargo Targeted as Cash Sweep Lawsuits Snowball." It explains, "Plaintiff lawyers are rushing to the courthouse to join a flurry of cases filed over yields on cash sweep programs in recent weeks. In the last two days of July, two investors, one in Hawaii, the other in California, filed two separate proposed class action lawsuits against Wells Fargo Advisors based on allegations that it breached its fiduciary duty by paying customers extremely low interest rates on client cash balances while earning much higher rates itself."
The article continues, "Both lawsuits, which seek class action certification, allege that customers were automatically enrolled in Wells' Bank Deposit Sweep Program, which paid as little as 0.05% interest to customers while Wells potentially earned over 5%. The complaints come after Wells announced earlier this month that it would raise rates on cash sweep accounts, which coincided with similar moves by Morgan Stanley and Merrill Lynch and intensified industry scrutiny of sweep programs. Wells had disclosed in October 2023 an investigation into its cash sweep practices. Cash sweep lawsuits have proliferated as investors have targeted Ameriprise Financial, LPL Financial, Morgan Stanley, Merrill and Charles Schwab."
It adds, "Two of the cases, which had named Merrill and Charles Schwab, have been dismissed, although the Merrill plaintiffs have refiled. Executives at LPL, Ameriprise, Raymond James Financial and Stifel Financial last week stood by the yield on swept cash saying the funds in those programs were relatively small and used like a checking account for short-term needs. LPL offers 'investment options suitable for a longer-term horizon, such as money market funds, CDs, and fixed income funds,' a spokesperson for the brokerage said."
For more on recent Brokerage Sweep News, see these CraneData.com stories: "IN: Ameriprise Sued Over Sweeps" (7/31/24), "Federated Hermes' Donahue, Cunningham Call Hits Sweeps, Flows, Rates" (7/29/24), "Ameriprise, Raymond James Discuss Sweeps Issues on Earnings Call Q&As" (7/26/24), "Barron's Writes on Pressure on Sweeps" (7/25/24), "WSJ, Investment News on Brokerage Deposit, Advisory Sweep Pressures" (7/19/24), "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues" (7/17/24).
Finally, the Investment Company Institute published its latest weekly "Money Market Fund Assets" report Thursday, which shows money market mutual fund assets falling to $6.135 trillion in the latest week. Assets have risen in 11 of the last 15 weeks, increasing by $158.0 billion (or 2.6%) since April 24. MMF assets are up by $248 billion, or 5.2%, year-to-date in 2024 (through 7/31/24), with Institutional MMFs up $46 billion, or 1.5% and Retail MMFs up $202 billion, or 12.0%. Over the past 52 weeks, money funds have risen by $619 billion, or 11.2%, with Retail MMFs up by $441 billion (21.5%) and Inst MMFs rising by $178 billion (5.1%).
The weekly release says, "Total money market fund assets decreased by $10.65 billion to $6.13 trillion for the week ended Wednesday, July 31, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $3.65 billion and prime funds decreased by $8.09 billion. Tax-exempt money market funds increased by $1.09 billion." ICI's stats show Institutional MMFs falling $18.4 billion and Retail MMFs rising $7.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.955 trillion (80.8% of all money funds), while Total Prime MMFs were $1.051 trillion (17.1%). Tax Exempt MMFs totaled $128.5 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $7.78 billion to $2.49 trillion. Among retail funds, government money market fund assets increased by $6.00 billion to $1.58 trillion, prime money market fund assets increased by $786 million to $790.19 billion, and tax-exempt fund assets increased by $1.00 billion to $116.65 billion." Retail assets account for over a third of total assets, or 40.6%, and Government Retail assets make up 63.6% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $18.43 billion to $3.64 trillion. Among institutional funds, government money market fund assets decreased by $9.65 billion to $3.37 trillion, prime money market fund assets decreased by $8.87 billion to $260.80 billion, and tax-exempt fund assets increased by $91 million to $11.85 billion." Institutional assets accounted for 59.4% of all MMF assets, with Government Institutional assets making up 92.5% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $16.6 billion in July (through 7/31) to $6.505 trillion. They hit a record $6.559 trillion on 7/11 but have since eased off a bit. Assets rose by $15.7 billion in June and $91.4 billion in May, but they fell $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September and $98.3 billion in August. 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.
J.P. Morgan Asset Management posted a "Liquidity Insight" titled, "Prime Time with John Donohue." The introduction explains, "John Donohue, CEO, Americas and Global Liquidity Head, J.P. Morgan Asset Management, discusses the role of prime money market funds, the impact of recent reforms, and the evolving landscape of the market. Learn how these funds are used by clients and the factors driving their demand in a changing interest rate environment." The Q&A asks, "Can you share your thoughts on the latest round of money market reform and what it means for prime money market funds?" Donohue comments, "Absolutely. The recent reforms are designed to improve the management of liquidity funds during times of market stress. They bring several significant changes that we believe will benefit both the market and investors."
He continues, "Prime money market funds (MMFs) typically offer higher yields than government MMFs by including short-term corporate and bank debt securities, adding incremental risk. They have a floating net asset value (FNAV) but with low volatility due to their high-quality, short-term investments. In addition to seeking superior credit quality, lower duration and a high percentage of daily and weekly liquidity (DLA and WLA) contribute to the NAV's reduced volatility compared to short-term bonds and short-duration funds."
Donohue tells readers, "Prime fund investors are typically institutions -- companies, pension plans, government entities, or large financial intermediaries. These investors often view cash as a unique asset class and segment that cash based on anticipated needs. For example, cash needed for daily operations might be held in a government MMF to ensure the highest level of liquidity. In contrast, more core or strategic cash can be invested in prime funds to potentially earn a higher return."
He says, "With rising interest rates, the demand for prime funds has surged, as they now offer significantly higher returns compared to government MMFs. Since early 2023, assets under management in prime funds have increased by over 50%.... The reforms bring several key changes. Previously, gates and fees might be applied when a fund's weekly liquidity fell below a threshold, which could exacerbate market turmoil during economic stress. We saw this during the COVID market stress. Now, these potential gates and fees have been removed."
The JPMAM Liquidity Head comments, "Additionally, funds must maintain greater daily and weekly liquid assets (DLA and WLA) than previously. A mandatory redemption fee will be applied only if redemptions exceed 5% of the total fund in a single day. This measure ensures fairness among all investors and will potentially improve market stability, helping to protect your investment. Overall, these changes provide a more equitable client experience and enhance the safety of MMFs."
The piece also asks, "Can you explain the impact of the mandatory redemption fee introduced by the recent money market reforms? Donohue responds, "The mandatory redemption fee is a fairer alternative to the previous gates and fees that applied to the entire fund. Now, only clients who redeem on a day when redemptions exceed 5% of the fund's total assets will be affected. This means that investors who remain in the fund are not penalized. This change mitigates the first-mover advantage during market stress, as those who withdraw funds will pay a fee for liquidity, benefiting the remaining shareholders. Essentially, it shifts the cost of liquidity to those who demand it, making the system more equitable."
He states, "Additionally, with the elimination of gates, you will always have access to your liquidity, even if you have to pay the fee. This ensures that your funds are never completely locked up, providing you with greater flexibility and peace of mind. The fee is designed to reflect the true cost of liquidity, ensuring it accurately represents market conditions at the time of redemption. Importantly, in a normal market environment, this fee could be zero if the cost of liquidity is minimal."
Donohue comments, "Due to the operational complexity of maintaining three strike prices per day, many prime MMF managers, including J.P. Morgan, have reduced the number of strike prices each day. This adjustment helps manage the new requirements more efficiently."
He says, "We've spent a lot of time evaluating the reforms and their potential impact on prime funds. We remain absolutely committed to offering prime funds for several reasons. Our clients want these funds, especially in a higher-for-longer interest rate environment. We have the resources and expertise to meet the specific needs and goals of prime MMF investors. Our team has years of experience in all kinds of markets and has weathered major financial crises."
Donohue states, "Some providers are making different decisions, potentially influenced by the size of their business or their product offerings. Notably, ten of the industry's largest firms have already announced the transition of their institutional prime assets to government money market funds (MMFs). In our view, consolidation in the prime market could have some interesting and potentially beneficial consequences. A core group of providers who are highly committed to prime funds may strengthen the market. Historically, the first signs of trouble during times of stress often appear at firms with less experience, fewer resources, or where prime funds are not a core focus."
He tells us, "Additionally, a more consolidated market could result in fewer buyers for typical prime MMF securities, which might push spreads wider. This could lead to higher yields for prime funds compared to more conservative MMFs. As a result, prime money market investors could benefit from both a stronger market and potentially higher yields.... The reforms will likely lead to a more consolidated base of institutional clients who are already comfortable using prime funds, understand their benefits, and have realized these benefits over the years."
Finally, Donohue adds, "While some clients may choose to switch to government MMFs due to operational changes, we see this as an opportunity to strengthen relationships with clients who are looking to maximize returns on their entire cash holdings. The new redemption requirements and increased liquidity will enhance the overall safety and client experience of money market funds (MMFs). Prime funds, with their potential for higher yields, can play a valuable role in a diversified portfolio, offering both stability and the opportunity for enhanced returns."
