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Former Fidelity Investments President Robert Pozen wrote an Opinion piece for MarketWatch entitled, "What to know about how the coronavirus crisis will impact your money market fund," which tells us that "Government intervention should be enough to keep your money safe." He comments, "As the coronavirus pandemic topples stock markets, many U.S. investors have sought safety in money market funds. They may be forgetting that during the financial crisis of 2008, the net asset value of one large money market fund dropped below $1 per share. This event, called 'breaking the buck', triggered a stampede out of money market funds -- except for those investing primarily in U.S. Treasurys."

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Now that the danger of a money fund "breaking the buck" or a run on Prime assets has passed (knock on wood), attention in the cash sector is turning to the next potential threat -- negative yields. Earlier this week, Invesco Fixed Income's Laurie Brignac and Rob Corner wrote, "Negative Rates: Could it happen in the US?" They explain, "Questions about the possibility of negative rates in the US have arisen due to the quick and pivotal actions of the US Federal Reserve (Fed) prompted by the economic impact of COVID-19 and subsequent sharp decline in US Treasury yields. We believe the probability of the Fed adopting a negative interest rate policy (NIRP) regime is highly unlikely in the near-term.... Perception of the Fed moving to negative interest rates would cause confusion and even more market upheaval. The Fed has said it's unlikely and raised questions about adverse effects.... Last, a switch by the Fed to a negative interest rate regime would likely significantly impact the US money market fund industry, which is an outcome we believe policy makers do not want."

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Money market mutual fund assets showed their biggest asset gain in history in March, skyrocketing by $624.9 billion to a record $4.591 trillion. Government MMFs rose a stunning $790.4 billion to $3.521 trillion, while Prime MMFs fell by $159.6 billion to $935.6 billion last month. In comparison, during September 2008, when Reserve Primary Fund "broke the buck" and MMFs saw $160.1 billion in outflows (to $3.203 trillion), Prime MMFs fell by almost 3 times as much then, $447.6 billion, as they did in March 2020. Government MMFs jumped by just $324.6 billion back during that tumultuous September of 2008. Tax Exempt MMFs, who have seen yields go through the roof, saw assets fall by $5.8 billion last month to $133.9 billion.

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The Investment Company Institute published a study on "Trends in the Expenses and Fees of Funds, 2019," which tells us, "Average expense ratios for money market funds held steady at 0.25 percent in 2019. Despite the Federal Reserve lowering the federal funds rate in 2019, short-term interest rates remained well above zero and fund advisers kept their use of expense waivers low. Expense waivers had been offered widely during the period of near-zero short-term interest rates that had prevailed in the post–financial crisis era." (Of course, we're about to start seeing fee waivers become prevalent in money funds again -- see below.)

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After dropping below the 1.0% level two weeks ago, average yields on money market funds dropped to the 0.5% level in the latest week. Yields on Government money market funds plunged, and some Treasury funds began closing to new investors. Our flagship Crane 100 Money Fund Index fell 22 basis points to 0.50%, according to Money Fund Intelligence Daily (data as of Friday, 3/27). The Crane 100 is down from 1.46% at the start of the year and down 1.73% from the beginning of 2019 (2.23%). Our Crane Brokerage Sweep Index remained at 0.02% (for balances of $100K), the same as a week ago and down 26 bps from the end of 2018 (0.28%), as most brokerages have already hit the 0.01% floor. Our latest Brokerage Sweep Intelligence, with data as of March 27, shows three out of 11 major brokerages cut rates in the past week, and ten out of 11 major brokerages now offer rates of 0.01% for balances of $100K.

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This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below. (Note: The following is reprinted from the March issue of Money Fund Intelligence, which was published on March 6. Contact us at info@cranedata.com to request the full issue or to subscribe.)

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The Investment Company Institute's latest "Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2019" release shows that money fund assets globally rose by $311.2 billion, or 4.7%, in Q4'19 to a record $6.937 trillion. The increase was driven by big gains in U.S.-based money funds, and increases in Ireland-, China- and Luxembourg-based money funds. MMF assets worldwide have increased by $860.7 billion, or 14.2%, the past 12 months, and money funds in the U.S. now represent 52.4% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)

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The Securities and Exchange Commission's latest "Money Market Fund Statistics" summary shows that total money fund assets increased by $17.3 billion in February to $4.034 trillion, the 19th increase in the past 20 months. (Month-to-date in March through 3/24, assets have skyrocketed by an incredible $464.4 billion to $4.430 trillion according to our MFI Daily.) The SEC shows that Prime MMFs dropped $13.9 billion in February to $1.109 trillion, while Govt & Treasury funds jumped by $32.0 billion to $2.784 trillion. Tax Exempt funds fell by $0.8 billion to $141.0 billion. (MFI Daily shows Prime down $145.1 billion, and Govt MMFs up $618.6B in March so far.) Yields were down for Prime MMFs, Govt MMFs remained flat and Tax-Exempt MMF yields increased in February. 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.

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Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics, which track a shifting subset of our monthly Portfolio Holdings collection, yesterday. The most recent cut (with data as of Mar. 20) includes Holdings information from 94 money funds (up 16 from a week ago), which represent $2.312 trillion (up from $1.859 trillion) of the $3.835 trillion (60.3%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website. For our latest monthly Holdings, see our March 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.")

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The Federal Reserve pulled out all the stops to support the money markets Monday, as its Money Market Mutual Fund Liquidity Facility, announced March 18, reached full force and was expanded to include almost all major asset classes owned by MMFs (CDs and VRDNs were the keys adds over the weekend. The move appears to be ratcheting down the level of danger in the money markets substantially, though we're not out of the woods yet. Prime outflows have decreased for 5 days in a row and weekly liquid assets increased noticeably Monday. The recently posted "Money Market Mutual Fund Liquidity Facility FAQs" explains, "How will this program support money market mutual funds (MMMFs)? In the days prior to the initiation of the program, some MMMFs experienced significant demands for redemptions by investors. Under ordinary circumstances, they would have been able to meet those demands by selling assets. Recently, however, many money markets have become extremely illiquid due to uncertainty related to the coronavirus outbreak. Pursuant to Section 13(3) of the Federal Reserve Act, and with prior approval of the Secretary of the Treasury, the Board of Governors of the Federal Reserve System (Board) authorized the Federal Reserve Bank of Boston (FRBB) to establish the MMLF. In addition, the Secretary of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion of credit protection to FRBB. The MMLF will assist MMMFs in meeting demands for redemptions by households and other investors, enhancing overall market functioning and the provision of credit to households, businesses and municipalities."

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Money market mutual funds experienced one of the craziest weeks in their 50 year history last week as the Federal Reserve and Treasury launched emergency measures to calm turmoil and outflows in the Prime and Municipal segments of the market. Meanwhile, Government money funds saw record-shattering inflows and overall assets surged to record levels not seen since January 2009. Late last week, two fund groups, Goldman Sachs and Dreyfus, acted to provide liquidity to their funds. Dreyfus parent BNY Mellon took steps to provide liquidity and support NAVs by purchasing blocks of 'money good' securities at par, while Goldman Sachs Bank USA provided liquidity by purchasing assets from the fund at market value as fears over the coronavirus wreaked havoc across the economy and impaired liquidity in financial markets. Prime money assets declined by $97.7 billion to $981.3 billion in the week through Thursday, March 19, but the flows have begun slowing under the onslaught of Federal Reserve and Treasury support programs. Government money market funds jumped by $264.5 billion to $3.150 trillion, and Tax Exempt MMFs fell $6.1 billion to $134.0 billion. (We'll publish our 3/20 asset totals, and our 3/19 MNAVs and WLAs, Monday morning at 8am in our latest Money Fund Intelligence Daily.) Month-to-date in March (through 3/19), Prime assets have fallen by $113.9 billion, Govt funds have risen by $419.5 billion, and Tax Exempt have fallen by $5.8 billion. (See here for the Federal Reserve's new FAQ on its Money Market Mutual Fund Liquidity Facility.)

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Money market mutual fund assets broke above their previous January 2009 record levels this week on a record jump in assets, as assets of Government funds skyrocketed and Prime MMFs plunged, according to the ICI's latest weekly "Money Market Fund Assets" report. It explains, "Total money market fund assets increased by $158.62 billion to $3.94 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $249.33 billion and prime funds decreased by $85.38 billion. Tax-exempt money market funds decreased by $5.32 billion." ICI's weekly series shows Institutional MMFs rising $123.2 billion and Retail MMFs increasing $35.5 billion. Total Government MMF assets, including Treasury funds, were $3.094 trillion (78.6% of all money funds), while Total Prime MMFs were $712.7 billion (18.1%). Tax Exempt MMFs totaled $129.2 billion, 3.3%.

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