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This month, Bond Fund Intelligence speaks with Morten Olsen, Director of Ultra-Short Fixed Income at Northern Trust Asset Management. Olsen oversees Northern's ultra-short bond fund lineup, including the $2.1 billion Northern Ultra Short Fixed-Income (NUSFX) and the $3.5 billion Northern Tax-Advantaged Ultra-Short Fixed-Income (NTAUX). We discuss fund strategies, rates, risks and the future of ultra-short bond funds below. Olsen expects a very busy 2017 for the sector. (Note: This "profile" is reprinted from the March issue of BFI. Contact us if you'd like to see the full issue.) Also, thank you to those who attended our inaugural Bond Fund Symposium in Boston, which attracted over 150 participants!

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Law firm Orrick's Structured Finance Group published the notice, "European Parliament Will Consider Money Market Fund Regulation in April 2017 Plenary Session." The brief says, "The European Parliament has announced that it will consider the MMF regulation during its upcoming plenary session, currently scheduled to be held April 3-6, 2017. The MMF regulation is intended to introduce new framework requirements to more effectively regulate money market funds, as well as increase their stability and general liquidity. In particular, the regulation (introduced by the European Commission) is intended to more tightly regulate the shadow banking sector. The plenary session will allow debate and potential amendment to the scope of the MMF regulation." (See our Jan. 24 News, "`Fitch's Sewell and Gkeka on Timing of European Money Fund Reforms.") We discuss Crane Data's latest MFI International and MFII Portfolio Holdings statistics below, and we also review a new set of AAAf ratings on LGIPs from Fitch Ratings. We also want to welcome to Boston those of you attending the inaugural Crane's Bond Fund Symposium, which takes place Thursday and Friday a.m. at the Hyatt Regency Boston. Watch for coverage in coming days and in the next issue of our Bond Fund Intelligence.

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This month, Money Fund Intelligence interviews Tim Huyck, Chief Investment Officer for Money Markets at Fidelity Investments. Fidelity is by far the largest manager of money funds with over $500 billion, almost double its next largest competitor. The company's history goes back to the earliest days of money funds (recently retired Chairman Edward "Ned" Johnson III played a key role in popularizing money funds), and Fidelity remains the most important player in the space. Our Q&A follows. (This interview is reprinted from the March issue of our flagship Money Fund Intelligence newsletter; e-mail info@cranedata.com to request the full issue.)

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The Federal Reserve Bank of New York's Liberty Street Economics blog published a piece entitled, "Money Market Funds and the New SEC Regulation." It says, "On October 14, 2016, amendments to Securities and Exchange Commission (SEC) rule 2a-7, which governs money market mutual funds (MMFs), went into effect. The changes are designed to reduce MMFs' susceptibility to destabilizing runs and contain two principal requirements. First, institutional prime and muni funds—but not retail or government funds—must now compute their net asset values (NAVs) using market-based factors, thereby abandoning the fixed NAV that had been a hallmark of the MMF industry. Second, all prime and muni funds must adopt a system of gates and fees on redemptions, which can be imposed under certain stress scenarios. This post studies the effect of the amendments on the size and composition of the MMF industry and, in particular, whether MMF investors shifted their assets from prime and muni funds toward government funds in anticipation of the tighter regulatory regime."

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The U.S. Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary late last week, which shows that total assets increased in February, with Prime funds gaining $24.9 billion (after gaining $11.7B in Jan.), Tax Exempt MMFs losing $0.6 billion and Government funds losing $10.1 billion. Gross yields continued higher for Taxable MMFs, but declined again for Tax Exempt MMFs. 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.

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The Investment Company Institute released its latest weekly "Money Market Mutual Fund Assets" report and monthly "Money Market Fund Holdings" summary (with data as of Feb. 28, 2017) yesterday. The former shows Prime assets decreasing for the first week in six, while the latter, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds, shows Prime assets and European-related holdings increasing again last month. (See our March 10 News, "March Money Fund Portfolio Holdings Show Continued Credit Recovery.")

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The Federal Reserve raised short-term interest rates again yesterday, their second hike in 3 months and just the third in 10 years. Money fund investors and managers should benefit almost immediately, as rates are expected to move higher immediately following the move. Currently, money funds have an average weighted average maturity (WAM) of 35 days, so funds should reflect the 25 basis point higher yields fully in just over a month. Average yields for money funds are currently 0.50%, as measured by our Crane 100 MF Index, so yields hould move towards 0.75% over the coming weeks. The highest-yielding money funds, currently 0.8-0.9%, should break over 1.0% within weeks. Given expectations for even more Fed hikes in 2017, money fund yields, and revenues (as fee waivers melt away), are looking up for 2017. We review the Fed move and statements below.

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Capital Advisors Group published a paper entitled, "Demystifying Private Liquidity Funds," which reviews a recent SEC paper on Private Liquidity Funds and recent SEC Statistics on this over $500 billion and little noticed segment of the money markets. CAG's Lance Pan explains, "Important regulatory changes to institutional prime money market funds are forcing new ideas and new interest in prime fund alternatives. With the SEC Form PF aggregate data, we reconstructed a profile of unregistered private liquidity funds promising investors stable $1.00 NAVs without liquidity gates. We discuss the drawbacks with private funds as being unfamiliar to the institutional cash community, the mishap with a large fund during the financial crisis, the vulnerable liquidity model, the requirement for investor sophistication, poor transparency, the risk of liquidity lockups and share suspensions, and their uncertain future related to systemic concerns."

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The March issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Tuesday, features the lead story, "Bond Fund Inflows Back w/a Vengeance in 2017 After Dip," which tells readers that, "Inflows into bond funds ... are running at one of their strongest paces ever." It also includes the interview, "Northern Trust's Morten Olsen Talks Ultra-Shorts." In addition, we recap the latest Bond Fund News, including briefs such as, "Bond Fund Returns Up Again in Feb.; Yields Flat, Down." BFI also includes our Crane BFI Indexes, averages and summaries of major bond fund categories. We excerpt from the latest issue below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS data spreadsheet.) Finally, we look forward to seeing those of you attending the inaugural Crane's Bond Fund Symposium next week (March 23-24) in Boston!

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The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Fourth Quarter, 2016 edition shows that the Household Sector remains the largest investor segment, as assets here jumped and retook the $1.0 trillion level in Q4. Nonfinancial Corporate Businesses and Funding Corporations (primarily Securities Lending money) remained the second and third largest segments, with the former rising and the latter falling sharply in the latest survey. State & Local Governments, Private Pension Funds, Rest of World, and Nonfinancial Noncorporate Business were the next largest segments, and these all remained relatively flat in the latest quarter. Businesses, Local Govts and Pension Funds showed increases over the past 12 months, while Household holdings of MMFs declined over the past year. We review the latest Fed Z.1 numbers, and we also review a new publication on Repo from the OFR, below.

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Crane Data released its March Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of Feb. 28, 2017, shows declines in Treasuries and Agencies, and increases in CP and CDs. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) decreased by $18.1 billion to $2.647 trillion last month, after increasing by $7.2 billion in Jan., $34.7 billion in Dec., and $106.5 billion in Nov. Repo remained slightly larger than Treasuries and the largest portfolio segment, as Treasuries fell and Repo was flat. Agencies, which declined slightly, remained the third largest segment. CDs also rose and were in fourth place, followed by Commercial Paper, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us if you'd like to see a sample of our latest Portfolio Holdings Reports.)

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Bank of America Merrill Lynch published a "US Rates Watch" update entitled, "Money market client survey: MMF reform shifts to be long lasting" earlier this week. Written by Mark Cabana, the piece tells us, "It has been nearly 5 months since 2a-7 money market mutual fund reform took effect, which saw over $1tn move out of prime funds and a similar amount into government funds. To gain some perspective on the outlook for money markets, we recently conducted a survey of our corporate clients. We wanted to better understand the conditions under which clients would consider shifting funds back into prime, alternatives they were considering to enhance yield, and how international tax reform might impact money markets."

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