Press Releases & Quotes

Archives »

The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Rising MF Yields Turn Up Heat on Sweeps, Bank Deposits," which discusses the growing spread between money funds and other cash options; "PGIM Still Rocking in Cash: Q&A w/D'Angelo, Nicholson," which profiles the money funds formerly named Prudential; and, "European MMF Reforms Go Live; Ready for Symposium," which reviews the latest on European money fund regulations. We've also updated our Money Fund Wisdom database with July 31, 2018, statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship on Thursday, August 9, and our August Bond Fund Intelligence is scheduled to go out Tuesday, August 14.

MFI's "Rising MF Yields" article says, "Money fund yields have risen from a near record-low average of 0.04% three years ago to 1.75% currently (as measured by our Crane 100 MF Index), while bank deposit rates, and in particular brokerage sweep rates, have lagged dramatically. Brokerage sweep rates have risen from 0.01% to 0.22%, while bank money market deposit rates still average a ridiculously low 0.20% (according to the FDIC's averages). Even the highest-yielding deposits average just 1.26%."

The lead piece continues, "While asset flows into money market funds attracted by these huge yield differentials remain subdued, we suspect this is beginning to change. One reason that investors haven't moved is that the news that money fund yields are back is still slow getting out. But this is changing too. A steady stream of articles pointing out these attractive spreads are appearing."

It adds, "J.P. Morgan Securities comments in a recent 'Short Duration Strategy' piece, "With the Fed on the move and interest rates steadily rising, the topic of deposit betas and outflows has garnered significant attention from the financial community. Indeed, deposit growth at US commercial banks has slowed to 3.0-3.5% on a year-over-year basis, from a high of 5.0-7.0% in 2015 before the Fed embarked on its mission to lift interest rates.... [W]e have seen flows into other liquidity alternatives such as MMFs and short duration bond funds for both retail and institutional investors. More notably, the magnitude of the flows this year has been above and beyond what typically takes place during this time period."

Our PGIM Profile" reads, "This month, Money Fund Intelligence interviews Joe D'Angelo, Managing Director of PGIM Fixed Income, who runs the money market desk, and Chris Nicholson, Vice President of Fixed-Income Product Management at PGIM Investments, the distributor of the PGIM funds. PGIM's funds formerly carried the Prudential moniker, but they changed names earlier this summer to synch the funds with that of their advisor. Our Q&A follows."

MFI asks, "How long have you been running cash?" D'Angelo answers, "We were running cash before I started here, which was 30 years ago.... PGIM Fixed Income evolved from three internal fixed income groups focused on mutual funds, separate accounts, and proprietary accounts. These three separate groups were each managing money independently in the infant stages of money markets, going back to the early '80s or even late '70's.... Ultimately, all fixed income asset management was brought together. At that time, in roughly 2000, the firm had about $130 billion in assets under management. Now, PGIM Fixed Income is up to 600-plus clients with over $700 billion under management as of June 2018."

He continues, "I grew up on the issuance side of Prudential, coming here in the late '80s to work under the Treasurer. We were a prominent direct issuer of commercial paper. I moved from the direct issuer desk to securities lending, then jumped to investments around 2000."

Nicholson adds, "I've worked in various roles in financial services for the last 15 years [and] came over to Prudential, or PGIM now, in November of 2014.... I head up the fixed income product management efforts on the mutual fund side of things." (Watch for more excerpts from our "profile" on www.cranedata.com later this month or ask us to see the full MFI issue.)

MFI's "European Reforms" piece says, "New European Money Market Fund Reforms went into effect July 21. While existing funds don't need to comply until Jan. 31, 2019, discussions and preparations have shifted into high gear. Several of the largest managers of the 'offshore' stable value funds likely to be most-impacted by the changes have announced reform plans, with most expecting investors to stay put and go 'LVNAV.' Moody's Investors Service and Fitch Ratings recently commented on the changes, one in the form of a Q&​A and the other via webinar. (​See our July 23 News, "European Money Market Fund Reforms Go Live; Moody's, Fitch Comment.")

Our August MFI XLS, with July 31, 2018, data, shows total assets increased $36.3 billion in July to $3.044 trillion, after decreasing $49.9 billion in June, increasing $53.7 billion in May, and $19.9 billion in April. Our broad Crane Money Fund Average 7-Day Yield rose 2 bps to 1.57% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 2 bps to 1.76%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 1 bps to 2.03% and the Crane 100 rose to 2.04%. Charged Expenses averaged 0.46% and 0.28% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 were 27 and 28 days, respectively (down two days and one day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

To the top E-mail this article

Crane Data released its July Money Fund Portfolio Holdings Wednesday, and our most recent collection of taxable money market securities, with data as of June 30, 2018, shows a drop in Repo overall but a sharp rebound in Fed Repo. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $53.8 billion to $2.871 trillion last month, after increasing by $16.7 billion in May and $46.4 billion in April, but decreasing $105.0 billion in March. Repo continued to be the largest portfolio segment, followed by Treasury securities then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) fell $31.4 billion (-3.2%) to $952.8 billion, or 33.2% of holdings, after jumping $67.1 billion in May and $99.9 in April, but dropping $89.6 billion in March. Treasury securities fell again, down $6.3 billion (-0.8%) to $773.0 billion, or 26.9% of holdings, after dropping $50.9 billion in May and $108.3 billion in April, but jumping $95.3 billion in March. Government Agency Debt fell by $9.3 billion (-1.4%) to $674.2 billion, or 23.5% of all holdings, after rising by $5.5 billion in May, rising $23.4 in April, and falling $58.1 billion in March. Repo, Treasuries and Agencies total $2.400 trillion, representing a massive 83.6% of all taxable holdings.

CP fell in the sixth month of the year, while CDs and Other (mainly Time Deposits) securities increased. Commercial Paper (CP) was down $10.0 billion (-4.5%) to $213.9 billion, or 7.5% of holdings, after rising $13.2 billion in May, rising $8.8 billion in April and falling $16.2 billion in March. Certificates of Deposits (CDs) rose by $1.6 billion (0.9%) to $169.3 billion, or 5.9% of taxable assets (after dropping by $1.2 billion in May and rising $1.7 billion in April). Other holdings, primarily Time Deposits, rose by $1.6 billion (2.1%) to $79.3 billion, or 2.8% of holdings. VRDNs held by taxable funds fell by $0.0B (-0.4%) (0.3% of assets).

Prime money fund assets tracked by Crane Data dipped again to $651 billion (down from $662 billion last month), or 22.7% (up from 22.6%) of taxable money fund holdings' total of $2.871 trillion. Among Prime money funds, CDs represent over a quarter of holdings at 26.0% (up from 25.3% a month ago), followed by Commercial Paper at 33.0% (down from 33.8%). The CP totals are comprised of: Financial Company CP, which makes up 21.5% of total holdings, Asset-Backed CP, which accounts for 6.5%, and Non-Financial Company CP, which makes up 5.0%. Prime funds also hold 5.5% in US Govt Agency Debt, 6.9% in US Treasury Debt, 7.2% in US Treasury Repo, 1.6% in Other Instruments, 8.9% in Non-Negotiable Time Deposits, 5.1% in Other Repo, 3.5% in US Government Agency Repo, and 1.0% in VRDNs.

Government money fund portfolios totaled $1.539 trillion (53.6% of all MMF assets), down from $1.589 trillion in May, while Treasury money fund assets totaled another $681 billion (23.7%), up from $673 billion the prior month. Government money fund portfolios were made up of 41.5% US Govt Agency Debt, 19.8% US Government Agency Repo, 16.4% US Treasury debt, and 22.0% in US Treasury Repo. Treasury money funds were comprised of 69.7% US Treasury debt, 30.1% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.220 trillion, or 77.3% of all taxable money fund assets, the same as last month.

European-affiliated holdings fell $136.5 billion in June to $541.0 billion among all taxable funds (and including repos); their share of holdings fell to 18.4% from 23.2% the previous month. Eurozone-affiliated holdings fell $98.2 billion to $337.3 billion in June; they account for 11.8% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $0.9 billion to $244.8 billion (8.5% of the total). Americas related holdings rose $0.1 billion to $2.083 trillion and now represent 72.6% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $26.2 billion, or -4.3%, to $591.1 billion, or 20.6% of assets; US Government Agency Repurchase Agreements (down $5.1 billion to $328.0 billion, or 11.4% of total holdings), and Other Repurchase Agreements ($33.7 billion, or 1.2% of holdings, down $0.1 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $2.1 billion to $139.6 billion, or 4.9% of assets), Asset Backed Commercial Paper (up $0.3 billion to $42.2 billion, or 1.5%), and Non-Financial Company Commercial Paper (down $8.2 billion to $32.2 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of June 30, 2018, include: the US Treasury ($773.0 billion, or 26.9%), Federal Home Loan Bank ($549.0B, 19.1%), BNP Paribas ($143.4B, 5.0%), RBC ($95.5B, 3.3%), Federal Reserve Bank of New York $88.6B, 3.1%), Federal Farm Credit Bank $76.9B, 2.7%), Wells Fargo ($67.5B, 2.4%), Fixed Income Clearing Corp ($51.0B, 1.8%), HSBC ($51.0B, 1.8%), Mitsubishi UFJ Financial Group Inc ($46.1B, 1.6%), Sumitomo Mitsui Banking Co ($45.1B, 1.6%), JP Morgan ($43.3B, 1.5%), Bank of Montreal ($41.5B, 1.4%), Nomura ($40.4B, 1.4%), Bank of America ($38.2B, 1.3%), Barclays PLC ($36.8B, 1.3%), Societe Generale ($36.1B, 1.3%), Toronto-Dominion ($33.7B, 1.2%), Citi ($30.2B, 1.1%), and Federal Home Loan Mortgage Co ($29.9B, 1.0%).

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: BNP Paribas ($133.5B, 14.0%), Federal Reserve Bank of New York ($88.6B, 9.3%), RBC ($79.0B, 8.3%), Wells Fargo ($54.0B, 5.7%), Fixed Income Clearing Corp ($51.0B, 5.4%), HSBC ($42.7B, 4.5%), Nomura ($40.4B, 4.2%), JP Morgan ($34.7B, 3.6%), Bank of America ($34.1B, 3.6%), and Sumitomo Mitsui Banking Co ($32.4B, 3.4%).

The 10 largest Fed Repo positions among MMFs on 6/30/18 include: Fidelity Cash Central Fund ($15.1B in Fed Repo), Fidelity Sec Lending Cash Central ($8.7B), Dreyfus Govt Cash Mgmt ($8.5B), Schwab Govt MMkt ($8.4B), Fidelity Inv MM: Treasury Port ($6.2B), Dreyfus Tr&Ag Cash Mgmt ($4.0B), JP Morgan US Govt ($3.7B), BlackRock Lq FedFund ($3.4B), JP Morgan US Trs Plus ($2.9B), and BlackRock Cash Treas ($2.8B),.

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($21.3B, 5.4%), RBC ($16.5B, 4.2%), Mitsubishi UFJ Financial Group Inc. ($15.2B, 3.9%), Swedbank AB ($14.7B, 3.7%), Canadian Imperial Bank of Commerce ($14.0B, 3.6%), Bank of Montreal ($13.5B, 3.4%) Wells Fargo ($13.5B, 3.4%), Sumitomo Mitsui Banking Co ($12.7, 3.2%), Australia & New Zealand Banking Group Ltd ($12.0B, 3.1%), and Svenska Handelsbanken ($11.9, 3.0%).

The 10 largest CD issuers include: Wells Fargo ($13.4B, 8.0%), Bank of Montreal ($12.6B, 7.4%), RBC ($10.1, 6.0%), Svenska Handelsbanken ($9.3B, 5.5%), Mitsubishi UFJ Financial Group Inc ($9.0B, 5.3%), Sumitomo Mitsui Trust Bank ($8.8B, 5.2%), Swedbank AB ($8.7B, 5.2%), Sumitomo Mitsui Banking Co ($7.7B, 4.6%), Mizuho Corporate Bank Ltd ($7.6B, 4.5%), and Canadian Imperial Bank of Commerce ($6.8B, 4.0%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($13.2B, 7.3%), JPMorgan ($8.5B, 4.7%), Commonwealth Bank of Australia ($7.2B, 3.9%), Credit Suisse ($6.8B, 3.7%), UBS AG ($6.6B, 3.6%), Australia & New Zealand Banking Group Ltd ($6.5B, 3.6%), National Australia Bank Ltd ($6.4B, 3.5%), Mitsubishi UFJ Financial Group Inc ($6.1B, 3.4%), Bank of Nova Scotia ($5.8B, 3.2%), and Canadian Imperial Bank of Commerce ($5.7B, 3.1%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $67.1B to $88.6B), RBC (up $12.6B to $95.5B), Bank of Montreal (up $6.7B to $41.5B), Nomura (up $6.0B to $40.4B), Sumitomo Mitsui Trust Bank (up $4.1B to $14.1B), Fixed Income Clearing Co (up $4.1B to $51.0B), BNP Paribas (up $3.7B to $143.4B), DNB ASA (up $3.6B to $14.0B), Mitsubishi UFJ Financial Group Inc (up $3.4B to $46.1B), and Bank of America (up $3.3B to $38.2B).

The largest decreases among Issuers of money market securities (including Repo) in June were shown by: Credit Agricole (down $42.1B to $24.4B), Barclays PLC (down $21.9B to 36.8B), Credit Suisse (down $18.1B to $11.2B), Natixis (down $15.3B to $28.0B), Societe Generale (down $15.2B to $36.1B), Mizuho Corporate Bank Ltd (down $11.6B to $17.8B), Deutsche Bank AG (down $10.5B to $7.2B), JP Morgan (down $9.3B to $43.3B), Federal Home Loan Bank (down $6.7B to $549.0B), and the US Treasury (down $6.3B to $773.0B).

The United States remained the largest segment of country-affiliations; it represents 64.3% of holdings, or $1.846 trillion. France (8.5%, $243.9B) remained in the No. 2 spot and Canada (8.3%, $237.1B) remained No. 3. Japan (6.7%, $191.3B) stayed in fourth place, while the United Kingdom (4.2%, $119.5B) remained in fifth place. Germany (1.5%, $43.9B) moved ahead of The Netherlands (1.5%, $42.4B) into sixth place. Sweden (1.5%, $44.1B) ranked 8th while Australia (1.4%, $39.1B) moved ahead of Switzerland (0.8%, $23.7B) to rank 9th and 10th. (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 June 30, 2018, Taxable money funds held 31.8% (down from 32.0%) of their assets in securities maturing Overnight, and another 15.5% maturing in 2-7 days (down from 16.2%). Thus, 47.3% in total matures in 1-7 days. Another 23.4% matures in 8-30 days, while 10.0% matures in 31-60 days. Note that over three-quarters, or 80.6% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 10.6% of taxable securities, while 7.5% matures in 91-180 days, and just 1.3% matures beyond 181 days.

To the top E-mail this article

Barron's writes "No Volatility Here: Cash Makes a Comeback." The article tells us, "Rising interest rates are punishing bonds and causing stocks to teeter. But cash investments -- a misnomer until recently -- haven't looked so good in years. Yields on money-market funds and other cash sanctuaries are approaching 2%, levels not seen in almost a decade." Barron's quotes Federated Investors' Deborah Cunningham, "Cash is an asset class once again." The piece explains, "Cash's comeback has been a long time coming. From 2009-2016, the Fed held short-term rates near zero, forcing money funds to waive management fees just to maintain yields of 1/100th of one percent (0.01%). Online banks, hungry for deposits, filled the void with higher yields on savings. That left money funds touting safety and liquidity as their only selling points. But as the Fed has hiked rates -- five times since late 2016 -- money-market yields have rebounded. The average is 1.5%, almost a point above the level a year ago, according to Crane Data. Taxable funds now have a 0.50 percentage point yield edge over bank deposits, reports iMoneyNet. Investors have noticed -- money-fund assets went from $2.6 trillion to $2.8 trillion over the past year." They quote Crane Data's Peter Crane, "Money funds were on a starvation diet with yields at zero percent.... Rate increases have given them a stay of execution." Barron's adds, "Yet yields on money-market mutual funds (which aren't insured) should catch up to online banks' soon. The funds hold debt maturing in a few days or weeks, enabling them to harvest higher yields rapidly as rates rise. With two rate hikes on tap -- likely in June and September or December -- yields should reach 2%, says Crane. Some institutional-class funds (which have high minimum investments and floating net asset values) already have hit that mark.... Perhaps the best argument for bolstering liquid, short-term savings and bond accounts now: The stock-market rally is extremely aged. When the bear strides back onto Wall Street, bargain hunters with cash will be king."

To the top E-mail this article

The weekend Wsll Street Journal features the piece, "Don't Sweep Cash Under Brokerage's Rug." Author Jason Zweig writes, "Interest rates are on the rise, but customers of brokerage firms aren't going along for the ride. The Federal Reserve has driven short-term interest rates up a full percentage point since late 2016; one-month Treasury bills were yielding 1.6% this week. But you'd never know any of that from looking at the returns on the cash in your brokerage account. Consider the rates major brokers are paying on so-called sweep accounts, the main reservoir where they hold clients' cash. As of March 2, according to Crane Data, a firm that monitors money-market funds and other cash investments, yields on sweep accounts ranged from as low as 0.01% at eTrade and 0.05% at TD Ameritrade up to -- if "up" is the right word -- 0.25% at UBS and 0.27% at Fidelity Investments. Those rates are for clients carrying cash balances between $100,000 and $250,000. Yields can be even lower for the great unwashed." The Journal article continues, "In fairness, brokerage firms aren't the only skinflints in the financial industry. Yields on savings accounts at the biggest retail banks range from 0.00% to 0.13%, says Ken Tumin, founding editor of DepositAccounts.com. Rates on checking accounts have inched up only about a quarter of a point since late 2016. Many money-market mutual funds have also dragged their heels. Even so, brokerage firms stand out for how little they pay on clients' cash. That's partly because commissions and trading volume continue to wither. By paying paltry interest on the money they take in and then investing it at market rates, brokers can pocket the difference as a welcome and low-risk source of profit." Zweig's column adds, "Since the Fed began raising rates, yield differences of 'only a fraction of a percent haven't seemed to matter,' says Peter Crane, president and publisher at Crane Data. 'Brokerage firms have basically been betting on the laziness of their investors.' Charles Schwab is even taking its yields down as market rates go up. It is replacing a money-market sweep fund that has been earning about 0.8% -- one of the highest rates among brokerage firms -- with a bank sweep yielding 0.12%, squarely at the average for the industry. According to the Financial Industry Regulatory Authority, free credit balances -- one partial measure of uninvested cash in brokerage accounts -- totaled $350.2 billion at the end of January. Assuming the average yield of 0.12% that Crane Data estimates for brokerage sweep accounts, investors would earn an aggregate of only $420 million in income on that money over the next year. If, instead, investors shopped around to improve their yield and earned an average of 1% on that cash, they would pocket $3.5 billion in income. Overall, then, the cost of that inertia is roughly $3.1 billion. If you don't shop around for better yields on your cash, you're handing your broker another 1% a year."

To the top E-mail this article

This weekend, Barron's features a "Fund of Information" article, entitled, "Active Funds' Kings of Cash," contains a segment on money market funds. Reshma Kapadia writes, "[M]eager yields in short-term bond funds and on cash ... have pushed investors further afield in their quest for income.... Investors have used short-term bond funds to park cash, but money intended as dry powder for a market correction or needed within a year should be in more liquid options, such as money market funds, which are emerging from a decade-long funk during which they paid next to nothing. The Fed's initial interest-rate hikes didn't filter through to all money funds, in part because some firms were still recouping fees they had waived to keep yields positive.... But now, most of those fee waivers are gone, and the average yields for the 100 largest money-market funds tracked by research firm Crane Data is 1.12% and rising, versus just 0.43% at the end of 2016. "Nothing is worth doing unless you get at least 1% out if the shift," says Crane Data's Pete Crane. And that tipping point is here, with the yield expected to hit 1.5% as the Fed raises rates further this year. As if often the case, some of the highest yields are in the institutional share classes, which can be accessible through advisors, but require higher minimum investments. Crane's retail picks include: Vanguard Federal Money Market (VMFXX), which yields 1.24%, Fidelity Government Cash Reserves (FDRXX), 0.99%, and Schwab Investor Money (SWRXX), 1.19%."

To the top E-mail this article

The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Money Funds Coming Back; Starting Hard Sell on Prime," which reviews the growing recovery of money funds; "Northern Trust AM's Peter Yi Talks Prime, Segmentation," which interviews Northern's Director of Short Duration Fixed Income; and, "MMFs Pressure Deposits; Banks, Brokers Raising Rates," which reviews the nascent shift in assets from banks back to money market funds. We've also updated our Money Fund Wisdom database with Oct. 31, 2017, statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship Thursday, November 9, and our November Bond Fund Intelligence is scheduled to go out Tuesday, November 14.

MFI's "Money Funds Coming Back" article says, "The gradual recovery in money market assets, rates and revenues continues, and appears to be poised to accelerate in the coming months. Prime money funds continue to build back their base, and asset managers are stepping up their push to get investors to reconsider moving some of their cash out of Government MMFs. Yields breaking over 1.0% along with noticeable spreads also appear to be drawing assets from the banking sector (see article below). While Barron's may be premature in saying that "Money-Market Funds Are Back" recently, the comeback is certainly real and appears to have legs."

MFI continues, "The Barron's piece discusses money fund yields moving over 1% and compares them with the dismal yields on brokerage sweep accounts. (See our Oct. 17 News.) It says, "It's not much, but as the Federal Reserve edges short-​term interest rates higher, money funds are finally starting to offer a yield -- sometimes even more than 1%. With a rate hike probable in December and three more expected in 2018, 'money market funds will become more attractive than they've been in a decade,' says Peter Crane, president of Crane Data."

Our Profile reads, "This month, Money Fund Intelligence again speaks with Northern Trust Asset Management's Director of Short Duration Fixed Income Peter Yi, who has steadily returned to work following a car accident last year. He tells us about Northern's pioneering role in cash "segmentation," the gradual recovery of prime fund assets and their views on differentiation in the ultra-short space."

MFI first asks about Northern's history, and Yi answers, "Sure. As you know, Northern Trust Asset Management has had a long, successful history managing cash and liquidity products. We've been managing liquidity products since the 1970's, when our trust department created our first cash sweep vehicle. Not only do we have the experience, but we're also one of the largest cash managers, whether you simply look at money market mutual fund assets or if you look at it comprehensively with our non-registered STIFs, separately managed accounts and security lending reinvestment collateral pools. This gives us a formidable presence in the liquidity business."

He continues, "Northern Trust thinks of cash management as a core capability and a product that really caters to both our institutional asset servicing business and our retail wealth management clients. Right now, we are managing about $240 billion across all of our money market and short duration strategies. As you know, having experience and leadership are critical in the money market business. This has served us well in successfully navigating not only challenging credit and interest-rate environments, but the changing landscape driven by regulatory reform."

Our "MMFs Pressure Deposits" article says, "While the data is still tentative, anecdotal and other evidence is growing that a shift in assets from banks back to money market funds is starting in earnest. Money fund assets grew faster in the third quarter than they have in years, and deposit totals are beginning to decline. Brokerage sweep rates and bank deposit rates are grudgingly moving higher as reports of high-end investors shifting cash appear in the popular press."

MFI continues, "We wrote earlier this year about the $1.0 trillion brokerage sweep cash sector and discussed how rates were finally inching higher after almost a decade stuck at virtually zero. As money fund yields, on average, approach 1.0%, the much lower-yielding brokerage sweep rates also continue to grind higher. The latest to bump rates up is Wells Fargo Advisors. Wells also announced an expansion of its available FDIC insurance, moving the total coverage limit from $1 million to $1.25 million. (See our Oct. 12 News, "Wells Bumps Up Brokerage Sweep Rates, Raises FDIC Insurance Coverage.")

A sidebar, "ICD Gets Cash;​ AFP Sessions," explains, "At last month's AFP Annual Conference, "portals" and "prime" were the big topics of discussion among cash professionals. Online trading portal ICD published a new white paper, and announced an outside investment. Their release, explains, "Institutional Cash Distributors (ICD) ... released their latest ICD Intelligencer. The whitepaper investigates various surveys on institutional short-term portfolio asset allocation, strengths and weaknesses of treasury investment options, yield comparisons on various products, and best practices for trading and investment risk management." (See our Oct. 16 News, "ICD Releases Treasury Options Paper, Announces Parthenon Investment.")"

Our November MFI XLS, with Oct. 31, 2017, data, shows total assets decreased $2.2 billion in October to $2.941 trillion after increasing $32.0 billion in September and $68 billion in August, but decreasing $32.6 billion in July. Our broad Crane Money Fund Average 7-Day Yield was up 1 basis points to 0.71% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 3 bps to 0.90%.

On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 2 bps to 1.16% and the Crane 100 rose 2 bps to 1.17%. Charged Expenses averaged 0.45% and 0.28% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 30 days (down two days from last month) and for the Crane 100 was 31 days (down one from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

To the top E-mail this article

Crane Data, which has been tracking money market mutual funds since 2006 and tracking bond funds since 2015, recently officially launched its high-end bond fund product "suite," Bond Fund Wisdom. Like its Money Fund Wisdom counterpart, Bond Fund Wisdom includes our Bond Fund Intelligence newsletter, our BFI XLS monthly performance spreadsheet and indexes, and our new Bond Fund Portfolio Holdings data set. Online access to our historical spreadsheets is included and a database query engine is planned for late 2018. We further describe our latest bond fund information service below. We also review our latest Weekly Money Fund Portfolio Holdings, and quote from a recent update on the ultra-short bond fund marketplace by J.P. Morgan Securities.

Our new Bond Fund Portfolio Holdings collection, which compiles, cleans and "tags" lists of securities held by bond mutual funds, includes data on Ultra-Short and Conservative Ultra-Short bond funds (the latest is as of Sept. 30, 2017). We're also producing a Short-Term bond fund holdings file, and we plan to add Intermediate-Term and other longer-term categories of bond funds in coming months. The release of our latest "live" issue file follows several months of "beta" tests. Our Bond Fund Holdings will be available only to Bond Fund Wisdom subscribers; our Bond Fund Wisdom sells for $2K a year. (Please let us know if you'd like to subscribe, or if you'd like to see our latest data set.)

Note that many bond mutual funds disclose holdings on a rolling quarterly basis, so, unlike our Money Fund Portfolio Holdings, this monthly file contains the most recent updates (and may contain holdings files with different dates -- e.g., many are 9/30 but some are 8/31, 7/31 or earlier). We'll be leaving the old holdings for funds in the file until they post, or until we receive, updated holdings. We'll also be changing this product substantially once the SEC's Form N-PORT disclosure mandates kick in during the summer of 2018. We've started to map the "Issuer" field, but our Category and Country "meta-tagging" are still a work in progress.

In related news, Crane Data also has begun publishing a Summary of our Weekly Money Fund Portfolio Holdings product. Our weekly holdings track a subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of Oct. 20) includes Holdings information from over 90 money funds, representing $1.516 trillion of the $2.943 (51.5%) in total money fund assets tracked by Crane Data. (For our monthly Holdings recap, see our Oct. 11 News, "Oct. Money Fund Portfolio Holdings: Treasuries Rebound, FICC Grows.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $601.5 billion, or 39.7%, Treasury debt totaling $433.5 billion or 28.6%, and Government Agency securities totaling $319.1 billion, or 21.1%. Commercial Paper (CP) totaled $47.2 billion, or 3.1%, and Certificates of Deposit (CDs) totaled $46.9 billion, or 3.1%. A total of $38.4 billion or 2.53%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $28.9 billion, or 1.91%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $433.5 billion, Federal Home Loan Bank with $240.9 billion, BNP Paribas with $88.3 billion, Credit Agricole with $43.8 billion, Federal Farm Credit Bank with $41.7 billion, the Federal Reserve Bank of New York with $40.1 billion, Nomura with $34.4 billion, Societe Generale with $33.9 billion, RBC with $31.2 billion, and Wells Fargo with $30.7 billion.

The Ten Largest Funds tracked in our Weekly include: JP Morgan US Govt ($135.3B), Fidelity Inv MM: Govt Port ($98.7B), Goldman Sachs FS Govt ($87.4B), BlackRock Lq FedFund ($80.5B), Federated Govt Oblg ($70.9B), Wells Fargo Govt MMkt ($70.3B), Dreyfus Govt Cash Mgmt ($69.9B), BlackRock Lq T-Fund ($57.3B), State Street Inst US Govt ($49.8B), and Goldman Sachs FS Trs Instruments ($47.5B).

Returning to ultra-short bond funds, a recent J.P. Morgan "Short Duration Strategy Weekly" featured a "Low duration fund update." The piece explains, "The completion of MMF reform one year ago profoundly changed the structure of money markets for both investors and issuers. As institutional shareholders of MMFs were forced to choose between CNAV government MMF and VNAV prime MMF, there was some question if cash would leave MMF, particularly VNAV funds, and pursue low duration alternatives that offer slightly higher returns."

J.P. Morgan's Alex Roever, Teresa Ho and Ryan Lessing explain, "The data we have analyzed suggest there has not been a post reform move away from MMFs. Through 9/30/17, total taxable MMF outstandings have actually increased by a relatively small amount YTD (about $11bn relative to $2.5tn), although there has been a very modest rotation (about $70bn) from government to prime MMF, prompted by the roughly 30bp net yields advantage of the latter."

According to the update, "While the money fund data doesn't support this liquidity shifting hypothesis, mutual fund data show demand has grown for some low duration mutual funds and ETFs during the past year, and our own discussions with several managers of Separately Managed Liquidity Accounts (SMLAs) indicate demand for this product has also grown. We suspect the noise around MMF reform in recent years prompted liquidity-focused investors to consider other options, and as a consequence, new cash is being deployed to deposits, low duration funds and SMAs."

It continues, "We believe the beginning of Fed interest rate normalization in late 2015 also contributed to demand for these products. Among institutional investors choosing non-deposit alternatives, our conversations with many industry participants lead us to suspect SMLAs have attracted more money in recent years than ETFs or mutual funds, helped by SMLAs' greater ability to be customized and what is typically a lower fee structure. For these reasons we think SMLAs are the low investment vehicle of choice for many large corporations."

JPM's piece tells us, "Even so, the low duration fund space is large and transparent, and because many of the largest fund managers also manage SMAs with similar low-duration mandates, these funds shed light on the relative demand for various short duration asset classes. With roughly $550bn in AUM, low duration funds are now larger than prime MMF ($441bn)."

It says, "At a high level, low duration funds are typically marketed as "ultrashort" or "short term" with the former targeting portfolio duration between 0.5 and 1.5 years, and the latter 1.5 to 3.5 years. There are both ETF and open-end forms of each."

Finally, the piece adds, "At this point we should note that while there may be dozens of funds in each category and style, there are significant manager concentrations in the low duration fund space, with a few large funds tending to dominate each. Consequently, the behavior and composition of these funds can sometimes distort summary statistics. For example, funds and ETFs managed by Vanguard account for about 3% of all ultrashort AUM but 37% of short term AUM. As an aside, since a significant percentage of Vanguard's clients are non-institutional, its scale speaks to the concentration of retail demand in some of these fund categories."

To the top E-mail this article

Crane Data released its October Money Fund Portfolio Holdings Tuesday, and our latest collection of taxable money market securities, with data as of Sept. 30, 2017, shows a strong rebound in Treasuries (after a big drop last month), but most other segments were flat. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) increased by $8.5 billion to $2.759 trillion last month, after increasing $58.6 billion in August and $61.5 billion in July. Repo remained the largest portfolio segment, while Treasuries reclaimed the No. 2 spot from Agencies. CDs remained 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 Money Fund Portfolio Holdings reports.)

Among all taxable money funds, Repurchase Agreements (repo) decreased $4.4 billion (-0.5%) to $959.5 billion, or 34.8% of holdings, after increasing $65.1 billion in August, falling $55.6 billion in July, and rising $12.4 billion in June. Treasury securities rose $27.8 billion (4.3%) to $673.3 billion, or 24.4% of holdings, after falling $32.7 billion in August and rising $36.7 billion in July. Government Agency Debt increased $1.2 billion (0.2%) to $667.0 billion, or 24.2% of all holdings, after falling $11.2 billion in August and increasing $48.4 billion in July. Repo, Treasuries and Agencies total $2.300 trillion, representing a massive 83.3% of all taxable holdings.

CDs and CPs decreased slightly last month, along with Other (mainly Time Deposits) securities. Certificates of Deposits (CDs) decreased $7.3 billion (-4.1%) to $170.5 billion, or 6.2% of taxable assets, after increasing $3.4 billion in August, after increasing $13.6 billion in July. Commercial Paper (CP) was down $4.4 billion (-2.4%) to $178.5 billion, or 6.5% of holdings (after increasing $16.2 in August and $8.0 billion in July. Other holdings, primarily Time Deposits, fell by $5.5 billion (-5.2%) to $100.8 billion, or 3.7% of holdings. VRDNs held by taxable funds increased by $1.1 billion (12.2%) to $9.8 billion (0.4% of assets).

Prime money fund assets tracked by Crane Data increased to $625 billion (up from $610 billion last month), or 22.7% (up from 22.2%) of taxable money fund holdings' total of $2.759 trillion. Among Prime money funds, CDs represent just under a third of holdings at 27.3% (down from 29.2% a month ago), followed by Commercial Paper at 28.6% (down from 29.9%). The CP totals are comprised of: Financial Company CP, which makes up 17.8% of total holdings, Asset-Backed CP, which accounts for 6.1%, and Non-Financial Company CP, which makes up 4.7%. Prime funds also hold 4.8% in US Govt Agency Debt, 6.4% in US Treasury Debt, 8.0% in US Treasury Repo, 1.8% in Other Instruments, 13.3% in Non-Negotiable Time Deposits, 4.3% in Other Repo, 1.8% in US Government Agency Repo, and 1.1% in VRDNs.

Government money fund portfolios totaled $1.498 trillion (54.3% of all MMF assets), up from $1.497 trillion in August, while Treasury money fund assets totaled another $636 billion (23.1%), up from $644 billion the prior month. Government money fund portfolios were made up of 43.0% US Govt Agency Debt, 18.1% US Government Agency Repo, 12.7% US Treasury debt, and 26.0% in US Treasury Repo. Treasury money funds were comprised of 69.8% US Treasury debt, 29.9% in US Treasury Repo, and 0.3% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.134 trillion, or 77.3% of all taxable money fund assets, down from 77.8% last month.

European-affiliated holdings decreased $101.2 billion in September to $491.0 billion among all taxable funds (and including repos); their share of holdings decreased to 17.8% from 21.5% the previous month. Eurozone-affiliated holdings decreased $76.3 billion to $325.1 billion in September; they account for 11.8% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $7.8 billion to $210 billion (7.6% of the total). Americas related holdings increased $115 billion to $2.055 trillion and now represent 74.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $12.5 billion, or -2.0%, to $628.7 billion, or 22.8% of assets; US Government Agency Repurchase Agreements (up $10.1 billion to $303.5 billion, or 11.0% of total holdings), and Other Repurchase Agreements ($27.4 billion, or 1.0% of holdings, down $1.9 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $1.4 billion to $111.0 billion, or 4.0% of assets), Asset Backed Commercial Paper (down $2.8 billion to $38.1 billion, or 1.4%), and Non-Financial Company Commercial Paper (down $0.1 billion to $29.4 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of Sept. 30, 2017, include: the US Treasury ($673.3 billion, or 24.4%), Federal Home Loan Bank ($520.7B, 18.9%), Federal Reserve Bank of New York ($294.3B, 10.7%), BNP Paribas ($115.6B, 4.2%), RBC ($68.9B, 2.5%), Federal Farm Credit Bank ($64.9B, 2.4%), Wells Fargo ($54.5B, 2.0%), Nomura ($44.4B, 1.6%), Mitsubishi UFJ Financial Group Inc ($39.7B, 1.4%), Societe Generale ($38.1B, 1.4%), Bank of America ($35.3B, 1.3%), Bank of Nova Scotia ($33.2B, 1.2%), HSBC ($33.1B, 1.2%), Bank of Montreal ($32.8B, 1.2%), Credit Agricole ($32.4B, 1.2%), Toronto-Dominion Bank ($31.1B, 1.1%), Barclays PLC ($29.4B, 1.1%), Citi ($28.0B, 1.0%), and Federal National Mortgage Association ($27.8B, 1.0%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($294.3B, 30.7%), BNP Paribas ($99.5B, 10.4%), RBC ($50.2B, 5.2%), Nomura ($44.4B, 4.6%), Wells Fargo ($42.0B, 4.4%), Societe Generale ($33.4B, 3.5%), Bank of America ($29.9B, 3.1%), HSBC ($27.7B, 2.9%), Mitsubishi UFJ Financial Group Inc ($24.1B, 2.5%), and Citi ($22.0B, 2.3%).

The 10 largest Fed Repo positions among MMFs on 9/30 include: JP Morgan US Govt ($30.0B in Fed Repo), Fidelity Cash Central Fund ($21.4B), Goldman Sachs FS Gvt ($16.9B), Northern Trust Trs MMkt ($15.1B), Federated Govt Oblg ($13.0B), Vanguard Market Liquidity Fund ($12.8B), Fidelity Sec Lending Cash Central ($11.4B), Morgan Stanley Inst Lq Govt ($10.3B), Vanguard Prime MMkt Fund ($9.9B), and BlackRock Lq T-Fund ($9.7B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($18.7B, 4.8%), BNP Paribas ($16.1B, 4.1%), Mitsubishi UFJ Financial Group Inc. ($15.7B, 4.0%), Skandinaviska Enskilda Banken AB ($15.4B, 3.9%), Toronto-Dominion Bank ($15.1B, 3.9%), Canadian Imperial Bank of Commerce ($14.4B, 3.7%), Svenska Handelsbanken ($13.3B, 3.4%), Bank of Montreal ($12.9, 3.3%), Wells Fargo ($12.4B, 3.2%), and Sumitomo Mitsui Banking Co ($12.4B, 3.2%).

The 10 largest CD issuers include: Bank of Montreal ($12.4B, 7.3%), Wells Fargo ($12.4B, 7.3%), Mitsubishi UFJ Financial Group Inc ($11.2B, 6.6%), Sumitomo Mitsui Banking Co ($11.1B, 6.5%), Toronto-Dominion Bank ($10.9B, 6.5%), RBC ($10.4B, 6.1%), Sumitomo Mitsui Trust Bank ($8.7B, 5.1%), Mizuho Corporate Bank Ltd ($7.2B, 4.3%), Canadian Imperial Bank of Commerce ($7.2B, 4.3%), and Landesbank Baden-Wurttemberg ($6.3B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Commonwealth Bank of Australia ($8.4B, 5.4%), Westpac Banking Co ($7.9B, 5.1%), BNP Paribas ($7.2B, 4.6%), JP Morgan ($7.0B, 4.5%), Bank Nederlandse Gemeenten ($6.5B, 4.2%), Bank of Nova Scotia ($6.0B, 3.9%), National Australia Bank Ltd ($6.0B, 3.9%), RBC ($5.5B, 3.6%) UBS AG ($5.0B, 3.3%), and Australia & New Zealand Banking Group Ltd ($4.7B, 3.0%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $93.3B to $294.3B), US Treasury (up $27.8B to $673.3B), Fixed Income Clearing Co (up $5.9B to $15.6B), RBC (up $5.4B to $68.9B), Svenska Handelsbanken (up $3.4B to $13.3B), Canadian Imperial Bank of Commerce (up $3.3B to $26.3B), Skandinaviska Enskilda Banken AB (up $3.2B to $15.4B), Federal Home Loan Mortgage Co (up $2.8B to $48.2B), and Norinchukin Bank (up $2.4B to $11.1B).

The largest decreases among Issuers of money market securities (including Repo) in September were shown by: Credit Agricole (down $36.9B to $32.4B), Credit Suisse (down $15.2B to $9.4B), Natixis (down $11.2B to $21.2B), Nomura (down $10.9B to $44.4B), JP Morgan (down $10.2B to $24.7B), Barclays PLC (down $8.5B to $29.4B), Societe Generale (down $8.1B to $31.1B), ING Bank (down $7.8B to $25.1B), HSBC (down $7.3B to $33.1B), and Mizuho Corporate Bank Ltd (down $4.5B to $14.9B).

The United States remained the largest segment of country-affiliations; it represents 67.2% of holdings, or $1.854 trillion. France (7.9%, $217.4B) remained in second place ahead of Canada (7.3%, $200.7B) in third. Japan (5.5%, $152.8B) stayed in fourth, while the United Kingdom (3.0%, $83.6B) remained in fifth place. The Netherlands (1.9%, $51.4B) remained in sixth place ahead of Germany (1.8%, $48.7B), while Sweden (1.7%, $48.0B) remained ahead of Australia (1.6%, $43.3B). Switzerland (0.8%, $21.2B) ranked tenth. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Sept. 30, 2017, Taxable money funds held 35.3% (up from 33.8%) of their assets in securities maturing Overnight, and another 15.1% maturing in 2-7 days (down from 16.2%). Thus, 50.4% in total matures in 1-7 days. Another 19.4% matures in 8-30 days, while 11.0% matures in 31-60 days. Note that over three-quarters, or 80.8% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 9.9% of taxable securities, while 8.2% matures in 91-180 days, and just 1.2% matures beyond 181 days.

To the top E-mail this article

BNY Mellon CIS posted the second entry its new "Dreyfus Podcast Series" this week. The latest "Invested in cash" interview, entitled, "Money Market Trends Post Reform," features our very own Peter Crane. The session's description says, "Peter Crane talks about trends his firm is noticing with cash managers so far this year, the level of NAV volatility on FNAV funds, fee or gate potentials, alternatives to money funds and the implications the political landscape has on money market funds." We review Dreyfus' latest Q&A below

The podcast says, "Welcome to our second Dreyfus Podcast: Invested in Cash. Today we're talking about money market trends post reform in 2016. My name is Sue Anne Cormack. As director of sales at Dreyfus, I'm really grateful to be joined today by Pete Crane, Founder, President & CEO of Crane Data, which is money market and mutual fund information firm."

Cormack continues, "Peter is recognized as an incredible industry expert in the institutional money market fund space, and has more than 23 years of experience. Pete, thank you so much for joining us today. As you know we're fielding more and more questions about prime funds and flows and people getting in the ready position. Can you please share your observations with us about how prime funds have behaved post-reform. In other words, how might investors might think about the use of Prime funds in their investment plan?"

Crane answers, "Sure, thanks so much for having me today, Sue Ann. I think the important thing about looking at Prime funds currently is that they have begun recovering since the October 2016 reforms went in to effect. People are arguing over how much they've risen since then; it's $20, $30 billion, about 5 or 6%. The important thing is that assets have been clawing their way higher. They’ve been recovering, and you've barely seen any down weeks or months during that time. So money is slowly but surely moving back to Prime. Whether you as an investor want to join that slow trend is a decision you have to look at, but the spreads are growing, prime is slowly recovering, and going forward we do expect prime assets to continue this recovery."

When asked, "Will assets in prime funds ever equal what they once were before reform?" Crane responds, "That would be a bold prediction and a contrarian prediction. It will be a long time.... I think eventually assets may rival the trillion and a half that they were. But at this pace it would take decades. And it all depends on spreads, it all depends on if investors get comfortable with the new emergency gates and fees, which I think we'll talk about at the moment here. So prime is recovering. It's about to break back over $400 billion, it had dipped to the lowest [n years] which is $375 billion. Whether we ever reach a trillion and a half? It will be a very long time <b:>`_."

Cormack also asks, "Have you seen much movement in the NAVs within the floating NAV funds? Have any funds that you're watching been close to triggering a fee or a gate? Crane tells her, "No is the short answer. That's an equally important thing to note: in addition to the slow asset recovery, the NAV's have been stable. The average NAV for prime and institutional funds is over 1.0000, its 1.0003. So there's a little bit of leeway there. The daily liquid assets are 30%, the weekly liquid assets are about 50%, well above that 30% weekly threshold that they would first have to trigger to even consider a gate and fee. So it's clear that funds are running more conservative, they're running with more liquidity, they're trying to inch out and get a little investment yield here. But I think investors have been watching and are growing more comfortable with the concept that the floating NAV money fund will float very little."

Next, Cormack asks Crane, "We also noticed that some investors are looking at alternatives to money market funds.... What are some of your observations? Do you see investors doing anything different with the concept of segmenting their cash or operating cash in various buckets?" He explains, "Yeah, I mean there's a lot of smoke, and a little fire. But there is growing [interest]. There are a number of experiments going on in the ultra-, ultra-short bond segment [and] with private funds, [and interest with] separately managed accounts. Money is moving into those alternate sectors, but at a slow pace. They're gradually building the volume that they would need to take larger batches of assets."

Crane continues, "Investors are looking at segmenting and starting to look at running transactions through government money funds to allocate a little bit to prime, a little bit more to yield. In the past, you got your safety liquidity and yield all in one place. In the future, you're going to have to get your safety and liquidity in one place and your yield someplace else.... I think that prime money funds are still the best alternative for these secondary cash segmentation slices that are going on out there. But a lot of people are looking at ultra-shorts and looking at other options and whether they succeed or hit or not remains to be seen."

Dreyfus also asks, "What about the political landscape or other regulatory [developments] like Basel III?" Crane comments, "Some of the money fund managers out there have been just thrilled that the regulations for money funds are passed [over with] now. There's an outside chance that you could have the SEC or Congress or someone come in and tweak that again. But that's a long-shot. In general [with] the banking regulations, a lot of people expect bank assets to be pressured back into money market funds. We're not seeing that to a large degree yet. But I think yield's going to be the dominant force there. As money fund yields continue pushing towards 1.0%, as the Fed keeps hiking rates here as we go through the year, the yield attraction of money funds should begin to bring some of those banking assets in."

Cormack adds, "That's really consistent with what we're hearing as well. So with all of this in mind are there other high-level observations that you would like to share?" Finally, Crane comments, "I think my advice and comments are always the same. You really want to stay diversified. You want to keep your options open. Back during the massive shift to Government, shutting down your prime fund or banning different investments just doesn't make sense with the landscape that we are in. You can see these [potential] big shifts, where if the debt ceiling all of a sudden becomes an issue ... you may have to shift assets from a Government fund. So keeping your options open and of course watching the market develop here as it recovers from reforms is your best bet going forward."

To the top E-mail this article

The New York Times writes "Money Market Funds and C.D.s Show Signs of Life." The article explains, "Benign neglect has been a rational approach to managing cash since the financial crisis. It made little sense to apply any elbow grease searching for yields when options ranged from earning nothing to earning next to nothing. But with last month's rise in the Federal Reserve's target interest rate and the expectation that there could be three rate increases this year, money market mutual funds are showing signs of life. "We are heading to 1 percent yields, and the bleeding edge of cash could touch 2 percent in 2017," said Peter G. Crane, the publisher of Money Fund Intelligence. Modest, you say? Well, modest gains may be especially appealing given recent bond losses. In the fourth quarter, core bond funds, the go-to diversification tool for most investors, fell 3 percent, as rising yields pushed down bond prices. If you're inclined to seek out even more stability in a money market mutual fund now that yields are resuscitating, make sure you understand recent changes in the rules that govern how some funds operate." It adds, "Shareholders may find these fees and gates quite unappealing; the fund industry certainly does. It is afraid that the changes will scare off investors. That's why most fund companies and brokerages have switched their default money market fund for retail clients from a prime fund to a government fund. Government funds invest in extremely liquid government debt, adding safety and liquidity, and these funds don't have redemption fees or gates. But government money market funds have a downside: lower yields. The largest retail money market fund, now called Fidelity Government Cash Reserves (it was a prime money market fund known as Fidelity Cash Reserves until the company changed the fund's mandate), yielded just 0.13 percent in early January."

To the top E-mail this article
Archives »