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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!
BFI: How long have you been running ultra-shorts? Olsen: Northern Trust has been running ultra-short strategies since the late 1980's. Ultra-short is part of our broader liquidity management capabilities at Northern Trust Asset Management, which currently total approximately $225 billion in AUM. Our liquidity management capabilities include government and prime money market funds, as well as ultra-short strategies. Common across all these strategies is our conservative investment approach, which focuses on credit research and risk management. I have 13 years of experience in the fixed income industry. I joined Northern Trust back in 2009 in the London office, and in May of 2016 I took over as director of ultra-short based here in Chicago.
BFI: Tell us about the funds. Olsen: We have two mutual funds. They were started back in 2009 and have a combined AUM of $5.5 billion. The two funds differ in their strategies, and therefore attract a different client base. The taxable mutual fund focuses on corporate bonds and on Treasury securities, and the tax-advantaged fund focuses mainly on municipal securities but will also add corporate bonds.... The tax-advantaged strategies will only add corporate bonds when the after-tax yields of these are favorable compared to a tax-free municipal bond.
Olsen: Ultra-short falls under our cash segmentation strategy, which is a way for our clients to bucket their cash. The three buckets are: operational cash, which is for day-to-day needs -- a client should typically be investing into a government fund for this portion; reserve cash, which is for intermediate needs -- this portion should be invested into a prime money market fund; then the last bucket, strategic cash. That's where ultra-short really becomes interesting. Strategic cash has a horizon of up to 6 to 18 months, and using an ultra-short strategy is a way for our clients to earn a bit higher yield while only taking limited additional risk.
BFI: How has the reception been of late? Olsen: Over the last couple of years, ultra-short has become extremely popular, not only at Northern Trust. Money market fund reform certainly played a big part in the growth we saw last year, and it still does. But the market that we've been in the last 7-8 years, with close to zero interest rates, meant that investors were looking for additional yield. Ultra-short played nicely in the search for higher yields and our conservative approach resonated well with clients. They know that we never compromise our risk management practices when we search for higher yields. When I look at the asset growth for our ultra-short business, we have seen significant growth last 5 years. We now manage close to $20 billion across our whole ultra-short business.
BFI: What's your biggest challenge? Olsen: Fixed income investors face some significant challenges at the moment, but it's important to remember that challenges often open the door for new opportunities. A good example of that is the potential for a more active Fed in 2017; that's certainly a concern for most fixed income managers at the moment. No client likes to see negative performance, which could be the consequence of higher rates in the short term. That is, I would say for us, the biggest challenge for us at the moment.
The way we've been trying to deal with this is to position our portfolios a bit shorter in duration. We've also made a big effort to get in front of our clients and talk about the consequences of higher rates. The flip side of higher rates and the short-term negative effect on performance is the fact that, as an investor and as a portfolio manager, you start investing into higher yields. The floating rate notes that we have in our portfolio will start resetting at higher rates. With higher rates we often see a steeper yield curve as well, something that's welcomed by fixed income portfolio managers.
BFI: What kinds of strategies can and can't you use? Olsen: Compared to a money market fund, we do take additional duration risk. A typical ultra-short fund will target duration anywhere between 6 and 18 months. The other big difference between an ultra-short fund and a money market fund is the fact that we will utilize the full investment grade spectrum. Then looking at the other side and comparing us to how long bond funds tend to invest, ultra-short funds certainly will have a much larger allocation to floating rate notes. We tend to set a final legal maturity on our bonds. An ultra-short fund typically won't invest further out than 5 years for a floating-rate note and 3 years for a fixed-rate note.
A conservative approach is certainly one of our main messages to our clients. That's why we've decided not to add any high yield bonds into our portfolios. We don't add any derivatives. We don't add any cross-currency securities into our portfolios. We want to be straightforward in our approach to investing. One other point to highlight when we talk about our conservative approach is our diversification and our issuer concentration limits. We have plenty of clients that are comfortable with a 5% allocation to a credit. But we don't think that is appropriate. So we've set our own internal credit risk management limits much lower.
BFI: What sectors does the fund buy? Olsen: It's always been one of the worries about money market funds -- the high concentration to financial securities. One of the advantages of being in an ultra-short fund is that you have better diversification. We set our overall industry limits at 25%, so we will not have more than 25% exposure to financial securities within our mutual funds. So that leaves us with 75% of something else. On average, we probably have 15% of allocation to Treasuries. The rest of the portfolio is diversified between corporate bonds and triple-A rated asset-backed securities. Then in our tax-advantaged funds, we obviously have a fairly high allocation to municipal securities. But here again we will diversify across different sectors. We have some clients who specifically ask us to only buy U.S. bonds, and we can still produce a fully diversified portfolio.
BFI: Do you do separate accounts? Olsen: We do have a pretty large separately managed account business within ultra-short. If you look at our overall AUM at roughly $20 billion, the two mutual funds are roughly $5.5 billion [vs.] nearly $15 billion in separately managed accounts. These accounts tend to be preferred by our larger investors. They really appreciate our flexibility in creating guidelines and portfolios that match their risk appetite. That's why, prior to opening any new account, we will spend a considerable amount of time with our clients. We sit down and talk to them to understand their constraints, their liquidity needs, and really understand their risk appetite. That's really the number one advantage of the separately managed accounts -- the flexibility you can offer your clients.
Our FlexShares Ready Access Variable Income (RAVI) exchange-traded fund launched in 2012 and follows the same guidelines as our taxable mutual fund. The big difference is that we target a shorter duration in the ETF. We mainly do this to limit the price fluctuation. While the mutual funds tend to target duration of up to 1 year, the ETF will be much closer to 6 months. Hence the ETF will have a higher allocation to money market securities than our mutual fund.
BFI: Will rate increases impact you? Olsen: Absolutely. If the Fed is successful in raising rates slowly, ultra-shorts certainly benefit. We like slow increases in rates due to the higher reinvestment rates. We spend a lot of time with our clients to remind them and tell them up-front that ultra-short funds do have risk, although it is limited. It's important to know that an ultra-short fund is not for day-to-day liquidity. There will be fluctuations in the NAV. If your investment horizon is shorter than 12 months, ultra-short is probably not the right product.
BFI: Can you comment on regulations? Olsen: The biggest regulatory change, although it didn't directly impact ultra-short funds, was clearly money market fund reform. It meant two things for our market. We saw investors move out of prime funds into government funds. But it also meant more flows for ultra-short funds. The second effect was mispricing of some money market securities [which had] yields that were much higher than expected. That was certainly something that we took advantage of in our ultra-short funds.
BFI: Tell us about your investors. Olsen: Historically our client base was very much driven by our wealth management business; almost 100% of our clients came through that channel. But over time that has evolved. So when I look at our client base right now, I would say roughly 50% are still wealthy, private individuals. But the other 50% are institutional clients. What made me really excited about the growth we saw in 2016 was that the interest for ultra-short came through both client channels.
BFI: Any thoughts on the future? Olsen: We're really positive about the future of ultra-short. I don't think the effects of the money market reform have fully played out yet. I still think we'll see plenty of interest from clients that are looking for something other than a prime money market fund.... The fact that the rates are going up also opens up ultra-shorts for another type of client -- those that are currently invested in longer duration bond funds. As rates move higher, ultra-short is a pretty powerful strategy to shorten your duration, keep your overall asset allocation in fixed income but decrease the effect of higher rates by shortening your duration. So we're really excited about the next couple of years, and we expect to be really busy in 2017.
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 email@example.com to request the full issue.)
MFI: Tell us a little about your history. Huyck: Fidelity Daily Income Trust (FDIT) was the first money fund that we launched at Fidelity [in 1974], and it was the first money fund with check writing privileges... I joined Fidelity in September 1990, just before the move of the money market desk from Boston to Dallas. We were in Dallas for 7 years, and then in November of '97 we moved from Dallas to Merrimack. We're celebrating our 20-year anniversary here in Merrimack (NH) this year. I'm coming up on 27 years at Fidelity, and all but three of those years have been spent in money markets. I've traded; I've managed the trading desk; I basically had every trading role on the taxable money market desk. I managed most of the taxable money market funds that we had at some point or another. In 2014, I took over as CIO for the money market group, and I report into Nancy Prior.
Money funds are important to Fidelity because they are important to our customers. We have more than 11 million customers investing in Fidelity's money market mutual funds. Our market leadership position has grown over the course of the last several years, and has grown quite a bit since 2008. [Regarding our people] money funds at Fidelity are not a stepping stone into other asset classes. Money funds are a career at Fidelity.
Because it is an important part of our business, we commit a tremendous amount of resources to our money market business. From trading to portfolio management, to credit and quantitative research, we have a full team dedicated to the support of managing our money market funds. That includes a research team on the ground in London that is responsible for covering our foreign bank exposure. The team numbers 93 in total, including seven portfolio managers, 13 traders, 70 research analysts and associates and three quantitative analysts.
MFI: What is your biggest priority currently? Huyck: With reform behind us, we're able to focus our time on Fed policy and fiscal policy under the new Presidential Administration and Congress. There are a lot of open questions at this point. You can include credit in there too. The credit environment is pretty solid, [and] bank credit quality is as high as it’s been in years.
MFI: Are there any more changes that need to be done? Huyck: There aren't any changes in queue at the moment. However, we are, probably like many of our competitors, constantly reevaluating our product line. The industry had a tremendous amount of assets moving between fund types last year. So we will take a look at our fund lineup this year and make sure that it remains appropriate.
With respect to the movement of assets, we had close to $300 billion in assets move among our funds, and we've got a little over $500 billion under management. So a tremendous amount of money moved. But one of the things I'm particularly proud of was the ability of our team, and the overall industry, to handle that money movement. We were able to manage those flows and accommodate those flows without any disruption to the shareholders.... It went remarkably smoothly, given the amount of flows. I think it speaks volumes to the preparedness of the industry and the tremendous liquidity that is in the money markets.
MFI: What are your biggest challenges? Huyck: I would say a challenge may be too strong of a word. We have now roughly $400 billion in government assets. We are focused on getting those dollars invested. We've spoken publicly about the 2a-7 eligible universe of government securities, which is close to $7 trillion. So the eligible pool of investments is huge. At the same time, the demand is also big and growing.... Obviously, you've got $1 trillion more in demand that has shown up from money funds in the last year. Getting government assets invested is more of a rate story, than an availability story. The question is not whether you can get the funds invested, but what rate do you have to pay to get access to that government supply?
The market has seen the spread in government and prime funds expand. Historically, the spread between prime funds and government funds has been 10-12 basis points. That spread has moved to 35-40 basis points now. So, that's a result of less demand in the prime area, and more demand in government money market securities suppressing the yields on government securities. Customers are showing increased interest in prime funds ... now that the spread is 35-40 basis points. Some customers are considering moving back, and as you've pointed out, institutional prime assets industrywide are up almost $20 billion YTD. [But] clients still have questions about what their investment guidelines allow. Many ... said 'We're going to move from prime to government for the initial transition and revisit the investment strategy later.' That 'later' is starting to happen now.
MFI: What are you buying now? Huyck: We've been very active in floating rate securities, in both the government and prime funds. Futures markets are predicting multiple rate moves from the Fed in 2017. So we think floaters will perform well as the Fed continues to move rates higher. Treasuries are another security where we've been very active. We hold a lot more in Treasury securities now than we did a year ago.
MFI: Are customers noticing the yields? Huyck: It certainly makes for easier conversations with customers when you can tell them you're paying them more than just a basis point. Shareholders and investment professionals tell us they're excited about potential for increased investment yields. It's not a lot, but in some cases it hits 40, 50, 60, 70 basis points, in net yields that money funds are paying.... Bank deposits since 2008 have grown nearly $4.5 trillion dollars. We looked at some FDIC data that suggested that the rate on bank demand deposit accounts hasn't varied at all over the course of last year and a half.... So when bank deposits were paying [roughly] 15-20 basis points and money funds were paying a basis point, the marginal dollars generally went into banks. That investment calculus may start to change if money fund yields continue higher.
As market rates rise in a rising rate environment in the short end, money funds have historically grown in those types of environments because banks are slower to raise their administered rates. This could be a potential source of ... demand for money market funds as fund yields continue to rise.
MFI: Talk about ultra-short bond funds. Huyck: We had a very good year in both our taxable and municipal Conservative Income Bond (CIB) funds. The Conservative Income Municipal Bond Fund, which passed its three-year anniversary in October, has grown to over $1 billion. The taxable fund also grew tremendously last year.... Clients are asking a lot about [these].... Prime money funds are no longer a one-stop shop where investors can get their return, liquidity, and stable NAV. So we’ve talked a lot about segmenting cash. Some clients are choosing to invest operational cash in a government money market fund, while investing shorter-term strategic cash in a prime money fund, and investing longer term strategic cash in a conservative income bond fund.
Note though that as the Fed continues to hike, the Prime to CIB spread has tightened.... So variable NAV prime funds have gotten closer to that conservative income yield. That will be something to keep an eye on too, not only the government to prime spread but also the prime to CIB spread.... We're not trying to reinvent or manage funds to "old 2a-7." We want to be very clear that these conservative income bond funds are just that, they're bond funds.
MFI: What is your outlook? Huyck: I think the future for money market funds is pretty bright, as bright as it's been in a while. We've gotten reform behind us, the Fed has told us they're going to move rates higher three times this year, [and] the credit markets are relatively subdued.... Typically in an environment where the Fed is moving rates higher ... that has been an environment where money is coming into money market funds. So the extent that we do get ... Fed hikes this year, I think it's reasonable to expect the industry to grow.
Our guiding principles for money market fund management since the day we started [have been] safety, followed by liquidity, followed by return, and in that order. I think it became very apparent that shareholders view money market funds the same way. If return [been] higher on the pecking order of what investors were seeking in money funds, the industry would be a fraction of what it is. I think it really speaks again to the value of proposition of money funds. Shareholders still find MMFs useful and valuable in ways that yield can't measure.
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!
Our lead Bond Fund Intelligence story says, "Inflows into bond funds in the first 2 months of 2017 are running at one of their strongest paces ever. Based on the Investment Company Institute's numbers, bond funds have attracted over $72 billion YTD. This represents a stark contrast to the end of 2016, where we experienced a rare 2-month stretch of outflows. We take a more detailed look at the most recent flow data, as well as historical flows and asset trends, below.
It continues, "ICI's monthly "Trends" shows bond fund assets rising by $43.6 billion to $3.693 trillion in January. During 2016, bond fund assets rose by $235.9 billion, or 6.9%. The monthly ICI release says, "Bond funds had an inflow of $21.55 billion in January, compared with an outflow of $10.19 billion in December. Taxable bond funds had an inflow of $17.43 billion in January, versus an inflow of $7.46 billion in December. Municipal bond funds had an inflow of $4.13 billion in January, compared with an outflow of $17.64 billion in December."
Our latest fund "Profile" says, "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."
BFI asks, "How long have you been running ultra-shorts?" Olsen answers, "Northern Trust has been running ultra-short strategies since the late 1980's. Ultra-short is part of our broader liquidity management capabilities at Northern Trust Asset Management, which currently total approximately $225 billion in AUM. Our liquidity management capabilities include government and prime money market funds, as well as ultra-short strategies. Common across all these strategies is our conservative investment approach, which focuses on credit research and risk management. I have 13 years of experience in the fixed income industry. I joined Northern Trust back in 2009 in the London office, and in May of 2016 I took over as director of ultra-short based here in Chicago."
The piece also says, "Tell us about the funds. Olsen explains, "We have two mutual funds. They were started back in 2009 and have a combined AUM of $5.5 billion. The two funds differ in their strategies, and therefore attract a different client base. The taxable mutual fund focuses on corporate bonds and on Treasury securities, and the tax-advantaged fund focuses mainly on municipal securities but will also add corporate bonds. The tax-advantaged strategies will only add corporate bonds when the after-tax yields of these are favorable compared to a tax-free municipal bond."
He adds, "Ultra-short falls under our cash segmentation strategy, which is a way for our clients to bucket their cash. The three buckets are: operational cash, which is for day-to-day needs -- a client should typically be investing into a government fund for this portion; reserve cash, which is for intermediate needs -- this portion should be invested into a prime money market fund; then the last bucket, strategic cash. That's where ultra-short really becomes interesting. Strategic cash has a horizon of up to 6 to 18 months, and using an ultra-short strategy is a way for our clients to earn a bit higher yield while only taking limited additional risk. I think the important point here is we don't view ultra-short as a substitute for a money fund. We look at it as a complementary product."
Our Bond Fund News brief on "Bond Fund Returns" explains, "Returns rose across all of the Crane BFI Indexes. Our BFI Total Index averaged a 1-month return of 0.61% and gained 4.29% over 12 months. The BFI 100 had a return of 0.73% in Feb. and rose 5.15% over 1 year. The BFI Conservative Ultra-Short Index returned 0.02% and was up 1.17% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.13% and 1.81% for 12 mos. Our BFI Short-Term Index returned 0.24% and 2.99% for the month and past year. The BFI High Yield Index increased 1.06% in Feb. and is up 15.86% over 1 year."
Another brief, "ICI Says 46% Own Bond Funds," says, "The Investment Company Institute published, "Profile of Mutual Fund Shareholders, 2016," which shows that 43.6% of the 125.8 million U.S. households own mutual funds (54.8 million). Of these, 86% own equity funds, 35% own balanced funds, 46% own bond funds (up from 42% the previous year), and 55% own money funds. This means 25.2 million households own bond funds."
Finally, a sidebar entitled, "MStar on Low Risk Funds," explains, "Morningstar keeps the bond fund commentary coming with "8 Incredibly Low-Risk Bond Funds." This piece explains, "Low-risk bond funds are a handy thing. If you are putting away money for a near-term expenditure like tuition in a couple of years or a house in three years, low-risk bond funds, along with money markets and certificates of deposit, can serve a valuable purpose.... But you don't want to make them a big part of a long-term portfolio, as they might not even keep up with inflation."
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.)
Among all taxable money funds, Treasury securities fell $29.3 billion (-3.7%) to $755.5 billion, or 28.5% of holdings, after falling $37.8 billion in January, $59.4 billion in Dec. and rising $101.6 billion in November. Repurchase Agreements (repo) rose $3.3 billion (0.4%) to $792.1 billion, or 29.9% of holdings, after falling $43.6 billion in January, rising $56.3 billion in Dec. and falling $21.1 billion in Nov. Government Agency Debt decreased $10.7 billion (-1.6%) to $677.0 billion, or 25.6% of all holdings, after rising $35.3 billion in January, falling $7.7 billion in Dec., but increasing $20.3 billion in Nov. Repo, Treasuries and Agencies in total continued to gradually retreat from December's record levels, but they still represent a massive 84% of all taxable holdings. Govt and Treasury MMFs lost assets and Prime MMFs increased slightly last month.
CDs, CP and Other (Time Deposits) segments all increased again last month. Certificates of Deposit (CDs) were up $5.5 billion (3.2%) to $175.5 billion, or 6.6% of taxable assets, after rising $22.4 in January, declining $0.2 billion in Dec., and $1.0 billion in Nov. Commercial Paper (CP) was up $10.4 billion (7.4%) to $150.9 billion, or 5.7% of holdings (after rising $16.9 billion in January and decreasing $9.5 billion in Dec.), while Other holdings, primarily Time Deposits, rose $3.9 billion (6.5%) to $63.7 billion, or 2.4% of holdings. (Time Deposits normally rise after quarter-end as Repo falls.) VRDNs held by taxable funds decreased by $1.1 billion (-3.4%) to $32.0 billion (1.2% of assets).
Prime money fund assets tracked by Crane Data rose to $532 billion (up from $515 billion last month), or 20.1% (up from 19.3%) of taxable money fund holdings' total of $2.647 trillion. Among Prime money funds, CDs represent a third of holdings at 33.0% (the same as 33.0% a month ago), followed by Commercial Paper at 28.2% (up from 27.3%). The CP totals are comprised of: Financial Company CP, which makes up 16.8% of total holdings, Asset-Backed CP, which accounts for 5.8%, and Non-Financial Company CP, which makes up 5.7%. Prime funds also hold 1.7% in US Govt Agency Debt, 7.4% in US Treasury Debt, 6.5% in US Treasury Repo, 3% in Other Instruments, 9.8% in Non-Negotiable Time Deposits, 5.6% in Other Repo, 1.6% in US Government Agency Repo, and 4.2% in VRDNs.
Government money fund portfolios totaled $1.496 trillion (56.5% of all MMF assets), down from $1.517 trillion in January, while Treasury money fund assets totaled another $618 billion (23.3%) in February, down from $633 billion the prior month. Government money fund portfolios were made up of 44.6% US Govt Agency Debt, 16.0% US Government Agency Repo, 17.9% US Treasury debt, and 20.6% in US Treasury Repo. Treasury money funds were comprised of 72.4% US Treasury debt, 27.4% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.114 trillion, or almost 80% (79.9%) of all taxable money fund assets, down from 80.7% last month.
European-affiliated holdings decreased $3.9 billion in February to $469.5 billion among all taxable funds (and including repos); their share of holdings decreased to 17.7% from 17.8% the previous month. Eurozone-affiliated holdings increased $1.9 billion to $330.9 billion in Feb.; they now account for 12.5% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $2.0 billion to $173.6 billion (6.6% of the total). Americas related holdings decreased $16.9 billion to $2.003 trillion and now represent 75.7% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which increased $13.9 billion, or 2.8%, to $513.1 billion, or 19.4% of assets; US Government Agency Repurchase Agreements (down $7.2 billion to $249.1 billion, or 9.4% of total holdings), and Other Repurchase Agreements ($30.0 billion, or 1.1% of holdings, down $3.4 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $5.6 billion to $89.4 billion, or 3.4% of assets), Asset Backed Commercial Paper (up $0.7 billion to $30.9 billion, or 1.2%), and Non-Financial Company Commercial Paper (up $4.1 billion to $30.6 billion, or 1.2%).
The 20 largest Issuers to taxable money market funds as of Feb. 28, 2017, include: the US Treasury ($755.5 billion, or 28.5%), Federal Home Loan Bank ($505.4B, 19.1%), Federal Reserve Bank of New York ($175.6B, 6.6%), BNP Paribas ($101.3B, 3.8%), Federal Farm Credit Bank ($68.6B, 2.6%), Federal Home Loan Mortgage Co. ($64.2B, 2.4%), Credit Agricole ($59.0B, 2.2%), RBC ($53.0B, 2.0%), Wells Fargo ($52.2B, 2.0%), Societe Generale ($40.6B, 1.5%), Bank of America ($37.0B, 1.4%), Nomura ($36.8B, 1.4%), Federal National Mortgage Association ($36.6B, 1.4%), Mitsubishi UFJ Financial Group Inc. ($34.2B, 1.3%), JP Morgan ($31.2B, 1.2%), Bank of Montreal ($30.9B, 1.2%), Bank of Nova Scotia ($30.3B, 1.1%), Citi ($29.6B, 1.1%), HSBC ($27.6B, 1.0%), and Natixis ($27.1B, 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 ($175.6B, 22.2%), BNP Paribas ($90.5B, 11.4%), Credit Agricole ($45.7B, 5.8%), RBC ($41.9B, 5.3%), Wells Fargo ($41.1B, 5.2%), Nomura ($36.8B, 4.6%), Societe Generale ($33.8B, 4.3%), Bank of America ($33.0B, 4.2%), JP Morgan ($25.6B, 3.2%), and Citi ($23.2B, 2.9%). The 10 largest Fed Repo positions among MMFs on 2/28 include: Northern Trust Trs MMkt ($15.1B), Fidelity Cash Central Fund ($13.5B), JP Morgan US Govt ($12.6B), Vanguard Market Liquidity Fund ($7.1B), State Street Inst US Gvt ($6.8B), Northern Inst Gvt Select ($6.5B), First American Gvt Oblg ($6.3B), Morgan Stanley Inst Lq Gvt Sec ($6.3B), Goldman Sachs FS Gvt ($6.1B), and Dreyfus Govt Cash Mgmt ($6.0B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mitsubishi UFJ Financial Group Inc. ($15.2B, 4.4%), Credit Agricole ($13.3B, 3.9%), Toronto-Dominion Bank ($13.1B, 3.8%), Bank of Montreal ($11.4B, 3.3%), Canadian Imperial Bank of Commerce ($11.1B, 3.2%), Wells Fargo ($11.1B, 3.2%), RBC ($11.1B, 3.2%), Natixis ($10.9B, 3.2%), BNP Paribas ($10.9B, 3.2%), and Swedbank ($10.2B, 3.0%).
The 10 largest CD issuers include: Toronto-Dominion Bank ($12.6B, 7.2%), Bank of Montreal ($11.0B, 6.3%), Wells Fargo ($10.8B, 6.2%), Mitsubishi UFJ Financial Group Inc. ($10.6B, 6.1%), Sumitomo Mitsui Banking Co ($7.8B, 4.5%), Svenska Handelsbanken ($7.5B, 4.3%), RBC ($6.7B, 4.3%), Sumitomo Mitsui Trust Bank ($6.5B, 3.7%), KBC Group NV ($6.2B, 3.5%), and Mizuho Corporate Bank Ltd ($6.0B, 3.4%). The 10 largest CP issuers (we include affiliated ABCP programs) include: Commonwealth Bank of Australia ($7.7B, 5.8%), Credit Agricole ($6.3B, 4.7%), Societe Generale ($6.2B, 4.7%), BNP Paribas ($5.6B, 4.2%), Westpac Banking Co ($5.5B, 4.1%), Bank of Nova Scotia ($5.3B, 4.0%), National Australia Bank Ltd ($4.9B, 3.7%), JP Morgan ($4.5B, 3.4%), Swedbank AB ($4.4B, 3.3%), and General Electric ($4.3B, 3.2%).
The largest increases among Issuers include: The Federal Reserve Bank of New York (up $19.9B to $175.6B), Bank of Montreal (up $4.4B to $30.9B), Natixis (up $3.7B to $27.1B), Federal National Mortgage Association (up $3.5B to $36.6B), Canadian Imperial Bank of Commerce (up $3.1B to $16.2B), DnB NOR Bank ASA (up $2.0B to $9.8B), Swedbank AB (up $2.0B to $10.2B), Bank of America (up $1.8B to $37.0B), Toronto-Dominion Bank (up $1.8B to $23.6B), and Goldman Sachs (up $1.3B to $14.5B).
The largest decreases among Issuers of money market securities (including Repo) in February were shown by: The US Treasury (down $29.3B to $755.5B), Federal Home Loan Bank (down $11.0B to $505.4B), Credit Suisse (down $10.0B to $14.3B), JP Morgan (down $8.5B to $31.2B), Barclays PLC (down $2.9B to $26.4B), Mitsubishi UFJ Financial Group Inc (down $2.8B to $34.2B), Bank of Nova Scotia (down $2.1B to $30.3B), Federal Home Loan Mortgage Co (down $2.0B to $64.2B) and HSBC (down $2.0B to $27.6B).
The United States remained the largest segment of country-affiliations; it represents 69.6% of holdings, or $1.841 trillion. France (9.2%, $242.4B) remained in second place ahead of Canada (6.1%, $161.5B) in 3rd. Japan (4.8%, $127.0B) stayed in fourth, while the United Kingdom (2.5%, $66.1B) remained in fifth place. Germany (1.6%, $42.7B) ranked sixth, ahead of Sweden (1.5%, $40.0B), Australia (1.4%, $36.9B), The Netherlands (1.3%, $35.0B) and Switzerland (0.8%, $19.9B). (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 Feb. 28, 2017, Taxable money funds held 29.9% (up from 29.3%) of their assets in securities maturing Overnight, and another 14.8% maturing in 2-7 days (up from 14.2%). Thus, 44.7% in total matures in 1-7 days. Another 19.3% matures in 8-30 days, while 11.7% matures in 31-60 days. Note that over three-quarters, or 75.7% of securities, mature in 60 days or less (up 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 10.0% of taxable securities, while 10.0% matures in 91-180 days, and just 4.3% matures beyond 180 days.