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The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of July 27, 2018) Monday. This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See also Crane Data's August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.") The ICI MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in July, prime money market funds held 25.6 percent of their portfolios in daily liquid assets and 43.0 percent in weekly liquid assets, while government money market funds held 59.2 percent of their portfolios in daily liquid assets and 77.2 percent in weekly liquid assets." Prime DLA increased from 24.0% in June, and Prime WLA also increased from 42.6% in June. Govt MMFs' DLA increased from 59.0% in June and Govt WLA increased from 76.0% last month. ICI explains, "At the end of July, prime funds had a weighted average maturity (WAM) of 31 days and a weighted average life (WAL) of 64 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 29 days and a WAL of 86 days." Prime WAMs were up one day from last month, and WALs were down by one day. Govt WAMs were down three days from June and Govt WALs were down by two days from last month. Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas rose from $198.80 billion in June to $199.76 billion in July. Government money market funds' holdings attributable to the Americas declined from $1,765.16 billion in June to $1,716.62 billion in July." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $199.8 billion, or 39.8%; Asia and Pacific at $96.5 billion, or 19.2%; Europe at $200.3 billion, or 40.0%; and, Other (including Supranational) at $4.8 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.717 trillion, or 76.3%; Asia and Pacific at $128.4 billion, or 5.7%; and Europe at $399.3 billion, or 17.7%.

The Wall Street Journal writes again on bank deposits. The article, "Banks Finally Start to Pay Their Depositors," tells us, "The grim decade in which savers earned near nothing on their bank deposits is ending. That is good news for consumers and bad news for some banks. Since the Federal Reserve began gradually raising interest rates in December 2015, banks have been slow to pay depositors higher rates. With the latest rate increases, that is starting to change. Online banks are leading the way, paying nearly 2%, while big banks are only just getting meaningfully above zero. What is important, though, is that every time the Fed raises rates, a bigger portion of that increase goes to consumers. In the second quarter, the so-called deposit beta, or the portion of a rate increase that is translated into deposit costs, jumped to 44% from 28% in the first quarter, according to Keefe, Bruyette & Woods." The article continues, "One important reason deposit rates have stayed low is that after a decade of zero rates, savers now view bank accounts as ways to manage money and payments, not as a source of income. This effectively has made banks almost like technology companies, competing to offer depositors convenient websites, apps, and payment solutions." The Journal adds, "Currently, Goldman Sachs' new consumer arm, Marcus, and credit card lender Synchrony Financial are both offering a 1.83% annual percentage rate on liquid savings accounts. These kinds of rates haven't been seen since before the financial crisis. Overall deposit costs for online banks reached 1.29% in the second quarter of 2018, up from 1.11% in the first quarter, according to estimates by Credit Suisse. By comparison, deposit costs for all banks nationwide were 0.64%, up from 0.53% the prior quarter."

The Association for Financial Professionals, or AFP, an organization representing corporate treasurers, will host a webinar, entitled, "Investing in a Rising Rate Environment: Highlights from 2018 AFP Liquidity Survey" on Thursday, August 23, at 3-4pm. The description says, "Attend this webinar to learn some of the highlights from the 2018 AFP Survey as we cover Industry trends, Money Fund highlights post reform, and tactics for investing in the current environment. A focus will be on what current members are doing in this environment and how and where they may be investing their repatriated earnings as well. Learning objectives include: Learn about investing in a rising rate environment, Industry trends in short term money market portfolios, and Understand where corporates are expanding their investment options and diversifying." Speakers include: Tom Hunt, Director of Treasury Services of the Association for Financial Professionals, Pete Crane, President of Crane Data, Christine Stokes, Managing Director of State Street Global Advisors, and Lance Doherty of Pacific Life. (See more on the AFP Liquidity Survey here, and see our July 11 News, "AFP Releases 2018 Liquidity Survey: Bank Deposits, and MMFs, Decrease.") As a reminder too, next month we'll host our European Money Fund Symposium, which will take place Sept. 20-21 Hilton London Tower Bridge, and mark your calendars for our next Money Fund University, which will take place January 17-18, 2019 in Stamford, Conn.

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets moved higher for the second week in a row, and Prime balances jumped again. Money fund assets are entering one of the strongest seasonal periods of the year, so we expect inflows to remain strong throughout August. They're now up $26 billion, or 0.9%, YTD, and they've increased by $171 billion, or 6.3%, over 52 weeks. ICI writes, "Total money market fund assets increased by $12.99 billion to $2.86 trillion for the week ended Wednesday, August 8, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $4.66 billion and prime funds increased by $9.53 billion. Tax-exempt money market funds decreased by $1.20 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.223 trillion (77.6% of all money funds), while Total Prime MMFs stand at $511.1 billion (17.8%). Tax Exempt MMFs total $129.9 billion, or 4.5%. They explain, "Assets of retail money market funds increased by $5.98 billion to $1.05 trillion. Among retail funds, government money market fund assets increased by $1.79 billion to $630.80 billion, prime money market fund assets increased by $5.18 billion to $292.92 billion, and tax-exempt fund assets decreased by $990 million to $121.59 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.3% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $7.00 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $2.86 billion to $1.59 trillion, prime money market fund assets increased by $4.35 billion to $218.17 billion, and tax-exempt fund assets decreased by $207 million to $8.30 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.5% of all Institutional MMFs.

While there have not been many fund liquidations of late, we did have one in our latest issue of Money Fund Intelligence. Western Asset Tax Free Res C (LTCXX) was recently liquidated. Its Prospectus Supplement says, "The Fund's Board of Trustees has determined that it is no longer in the best interests of the Fund to continue to offer Class C shares of the Fund and has approved the liquidation and termination of all outstanding Class C shares of the Fund. The Fund will redeem all outstanding Class C shares on or about the close of business on July 9, 2018 (the "Liquidation Date"). Class C shareholders of the Fund who elect to redeem their shares prior to the Liquidation Date will be redeemed in the ordinary course at the class' net asset value per share. Each Class C shareholder who remains in the Fund will receive a liquidating distribution equal to the aggregate net asset value of the Class C shares of the Fund that such shareholder then holds on the Liquidation Date. In the interim, effective June 1, 2018, Class C shares of the Fund will be closed to new purchases, except that dividend reinvestment will be permitted until the Liquidation Date, and current Class C shareholders will be permitted to purchase additional Class C shares until July 6, 2018. Class C shareholders are encouraged to consider options that may be suitable for the reinvestment of their liquidation proceeds, including exchanging into another fund within the Legg Mason mutual fund complex. Class C shareholders should be aware that the redemption of Fund shares, including upon liquidation, is generally considered a taxable event."

Federal Reserve Bank of New York Executive VP Simon Potter spoke recently on "Confidence in the Implementation of U.S. Monetary Policy Normalization." He commented, "My remarks today will focus on the implementation of monetary policy normalization in the United States and its contribution toward maintaining stability in U.S.-dollar money markets.... Then, I will discuss the recent technical adjustment to the rate of interest paid on reserves (IOR). The Federal Reserve made the adjustment to provide greater comfort that the effective federal funds rate would remain within the target range set by the FOMC.... I will then conclude with some comments on recent developments in broader money market rates, in particular U.S.-dollar LIBOR. U.S. term money market rates are of global significance, owing to the heavy use of the dollar outside the United States and the large stock of dollar-LIBOR-linked debt issued abroad." Potter commented on, "First: overnight rates. Due to the large supply of reserves that has accompanied the Federal Reserve's expanded balance sheet, we are employing a new and innovative framework to control money market rates. Before the financial crisis, the Federal Reserve followed a well-worn playbook for monetary policy implementation that was based on keeping reserve balances scarce. Nowadays, however, reserves are no longer scarce. Our current framework relies, instead, on providing the market with two overnight investment opportunities to help steer money market rates: interest on reserves (IOR), which is the Federal Reserve's main tool to control interest rates, and the overnight reverse repurchase agreement (ON RRP) facility, a secondary tool." His speech continued, "Let's spend a few minutes exploring what drivers might have been most significant in bringing about the rise in money market rates relative to IOR. Leading into the technical adjustment, a shift in flows in the Treasury market had the effect of pushing both Treasury bill yields and repo rates higher in February and March. Before these developments, Treasury bill yields and repo rates had been well below federal funds rates." Finally, Potter said, "Taking a step back, it is hard to be definitive on the recent drivers of moves in short-term money markets. The markets have economically complex structures, and in particular, a high degree of concentration within some money market segments.... Indeed, despite a recent decline in repo rates, the effective federal funds rate has remained fairly stable at nine basis points below the top of the range."

In this past weekend's "Up and Down Wall Street" column, Randall Forsyth added a portion on fee wars and money market funds. In the segment, "Fidelity's Freebies Don't Include Money Funds," he writes, "Last week, perhaps while you were imbibing your bottled water, Fidelity Investments launched index funds with no purchase minimum and zero expenses.... But the price war hasn't spread to one sector: money-market funds. Their expense ratios remain far higher than the rock-bottom costs of index funds, since there seems to be little competition to induce issuers to provide higher yields (although Interactive Brokers Group [IBKR] touts the rates it pays on customers' cash balances). Nobody cared about money-fund yields when the Fed was pinning short-term interest rates near zero in the wake of the financial crisis (and when fund companies had to absorb these funds' expenses in order to keep their yields at zero or slightly positive). But now that the central bank has lifted its fed-funds target range to 1.75%-2%, money markets are competitive with the 1.8% dividend yield on the S&P 500. Fidelity Government Cash Reserves (FDRXX), the default cash account for Fidelity brokerage customers, yields 1.61%, after an expense ratio of 0.37% of assets. Viewed another way, expenses equal 23% of this fund's income. Well-heeled customers with $100,000 or more can earn 1.96% in Fidelity Money Market Fund - Premium Class (FZDXX), which carries an expense ratio of 0.37%, equal to 19% of its yield. There's another freebie that's relatively less advertised: U.S. Treasury securities. You can purchase them at auctions straight from Uncle Sam at TreasuryDirect.gov. And some discount brokers -- including Fidelity, Schwab, Vanguard, and E*TRADE -- also charge zip for both online purchases of Treasuries at auctions and secondary-market transactions. (Broker-assisted trades do cost something, as in the old days.) Treasury bills yield significantly more than money funds and have tax advantages. Four-week T-bills on Thursday yielded 1.881%; three-month bills, 2.007%; and six-month bills, 2.206%. And they are exempt from state and local income taxes, which is worth something to residents of California, New York, New Jersey, and other high-tax states, now limited to deducting just $10,000 in state and local taxes from their federal taxes. Interest on T-bills is paid at maturity, so the interest on a bill due in 2019 will be part of that year's income, not 2018's. Of course, individual investors might find it less convenient and profitable if they must sell their Treasury bills before maturity, perhaps to jump on an investment opportunity. In that case, the money funds' expenses would be worth paying. But to set cash aside that won't be touched for a while, Uncle Sam pays more than money funds. And that can add up to enough to purchase cases of spring water, or maybe something more pleasurable."

Federated Investors' latest "Month in Cash" brief is entitled, "Trump challenges Fed's independence." They write, "One of the defining characteristics about the Federal Reserve is that it operates independently from the rest of the U.S. government. Most politicians don't talk about it much, let alone tell it what to do publicly. Of course, President Trump is not a typical politician, and it is not surprising he recently said he was 'not thrilled' with the recent hikes because of their potential to stem economic growth. After all, he criticized former Chair Janet Yellen during his campaign (that time for keeping rates too low). Although Jerome Powell was named a Fed governor by the Obama administration, Trump nominated him to lead the central bank, and the president might think he has sway. Or maybe Trump is just saying this to the press because he knows he has no real pull." Money market CIO Deborah Cunningham adds, "With the two hikes already made this year, many cash and liquidity rates across the industry have risen, with expectations rates may continue to increase in the second half of the year. Many cash managers have been putting new dollars into money market funds, with the expectation that re-allocation will ramp up because money funds diversify liquidity management while offering competitive return. Assets in prime funds continue to grow. We kept the weighted average maturity (WAM) of our prime funds in a 30-40 day range; the range for our government and municipal funds remained at 25-35 days. The London interbank offered rate (Libor) barely moved in July, with 1-month at 2.08%; 3-month at 2.34%; and 6-month bumping up just 2 basis points to 2.52%. The Treasury curve was 1.88%, 1.97% and 2.14% for the same periods."

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets moved higher in the past week after dipping the week before, and Prime balances continue to move higher. Money fund assets remain positive on a year-to-date basis. They're now up $13 billion, or 0.5%, YTD, and they've increased by $191 billion, or 7.2%, over 52 weeks. ICI writes, "Total money market fund assets increased by $8.63 billion to $2.85 trillion for the week ended Wednesday, August 1, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $6.01 billion and prime funds increased by $5.29 billion. Tax-exempt money market funds decreased by $2.67 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.219 trillion (77.8% of all money funds), while Total Prime MMFs stand at $501.6 billion (17.6%). Tax Exempt MMFs total $131.1 billion, or 4.6%. They explain, "Assets of retail money market funds increased by $2.49 billion to $1.04 trillion. Among retail funds, government money market fund assets increased by $882 million to $629.01 billion, prime money market fund assets increased by $3.94 billion to $287.74 billion, and tax-exempt fund assets decreased by $2.33 billion to $122.58 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.5% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $6.14 billion to $1.81 trillion. Among institutional funds, government money market fund assets increased by $5.13 billion to $1.59 trillion, prime money market fund assets increased by $1.35 billion to $213.83 billion, and tax-exempt fund assets decreased by $344 million to $8.51 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.7% of all Institutional MMFs.

The Federal Reserve's latest FOMC Statement tells us, "Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of July 27) includes Holdings information from 69 money funds (down 15 from 84 on July 20), representing $1.254 trillion (down from $1. 1.413 billion on July 20) of the $2.980 (42.1%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our July 12 News, "July Money Fund Portfolio Holdings: Repo Falls, But Fed RRP Rebounds.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $468.4 billion (down from $520.6 billion on July 20), or 37.4%, Treasury debt totaling $351.3 billion (down from $385.5 billion) or 28.0%, and Government Agency securities totaling $269.1 billion (down from $309.5 billion), or 21.5%. Commercial Paper (CP) totaled $53.9 billion (down from $64.0 billion), or 4.3%, and Certificates of Deposit (CDs) totaled $46.4 billion (down from $47.0 billion), or 3.7%. A total of $32.3 billion or 2.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $32.2 billion, or 2.6%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $351.3 billion (28.0% of total holdings), Federal Home Loan Bank with $211.4B (16.9%), BNP Paribas with $74.5 billion (5.9%), Federal Farm Credit Bank with $38.0B (3.0%), RBC with $37.7B (3.0%), Wells Fargo with $30.9B (2.5%), Credit Agricole with $26.5B (2.0%), JP Morgan with $25.0B (2.0%), Societe Generale with $24.6B (2.0%), and Natixis with $23.7B (1.9%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($136.2B), Fidelity Inv MM: Govt Port ($111.7B), BlackRock Lq FedFund ($92.8B), Wells Fargo Govt MMkt ($74.8B), Dreyfus Govt Cash Mgmt ($67.6B), BlackRock Lq T-Fund ($67.2B), Morgan Stanley Inst Liq Govt ($55.8B), State Street Inst US Govt ($45.6B), JP Morgan Prime MM ($40.7B), and JP Morgan 100% US Trs MMkt ($38.1B).(Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Law firm Shearman & Sterling released a brief entitled, "EU Secondary Legislation for Money Market Funds Published." It tells us, "A Commission Delegated Regulation amending and supplementing the European Money Market Funds Regulation has been published in the Official Journal of the European Union. The MMF Regulation, which applies directly across the EU from July 21, 2018, allows MMFs to invest in securitizations or asset-backed commercial paper and incentivizes the investment in simple, transparent and standardized securitizations. The Delegated Regulation amends the MMF Regulation (or MMFR) by applying the requirements for STS securitizations provided for in the Securitization Regulation (also known as the STS Regulation)." It explains, "The MMF Regulation also allows an MMF to enter into a reverse repurchase agreement provided that certain conditions are met. The assets received by the MMF under that agreement must be money market instruments that meet certain requirements. A derogation from those requirements provides that an MMF may also receive instruments that are either: (i) issued or guaranteed by the EU, a central authority or central bank of a Member State, the European Central Bank, the European Investment Bank, the European Stability Mechanism or the European Financial Stability Facility; or (ii) issued or guaranteed by a central authority or central bank of a third country. The Delegated Regulation supplements the MMF Regulation by providing the quantitative and qualitative liquidity requirements for the assets that an MMF receives under a reverse repurchase agreement where the derogation is being used." Finally, Shearman & Sterling writes, "The MMF Regulation empowers the European Commission to adopt delegated acts that aim to ensure that MMFs are invested in appropriate eligible assets by further specifying the credit quality assessments of money market instruments, securitizations and ABCPs that MMFs may undertake or invest in. The Delegated Regulation includes these provisions by setting out: (i) the criteria for the validation of the credit quality assessment methodology; (ii) the criteria for quantification of the credit risk and of the relative risk of default of an issuer and of the instrument; (iii) the criteria for establishing qualitative indicators on the issuer of the instrument; and (iv) the meaning of 'material change' as referred to in the requirement for an MMF to conduct a new credit quality assessment for a money market instrument, securitization and ABCP when there is a material change that could have an impact on the existing assessment of the instrument. The Delegated Regulation will apply from July 21, 2018, except for the provision cross-referring to the Securitization Regulation, which will apply from January 1, 2019 to align it with the application date of that Regulation."

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