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The Investment Company Institute released its latest weekly "Money Market Mutual Fund Assets" report, which shows Prime assets decreasing for the second week in a row. It says, "Total money market fund assets decreased by $23.26 billion to $2.65 trillion for the week ended Wednesday, March 22, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $26.05 billion and prime funds increased by $3.12 billion. Tax-exempt money market funds decreased by $340 million." Total Government MMF assets, which include Treasury funds too stand at $2.125 trillion (80.1% of all money funds), while Total Prime MMFs stand at $398.0 billion (15.0%). Tax Exempt MMFs total $130.5 billion, or 4.9%. It explains, "Assets of retail money market funds increased by $820 million to $983.90 billion. Among retail funds, government money market fund assets decreased by $150 million to $603.24 billion, prime money market fund assets increased by $960 million to $254.79 billion, and tax-exempt fund assets increased by $20 million to $125.87 billion." Retail assets account for over a third of total assets, or 37.0%, and Government Retail assets make up 61.3% of all Retail MMFs. The release continues, "Assets of institutional money market funds decreased by $24.08 billion to $1.67 trillion. Among institutional funds, government money market fund assets decreased by $25.89 billion to $1.52 trillion, prime money market fund assets increased by $2.16 billion to $143.18 billion, and tax-exempt fund assets decreased by $350 million to $4.62 billion." Institutional assets account for 63.0% of all MMF assets, with Government Inst assets making up 91.1% of all Institutional MMFs.

The Wall Street Journal wrote, "Cost of Repo Safety Net Hits $74 Billion," which claimed, "The tab for backstopping a type of short-term lending on Wall Street known as repurchase agreements has risen to $73.84 billion, according to a filing this month by Depository Trust & Clearing Corp., which operates the clearinghouse that facilitates trading in that market. That compares with a $50 billion estimate circulated two years ago by people familiar with the DTCC, a firm owned by banks and trading firms that is a key cog of Wall Street's plumbing. The total reflects an amount DTCC will seek in commitments from member firms to cover the cost of a special credit facility. That facility can be invoked if a member defaults and the clearinghouse’s other resources become exhausted, forcing its Fixed Income Clearing Corp. subsidiary to step into the shoes of the defaulting firm and assume its financial obligations." In other news, Reuters writes, "U.S. Money Market Assets Fall After Fed Raises Rates." It tells us, "U.S. money market fund assets recorded their biggest weekly drop in two months following the Federal Reserve's widely expected interest rate by a quarter percentage point last week, the Money Fund Report said on Wednesday. Money fund assets declined by $25.76 billion to $2.626 trillion in the week ended March 21, marking its biggest decrease since $27.08 billion in the Jan. 17 week."

Following the Federal Reserve's interest rate increase last week, money market yields have risen by about 7 basis points. Yields should continue higher over the next month as funds digest the remainder of the Fed's 25 basis point move. As of yesterday, the first batch of the highest-yielding funds broke above 1.0% for the first time in almost 10 years. (See our Highest-Yielding Money Funds table above.) The top-yielding Prime Retail money funds, with data as of March 20, include: Fidelity Inv MM: MM Port Inst (FNSXX) at 1.02%, BlackRock Money Market Port Inst (PNIXX) at 0.96%, JPMorgan Liquid Assets Capit (CJLXX) at 0.96%, Federated Prime Cash Oblig WS (PCOXX) at 0.91%, and Vanguard Prime MMF Adm (VMRXX) at 0.86%. The highest-yielding Prime Institutional money funds include: Morgan Stanley Inst Liq MMP Inst (MPUXX) at 1.00%, JPMorgan Prime MM Capital (CJPXX) at 0.97%, UBS Select Prime Money Mkt Pref (SPPXX) at 0.97%, Fidelity Inv MM: Prime MMP Inst (FIPXX) at 0.96%, and BlackRock Lq TempFund In (TMPXX) at 0.95%. (Note that we've excluded repeating share classes and private or internal money funds from this ranking. See our latest Money Fund Intelligence Daily for the latest full rankings.) Our Crane 100 Money Fund Index, the average of the 100 largest taxable money funds, now stands at 0.57%, up 0.07% from a week ago, while our Crane Money Fund Average, which include all 663 taxable MMFs tracked by Crane Data, has risen from 0.31% to 0.37% in the 7 days through March 20. Watch for these both to continue higher over the coming weeks and to stabilize around 0.75% and 0.55%, respectively, once they've digested the entire Fed hike in a month or two.

Fitch Ratings launched a "New European Money Fund Reform Hotspot." They explain in a statement, "We are pleased to announce that Fitch Ratings has launched a new hotspot on European Money Market Fund Reform. The hotspot features Fitch's latest commentary and analysis on the European money fund reform process. We will provide insightful and relevant content to help you navigate the important changes that will be brought about by these reforms (likely to be effective in late 2018)." They add, "The most recent topic to feature on the hotspot is an analysis of liquidity levels in the portfolio of existing rated funds, calculated in accordance with the liquidity definitions in the proposed reforms. We find that liquidity levels are high, well above the levels at which fund boards must consider applying liquidity fees or redemption gates once the reforms are effective." The release, "Fitch: European Money Fund Regulatory Liquidity High," explains, "Fitch Ratings says that liquidity levels in rated European money funds are high, relative to regulatory thresholds that are expected to go into effect late 2018. Average weekly liquidity was 38% across the portfolio of Fitch-rated funds as of end-December 2016, well above the 10% threshold at which government-only constant net asset value (CNAV) and low volatility net asset value (LVNAV) funds would be forced to impose a liquidity fee or redemption gate once the reforms are in force (likely in late 2018)."

Kroll Bond Rating Agency issued AAAkf ratings to the Florida Education Investment Trust Fund FEITF Term Portfolio, the Michigan Liquid Asset Fund Plus Michigan Term Portfolio, the Missouri Securities Investment Program MOSIP Term Series, the TexasTERM Local Government Investment Pool TexasTERM Portfolio, and the Minnesota School District Liquid Asset Fund Plus MSDLAF+ Term Portfolio. The first release says, "Kroll Bond Rating Agency (KBRA) has assigned a Fund Rating of AAAkf to the Florida Education Investment Trust Fund FEITF Term Portfolio. The rating reflects the Portfolio's Primary Quantitative Rating (PQR) as measured by the KBRA Funds Credit Quality Rating Matrix, which is based on the credit quality of the underlying instruments that comprise the portfolio. Additionally, the fund rating is influenced by the results of the qualitative assessment of the investment advisor, PFM Asset Management LLC (PFMAM). The qualitative shadow rating (QSR) for the fund was found to be strong." Another release explains, "The Michigan Liquid Asset Fund Plus ("MILAF+" or "the Trust") was created in May 1987. MILAF+ is a trust organized under the laws of the State of Michigan. The original sponsor of the Trust is the Michigan Association of School Boards. The Trust is designed to be a comprehensive cash management program for Michigan public agencies to seek the highest possible yield while maintaining liquidity and preserving capital. MILAF+ is classified as a Local Government Investment Pool (LGIP)."

Yesterday's Wall Street Journal featured, "The Fed Raised Rates. Don't Expect the Same for Your Bank Deposits." It explained, "At some point, the Federal Reserve's rate increases will trickle down to savers, who have been getting next to nothing on their deposits for years. But it will continue to be a slow and uncertain process. When the Fed raises short-term interest rates, as it did Wednesday, that increase usually flows through right away to the rates banks charge on credit cards, home-equity lines of credit and some other types of loans. Deposits work differently. The rates that banks offer depositors on certificates of deposit, savings accounts and checking accounts are more a function of what the banks are willing to pay. So far, that isn't much. The Fed raised interest rates twice in the recent past, in December 2015 and December 2016 -- the only two increases in a decade of near-zero rates. That made little difference to deposit rates." The piece adds, "This time, the banks don't need to compete for deposits given how flush they are -- so much so that some banks are asking certain customers to take their deposits elsewhere. Money-market funds, which can compete with banks for customers' deposits, are less of a rival now too, said Steven Alexopoulos, an analyst at J.P. Morgan. Regulatory overhauls have made them a less-appealing option for investors shopping around for higher deposit rates."

RBC Global Asset Management posted a video entitled, "Liquidity Management – Outlook 2017." Director of Product Management Nick Walstrom comments, "As we enter 2017, short-term investors need to be aware of multiple risk factors, most of which, haven't been contended with in almost a decade. In our latest video, Brandon Swensen, Co-Head of US Fixed Income and John C. Donohue, Head of Liquidity Management discuss the issues facing investors and provide ways to mitigate the risks." In the video, Donohue tells us, "At RBC, we are focusing on what we believe are the three largest issues facing capital preservation investors. The first, an uncertain Federal Reserve. The second, a new political environment, and the third, credit fundamentals." Donohue adds, "Short-term investors have moved on from money market reform that clouded 2016, and are now laser-focused on how to maximize return, maintain the highest degree of liquidity in the market while preserving capital. We continue to see clients migrate to customized separate accounts with an increased usage of government money market funds." Swensen comments, "Credit fundamentals have been a bright spot in the market for several years now, and we expect that to continue in 2017.... Credit spreads, however, are a bit on the tight side.... But we are expecting credit to remain a reliable source of excess income ... for investors throughout the year."

Bloomberg writes "Rising European Bank Deposits Wind Up at ECB as Lending Sputters." The article tells us, "Banks in the euro zone, flush with new deposits, have turned few of them into loans to companies and consumers. Instead they've parked most of the money at the European Central Bank, where they're paying billions of euros for the privilege of keeping it there. Since June 2014, when the ECB cut rates below zero, deposits at euro-zone banks have jumped by 802 billion euros ($848 billion), according to central bank data through the end of January. Lending to nonfinancial companies and consumers in the currency area rose by 169 billion euros over the same period, while deposits at the ECB in excess of required reserves soared by 1.1 trillion euros." The piece adds, "Negative rates were supposed to bring down borrowing costs, thereby encouraging lending. But banks in some European countries have cut loans because they're struggling with piles of bad debt and weak capital levels. Where lenders are healthier, there's little demand for funds because of uncertainty about global trade and regional growth."

Tom Hunt, Director of Treasury Services at the Association for Financial Professionals blogged recently on "Deposit Ratings: Why Treasurers Need to Use Them." He writes, "Deposit ratings are the latest instrument in rating agencies' toolkit. They can be particularly useful for corporate treasurers, because they give you a better view of how vulnerable your bank deposits are. Moody's and Fitch have both launched their own versions of deposit ratings, and Standard & Poor's has one in the works. I spoke with Moody's recently about these new ratings, and they clarified that they're not actually credit ratings. Rather, it's a liquidity rating, which is a bit like a money market fund rating." Hunt explains, "These ratings can be very valuable for treasurers in terms of managing bank relationships, as it's essentially a new data point for determining counterparty risk as they assess their share of the wallet. So if one bank's rating a little bit lower than you thought, it might be worth paring back a little bit on your deposits or direct investments with that institution. Moody's and Fitch are doing these ratings in different regions, and it is important to understand the nuances that could impact the ratings themselves. Some ratings might be lower or higher in say, Asia-Pacific, than Europe or the United States.... Now, as Moody's explains in an upcoming AFP Exchange article, the prospect of banks defaulting on these obligations, such as covered bonds and derivatives, is likely lower than before the financial crisis, due to Dodd-Frank regulations. Of course, all of that is up in the air now, given that portions of Dodd-Frank are on the chopping block. Therefore, it is critical that corporate treasurers have an accurate reading of their banks' risk of default."

Compliance Reporter writes "SEC examiners eye money market follow up." It explains, "Securities and Exchange Commission examiners plan to check on the impact of recent money market fund reforms, now that the compliance deadline has passed ... according to `Sarah ten Siethoff ... at the recent SEC Speaks conference in Washington, D.C." She commented, "As we go forward, this is an area where we are moving into monitoring mode, just making sure as the industry transitions to this new equilibrium that everything continues to work smoothly.... From our perspective this showed the resiliency to the markets that can happen when you have a good, long period to plan for this. It was an orderly transition, there were no hiccups or disasters in the market despite moving an incredible amount of money over that period." The publication adds, "The Office of Compliance Inspections and Examinations specifically cited money market funds as a target for 2017 in laying out their exam priorities, writing that they "will examine money market funds for compliance with these rule amendments, which became effective in October 2016. Examinations will likely include assessments of the boards' oversight of the funds' compliance with these new amendments as well as review of compliance policies and procedures relating to stress testing and funds' periodic reporting of information to the Commission." According to the publication, ten Siethoff also said, "At the end of all this we do have a different looking money market fund industry with different requirements.... We have floating net asset, institutional prime money market funds, we have retail prime money market funds that are stable value and have the ability to use liquidity fees and redemption dates, and we have a much more sizable population of government money market funds."

ICI's latest weekly "Money Market Mutual Fund Assets" report shows Prime assets increasing for the fifth week in a row, and the 10th week out of the past 11. Prime MMFs have risen by $20.7 billion, or 5.7% since 12/21/16. The release says, "Total money market fund assets increased by $10.12 billion to $2.69 trillion for the week ended Wednesday, March 8, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $8.17 billion and prime funds increased by $1.46 billion. Tax-exempt money market funds increased by $490 million." Total Government MMF assets, which include Treasury funds too and which represent 80.4% of all money funds, stand at $2.162 trillion, while Total Prime MMFs, which account for 14.7% of all MMFs, stand at $395.6 billion. Tax Exempt MMFs total $130.8 billion, or 4.9%. It explains, "Assets of retail money market funds increased by $3.02 billion to $979.92 billion. Among retail funds, government money market fund assets increased by $1.84 billion to $601.27 billion, prime money market fund assets increased by $980 million to $252.80 billion, and tax-exempt fund assets increased by $200 million to $125.85 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 61.4% of all Retail MMFs. The release continues, "Assets of institutional money market funds increased by $7.10 billion to $1.71 trillion. Among institutional funds, government money market fund assets increased by $6.33 billion to $1.56 trillion, prime money market fund assets increased by $480 million to $142.75 billion, and tax-exempt fund assets increased by $300 million to $4.98 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 91.4% of all Institutional MMFs.

Bloomberg writes "Cash Hits Two-Decade Low in Global Investor Portfolio." The piece explains, "Here's another way of thinking about how far stocks have come in nine years. Relative to balances in money market funds and cash among mutual fund managers, the value of global equities is the highest in almost two decades. That observation courtesy of Ned Davis Research, which framed the comparison as an indication "cash is underweight" in Planet Earth's asset portfolio. Another way of describing it is that equities have risen so much from the depths of the financial crisis that their value is blotting out everything else to an extent not seen since the dot-com bubble." Bloomberg adds, "At the end of January, money-market assets sat at about 10 percent of global equity values, the lowest reading since 1998, Ned Davis data show. Since peaking in 2009, the percentage fell sharply throughout the bull market, with much of the slope reflecting the inflation of share prices. They've more than tripled to $26 trillion, while money market assets have fallen 31 percent to $2.7 trillion."

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