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The Charles Schwab Corporation's latest quarterly earnings release mentions money market funds and cash in a couple of places. CEO Walt Bettinger says, "We continue to leverage our scale to provide products and services that help investors achieve their goals, while delivering great value and making it easier for clients to do business with us. Most recently, we enhanced our money fund offerings by lowering expenses, reducing and standardizing investment minimums, and streamlining share classes across our entire lineup. These changes are part of our work to ensure clients continue to have access to a range of cash solutions offering attractive yields and smart features." CFO Peter Crawford comments, "We've achieved yet another quarter of record financial performance, helped by strong client growth and an improved economic environment. Schwab posted its ninth consecutive quarter of record revenues for the period ending in September. Net interest revenue grew 28% to $1.1 billion as a result of higher short-term rates and growing client cash balances. Following the Federal Reserve's June rate hike, our net interest margin reached 200 basis points for the third quarter – our highest level since the second quarter of 2010. Asset management and administration fees were up 8% year-over-year to a record $861 million, largely attributable to growing balances in advised solutions, mutual funds, and ETFs. These increases in our largest sources of revenue more than offset a 21% decline in Trading revenue due to lower trade pricing. Overall, we produced net revenues of $2.2 billion, a 13% increase." Crawford adds, "During the third quarter, we transferred $1.7 billion in sweep balances to Schwab Bank – $1.4 billion from Schwab One and approximately $300 million from sweep money market funds. In addition, we used $5 billion in Federal Home Loan Bank advances to provide temporary funding for additional investments ahead of future bulk transfer activity. The FHLB advances, the third quarter money fund transfers, and higher client cash levels all helped our consolidated balance sheet reach $230.7 billion as of September 30th; our preliminary Tier 1 Leverage Ratio at quarter-end was 7.7%. We delivered a 15% return on equity for the third quarter, reflecting our ability to combine effective capital management with a relentless drive for profitable growth to help build stockholder value." (See Schwab's release "Announcing Lower Minimums and Expenses for Schwab Money Funds," and watch for more coverage on this in coming days.)

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 10th week out of the past 11, and the 16th out of the past 18. Prime MMFs have risen by $39.9 billion, or 9.5%, over the past 20 weeks, and $77.1 billion, or 20.9%, year-to-date. ICI writes, "Total money market fund assets increased by $2.89 billion to $2.74 trillion for the week ended Wednesday, October 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $1.95 billion and prime funds increased by $1.11 billion. Tax-exempt money market funds decreased by $167 million." Total Government MMF assets, which include Treasury funds too, stand at $2.169 trillion (79.0% of all money funds), while Total Prime MMFs stand at $446.8 billion (16.3%). Tax Exempt MMFs total $128.1 billion, or 4.7%. They explain, "Assets of retail money market funds decreased by $865 million to $983.68 billion. Among retail funds, government money market fund assets decreased by $1.45 billion to $599.18 billion, prime money market fund assets increased by $571 million to $262.17 billion, and tax-exempt fund assets increased by $17 million to $122.33 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 60.9% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $3.76 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $3.40 billion to $1.57 trillion, prime money market fund assets increased by $539 million to $184.59 billion, and tax-exempt fund assets decreased by $184 million to $5.81 billion." Institutional assets account for 64.2% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

FT Alphaville writes "Dealers loosen their grip on money markets (a little bit)." The odd update explains on "Money market funds" (apparently in relation to the FICC), "Now they can purchase collateral from (or lend cash into) the centrally cleared pools for general collateral financing repurchase agreements -- known as GCF repo -- that were previously dominated by dealers. They had lent $16bn of cash into that pool at the end of September, up from nothing at the start of the year, according to the Office of Financial Research's money market fund monitor. Now, money-market funds don't get the full benefits of GCF repo, since the funds are currently only permitted to purchase collateral/lend cash. (GCF transactions are backed by high-quality securities, so dealers end up lending out Treasuries or agencies they have on hand at the end of the day, within an agreed-upon range of quality.) But they can earn a slightly higher return on cash than they'd get at the Fed, without the need to pay a dealer intermediary.... And because GCF repo is centrally cleared and usually collateralised by Treasuries, the transactions are generally safe as well." The piece adds, "Money-market funds' expansion into GCF repo was made possible by a rule change from the Depository Trust & Clearing Corp earlier this year. While investment funds could lobby for dealer-sponsored access to the clearing platform before the rule change, that required the cooperation. In short, it required dealers to voluntarily give up their privileged access to a safe source of returns on cash (or sometimes, collateral). That's a tough sell, even after regulations made it more expensive for dealers to intermediate these transactions on behalf of their clients."

An update from the U.S. Treasury's OFR says, "The U.S. Office of Financial Research has updated the Money Market Fund Monitor with data as of September 30, 2017. The monitor can be found here: https://www.financialresearch.gov/money-market-funds/. The OFR MMF Monitor is designed to track the investment portfolios of money market funds by funds asset types, investments in different countries, counterparties, and other characteristics. Users can view trends and developments across the MMF industry. Data are downloadable and displayed in six interactive charts. For examples of how to use the monitor and additional information, click on this reference guide." (See also our Oct. 11 News, "Oct. Money Fund Portfolio Holdings: Treasuries Rebound, FICC Grows.")

A recent posting on the Federal Reserve Bank of New York's "Liberty Street Economics" blog, entitled, "Just Released: New York Fed Markets Data," explains, "The Federal Reserve Bank of New York releases data on a number of market operations, reference rates, monetary policy expectations, and Federal Reserve securities portfolio holdings. These data are released at different times, for different types of securities or rates, and for different audiences. In an effort to bring this information together in a single, convenient location, the New York Fed developed the Markets Data Dashboard, which was launched today." It continues, "While the content of the Markets Data Dashboard is not new, the information is aggregated and centralized in a new interface that provides all of the markets data published by the New York Fed. These data are updated as results are released to the public. Users of existing data feeds from the New York Fed should note that the Markets Data Dashboard does not affect delivery of those data feeds." To see the brand-new Markets Data Dashboard, please click on this link: http://libertystreeteconomics.newyorkfed.org/2017/10/just-released-new-york-fed-markets-data-dashboard.html.

Wells Fargo Money Market Funds' latest "Overview, Strategy, and Outlook" tells us, "For money market funds, the gradual pace of Fed tightening has enabled prime money market funds to opportunistically extend weighted average maturities (WAMS) and weighted average lives(WALS) to take advantage of what yield pickup there is from extension out of the curve. The average maturity for institutional prime funds has hovered in the mid-20s for the past several months. Our funds' WAMS have been slightly lower at around 20 days recently (with WALS closer to 60 days) in an effort to maintain increased amounts of liquidity and to be in a position to more quickly capture the effects of future rate hikes. In this environment, we continue to construct high-quality portfolios that are focused on liquidity while opportunistically purchasing floating-rate notes in an effort to incrementally increase yields." The piece adds, "The money market industry is experiencing a small but noticeable change in the composition of asset growth this year. After the implementation of money market reform, we surmised that it might take a pickup in yield of 30 bps to 35 bps to entice investors who moved to government funds during reform to come back into prime funds. In looking at weighted industry assets, the yield differential between the two fund types has averaged 30 bps since the end of 2016; on a year-to-date basis, prime institutional assets have increased by $61 billion (+50%) while government/ agency institutional funds have declined by $50 billion (-3%). As investors become more comfortable with the new fund structures and behavior, we fully expect the trend to continue. To help investors understand the total return proposition of floating net asset value (NAV) money market funds as compared with stable NAV money market funds, Wells Fargo Asset Management, the money market funds' sponsor, recently published a total return calculator designed to model multiple investment scenarios. You can find it and other helpful information at www.wellsfargofunds.com/icm/ market-commentary-insights/money-fund-calculator.html."

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 9th week out of the past 10, and the 15th out of the past 17. Prime MMFs have risen by $38.8 billion, or 9.3%, over the past 19 weeks, and $76.0 billion, or 20.6%, year-to-date. ICI writes, "Total money market fund assets increased by $280 million to $2.74 trillion for the week ended Wednesday, October 11, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $713 million and prime funds increased by $1.00 billion. Tax-exempt money market funds decreased by $12 million." Total Government MMF assets, which include Treasury funds too, stand at $2.167 trillion (79.1% of all money funds), while Total Prime MMFs stand at $445.6 billion (16.3%). Tax Exempt MMFs total $128.3 billion, or 4.7%. They explain, "Assets of retail money market funds decreased by $1.92 billion to $983.46 billion. Among retail funds, government money market fund assets decreased by $1.12 billion to $599.55 billion, prime money market fund assets decreased by $888 million to $261.60 billion, and tax-exempt fund assets increased by $90 million to $122.31 billion." Retail assets account for over a third of total assets, or 35.9%, and Government Retail assets make up 61.0% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $2.20 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $407 million to $1.57 trillion, prime money market fund assets increased by $1.89 billion to $184.05 billion, and tax-exempt fund assets decreased by $103 million to $5.99 billion." Institutional assets account for 64.1% of all MMF assets, with Government Inst assets making up 89.2% of all Institutional MMFs.

A U.S. Treasury report on Capital Markets reform, "A Financial System That Creates Economic Opportunities," includes a couple brief mentions of money market funds. It says, "Changes to regulation since the financial crisis have driven changes in holdings of Treasury securities by the domestic banking sector and money market mutual funds. According to Federal Reserve data, U.S. chartered bank holdings of Treasury securities have grown from about $78 billion in 2007 to over $500 billion in the first quarter of 2017, due in part to U.S. Basel III capital requirements to hold greater amounts of high quality liquid assets (HQLA) since the financial crisis. Money market mutual fund holdings have grown from $92 billion to about $741 billion over the same period, primarily as a result of revised SEC rules on the securities money market funds can hold to retain a fixed net asset value. The Federal Reserve, through the System Open Market Account, is also a significant holder of Treasury securities; the Federal Open Market Committee recently announced it will begin normalizing its balance sheet." In other news, the Federal Reserve Bank of New York send a notice entitled, "Reverse repo counterparties list updated. They tell us, "JPMorgan 100% U.S. Treasury Securities Money Market Fund is no longer a reverse repo counterparty, effective August 21."

SIFMA's latest "Research Quarterly" for the Second Quarter 2017 says about "Funding and Money Market Instruments," "The average daily amount of total repurchase (repo) and reverse repo agreement contracts outstanding was $3.98 trillion in 2Q'17, an increase of 1.5 percent from 1Q'17's $3.92 trillion and a decline of 0.3 percent y-o-y. Average daily outstanding repo transactions totaled $2.22 trillion in 2Q'17, an increase of 1.7 percent q-o-q and an increase of 1.4 percent y-o-y. Reverse repo transactions in 2Q'17 averaged $1.76 trillion daily outstanding, an increase of 1.3 percent and a decline of 1.0 percent q-o-q and y-o-y, respectively." The update tells us, "DTCC general collateral finance (GCF) repo rates increased for Treasuries and MBS in 2Q'17 on a q-o-q basis and y-o-y basis: the average repo rate for Treasuries (30-year and less) rose to 94.2 basis points (bps) from 1Q'17's average rate of 62.5 bps and 2Q'16's average of 45.2 bps. The average MBS repo rate rose to 96.2 bps from 64.0 bps in the previous quarter and 46.0 bps in 2Q'16." On "Financial and Nonfinancial 3-Month Commercial Paper Interest Rates," SIFMA writes, "Interest rates for nonfinancial commercial paper (CP) rose to 110 bps end-June 2017 from 84 bps end-March 2017 and from 49 bps end-June 2016, and financial CP increased to 116 bps end-June from 83 bps end-March 2017 and also rose from 55 bps end-June 2016." The quarterly adds, "Preliminary outstanding volume of commercial paper, stood at $925.70 billion at the end of the second quarter, down 1.2 percent from the prior quarter's $937.20 billion and a decline of 8.9 percent y-o-y."

The U.K.-based publication Treasury Today features the article "A New Way for Treasurers to Find Yield," which discusses the use of direct repo for treasurers as a way to add yield. Banks are "finding it more expensive to accept short-term cash," which in turn means that "banks are passing these costs on to treasurers in the form of reduced yields," says the piece. It quotes Robert O'Riordan of Insight Investment in the UK, "[This] is affecting deposits held directly with the banks, and investments in prime money market funds (MMFs), which predominantly have bank counterparties." Regulation in June of this year "is set to increase liquidity requirement and reduce the maturity of profiles of prime MMFs." The European Union sets this regulation and currently regulates these Prime MMFs. O'Riordan states that "this will apply further downward pressure to the yields they generate." Because of this, "prime MMFs will no longer offer treasurers a constant NAV in all market conditions, which they desire." The article states, "MMFs are now designated differently because of regulation, which has created "new criteria" for CNAV funds, and has led to the institution of a "new low volatility NAV (LVNAV) fund type." It tell us, "The Holy Grail for treasurers is for their cash investments to be backed by government securities, to have daily access to their cash and for the yield they receive to be comparable to a prime MMF. 'A few years ago, this dream was unachievable given the limited amount of cash investment choices,' notes O’Riordan. 'But this is now very much a reality due to the opening up of the non-bank repo market.'" Finally, Treasury Today explains, "However, [O'Riordan] believes that it is increasingly possible for treasurers to transact repo directly with cash borrowers, 'thus avoiding the large spread typically imposed by banks'. In this model, non-bank counterparties offer gilts as collateral for the cash they borrow, giving treasurers the highest form of security, with a yield enhancement over what they would receive if they went directly to a bank. In addition, it gives treasurers the ability to diversify their cash away from bank risk."

The Investment Company Institute released its latest "Money Market Fund Assets" report yesterday. It shows that Prime money market funds rose for the 8th week out of the past nine, and the 14th out of the past 16. Prime MMFs have risen by $37.8 billion, or 9.3%, over the past 18 weeks, and $75.0 billion, or 20.3%, year-to-date. ICI writes, "Total money market fund assets increased by $384 million to $2.74 trillion for the week ended Wednesday, October 4, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $1.69 billion and prime funds increased by $1.41 billion. Tax-exempt money market funds increased by $663 million." Total Government MMF assets, which include Treasury funds too, stand at $2.168 trillion (79.1% of all money funds), while Total Prime MMFs stand at $444.6 billion (16.2%). Tax Exempt MMFs total $128.3 billion, or 4.7%. They explain, "Assets of retail money market funds increased by $1.22 billion to $985.38 billion. Among retail funds, government money market fund assets increased by $302 million to $600.67 billion, prime money market fund assets increased by $590 million to $262.48 billion, and tax-exempt fund assets increased by $325 million to $122.22 billion." Retail assets account for over a third of total assets, or 36.0%, and Government Retail assets make up 61.0% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $833 million to $1.76 trillion. Among institutional funds, government money market fund assets decreased by $2.00 billion to $1.57 trillion, prime money market fund assets increased by $824 million to $182.15 billion, and tax-exempt fund assets increased by $338 million to $6.10 billion." Institutional assets account for 64.0% of all MMF assets, with Government Inst assets making up 89.3% of all Institutional MMFs.

The Federal Reserve Bank of New York posted another update on Tri-Party repo, "The Cost and Duration of Excess Funding Capacity in Tri-Party Repo." (See our Oct. 3 News, "Federated'​s Cunningham on Fed in December; NY Fed on Tri-​Party Repo.") The Liberty Street Economics piece says, "In a previous post, we showed that dealers sometimes enter into tri-party repo contracts to acquire excess funding capacity, and that this strategy is most prevalent for the agency mortgage-backed securities (MBS) and equity asset classes. In this post, we examine the maturity of the repos used to pursue this strategy and estimate the associated costs. We find that repos that generate excess funding capacity for equities and corporate debt have longer maturities than the average repo involving either of these asset classes. Furthermore, the premiums dealers pay to maintain excess funding capacity can be substantial, particularly for equities.... Dealers acquire excess funding capacity to be able to cope with unanticipated funding demands and shocks in the future. But how far into the future do dealers secure excess funding? We answer this question using confidential, daily tri-party repo market data covering March 2017. We divide repos into two categories: those that generate excess funding capacity ("excess") and those that don't ("no excess"). In the table below, `we compare the cumulative maturity distributions for these two groups of repos, looking across three asset classes."

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