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Columnist Allan Sloan discusses sweep accounts and gives a shout-out to Crane Data in his latest piece, which appears in The Washington Post. Entitled, "Have index funds or brokerage account? Two simple tips could be worth money," it says, "I'll also show you how to avoid being lowballed by profit-hungry brokerage houses on the cash that you have in 'sweep accounts.' Those are the accounts where brokerage houses put the proceeds from holdings that you sell or hold cash that you deposit." Sloan explains, "I'm certainly not the first journalist to suggest lately that you move money out of brokerage sweep accounts into money market funds. But it's something that bears repeating. I've got two motivations here. First, I've got an account at Charles Schwab where moving my cash to a money market fund from my sweep account increased my earnings about 500 percent. Second, I read the January issue of Money Fund Intelligence, published by my friend Peter Crane, and happened upon a table showing what investors were earning on sweep account cash as of Dec. 31 and what the firms' money market funds were paying." The column adds, "[T]he yield difference between sweep account and money funds is preposterous, verging on obscene. Take Merrill Lynch, whose sweep account was yielding 0.14 percent at year-end, less than one-fourteenth of the 1.99 percent the Merrill money fund was yielding. Or take Morgan Stanley (0.14 versus 2.00) or Ameriprise (0.20 versus 2.01) or E-Trade (0.20 versus 1.52) or Schwab (0.33 versus 1.94)." (Let Crane Data know if you'd like to see a recent copy of our Brokerage Sweep Intelligence, which tracks these rates.)

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Jan. 11, 2019, includes Holdings information from 59 money funds (up from 43 on Dec. 28, 2018), and representing $985.98 billion, compared to $718.4 billion in our final December report. That represents 31.6% of the $3.124 trillion in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Jan. 11 News, "Jan. MF Portfolio Holdings: Treasuries, Repo Jump; FICC Biggest Repo.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $370.89 billion (up from $271.0 billion on Dec. 28), or 37.6% of holdings, Treasury debt totaling $320.45 billion (up from $195.4 billion), or 32.5%, and Government Agency securities totaling $188.06 billion (up from $162.0 billion), or 19.1%. Commercial Paper (CP) totaled $43.83 billion (up from $37.3 billion), or 4.4%, and Certificates of Deposit (CDs) totaled $34.61 billion (up from $28.6 billion), or 3.5%. A total of $18.06 billion or 1.8% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $10.1 billion, or 1.0%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $320.4 billion (32.5% of total holdings), Federal Home Loan Bank with $132.6B (13.4%), RBC with $53.8 billion (5.5%), Federal Farm Credit Bank with $39.3B (4.0%), BNP Paribas with $33.0B (3.3%), Fixed Income Clearing Co with $32.4B (3.3%), Credit Agricole with $21.5B (2.2%), Mitsubishi UFJ Financial Group Inc with $19.1B (1.9%), Barclays PLC with $17.8B (1.8%), and ING Bank with $17.6B (1.8%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($112.5B), Goldman Sachs FS Govt ($100.0B), Wells Fargo Govt MMkt ($76.8B), Goldman Sachs FS Trs Instruments ($59.3B), Dreyfus Govt Cash Mgmt ($56.5B), Morgan Stanley Inst Liq Govt ($54.1B), Fidelity Inv MM: MMkt Port ($46.7B), First American Govt Oblig ($40.4B), State Street Inst US Govt ($39.8B), and Dreyfus Treas Sec Cash Mg ($29.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

A press release entitled, "Moody's affirms Goldman Sachs US$ Treasury Liquid Reserves Fund following merger," tells us, "Moody's Investors Service has affirmed the Aaa-mf rating of Goldman Sachs US$ Treasury Liquid Reserves Fund following its merger with the Goldman Sachs USD Treasury Instruments Liquid Reserves Fund. The rating of the Goldman Sachs USD Treasury Instruments Liquid Reserves Fund has been withdrawn. The funds are managed similarly by Goldman Sachs Asset Management except for the use of reverse repurchase agreements by the USD Treasury Liquid Reserves Fund. Under the looming EU regulatory regime for money market funds, certain liquidity provisions make it impractical to manage a public debt constant net asset value (CNAV) money market fund without exposure to cash, deposits, or reverse repurchase agreements." Another release, titled, "Moody's Assigns Aaa-mf Rating to BlackRock ICS Euro Assets Liquidity Fund," explains, "Moody's Investors Service has assigned a Aaa-mf rating to the BlackRock ICS Euro Assets Liquidity Fund, a prime money market fund (MMF). The fund is domiciled in Ireland and complies with the European Union's new money market fund rules." It adds, "The fund, created in 2013, was operating as a Constant Net Asset Value (CNAV) MMF and has now transitioned to a short term variable net asset value (VNAV) structure. It offers a t+1 settlement. The fund had 2.7 billion of AUM as of 2 January 2019.... We expect the Fund to maintain a strong liquidity profile supported by high levels of overnight and weekly liquidity in the portfolio, in excess of the regulatory requirements. The investor base is made of internal funds as well as institutional investors such as multinational corporations, insurance companies, and sovereign wealth funds."

CNBC writes "Investors are hiding out in cash: Assets in money market funds surge past $3 trillion," which tells us, "Cash is becoming the king as investors flee volatile stock markets. Assets in money market mutual funds have swollen to $3.066 trillion, their highest level since March 2010, driven by retail investors. The money fund assets had spent much of the last decade in the $2 trillion range but tracked above $3 trillion again in mid-December, coinciding with a late-2018 market downturn that resulted in the S&P 500 posting a 6.2 percent drop for the year, it's worst showing in a decade." The article continues, "Sean Collins, chief economist at the Investment Company Institute, which tracks the data, said the move could reflect a combination of factors: Investors are wary about the stock market volatility, but higher short-term interest rates are also making money market funds more attractive for those who want a short-term asset. Money market funds have long been considered as safe as cash savings accounts at banks.... Nearly three-quarters of the $183 billion that has flowed into money market funds since the end of the third quarter of last year was to retail funds, not institutional, according to ICI data."

A release entitled, "Moody's updates its money market funds methodology tells us, "Moody's Investors Service has published an updated money market funds (MMF) methodology, replacing the version from December 21, 2016. No changes to outstanding MMF ratings are expected to result from this update. The update includes a change in how Moody's calculates the impact of 50% redemption on a fund's adjusted net asset value under a stress scenario in cases where the regulation of the jurisdiction of operations for the fund requires it to hold a minimum level of weekly liquidity. The update further clarifies the mapping between obligations and the reference points we use as inputs into the credit matrix and NAV stress scenarios. It also provides more details about the mechanics of the credit matrix." The release adds, "MMF ratings are not credit ratings and are considered Other Permissible Services (OPS).... For a full explanation, please consult the updated report called "Money Market Funds" now available on www.moodys.com and accessible at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147802." The full report comments, "In this methodology, we explain our general approach to assessing the investment quality of money market funds globally, including the qualitative and quantitative factors that are likely to affect money market fund (MMF) rating outcomes. MMF ratings are not credit ratings; they are opinions of the investment quality of shares in mutual funds and similar investment vehicles that principally invest in short-term fixed income obligations."

The Investment Company Institute released its latest "Money Market Fund Assets" report, which shows that MMF assets jumped again in the latest week led by Prime Institutional assets. MMFs posted their 11th week of gains out of the past 12 weeks, during which time they've risen by $194.5 billion, or 6.7%. Government, Prime and Tax Exempt MMFs all increased. Overall fund assets grew $209 billion, or 7.4% in 2018, according to ICI, or $230 billion, or 7.6%, according to Crane Data, the strongest showing in 10 years. ICI's weekly series showed Retail MMFs increasing $179 billion, or 17.6%, while Institutional MMFs grew $31 billion, or 1.7%, on the year. ICI writes, "Total money market fund assets increased by $19.08 billion to $3.07 trillion for the week ended Wednesday, January 9, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $2.55 billion and prime funds increased by $16.36 billion. Tax-exempt money market funds increased by $165 million." Total Government MMF assets, including Treasury funds, stood at $2.334 trillion (76.1% of all money funds), while Total Prime MMFs reached $585.9 billion (19.1%). Tax Exempt MMFs totaled $146.9 billion, or 4.8%. They explain, "Assets of retail money market funds increased by $4.11 billion to $1.20 trillion. Among retail funds, government money market fund assets increased by $813 million to $707.16 billion, prime money market fund assets increased by $3.87 billion to $351.83 billion, and tax-exempt fund assets decreased by $576 million to $137.39 billion." Retail assets account for over a third of total assets, or 39.0%, and Government Retail assets make up 59.1% of all Retail MMFs. The ICI release adds, "Assets of institutional money market funds increased by $14.97 billion to $1.87 trillion. Among institutional funds, government money market fund assets increased by $1.74 billion to $1.63 trillion, prime money market fund assets increased by $12.49 billion to $234.06 billion, and tax-exempt fund assets increased by $741 million to $9.53 billion." Institutional assets accounted for 61.0% of all MMF assets, with Government Institutional assets making up 87.0% of all Institutional MMF totals.

Reuters writes "Cash can beat stocks in returns and happiness." The article says, "How bad was 2018 for investors? They pulled a record amount of money from stock and bond funds late in 2018 and tucked it into safe havens such as CDs, money market funds or U.S. Treasuries that mature in a year or less. If history is any indication, investors worried about bad times recover faster if they stay the course in a typical diversified portfolio.... Nevertheless, people often find it more comfortable to increase their cash during uncertain times. Even when the markets are not going through major gyrations, research shows cash has a powerful soothing effect on people." The Reuters piece adds, "Sonja Lyubomirsky, a happiness researcher and psychology professor at the University of California Riverside, along with Joe Gladstone, of University College London, surveyed British bank customers in 2016 and found that being able to see cash sitting in accounts and easily accessible gave people a feeling of comfort."

Invesco Global Liquidity previously announced that it will convert its Short-Term Investment Company (Global Series) plc "STIC Global" constant-NAV money market funds to LVNAV funds beginning Jan. 14, 2019, but they now tell us that they are "converting our fund range to LVNAV Funds on 11th March 2019." While European Money Fund Reforms are scheduled to go live on January 21, firms have apparently been given extra time by regulators. (We haven't seen any official communications on this yet though.) A recent "Investor's Guide" produced by Invesco noted that "the majority of existing CNAV MMFs are converting to the LVNAV fund category." Conversions to Low Volatility NAV operation involve STIC Global US Dollar Liquidity Portfolio (with reported assets of $4.92 billion as of Jan. 7), STIC Global Euro Liquidity Portfolio (E1.35B) and STIC Global Sterling Liquidity Portfolio (L1.57B). Invesco ranks as the 18th-largest complex reporting to Crane Data's Money Fund Intelligence International with total assets of $8.57 billion, when converted to U.S. dollars. Its communication to investors observed that local Invesco offices will be providing updates in light of a recent ruling against use of a share-redemption mechanism for funds operating with negative yields, which applies to the Euro Liquidity Portfolio. The Invesco piece assured investors that it is highly unlikely that the recategorized LVNAV funds will break the 20-basis point "collar," comparing the daily amortized-cost derived NAV to the mark-to-market valuation, allowing them to continue to transact at E/L/$1 per share. "There has not been a single occasion where we broke the 20-bps collar" over the past 10 years, it stated. "Whilst the reforms introduce key new elements to MMFs, we believe there should be very little change seen by Sterling and U.S. Dollar investors from an operational standpoint on a day to day basis. Further details on the changes to the Euro Portfolio will be communicated to investors in due course. Invesco has the benefit of having already successfully transitioned our U.S. MMF business in line with the SEC's reforms in October 2016. Investors can be assured Invesco Global Liquidity will continue to be a core business for Invesco. We will continue to strive to deliver a range of liquidity products with the same unwavering objectives of preservation of principal, liquidity and then yield, in that order."

J.P. Morgan's latest "Short-Term Fixed Income" update, entitled, "What happened to repo at year-end?" tells us, "While it's common to see repo rates spike around year ends as dealer balance sheets shrink, the repo markets experienced an extra dose of volatility this year. On 12/31, overnight GCF Treasury repo rates surged to an all-time high of 5.149%, increasing by 260bp from the day prior. Relative to previous year ends, this is the single biggest one-day jump in overnight GCF repo rates by far.... A similar, but smaller, spike occurred in the tri-party repo and GC repo market as well, and because these transactions are components of SOFR, SOFR also increased by 54bp to 3.00%. In part, regulations contributed to what transpired as they tend to dampen overall market activity at key moments, like year-end. In particular, the calculation of G-SIB surcharges is based on year-end score snapshots which incentivizes US systemically important banks to temporarily reduce their balance sheet intensive activities like repo. This is especially true for those that are close to entering into the next higher G-SIB surcharge bucket or moving down into the next lower G-SIB surcharge bucket.... As a consequence, borrowers often find themselves paying up for funding during a time when there is already little liquidity and ultimately bearing the costs of banks trying to manage/optimize their balance sheets for regulatory purposes." The update explains, "With all that said, the repo markets have normalized since year-end. As of COB Friday, overnight GC repo rates have settled around 2.80%, much lower than where they were at year-end. Reflecting on this, the events of the past few days reminded us that for as liquid as the repo market is relative to Libor, there are also vagaries in the repo market that make SOFR a much more volatile benchmark day to day. In this instance, regulations seem to have played a large role in reducing liquidity at a time when market depth is already expected to fall as trading desks thin out for the holidays.... Tack on the current environment where dealers are heavy with collateral and banks are on their way to reducing their excess reserve balances (not so much because of Fed normalization but more because they're rotating into other higher yielding asset classes), repo rates and consequently SOFR will likely only become more volatile in the near future. While developments like sponsored repo and the newly issued Basel proposal to report banks' total leverage exposure measure on a daily average basis will help temper this volatility, it's unclear to what degree.... Until then, we wouldn't be surprised if we see more volatility in repo rates, especially around quarter-ends or on days when there is less liquidity generally (e.g., the national day of mourning of former US President George H.W. Bush) as the markets adjust to shifts in financing availability on those days." JPM adds, "Even so, it's worth mentioning that the dislocations we've seen in repo rates recently are not reflective of funding stress in the fixed income markets such as the one in 2008. As we discussed in our 2019 Outlook, over the past few years the repo market has grown larger, broader, and deeper. Usage at the Federal Reserve's RRP facility has greatly declined and innovative uses of sponsored repo have provided both lenders and borrowers new opportunities. Overall, there has been more financing in the repo markets, even if there are temporary spikes in repo rates."

Bond mutual funds and ETFs continued to see big outflows in the latest week, though not as large as the prior week, according to ICI's "Combined Estimated Long-Term Fund Flows and ETF Net Issuance". The January 2, 2019 release, with data as of Dec. 26, 2018, says, "Total estimated outflows from long-term mutual funds and exchange-traded funds (ETFs) were $37.84 billion for the week ended December 26, 2018, the Investment Company Institute reported today. Estimated mutual fund outflows were $46.20 billion while estimated net issuance for ETFs was $8.36 billion. Reports of long-term flow estimates and ETF net issuance are available on the ICI website." The release adds, "Bond funds had estimated outflows of $9.23 billion for the week, compared to estimated outflows of $12.22 billion during the previous week. Taxable bond funds saw estimated outflows of $10.14 billion, and municipal bond funds had estimated inflows of $913 million." Crane Data, which has begun "beta" testing a new Bond Fund Intelligence Daily product, estimates that bond fund outflows almost ceased in the week ended January 2, 2019, as assets declined a mere $3.9 billion. (Let us know if you'd like to see a copy of our new product, which tracks daily assets, yields and NAVs on a subset of the bond fund and ETF universe.)

MarketWatch writes "Robinhood quietly stops users from signing up for cash accounts amid scrutiny from regulators." It comments, "Robinhood, the no-commission stock trading platform, is no longer letting users sign up for its new cash management accounts. A section of the Robinhood app where users could put their name on a waitlist for the cash management accounts disappeared after some users updated the app over the past week. The change, which Robinhood did not announce, frustrated some users, who complained on Twitter and Reddit that were worried they would lose their spots on the waitlist for the cash management accounts." The article adds, "The change also raised more questions about the future of Robinhood's cash management accounts, which attracted the attention of U.S. senators after it was revealed that Robinhood had not consulted federal regulators about insuring the cash accounts." An earlier MarketWatch article said, "A bipartisan group of senators has raised concerns over Robinhood's so-called 'cash management' accounts. The senators wrote a letter Thursday to the heads of the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corp. (FDIC) and the Securities Investor Protection Corp. (SIPC), detailing their worries that Robinhood’s accounts and the marketing around them could 'mislead' consumers." (See also our Jan. 2 News, "Barron'​s Hits FinTech Money Markets; MarketWatch Slaps Wall of Cash.")

The SEC's 2016 Money Market Fund Reforms included a mandate to file Form N-CR whenever financial support is provided to a money fund. While we still have yet to see any true money fund bailouts, we have seen a handful of filings to "top-up" money fund NAVs before liquidations or mergers. The latest filings we've found are from the TD Money Market Funds, which provided small capital contributions before they were liquidated. (See our Aug. 2, 2018 News, "MFS U.S. Govt MMF Files Form N-CR," and our Oct. 15, 2018 Link of the Day, "TDAM Liquidating Money Funds.") Separate but similar filings for the TD Money Market Portfolio, TD U.S. Government Portfolio, TD Municipal Portfolio, TD California Municipal Money Market Portfolio, and TD New York Municipal Money Market Portfolio tell us, "Description of nature of support: Provision of capital contribution to increase the net asset value per share to $1.0000 in connection with the upcoming liquidation of TD U.S. Government Portfolio, a series of the Registrant.... Person providing support: TDAM USA Inc.... TDAM USA Inc. is the investment adviser to the Portfolio.... Date support provided: November 16, 2018.... Amount of support: $82,028.28. Item C.6 Security supported (if applicable). Disclose the name of the issuer, the title of the issue (including coupon or yield, if applicable) and at least two identifiers, if available (e.g., CUSIP, ISIN, CIK, LEI): Not Applicable. Item C.7 Value of the security supported on date support was initiated (if applicable): Not Applicable. Item C.8 Brief description of reason for support: The support related to the upcoming liquidation of the Portfolio, and was made to offset the historical losses previously realized by the Portfolio. The amount of the financial support is equal to the difference between the Portfolio’s net assets and the net asset value per share of $1.0000 multiplied by the number of shares outstanding so that shareholder interests are not diluted and all shareholders receive the same value upon the Portfolio's liquidation or in redemptions made following the financial support, but prior to the liquidation." TD's previous Prospectus Supplements said, "On September 26, 2018, the Board of Directors (the 'Board') of TD Asset Management USA Funds Inc. (the 'Company') approved the liquidation of each of the TD Money Market Portfolio, TD U.S. Government Portfolio, TD Municipal Portfolio, TD California Municipal Money Market Portfolio and TD New York Municipal Money Market Portfolio, each a series of the Company, pursuant to the terms of a Plan of Liquidation for each Portfolio. The approval by the Board of the liquidations was based on the recommendation of TDAM USA Inc., the Portfolios' investment adviser ('TDAM'), which has determined that the Portfolios are no longer viable from a business and economic perspective. Under its Plan of Liquidation, each Portfolio will be liquidated on or about November 19, 2018 (the 'Liquidation Date')."

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