Bank of America Merrill Lynch released, "Money Fund Investor Survey: Reform Expectations," which finds that respondents expect "a sizable reallocation from prime funds," mostly into Government funds, ahead of the October floating NAV implementation date. We review this, as well as a "Reform Update" from JP Morgan Asset Management, which includes strike times for its Floating NAV fund. Finally, we also look at the latest "Money Market Fund Statistics" report from the Securities & Exchange Commission, which shows assets and trends for April. (Note: Crane Data has recently started publishing "beta" reports on Form N-MPF data, so look for more on this once we've begun releasing the summary data.)
BofA Merrill Rates Strategist Mark Cabana writes, "Given the uncertainty associated with 2a-7 money market mutual fund reform, we recently conducted a survey of our short-duration clients to learn more about their expectations. Our survey was conducted from June 2nd to 10th and it was sent mostly to corporate accounts that invest in money funds, along with a small number of institutional accounts."
He continues, "Key takeaways from the survey include: (1) respondents expect sizeable reallocations from prime money funds ahead of the October implementation date, most of which will be invested in government funds, (2) the market impact of money fund reform should result in modestly higher LIBOR rates, although expectations were diverse, (3) commercial paper or certificate of deposit issuance was expected to hold steady or decline somewhat, and (4) investors may not adjust prime holdings until late summer or early fall."
Cabana explains, "Responses to the survey generally reaffirmed our expectations for money fund reform. We have been expecting an additional $300 to $500 billion in prime fund outflows and believe that roughly half of this will find its way into government funds. We also expect this flow to result in a widening of LIBOR spreads and downward pressure on short-dated US government securities, although this will partially be offset by increased bill supply in 2H 2016. We have also been expecting that prime fund outflows would increase over the summer and into the fall."
He adds, "We were surprised by the large majority of respondents who indicated that 50% or less of prime outflows would return to the product within 18-to-24 months of full reform implementation, even if offered attractive yields. We had thought investors might be willing to return to prime funds over time if offered sufficient yield. We were also surprised that some expected lower or no change in 3M LIBOR rates leading into reform."
JPMAM's Update lists the firm's roster of funds going forward and includes strike times for its lone Prime Institutional fund, JP Morgan Prime. It says, "Under the amendments to Rule 2a-7 adopted by the Securities and Exchange Commission in July 2014, JPMorgan Money Market Funds (MMFs) will, beginning in October 2016, fall under the following qualification: Institutional – JP Morgan Prime; Government – JP Morgan US Govt, JP Morgan US Treasury Plus, JP Morgan Federal, JP Morgan 100% US Treasury Securities; Retail – JP Morgan Liquid Assets, JP Morgan Tax-Free, JP Morgan Municipal, JP Morgan California Municipal, JP Morgan New York Municipal <b:>`_."
The brief continues, "Under the amended SEC rules, Institutional Prime MMFs will transition to a floating NAV, which will be priced at multiple times per day. The JPMorgan Prime Money Market Fund will ordinarily calculate its share class NAV three times on each day the fund accepts purchases and redemptions -- at 8 AM, 12 PM, and 3 PM ET." The fund will transition to a floating, four decimal NAV and calculated strike times thrice daily starting October 1. Also, the Retail funds will meet the new Retail qualification standards and shareholder eligibility requirements on October 1, says the Update.
For more on JPM's plans and strike times, see our March 3 News, "JPM Details Fund Updates, Cutoffs, Gates in Filing; Linton Comments;" our May 24 News, "BlackRock Latest to Set FNAV Strike Times, Fitch on Weekly Liquidity;" and, our June 14 News, "Western Asset Sets Lineup, Strike Times; Wells Fargo on Reform Flows."
In other news, the SEC's "Money Market Fund Statistics" for April 2016 shows that assets fell (led by a sharp drop in Prime MMFs) and yields rose last month. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends.
The SEC's latest statistics show total money market fund assets dropped by $40.5 billion in April to $3.032 trillion. This after assets fell $50.1 billion in March, rose $58.5 billion in February, and fell $21.4 billion in January, according to the SEC's broad total. (This series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Year-to-date, total assets are down $53.5 billion through 4/30.
Of the $3.032 trillion in assets, $1.470 trillion was in Prime funds, down $48.0 billion in April. Prime funds now represent 48.5% of total assets. Government & Treasury funds total $1.338 trillion, or 44.1% of assets, up $26.5 billion in April. Tax Exempt Funds were down again, dropping $19.1 billion to $223.4 billion, or 7.4% of all assets. The number of money funds was 472, down 18 for the month and down 70 from 4/30/15.
Yields continued to tick up in April, led by a big jump for T-E funds. The Weighted Average Gross 7-Day Yield for Prime Funds on April 30 was 0.56%, up 1 basis point from the previous month and more than double the 0.27% of Nov. 2015. Gross yields were 0.39% for Government/Treasury funds, unchanged from last month and up 0.24% from 11/15. Tax Exempt Weighted Gross Yields rose 8 basis points in April to 0.41% after jumping 25 bps in March. The `Weighted Average Net Prime Yield was 0.34%, up 1 basis point from the month before and up 0.23% since 11/15. For the year-to-date, 7-day gross yields are up 15 basis points and net yields are up 12 basis points. The Weighted Average Prime Expense Ratio was 0.22% (up 1 basis point from March). Prime expense ratios have risen from 0.16% in Nov. 2015 to 0.22% currently.
Maturities continued to move lower and liquidity continued to inch higher in April. The average Weighted Average Life, or WAL, was 51.7 days (down 3.8 days from last month) for Prime funds, 95.1 days (down 0.4 days) for Government/Treasury funds, and 23.4 days (down 4.0 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 33.3 days (down 1.8 days from the previous month) for Prime funds, 40.8 days (down 1.1 days) for Govt/Treasury funds, and 21.2 days (down 2.2 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 32.5% in April (up 1.5% from last month). Total Weekly Liquidity was 45.7% (up 1.0%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, France topped the list with $177.8 billion, followed by the US with $171.4 billion and Japan with $159.4 billion. Canada was fourth with $139.1 billion, followed by Sweden ($122.9B), Australia/New Zealand ($71.4B), UK ($69.1B), and Germany ($53.3B). The Netherlands ($47.8B) and Switzerland ($40.1B) round out the top 10. The biggest gainers among Prime MMF bank related securities for the month were France (up $45.5B), Sweden (up $31.3B), Norway (up $27.9B), Belgium (up $8.7B), and UK (up $5.3B). The biggest drops came from Canada (down $26.5B), US (down $4.9B), Japan (down $3.9B), China (down $2.7B), and the Netherlands (down $2.0B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $571.4 billion (up $454.7B from last month), while its subset, the Eurozone, had $297.2 billion (up from $242.3B). The Americas had $312.7 billion (down from $344.0B), while Asia and Pacific had $255.5 billion (down from $257.9B).
Of the $1.468 trillion in Prime MMF Portfolios as of April 30, $633.9B (43.2%) was in CDs (up from $470.1B), $296.9B (20.2%) was in Government (including direct and repo), down from $409.5B), $214.1B (14.6%) was held in Non-Financial CP and Other Short Term Securities (down from $301.9B), $228.9B (15.6%) was in Financial Company CP (up from $223.8B), and $93.9B (6.4%) was in ABCP (down from $99.4B). Also, the Proportion of Non-Government Securities in All Taxable Funds was 42.4% at month-end, down from 39.0% the previous month. All MMF Repo with Federal Reserve plummeted to $60.0B in April from $257.1 billion the previous month. The $60B is the lowest since the SEC began recording this information in April 2014.
Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 32.4% were in maturities of 60 days and over (down from 37.2%), while 4.5% were in maturities of 180 days and over (down from 4.6%).
