Grant's Interest Rate Observer mentioned money funds in a brief last week entitled, "Income Deficit." They write, "Animal spirits, we have. Employment, ditto. But interest income? We have not. According to the Bureau of Economic Analysis, households suffered a 23% drop in 'monetary interest' between 2007 and 2016. In real terms, it plunged by a third. Now unfolding is a survey of the brightening prospects for income-seekers.... In an environment of rising money-market interest rates, where might the conservative saver turn? In preview, we judge that there are worse alternatives than money-market mutual funds and floating-rate notes." We quote from some of the rest of the Grant's piece, and we also review the ICI's latest update on MMF Holdings below.
After discussing rising rates, the Grant's article comments, "Which brings us to money-market mutual funds, investors in short-term, investment-grade paper. Money funds are supposed to own safe, low-yielding, short-term, liquid assets -- and, after a series of post-2008 regulatory clampdowns, they assuredly do. Peter Crane, the president of Crane Data, LLC, tells [Evan] Lorenz that, as a result of these rules, any rate increases will quickly flow through to money-fund yields."
It explains, "The yields aren't much. Funds deliver 0.93% on average, according to the Crane 100 Money Fund Index, up from 0.13% and 0.43% at year-end 2015 and 2016. The typical government-focused retail money fund holds agency debt (48% of the average portfolio), Treasurys (20.1%) and repurchase agreements (31.6%), according to Crane Data. Examples of the type include the JPMorgan U.S. Government Money Market Fund (OGVXX; $144.2 billion in assets) and Fidelity Government Cash Reserves (FDRXX; $135.1 billion). They are priced to yield 0.97% and 0.82%, respectively."
Grant's continues, "The typical 'prime' retail fund -- i.e., not 100% government-backstopped -- invests in certificates of deposit (33.2% of the typical portfolio), financial-company commercial paper (21.2%), Treasurys (10.9%), non-negotiable time deposits (8.2% ) and asset-backed commercial paper (8.1%). The biggest counterparties for money funds are companies situated in the United States (30% of the average portfolio), Canada (16.3%), France (10%) and Japan (9.6%). The Vanguard Prime Money Market Fund (VMMXX), with $96.5 billion in assets, is the largest nongovernment money fund and yields 1.24%."
Finally, they add, "An interesting sidelight to the money-fund story is the growing pressure on bank net interest margins. 'We haven't seen the big shoe drop yet, which likely is going to be bank deposit money,' says Crane. 'Bank deposit totals show signs of peaking. They've gone down the past couple months, but it is not clear that bank deposits are declining yet. But there are pretty good signs that they will start to very soon. Primarily because of the $9.1 trillion in bank deposits, about half of that is uninsured. It's big institutional blocks, and a lot of that is sensitive to rates.'"
In other news, the Investment Company Institute released its latest monthly "Money Market Fund Holdings" summary (with data as of Nov. 30, 2017) Thursday. 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 too Crane Data's Dec. 12 News, "Dec. Money Fund Portfolio Holdings: Fed Repo Down Again; CP, CDs Up.")
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in November, prime money market funds held 26.1 percent of their portfolios in daily liquid assets and 45.6 percent in weekly liquid assets, while government money market funds held 55.7 percent of their portfolios in daily liquid assets and 74.8 percent in weekly liquid assets." Prime DLA increased from 23.7% last month and Prime WLA decreased from 43.3% last month. Govt MMFs' DLA decreased from 57.4% last month and Govt WLA decreased from 77.3% last month.
ICI explains, "At the end of November, prime funds had a weighted average maturity (WAM) of 30 days and a weighted average life (WAL) of 73 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 30 days and a WAL of 86 days." Prime WAMs remained the same from the prior month, and WALs were up one day. Govt WAMs were unchanged from October and Govt WALs increased by 4 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 $169.04 billion in October to $177.94 billion in November. Government money market funds’ holdings attributable to the Americas declined from $1,720.51 billion in October to $1,697.26 billion in November."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $177.9 billion, or 39.0%; Asia and Pacific at $93.0 billion, or 20.4%; Europe at $181.0 billion, or 39.7%; and, Other (including Supranational) at $4.5 billion, or 1.1%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.697 trillion, or 76.7%; Asia and Pacific at $106.0 billion, or 4.8%; and Europe at $401.6 billion, or 18.2%.
Also, a statement says, "The U.S. Office of Financial Research has updated the Money Market Fund Monitor with data as of November 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."
