Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds fell slightly over the past month to $1.008 trillion, the third month in a row for asset declines. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $8.4 billion over the 30 days through 10/14. They're down $51.7 billion (-4.9%) year-to-date. Offshore US Dollar money funds are up $6.9 billion over the last 30 days but are down $11.4 billion YTD to $524.4 billion. Euro funds are up E1.7 billion over the past month, and YTD they're down E17.5 billion to E139.9 billion. GBP money funds have fallen L12.5 billion over 30 days, and are down by L26.4 billion YTD to L230.2B. U.S. Dollar (USD) money funds (192) account for half (52.0%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.3% and Pound Sterling (GBP) funds (116) total 31.6%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below. (Note: For more on European and offshore money funds, join us for our European Money Fund Symposium Online, a free 2 1/2 hour webinar, which takes place Oct. 21 from 9:30am-12:00pm Eastern. Register here to attend.)
Offshore USD MMFs yield 0.02% (7-Day) on average (as of 10/14/21), down from 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.67% on average, compared to -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.01%, up from 0.00% on 12/31/20, down from 0.64% on 12/31/19 and 0.64% on 12/31/18. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's October MFII Portfolio Holdings, with data as of 9/30/21, show that European-domiciled US Dollar MMFs, on average, consist of 27% in Commercial Paper (CP), 16% in Certificates of Deposit (CDs), 15% in Repo, 28% in Treasury securities, 13% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 35.4% of their portfolios maturing Overnight, 7.7% maturing in 2-7 Days, 15.1% maturing in 8-30 Days, 12.4% maturing in 31-60 Days, 8.9% maturing in 61-90 Days, 14.5% maturing in 91-180 Days and 5.9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (37.9%), France (14.2%), Canada (9.7%), Japan (7.2%), Sweden (5.8%), the Netherlands (4.3%), Germany (4.1%), Australia (3.0%), the U.K. (3.0%) and Belgium (2.2%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $151.8 billion (28.1% of total assets), BNP Paribas with $20.5B (3.8%), RBC with $13.9B (2.6%), Skandinaviska Enskilda Banken AB with $11.9B (2.2%), Federal Reserve Bank of New York with $11.4B (2.1%), Societe Generale with $11.1B (2.1%), Credit Agricole with $10.4B (1.9%), Toronto-Dominion Bank with $10.1B (1.9%), Rabobank with $9.3B (1.7%), and Canadian Imperial Bank of Commerce with $9.2B (1.7%).
Euro MMFs tracked by Crane Data contain, on average 41% in CP, 23% in CDs, 22% in Other (primarily Time Deposits), 9% in Repo, 4% in Treasuries and 1% in Agency securities. EUR funds have on average 27.6% of their portfolios maturing Overnight, 9.5% maturing in 2-7 Days, 16.8% maturing in 8-30 Days, 14.8% maturing in 31-60 Days, 7.1% maturing in 61-90 Days, 20.0% maturing in 91-180 Days and 4.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (34.6%), Japan (13.0%), the U.S. (9.5%), Sweden (8.2%), Germany (6.9%), Switzerland (6.0%), the U.K. (3.5%), Canada (3.1%), Belgium (2.2%) and Supranational (2.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.8B (5.5%), BNP Paribas with E6.2B (5.0%), Societe Generale with E5.4B (4.4%), BPCE SA with E5.3 (4.3%), Republic of France with E5.2B (4.3%), Zürcher Kantonalbank with E4.3B (3.6%), Nordea Bank with E3.9B (3.2%), Svenska Handelsbanken with E3.7B (3.0%), Natixis with E3.3B (2.7%) and Mizuho Corporate Bank with E3.3B (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 9/30/21): 38% in CDs, 21% in CP, 20% in Other (Time Deposits), 16% in Repo, 5% in Treasury and 0% in Agency. Sterling funds have on average 31.3% of their portfolios maturing Overnight, 12.6% maturing in 2-7 Days, 11.8% maturing in 8-30 Days, 10.1% maturing in 31-60 Days, 5.2% maturing in 61-90 Days, 23.4% maturing in 91-180 Days and 5.5% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.5%), the U.K. (17.9%), Japan (16.3%), Canada (11.0%), the U.S. (5.4%), Sweden (5.1%), the Netherlands (5.0%), Australia (3.7%), Switzerland (3.0%) and Germany (2.9%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L20.2B (10.1%), Mitsubishi UFJ Financial Group Inc with L9.3B (4.7%), Sumitomo Mitsui Banking Corp with L9.0B (4.5%), BPCE SA with L8.0B (4.0%), BNP Paribas with L8.0B (4.0%), RBC with L7.7B (3.8%), Mizuho Corporate Bank Ltd with L6.8B (3.4%), Agence Central de Organismes de Securite Sociale with L6.7B (3.3%), Toronto-Dominion Bank with L6.4B (3.2%) and Nordea Bank with 5.5B (2.7%).
In other news, The Federal Reserve Bank of New York's Lorie Logan spoke recently on "Monetary Policy Implementation: Adapting to a New Environment" at an event held by the Money Marketeers of New York University. She comments, "Unsurprisingly, the increase in reserves resulted in downward pressure on overnight interest rates -- including the federal funds rate -- relative to the interest on reserve balances (IORB) rate. As reserve balances rose, some banks perceived a cost to expanding their balance sheets further and lowered their deposit rates. In response, depositors and other investors shifted assets to money market mutual funds (money funds), which raised demand for money market investments and put downward pressure on money market rates more broadly. On the year, government money fund assets under management (AUM) have increased by over $320 billion."
Logan explains, "It's important to note that at the same time demand for money market investments rose, the net supply of U.S. Treasury bills -- an essential investment for money funds and other investors -- fell by an historically large amount: over $1.2 trillion so far in 2021.... This combination of increased liquidity and reduced supply of investment options had the potential to put substantial further downward pressure on overnight rates, including the federal funds rate. The ON RRP facility was established as part of the FOMC's ample reserves framework in order to support interest rate control in a wide variety of environments. It offers a broad range of money market investors the option to invest in an overnight reverse repo with the Federal Reserve, which improves their bargaining power for private investments. It also offers an alternative investment when private investments are not available at rates above the ON RRP rate."
She tells us, "In the first quarter of this year, ON RRP facility usage became more regular, and it has increased rapidly since. Recently, reductions in the TGA and Treasury bill supply have accelerated, and the ON RRP facility has exceeded $1.2 trillion consistently since mid-September.... The ON RRP facility is working as intended, even as usage expands to new highs. Just as IORB creates a floor for rates on bank lending activity, the ON RRP facility supports control of the federal funds rate by providing a soft floor for the overnight money market activity of a broader set of money market participants."
Logan says, "An essential feature of the ON RRP facility is that it has a fixed rate and therefore its size is determined by the interest rate environment. Just as usage of the facility grew in response to downward pressure on money market rates, it should decline in response to increases in them. For example, if Treasury were to expand Treasury bill supply and interest rates on these instruments rose above the ON RRP rate, investors should naturally reallocate out of the facility and back into these assets. Similarly, if the supply of reserves declines and rates rise relative to the IORB rate, ON RRP balances should naturally recede."
She states, "The Federal Reserve implemented a technical adjustment to administered rates in June, lifting the IORB and ON RRP rates by five basis points each, shifting up their position in the target range. This was a normal adjustment in response to evolving money market conditions, intended to help maintain the federal funds rate well within the target range. Lifting the ON RRP rate above zero also helped support the smooth functioning of money markets. With secured rates near zero, money funds with stable net asset values (NAVs) could have experienced challenges covering operating costs and limited inflows, increasing the potential for further downward pressure on rates."
Finally, Logan adds, "The ON RRP facility's per-counterparty limit has also been adjusted this year. In March, the FOMC lifted the limit to $80 billion to account for changes in the size and concentration of the money fund industry since 2014, and to ensure sufficient capacity to maintain an effective floor under the federal funds rate. Most recently, as ON RRP usage steadily increased, the FOMC raised the limit again, this time to $160 billion. Since the increase, some counterparties have participated in ON RRP operations for more than $80 billion, including on the September quarter-end date."
