News Archives: July, 2020
Money market fund assets decreased in the latest week, their 9th decline in 10 weeks and second month in a row of declines. ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $18.26 billion to $4.57 trillion for the week ended Wednesday, July 29, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $12.42 billion and prime funds decreased by $5.44 billion. Tax-exempt money market funds decreased by $400 million." ICI's stats show Institutional MMFs decreasing $14.9 billion and Retail MMFs decreasing $3.4 billion. Total Government MMF assets, including Treasury funds, were $3.691 trillion (80.8% of all money funds), while Total Prime MMFs were $757.3 billion (16.6%). Tax Exempt MMFs totaled $122.2 billion, 2.7%. We review their latest weekly stats, as well as their most recent monthly "Trends" data update, below.
ICI shows Money fund assets up a still eye-popping $938 billion, or 25.8%, year-to-date in 2020, with Inst MMFs up $770 billion (34.1%) and Retail MMFs up $168 billion (12.3%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.292 trillion, or 39.4%, with Retail MMFs rising by $282 billion (22.4%) and Inst MMFs rising by $1.010 trillion (49.9%). (Crane Data's separate Money Fund Intelligence Daily series shows MMF assets down by $57.9 billion in July through 7/29 to $4.954 trillion. They fell back below $5.0 trillion on July 14.)
They explain, "Assets of retail money market funds decreased by $3.35 billion to $1.54 trillion. Among retail funds, government money market fund assets decreased by $756 million to $979.73 billion, prime money market fund assets decreased by $2.38 billion to $448.73 billion, and tax-exempt fund assets decreased by $222 million to $109.51 billion." Retail assets account for just over a third of total assets, or 33.6%, and Government Retail assets make up 63.7% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $14.91 billion to $3.03 trillion. Among institutional funds, government money market fund assets decreased by $11.66 billion to $2.71 trillion, prime money market fund assets decreased by $3.06 billion to $308.55 billion, and tax-exempt fund assets decreased by $179 million to $12.69 billion." Institutional assets accounted for 66.3% of all MMF assets, with Government Institutional assets making up 89.4% of all Institutional MMF totals.
The Investment Company Institute also released its monthly "Trends in Mutual Fund Investing" and its "Month-End Portfolio Holdings of Taxable Money Funds" for June 2020 late yesterday. The former report shows that money fund assets decreased by $133.5 billion to $4.635 trillion in June, after increases of $31.8 billion in May, $399.4 billion in April and $690.6 billion in March. For the 12 months through June 30, 2020, money fund assets have increased by a breathtaking $1.433 trillion, or 44.8%.
ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds increased by $251.31 billion, or 1.2 percent, to $21.41 trillion in June, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."
It explains, "Bond funds had an inflow of $66.88 billion in June, compared with an inflow of $43.16 billion in May.... Money market funds had an outflow of $133.78 billion in June, compared with an inflow of $30.63 billion in May. In June funds offered primarily to institutions had an outflow of $124.01 billion and funds offered primarily to individuals had an inflow of $9.77 billion."
ICI's latest statistics show that both Taxable MMFs and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $129 billion in June to $4.505 trillion. Tax-Exempt MMFs decreased $4.1 billion to $129.7 billion. Taxable MMF assets increased year-over-year by $1.440 trillion (47.0%), while Tax-Exempt funds fell by $6.7 billion over the past year (-4.9%). Bond fund assets increased by $119 billion in June (2.6%) to $4.717 trillion; they've risen by $276 billion (6.2%) over the past year.
Money funds represent 21.6% of all mutual fund assets (down 0.9% from the previous month), while bond funds account for 22.0%, according to ICI. The total number of money market funds was 358, unchanged from the month prior and down from 367 a year ago. Taxable money funds numbered 278 funds, and tax-exempt money funds numbered 80 funds.
ICI's "Month-End Portfolio Holdings" confirms a jump in Treasuries and a drop in Repo and Agencies last month. Treasury holdings in Taxable money funds remain in first place among composition segments since surpassing Repo in April. Treasury holdings increased by $55.7 billion, or 2.4%, to $2.349 trillion, or 52.1% of holdings. Treasury securities have increased by $1.606 trillion, or 216.2%, over the past 12 months. (See our July 13 News, "July MF Portfolio Holdings: Repo Plunges, Treasuries Break $2.5 Trillion.")
Repurchase Agreements were in second place among composition segments; they decreased by $122.8 billion, or -11.9%, to $9.8.7 billion, or 20.2% of holdings. Repo holdings have dropped $225.5 billion, or -19.9%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $68.6 billion, or -7.7%, to $826.0 trillion, or 18.3% of holdings. Agency holdings have risen by $150.2 billion, or 22.2%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they decreased by $21.0 billion, or -8.8%, to $217.7 billion (4.8% of assets). CDs held by money funds shrunk by $42.9 billion, or 16.5%, over 12 months. Commercial Paper remained in fifth place, up just $13.0 million, or 0.0%, to $213.0 billion (4.7% of assets). CP has decreased by $13.1 billion, or -5.8%, over one year. Other holdings decreased to $28.8 billion (0.6% of assets), while Notes (including Corporate and Bank) were down to $7.0 billion (0.2% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 49,102 million to 39.357 million, while the Number of Funds was unchanged at 278. Over the past 12 months, the number of accounts rose by 4.238 million and the number of funds decreased by eight. The Average Maturity of Portfolios was 43 days, unchanged from May. Over the past 12 months, WAMs of Taxable money have increased by 13.
A week ago, we hosted "Crane's Money Fund Webinar: Portfolio Manager Perspectives," which featured Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak. The three senior PMs discuss fee waivers, negative yields and the outlook for future regulatory changes, among other things. We quoted from Part I of the webinar on Monday, and we excerpt from the second half of the webinar below. (Click here to access the recording, click here to see our Webinar page and watch for details and register for our next event, "Crane's Money Fund Webinar: Mini Fund Symposium, which will take place August 26, 2020, 1-4pm EDT.)
When asked about fee waivers, UBS's Walczak says, "We've already started to see some funds begin to waive fees. We haven't gone down that road with some of our larger funds yet at this stage. I think, again, we can go back to our experience after the Great Financial Crisis, when we saw the Fed kind of in the current interest rate regime that they're in now. We definitely saw the industry kind of go down that that path. And I think we're likely to see that again going forward. I think as we saw the assets come in, I think it's just a tremendous amount of AUM that certainly funds want to hang on to."
He continues, "I think the question is, 'If the Fed were to go into a negative interest rate environment what does that mean for fees?' So that's something that we're grappling with as well. It's not our base case. I don't think many have the base case that the Fed is going to go negative. But then that also opens up the question, 'Mechanically, how does a Government/Treasury fund that currently trades with a CNAV operate in that environment?' I know the industry and we ourselves internally at UBS, have been begun discussions around how to best facilitate that product in that environment."
Hill comments, "Federated is fully behind prime money market funds.... So fee waivers are a reality, unfortunately, in the environment that we're in, or at least heading into. That zero to 25 basis points takes a toll eventually. We've been here before, so we kind of know how it unfolds. We know that zero to 25 for an extended period of time will eventually bring fee waivers.... The institutional products for the most part have remained sheltered. It's been beneficial to have the volume of Treasury supply in place; it's also been beneficial to have the Fed move to more of a backstop role in their temporary market operations to allow repo to trade a little bit higher than it was. And that's staved off waivers for a period of time, and hopefully for an extended period of time."
She adds, "I'm a believer in the Government money fund product, a firm believer in the role that we play in the market, both in the repo market and now the need to support the Treasury market. So, a move into fee waivers that are profound, I think works against what we're trying to accomplish as an asset manager, and it also works against what the Fed is trying to accomplish from the perspective of market stability. So [we're] tiptoeing towards institutional waivers, but not there yet. And again, with a little bit of hope that that's something that's down the road."
Northern's Yi comments, "We have a pretty strong conviction around our base case that the Fed doesn't take its policy rate negative, given that it was pretty ineffective as an approach in Europe and Japan. But I will make the distinction, it is possible that the market takes rates on things like Treasury bills, negative. But, a lot of that concern has been alleviated lately just because of the enormous T-bill supply that used to finance the various stimulus bills. I'll be honest, it's still a little bit baffling that there is so much attention surrounding the possibility for the Fed to take its policy rate negative.... I think the consequences of taking rates negative will just create all kinds of operational complexities for things like, bank deposits and, of course, could present an enormous challenge for the $4.7 trillion dollar money market mutual fund industry.... It could create disruption that really could potentially destabilize the financial system. So, looking at it through that lens our view is the risks just simply outweigh the unproven benefits."
He explains, "A lot of structures, like the RDM or simply just moving funds to a variable NAV, those are things that Europe has been dealing with for a while now.... For our euro-denominated offshore money funds, we went through this a few years ago and the industry kind of went down the path of the RDM. Now that European money market reform has been finalized, they're actually prohibited over there. Northern Trust, in the early days, we actually never went through the RDM. We actually just took our Euro Fund as a variable NAV product, and we thought that was the most transparent structure.... Our view is, a variable NAV is a preferred path relative to something like the RDM that is a little more complex and does have a little more challenge for the SEC or the IRS."
When asked what he's buying, Walczak answers, "So obviously, if it came in to the Prime space, we'd want to ensure that our weekly liquidity is at our target. After that was satisfied, I think we'd look a little bit further out the curve to see what attractive opportunities there are. I think we have seen the market pivot a little bit to floaters recently. I think immediately after the events in March, we definitely did see a preference for fixed rate paper, which isn't too surprising given expectations on the direction of travel for rates. But I think as we've gotten to such low levels of rates and given the flat curve, I think investors have looked to floaters a little bit more recently. So, I think we'd look for potentially some opportunities there, again a little bit further out the curve."
Hill tells us, "The behavior of Government money funds over the last couple of months has been a little atypical because cash was coming in droves. But Treasury was issuing at the same time and issuing every day and in rapid fire fashion. So, we did a lot of buying of short bill maturities, which is not a typical structure for a portfolio that would normally have repo. Normally it would be much more a barbell kind of structure with a lot of repo up front and then longer-term purchases out there. I'm hoping we're starting to shift a little bit. We've been all Treasuries all the time. I am hoping that we have other opportunities to buy agency paper."
She states, "We certainly have seen strong issuance of SOFR based floaters in the GSE space, for which we're grateful. Have seen not a whole lot of Libor, nor do I expect our to. That transition apparently seems to be pretty firmly on track. We also have found some value, or continued to find outlets for money coming in the repo market.... The FICC sponsored repo program, continues to be a core part of our overall repo strategy, and I don't expect that to change. So, hopefully [we'll see] a little bit more than just Treasuries now, hopefully a little bit more of a broader base kind of approach in a very low, very flat yield curve type of environment."
Yi says, "The comments that Dave and Sue made are pretty consistent with how we're thinking about things. Our industry does have a little bit of a tendency to have a herd mentality. I'll offer up that just because of the supply technicals in Treasuries right now, and there is some yield albeit low, you can get a little bit of yield with that modest slope out to a year. If it weren't for all that supply though, I think it's very likely that the front end of the T-bill curve would be zero or possibly negative. And that still may happen as the Treasury broadens out its issuance to longer tenders or temporarily pays down some of its T-bill outstanding from things like the personal and corporate tax days."
He tells the webinar, "We think that that does kind of present good opportunities for us. I can't disagree with Dave or Sue in terms of repo right now. You know, normally we'd probably see it closer to zero, but it seems to be elevated in the context of maybe 10 basis points. And so, for us, we feel like that's just a great place to be managing our liquidity. And, we're expecting that to, over time, actually kind of drift a little bit lower. Those are kind of what we're buying."
Yi also comments, "When we're thinking about the experience that we had in March, as well as really just history, having those very liquid, high quality U.S. Treasuries and GSE debt even in our credit portfolios, our Prime portfolios, they're there to be a buffer to have more liquidity.... I do think there's going to be a lot of decompression and that could be a catalyst for potentially assets going out of Prime credit funds and into Government funds. We're being, you know, incredibly cautious and really focusing on securities that we feel are going to be pretty liquid in the marketplace."
He adds, "Without a doubt, after the Fed introduced the Money Market Liquidity Facility, secondary trading and liquidity really opened up. Right now, I would describe secondary liquidity for credit instruments to be pretty strong. But we know that can change. The liquidity facility from the Fed is right now is scheduled to expire in September [note: it just got extended to Dec.]. While, it really hasn't been used, all of those assets are just maturing on the Fed's balance sheet, all the securities that they purchased. So that part of the balance sheet just is getting closer and closer to zero.... Feels like it's more of a backstop facility right now, and it may not be needed after September. So, we'll see."
Finally, Walczak tells us about potential reforms, "It's definitely become part of the conversation, and not too surprising just given the experience of, in particular Prime funds, during the March period. People can kind of hone in on the weekly liquidity.... Fund providers [are] looking to ensure that they, even in the face of substantial outflows, maintained above 30 percent liquidity. So, if there's an area of potential reform, maybe that could ... take the form of additional liquidity required? Is there some sort of decoupling of that weekly liquidity limit from the option to impose fees and gates by the board? You know, that could be something that potentially regulators hone in on, but it's still a little bit early. So, we're waiting and seeing the views and thoughts coming out of regulators."
He adds, "I think it's in about two years, the European regulations are slated to come up for review. So potentially that could be one area where we do see some further reforms coming down the pike. So, yeah, we're kind of guarded in that, but wouldn't be surprised to see some more chatter increase going forward again."
The European Central Bank published "Financial Stability Review May 2020," which comments, "Money market funds (MMFs) came under severe liquidation pressure as financial and non-financial investors redeemed large amounts of shares. This is turn led to a freeze in demand and issuance of commercial paper, an important source of short-term funding for financial and non-financial corporates.... High demand for precautionary cash buffers and a diminishing supply of term interbank loans have also increased funding costs in unsecured money markets, predominantly at longer maturities. Central banks across the globe intervened swiftly to ensure liquidity in financial markets." We excerpt from this publication and also quote a recent update from Moody's on European MMFs, below.
The ECB writes, "Even securities deemed as highly liquid, such as commercial paper, were shed by MMFs to meet rising redemption pressure. In the United States, sovereign and sub-sovereign bonds as well as mortgage-backed securities (MBS) temporarily came under selling pressure, reflecting inter alia the winding-down of leveraged positions in these markets. Overall, the demand for cash was more pronounced in US markets as monetary conditions had been tighter going into the stress, and the banking system had not been as well equipped with reserves as in the euro area. The Federal Reserve, in turn, provided large amounts of liquidity by intervening in various securities markets, such as those for Treasuries, MBS, MMF shares as well as corporate bonds, including in the form of ETFs."
The piece continues, "From 12 March, euro area money market and sovereign funds also began experiencing rapid outflows, driven by rising cash demand from end-investors. As the real economy shock, margin calls and large outflows from investment funds put increasing pressure on the liquidity positions of both financial and non-financial actors, redemptions spread to asset classes typically seen as safe havens. Outflows from MMFs in the week of 12-18 March were the second highest on record, surpassed only in September 2008."
It explains, "Stress in MMFs could have systemic implications, reducing the financial system's and the real economy's access to liquidity during a crisis and reducing confidence in the financial system as a whole.... Low liquid asset holdings reduced the capacity of the investment fund sector to absorb these outflows, likely resulting in forced asset sales and the amplification of market dynamics. Cash holdings of bond and equity funds have declined consistently over previous years."
A section entitled, "Recent stress in money market funds has exposed potential risks for the wider financial system," tells us, "Euro area money market funds (MMFs) provide short-term credit to banks and non-financial corporations (NFCs) through purchases of commercial paper (CP). The total assets of euro area MMFs amounted to €1.26 trillion in December 2019, of which €307 billion and €295 billion were debt securities issued by credit institutions domiciled in the euro area and in the rest of the world, respectively.... Most securities are denominated in euro (51%), followed by US dollars (27%) and British pounds (21%). MMFs are particularly important for the short-term funding market, holding €251 billion and €40 billion in short-term securities issued by euro area banks and firms, respectively, including commercial paper."
The ECB adds, "Although commercial paper is a minor source of bank funding, covering less than 3% of total funding needs, it provides a meaningful source of wholesale unsecured short-term funding, especially in US dollars, for internationally active banks.... Moreover, the recent strains in the MMF sector ... point to a potential risk of contagion to insurers given the important role of MMFs in insurers' liquidity management."
The piece also states, "Monetary policy action, including the PEPP, helped improve financial market conditions, thereby also alleviating liquidity strains in the money market fund (MMF) sector. A number of MMFs had difficulties raising sufficient cash from maturing assets, as liquidity deteriorated rapidly also in the commercial paper market.... In the euro area, the expansion of asset purchases to non-financial commercial paper, in particular, provided an important backstop in this market against a backdrop in which private sector investors – including MMFs – became reluctant to invest in commercial paper or tried to sell it in a search for cash. Following the announcement of these measures, liquidity conditions in financial markets improved, and outflows from MMFs and other investment funds abated."
Another section, "Outflows from MMFs were mostly concentrated in LVNAV funds," tells us, "Lessons from the recent stress in the MMF sector should be drawn, including for regulation. While a number of MMFs saw large outflows and were forced to sell illiquid assets, stress was particularly concentrated in low-volatility net asset value (LVNAV) funds ... which represent almost half of the euro area MMF sector in terms of total assets.... These funds are allowed to offer a constant share price as long as the fund's NAV at amortised cost does not deviate from the corresponding market value. Otherwise, the fund will trade at a variable price, which can result in mark-to-market losses for investors. A number of funds were close to breaching the regulatory limits on NAV and on weekly maturing assets during the recent period of volatility. This may have provided unintended incentives for investors to redeem during the recent stress episode and contributed to additional outflows and liquidity shortages in these funds."
In related news, Moody's published the notice, "European money market funds remain resilient amid coronavirus storm." It explains, "European money market funds (MMFs) are maintaining cash reserves and prioritizing short-dated investments, amid continued uncertainty over the pace of the economic recovery from pandemic-related slowdown and over investor behaviour in the event of a resurgence in COVID 19 cases, says Moody's Investors Service in a new report."
The release continues, "Redemptions from European funds totaled €45.6 billion in March, subjecting the sector to the most intense stress it has experienced since the 2008 financial crisis, as investors switched to safer funds investing in government securities, or were forced to raise cash. In spite of this, prime low volatility net asset value funds were able to maintain constant net asset values while still honouring redemption requests."
Marina Cremonese comments, "The industry's capacity to manage a surge in redemptions and absorb external shocks, such as the coronavirus pandemic, has improved thanks to EU MMF regulations that took effect in January 2019.... These regulations required funds to have higher liquidity levels."
Finally, Moody's writes, "During the spike in redemptions, Aaa-mf rated money market funds maintained high daily and weekly liquidity levels, and reduced their weighted average maturities. The conservative approach ensured that their credit quality and liquidity of their portfolios remained strong throughout March. Since April, after central bank efforts had ensured abundant liquidity across financial markets, the flow reversed with European funds reporting positive inflows. April recorded €56.4 billion new money, more than the previous month's outflows. The industry also reported positive inflows in May and June. Nonetheless, the sector has maintained a highly conservative stance amid persistent coronavirus related uncertainty."
S&P Global Ratings recently published an update an entitled, "U.S. Domestic 'AAAm' Money Market Fund Quarterly Trends (Second-Quarter 2020)." They explain, "S&P Global Ratings' 'AAAm' money market fund quarterly trends highlight statistics of U.S. managed funds that seek to maintain principal preservation. These statistics provide a benchmarking tool of the ‘A-1+’ credit quality, portfolio composition, maturity distribution, net asset movements, and yields of 'AAAm' principal stability rated funds. The statistics demonstrate the investment practices of funds conforming to the principal stability fund rating criteria."
The brief explains, "Midway through 2020, money market funds (MMFs) evidently continue to be a prominent cash management tool for institutional investors seeking to weather heightened market volatility emerging from the COVID-19 pandemic. The second quarter of the year brought positive flows in both U.S. government and prime funds, while the primary focus remained liquidity. U.S. principal stability funds had net inflows of 12% over the quarter, ending June at over $3.2 trillion. U.S. prime MMF assets under management increased 32% through the second quarter, essentially returning to predownturn levels, while government MMFs continued to see strong inflows of over 10%."
It continues, "Both the level of inflows to prime MMFs and the ability of those funds to sell downgraded securities on the secondary market affirm our view from March that redemption activity was a function of poor market liquidity and not due to credit issues with investments purchased by MMFs. Notably, during the second quarter, some of the industry's largest MMF managers announced decisions to liquidate their prime MMFs altogether, citing investor behavior in March. During the market stress, when prime MMFs struggled to maintain daily and weekly liquidity levels above regulatory thresholds, funds saw withdrawals of $83 billion, a 16% decline, in one week in March."
S&P comments, "Prime funds' average Treasury bill holdings increased considerably over the second quarter, to 12% at the end of June from 2% at the end of March. This corresponds with a decline in average commercial paper and corporate bond holdings to 25% from 33%. The heavier allocation to T-bills came as prime funds raised liquidity levels following their experience in March. Government funds' average T-bill exposure increased to 43% from 17%, while repo exposure declined to 22% from 40%."
They add, "Fund NAVs stabilized considerably during the second quarter. By end-June, 116 funds had NAVs of 0.9995-1.0005, compared with 68 at end-March. No funds ended the second quarter with a NAV below 0.9995, compared with over 30 in March."
S&P also published, "European 'AAAm' Money Market Fund Quarterly Trends (Second-Quarter 2020)," which tells us, "S&P Global Ratings' 'AAAm' money market fund quarterly trends highlight statistics of European managed funds that seek to maintain principal preservation. These statistics provide a benchmarking tool of the 'A-1+' credit quality, portfolio composition, maturity distribution, net asset movements, and yields of 'AAAm' principal stability rated funds. The statistics demonstrate the investment practices of funds conforming to the principal stability fund rating criteria."
They comment, "Market turmoil has not dented the ability of European-domiciled money market funds (MMFs) rated by S&P Global Ratings to source assets and provide institutional investors a valuable cash management service. In fact, rated European-domiciled MMFs net assets continued to flourish during the second quarter of 2020, with euro funds rising €7 billion (9%), sterling funds rising £32 billion (15%), and U.S. dollar funds rising $81 billion (20%). U.S. dollar and sterling funds remain at record levels with $495 billion and £249 billion, respectively, and euro funds finished the quarter at €95 billion."
S&P tells us, "With the dramatic actions taken by the Federal Reserve and Bank of England during March to offset the effects of COVID-19, it is no surprise the seven-day yields of U.S. dollar- and sterling-denominated funds took a marked fall. In a general sense, MMF returns lag the actions of central banks due to their maturity profiles. But with operating in a post-regulatory era and MMFs holding more short-dated assets, the lag is not as great as it once was. Surprisingly, negative-yielding euro MMFs saw a positive return on a relative basis, with the average seven-day yield improving 14 basis points over the quarter."
Finally, they write, "We consider credit quality to play a key role in net asset value (NAV) stability and view higher-rated assets as reflecting higher price stability. During the second quarter, funds continued to increase their exposure to 'A-1+' names. This is particularly related to euro-dominated MMFs, which increased to an average 70% 'A-1+' in June compared to March with 63% 'A-1+'. Historically, euro funds have maintained a lower average credit quality.... Seeking a higher return, but with the potential for increased redemptions, these funds have found more comfort in higher credit quality investment for the time being."
In other news, money market fund yields continue to bottom out just below one-tenth of a percent -- our flagship Crane 100 was flat over the last week at 0.09%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over half of all money funds and over one quarter of MMF assets have since landed on the zero yield floor, though many continue to show some yield.
According to our Money Fund Intelligence Daily, as of Friday, 7/24, 499 funds (out of 850 total) yield 0.00% or 0.01% with assets of $1.535 trillion, or 31.1% of the total. There are 191 funds yielding between 0.02% and 0.10%, totaling $2.053 trillion, or 41.7% of assets; 135 funds yielded between 0.11% and 0.25% with $1.125 trillion, or 22.8% of assets; 23 funds yielded between 0.26% and 0.50% with $215.3 billion in assets, or 4.4%. No funds yield over funds yield over 0.50%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.06%, unchanged in the week through Friday, 7/24. The Crane Money Fund Average is down 41 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.12% in the latest week and Government Inst MFs were flat at 0.05%. Treasury Inst MFs were unchanged at 0.04%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.06% (down a basis point for the week), Tax-exempt MF 7-day yields were up a basis point at 0.05%. (Let us know if you'd like to see our latest MFI Daily.)
Our Crane Brokerage Sweep Index, which hit the zero floor roughly three months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of July 24, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last ten weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). Fin-tech “robo” advisor firms Betterment, Wealthfront and Robinhood have also cut rates and are offering 0.40%, 0.35% and 0.30%, respectively.
Last week, we hosted "Crane's Money Fund Webinar: Portfolio Manager Perspectives, which featured Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak. The three senior PMs discussed money market supply, asset flows, yields and the outlook for Prime money market funds, among other things. We excerpt from the first half of the webinar below. (Watch for more quotes next week, click here to access the recording and click here for our Webinar page.)
Hill comments, "Pete asked me to mark in a couple of high points related to the government market. I don't want to repeat everything that's happened. We all have lived through this, and we all know that in March there were enormous inflows of assets at a very rapid pace into government money market funds. We know the massive Fed actions across the board to support the market, support functioning, market liquidity. We know there's been massive fiscal support as a result to address the impact of the coronavirus and the shutdown."
She continues, "Government funds absorbed the inflows relatively well. Initially in March, through issuance on the agency side, Federal Home Loan banks in particular [supported the] growth. As we flipped the calendar into April and May, [we saw] substantial issuance, at a pace never seen before, of Treasury bills, through regular Treasury bill issuance and cash management bills. So we got through that time period reasonably well. That issuance by Treasury removes that threat of negative rates in the secondary market that we saw in late March and into early April. It was also aided by the fact that the Fed started to pull back a little bit on their Treasury and agency purchases in that time as well."
Hill asks, "What happens to the Treasury supply going forward? We’ve seen cutbacks already.... I don't for a minute worry about having enough to buy, I just worry about what the rates will be if cutbacks continue.... The second question we have is, 'What happens to government money market assets going forward?' We've obviously seen some declines. Recently, the inflows came from a variety of sources. And there's nothing that's particularly clear, and no defining moments that I think will make it all leave. But we do have to plan accordingly."
Walczak tells us, "Through the March period, we did see quite a bit of volatility as it relates to flows of the various money market funds…. Obviously, Prime was the one that was the most impacted to the downside. The industry overall needed to ensure that we had adequate liquidity to facilitate the outflows, which I think was aided by the Fed's various programs. In particular, the MMLF … provided a good lifeline to Prime funds in order to again allow them to facilitate outflows and raise liquidity. Since then, we've seen a pretty substantial rebound in assets.... I think for investors looking to capture additional yield, that proved to be pretty attractive and led to the rebound that we saw in assets."
Asked about yields, he answers, "It's pretty amazing thinking back to where we were in March, just how quickly yields have snapped back and spreads have come in. To put it in a little bit of context.... [W]e're required to hold a certain amount in our prime funds in weekly liquidity, the minimum being 30%. Ourselves, and many of our peers, I think, strive for 40 to 50%, so maybe even a little bit higher. But generally, the instruments that comprise that bucket are going to be overnight repo, which right now can be anywhere between eight to 10 basis points, and then also, one-week commercial paper and CDs as well. Then interestingly, one thing that we've done in recent weeks, and we've seen other prime fund do this as well, is satisfy the weekly and daily liquidity buckets with Treasury holdings."
Walczak adds, "As you move further out the curve, certainly we've seen the yield compression. We see where three-month Libor is trading, 25, 26 basis points. I would say some issuers are definitely getting down much lower than that, kind of in the context of 22, 23, 24 basis points. So, it is very compressed. Even as you go further out the curve, you kind of struggle to get anywhere north of even 30 to 35 basis points. So, Prime fund yields as you look at them today, I think you've seen them start to come in. And just given some of the yield levels that I quoted, I would expect the yields on Prime funds to continue to decline. But still, they [have] spread [over] Treasuries so I think that differential will still be there going forward as well."
Discussing flows, Yi says, "The industry is up about 28%, or about $1 trillion year-to-date. Northern Trust, it certainly got its fair share … even more than its fair share. We're up roughly around 66%.... At least in our money market mutual funds, and we’re up pretty significantly across our entire liquidity franchise. We think a lot of that will stick around for a while as institutions grab all the liquidity they can just to strengthen their balance sheets and retail investors look for a little more stability in their asset allocation. For us, it's all about just kind of continuing to stick to our strategy. A lot of that centers around our interest rate views and really opportunistically implementing the duration levers in a meaningful way when we can. Sometimes we just have to be patient and be nimble enough just to jump in when we find some favorable technicals for these small openings."
He continues, "With regard to Northern's exit from Prime ... even though, before for the money market meltdown in March, it was something we were already debating, the coronavirus just kind of made the decision easy for us. The bottom line is, the current structure of institutional prime money market funds is just simply not that desirable for the majority of our investors. And, for all those that seek that type of credit strategy, we’re without a doubt still committed to offering them solutions through a variety of comparable, and even sometimes better solutions, like SMAs, offshore cash funds … even products that really provide a better risk reward balance in high quality investment grade products … like conservative ultra-shorts or even ETFs."
Yi explains, "When you think about everything that happened during that March Madness, it's clear it was a very unpleasant experience for everyone. For portfolio managers looking to liquidity, fund sponsors just watching their dashboards flashing red, regulators were looking for tools to stabilize the markets. But, most importantly, without a doubt, our investors just had an incredibly unpleasant experience as well. There were Institutional Prime investors that just feared if they didn't leave first … that left them stressed out to quickly shift into government funds first. Then the remaining investors started to panic and fear liquidity profiles just becoming too weak. So, nobody likes this dynamic."
He adds, "But, as you know, this is the way we're kind of connecting the dots on the future of the industry. We think there's a very good chance that Prime funds could look dramatically different when there is a reassessment potentially for money market reform. The reality is, the Fed had to step in to support the market, even though they're really there for all the markets as well. But, what little people know is that there was so much concern around our industry at that time, that in … the CARES Act Secretary Mnuchin actually snuck in a provision that would allow the U.S. Treasury to backstop the money market industry again, after it was explicitly prohibited following the Great Financial Crisis."
Finally, he states, "As we enter another prolonged cycle where interest rates are going to be anchored at zero, the credit spread compression, that I think Dave touched on earlier, is going to clearly favor the government's strategy because you just won't be paid for the credit risk right now. You know, all strategies may end up yielding between zero and a couple basis points. And I just can't see the catalyst for the Prime sector to grow anytime soon."
But Walczak counters, "Around our views on prime, yeah, we're still committed to the business. I think we still feel that our shareholders find value in the product. You know, point taken from Peter in terms of the spread compression. But I think we can also point to the period after the Great Financial Crisis and how we did still see assets hanging around in Prime funds."
He adds, "I think what will be interesting is, obviously we've seen other liquidity management options, such as ultra-short funds grow in recent years. So now I think investors have much more choice as it relates to their liquidity management program and approach. So, perhaps, we do see some assets that flow in that direction as well. But, we're still of the opinion that, again, it does serve a purpose as part of an overall liquidity management program."
This month, MFI interviews T. Rowe Price Group Vice President Joseph Lynagh, who runs the firm's cash management and ultra-short bond strategies and will be retiring early next year after three decades at the Baltimore-based fund manager. We ask him about T. Rowe's history in cash, fee waivers and a number of other topics. He says we'll have to "buckle down" to make it through this latest zero yield environment. Our Q&A follows. (Note: The following is reprinted from the July issue of Money Fund Intelligence, which was published on July 8. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us some background. Lynagh: T. Rowe has been involved in money funds since 1976.... The Prime Reserve Fund was our flagship fund. It was in place when interest rates really spiked and money funds were quite the story, posting yields of 10-11%. Against the context of today, that sounds like a completely different universe.... We later launched the Tax-Exempt Money Fund to give us a presence in the muni space.... We added a U.S. Treasury Money Fund [and] state-specific funds on the muni side, California, New York and later Maryland. We then introduced what at the time was a low-fee product in our 'Summit' line of funds.
Then, we consolidated cash trading on behalf of the equity funds and the other bond funds, and developed internal sweep money funds, the Government Reserve Fund and the Treasury Reserve Fund.... We also manage our securities lending collateral in a fund that's called the Short-Term Fund. That's in fact a bond fund, but it operates with a very high focus on liquidity preservation of capital. Post-GFC, in 2012, we decided to expand the franchise into the ultra-short space and launched Ultra-Short Bond Fund, which was very prescient at that time when rates were all crowded around zero. It's proven to be a great strategy and we've grown that to be about $2.3 billion so far.
I joined T. Rowe Price in 1990 on the technology side.... In 1994, I got my opportunity as a trader on the Municipal Money Market Desk. I was coming up to speed when the Orange County bankruptcy hit. So, in the context of my career, when I started we immediately had a money fund crisis ... and then at the back end of my career we have what went down in March. Plop the GFC right in the middle there.
MFI: What is your biggest priority? Lynagh: Transitioning to work from home and really getting up and running the kind of communication you need to have between PMs and traders on the various products -- that's an ongoing challenge that we face. I think we've done a really good job. I'm not saying it's perfect, and I wouldn't recommend it as a long term or permanent solution. But I think the communication part is about as good as we can get it right now.
The immediate priority is the transition to my successors, Doug Spratley and Alex Obaza. We've been working together, and again, this is a long-planned transition. But I'm making sure that they're involved in all the conversations.... Part of my mission at this point is slowly taking my hands off the wheel and allowing a lot of that decision making and problem solving, etc., to shift to those guys so that they're at full speed when I step away in February.
MFI: What's your biggest challenge? Lynagh: I don't want to say this is a replay of the GFC. But in terms of the outcomes, the markets, and the quick move to zero rates by the Fed, it is highly reminiscent. Obviously, the product set has changed dramatically with a greater focus on Treasury and Government funds.... But it's kind of the same thing. If you think about what happened during this crisis, the Fed basically pulled out their playbook from 2008-2009. They did a 'find-replace' on the dates of all their programs and updated them. So, the speed with which the Fed was able to put stuff in place was reassuring.
The priority is how do you effectively put yield into the product in a way that stays true to your mission. At the same time, you’re recognizing that in a zero-rate environment you just have to buckle down and tough this thing out. We will get past it, we proved that post-2008. But, we're once again in that mode where it's basic blocking and tackling, and it's not pretty. Now T. Rowe Price, like many of my peers, is back to waiving fees. We know how this is done. We've done it before. There's a whole process involved in that, internal forecasts, etc., on how that gets done. In many ways, it is kind of a replay of events we've seen before.
MFI: What are you buying now? Lynagh: Depending upon strategy, obviously in the Government funds it's a lot of T-bills. Like everybody else, repo is something we have to have exposure to, because that gives you optionality on liquidity. That market, post-GFC, was pretty thin there for a while.
When you move into the Prime space, we've always relied very heavily on internal credit research in order to define our approved list. I think what's interesting is, except for a few outliers, the approved list largely remains pretty much intact. Which I think really [speaks to] the quality of research that goes on and how these are our highest quality issuers and we remain confident in them. I think the big change, if you compare 2008 to today, is that we all have much shorter WAMs and weighted average lives. So you're naturally doing trades that are in a much shorter space. But I think it is really kind of the usual suspects in terms of banks and corporate issuers who fill out our space.
In the muni product, the rapid move to lower rates there … has really set up quite a food fight for any kind of yield at the front end of the curve. Our products right now are pretty heavily weighted in VRDNs and commercial paper. As we enter note season here, we'll see how it goes in terms of what issuers get approved for money fund purchase and which do not. I would suspect as we go forward here, that our appetite for one-year dated municipal issuers will require some thought. Obviously, municipalities have really taken a hit here on tax revenues. So I expect us to be fairly circumspect as to the names we choose to add back on a one-year basis.
MFI: Any customer concerns? Lynagh: It's kind of a different game this time around. The heavy skew in the asset base towards Government and Treasury funds, I think made a big difference. In terms of investor concerns, I don't think they change. Obviously, we're all concerned when we see rates start to flatline here.... We're back in that mode where all funds are going to be moving over the next couple of months towards a handful of basis points in total return. Certainly, investors can't be happy about that. As an investor myself, I'm not happy about that. However, it is what it is. You always have to stay true to the mandate, which is liquidity, stability of principle and a level of income commensurate with those first two priorities. That's our mission, so that’s what we continue to deliver.
MFI: How are fee waivers? Lynagh: If we go back to the last time we were in a zero-rate environment, T. Rowe Price made the decision that we were going to waive expenses and absorb expenses necessary to produce a one basis point yield in all of our funds. That was consistent with the majority of players in the industry. The [plan here] is the same. I know last time around there were some managers who made statements about 'clawbacks'.... But certainly that's not our intent.
If you think about clawbacks in general, it's kind of a very unfair practice in terms of future investors paying for past investors' subsidies. But, yeah, we’re waiving fees in almost all of our funds at this point.... If gross yield is insufficient to cover costs, administrative costs, that's where an adviser might be placed in a situation where they, in fact, have to absorb some of those costs.
MFI: Talk about your customers. Lynagh: T. Rowe Price has a primarily retail-focused customer base in our money funds. That being said, within our Government strategy and our Treasury strategy, we do have institutional share classes. But in general, our experience, especially in March and April ... and in the GFC, of an incredibly stable, steady client base. Also, with the internal sweeps, I feel like we have such good liquidity in those funds. Being either Government or Treasury strategies, you can really meet any kind of redemption in the sweep products pretty easily.
MFI: What is your outlook? Lynagh: In terms of the coming year, I think I always start with my outlook on rates. If you think about where the Fed is, [it’s] kind of back to where it was post GFC, which is a zero-rate world. The Fed needs to be flat out providing liquidity to the world. And so certainly rates will stay at zero for the next 12 to 24 months.... I think over the next 12 months, certainly Covid represents an ongoing risk. I think we're going to see episodic surges of the virus around the country and around the globe, really.
I think, in terms of issuers and credit stories, we're still watching very closely how everyone weathers this current economic slowdown. It's far-reaching, it affects corporations, it affects municipalities, it affects everybody. So, pay very close attention as we go forward here over the next 12 months.... I expect we’re kind of in a recovery mode for 24 months in terms of how one would manage either a money fund or an ultra-short strategy. You're against the backdrop of zero rate, and that is very likely to persist for an extended period of time.
Last week, BNY Mellon and a number of other financial firms released second quarter earnings, which shed some light on the growing pain of fee waivers versus the benefits of higher money fund balances on asset managers. BNY's release explains, "Fee revenue increased 2% primarily reflecting higher fees in Pershing and Asset Servicing, partially offset by money market fee waivers, lower investment management fees and the unfavorable impact of a stronger U.S. dollar." Crane Data estimates that fee waivers are costing funds about 7 basis points currently; the average charged expense ratio for our Crane 100 MF Index has declined from 0.27% to 0.20% since the start of the year. (Note: Thanks to those who attended "Crane's Money Fund Webinar: Portfolio Manager Perspectives" yesterday, and thanks to Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak for participating. Nice job! Click here to access the recording and click here to see our Webinar page.)
For BNY's Pershing division, they comment, "The year-over-year increase primarily reflects higher money market fund balances and clearing volumes, partially offset by the impact of rate-driven money market fee waivers. The sequential decrease primarily reflects the impact of rate-driven money market fee waivers, a one-time fee recorded in 1Q20 and lower clearing volumes, partially offset by higher money market fund balances."
Discussing its Investment Management (formerly Asset Management) unit, the release explains, "The year-over-year decrease primarily reflects the unfavorable change in the mix of AUM since 2Q19 and the impact of money market fee waivers, partially offset by equity investment gains (net of hedges), including seed capital. The sequential increase primarily reflects equity investment gains (net of hedges), including seed capital, partially offset by the timing of performance fees and the impact of money market fee waivers."
On the company's earnings call, CEO Thomas Gibbons comments, "The low interest rate environment will present a significant challenge, both through net interest revenue and money market fee waivers in Pershing and Investment Management and to a lesser extent, other Investment Services businesses. But at the same time, we will benefit from increases in transaction volumes, FX volatility, stronger market levels and activity in our clearance and collateral management business."
CFO Michael Santomassimo (who was just appointed new CEO of Wells Fargo) explains, "Distribution expenses were only slightly impacted by money market fee waivers in Investment Management, as the bulk of the impact from money market fee waivers ... was in Pershing and from third-party funds.... In Pershing, revenue was up 1% to $578 million, despite the impact of money market fee waivers, reflecting much higher money market fund balances, which were up 40% and higher transaction volumes, but down from the exceptional volumes we experienced in the first quarter. The net impact of money market fee waivers, partially offset by higher money market fund balances negatively impacted Pershing's revenue growth by 3%."
He continues, "Now on money market fee waivers, the pre-tax impact in the second quarter was $18 million net of distribution expense, with the biggest impact in Pershing. It's important to note that ... approximately $50 million of this impact has been offset by a substantial increase in money market fund balances, resulting in a net impact of approximately $30 million in the second quarter. We expect the impact from fee waivers to increase in the third quarter by about $30 million to $45 million net of lower distribution expenses. This additional impact in the third quarter would also be reduced if money market fund balances continue to grow. A little over half of that impact will be in Pershing, with the rest of the Investment Management and Asset Servicing."
Santomassimo adds, "We currently expect that we will incur an incremental $25 million in the fourth quarter and will be at a full run rate impact from fee waivers of about $135 million to $150 million, offset by the incremental money market fund balance growth that we’ve seen in the second quarter for a net impact of about $85 million to $100 million per quarter by year-end. This quarterly impact could be reduced if money market fund balances continue to grow further."
During the Q&A, he was asked about Pershing money fund balances and answers, "There's actually a couple of drivers underneath the fund balances. One, we're obviously seeing in Pershing, [but] that's not something that we disclose. And two, we're also seeing growth in Asset Servicing as well, where we sweep money into money market funds through our open architecture platforms [into their funds but] also a bunch of other complexes. Those two numbers are not something that we disclose. So we've seen growth across the platform. We've seen growth really in all channels."
Gibbons responds, "So we see some stability here as we reset around the very low interest rate environment.... That same impact is going to be fully reset through fee waivers by the end of the year. And if you look at the disclosures that Mike had given you, it's very specific to what that is. We don't know what the actual balances are going to be. So if the balances grow, then that impact can be quite a bit less, because there'll be additional income related to money market balances. So I wanted to make that clear."
Santomassimo also says, "When you look at the $50 million to $75 million, at that point, it was unclear what was going to happen with money fund balances. So I think the $50 million to $75 million was the gross impact. As we sort of look at the $85 million to $100 million, that's the net impact of now is accounting for the fact that we think the balance growth that we saw is going to stick with us for a while. So if you look at what I gave in my script, I said by the fourth quarter, the gross impact will be $135 million to $150 million, which ... is equivalent to that $50 million to $75 million. But it'll be offset by the fact that we think the balances will stick around. So that's how you get them [to] $75 million to $100 million."
Charles Schwab also commented on waivers in its earnings press release. CFO Peter Crawford tells us, "As the impact of the Fed's dramatic monetary easing during March extended across the yield curve, the further compression in asset returns outweighed growth in client cash sweep balances from both ongoing asset gathering and the USAA acquisition, driving a 14% year-over-year decline in net interest revenue to $1.4 billion.... Asset management and administration fees increased 2% year-over-year to $801 million as a result of clients' increased utilization of money market funds and higher balances in advisory solutions, including managed account assets transferred from USAA."
He adds, "These increases more than offset the effect of money market fund fee waivers due to declining portfolio yields, lower Mutual Fund OneSource balances, and pressured equity market valuations at the beginning of the quarter.... The sharp pandemic-driven increase in client sweep deposits during the first quarter was followed by more modest balance sheet expansion over the past three months, and after adding approximately $10 billion of USAA client cash to our deposits we ended June with total assets of $400 billion, up 8% from month-end March." See also, Axios' piece, "Charles Schwab earnings point to trouble for zero-fee brokerages."
Finally, Morgan Stanley also briefly mentioned "cash" on its Q2 earnings call. CFO Jon Pruzan says, "Strong performance in cash and derivatives, as well as a rebound in prime brokerage balances, contributed to results. Cash and derivative revenues were the highest in over a decade driven by strong trading results across regions as we continue to help our clients navigate through this period of unprecedented uncertainty. In cash in the face of historic volumes, we executed for clients and help keep markets open and functioning." CEO James Gorman adds, "The wealth management margins, the material change in those margins was the net interest income change in rates, and as we move to zero rates now you can have a view rates will be permanently zero in which case we'll have to do other things to enhance that business."
While we still hope to hold our flagship Money Fund Symposium in Minneapolis later this year (Oct. 26-28, 2020), we're officially cancelling our European Money Fund Symposium, which was scheduled for Nov. 19-20, 2020 in Paris, France. (We'll likely hold a slimmed-down, virtual European MFS on Nov. 19.) Crane Data continues to monitor travel restrictions and will give full refunds or credits for any events that are cancelled or that registered attendees can't make it to, and we continue to ramp up our virtual event capabilities. We review our latest events below. (Join us at 1pm Wednesday (7/22) for our next online event, "Crane's Money Fund Webinar: Portfolio Manager Perspectives," which will feature Peter Crane hosting a panel including Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak.)
We're sorry to have to cancel, but given the restrictions on international travel, we didn't think our European event had much of a chance this year. European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue,. Our mission for EMFS, and all our events, is to deliver the best possible conference content at an affordable price to money market fund professionals. Our 2019 European Crane Symposium event in Dublin attracted 110 attendees, sponsors and speakers, and we hope to be back and even bigger in Paris in 2021. Watch for details in coming months on our Nov. 19 virtual event, and mark your calendars for next year's European MFS, scheduled for Oct. 20-21, 2021 in Paris.
As we told Sponsors and Speakers last month, we also shifted back the dates of our annual Money Fund Symposium conference due to the coronavirus pandemic and continued travel restrictions. Crane's Money Fund Symposium is now scheduled for October 26-28, 2020 at the Hyatt Regency Minneapolis, but we'll be prepared to cancel and to host a virtual event if the pandemic persists. In the meantime, our planning goes on. The latest agenda is available and registrations are still being taken at: www.moneyfundsymposium.com. (Registrations for our earlier June and August dates have been transferred to the October dates, and earlier hotel reservations were cancelled if you registered through us.)
Our MF Symposium Agenda is, for now, scheduled to kick off on Monday, October 26 with a keynote on "Money Funds through the Decades" from Paul Schott Stevens of the Investment Company Institute. The rest of the Day 1 agenda includes: "Treasury Issuance & Repo Update," with Mark Cabana of Bank of America, Dina Marchioni of the Federal Reserve Bank of New York and Tom Katzenbach of the U.S. Department of the Treasury; a "Corporate Investor, Portal & ESG MMF Discussion" with Tom Callahan of BlackRock, Tom Hunt of AFP, and Mark Adamson of Wells Fargo Securities; and, a "Major Money Fund Issues 2020" panel with Tracy Hopkins of Dreyfus/BNY Mellon Cash Investment Strategies, Jeff Weaver of Wells Fargo Asset Management and Peter Yi of Northern Trust Asset Management. (The evening's reception is sponsored by BofA Securities.)
Day 2 of Money Fund Symposium 2020 will begin with "The State of the Money Fund Industry," which features Peter Crane, Deborah Cunningham of Federated Investors and Michael Morin of Fidelity Investments, followed by a "Senior Portfolio Manager Perspectives" panel, including Linda Klingman of Charles Schwab I.M., Nafis Smith of Vanguard and John Tobin of J.P. Morgan Asset Mgmt. Next up is "Government & Treasury Money Fund Issues," with moderator, Joseph Abate of Barclays, Mike Bird of Wells Fargo Funds and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya of J.P. Morgan Securities.
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply, New Securities & CP" with moderator, Jeff Plotnik of U.S. Bancorp Asset Mgmt., Rob Crowe of Citi Global Markets, John Kodweis of JPM and Stewart Cutler of Barclays; "Ratings Focus: Governance, Global & LGIPs" with Robert Callagy of Moody's Investors Service, Greg Fayvilevich of Fitch Ratings and Michael Masih of S&P Global Ratings; "Ultra-Short, ETFs & Alt-Cash Update," with Alex Roever of J.P. Morgan Securities and Laurie Brignac of Invesco. The day's wrap-up presentation is "Brokerage Sweeps, Bank Deposits & Fin-Tech" involving Chris Melin of Ameriprise Financial and Kevin Bannerton of Total Bank Solutions. (The Day 2 reception is sponsored by Barclays.)
The third day of the Symposium features the sessions: "Strategists Speak '20: Fed Rates, Repo & SOFR" with Priya Misra of TD Securities and Garret Sloan of Wells Fargo Securities; "Regulatory & Misc. Issues: ESG, ETF, European," with Brenden Carroll of Dechert LLP, Rob Sabatino of UBS Asset Mgmt and Jonathan Curry of HSBC Global A.M.; "FICC Repo & Agency Roundtable," with Owen Nichols of State Street and Kyle Lynch of FHLBanks Office of Finance and, "Money Fund Statistics & Disclosures" with Peter Crane.
Visit the MF Symposium website at www.moneyfundsymposium.com for more details. Registration is $750, and discounted hotel reservations are available. We hope it'll be safe to travel and you'll join us in Minneapolis this October! When and if you're ready, attendees, speakers and sponsors should register here and make hotel reservations here. We'll keep you posted on our plans, so watch for updates in coming months. E-mail us at info@cranedata.com to request the full brochure, or click here to see the latest.
Finally, mark your calendars for next year's Money Fund University, which is scheduled for Jan. 21-22, 2021, in Pittsburgh, Pa, and our next Bond Fund Symposium, which is scheduled for March 25-26, 2021 in Newport Beach, Calif. Watch for details in coming months, and let us know if you're interested in sponsoring or speaking. (No hurry of course; we'll see how travel develops in coming months.) Contact us if you have any feedback or questions. Attendees to Crane Conferences and Crane Data subscribers may access the latest recordings, Powerpoints and binder materials at the bottom of our "Content page." Let us know if you'd like more details on any of our events, and we hope to see you in Minneapolis later this fall or at some point in 2021!
In other "offshore" money fund news, a press release entitled, "Moody's assigns Aaa-mf rating to LGIM Euro Liquidity Fund" tells us, "Moody's Investors Service ('Moody's) has assigned a Aaa-mf to LGIM Euro Liquidity Fund (the 'Fund'), a Low Volatility Net Asset Value (LVNAV) money market fund, domiciled in Ireland and managed by Legal & General Investment Management Limited (LGIM). The Fund's primary investment objective is to achieve a return in line with money market rates while preserving capital and providing daily liquidity. The Aaa-mf rating reflects Moody's view that the Fund has a very strong ability to meet its objectives of providing liquidity and preserving capital."
It continues, "The Fund invests in high credit quality securities, primarily short-dated commercial paper and deposit securities as well as short-dated bonds from government, agency, corporate and financial issuers. The Fund's weighted average maturity (WAM) is below 60 days. The Fund maintains a strong liquidity profile supported by high levels of overnight and weekly liquidity in the portfolio, in excess of regulatory requirements."
Moody's adds, "The Fund’s exposure to market risk is low, supported by the high credit quality of the fund's investment portfolio, strong liquidity and relatively short WAM. Moody's expects the Fund's adjusted NAV score to be '1' or '2' in Moody's money market fund rating scorecard. LGIM is an investment manager with GBP1.2 trillion assets under management, out of which GBP51.6 billion in the liquidity management, as of December 2019."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets dropped by $127.3 billion in June to $5.104 trillion, only the 2nd decrease in the past 24 months. (Month-to-date in July through 7/17, assets have decreased by $85.2 billion according to our MFI Daily.) The SEC shows that Prime MMFs increased $21.3 billion in June to $1.162 trillion, while Govt & Treasury funds plummeted $145.1 billion to $3.806 trillion. Tax Exempt funds decreased by $3.5 billion to $136.6 billion. Yields were down across the board in June, except for a slight increase in Tax Exempt Institutional yields. 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. We review their latest numbers below. (Note: We'll be hosting "Crane's Money Fund Webinar: Portfolio Manager Perspectives" on Wednesday, July 22 at 1:00pm EDT, which will feature Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak. Click here to register.)
June's overall asset decrease follows increases of $31.0 billion May, $461.6 billion in April, $704.8 billion in March and $17.3 billion in February. This followed a decrease of $4.3 billion in January but increases of $37.2 billion in December, $45.6 billion in November and $88.6 billion in October. Over the 12 months through 6/30/20, total MMF assets have increased by an incredible $1.489 trillion, or 41.2%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these in its collections.)
The SEC's stats show that of the $5.104 trillion in assets, $1.162 trillion was in Prime funds, up $21.3 billion in June. This follows an increase of $50.6 billion in May and $105.2 billion in April, decreases of $124.5 billion in March and $13.9 billion in February, increases of $28.1 billion in January, a decrease of $26.5 billion in December and increases of $20.2 billion in November and $38.4 billion in October. Prime funds represented 22.8% of total assets at the end of June. They've increased by $144.0 billion, or 14.1%, over the past 12 months.
Government & Treasury funds totaled $3.806 trillion, or 74.6% of assets. They dropped $145.1 billion in June after falling $18.6 billion in May, skyrocketing $347.3 billion in April and $838.3 billion in March, and increasing $32.0 billion in February. They fell $31.4 billion in January, but rose $64.7 billion in December, $24.2 billion in November and $46.6 billion in October. Govt & Treas MMFs are up a staggering $1.351 trillion over 12 months, or 55.0%. Tax Exempt Funds decreased $3.5B to $136.6 billion, or 2.7% of all assets. The number of money funds was 359 in June, down one from the previous month, and down 11 funds from a year earlier.
Yields for Taxable MMFs were down almost entirely across the board in June. Steady declines over the past 15 months follow almost 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on June 30 was 0.33%, down 7 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.42%, down 11 basis points. Gross yields were 0.26% for Government Funds, down 3 bps from last month. Gross yields for Treasury Funds were down 2 bps at 0.26%. Gross Yields for Muni Institutional MMFs remained flat at 0.21% in June. Gross Yields for Muni Retail funds dropped from 0.42% to 0.33% in June.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.26%, down 7 bps from the previous month and down 2.16% since 6/30/19. The Average Net Yield for Prime Retail Funds was 0.19%, down 9 bps from the previous month and down 2.09% since 6/30/19. Net yields were 0.07% for Government Funds, down 2 bps from last month. Net yields for Treasury Funds decreased 2 basis points to 0.07%. Net Yields for Muni Institutional MMFs inched up from 0.08% in May to 0.09%. Net Yields for Muni Retail funds decreased from 0.16% to 0.10% in June. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in June. The average Weighted Average Life, or WAL, was 57.6 days (up 0.4 days from last month) for Prime Institutional funds, and 62.0 days for Prime Retail funds (up 2.0 days). Government fund WALs averaged 102.9 days (up 0.6 days) while Treasury fund WALs averaged 97.1 days (down 0.9 days). Muni Institutional fund WALs were 17.7 days (up 1.8 days), and Muni Retail MMF WALs averaged 32.9 days (up 2.3 days).
The Weighted Average Maturity, or WAM, was 40.4 days (down 2.8 days from the previous month) for Prime Institutional funds, 46.1 days (down 1.5 days from the previous month) for Prime Retail funds, 41.3 days (up 0.9 days) for Government funds, and 45.8 days (down 1.4 days) for Treasury funds. Muni Inst WAMs were up 1.8 days to 17.2 days, while Muni Retail WAMs increased 2.2 days to 30.7 days.
Total Daily Liquid Assets for Prime Institutional funds were 50.3% in June (up 0.3% from the previous month), and DLA for Prime Retail funds was 43.6% (up 1.5% from previous month) as a percent of total assets. The average DLA was 61.9% for Govt MMFs and 97.1% for Treasury MMFs. Total Weekly Liquid Assets was 62.6% (up 0.4% from the previous month) for Prime Institutional MMFs, and 51.6% (up 1.1% from the previous month) for Prime Retail funds. Average WLA was 76.1% for Govt MMFs and 99.5% for Treasury MMFs.
In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for June 2020," the largest entries included: Canada with $140.8 billion, Japan with $95.8 billion, France with $84.8 billion, the U.S. with $79.7B, the U.K. with $45.3B, Germany with $35.8B, the Netherlands with $30.2B, Aust/NZ with $26.6B and Switzerland with $18.9B. The biggest gainers among the "Prime MMF Holdings by Country" were: Japan (up $6.1 billion), Canada (up $5.2B) and the U.S. (up $0.8B). The biggest decreases were: France (down $9.0B), the Netherlands (down $6.8B), Germany (down $5.7B), Aust/NZ (down $4.5B) and the U.K. (down $0.3B). Switzerland remained unchanged.
The SEC's "Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $105.2B (up $0.4B from last month), the Eurozone subset had $156.9B (down $25.8B). The Americas had $221.2 billion (up $6.2B), while Asia Pacific had $141.6B (up $4.4B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.172 trillion in Prime MMF Portfolios as of June 30, $534.0B (45.6%) was in Government & Treasury securities (direct and repo) (up from $489.3B), $252.7B (21.6%) was in CDs and Time Deposits (down from $275.5B), $174.0B (14.8%) was in Financial Company CP (up from $171.6B), $149.0B (12.7%) was held in Non-Financial CP and Other securities (down from $157.7B), and $62.6B (5.3%) was in ABCP (up from $62.1B).
The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $172.1 billion, Canada with $131.4 billion, France with $146.1 billion, the U.K. with $67.6 billion, Germany with $22.4 billion, Japan with $118.5 billion and Other with $36.5 billion. All MMF Repo with the Federal Reserve fell by $0.3 billion in June to $1.0 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 6.9%, Prime Retail MMFs with 5.1%, Muni Inst MMFs with 2.4%, Muni Retail MMFs 5.9%, Govt MMFs with 16.1% and Treasury MMFs with 15.5%.
TD Securities' Priya Misra recently hosted a "Virtual Roundtable," entitled, "Managing Money Markets," which featured Federated Hermes' Deborah Cunningham, Fidelity's Richard Bohan, TD Securities' Mathieu Lachance and Crane Data’s Peter Crane. Misra kicked things off by saying, "It has been an unprecedented time for the market, and especially money markets. Government money market funds have seen significant inflows of over a trillion since Covid. Prime funds saw some outflows, but they have started to come back pretty significantly. Bill issuance has been very high with more than $2 trillion of additional Treasury bills outstanding [and] the GSE market has been robust with significant issuance of floaters from Fannie, Freddie and Home Loan.... So, we have a challenging backdrop with a ton of supply, inflows which risk going the other way and a low rate environment.... I'm very excited to have this all-star panel today to analyze all these issues." (Please Note: We'll be hosting our next "Crane's Money Fund Webinar: Portfolio Manager Perspectives" on Wednesday, July 22 at 1:00pm EDT, which will feature Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak. Click here to register.)
Discussing the massive MMF inflows, Cunningham comments, "I'd just emphasize the stimulus side of the equation.... I do believe a substantial amount of the flows that came into the market, certainly in April, whether it was in the municipal side, from state and local governments, whether it was from corporations, institutionally or even from individuals, there is a lot of stimulus money that was being handed out from the government. And I think a significant portion of that went into money market funds. Some of it is still there. A lot has actually gone out and been used. The potential for another round might be in front of us. But I do believe that was a pretty big [factor] in the flows that we saw."
Crane explains, "The size of the inflow was unprecedented. It was three times what we saw in 2008 go into government funds, $1.2 trillion over two months. Prime funds saw about $150 billion outflow, and that occurred in the middle of what should have been a weak period.... I tend to discount that it was money taking shelter from the market. It was corporations, individuals all raising cash and halting their spending too, to let the cash build up. So, I don't expect a lot of it to go back in the market. You don't have a lot of brokerage sweep money that's in money funds anymore. It's all institutional, which makes up two thirds of the assets. Even a lot of the retail is now position type. So, it's in chunks that won't move just immediately from the stock market."
He adds, "We're going to see outflows today {July 15], because of Tax Day. We're already seeing big outflows, [and] you're going to see outflows in the coming weeks. But once you get into the fall here, seasonally money funds see big inflows. So, whether that was taken away from the initial cash build up remains to be seen.... Back in 2009 and 2010, you had 15 percent asset declines. Once yields settle at zero and the panic subsides, the money will start slowly filtering out. But I still think people are building their cash war chest, so I think that's going to counteract the companies spending down a lot of the money."
Bohan tells us, "We've got, starting today with corporate tax and individual taxes over the next couple of weeks, money coming out. You know, it's pretty obvious what we'll see over the next couple of weeks. But there is that seasonality in the second half.... I think the likelihood of another stimulus package is high. That money probably winds up in money funds until it gets deployed. Corporates, I think, are probably still somewhat cautious about spending, so I don't see a lot of that money going out anytime soon. And you've got an election to contend with, and I think there's an uncertainty around that. I think that it's going to be difficult for people to really commit on massive spending in front of that. So, uncertainty usually leads to increased liquidity and much of that liquidity will be in money funds."
Lachance says, "I think there's also seasonality in terms of Covid. As September rolls around, there's a lot of pressure to reopen schools. And we know that as social distancing declines, the spread of the virus grows and there will be more cases. We've already seen it over the summer, with some states reopening maybe a little early. But as schools reopen in the fall, more workplaces will be able to reopen. And, as the infection rate goes up, if the number of deaths also goes up. This creates a backdrop of a need for more fiscal stimulus, which should also be supportive for inflows into money funds."
On the municipal MMF space, Crane tells the webinar, "It still hasn't recovered since the 2016 changes. It's a small slice, a little bit less than five percent of the overall pie. Given all the massive deficit spending, though, at some point in the future, taxes are going to go up. So, I assume tax exempt money funds should survive to the point where they become useful again. They're about to get hit by the double whammy, though. [There will be] concerns about credit hitting the segment, and now the zero yields are going to compress all yields on top of each other. A tax advantage doesn't mean anything if there's no income that's taxable in the first place. On the flip side, that space is almost entirely retail and those [investors don't] like to pay taxes no matter what. The asset base has shown itself to be stable."
Cunningham comments on the credit space, "Commercial Paper, CDs, Asset-Backed Commercial Paper; those are still the traditional financings that we do out of Prime Liquidity products.... In an interest rate environment that's zero to maybe 45 basis points, it still looks pretty attractive from a spread perspective. On the other hand, [with] some of the other classes ... Repo, GSEs and Treasury bills, there is potentially [more] liquidity.... When Repo was down in the one and two basis point area, it was one of the least favorite [options]. Now it's a little bit firmer at eight to ten basis points."
She continues, "I also think for Prime funds, buying a 3-month T-bill, which is in the overnight liquidity bucket and has ultimate liquidity if there is a sale that's needed, is a pretty good alternative at this point. I think a lot of Treasury securities on that very short end are being purchased in lieu of what would have traditionally been overnight securities.... When you see very high overnight and weekly liquid assets in the Prime money market funds, yes, absolutely, there is cash that's available if it's needed on a daily basis. But it's not all securities or instruments that are maturing the next day. I think some substantial portion of it is in the bill market, which is why that's also an appropriate response."
Finally, Cunningham says about potential new regulations for money funds, "All good deeds are sometimes punished. I believe that the Fed showed its support for the broad markets in this catastrophe.... But I agree what was and has already been done should suffice. It will, nonetheless, I believe be discussion topic at some point, in the somewhat distant future."
VoxEU.org, a website for the Centre for Economic Policy Research, published a brief entitled, "Runs on prime money funds during the COVID-19 crisis." Written by Lei Li, Yi Li, Marco Macchiavelli and Xing (Alex) Zhou, the piece explains, "Liquidity restrictions on investors, like the redemption gates and liquidity fees introduced in the 2016 money market fund (MMF) reform, are meant to improve financial stability during a crisis. However, by comparing the latest outflow episode due to COVID-19 to those in 2008 and 2011, this column finds evidence that these liquidity restrictions might have exacerbated the run on prime MMFs in this episode. Such severe outflows amid frozen short-term funding markets led the Federal Reserve to intervene with the Money Market Mutual Fund Liquidity Facility (MMLF). By providing 'liquidity of last resort', the MMLF successfully stopped the run on prime MMFs and gradually stabilised conditions in short-term funding markets." (See also Bloomberg's "Shadow Bank Weaknesses Forced Fed’s Market Rescue, Quarles Says".)
The Fed economists' paper explains, "Money market funds (MMFs) are an important source of short-term funding for governments, corporations, and banks (Hanson et al. 2015) and play a notable role in the monetary policy transmission as part of the shadow banking system (Xiao 2020). The resilience of the MMF industry has profound implications for the stability of the financial system. In the aftermath of the 2007-09 financial crisis, the Securities and Exchange Commission (SEC) introduced a set of reforms to address the vulnerabilities of the money funds which were exposed during the crisis. In particular, the 2016 MMF reform introduced new liquidity rules for prime MMFs, which are major investors in the commercial paper (CP) and negotiable certificates of deposit (CDs) markets. This reform allows prime MMFs to impose redemption gates and liquidity fees on their investors once their liquidity buffers, namely weekly liquid assets (WLA) that could be converted into cash within a week, fall below 30% of total assets."
It continues, "The intention of such reforms is to endow MMFs with tools to stop investor runs on their own. Their proponents, including then-SEC Chair Mary Jo White, argued that redemption gates and liquidity fees would 'mitigate [the run] risk and the potential impact for investors and markets.' However, their critics noted that the possibility of MMFs introducing gates and fees can incentivise investors to run preemptively before such liquidity restrictions are imposed. For example, SEC Commissioner Kara Stein suggested that allowing funds to impose gates and fees 'could actually increase an investor's incentive to redeem,' especially in a crisis."
The article continues, "The COVID-19 crisis provides the first major event to empirically study the impact of the contingent liquidity restrictions introduced by the 2016 MMF reform on the stability of the MMF industry. In late February 2020, with increasing COVID-19 cases in the US and Europe, capital markets started to experience turmoil (e.g. Ramelli and Wagner 2020). By mid-March, yield spreads on various short-term funding securities, including CP and CDs, had surged to levels last seen during the 2008 financial crisis.... Amid the broad risk-off sentiment, investors started to run on prime MMFs. Within two weeks from 9 March 2020, $96 billion (about 30% of assets under management) were withdrawn from institutional prime MMFs."
It tells us, "In a recent paper (Li et al. 2020), we study the anatomy of the run on institutional prime MMFs during the COVID-19 crisis to understand how contingent redemption gates and liquidity fees might have changed money funds' run risk. We start by comparing the run during the COVID-19 crisis to the previous two prominent MMF runs, namely the run surrounding the September 2008 Lehman bankruptcy and the euro area sovereign debt crisis run in the summer of 2011. The COVID-19 and 2008 runs are remarkably similar in terms of speed and intensity, with institutional prime funds losing more than 30% of assets in about 20 days ... while the 2011 run is relatively milder and more gradual."
The piece states, "We find that fund outflows were highly sensitive to fund liquidity holdings during the 2020 crisis (i.e. funds with low WLA experienced larger outflows), but such a relationship was absent in either the 2008 or 2011 crisis. More interestingly, when we split funds into high (top quartile), middle, and low (bottom quartile) WLA groups, we find greater flow sensitivity to WLA among low-WLA funds in 2020. In other words, the flow sensitivity to fund liquidity is greater for lower-liquidity funds only after the 2016 MMF reform allowed for the imposition of gates and fees. These findings suggest that the contingent liquidity restrictions might have exacerbated the run during the 2020 COVID-19 crisis."
Lastly, the paper adds, "The run on prime MMFs led them to hoard liquidity and refrain from investing in instruments with maturities longer than one week, putting further pressure on the already strained CP and CD markets. In response to the precarious conditions in money markets, the Federal Reserve intervened with the Money Market Mutual Fund Liquidity Facility (MMLF). The MMLF enabled MMFs to liquidate some of their assets to meet redemptions and increased their confidence in investing in longer-tenor securities. We find that the MMLF was effective at stemming outflows from MMFs.... The recent COVID-19 crisis highlighted that ex-ante liquidity restrictions might not achieve the goal of creating a system immune from runs. Given the notable role of MMFs in the short-term funding markets and in the shadow banking system, more research and collaborative regulatory efforts are warranted to enhance the stability of the industry."
In other news, money market fund assets plunged in the latest week on tax-related outflows, their 7th decline in 8 weeks. Since the week ended May 20, assets have fallen by $221.0 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.172 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $87.38 billion to $4.57 trillion for the week ended Wednesday, July 15, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $76.36 billion and prime funds decreased by $6.37 billion. Tax-exempt money market funds decreased by $4.65 billion." ICI's stats show Institutional MMFs decreasing $74.5 billion and Retail MMFs decreasing $12.9 billion. Total Government MMF assets, including Treasury funds, were $3.686 trillion (80.7% of all money funds), while Total Prime MMFs were $758.5 billion (16.6%). Tax Exempt MMFs totaled $124.1 billion, 2.7%.
Money fund assets are up an eye-popping $936 billion, or 25.8%, year-to-date in 2020, with Inst MMFs up $762 billion (33.7%) and Retail MMFs up $174 billion (12.7%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.306 trillion, or 40.1%, with Retail MMFs rising by $293 billion (23.4%) and Inst MMFs rising by $1.014 trillion (50.4%).
They explain, "Assets of retail money market funds decreased by $12.85 billion to $1.54 trillion. Among retail funds, government money market fund assets decreased by $3.54 billion to $980.45 billion, prime money market fund assets decreased by $5.80 billion to $452.53 billion, and tax-exempt fund assets decreased by $3.51 billion to $110.99 billion." Retail assets account for just over a third of total assets, or 33.8%, and Government Retail assets make up 63.5% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $74.53 billion to $3.02 trillion. Among institutional funds, government money market fund assets decreased by $72.82 billion to $2.71 trillion, prime money market fund assets decreased by $573 million to $305.97 billion, and tax-exempt fund assets decreased by $1.14 billion to $13.09 billion." Institutional assets accounted for 66.2% of all MMF assets, with Government Institutional assets making up 89.5% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
Crane Data's MFI International shows assets in European or "offshore" money market mutual hitting a record $1.050 trillion last week, after breaking above $1.0 trillion for the first time ever two months ago. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $23.1 billion over the last 30 days to $1.044 trillion; they're up by $167.3 billion year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are up $10.6 billion over the last 30 days and are up $62.3 billion YTD. Euro funds are up E3.9 billion over the previous 30 days, and YTD they're up E26.5 billion. GBP funds have risen by L6.2 billion over 30 days, and are up by L41.2 billion YTD. U.S. Dollar (USD) money funds (192) account for over half ($556.7 billion, or 53.3%) of the "European" money fund total, while Euro (EUR) money funds (92) total E125.1 billion (12.0%) and Pound Sterling (GBP) funds (123) total L266.2 billion (25.5%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below.
Offshore USD MMFs yield 0.18% (7-Day) on average (as of 7/14/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.53% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.10%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (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 July MFII Portfolio Holdings, with data as of 6/30/20, show that European-domiciled US Dollar MMFs, on average, consist of 24.0% in Commercial Paper (CP), 15.6% in Certificates of Deposit (CDs), 13.4% in Repo, 34.4% in Treasury securities, 10.8% in Other securities (primarily Time Deposits) and 1.7% in Government Agency securities. USD funds have on average 30.3% of their portfolios maturing Overnight, 8.6% maturing in 2-7 Days, 17.2% maturing in 8-30 Days, 13.7% maturing in 31-60 Days, 11.7% maturing in 61-90 Days, 14.7% maturing in 91-180 Days and 3.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (43.8%), France (11.3%), Canada (8.2%), Japan (6.4%), the United Kingdom (5.2%), Sweden (4.8%), Germany (4.5%), the Netherlands (3.5%), Switzerland (2.0%), Australia (1.9%), China (1.5%), Norway (1.4%), Singapore (1.1%) and Belgium (1.0%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $212.1 billion (33.4% of total assets), BNP Paribas with $17.0B (2.7%), Barclays PLC with $15.0B (2.4%), RBC with $14.8B (2.3%), Fixed Income Clearly Co with $11.2B (1.8%), Mitsubishi UFJ Financial Group Inc with $11.0B (1.7%), Credit Agricole with $10.9B (1.7%), Sumitomo Mitsui Banking Corp with $10.8B (1.7%), Toronto-Dominion Bank AB with $10.3B (1.6%) and JP Morgan with $10.1B (1.6%).
Euro MMFs tracked by Crane Data contain, on average 42.9% in CP, 17.4% in CDs, 21.5% in Other (primarily Time Deposits), 12.2% in Repo, 5.1% in Treasuries and 0.7% in Agency securities. EUR funds have on average 30.3% of their portfolios maturing Overnight, 11.5% maturing in 2-7 Days, 18.1% maturing in 8-30 Days, 14.9% maturing in 31-60 Days, 12.7% maturing in 61-90 Days, 10.1% maturing in 91-180 Days and 2.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.5%), the U.S. (11.0%), Japan (10.9%), Germany (9.2%), Sweden (6.8%), the Netherlands (5.4%), the U.K. (4.8%), Switzerland (4.5%), Belgium (3.2%), Canada (3.2%), Austria (2.4%), China (1.9%) and Qatar (1.6%).
The 10 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E6.6B (5.5%), Republic of France with E5.0B (4.2%), Credit Agricole with E4.3B (3.6%), BPCE SA with E4.2B (3.5%), Svenska Handelsbanken with E3.9B (3.3%), Mizuho Corporate Bank Ltd with E3.9B (3.3%), Societe Generale with E3.8B (3.2%), ING Bank with E3.7B (3.1%), JP Morgan with E3.6B (3.1%) and Sumitomo Mitsui Banking Corp with E3.5B (3.0%).
The GBP funds tracked by MFI International contain, on average (as of 6/30/20): 33.2% in CDs, 20.0% in CP, 23.1% in Other (Time Deposits), 16.2% in Repo, 6.8% in Treasury and 0.6% in Agency. Sterling funds have on average 34.2% of their portfolios maturing Overnight, 9.9% maturing in 2-7 Days, 11.7% maturing in 8-30 Days, 15.6% maturing in 31-60 Days, 10.8% maturing in 61-90 Days, 13.4% maturing in 91-180 Days and 4.3% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the U.K. (21.7%), France (19.2%), Japan (12.8%), Canada (9.7%), Germany (5.7%), the U.S. (5.4%), the Netherlands (4.4%), Sweden (3.9%), Australia (3.3%), Singapore (2.2%) and Abu Dhabi (2.1%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L32.0B (13.6%), BNP Paribas with L9.8B (4.2%), BPCE SA with L8.1B (3.5%), RBC with L8.1B (3.4%), Mizuho Corporate Bank Ltd with L8.0B (3.4%), Sumitomo Mitsui Banking Corp with L7.7B (3.3%), Agence Central de Organismes de Securite Sociale with L6.9B (2.9%), Mitsubishi UFJ Financial Group Inc with L6.6B (2.8%), Credit Agricole with L6.1B (2.6%) and Nordea Bank with L5.9B (2.5%).
In other news, a press release entitled, "ICD and The Carfang Group Introduce Beta(m) for Corporate Treasury Investing," explains, "ICD, corporate treasury's trusted independent portal provider of money market funds and other short-term investments, and advisory firm The Carfang Group have developed a new quantitative model for assessing risk-weighted investment opportunities in money markets."
ICD Chief Marketing Officer Justin Brimfield comments, "Balancing safety, liquidity and yield while adhering to corporate investment policies is never easy, especially when there is unrest in the markets as we saw in March this year.... Because the dynamics of the market are always shifting, corporations can't just take a set-it-and-forget-it approach to their investments. Now ICD has a quantitative tool to assess the risks/returns of money market investment products."
The release adds, "The Beta(m) model is based on Nobel Prize winning economist Harry Markowitz's Modern Portfolio Theory (MPT), adapted for the money markets. MPT looks at volatility as a method for measuring risk, and states that a diversified portfolio is less risky than risk associated with each individual security within. From MPT, plotting The Money Markets Efficient Frontier allows investors to identify investment opportunities and to avoid investments that are not worth the inherent risk based on their return."
ICD and The Carfang Group introduced the concept in a webinar and white paper, "BETA(m): A Fresh Look at Tradeoffs & Opportunities in Money Markets." The introduction tells us, "In March 2020, U.S. money markets showed their strength as they successfully weathered unprecedented market stress and an overwhelming flight to quality. Companies shifted assets, drew down credit lines and issued debt as they furiously worked to increase the liquidity and safety of their cash. As the dust settled, however, many companies were left sitting on large cash balances, leaving some ready to venture into higher-yielding money instruments. For many corporates considering their next move, two questions remain: Is safety, liquidity and yield still the best way to achieve an efficient portfolio, and What – if any – investment opportunities exist?"
It adds, "ICD teamed up with The Carfang Group for a technical deep dive to find out. This whitepaper presents a compelling approach to Modern Portfolio Theory, adapted to money market instruments. The results reveal a stunning confirmation of the efficiency of the money markets, a demonstrable window of opportunity for Prime and FICA instruments, and a new model for assessing tradeoffs and opportunities in money markets going forward."
The July issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the lead story, "Worldwide Bond Funds Fall $1 Tril. in Q1'20 to $10.8 Tril.," which reviews ICI's latest collection of global bond fund markets, and "T. Rowe Price's Lynagh Talks Ultra-Short Bond Funds Too," which interviews T. Rowe Price Group VP Joseph Lynagh. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields plunged and returns jumped again in June. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our Worldwide Bond Funds piece reads, "Bond fund assets worldwide plunged by almost $1 trillion in the latest quarter to $10.8 trillion, driven lower by declines in the U.S., Ireland, Luxembourg and Brazil. China was the only major country showing an increase in Q1. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, First Quarter 2020' release and statistics below."
ICI's report says, "Worldwide regulated open-end fund assets decreased 12.6% to $47.95 trillion at the end of the first quarter of 2020, excluding funds of funds.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).... The collection for the first quarter of 2020 contains statistics from 46 jurisdictions."
Our "T. Rowe's Lynagh" profile says, "This month, BFI interviews T. Rowe Price Group Vice President Joseph Lynagh, who runs the firm's cash management and ultra-short bond strategies and will be retiring early next year after three decades at the Baltimore-based fund manager. We interviewed Lynagh for our MFI newsletter, but decided to ask him a few bond questions while we had him. This part of our Q&A follows."
BFI says, "Give us some ultra-short history." Lynagh tells us, "We also manage our securities lending collateral in a fund that's called the Short-Term Fund. That's in fact a bond fund, but it operates with a very high focus on liquidity preservation of capital. Post-GFC, in 2012, we decided to expand the franchise into the ultra-short space and launched Ultra-Short Bond Fund, which was very prescient at that time when rates were all crowded around zero. It's proven to be a great strategy and we've grown that to be about $2.3 billion so far."
BFI also asks, "Talk about the Ultra-Short line up, what did those see earlier this year?" Lynagh responds, "If you go back to March, I think the way I tried to describe it is, this was purely and simply a liquidity crisis. It had concerns about credit in the offing, but those hadn't manifested themselves yet. This was pure and simply a run for cash against the backdrop where liquidity evaporated pretty quickly.... We were seeing marks in our portfolio just falling, and it really impacted virtually every portion of the portfolio."
Our Bond Fund News includes the brief, "Yields Plunge, Returns Surge (Again)," which explains, "Bond fund yields plunged and returns jumped once again in June. Our BFI Total Index returned 1.10% over 1-month and 3.58% over 12 months. The BFI 100 gained 0.99% in June and rose 4.78% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.42% over 1-mo and 1.97% over 1-yr; Ultra-Shorts averaged 0.76% in June and 1.59% over 12 mos. Short-Term returned 0.95% and 3.02%, and Intm-Term rose 1.14% last month and 6.53% over 1-year. BFI's Long-Term Index returned 1.44% in June and 9.31% for 1-year; our High Yield Index rose 0.88% but is down 1.38% over 1-year."
In another News brief, we quote the Barron's piece, "American Funds' Quiet Rise to Bond Dominance." They write, "The gains reflect a quiet overhaul that has transformed Capital Group, founded in 1931, into a bond giant. The company oversees more than $2 trillion in assets and is largely known for its solid, actively managed stock funds. Still, it has amassed $400 billion in its bond funds, creating one of the largest fixed-income fund families, after Vanguard, BlackRock, Pimco, and Fidelity. It has 18 bond funds; nine are less than 10 years old."
A third News update covers the WSJ article, "Sitting on Bond Profits? Sell, Switch or Wait?" It tells us, "Profits are a good thing, but that doesn't mean it always makes sense to take them. If you've held bonds or bond funds over the past six, 12 or 18 months, you're looking at a sizable capital gain. For example, Vanguard Total Bond Market ETF (BND) rose 7% in the one-year period through June 30, a hefty move for a bond fund."
BFI also features a sidebar that covers Morningstar's piece, "How Short-Term Bond Funds Went Wrong (Again)." They write, "Echoes of the financial crisis reverberated across short-term and ultrashort bond funds in March 2020. Back in 2008, several funds in the short-term bond and ultrashort bond categories that had invested in securitized bonds backed by subprime mortgage loans got caught in a liquidity trap, as falling prices led to heavy redemptions and forced selling. The destruction of value was severe enough to put some funds ... out of business. It was a devastating outcome for investors who believed these vehicles were just a little bit riskier than cash."
Finally, a brief entitled, "Record Inflows in June," says, "Bond fund assets likely saw record inflows in June, after big jumps in May and April (and a huge drop in March). ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $18.78 billion for the week, compared to estimated inflows of $25.06 billion during the previous week [and inflows of $19.0 billion the week before that]. Taxable bond funds saw estimated inflows of $16.46 billion, and municipal bond funds had estimated inflows of $2.32 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $114.4 billion."
Capital Advisors Group published a new research piece entitled, "Liquidity in Question – What Do We Do with Prime Money Market Funds?" Author Lance Pan says in the "Abstract," "After sudden shareholder redemptions in March stressed money market funds, it became clear that several rounds of reforms since the 2008 crisis have failed to bolster institutional prime money market funds as liquidity vehicles. While extraordinary government measures once again helped to stabilize the market, they should not be recurrent policy decisions. Regulations have reduced the systemic status of prime funds in commercial paper (CP) funding and the overall economy."
He continues, "Increasing portfolio liquidity or restricting CP allocation may not resolve the drawbacks inherent in prime money market funds due to shared liquidity. Additional reforms are possible, including external and contingent liquidity, shareholder transparency and concentration limits, and repositioning prime funds as ultra-short mutual funds. However, a permanent solution for the funds may take time due to conflicts of interests from the stakeholder groups. Ultimately, we expect institutional cash investors may begin to regard prime funds more as income solutions than as liquidity vehicles."
Capital Advisors' "Introduction" tells us, "Groundhog Day has been a familiar phrase describing the financial markets' responses to the Covid-19 pandemic, including prime money market funds (MMFs). For a few days in late March, heavy shareholder redemptions overwhelmed some funds' abilities to adhere to regulatory requirements. In response, the Federal Reserve swiftly reinstalled several crisis-era liquidity facilities, and Treasury Secretary Steven Mnuchin went to Congress for permission to guarantee MMFs."
They write, "These events were reminiscent of the 2008 financial crisis, when a credit default in one prime fund caused it to break the $1 NAV, precipitating runs on other funds. The Fed reacted by creating several liquidity facilities, and Treasury provided principal guarantees. The Securities and Exchange Commission (SEC) subsequently enacted two rounds of regulatory reforms to protect the funds against future liquidity events and to remove taxpayer liability. However, judging from what happened this past March, even those measures may not be enough. What really happened and where do we go from here with prime funds?"
The article concludes, "Over the last five decades, money markets funds underwent several transformations and rounds of regulatory overhaul. The liquidity flaws exposed during the Covid-19 crisis are only the latest sign that regulators have systematically ignored or overlooked the structural vulnerabilities of prime funds."
It explains, "Prime funds' performance in episodes of market volatility is empirical evidence that the asset class is not a reliable liquidity product, at least not as a primary or contingent source of liquidity. Extraordinary measures from the federal government, while necessary to reintroduce faith in the short-term credit markets, should not be recurrent policy decisions. We think successive regulations have reduced the systemic status of prime funds in CP funding and the overall economy. While the asset class at times offers income advantage over government funds and deposit products, investors may be better served by redirecting funds to other liquidity vehicles."
Finally, Pan comments, "We discussed why bolstering portfolio liquidity or restricting CP allocation may not resolve the inherent drawbacks of shared liquidity. Instead, a solution needs to come from external and contingent liquidity. Shareholder transparency and concentration limits may help distribute liquidity risk more evenly among the funds, and changed shareholder perception and behavior may lessen the need for regulatory solutions. Reforming the funds as ultra-short bond funds may also make sense. These and other changes may help lead to more effective form of prime money market funds. However, any permanent solution will take time, due to the conflicting interests of many different stakeholder groups."
In other news, money market fund yields continue to bottom out just above zero; our flagship Crane 100 inched down by just one basis point to 0.10% in the latest week. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over 60% all money funds and over 30% of MMF assets have since landed on the zero yield floor (0.01%), though many continue to show at least some yield.
According to our Money Fund Intelligence Daily, as of Friday, 7/10, 511 funds (out of 849 total) yield 0.00% or 0.01% with assets of $1.533 trillion, or 30.6% of the total. There are 181 funds yielding between 0.02% and 0.10%, totaling $1.834 trillion, or 36.6% of assets; 119 funds yield between 0.11% and 0.25% with $1.366 trillion, or 27.2% of assets; and, 38 funds yield between 0.26% and 0.50% with $280.9 billion in assets, or 5.6%. No funds yield more than 0.50%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.06%, down a basis point in the week through Friday, 7/10. The Crane Money Fund Average is down 41 bps from 0.47% at the beginning of April. Prime Inst MFs were down 3 basis points to 0.15% in the latest week and Government Inst MFs were flat at 0.06%. Treasury Inst MFs were unchanged at 0.05%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.02% (unchanged in the last week), and Prime Retail MFs yield 0.08% (down 2 bps for the week), Tax-exempt MF 7-day yields were down a basis point at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)
The largest funds tracked by Crane Data yielding 0.00% or 0.01% include: Fidelity Govt Cash Reserves ($200.9B), Fidelity Government Money Market ($194.4B), Fidelity Treasury Fund ($28.4B), Edward Jones Money Mkt Inv ($22.8B), Northern Trust US Govt MMF ($18.0B), Schwab Government Money Fund Swp ($17.3B), Schwab US Treasury MF Investor ($16.9B), American Funds US Govt MMF A ($15.1B), and Franklin Inst Fiduciary Trust US Govt MM ($14.6B).
Our Crane Brokerage Sweep Index, which hit the zero floor roughly three months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of July 10, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last ten weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).
Crane Data released its July Money Fund Portfolio Holdings Friday, and our most recent collection, with data as of June 30, 2020, shows another increase in Treasuries and big drops in Government Agency Debt and Repo last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $159.1 billion to $4.963 trillion last month, after increasing $31.6 billion in May, a staggering $529.4 billion in April and $725.6 billion in March (and $5.0 billion in February). Treasury securities broke the $2.5 trillion level, and remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)
Among taxable money funds, Treasury securities increased by $60.8 billion (2.5%) to $2.544 trillion, or 51.3% of holdings, after increasing $355.9 billion in May, $795.7 billion in April and $303.1 billion in March. Repurchase Agreements (repo) decreased by $124.3 billion (-11.6%) to $946.6 billion, or 19.1% of holdings, after decreasing $216.7 billion in May, $238.4 billion in April and increasing $225.1 billion in March. Government Agency Debt decreased by $65.2 billion (-6.9%) to $879.2 billion, or 17.7% of holdings, after decreasing $99.8 billion in May, increasing $6.9 billion in April and $292.5 billion in March. Repo, Treasuries and Agencies totaled $4.370 trillion, representing a massive 88.1% of all taxable holdings.
Money funds' holdings of CP, CDs, Other (mainly Time Deposits) and VDRNs all fell in June. Commercial Paper (CP) decreased $6.5 billion (-2.2%) to $286.8 billion, or 5.8% of holdings, after increasing $5.2 billion in May and decreasing $11.9 billion in April and $24.1 billion in March. Certificates of Deposit (CDs) fell by $9.1 billion (-4.2%) to $208.2 billion, or 4.2% of taxable assets, after decreasing $7.4 billion in May, increasing $12.6 billion in April and falling $74.3 billion in March. Other holdings, primarily Time Deposits, decreased $13.7 billion (-14.9%) to $78.0 billion, or 1.6% of holdings, after decreasing by $5.7 billion in May, $5.7 billion in April and $8.0 billion in March. VRDNs decreased to $19.4 billion, or 0.4% of assets, from $20.6 billion the previous month. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Monday.)
Prime money fund assets tracked by Crane Data increased $19.0 billion to $1.154 trillion, or 23.3% of taxable money funds' $4.963 trillion total. Among Prime money funds, CDs represent 18.0% (down from 19.1% a month ago), while Commercial Paper accounted for 24.8% (down from 25.7%). The CP totals are comprised of: Financial Company CP, which makes up 14.2% of total holdings, Asset-Backed CP, which accounts for 6.0%, and Non-Financial Company CP, which makes up 4.6%. Prime funds also hold 6.7% in US Govt Agency Debt, 29.6% in US Treasury Debt, 3.4% in US Treasury Repo, 0.7% in Other Instruments, 3.7% in Non-Negotiable Time Deposits, 4.2% in Other Repo, 5.6% in US Government Agency Repo and 0.9% in VRDNs.
Government money fund portfolios totaled $2.558 trillion (51.5% of all MMF assets), down $98.0 billion from $2.656 trillion in June, while Treasury money fund assets totaled another $1.251 trillion (25.2%), down from $1.330 trillion the prior month. Government money fund portfolios were made up of 31.3% US Govt Agency Debt, 12.2% US Government Agency Repo, 44.3% US Treasury debt, 11.9% in US Treasury Repo, 0.2% in VRDNs and 0.1% in Investment Company. Treasury money funds were comprised of 85.6% US Treasury Debt, 14.3% in US Treasury Repo and 0.1% U.S. Government Agency Debt. Government and Treasury funds combined now total $3.809 trillion, or 76.7% of all taxable money fund assets.
European-affiliated holdings (including repo) fell by $92.3 billion in June to $546.9 billion; their share of holdings fell to 11.0% from last month's 12.5%. Eurozone-affiliated holdings fell to $353.5 billion from last month's $435.3 billion; they account for 7.1% of overall taxable money fund holdings. Asia & Pacific related holdings decreased $17.8 billion to $272.5 billion (5.5% of the total). Americas related holdings fell $49.0 billion to $4.136 trillion and now represent 83.4% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $93.7 billion, or -15.2%, to $521.8 billion, or 10.5% of assets); US Government Agency Repurchase Agreements (down $30.2 billion, or -7.4%, to $376.1 billion, or 7.6% of total holdings), and Other Repurchase Agreements (down $0.5 billion, or -1.0%, from last month to $48.7 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $25.7 billion to $163.6 billion, or 3.3% of assets), Asset Backed Commercial Paper (up $1.2 billion to $69.7 billion, or 1.4%), and Non-Financial Company Commercial Paper (down $33.4 billion to $53.5 billion, or 1.1%).
The 20 largest Issuers to taxable money market funds as of June 30, 2020, include: the US Treasury ($2,544.4 billion, or 51.3%), Federal Home Loan Bank ($542.3B, 10.9%), Federal National Mortgage Association ($124.9B, 2.5%), Fixed Income Clearing Co ($111.3B, 2.2%), RBC ($109.1B, 2.2%), BNP Paribas ($106.8B, 2.2%), Federal Home Loan Mortgage Co ($103.7B, 2.1%), Federal Farm Credit Bank ($102.5B, 2.1%), JP Morgan ($86.3B, 1.7%), Mitsubishi UFJ Financial Group Inc ($62.4B, 1.3%), Citi ($55.8B, 1.1%), Sumitomo Mitsui Banking Co ($53.2B, 1.1%), Barclays ($51.7B, 1.0%), Toronto-Dominion Bank ($44.4B, 0.9%), Credit Agricole ($43.4B, 0.9%), Bank of Montreal ($39.7B, 0.8%), Bank of America ($37.2B, 0.7%), Canadian Imperial Bank of Commerce ($35.1B, 0.7%), Bank of Nova Scotia ($34.5B, 0.7%) and Societe Generale ($33.8B, 0.7%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($111.1B, 11.7%), BNP Paribas ($95.3B, 10.1%), RBC ($78.9B, 8.3%), JP Morgan ($75.5B, 8.0%), Citi ($47.5B, 5.0%), Mitsubishi UFJ Financial Group ($41.9B, 4.4%), Barclays ($36.0B, 3.8%), Sumitomo Mitsui Banking Corp ($34.1B, 3.6%), Bank of America ($33.8B, 3.6%) and Credit Agricole ($32.1B, 3.4%). Fed Repo positions among MMFs on 6/30/20 still include only Franklin US Govt Money Market Fund ($1.0B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($30.3B, 6.1%), Toronto-Dominion Bank ($29.2B, 5.9%), Mitsubishi UFJ Financial Group ($20.5B, 4.2%), Sumitomo Mitsui Banking Co ($19.1B, 3.9%), Canadian Imperial Bank of Commerce ($18.5B, 3.8%), Sumitomo Mitsui Trust Bank ($17.4B, 3.5%), Bank of Nova Scotia ($16.9B, 3.4%), Mizuho Corporate Bank Ltd ($16.7B, 3.4%), Barclays ($15.7B, 3.2%) and Credit Suisse ($13.3B, 2.7%).
The 10 largest CD issuers include: Sumitomo Mitsui Banking Co ($15.1B, 7.2%), Mitsubishi UFJ Financial Group Inc ($15.0B, 7.2%), Toronto-Dominion Bank ($13.1B, 6.3%), Sumitomo Mitsui Trust Bank ($12.3B, 5.9%) Bank of Montreal ($11.1B, 5.4%), Natixis ($9.4B, 4.5%), Bank of Nova Scotia ($9.2B, 4.4%), Mizuho Corporate Bank Ltd ($9.2B, 4.4%), Svenska Handelsbanken ($8.7B, 4.2%) and Canadian Imperial Bank of Commerce ($7.5B, 3.6%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($18.0B, 7.3%), Toronto-Dominion Bank ($15.7B, 6.3%), JP Morgan ($10.8B, 4.4%), Societe Generale ($9.9B, 4.0%), Canadian Imperial Bank of Commerce ($9.8B, 3.9%), Caisse des Depots et Consignations ($8.9B, 3.6%), ING Bank ($7.3B, 2.9%), Barclays PLC ($7.2B, 2.9%), Credit Suisse ($7.2B, 2.9%) and Credit Suisse ($7.0B, 2.8%).
The largest increases among Issuers include: the US Treasury (up $60.8B to $2.544 trillion), Toronto-Dominion Bank (up $5.2B to $44.4B), Citi (up $4.9B to $55.8B), Bank of Montreal (up $4.4B to $39.7B), Sumitomo Mitsui Trust Bank (up $4.1B to $23.0B), Federal Home Loan Mortgage Corp (up $2.2B to $103.7B), Skandinaviska Enskilda Banken AB (up $1.5B to $9.6B), Wells Fargo (up $1.4B to $29.2B), UBS AG (up $1.3B to $9.5B) and Caisse des Depots et Consignations (up $1.3B to $9.1B).
The largest decreases among Issuers of money market securities (including Repo) in June were shown by: Federal Home Loan Bank (down $64.1B to $542.3B), Fixed Income Clearing Corp (down $24.9B to $111.3B), BNP Paribas (down $21.5B to $106.8B), JP Morgan (down $13.5B to $86.3B), Societe Generale (down $12.4B to $33.8B), Credit Agricole (down $11.3B to $43.4B), Barclays PLC (down $8.3B to $51.7B), Natixis (down $7.4B to $26.6B), Deutsche Bank AG (down $7.0B to $13.7B) and RBC (down $6.6B to $109.1B).
The United States remained the largest segment of country-affiliations; it represents 77.7% of holdings, or $3.856 trillion. Canada (5.6%, $279.5B) was number two, and France (4.8%, $236.7B) was third. Japan (4.5%, $222.5B) occupied fourth place. The United Kingdom (2.3%, $114.7B) remained in fifth place. Germany (1.2%, $58.0B) was in sixth place, followed by The Netherlands (1.1%, $52.5B), Sweden (0.7%, $35.9B), Australia (0.7%, $32.2B) and Switzerland (0.6%, $30.2B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of June 30, 2020, Taxable money funds held 28.7% (down from 32.4%) of their assets in securities maturing Overnight, and another 9.2% maturing in 2-7 days (down from 10.3% last month). Thus, 37.9% in total matures in 1-7 days. Another 18.1% matures in 8-30 days, while 14.7% matures in 31-60 days. Note that over three-quarters, or 70.0% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 11.8% of taxable securities, while 14.9% matures in 91-180 days, and just 2.7% matures beyond 181 days.
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out later Friday, and we'll be writing our normal monthly update on the June 30 data for Monday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Thursday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of June 30, 2020, includes holdings information from 1,078 money funds (up 2 from last month), representing assets of a record $5.153 trillion (down $168 billion). We review the new N-MFP data below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled a record $2.566 trillion (up from $2.506 trillion), or a shockingly high 49.8% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $952.8 billion (down from $1.078 trillion), or 18.5% of all assets, and Government Agency securities totaled $896.0 billion (down from $962.3 billion), or 17.4%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.415 trillion, or a stunning 85.7% of all holdings.
Commercial paper (CP) totals $297.0 billion (down from $303.4 billion), or 5.8%, and Certificates of Deposit (CDs) total $208.9 billion (down from $219.6 billion), or 4.1%. The Other category (primarily Time Deposits) totals $125.5 billion (down from $137.2 billion), or 2.4%, and VRDNs account for $107.7 billion (down from $114.0 billion last month), or 2.1%.
Fund holdings overall dropped by $167.8 billion, or -3.2%, in June. Decreases in holdings were seen among: Repurchase Agreements (down $125.6B, or -11.6%); Government Agencies (down $66.3B, or -6.9%); Other (down $11.7B, or -8.6%); Certificates of Deposit (down $10.7B, or -4.9%); Commercial Paper (down $6.5B, or -2.1%); and VRDNs (down $6.3B, or -5.5%). Treasury holdings showed the only gain last month; they were up $59.3 billion, or 2.4%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $174.0 billion, or 3.4%, in Financial Company Commercial Paper; $61.9 billion or 1.2%, in Asset Backed Commercial Paper; and, $61.1 billion, or 1.2%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($537.4B, or 10.4%), U.S. Govt Agency Repo ($366.4B, or 7.1%) and Other Repo ($49.0B, or 1.0%).
The N-MFP Holdings summary for the 221 Prime Money Market Funds shows: Treasury holdings of $349.9 billion (up from $325.9 billion), or 29.8%; CP holdings of $290.8 billion (down from $297.6 billion), or 24.8%; CD holdings of $208.9 billion (down from $219.6 billion), or 17.8%; Repo holdings of $155.4 billion (up from $153.9 billion), or 13.3%; Government Agency holdings of $77.7 billion (up from $57.9 billion), or 6.6%; Other (primarily Time Deposits) holdings of $77.1 billion (down from $90.0 billion), or 6.6%; and VRDN holdings of $12.5 billion (down from $12.8 billion), or 1.1%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $174.0 billion (up from $171.6 billion), or 14.8%, in Financial Company Commercial Paper; $61.9 billion (up from $61.5 billion), or 5.3%, in Asset Backed Commercial Paper; and $55.0 billion (down from $64.5 billion), or 4.7%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($41.8 billion, or 3.6%), U.S. Govt Agency Repo ($64.5 billion, or 5.5%), and Other Repo ($49.0 billion, or 4.2%).
Prime Money Market Fund holdings overall increased by $16.1 billion, or 1.4%, in the latest month. Increases in holdings were seen by: Treasury (up $24.0B, or 7.4%); Government Agency (up $19.9B, or 34.3%); and Repurchase Agreement (up $1.5B, or 1.0%). Decreases in holdings were seen by: Other (down $11.5B, or -13.0%); Certificates of Deposit (down $10.7B, or -4.9%); Commercial Paper (down $6.7B, or -2.3%); and VRDNs (down $299M, or -2.3%).
In other news, money market fund assets inched higher following six weeks of declines. Since the week ended May 20, assets have fallen by $133.7 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.172 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets increased by $325 million to $4.66 trillion for the week ended Wednesday, July 8, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $1.63 billion and prime funds increased by $3.79 billion. Tax-exempt money market funds decreased by $1.84 billion." ICI's stats show Institutional MMFs increasing $1.1 billion and Retail MMFs decreasing $78 million. Total Government MMF assets, including Treasury funds, were $3.762 trillion (80.8% of all money funds), while Total Prime MMFs were $764.9 billion (16.4%). Tax Exempt MMFs totaled $128.7 billion, 2.8%.
Money fund assets are up an eye-popping $1.024 trillion, or 28.2%, year-to-date in 2020, with Inst MMFs up $837 billion (37.0%) and Retail MMFs up $187 billion (13.6%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.403 trillion, or 43.1%, with Retail MMFs rising by $313 billion (25.2%) and Inst MMFs rising by $1.090 trillion (54.3%).
They explain, "Assets of retail money market funds decreased by $779 million to $1.56 trillion. Among retail funds, government money market fund assets increased by $2.81 billion to $983.99 billion, prime money market fund assets decreased by $2.04 billion to $458.33 billion, and tax-exempt fund assets decreased by $1.55 billion to $114.50 billion." Retail assets account for just over a third of total assets, or 33.4%, and Government Retail assets make up 63.2% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $1.10 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $4.44 billion to $2.78 trillion, prime money market fund assets increased by $5.84 billion to $306.55 billion, and tax-exempt fund assets decreased by $292 million to $14.22 billion." Institutional assets accounted for 66.6% of all MMF assets, with Government Institutional assets making up 89.6% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
Crane Data's latest Money Fund Market Share rankings show assets decreased for the vast majority of U.S. money fund complexes in June. Money market fund assets decreased $104.6 billion, or -2.1%, last month to $5.047 trillion. Assets have fallen by $81.7 billion, or -1.6%, over the past 3 months, but they've increased by $1.426 trillion, or 39.4%, over the past 12 months through June 30, 2020. The biggest increases among the 25 largest managers last month were seen by Vanguard, Northern, Wells Fargo, Dreyfus, DWS and Western, which increased assets by $17.9 billion, $7.9B, $7.7B, $3.9B, $3.7B and $2.8B, respectively. The largest declines in assets among the largest complexes in June were seen by JP Morgan, Fidelity, BlackRock, Federated Hermes, Morgan Stanley and Goldman Sachs, which decreased assets by $31.1 billion, $22.1B, $20.4B, $18.4B, $15.7B and $12.4B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in June.
Over the past year through June 30, 2020, Fidelity (up $230.0B, or 32.3%), Goldman Sachs (up $193.7B, or 92.9%), JP Morgan (up $145.9B, or 45.8%), Vanguard (up $118.1B, or 31.1%), Federated Hermes (up $109.2B, or 40.3%), BlackRock (up $102.9B, or 33.2%) and Morgan Stanley (up $93.9B, or 81.7%) were the largest gainers. These complexes were followed by Wells Fargo (up $80.8B, or 66.2%), Northern (up $72.9B, or 62.8%), SSGA (up $66.3B, or 69.1%) and Dreyfus/BNY Mellon (up $43.3B, or 26.7%). Vanguard, Goldman Sachs, Walls Fargo, Northern and Western had the largest money fund asset increases over the past 3 months, rising by $25.6B, $18.7B, $15.8B, $15.0B and $1.4B, respectively. The largest decliners over 3 months included: BlackRock (down $43.1B, or -9.5%), Fidelity (down $20.5B, or -2.1%), Morgan Stanley (down $18.3B, or -8.0%), First American (down $16.6B, or -15.4%) and JP Morgan (down $16.2B, or -3.4%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $941.1 billion, or 18.6% of all assets. Fidelity was down $22.1 billion in June, down $20.5 billion over 3 mos., but up $229.9B over 12 months. Vanguard ranked second with $498.4 billion, or 9.9% market share (up $17.9B, up $25.6B and up $118.1B for the past 1-month, 3-mos. and 12-mos., respectively). JP Morgan was third with $464.2 billion, or 9.2% market share (down $31.1B, down $16.2B and up $145.9B). BlackRock ranked fourth with $412.9 billion, or 8.2% of assets (down $20.4B, down $43.1B and up $102.9B for the past 1-month, 3-mos. and 12-mos.), while Goldman Sachs took fifth place with $402.1 billion, or 8.0% of assets (down $12.4B, up $18.7B and up $193.7B).
Federated Hermes was in sixth place with $379.9 billion, or 7.5% of assets (down $18.4 billion, down $15.7B and up $109.2B), while Schwab was in seventh place with $209.0 billion, or 4.1% (down $5.7B, down $860M and up $36.5B). Morgan Stanley ($208.8B, or 4.1%) was in eighth place (down $15.7B, down $18.3B and up $93.9B), followed by Dreyfus ($205.2B, or 4.1%, up $3.9B, down $942M and up $43.3B). Wells Fargo was in 10th place ($203.0B, or 4.0%; up $7.7B, up $15.8B and up $80.8B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($189.0B, or 3.7%), American Funds ($168.1B, or 3.3%), SSGA ($162.3B, or 3.2%), First American ($91.2B, or 1.8%), UBS ($80.7B, or 1.6%), Invesco ($79.7B, or 1.6%), T Rowe Price ($40.7B, or 0.8%), HSBC ($39.2B, or 0.7%), Western ($34.4B, or 0.7%) and DWS ($27.8B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JP Morgan, BlackRock and Goldman move ahead of Vanguard, Morgan Stanley and Dreyfus move ahead of Schwab and Northern moves ahead of Wells Fargo. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($951.2 billion), J.P. Morgan ($682.8B), BlackRock ($599.6B), Goldman Sachs ($539.5B) and Vanguard ($498.4B). Federated Hermes ($391.6B) was sixth, Morgan Stanley ($251.3B) was in seventh, followed by Dreyfus/BNY Mellon ($227.0B), Northern ($213.7B) and Schwab ($209.0B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.
The July issue of our Money Fund Intelligence and MFI XLS, with data as of 6/30/20, shows that yields dropped in July for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 751), fell 2 basis points to 0.07% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 3 bps to 0.08%. The MFA's Gross 7-Day Yield was down 2 bps to 0.33%, while the Gross 30-Day Yield fell 3 bps 0.34%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.11% (down 3 bps) and an average 30-Day Yield that decreased by 4 bps to 0.12%. The Crane 100 shows a Gross 7-Day Yield of 0.32% (down 3 bps), and a Gross 30-Day Yield of 0.33% (down 4 bps). Our Prime Institutional MF Index (7-day) yielded 0.18% (down by 8 bps) as of June 30, while the Crane Govt Inst Index was 0.06% (down 1 basis point) and the Treasury Inst Index was 0.05% (down a basis point). Thus, the spread between Prime funds and Treasury funds is 13 basis points, while the spread between Prime funds and Govt funds is 12 basis points. The Crane Prime Retail Index yielded 0.11% (down 6 bps), while the Govt Retail Index was 0.02% (unchanged) and the Treasury Retail Index was 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yield dropped in June to 0.04% (down 2 bps).
Gross 7-Day Yields for these indexes in June were: Prime Inst 0.45% (down 8 bps), Govt Inst 0.27% (down 1 basis point), Treasury Inst 0.26% (down 1 bps), Prime Retail 0.56% (down 6 bps), Govt Retail 0.27% (flat) and Treasury Retail 0.28% (unch. from the previous month). The Crane Tax Exempt Index decreased 0.04% to 0.35%. The Crane 100 MF Index returned on average 0.01% over 1-month, 0.06% over 3-months, 0.36% YTD, 1.27% over the past 1-year, 1.51% over 3-years (annualized), 1.01% over 5-years, and 0.52% over 10-years.
The total number of funds, including taxable and tax-exempt, increased by two to 934. There are currently 751 taxable funds, up one from the previous month, and 182 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.
The July issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Fidelity Exits Prime Inst Space, Though Assets Growing Nicely," which focuses on the closing of some institutional prime money market funds; "T. Rowe Price's Lynagh Says Stay True to MMF Mandate," which profiles the VP and leader of TRP's cash business; and, "AFP Liquidity Survey: Safety, Bank Relationships Still Key," which reviews the latest preferences of corporate treasurers. We've also updated our Money Fund Wisdom database with June 30 statistics, and we sent out our MFI XLS spreadsheet Wednesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Friday, July 10, and our July Bond Fund Intelligence is scheduled to go out Wednesday, July 15.
MFI's "Fidelity Exits" article says, 'Fidelity Investments recently announced its 'Fidelity Institutional Prime Money Market Funds Liquidation,' telling us, 'We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio. Both funds will remain fully accessible to investors until their liquidation on or about August 14, 2020.... It is important to note that this decision does not affect any of our other money market funds -- institutional or retail -- and there is no need to take immediate action. We are committed to working with our institutional clients to determine alternative liquidity investment products that best suit their needs by August 12.'"
The announcement continues, "Our decision to liquidate these two funds was made after thoughtful review and consideration of our experience with investor behavior in institutional prime money market funds during periods of market stress, evolving institutional investor preferences, and our broader money market business. We are choosing to exit the institutional prime segment of the marketplace because we believe we can better meet institutional investors' needs with other cash management products."
Our "Profile" reads, "This month, MFI interviews T. Rowe Price Group Vice President Joseph Lynagh, who runs T. Rowe's cash management operation, and also its ultra-short bond strategies. Lynagh will be retiring early next year after three decades at the Baltimore-based fund manager. We ask him about the recent market turmoil (and past episodes), and he tells us about the firm's history, the latest crisis, fee waivers and a number of other issues. He says we'll have to 'buckle down' again to make it through the latest zero yield environment. Our Q&A follows."
MFI says, "Give us some history." Lynagh tells us, "T. Rowe has been involved in money funds since 1976.... The Prime Reserve Fund was our flagship fund. It was in place ... when interest rates really spiked and money funds were quite the story, posting yields of 10-11 percent. Against the context of today, that sounds like a completely different universe.... We later launched the Tax-Exempt Money Fund to give us a presence in the muni space.... We added a U.S. Treasury Money Fund [and] state-specific funds on the muni side, California, New York and later Maryland. We then introduced what at the time was a low-fee product in our 'Summit' line of funds."
The "Survey" article tells readers, "The Association for Financial Professionals recently released its 'AFP Liquidity Survey,’ and a press release entitled, 'Companies Turn to Bank Deposits as COVID-19 Crisis Continues.' The latter says, 'Companies are holding their short-term investments in banks due to concerns over the economy, according to the 2020 AFP Liquidity Survey, underwritten by Invesco.' It shows that '51% of respondents revealed that they increased their short-term investments in banks. This is the highest percentage in three years and a reversal of a downward trend that began in 2015. Although the survey was taken before the full effect of liquidity preservation efforts had set in due to the COVID-19 outbreak, this flight to caution likely reflects concerns that the pandemic poses a critical threat to the global economy.'"
AFP, which just cancelled its October conference in Las Vegas (see here), explains, "Safety continues to be the most-valued short-term investment objective for 62% of organizations, followed by liquidity at 34% and yield at a distant third with 4%. Given the current recession, we should probably expect larger shares of companies opting for safety in the future. As the crisis surrounding the pandemic unfolds, trust in banking partners will be paramount as the survey reflects. Ninety-three percent of respondents consider the overall relationship with their banks to be the primary driver in bank deposit selection. Seventy-three percent indicated that the credit quality of a bank is a deciding factor in determining where to maintain balances."
The latest MFI also includes the News brief, "Money Fund Assets Plunge in June," which says, "Assets fell by $113.0 billion in June to $5.050 trillion, but they're still up $1.092 trillion YTD. ICI also shows assets falling for 6 straight weeks after 15 straight weeks of inflows. (Assets have rebounded this week though, according to our MFI Daily.)
A second News piece titled, "Money Fund Yields Bottoming," says, "Our flagship Crane 100 inched down by 3 basis points to 0.11% last month, and expense ratios continue to inch lower as fee waivers increase. Watch for our revised MFI XLS and craneindexes.xlsx with updated expense info on 7/9."
Our July MFI XLS, with June 30 data, shows total assets decreased by $113.0 billion in June to $5.050 trillion, after increasing $31.6 billion in May, jumping $417.9 billion in April and skyrocketing $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell 2 bps to 0.07% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 3 bps to 0.11%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 2 bps at 0.33% and the Crane 100 also fell to 0.32%. Charged Expenses averaged 0.26% (unchanged from last month) and 0.21% (unchanged from the previous month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 40 (down 1 day) and 43 days (down 2 days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Last week, we published excerpts from our latest online event, "Crane's Money Fund Webinar: Portfolio Holdings Update." (See our July 2 News, "Crane and Ho Discuss Inflows, Waivers and Prime Exits on 2nd Webinar.") The session, which featured Crane Data's Peter Crane and J.P. Morgan Securities' Teresa Ho, discussed the latest trends in the money fund space with a focus on recent Money Fund Portfolio Holdings data. Today, we highlight the second half of the webinar. Readers may access the video recording and materials via our Webinar page here. (Also, register for our next event, "Crane's Money Fund Webinar: Portfolio Manager Perspectives," which is scheduled for Wednesday, July 22 at 1:00pm (EDT). It will feature our Peter Crane hosting a panel of PMs, including Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak.)
On Portfolio Holdings, JPM's Ho tells us, "Shifting over to the bigger story that we've seen in the money fund space, it's just a pivot into Treasury bills.... Money funds now basically across the govie space and across the prime space, collectively, they now represent about 45 percent of the Treasury bills market, which is very significant. Historically, they've been running more about 25 percent. But over the past two months, they've definitely significantly raised their percentage in the amount of Treasury bills that they hold.... I think initially part of the reason why they took down so many bills was because of the surge in govie funds that we saw in March and April."
She continues, "What we've seen past March and April is that the pivot into Treasury bills has really expanded beyond the government money market fund space and into prime money funds as well. Part of the reason why that was taking place is that prime funds are still somewhat uncertain about their liquidity. They're still uncertain whether they're going to see more outflows down the road. There are a variety of things -- potentially a second wave coming down later this year, or rating downgrades -- that could prompt certain investors to pull their money out of prime funds.... I think the March incident has taught them that they need to hold more liquidity than they may even have before the pandemic. If you look at where liquidity is right now, for a lot of the prime funds on average, I think they're holding about 50 percent of the portfolio in what they call the seven-day liquidity bucket, and that bucket includes a lot of Treasury bills ... and any CP and CD that matures within seven days. That is another reason why the prime funds were kind of pivoting away from CP/CD and into Treasury bills."
Ho adds, "Away from the liquidity concerns, more recently, I think what you've seen is the very rapid collapse in the spread between Libor and OIS, and as a result between Libor and T-bill yields. It's just the relative value between these two products, one of which is a risk free product and the other a credit product, have collapsed to the point where investors were just starting to feel that they weren't being fairly compensated for taking on that credit risk."
She comments, "If you think about where spread in Libor is today ... T-bill yield in the three-month sector has been trading around 14-15 basis points. So, for an extra 15 basis points, you're buying CP/CD in the three-month space. On a relative basis to where that spread has been between T-bills and CP/CD, that's fairly tight at 15 basis points. So, a lot of investors are saying, I just don't see the value right now in putting my money in CP/CD.... What they're doing instead is just buying more bills.... The percentage of bills as a percentage of the entire portfolio with respect to prime funds is close to 30 percent. With respect to govie funds it's close to 45 percent. That's the highest that ... we have ever seen in terms of Treasury holdings. Definitely, that is kind of the big story of the past couple months and I suspect it will continue to be the case as we had into the second half of this year."
Ho also explains, "While we've had a surge in the supply of Treasury bills coming through the past couple of months, we are anticipating ... that to be gradually wiped out. The reason for that is because at the last Treasury refunding announcement in early May, what Treasury has told us is that they will likely gradually shift their debt issuance more toward coupons.... So, what will happen gradually going forward is that the supply of Treasury bills will gradually come down as they shift more of their insurance towards Treasury coupons. And what that would mean is that for a lot of these funds that are holding Treasury bills now, it may be a little bit more of a challenge to get hold of these bills."
She states, "That's the dynamic that we're watching as far as where Treasury bills end up trading in the second half of this year. It's that relationship between the amount of Treasury supplies coming through and the demand for Treasury bills from govie funds. That's not to say that Treasury bills are going to cheapen significantly or rally significantly. I think what we have learned over the past couple of months is that there are a lot of people that want to buy bills, especially in the current period where there's just so much liquidity out there.... There is more than $3 trillion in Reserves, a lot of it is sitting at large bank portfolios. And so, they're going to be opportunistic, and if bills do widen to a point where it's attractive for them, they're going to come in and start buying Treasury bills. You can always see them as kind of a backstop buyer for Treasury bills in the event that money funds are not there."
Ho continues, "When I mentioned the pivot to Treasury bills earlier.... It was also coming out of Repo as well. Where Treasury Repo was trading on the tri-party side of an overnight basis, they were kind of trading between six to eight basis points. So relative to three-month bills which were trading 15, obviously, there was a lot more spread pick up to go into Treasury bills. So, we've seen the amount being allocated to Treasury Repo come down over the past month. Just for Treasury funds, their Repo allocation came down by $43 billion last month. And, we've seen a $24 billion increase in Treasury bill allocation. On the govie fund side ... the drop in Treasury allocation was a lot bigger. We've seen a reduced exposure to Repo across the money fund space because of that relative value, because they were just not as attractive as where bills were trading. Normally that will be an issue for the dealers just because of how much money funds extend financing to the dealers in the form of Repo. But in this instance it's less of an issue for the dealers, unlike the episode we saw last September, because the Fed has stepped in as the buyer, basically removing a lot of collateral and removing a lot of positions and inventories off of dealer balance sheets."
Crane asks, "I was going to ask you now on our last segment to talk about the other CP buyers.... What happened last time was you had prime funds shrink, but it seems like the demand didn't shrink as much. You had other buyers materialize in that ultra-short space, in the private liquidity fund space outside of money market funds. I don't expect a substantial shrinkage in prime, but if you do get it, I'm encouraged for the issuers point of view that other buyers may step forward."
Ho answers, "Outside of prime funds, ultra-shorts and ultra-short bonds funds are clearly also big buyers of CP/CD. They, like prime funds, saw liquidity issues back in March. They probably didn't experience as big of a withdrawal as prime funds, but regardless, I think from just being a conservative standpoint, they were not willing to extend lending to corporate or bank CP/CD out the curve. And they, like everybody else, wanted to focus more on the shorter tenure. They have been a sector that has grown a lot over the past couple of years. So, they've been able to kind of provide funding for a lot of these banks and corporations. Outside of them, there are what we call securities lenders, there are cash reinvestment portfolios that also invest in a lot of bank CP/CD and non-financial CP. Then you have the state and local governments, they have to manage their own liquidity portfolio like anybody else, and they tend to invest in CP/CD and ABCP."
She continues, "I think what we learned last time from the Money Fund Reform, at least in the issuers' perspective, is that they need to diversify away from just relying on prime money funds as a source of liquidity. And so, they did that. They started branching out to the state and local governments. They're talking to some of the more sophisticated corporations that manage their own cash portfolio.... They have diversified their funding sources. And, unfortunately, back in March, pretty much everyone across the board was kind of experiencing the same liquidity issue or market to market issue. And so, most people weren't as willing to lend out during that time period, which is why the Fed had to step in with the Money Market Liquidity Facility and CPFF. We focus a lot on the money funds, but frankly, in the prime fund space, we have to be cognizant that they are not the only buyers of CP/CD and the others do matter a lot as well."
Finally, Ho says about potential regulatory reforms, "I'm sure at some point down the road they're going to think about what went wrong, what went right, what they could do better. I think in some ways the 30 percent liquidity threshold was kind of a coolant to breaking the buck. I think that was the thing that incentivized a lot of people to kind of arm their cash earlier on before a fund hit that 30 percent threshold. I think there's been talk about potentially setting up some sort of permanent facility from the Fed that in the event that these things do happen. We wouldn't have to wait a few days for the Fed to basically set everything before the money funds could access that.... You just wonder, again, if the money funds will be willing to take on that additional cost for that liquidity backstop.... When you think more broadly in terms of what happened in March and April, the Fed had to step in not only for the money fund industry, but across the board. So, they're going to be working on a lot of other things and thinking about a lot of other markets and how they can do better. There could be more down the road, I don't know exactly what it's going to be."
Money market fund assets fell sharply at quarter-end, their sixth weekly decline in a row. Since the week ended May 20, assets have fallen by $134.0 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.175 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $27.67 billion to $4.66 trillion for the week ended Wednesday, July 1, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $22.45 billion and prime funds decreased by $4.71 billion. Tax-exempt money market funds decreased by $508 million." ICI's stats show Institutional MMFs decreasing $24.5 billion and Retail MMFs decreasing $3.2 billion. Total Government MMF assets, including Treasury funds, were $3.764 trillion (80.9% of all money funds), while Total Prime MMFs were $761.1 billion (16.4%). Tax Exempt MMFs totaled $130.6 billion, 2.8%.
Money fund assets are up an eye-popping $1.023 trillion, or 28.2%, year-to-date in 2020, with Inst MMFs up $836 billion (37.0%) and Retail MMFs up $188 billion (13.7%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.417 trillion, or 43.8%, with Retail MMFs rising by $318 billion (25.7%) and Inst MMFs rising by $1.099 trillion (55.0%).
They explain, "Assets of retail money market funds decreased by $3.16 billion to $1.56 trillion. Among retail funds, government money market fund assets decreased by $1.71 billion to $981.18 billion, prime money market fund assets decreased by $472 million to $460.37 billion, and tax-exempt fund assets decreased by $976 million to $116.05 billion." Retail assets account for just over a third of total assets, or 33.5%, and Government Retail assets make up 63.0% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $24.51 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $20.74 billion to $2.78 trillion, prime money market fund assets decreased by $4.24 billion to $300.71 billion, and tax-exempt fund assets increased by $468 million to $14.51 billion." Institutional assets accounted for 66.6% of all MMF assets, with Government Institutional assets making up 89.8% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
In other news, S&P Global Ratings published "Sterling Money Market Funds Are Living Up To Their Name." The paper tells us, "Since 1983, S&P Global Ratings has assigned principal stability fund ratings to money market funds--the well-regarded cash management tool used by institutional investors, with its unique focus on preserving an investor's capital. In our view, the recent market turmoil has one-sidedly shone the spotlight on money market funds, and their potential risk to the wider financial system. For over 20 years, we have assigned fund ratings to Sterling-denominated money market funds (SMMFs), assessing each under our "Principal Stability Fund Rating Methodology". Each week, pursuant to those criteria, we analyze surveillance data related to all rated money market funds, including credit metrics on asset levels, net asset value (NAV) per share, portfolio credit quality, and duration and redemption patterns."
They explains, "Overall, we rate these 23 SMMFs 'AAAm'. And recent performance exemplifies the rationale behind the ratings. Before, during, and after the March 2020 market COVID-19 related upheaval, all rated SMMFs, with £247 billion in assets under management, have maintained their portfolio credit metrics. In fact, they have performed exceptionally, demonstrating strong resilience especially compared to their prior record during the 2008 market turmoil around the time of the Lehman Brothers' default. We do see some clouds on the horizon, in particular the potential of negative interest rates but our overall assessment is that the performance of rated SMMFs has been ... well, sterling."
S&P writes, "In the late 1990s, rated SMMFs had a total asset base of a mere £2 billion. Since then, SMMFs have prospered. In the past decade, their assets have risen to £247 billion as of May 2020 from £86 billion in 2010.... Over the past 12 months, overall assets for rated SMMFs have risen 22%. This increase is well above the average 10% annual growth seen in the past decade, despite historically low interest rates.... In the past two months (April and May 2020), the appeal of SMMFs has remained strong among investors as they seek to shelter from market upheaval, increasing a healthy 8% and 5.7% each month, respectively."
They continue, "The size of rated SMMFs ranges from £23 million to £45 billion, and averages £10.8 billion. The BlackRock Sterling Liquidity Fund, part of the Institutional Cash Series, remains the largest rated fund; it, or variants of it, has been the largest SMMF fund since 2004. It was known as the Barclays Global Investors (BGI) Sterling Liquidity First Fund before BlackRock acquired it in 2009. The top 10 largest SMMFs hold £219 billion (or 88%) of the £247 billion across all rated SMMFs as of May 2020.... A primary growth engine for a number of SMMFs is the consolidation within the industry during the past decade. For example: Goldman Sachs acquired RBS Asset Management's MMF business in 2013, Aberdeen Asset Management acquired Scottish Widows Investment Partnership in 2014, Standard Life acquired Ignis Asset Management in 2014, and Standard Life and Aberdeen Asset Management merged in 2017."
The paper tells us, "Despite COVID-19 market pressures, rated SMMFs have preserved their invested capital. From our analysis, during the first five months of 2020, the funds never approached the LVNAV collar of 20 basis points, nor the 'AAAm' threshold of 0.9975, let alone declined due to credit market losses toward 0.9950 per share--the last stop before a money market fund would "break the buck." In the four weeks before and after March 19, 2020, which encompassed pandemic-related market upheavals, the average SMMF NAV per share was £1.00018, or 1.8 basis points above par.... Compared with a similar surveillance period around the Lehman Brothers' default in September 2008, NAVs for SMMFs ranged from £0.9987 (13 bps below par) to £1.00014 (1.4 bps above par)."
It adds, "Our analysis of redemption patterns during these periods indicates that S&P Global Ratings 'AAAm' rated SMMFs have been able to cope. Across three notable periods of increased event risk, (the Lehman Brothers' default in 2008, the U.K. referendum in 2016, and COVID-19 in 2020), we have found that on average, 72% of SMMFs' largest individual weekly redemptions ranged from 5%-10% of assets.... Relaying those movements to net assets, on average, 88% of weekly net asset flows ranged from negative 10% to positive 10%."
Finally, they summarize, "Overall, SMMFs have demonstrated ratings resilience through their credit metrics and demonstrated their preferred status as a cash management tool for institutional investors. Still, a number of factors will continue to shape their appeal such as the uncertainty surrounding the economic recovery from COVID-19, the repercussions of a hard Brexit, and the potential impact to MMFs in the event the Bank of England adopts a negative interest rate policy. For the many types of SMMF investors focusing on capital preservation, negative interest rates will eradicate that prospect. Nevertheless, we believe SMMFs will continue to have a place, as seen with short-term euro-denominated MMFs that are still practical solutions despite their negative yields, for investors who view their cash investments on a relative basis."
Late last week, Crane Data hosted its second online event, "Crane's Money Fund Webinar: Portfolio Holdings Update," which featured Peter Crane and J.P. Morgan Securities' Teresa Ho. The pair gave an update on the latest trends in the money fund space with a focus on the latest Money Fund Portfolio Holdings data. We excerpt highlights from the first half of the webinar below, but readers may also access the video recording and materials via our Webinar page here. (Mark your calendars and register for our next event, "Crane's Money Fund Webinar: Portfolio Manager Perspectives," which is scheduled for Wednesday, July 22 at 1:00pm (EDT). It will feature our Peter Crane hosting a panel of PMs, including Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak.)
Crane comments, "What I found interesting on the flows is, March was a monster month, you had hundreds and hundreds of billions moving in, but April was almost as big. You had $1.1-$1.2 trillion come into money funds in March and April. May was basically flat and now it looks like June is down $60 to $100 billion, depending on which point you pick. When ICI comes out with their numbers [last Thursday], they should be flat to slightly up.... April 15th was moved to July, so you're going to have a little weakness. But then [Teresa] wrote recently, in the second half you get this natural seasonal inflow."
Ho responds, "What we saw in March, April and May was a combination of a variety of things.... We saw the most growth ... in institutional money funds, and not much on the retail side. I think there were a couple of factors that were driving that -- I think one was certainly the corporates wanting an additional buffer on their corporate balance sheets because of the pandemic. They were just uncertain as to what the future was going to hold. So, what did they do to kind of shore up that liquidity? They drew down on credit facilities at the bank. In total, by our estimate, close to $350 billion of credit facilities were drawn down. They also raised cash in the commercial paper market in the days and weeks before kind of everything came crashing down. Then, also just any revenue that they had and any investment that they had, they were basically selling their Treasuries in exchange for cash, knowing that they just want to have that extra little cash on their balance sheet."
She continues, "I think it was driven by a lot of corporations feeling very risk averse at that time, and the whole flight to quality that prompted that surge of inflows into 'govie' funds. As we headed into kind of the later part of April and May, we saw some of that stimulus money come up in the CARE package, that was another factor that went into the jump in govie money fund balances. For a lot of these guys that got stimulus payments, they didn't want to use that just immediately. They wanted to pocket it someplace safe and have it available for later."
Regarding, "Our outlook for the second half of this year," Ho tells us, "Historically, we typically see corporations kind of trail down on their money fund balances to pay for these quarterly tax payments, and we see no reason why this time will be any different. So that will be something that will be driving it down. But beyond that, when we think about money that's in the system, currently there's about $1.6 trillion of money that's sitting in Treasury's general account. That money was raised in the Treasury market to be deployed into the economy, to finalize these stimulus payments. [This] hasn't been paid out yet, but the expectation is that they will be paid out over the next couple of months. So, when that happens, I would suspect another jump in govie fund balances."
She adds, "Then also, from a seasonal perspective, we do typically see in the second half of the year corporations holding onto more cash than they would otherwise. So usually we would see inflows in the second half. I think all these factors point to a slight dip over the next couple months. But between what the Fed is doing and what Treasury is doing, once we pass the July and August dates we should see flows kind of moving back into govie funds in the later part of this year."
Crane also says, "When rates last went to zero back in 2008-9, you had this initial spike up [in assets] as institutional investors tried to 'ride the lag' a little bit. Then in 2009 and 2010, money funds lost about 15 percent in a year. So, you did have an erosion. You know, we expect to lose a lot of the trillion that came in. But how much and how fast? You just don't know how long those balances are going to hang around."
He explains, "A couple more points before we get into the holdings. I want to touch on negative yields and the 'soft' closings.... But if you look at the numbers recently, Prime keeps growing. The June numbers, when they come out, are going to show prime with a big increase and government with a big decrease. So, it's sort of odd timing, but you are seeing that shift from government to prime as the yields are hitting zero."
Crane tells the webinar, "I'm being asked a ton about fee waivers [which] you should label 'partial fee waivers.' You're seeing almost half of all money fund share classes hitting that 0.01% floor and presumably, those are the funds that are waiving fees day by day to stay positive. The big institutional funds still have a little bit of yield, but they’re being compressed down.... We do expect funds to waive what they need to, to maintain a zero or positive yield like they did from 2009 through 2015. If we get into a negative rate ... you may see the reverse distribution mechanism or various things come into play."
Ho comments, "The view from J.P. Morgan is ... we really don't see the Fed going negative anytime soon. And I think this view has been echoed across various Fed officials.... The money fund industry in the US is just much bigger, and for all that to move into negative territory will be somewhat challenging, I think, for this entire sector. It would be challenging for the banks, too, because if the money funds weren't there as a cash alternative, presumably that money will move into banks. Banks have already received a ton of deposits and the likelihood and the feasibility of them holding an additional $4 trillion of deposits would also pose a very big challenge."
She continues, "With that being said ... even if we don't go negative, the current low interest rate environment is still not an ideal situation for the money funds, and we're kind of going back into waiving fees again and soft closing funds. In the case of Fidelity and Northern Trust, where they've decided to [liquidate] some of their prime institutional funds, I think that's really telling as to the value of these funds declining over time, especially in the current interest rate environment and especially given the prospect of potentially more money market fund reform down the road."
Ho states, "I think it just brings into question just the value that some of these funds provide in the context of the big, broader money fund industry. So, some things to be keeping an eye on. I think our view is that we would expect more consolidation either internally or externally across fund families, particularly for the smaller money funds that have to deal with all of this but don't necessarily have the resources.... That's kind of what we'll be looking for as we go forward in time."
Finally, Crane responds, "Last time the consolidation was grudging, it was slow. I don't expect a wholesale flight from the Prime space.... I've started speculating on Fidelity's move.... FSOC and the financial regulators [may target them since] they're bigger and have a higher profile than others. They were the first to move in 2015, even 2014, ahead of the 2016 changes; they converted Cash Reserves to a government fund. So that was sort of instructive. That also took some courage from others to stick it out and they moved as well. But it also could be an estate planning issue, too.... Ned Johnson at FMR may be [letting go]. The heirs may not want to risk their billions and their lawyers are telling him to protect that for some reason."
