News Archives: January, 2023
The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for December 2022 Monday. ICI's monthly "Trends" report shows that money fund assets increased $105.3 billion in December to $4.777 trillion. Meanwhile, bond fund assets decreased by $73.4 billion to $4.492 trillion. Money fund assets, which surpassed bond fund assets in September 2022 for the first time since 2010, remain larger than bond funds and are seeing their lead grow. MMFs have increased by $21.0 billion over the past 12 months. (The bond fund totals don't include bond ETFs, which total $1.261 trillion as of 12/31, according to ICI.)
Money funds' December asset increase follows a gain of $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. MMFs decreased $6.4 billion in August, but they increased $34.3 billion in July and $25.0 billion in June. MMFs decreased $8.0 billion in May and $71.0 billion in April. They increased $9.6 billion in March, decreased $38.3 billion in February, and decreased $136.1 billion in January. For the 12 months through Dec. 31, 2022, money fund assets increased by $21.0 billion, or 0.4%. (For the month of January through 1/27, MMF assets have increased by $5.6 billion to $5.195 trillion according to Crane's MFI XLS, which tracks a broader universe of funds than ICI. Crane Data's Prime asset totals have increased by $24.5 billion in January to $1.100 trillion.)
ICI's monthly release states, "The combined assets of the nation's mutual funds decreased by $722.31 billion, or 3.2 percent, to $22.11 trillion in December, 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.... Bond funds had an outflow of $53.16 billion in December, compared with an outflow of $34.52 billion in November.... Money market funds had an inflow of $96.43 billion in December, compared with an inflow of $56.33 billion in November. In December funds offered primarily to institutions had an inflow of $20.71 billion and funds offered primarily to individuals had an inflow of $75.72 billion."
The Institute's latest statistics show that Taxable funds were higher and Tax Exempt MMFs were also higher last month. Taxable MMFs increased by $101.3 billion in December to $4.664 trillion. Tax-Exempt MMFs increased $4.0 billion to $112.4 billion. Taxable MMF assets decreased year-over-year by $4.6 billion (-0.0%), and Tax-Exempt funds rose by $25.6 billion over the past year (29.5%). Bond fund assets dropped by $73.4 billion (after jumping by $120.3 billion in Nov.) to $4.492 trillion; they've decreased by $1.133 trillion (-20.1%) over the past year.
Money funds represent 21.6% of all mutual fund assets (up 1.1% from the previous month), while bond funds account for 20.3%, according to ICI. The total number of money market funds was 291, down one from the prior month and down from 305 a year ago. Taxable money funds numbered 236 funds, and tax-exempt money funds numbered 55 funds.
ICI's "Month-End Portfolio Holdings" confirm yet another jump in Repo and plunge in Treasuries last month. Repurchase Agreements remained the largest composition segment in December, increasing $272.5 billion, or 10.9%, to $2.761 trillion, or 59.2% of holdings. Repo holdings have increased $433.5 billion, or 18.6%, over the past year. (See our Jan. 12 News, "Jan. MF Portfolio Holdings: Fed RRP, Repo Surges to Record; T-Bills Drop.")
Treasury holdings in Taxable money funds fell again, but they remained the second largest composition segment. Treasury holdings plunged $95.7 billion, or -8.6%, to $1.017 trillion, or 21.8% of holdings. Treasury securities have decreased by $676.9 billion, or -40.0%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $11.3 billion, or -2.2%, to $507.4 billion, or 10.9% of holdings. Agency holdings have increased by $128.5 billion, or 33.9%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $48.2 billion, or -22.1%, to $170.0 billion (3.6% of assets). CDs held by money funds rose by $53.6 billion, or 46.0%, over 12 months. Commercial Paper remained in fifth place, down $8.4 billion, or -4.7%, to $168.4 billion (3.6% of assets). CP increased $31.7 billion, or 23.2%, over one year. Other holdings decreased to $15.4 billion (0.3% of assets), while Notes (including Corporate and Bank) inched down to $4.3 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased to 59.324 million, while the Number of Funds fell by one fund to 236. Over the past 12 months, the number of accounts rose by 11.358 million and the number of funds decreased by 9. The Average Maturity of Portfolios was a record low 14 days, down 1 from November. Over the past 12 months, WAMs of Taxable money have decreased by 22.
Federated Hermes released its Q4'22 earnings and hosted its quarterly earnings call late last week, which discussed record money fund assets and seasonal flows, the end of fee waivers and money funds vs. bank deposits. The press release, entitled, "Federated Hermes, Inc. reports fourth quarter and full-year 2022 earnings," quotes President & CEO J. Christopher Donahue, "Federated Hermes' record assets at year-end 2022 were driven by money market asset increases and investor interest in our flagship Total Return Bond Fund and related separate accounts, as well as continued demand for our popular dividend income equity products. In addition, investors valued our investment perspective as they sought haven from market volatility in a diverse range of Federated Hermes products -- from money market funds to low-duration fixed-income options to market neutral and bear market alternative strategies." (See Federated Hermes' Q4 2022 Earnings Call Transcript from Seeking Alpha.)
The release explains, "Federated Hermes' fixed-income assets were $86.7 billion at Dec. 31, 2022, down $10.9 billion or 11% from $97.6 billion at Dec. 31, 2021 and up $1.3 billion from $85.4 billion at Sept. 30, 2022. Top-selling fixed-income funds on a net basis during Q4 2022 were Federated Hermes Total Return Bond Fund, Federated Hermes Conservative Municipal Microshort Fund, Federated Hermes Institutional High Yield Bond Fund, Federated Hermes Conservative Microshort Fund and Federated Hermes Intermediate Corporate Bond Fund."
It says, "Federated Hermes' money market assets were a record $476.8 billion at Dec. 31, 2022, up $28.9 billion or 6% from $447.9 billion at Dec. 31, 2021 and up $35.5 billion or 8% from $441.3 billion at Sept. 30, 2022. Money market mutual fund assets were $335.9 billion at Dec. 31, 2022, up $23.1 billion or 7% from $312.8 billion at Dec. 31, 2021 and up $26.0 billion or 8% from $309.9 billion at Sept. 30, 2022. Federated Hermes' money market separate account assets were $140.9 billion at Dec. 31, 2022, up $5.8 billion or 4% from $135.1 billion at Dec. 31, 2021 and up $9.5 billion or 7% from $131.4 billion at Sept. 30, 2022."
Federated tells us, "Revenue increased $145.4 million or 11% primarily due to a decrease in voluntary yield-related fee waivers. This increase was partially offset by a decrease in revenue due to lower average equity assets, a decrease in revenue due to a change in the mix of average fixed-income assets, and a decrease in performance fees and carried interest. During 2022, Federated Hermes derived 59% of its revenue from long-term assets (36% from equity assets, 14% from fixed-income assets and 9% from alternative/private markets and multi-asset), 40% from money market assets, and 1% from sources other than managed assets."
They write, "Operating expenses increased by $174.8 million or 19% primarily due to increased distribution expenses resulting primarily from lower voluntary yield-related fee waivers partially offset by a decrease due to lower average managed long-term fund assets and the mix of average money market fund assets. The current year also includes an increase in other expenses due to the intangible asset impairment. These increases were offset by a decrease in compensation and related primarily due to exchange rate fluctuations."
The release adds, "There were no voluntary yield-related fee waivers during the quarter that ended Dec. 31, 2022. For the year that ended Dec. 31, 2022, voluntary yield-related fee waivers totaled $85.3 million. These fee waivers were largely offset by related reductions in distribution expenses of $66.5 million, such that the net negative pre-tax impact to Federated Hermes was $18.8 million for the 12 months ended Dec. 31, 2022. During the three and 12 months ended Dec. 31, 2021, voluntary yield-related fee waivers totaled $110.1 million and $420.3 million, respectively. These fee waivers were largely offset by related reductions in distribution expenses of $72.3 million and $277.1 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $37.8 million and $143.2 million for the three and 12 months ended Dec. 31, 2021, respectively."
On the earnings call, Chris Donahue says about money markets, "The Q4 asset increase reflected seasonality and favorable market conditions for cash as an asset class. Money market strategies are benefiting from higher yields, elevated liquidity levels in the financial system, and favorable yields compared to bank deposits. We expect higher short-term rates will benefit money market funds over time, particularly as compared to deposit rates. Our money market mutual fund market share, including the sub advised funds was about 7.7% at the end of 2022, up from about 7.4% at the end of the third quarter of 2022. Looking now at recent asset totals as of a few days ago, managed assets were approximately $674 billion, including $475 billion in money markets, $90 billion in equities, $85 billion in fixed income, $21 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were $325 billion."
CFO Tom Donahue explains, "Total revenue for Q4 decreased $7.2 million or about 2% from the prior quarter due mainly to lower average long-term assets and lower performance fees in carried interest, partially offset by higher average money market assets."
During the Q&A Session, one analyst asked ultrashort and money market flows. Money Market CIO Debbie Cunningham responds, "From an ultrashort perspective, it definitely pertains to where we are from an interest rate standpoint in the marketplace. Interest rates continued to go up in the fourth quarter by 75 basis points and then again 50 basis points in December. The expectation is, they'll continue to go up more modestly, but hold at a higher level in 2023. When you see that sort of increase in rates in the marketplace generally, anything outside of liquidity products -- i.e. money market products or cash -- are going to see flows going in the opposite direction."
She explains, "Those flows can come out of the institutional side, the retail side, corporate. So, there's generally speaking, a broad-based exit that has slowed down as the year has progressed. And in products, even like Micro-shorts that got money in, that basically is offsetting some of what we're seeing [a] little bit further out the yield curve, the ultrashort types of products."
Cunningham continues, "From a money market fund perspective, the mix continues to be obviously predominantly in the government sector. However, where we experienced on a percentage basis, the most amount of growth during 2022 was in the [prime and muni] sectors. That's simply a result of being above zero at this point and therefore the spread between government and those other categories widening out as interest rates themselves have increased."
She adds, "When you look at it on a quarter-over-quarter basis, the fourth quarter always has a huge amount of inflows.... A large amount of inflows in the second half of December, let's call it, it's window dressing, as well as tax purposes, issues.... Ultimately this results in inflows into the government in particular money market funds during the second half of December, some of which then goes out -- generally the first quarter of 2023 sees outflows out of those products. Because of increasing interest rates, however, the other categories prime, in particular, has continued on a percentage basis to offset those flows in a pretty decided way."
Tom Donahue discusses separate account growth, stating, "That category of asset for us is dominated by large state cash pools that we manage. [These have] a regular pattern of increasing when tax receipts are made ... through the middle of the second quarter typically and then that tends to go down over the latter half of the year. But [these have] reached higher highs and higher lows. We've had a lot of underlying success both because of a favorable macro for money market yields and also some effective work that we've done with those clients to increase utilization of those pools."
Finally, when asked about "an expectation of a bigger surge into money fund flows from say deposits, Cunningham answers, "Generally speaking, when interest rates are increasing, because money funds have a weighted average maturity that's something greater than a day, they lag the direct market. For many of our institutional clients that have the capability of going into the direct market, they might do just exactly that rather than go into money market funds that are increasing [with] a one-month lag.... Where money funds generally start to excel and exceed from a growth perspective is when interest rates have, kind of reached a plateau and when they start going back down the other side."
She adds, "Looking at the rates on deposits versus the rates on money market funds ... we're up to about 38% from a deposit beta perspective versus what's happening in ... Fed funds. So, 38% of the increase is being captured in deposits.... I think that the average deposit rate for the fourth quarter was up to about 70 basis points. But compare that to where we are from a fund yield perspective, which is essentially all north of 4% and heading towards 5%.... The expectation would be that we'll continue to fuel outflows with that deposit beta being lower and a very natural recipient of those outflows would be money market funds."
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets bouncing back to record levels following two weeks of modest declines. Money funds saw their biggest weekly increase since April 29, 2020 during the first week of 2023, and they've risen by $235.0 billion (or 5.1%) over the past 13 weeks. Over the past 52 weeks, money fund assets are up by $174 billion, or 3.7%, with Retail MMFs rising by $258 billion (17.5%) and Inst MMFs falling by $69 billion (-2.2%). ICI shows assets up by $84 billion, or 1.8%, year-to-date in 2023, with Institutional MMFs up $14 billion, or 0.5% and Retail MMFs up $56 billion, or 3.3%. (Note: Please join us for our upcoming Bond Fund Symposium, which will take place March 23-24, 2023 at the Boston Hyatt Regency in Boston, Mass. See the latest agenda and information here.)
The weekly release says, "Total money market fund assets increased by $16.07 billion to $4.82 trillion for the week ended Wednesday, January 25, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $6.79 billion and prime funds increased by $14.08 billion. Tax-exempt money market funds decreased by $4.79 billion." ICI's stats show Institutional MMFs rising $8.5 billion and Retail MMFs increasing $7.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.982 trillion (82.6% of all money funds), while Total Prime MMFs were $719.9 billion (14.9%). Tax Exempt MMFs totaled $116.9 billion (2.4%).
ICI explains, "Assets of retail money market funds increased by $7.61 billion to $1.75 trillion. Among retail funds, government money market fund assets decreased by $1.56 billion to $1.18 trillion, prime money market fund assets increased by $12.99 billion to $460.67 billion, and tax-exempt fund assets decreased by $3.82 billion to $104.67 billion." Retail assets account for over a third of total assets, or 36.2%, and Government Retail assets make up 67.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $8.46 billion to $3.07 trillion. Among institutional funds, government money market fund assets increased by $8.35 billion to $2.80 trillion, prime money market fund assets increased by $1.08 billion to $259.27 billion, and tax-exempt fund assets decreased by $970 million to $12.21 billion." Institutional assets accounted for 63.8% of all MMF assets, with Government Institutional assets making up 91.2% of all Institutional MMF totals.
Month-to-date in January 2023 (through 1/25/23), money fund assets have increased by $9.2 billion, according to Crane Data's Money Fund Intelligence Daily. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
In other news, CNBC Pro published a piece entitled, "High yields have investors piling into money market funds. Here's what you need to know." They explain, "High yields and a volatile stock market have investors piling into money market mutual funds. Holdings were near a record of $4.8 trillion in the week ended Jan. 18, according to the Investment Company Institute. That's off from the high of $4.814 trillion in total net assets the week ended Jan. 4 and above the prior peak of $4.79 trillion reached during the Covid-19 pandemic month of May 2020. Yet for retail funds, inflows are still climbing -- the week ended Jan. 18 saw a $4.97 billion increase into those money market funds, to bring net assets to a total of $1.74 trillion."
They quote ICI's Shelly Antoniewicz, "We have seen a lot of money coming into retail money market mutual funds since the Fed started tightening monetary policy." CNBC writes, "In fact, about $300 billion has flowed into retail money market funds since the end of February 2022, right before the Federal Reserve started ramping up interest rates, she said. As the central bank began hiking rates, the overnight federal funds rate followed. The Fed's last hike in December brought the rate to a targeted range between 4.25% and 4.5%. Another quarter-point increase is expected when the central bank meets next week."
They explain, "Retail assets make up about a third of the total money market fund pie, according to Peter Crane, founder of Crane Data, a firm that tracks money markets. The average yield on his Crane 100 list of the 100 largest taxable money funds is 4.13% and Crane expects soon after the next Fed rate hike, some money market funds will start breaking 5%."
The article says, "The poor performance of both the stock and bond markets in 2022 also made the funds more appealing, Antoniewicz noted. Another rocky year for stocks is expected, at least in the first half. A large majority of Americans may decide to just sit it out, according to the Allianz Life Quarterly Market Perceptions Study for the fourth quarter of 2022. Some 64% of those polled said they would rather have their money sit in cash than endure market swings, the study found."
CNBC also comments on MMFs, "[T]he yield on the product already takes into account the fees, Crane said. 'The yield tells you everything you need to know about anything,' he said. 'If your money market fund yield is lagging, you probably have a high expense money fund.' ... Crane's advice is to stick with funds that have yields that aren't too high and aren't too low. 'Be safely within the herd, toward the middle,' he said."
They add, "Also think about what you are going to do with the money and how quickly you have to access it. For instance, it may be worth giving up a quarter percentage point if it is with the same institution as your other bank accounts so that transfers can be quick and easy, Crane said.... As far as inflows are concerned, the mutual fund market is hitting a weak seasonal period now through Tax Day on April 15, Crane said."
Finally, CNBC's article tells us, "Those yields should stick around for a while, ICI's Antoniewicz said. Fed officials have indicated they expect to keep rates higher through the year, with no reductions until 2024. 'Usually when rates are moving up and level up at a relatively decent interest rate, which it appears that is where we are going, they will be attractive to retail investors,' she said."
The Wall Street Journal again mentions money market funds in, "Jittery Investors Turn to Cash in Hunt for Yield." They explain, "The dash for cash on Wall Street is back on. Investors have added about $135 billion to global money-market funds over the past four weeks, according to EPFR data through Jan. 18. That is the best stretch since the four-week period ended May 2020, when those funds logged roughly $175 billion in net inflows. A money-market fund is a form of mutual fund that invests in short-term debt securities including Treasury bills and commercial paper. Companies and consumers often use them like checking accounts to store their ready cash."
The piece continues, "Increased cash allocations are the latest sign of caution among investors who are questioning whether the recent rebound in stocks and bonds will continue after last year's steep selloff. Many expect markets to remain volatile because Federal Reserve officials have repeatedly said they are committed to fighting inflation with higher interest rates. The flows are also an indication that investors are hungry for yield. They shunned cash for years when interest rates were low and returns on money-market funds were meager."
The Journal also says, "Last year red-hot inflation, higher interest rates and worries about a potential recession rattled everything from stocks to bonds to gold. The S&P 500 declined 19%, while a basket of U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities dropped 13%. Suddenly, holding cash looked appealing again."
They quote Jimmy Chang, CIO of Rockefeller Global Family Office, "Throughout most of the last decade, cash earned you nothing. In fact, there was a saying: Cash is trash. It's no longer trash. In fact, it's king."
The article states, "The average return on U.S. money-market funds this month is 4.12%, the highest yield since the 2008 financial crisis, Crane Data show. The S&P 500, on the other hand, has a dividend yield of about 1.6%. The index is up 4.6% so far in January. By the end of December, assets sitting in money-market funds hit a record $5.18 trillion, Crane Data going back to 2006 show. That surpassed the previous high of $5.16 trillion from May 2020."
It adds, "Money-market funds received a flood of assets in March 2020 at the onset of the Covid-19 pandemic, and inflows remained elevated for the next two months. Investor interest started building again last fall, and the funds have seen inflows in seven of the past 10 weeks. Mr. Chang has recommended that clients lower their stockholdings and add to their cash positions to have dry powder ready to deploy for an attractive buying opportunity.... Yield is 'being handed to us in the form of the safest asset in the world,' Mr. Zappia said [about T-bills]."
Finally, the piece says, "In December, individual investors slightly lowered the share of cash in their portfolios to about 21.8%, below the historical average of roughly 22.5%, according to a survey by the American Association of Individual Investors. The reading still marks one of the highest levels since May 2020. In comparison, stock and stock fund allocations are at about 63.9%, above the historical average of around 61.5%."
In other news, a press release entitled, "Gabelli U.S. Treasury Money Market Fund Exceeds $3 Billion in AUM" tells us, "Gabelli Funds, LLC is pleased to announce that the Gabelli U.S. Treasury Money Market Fund (GABXX) exceeded $3 billion in assets under management.... Achieving this milestone reinforces the Fund's reputation as a low cost money market fund as it continues to grow while providing shareholders with tax advantaged returns."
It continues, "The Gabelli U.S. Treasury Money Market Fund is among the most attractive money market funds in its class. The quality of U.S. Treasury securities coupled with total expenses capped at 0.08% and the exemption from state and local income taxes of its dividends, translates into a very competitive after-tax yield."
The release adds, "The Gabelli U.S. Treasury Money Market Fund is a money market mutual fund managed by Gabelli Funds, LLC, a wholly owned subsidiary of GAMCO Investors, Inc.... The Fund invests exclusively in U.S. Treasury securities and its primary objective is high current income consistent with the preservation of principal and liquidity."
State Street Global Advisors published its "Global Cash Outlook," entitled, "The Year Ahead – Chaos or Calm?" Portfolio Strategist Will Goldthwait writes, "The overall theme of 2023 will be confusion. The current geopolitical macro-economic back drop could deliver such a broad array of outcomes that it's anyone's guess where we will be at the end of the year. Looking back at my 2022 outlook made me chuckle ... I had said, 'inflation is less transitory,' and predicted the Fed raising rates by 75 bp by the end of 2022. Oh, how naïve. Just in the last few weeks of this year central banks have made it clear that they have a lot more to do. I predict the next year will be full of surprises, some more shocking than others, with outcomes that we might never have imagined, (like the Fed raising rates by 425 bp, not just 75)."
On Money Market Reform, he states, "The SEC's US Money Market Reform announcement appears to be delayed. Recall the most discussed and debated rule change was the application of swing pricing on Institutional Prime Money Market funds. Based on the industry comment letters submitted, the implementation of swing pricing as proposed would be unworkable and thus, it is assumed those remaining prime money market funds would close.... Currently there is rumor of one of the Democratic commissioners reconsidering their decision and not supporting the rule change as it was put forth in the SEC's proposal."
Goldthwait continues, "The more interesting part of this puzzle is that the majority of AUM in these funds ($474bln of the $657bln total as of Dec 20, 2022, from Crane Data) is part of the 'sweep' function. For some of the largest mutual fund companies, like Vanguard, Fidelity and American Funds, end of day cash is swept into these funds as part of the cash management function. As such, these funds are not really subject to 'run risk' as they are part of an internal cash management process. So as the saying goes, the SEC might be throwing the baby out with the bath water. The rule change might only impact a very small portion of the overall cash in Institutional Prime MMF. There has always been concern that if you outlaw prime funds, where does the cash go? Perhaps, simply, into government funds or perhaps it ends up out of the SEC's purview, and maybe that is just what they want."
He asks, "Will this change impact credit conditions in the money markets? Perhaps. We did see substantial repricing in the summer of 2016 prior to the implementation of the October 2016 prime money market fund reform. And markets rebounded relatively quickly. As time went on credit conditions reverted back to their pre-reform levels, in some cases even better. I would suspect the same would happen this time."
Goldthwait adds, "One other not so small matter that the SEC will decide is whether government and treasury money market funds need to float their NAV in a negative interest rate environment. The lunacy of this potential rule cannot be understated. Whomever drafted it does not know the simple fact that so many systems that support the ownership of a money market fund cannot handle a variable NAV. This is the primary reason the industry saw over $1trillion of AUM move out of variable NAV prime funds in the fall of 2016. I hope the committee has come to their senses on this and will allow for reverse distribution in the event cash yields go negative."
Discussing European Money Funds, SSGA says, "Reform for European domiciled money market funds remains a long way off. The current Presidency of the European Commission sits in Sweden. A country with little or no connection to money market funds. We don't expect any substantial progress on this until end of '23 or beginning of '24. As one might remember from the last time Europe embarked on money fund reform the process is politically charged. Expect to hear more from us as this tale unfolds."
The Outlook comments, "ESG and Prime money market funds in the United States have not grown as one would have hoped, and to be honest I'm not sure if this is an ESG challenge or a prime money market fund challenge. I tend to think the latter. Over the past several years there were five ESG prime funds that were either launched or converted from existing prime funds. The funds have either closed or have not seen growth due to their ESG label. A few of these funds were small (<$5 billion) and that in of itself is a challenge for the MMF investor. And with pending MMF reform, investors seem content to sit in Government or Treasury funds rather than 'risk it' in prime."
It concludes, "But there is a silver lining: Diversity, Equity and Inclusion (DEI) strategies have done well. Some funds were created or converted, but more often individual share classes that focus on a specific cause were created off of existing money market funds. These causes can include partnering with a specific broker/dealer or contributing some portion of a fund's revenue to a particular cause. The growth has been concentrated in government or treasury funds and clients have been pleased with this approach as they can benefit from all of the existing positive attributes of a money market fund while also knowing they are contributing to the minority broker/dealer or charitable cause."
Finally, Goldthwait says, "To wrap up, 2023 will be a year when global inflation declines, central banks raise rates further than they need to, and economic growth slows to a crawl. The labor market will be the most important indicator of a hard or soft economic landing. If only modest layoffs ensue, perhaps central banks can thread the needle and engineer a soft landing. This author has his doubts. All of this means sitting in cash for another 12 months just might be the best move."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Jan. 20) includes Holdings information from 67 money funds (up 35 from a week ago), which represent $2.040 trillion (up from $940.1 billion) of the $5.190 trillion (39.3%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.227 trillion (up from $617.0 billion a week ago), or 60.1%; Treasuries totaling $508.7 billion (up from $210.4 billion a week ago), or 24.9%, and Government Agency securities totaling $117.7 billion (up from $67.9 billion), or 5.8%. Commercial Paper (CP) totaled $73.1 billion (up from a week ago at $21.6 billion), or 3.6%. Certificates of Deposit (CDs) totaled $32.6 billion (up from $6.1 billion a week ago), or 1.6%. The Other category accounted for $56.7 billion or 2.8%, while VRDNs accounted for $25.0 billion, or 1.2%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $808.4 billion (39.6%), the US Treasury with $508.7 billion (24.9% of total holdings), Fixed Income Clearing Corp with $110.8B (5.4%), Federal Home Loan Bank with $76.0B (3.7%), JP Morgan with $46.5B (2.3%), Federal Farm Credit Bank with $38.4B (1.9%), RBC with $37.1B (1.8%), Barclays PLC with $29.5B (1.4%), Citi with $21.4B (1.0%), and Mitsubishi UFJ Financial Group Inc with $21.0B (1.0%).
The Ten Largest Funds tracked in our latest Weekly include: Dreyfus Govt Cash Mgmt ($166.6B), Fidelity Inv MM: Govt Port ($127.4B), BlackRock Lq FedFund ($126.4B), Morgan Stanley Inst Liq Govt ($124.8B), Federated Hermes Govt ObI ($115.7B), Allspring Govt MM ($99.6B), BlackRock Lq Treas Tr ($97.6B), Fidelity Inv MM: MM Port ($91.6B), BlackRock Lq T-Fund ($86.1B), and Invesco Govt & Agency ($83.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
CNBC.com comments that, "Investors are holding near-record levels of cash," explaining, "Investor cash holdings are near record highs, and that could be good news for stocks since there is a wall of money ready to come right back into the market. But the question is this: Will those investors return any time soon, especially with sentiment still so sour and stocks at risk of a major selloff? Total net assets in money market funds rose to $4.814 trillion in the week ended Jan. 4, according to the Investment Company Institute. That eclipses the prior peak of $4.79 trillion during May 2020, back in the earlier months of Covid-19. These sums include money market fund assets held by retail and institutional investors."
The article explains, "The level of assets in these money market funds has come off the highs since the start of the year, but Wall Street has already noticed the cash pile. 'It's a mountain of money!' wrote Bank of America technical research strategist Stephen Suttmeier. 'While this seems contrarian bullish, higher interest rates have made holding cash more attractive.'"
CNBC says, "Investors, worried about earnings and interest rates, may be willing to wait before they put more money into stocks. At the same time, money market funds are actually generating a few percentage points of income for the first time in years. That means investors may be finding a safer way to generate some return while they wait for the right moment to invest. Consider that sweep accounts, where investors hold unused cash balances in their brokerage accounts, can park those amounts in money market mutual funds or money market deposit accounts."
They add, "Cresset Capital's Jack Ablin said the change in behavior toward money markets reflects a bigger shift in the investing environment. 'Cash is no longer trash. It's paying a reasonable interest and so it makes the hurdle higher over which the risky assets have to jump to generate an additional return,' Ablin said."
In other news, money fund yields inched higher again last week, with our Crane 100 Money Fund Index (7-Day Yield) rising two basis points to 4.12% for the week ended Friday, 1/20. Yields rose by 3 basis points the previous week. But they're up from 3.59% on Nov. 30, 2.88% on Oct. 31 and 2.66% on Sept. 30. Yields should jump again following an expected Feb. 1 Fed hike next week. The top-yielding money market funds have broken above 4.50% and should move towards 4.75% in coming weeks. (See our "Highest-Yielding Money Funds" table above).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 681), shows a 7-day yield of 4.01%, up 2 bps in the week through Friday. Prime Inst MFs were up 1 bp at 4.26% in the latest week. Government Inst MFs rose by 1 bp to 4.05%. Treasury Inst MFs up 3 bps for the week at 4.02%. Treasury Retail MFs currently yield 3.80%, Government Retail MFs yield 3.77%, and Prime Retail MFs yield 4.08%, Tax-exempt MF 7-day yields were down at 1.82%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (1/20), 66 funds (815 total) have fallen below the 2.0% yield mark this past week, and many continue to rise over 4.0%; 92 funds yield between 0.00% and 1.99% with $54.9 billion, or 1.1%; 47 funds yield between 2.00% and 2.99% with $76.4 billion, or 1.5%; 284 funds yield between 3.00% and 3.99% ($1.361 trillion, or 26.2%), and 392 funds yield 4.0% or more ($3.698 trillion, or 71.3%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged last week at 0.52%. The latest Brokerage Sweep Intelligence, with data as of Jan. 20, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Morgan Stanley's recent Q4 earnings discussed sweeps a little. They comment on the earnings call, "Our deposit franchise has grown significantly since 2019 and will continue to support future NII through various cycles. Approximately 90% of our deposits are sourced from our Wealth Management client base. And in the current rising rate environment, our cost of deposits is more efficient than that we experienced in the last rate hiking cycle. Sharon will discuss this important topic and our outlook around NII further in a few minutes."
The CFO explains, "Total deposits rose 6% sequentially to $351 billion driven by continued demand for our savings offering among our Wealth Management clients. We have seen success with our strategy to provide advisers with expanded tools needed to offer their clients choice in varied market environment."
She adds, "Further, the pace of sweep outflows also moderated in the quarter. As a result, we have a favorable deposit mix, largely sourced from our Wealth Management client base with attractive pricing and options to meet our clients' needs."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $54.8 billion in December to an all-time record of $5.235 trillion. Assets at yearend were above their previous record ($5.232T) from May 2020. The SEC shows that Prime MMFs increased by $10.5 billion in December to $1.051 trillion, Govt & Treasury funds increased $41.3 billion to $4.065 trillion and Tax Exempt funds increased $3.0 billion to $119.0 billion. Taxable yields jumped again in December after surging in November. 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.
December's overall asset increase follows an increase of $48.5 billion in November and $35.6 billion in October, but a decrease of $9.4 billion in September. MMFs increased $3.5 billion in August, $57.4 billion in July, and $26.6 billion in June. They decreased $19.7 billion in May and $63.3 billion in April, but increased $40.1 billion in March. MMFs decreased $29.3 billion in February and $125.1 billion in January. Over the 12 months through 12/31/22, total MMF assets have increased by $19.6 billion, according to the SEC's series. (Month-to-date in January through 1/19, total MMF assets have increased by $5.8 billion, according to our MFI Daily.)
The SEC's stats show that of the $5.235 trillion in assets, $1.051 trillion was in Prime funds, up $10.5 billion in December. Prime assets were up $28.0 billion in November, $36.6 billion in October, $15.8 billion in September, $43.5 billion in August, $56.6 billion in July, $8.5 billion in June and $9.4 billion in May. Prime was down $11.7 billion in April, up $29.5 billion in March, down $2.7 billion in February and up $10.7 billion in January. Prime funds represented 20.1% of total assets at the end of December. They've increased by $234.6 billion, or 28.7%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $4.065 trillion, or 77.6% of assets. They increased $41.3 billion in December and $23.1 billion in November, decreased $12.8 billion in October, $20.8 billion in September and $47.1 billion in August. Govt MMFs increased $8.2 billion in July and $14.4 billion in June. But they decreased by $36.7 billion in May and $57.1 billion in April. They increased $8.7 billion in March, decreased by $25.8 billion in February and $135.2 billion in January. Govt & Treasury MMFs are down $239.8 billion over 12 months, or -5.6%. Tax Exempt Funds increased $3.0 billion to $119.0 billion, or 2.3% of all assets. The number of money funds was 298 in December, down 1 from the previous month and down 14 funds from a year earlier.
Yields for Taxable MMFs and Tax Exempt MMFs jumped yet again in December. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on December 31 was 4.42%, up 45 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 4.58%, up 47 bps from the previous month. Gross yields were 4.27% for Government Funds, up 50 basis points from last month. Gross yields for Treasury Funds were up 40 bps at 4.18%. Gross Yields for Tax Exempt Institutional MMFs were up 200 basis points to 3.57% in December. Gross Yields for Tax Exempt Retail funds were up 165 bps to 3.55%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 4.35%, up 44 bps from the previous month and up 427 basis points from 12/31/21. The Average Net Yield for Prime Retail Funds was 4.31%, up 48 bps from the previous month, and up 429 bps since 12/31/21. Net yields were 4.03% for Government Funds, up 50 bps from last month. Net yields for Treasury Funds were also up 41 bps from the previous month at 3.97%. Net Yields for Tax Exempt Institutional MMFs were up 199 bps from November to 3.46%. Net Yields for Tax Exempt Retail funds were up 164 bps at 3.30% in December. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly down in December. The average Weighted Average Life, or WAL, was 38.9 days (down 1.6 days) for Prime Institutional funds, and 41.3 days for Prime Retail funds (down 5.8 days). Government fund WALs averaged 59.6 days (down 1.9 days) while Treasury fund WALs averaged 59.1 days (down 0.7 days). Tax Exempt Institutional fund WALs were 9.5 days (up 0.3 days), and Tax Exempt Retail MMF WALs averaged 16.2 days (down 0.6 days).
The Weighted Average Maturity, or WAM, was 17.3 days (up 0.1 days from the previous month) for Prime Institutional funds, 14.5 days (up 1.8 days from the previous month) for Prime Retail funds, 11.0 days (down 1.0 days from previous month) for Government funds, and 22.9 days (up 0.6 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 0.6 days to 9.2 days, while Tax Exempt Retail WAMs were down 0.1 days from previous month at 15.9 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.4% in December (up 2.7% from the previous month), and DLA for Prime Retail funds was 47.7% (up 7.3% from previous month) as a percent of total assets. The average DLA was 76.2% for Govt MMFs and 98.7% for Treasury MMFs. Total Weekly Liquid Assets was 66.3% (up 2.3% from the previous month) for Prime Institutional MMFs, and 56.8% (up 3.8% from the previous month) for Prime Retail funds. Average WLA was 86.6% for Govt MMFs and 99.3% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for December 2022," the largest entries included: Canada with $123.4 billion, Japan with $91.2 billion, the U.S. with $81.4B, France with $52.3 billion, Aust/NZ with $36.1B, the U.K. with $27.7B, the Netherlands with $15.3B, Germany with $13.7B and Switzerland with $8.3B. The gainers among the "Prime MMF Holdings by Country" included: Canada (up $15.6B), the U.S. (up $10.7B), Aust/NZ (up $1.0B) and France (up $0.1B). Decreases were shown by: Netherlands (down $22.9B), Germany (down $14.7B), Japan (down $8.9B), the U.K. (down $6.7B) and Switzerland (down $0.3B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $204.8 billion (up $26.3B), while Asia Pacific had $144.0B (down $10.2B). Eurozone subset had $90.2B (down $45.2B), while Europe (non-Eurozone) had $67.9B (down $30.9B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.044 trillion in Prime MMF Portfolios as of December 31, $527.9B (50.6%) was in Government & Treasury securities (direct and repo) (up from $443.0B), $191.4B (18.3%) was in CDs and Time Deposits (down from $251.8B), $170.9B (16.4%) was in Financial Company CP (down from $178.7B), $109.8B (10.5%) was held in Non-Financial CP and Other securities (down from $119.7B), and $43.5B (4.2%) was in ABCP (up from $41.0B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $107.2 billion, Canada with $103.2 billion, France with $49.8 billion, the U.K. with $39.5 billion, Germany with $10.8 billion, Japan with $77.8 billion and Other with $20.7 billion. All MMF Repo with the Federal Reserve was up $336.1 billion in December to $2.340 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 4.5%, Prime Retail MMFs with 4.2%, Tax Exempt Inst MMFs with 0.9%, Tax Exempt Retail MMFs with 2.0%, Govt MMFs with 11.5% and Treasury MMFs with 8.6%.
As we wrote earlier this month (and reprint here), our January MFI issue recognized the top performing money funds, ranked by total returns, for calendar year 2022, as well as the top funds for the past 5-year and 10-year periods. We present the funds below with our annual Money Fund Intelligence Awards. These are given to the No. 1‐ranked funds based on 1-year, 5-year and 10-year returns, through Dec. 31, 2022, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt. (Let us know if you'd like to see our latest Money Fund Intelligence issue with the MFI Awards article or our latest MFI XLS product with the performance data and rankings behind the awards.)
The Top-Performing Prime Institutional fund (and fund overall) was BlackRock Cash Inst MMF SL (BRC01), which returned 1.79%. Excluding private and internal funds, the best performer in 2022 was Allspring Heritage Select (WFJXX) with a return of 1.76%. Among Prime Retail funds, Allspring Money Market Fund Premier (WMPXX) had the best return in 2022 (1.75%).
The Top‐Performing Govt Institutional fund in 2022 was Dreyfus Inst Pref Govt Plus MF (DRF03), which returned 1.71%. American Century US Govt MM G (AGGXX) was the Top Government Retail fund over 1‐year with a return of 1.65%. Dreyfus Treas & Agen Liquidity MMF (DTLXX) ranked No. 1 in the Treasury Institutional class with a return of 1.64%. Vanguard Treasury Money Market (VUSXX) was No. 1 among Treasury Retail funds, returning 1.50%.
For the 5‐year period through Dec. 31, 2022, BlackRock Cash Inst MMF SL (BRC01) took top honors for the best performing Prime Institutional money fund with a return of 1.44%. DWS ESG Liquidity Cap (ESIXX) ranked first (1.39%) when private funds are excluded. Allspring MMF Premium (WMPXX) and Fidelity Inv MM: MM Port Inst (FNSXX) both ranked No. 1 among Prime Retail with annualized returns of 1.33%.
Fidelity Series Govt Money Market Fund (FGNXX) ranked No. 1 among Govt Institutional funds with a return of 1.28%, while Vanguard Cash Reserves Federal MM Adm (VMRXX) ranked No. 1 among Govt Retail funds over the past 5 years with a return of 1.29%. BlackRock Cash Treas MMF SL (BRC03) ranked No. 1 in 5‐year performance among Treasury Inst funds with a return of 1.19%. Dreyfus Treas & Agen Liquidity MMF (DTLXX) was first excluding internal funds (1.18%). Vanguard Treasury Money Market (VUSXX) ranks No. 1 among Treasury Retail funds with a return of 1.18%.
The highest performers of the past 10 years and No. 1 among Prime Inst MMFs were both BlackRock Cash Inst MMF SL (BRC01) and DWS ESG Liquidity Cap (ESIXX), which returned 0.95%. Fidelity Inv MM: MM Port Inst (FNSXX), which returned 0.87%, was best among Prime Retail. Dreyfus Inst Pref Govt Plus MF (DRF03), UBS Liquid Assets Govt Fund (UBS02) and DWS Govt MM Series Instit (ICAXX) returned 0.77%, 0.75% and 0.74% and ranked No. 1, 2, 3 among Govt Inst funds. Vanguard Cash Reserves Federal MM Adm (VMRXX) ranked No. 1 among Govt Retail funds, returning 0.83%.
BlackRock Cash Treas MMF SL (BRC03) returned the most among Treasury Inst funds over the past 10 years at 0.71%. (Dreyfus Inst Pref Treas Obl Inst, Fidelity Inv MM: Treas Port Inst and Invesco Treasury Institutional all tied for No. 1 if restricted funds are excluded with returns of 0.68%.) Vanguard Treasury Money Market (VUSXX) ranked No. 1 among Treasury Retail money market funds at 0.70%.
We also gave out awards for the best‐performing Tax‐Exempt money funds. Federated Hermes Muni Obligs WS (MOFXX) ranked No. 1 among T-E funds over 1-year with a return of 1.15%. Federated Hermes Muni Obligs WS (MOFXX) also ranked No. 1 for the 5-year period ended Dec. 31, 2022 with a return of 0.91%. Vanguard Muni Cash Mgmt Fund ranked No. 1 for the 10-year period with a return of 0.60% (followed by MOFXX).
See the MFI Award Winner listings on page 6 of MFI, and see our latest Money Fund Intelligence XLS for more detailed rankings. The tables on page 6 show the No. 1 ranked money fund for each category based on 1‐year, 5‐year, and 10‐year annualized total returns.
In other news, ICI's latest weekly "Money Market Fund Assets" report shows money fund assets declining after they hit a record $4.814 trillion two weeks ago. Money funds inched lower for the second week in a row following their biggest weekly increase since April 29, 2020; they've still risen by $218.9 billion (or 4.8%) over the past 12 weeks. Over the past 52 weeks, money fund assets are up by $187 billion, or 4.0%, with Retail MMFs rising by $263 billion (17.8%) and Inst MMFs falling by $76 billion (-2.4%). ICI shows assets up by $68 billion, or 1.4%, year-to-date in 2023 (the first 3 weeks), with Institutional MMFs up $7 billion, or 0.2% and Retail MMFs up $61 billion, or 3.6%. (See our Jan. 5 News, "Money Fund Assets Hit Record $5.23 Trillion.")
The weekly release says, "Total money market fund assets decreased by $2.07 billion to $4.80 trillion for the week ended Wednesday, January 18, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $10.76 billion and prime funds increased by $8.61 billion. Tax-exempt money market funds increased by $87 million." ICI's stats show Institutional MMFs falling $7.0 billion and Retail MMFs increasing $5.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.976 trillion (82.8% of all money funds), while Total Prime MMFs were $705.9 billion (14.7%). Tax Exempt MMFs totaled $121.7 billion (2.5%).
ICI explains, "Assets of retail money market funds increased by $4.97 billion to $1.74 trillion. Among retail funds, government money market fund assets decreased by $2.87 billion to $1.18 trillion, prime money market fund assets increased by $7.83 billion to $447.68 billion, and tax-exempt fund assets were unchanged at $108.49 billion." Retail assets account for over a third of total assets, or 36.2%, and Government Retail assets make up 68.0% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $7.03 billion to $3.06 trillion. Among institutional funds, government money market fund assets decreased by $7.89 billion to $2.79 trillion, prime money market fund assets increased by $775 million to $258.18 billion, and tax-exempt fund assets increased by $83 million to $13.18 billion." Institutional assets accounted for 63.8% of all MMF assets, with Government Institutional assets making up 91.1% of all Institutional MMF totals.
Month-to-date in January 2023 (through 1/18/23), money fund assets have decreased by $8.7 billion, according to our Money Fund Intelligence Daily. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. The release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in December, prime money market funds held 46.0 percent of their portfolios in daily liquid assets and 56.4 percent in weekly liquid assets, while government money market funds held 84.7 percent of their portfolios in daily liquid assets and 90.2 percent in weekly liquid assets." Prime DLA was up from 39.2% in November, and Prime WLA was up from 52.3%. Govt MMFs' DLA was up from 84.2% and Govt WLA increased from 89.5% the previous month.
ICI explains, "At the end of December, prime funds had a weighted average maturity (WAM) of 14 days and a weighted average life (WAL) of 45 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 15 days and a WAL of 60 days." Prime WAMs were 2 days longer and WALs were 6 days shorter than the previous month. Govt WAMs were unchanged and WALs were 1 day shorter from November.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $284.14 billion in November to $409.79 billion in December. Government money market funds' holdings attributable to the Americas rose from $3,694.88 billion in November to $3,794.89 billion in December."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $409.8 billion, or 61.6%; Asia and Pacific at $118.1 billion, or 17.8%; Europe at $132.2 billion, or 19.9%; and, Other (including Supranational) at $4.8 billion, or 0.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.795 trillion, or 95.2%; Asia and Pacific at $71.9 billion, or 1.8%; Europe at $107.7 billion, 2.7%, and Other (Including Supranational) at $10.3 billion, or 0.3%.
In related news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Jan. 13) includes Holdings information from 32 money funds (down 8 from two weeks ago), which represent $940.1 billion (down from $1.063 trillion) of the $5.181 trillion (18.1%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $617.0 billion (down from $698.5 billion two weeks ago), or 65.6%; Treasuries totaling $210.4 billion (down from $252.4 billion two weeks ago), or 22.4%, and Government Agency securities totaling $67.9 billion (up from $67.8 billion), or 7.2%. Commercial Paper (CP) totaled $21.6 billion (up from two weeks ago at $21.3 billion), or 2.3%. Certificates of Deposit (CDs) totaled $6.1 billion (down from $6.5 billion two weeks ago), or 0.6%. The Other category accounted for $12.4 billion or 1.3%, while VRDNs accounted for $4.6 billion, or 0.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $434.2 billion (46.2%), the US Treasury with $210.4 billion (22.4% of total holdings), Fixed Income Clearing Corp with $39.9B (4.2%), Federal Home Loan Bank with $37.3B (4.0%), Federal Farm Credit Bank with $28.3B (3.0%), JP Morgan with $19.1B (2.0%), Barclays PLC with $14.4B (1.5%), RBC with $12.5B (1.3%), Nomura with $12.5B (1.3%), and Mitsubishi UFJ Financial Group Inc with $12.3B (1.3%).
The Ten Largest Funds tracked in our latest Weekly include: Dreyfus Govt Cash Mgmt ($171.1B), Morgan Stanley Inst Liq Govt ($132.1B), Allspring Govt MM ($97.3B), State Street Inst US Govt ($82.4B), First American Govt Oblg ($65.4B), Morgan Stanley Inst Liq Treas Sec ($46.2B), Dreyfus Treas Obligations Cash Mgmt ($44.5B), Dreyfus Treas Sec Cash Mg ($42.1B), First American Treas Oblg ($40.4B), and State Street Inst Treasury Plus ($38.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds fell over the past month to $1.034 trillion. USD, EUR & GBP MMFs all declined over the past 30 days. European MMF assets remain below their record high of $1.101 trillion set in mid-December 2021. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $20.4 billion over the 30 days through 1/13. The totals are up $19.2 billion (1.9%) year-to-date. (Note that any increases in the U.S. dollar caused Euro and Sterling totals to decline when they're translated back into dollars. 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.)
Offshore US Dollar money funds are down $4.1 billion over the last 30 days and are up $16.3 billion YTD to $565.8 billion. Euro funds decreased E10.5 billion over the past month. YTD, they're down E0.4 billion to E180.0 billion. GBP money funds decreased L5.2 billion over 30 days; they are up by L2.8 billion YTD to L266.3B. U.S. Dollar (USD) money funds (196) account for half (53.9%) of the "European" money fund total, while Euro (EUR) money funds (91) make up 16.9% and Pound Sterling (GBP) funds (126) total 29.1%. 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 4.23% (7-Day) on average (as of 12/13/22), up from 3.79% a month earlier. Yields averaged 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs finally left negative yield territory 4 months ago; they're yielding 1.70% on average, up from 1.26% a month ago and up from -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 3.28%, up 39 bps from a month ago, and up from 0.01% on 12/31/21. Sterling yields were 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's January MFI International Portfolio Holdings, with data as of 12/31/22, show that European-domiciled US Dollar MMFs, on average, consist of 27% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 35% in Repo, 10% in Treasury securities, 11% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 61.6% of their portfolios maturing Overnight, 4.5% maturing in 2-7 Days, 9.4% maturing in 8-30 Days, 11.3% maturing in 31-60 Days, 4.8% maturing in 61-90 Days, 6.3% maturing in 91-180 Days and 2.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (33.4%), Canada (14.0%), France (12.6%), Japan (11.9%), Sweden (4.8%), the Netherlands (4.1%), Australia (4.0%), the U.K. (3.4%), Germany (1.9%) and Spain (1.6%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $59.5 billion (10.2% of total assets), Federal Reserve Bank of New York with $50.4B (8.7%), Fixed Income Clearing Corp with $34.7B (6.0%), RBC with $22.9B (3.9%), BNP Paribas with $19.1B (3.3%), Sumitomo Mitsui Banking Corp with $18.7B (3.2%), Credit Agricole with $15.4B (2.6%), Bank of Nova Scotia with $14.7B (2.5%), Toronto-Dominion Bank with $13.6B (2.3%) and Mizuho Corporate Bank Ltd with $13.3B (2.3%).
Euro MMFs tracked by Crane Data contain, on average 47% in CP, 27% in CDs, 15% in Other (primarily Time Deposits), 6% in Repo, 5% in Treasuries and 0% in Agency securities. EUR funds have on average 31.5% of their portfolios maturing Overnight, 10.4% maturing in 2-7 Days, 21.8% maturing in 8-30 Days, 20.8% maturing in 31-60 Days, 4.6% maturing in 61-90 Days, 6.5% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (32.1%), Japan (15.0%), the U.S. (6.6%), Germany (6.4%), Canada (5.9%), the U.K. (5.8%), Sweden (5.5%), Belgium (3.8%), the Netherlands (3.6%) and Supranational (2.6%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E8.2B (4.8%), Credit Mutuel with E7.5B (4.4%), Republic of France with E7.4B (4.4%), BNP Paribas with E7.1B (4.2%), Societe Generale with E6.4B (3.8%), Mizuho Corporate Bank Ltd with E6.1B (3.6%), Sumitomo Mitsui Banking Corp with E6.1B (3.6%), Mitsubishi UFJ Financial Group Inc with E5.6B (3.3%), Barclays PLC with E5.1B (3.0%) and BPCE SA with E4.8B (2.8%).
The GBP funds tracked by MFI International contain, on average (as of 12/31/22): 39% in CDs, 22% in CP, 22% in Other (Time Deposits), 13% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 30.6% of their portfolios maturing Overnight, 8.0% maturing in 2-7 Days, 15.6% maturing in 8-30 Days, 29.8% maturing in 31-60 Days, 6.1% maturing in 61-90 Days, 6.7% maturing in 91-180 Days and 3.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (17.6%), Canada (15.9%), France (13.4%), the U.K. (11.5%), the Netherlands (7.0%), Australia (6.6%), Germany (5.4%), Sweden (3.9%), the U.S. (2.7%) and Belgium (2.5%).
The 10 Largest Issuers to "offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L11.2B (5.6%), UK Treasury with L8.9B (4.4%), RBC with L7.6B (3.8%), Sumitomo Mitsui Trust Bank with L7.4B (3.7%), Mizuho Corporate Bank Ltd with L7.0B (3.5%), Bank of Nova Scotia with L6.9B (3.4%), Toronto-Dominion Bank with L6.6B (3.3%), Sumitomo Mitsui Banking Corp with L6.3B (3.1%), Nordea Bank with L6.3B (3.1%) and ABN Amro Bank with L5.2B (2.6%).
The January issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the stories, "Top Stories & Funds of '22: $1 Trillion Decline, Ugly as Sin," which reviews the biggest news of the past year, and "Worldwide BF Assets Drop to $11.2 Trillion, Led by U.S.," which reviews ICI's Q3'22 bond fund totals." BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell slightly in December (after a big rebound in November) while yields were a little higher. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our "Top Stories & Funds" article says, "The party finally came to an ugly end in 2022 as bond funds saw dramatic losses and outflows. Bond assets fell to about $4.5 trillion though bond ETFs remained above $1.2 trillion, as Fed rate hikes and outflows hammered the market. Below, we review last year's top stories from BFI, and also list the top-performing funds from 2022."
It continues, "Bond fund assets saw outflows of three-quarters of a trillion (-$742B) after seeing two straight years of $500 billion plus, double-digit asset gains. They stood at $4.565 trillion as of Nov. 30, 2022, down $1.064 trillion, or -18.9%, from a year earlier, according to ICI data. Bond ETFs totaled $1.261 trillion on 11/30/22, up $47.9 billion, or 3.9%, over 12 months. (Bond fund assets fell by $45.5 billion while Bond ETFs fell by $936 million in December, according to our BFI.) We show the average bond fund losing 8.48% in 2022, after returning 0.76% in 2021, 5.19% in 2020 and -7.46% in 2019."
Our "Worldwide BFs" piece states, "Bond fund assets worldwide decreased sharply in the latest quarter to $11.2 trillion, led lower by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and China. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Third Quarter 2022 <i:https://www.ici.org/statistical-report/ww_q3_22>`_' release and statistics below."
It continues, "ICI's report says, 'Worldwide regulated open-end fund assets decreased 6.1% to $56.19 trillion at the end of the third quarter of 2022.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).'"
Our first News brief, "Returns Decline, Yields Inch Up in Dec." states, "Bond fund returns were mixed in December with short funds rising and most other categories falling slightly. Yields were slightly higher across the board. Our BFI Total Index fell 0.14% over 1-month and is down 8.48% over 12 months. The BFI 100 fell 0.35% in Dec. and lost 9.81% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.38% over 1-month and is up 0.38% for 1-year; Ultra-Shorts rose 0.44% but are down -0.92% over 12 mos. Short-Term returned 0.21% and -4.73%, and Intm-Term fell 0.43% and -11.99% over 1-year. BFI's Long-Term Index fell 0.69% and -15.51%. High Yield fell 0.38% in Dec. and fell 8.45% over 1-year."
A second News brief, "Office of Financial Research's Annual Report cites bond funds as a potential systematic risk. They write, 'Financial institutions face uncertainty and unique challenges due to higher interest rates and inflation, slower economic growth, and geopolitical risks.... Bond fund flows are sensitive to interest rate increases. Significant outflows may strain fixed-income markets. During historical periods of rising interest rates, the size of bond funds was much smaller, and dealer capacity to intermediate was much greater.'"
Another brief, "The FT Writes, 'Big Investors Warm to Bonds After Historic 2022 Sell-Off Boosts Yields <i:https://www.ft.com/content/974e805d-0163-40f7-8068-17473bed3af2>`_,' quotes the FT, 'Big investors are wading back into the bond market after this year's historic sell-off, with fund managers favouring debt relative to other asset classes for the first time since the wake of the 2008 financial crisis.'"
A BFI sidebar, "PIMCO Sees ETF Outflows," cites the Bloomberg story, "Pimco Ranks as 2022's Biggest Loser in $6.5 Trillion ETF Market." It explains, "A brutal 2022 for bonds delivered the worst year ever for Pacific Investment Management Co.'s exchange-traded fund business. Investors pulled nearly $3.6 billion from over 20 Pimco and Allianz-branded funds ... Bloomberg data show.'"
Finally, another sidebar, "'MStar: Ultrashorts Top in '22," says, "Morningstar's '2022's Best-Performing Bond Funds' explains 'In one of the worst years in history for bond funds, there were few places of refuge for investors. Only four Morningstar Medalist funds eked out positive returns in 2022. These funds carry Morningstar Analyst Ratings of Bronze, Silver, or Gold.'"
The U.S. Treasury's Office of Financial Research published its "OFR 2022 Annual Report to Congress" Thursday, which analyzes threats to the financial stability of the U.S. and contains several sections relating to money market funds. Under "Financial Markets and Liquidity, Short-term Funding," they write, "Short-term funding markets support core functions of the financial system, providing liquidity to borrowers and allowing corporations, financial firms, and other investors to meet immediate and near-term cash needs. Consequently, disruptions in funding markets can present serious financial stability risks since they jeopardize institutions' ability to roll over their existing short-term funding obligations and meet pending expenditures."
The report explains, "Funding markets are relatively stable, but market liquidity remains fragile. Market volatility and the impact of Federal Reserve interest rate increases are magnified in short-term markets. First, a protracted period of low interest rates and the Federal Reserve's quantitative easing facilitated risk taking. Second, investors may have taken market liquidity and low price volatility for granted and underestimated the speed and pace of interest rate increases. Third, the market remains vulnerable to liquidity and maturity transformation mismatches for banks and nonbanks. Fourth, there is heightened uncertainty related to the Federal Reserve's monetary policy and its impact on growth, inflation, market sentiment, and market liquidity."
It tells us, "Before the 2007-09 financial crisis, the Federal Reserve primarily controlled the policy rate in the interbank market by adjusting the supply of reserves in the banking system. Since the crisis, U.S. monetary policy has been implemented in an environment with ample reserves, reducing the interbank market's importance for banks' funding. `Now, the Federal Reserve instead pays interest on reserve balances (IORB) to influence banks' overnight rates. Additionally, to broaden support for the floor of overnight rates, the Federal Reserve uses the Overnight Reverse Repo Facility (ON RRP) to support a floor on short-term rates by providing an alternative investment for nonbank financial institutions such as money market funds (MMFs) and government-sponsored enterprises (GSEs). In the ON RRP operation, the Federal Reserve borrows cash overnight at a specified rate from counterparties, secured by collateral from the central bank's Treasury securities portfolio."
The OFR says, "The ON RRP level is very high at $2.4 trillion as of September 30, 2022, an increase of $846.4 billion since the start of 2022. For comparison, during 2020 and the pre-pandemic period, its peak daily usage was $400 billion. Bank reserves dropped 30.1% to $3.0 trillion (as of September 28, 2022) since December 2021, when they reached a high of around $4.3 trillion, but are still regarded as ample. Traditionally, ON RRP usage tends to spike around month- and quarter-end reporting dates when some banks shrink their balance sheets, limiting overnight investment options for cash-rich money market participants. Additionally, GSEs' investment in the ON RRP tends to follow intra-month calendar effects. However, Treasury collateral scarcity and elevated demand for overnight investments pushed rates on private sector overnight repurchase agreements below the ON RRP award rate.... As a result, eligible money market participants invested substantially in the ON RRP, with prime and government MMFs accounting for up to 92% of the total lending to the ON RRP."
The report continues, "Broadly speaking, MMFs comprise a substantial source of short-term funding, given their need to invest large cash balances and to hold mostly short-term investments. The OFR Money Market Fund Monitor shows that total U.S. MMFs' assets under management have hovered around $5 trillion since the early days of the COVID-19 pandemic in 2020. In anticipation of interest rate increases in 2022, MMFs sharply reduced their portfolio holdings' weighted average maturities (WAMs).... MMFs are incentivized to shorten their portfolio WAMs because rate hikes lead to mark-to-market losses on existing security holdings. Shortening the WAM allows MMF managers to reduce losses and increase holdings of newly issued securities with higher yields."
Discussing "Money Market Funds," the OFR tells us, "Money market funds (MMFs) are generally perceived to offer the preservation of capital and liquidity in normal market environments. They are viewed as an alternative to bank deposits and used as a cash management tool by investors. However, MMFs shares are not cash equivalents to the extent that they invest in certain securities that cannot be easily liquidated at par in all markets. They also do not carry the same protections as cash equivalents. Some assets held by MMFs have limited secondary market liquidity and are often held to maturity. The limited liquidity of many money market instruments creates a first-mover advantage that generates run risk whenever investors believe conditions are deteriorating, which can exacerbate moves in asset prices."
They comment, "Banks, particularly foreign-owned banks (FOBs), are large funding recipients of prime and government funds. On average, 60% of credit provided by prime funds and 20% provided by government funds was to FOBs since 2016.... This creates cross-border vulnerabilities, where shocks in both directions can quickly transmit stress across jurisdictions. A related vulnerability is that government MMFs often enter into repurchase agreements with non-U.S. counterparties and purchase Federal Home Loan Bank System debt, exposing MMFs to cross-border and counterparty risks."
The report states, "In December 2021, the SEC proposed amendments to certain rules that govern money market funds under the Investment Company Act of 1940 (Release No. IC-34441). The proposed amendments are intended to improve money market fund resilience and transparency while preserving the core attributes of money market funds. If adopted as-is, the proposed amendments would: 1. Remove the ability of MMFs to impose liquidity fees and redemption gates when they fall below certain liquidity levels; 2. Require swing pricing specifically for institutional prime and tax-exempt MMFs when the funds experience net redemptions, so that redeeming investors bear the liquidity consequences; and 3. Increase the minimum liquidity requirements applicable to money market funds to provide a more substantial buffer for rapid redemptions."
It adds, "While the proposed rules bolster liquidity and shift the liquidity costs of redemptions to redeeming investors, the proposals may not discourage outflows in the tail scenarios that prompted the proposed rules. First, though increasing the liquidity requirements would better position funds to meet redemptions, the lessons from March 2020 may underestimate future risk without similar interventions from the Federal Reserve and the U.S. Treasury. Second, swing pricing may not avert run risk if investors preemptively redeem to benefit from disposing of their shares at the initial net asset value (NAV). This is because that NAV does not reflect the costs of the managers having to potentially sell additional assets at discounted prices to meet additional redemptions. Similar to the fears of redemption rates, MMFs investors may be concerned about absorbing the costs of a fund manager's sudden forced sales. They may preemptively decide to try and sell first—in the process, creating a feedback loop. Third, certain types of MMFs, such as government funds and select retail funds, are exempt from some proposed requirements. However, these types of funds are still susceptible to interest rate, duration, and credit risks and, in turn, to run risk.... And lastly, as noted in the 2020 OFR Annual Report, sponsor support is commonly used to prevent runs, but there is no certainty about the availability or magnitude of sponsor support in future stress periods. This lack of certainty may generate incentives for fund investors to run."
Finally, the OFR says, "In addition, the 2021 OFR Annual Report noted that other cash alternative funds also experienced heavy outflows, contributing to the stress in the funding markets in March 2020. This included dollar-denominated offshore MMFs, bank-managed short-term investment funds (STIFs), local-government investment pools (LGIPs), private liquidity funds, and ultra-short corporate bond mutual funds. These funds serve a similar purpose as MMFs but are subject to varying degrees of regulatory oversight and portfolio transparency. Arguably, investors in these products are inclined to run when markets are under severe stress."
Crane Data's January Money Fund Portfolio Holdings, with data as of Dec. 31, 2022, show that Repo holdings jumped to a record $2.94 trillion, while everything else declined and Treasuries continued a 10-month slide. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $72.6 billion to $5.039 trillion in December, after decreasing $24.6 billion in November, but increasing $57.7 billion in October and $15.2 billion in September. Repo remained the largest portfolio segment and hit record levels, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York, which surpassed the U.S. Treasury as the largest "Issuer" seven months ago, saw RRP issuance held by MMFs jump $320.2 billion to a record $2.319 trillion. Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.
Among taxable money funds, Repurchase Agreements (repo) increased $253.2 billion (9.4%) to $2.940 trillion, or 58.3% of holdings, in December, after decreasing $24.4 billion in November and $6.0 billion in October, but increasing $74.4 billion in September. Treasury securities fell $77.5 billion (-6.8%) to $1.069 trillion, or 21.2% of holdings, after decreasing $65.0 billion in November, $41.8 billion in October and $84.8 billion in September. Government Agency Debt was down $24.5 billion, or -4.2%, to $562.2 billion, or 11.2% of holdings, after increasing $53.6 billion in November, $55.0 billion in October and $35.9 billion in September. Repo, Treasuries and Agency holdings now total $4.571 trillion, representing a massive 90.7% of all taxable holdings.
Money fund holdings of CP and CDs dropped in December. Commercial Paper (CP) decreased $16.9 billion (-6.4%) to $245.8 billion, or 4.9% of holdings, after increasing $7.7 billion in November and $19.3 billion in October, but decreasing $7.8 billion in September. Certificates of Deposit (CDs) decreased $4.3 billion (-2.8%) to $149.5 billion, or 3.0% of taxable assets, after increasing $4.4 billion in November and $15.5 billion in October, but decreasing $1.6 billion in September. Other holdings, primarily Time Deposits, decreased $57.0 billion (-47.2%) to $63.8 billion, or 1.3% of holdings, after decreasing $1.0 billion in November, increasing $16.0 billion in October, and decreasing $1.1 billion in September. VRDNs fell to $9.5 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday around noon.)
Prime money fund assets tracked by Crane Data jumped to $1.029 trillion, or 20.4% of taxable money funds' $5.039 trillion total. Among Prime money funds, CDs represent 14.5% (down from 15.1% a month ago), while Commercial Paper accounted for 24.0% (down from 25.8% in November). The CP totals are comprised of: Financial Company CP, which makes up 16.6% of total holdings, Asset-Backed CP, which accounts for 4.2%, and Non-Financial Company CP, which makes up 3.2%. Prime funds also hold 6.2% in US Govt Agency Debt, 2.7% in US Treasury Debt, 36.7% in US Treasury Repo, 0.4% in Other Instruments, 4.0% in Non-Negotiable Time Deposits, 4.8% in Other Repo, 4.6% in US Government Agency Repo and 0.6% in VRDNs.
Government money fund portfolios totaled $2.722 trillion (54.0% of all MMF assets), up from $2.713 trillion in November, while Treasury money fund assets totaled another $1.288 trillion (25.6%), up from $1.234 trillion the prior month. Government money fund portfolios were made up of 18.3% US Govt Agency Debt, 10.1% US Government Agency Repo, 12.6% US Treasury Debt, 58.8% in US Treasury Repo, 0.1% in Other Instruments. Treasury money funds were comprised of 54.2% US Treasury Debt and 45.7% in US Treasury Repo. Government and Treasury funds combined now total $4.010 trillion, or 79.6% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $105.4 billion in December to $324.4 billion; their share of holdings dropped to 6.4% from last month's 8.7%. Eurozone-affiliated holdings decreased to $211.4 billion from last month's $266.7 billion; they account for 4.2% of overall taxable money fund holdings. Asia & Pacific related holdings dropped to $189.3 billion (3.8% of the total) from last month's $215.4 billion. Americas related holdings rose to $4.523 trillion from last month's $4.317 trillion, and now represent 89.8% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $268.1 billion, or 11.7%, to $2.566 trillion, or 50.9% of assets); US Government Agency Repurchase Agreements (down $19.2 billion, or -5.6%, to $324.3 billion, or 6.4% of total holdings), and Other Repurchase Agreements (up $4.3 billion, or 9.4%, from last month to $49.6 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $7.5 billion to $170.5 billion, or 3.4% of assets), Asset Backed Commercial Paper (up $2.7 billion to $42.8 billion, or 0.8%), and Non-Financial Company Commercial Paper (down $12.1 billion to $32.5 billion, or 0.6%).
The 20 largest Issuers to taxable money market funds as of Dec. 31, 2022, include: the Federal Reserve Bank of New York ($2.319T, 46.0%), US Treasury ($1.069T, 21.2%), Federal Home Loan Bank ($454.0B, 9.0%), Fixed Income Clearing Corp ($109.5B, 2.2%), RBC ($98.8B, 2.0%), Federal Farm Credit Bank ($98.1B, 1.9%), JP Morgan ($63.2B, 1.3%), BNP Paribas ($47.1B, 0.9%), Mitsubishi UFJ Financial Group Inc ($41.1B, 0.8%), Citi ($40.6B, 0.8%), Barclays ($38.3B, 0.8%), Sumitomo Mitsui Banking Corp ($38.2B, 0.8%), Toronto-Dominion Bank ($34.8B, 0.7%), Bank of America ($32.7B, 0.6%), Nomura ($30.3B, 0.6%), Bank of Montreal ($28.8B, 0.6%), Canadian Imperial Bank of Commerce ($27.7B, 0.5%), Mizuho Corporate Bank Ltd ($26.9B, 0.5%), Bank of Nova Scotia ($23.9B, 0.5%) and Credit Agricole ($20.9B, 0.4%).
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: Federal Reserve Bank of New York ($2.319T, 78.9%), Fixed Income Clearing Corp ($109.5, 3.7%), RBC ($70.4, 2.4%), JP Morgan ($56.1, 1.9%), BNP Paribas ($38.8, 1.3%), Nomura ($30.3, 1.0%), Bank of America ($28.2, 1.0%), Barclays ($25.5, 0.9%), Citi ($23.9, 0.8%) and Sumitomo Mitsui Banking Corp ($22.3, 0.8%). The largest users of the $2.319 trillion in Fed RRP include: Goldman Sachs FS Govt ($142.3B), Fidelity Govt Money Market ($136.2B), Vanguard Federal MM Fund ($128.2B), Fidelity Govt Cash Reserves ($125.7B), JPMorgan US Govt MM ($118.1B), Federated Hermes Govt ObI ($83.3B), Dreyfus Govt Cash Mgmt ($82.0B), Morgan Stanley Inst Liq Govt ($74.8B), Fidelity Inv MM: Govt Port ($69.1B) and BlackRock Lq FedFund ($59.0B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($28.3B, 7.0%), Toronto-Dominion Bank ($23.6B, 5.8%), Mizuho Corporate Bank Ltd ($20.8B, 5.1%), Mitsubishi UFJ Financial Group Inc ($20.6B, 5.1%), Bank of Nova Scotia ($17.7B, 4.4%), Citi ($16.7B, 4.1%), Sumitomo Mitsui Banking Corp ($15.9B, 3.9%), Australia & New Zealand Banking Group Ltd ($15.4B, 3.8%), Barclays ($12.8B, 3.1%) and Bank of Montreal ($12.7B, 3.1%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($13.7B, 9.2%), Sumitomo Mitsui Banking Corp ($13.3B, 8.9%), Mizuho Corporate Bank Ltd ($11.3B, 7.5%), Citi ($10.5B, 7.0%), Toronto-Dominion Bank ($10.1B, 6.7%), Canadian Imperial Bank of Commerce ($7.7B, 5.1%), Bank of Nova Scotia ($6.9B, 4.6%), Sumitomo Mitsui Trust Bank ($6.9B, 4.6%), Credit Agricole ($6.0B, 4.0%) and RBC ($5.9B, 3.9%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($15.5B, 7.1%), Toronto-Dominion Bank ($12.5B, 5.7%), Bank of Nova Scotia ($10.3B, 4.7%), Bank of Montreal ($8.7B, 4.0%), National Australia Bank ($8.5B, 3.9%), Barclays ($7.8B, 3.6%), Australia & New Zealand Banking Group ($7.6B, 3.5%), JP Morgan ($7.0B, 3.2%), Societe Generale ($6.6B, 3.0%) and UBS AG ($6.4B, 2.9%).
The largest increases among Issuers include: Federal Reserve Bank of New York (up $320.2B to $2,319.0 trillion), RBC (up $11.3B to $98.8B), Bank of New York Mellon (up $5.0B to $5.0B), UOB Group (up $4.8B to $4.8B), Westpac Banking Corp (up $4.7B to $4.7B), Federal Home Loan Mortgage Corp (up $4.6B to $4.6B), Bank of Montreal (up $4.4B to $28.8B), Macquarie Bank Limited (up $4.1B to $4.1B), Toronto-Dominion Bank (up $3.9B to $34.8B) and First Republic Bank (up $3.4B to $5.1B).
The largest decreases among Issuers of money market securities (including Repo) in December were shown by: US Treasury (down $77.5B to $1.069T), Federal Home Loan Bank (down $25.1B to $454.0B), Barclays PLC (down $23.8B to $38.3B), Fixed Income Clearing Corp (down $15.5B to $109.5B), ING Bank (down $13.3B to $12.2B), Skandinaviska Enskilda Banken AB (down $12.7B to $9.0B), Mizuho Corporate Bank Ltd (down $9.7B to $26.9B), Citi (down $8.3B to $40.6B), BNP Paribas (down $8.2B to $47.1B) and Sumitomo Mitsui Banking Corp (down $7.9B to $38.2B).
The United States remained the largest segment of country-affiliations; it represents 85.2% of holdings, or $4.293 trillion. Canada (4.6%, $229.7B) was in second place, while Japan (3.4%, $173.3B) was No. 3. France (2.2%, $109.1B) occupied fourth place. The United Kingdom (1.4%, $69.0B) remained in fifth place. Australia (0.8%, $39.8B) was in sixth place, followed by Sweden (0.6%, $28.8B) Netherlands (0.6%, $27.7B), Germany (0.5%, $23.1B), and Singapore (0.2%, $11.9B). (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 Dec. 31, 2022, Taxable money funds held 8.5% (down from 70.7%) of their assets in securities maturing Overnight, and another 71.4% maturing in 2-7 days (up from 6.4%). Thus, 79.9% in total matures in 1-7 days. Another 5.5% matures in 8-30 days, while 7.6% matures in 31-60 days. Note that over three-quarters, or 93.0% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 3.4% of taxable securities, while 3.0% matures in 91-180 days, and just 0.7% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our regular monthly update on the new Dec. 31 data for Thursday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Dec. 31, includes holdings information from 991 money funds (down 1 from last month), representing assets of (a record) $5.212 trillion (up from $5.147 trillion). Prime MMFs now total $1.043 trillion, or 20.0% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses and money fund revenues down marginally in December.
Our latest Form N-MFP Summary for All Funds taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds increased to $2.977 trillion (from $2.707 trillion), or 57.1% of all assets. Treasury holdings totaled $1.067 trillion (down from $1.171 trillion), or 20.5% of all holdings, and Government Agency securities totaled $579.8 billion (down from $600.1 billion), or 11.1%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.624 trillion, or a massive 88.7% of all holdings.
Commercial paper (CP) totals $253.7 billion (down from $270.9 billion), or 4.9% of all holdings, and the Other category (primarily Time Deposits) totals $100.2 billion (down from $160.7 billion), or 1.9%. Certificates of Deposit (CDs) total $149.7 billion (down from $154.0 billion), 2.9%, and VRDNs account for $84.7 billion (up from $83.1 billion last month), or 1.6% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $170.9 billion, or 3.3%, in Financial Company Commercial Paper; $43.3 billion or 0.8%, in Asset Backed Commercial Paper; and, $39.5 billion, or 0.8%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.604 trillion, or 50.0%), U.S. Govt Agency Repo ($323.3B, or 6.2%) and Other Repo ($49.7B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $247.7 billion (down from $265.6 billion), or 23.7%; Repo holdings of $477.4 billion (up from $367.3 billion), or 45.8%; Treasury holdings of $32.8 billion (down from $42.0 billion), or 3.1%; CD holdings of $149.7 billion (down from $154.0 billion), or 14.4%; Other (primarily Time Deposits) holdings of $62.0 billion (down from $119.8 billion), or 5.9%; Government Agency holdings of $67.4 billion (down from $79.0 billion), or 6.5% and VRDN holdings of $6.4 billion (up from $6.3 billion), or 0.6%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $170.9 billion (down from $178.7 billion), or 16.4%, in Financial Company Commercial Paper; $43.3 billion (up from $40.8 billion), or 4.2%, in Asset Backed Commercial Paper; and $33.5 billion (down from $46.1 billion), or 3.2%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($380.1 billion, or 36.4%), U.S. Govt Agency Repo ($47.7 billion, or 4.6%), and Other Repo ($49.7 billion, or 4.8%).
In related news, money fund charged expense ratios (Exp%) were a tad lower in December, dropping 1 basis point from the prior month (after jumping earlier in 2022). Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.38%, respectively, as of Dec. 31, 2022. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Tuesday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.26%, down 1 bp from last month's level (18 bps higher than 12/31/21's 0.08%). The average is roughly back at the level (0.27%) as it was on Dec. 31, 2019, so we estimate that funds are now charging normal expenses (but starting to waive some fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.38% as of Dec. 31, 2022, down 1 bp from the month prior and now slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.32% (unchanged from last month), Government Inst MFs expenses average 0.27% (down 1 bp from last month), Treasury Inst MFs expenses average 0.30% (down 1 bp from last month). Treasury Retail MFs expenses currently sit at 0.53%, (up 1 bp from last month), Government Retail MFs expenses yield 0.54% (up 1 bp from last month). Prime Retail MF expenses averaged 0.50% (unchanged from last month). Tax-exempt expenses were down 1 bp to 0.40% on average.
Gross 7-day yields rose again during the month ended Dec. 31, 2022. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 747), shows a 7-day gross yield of 4.26%, up 44 bps from the prior month. The Crane Money Fund Average was 1.72% at the end of 2019, 0.15% at the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was up 43 bps, ending the month at 4.19%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $13.527 billion (as of 12/31/22). Our estimated annualized revenue totals decreased from $13.550B last month but are up from $13.226B two months ago. Revenue levels are still more than four times larger than May's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should remain relatively flat as we enter a seasonally weak period for assets.
Crane Data's latest monthly Money Fund Market Share rankings show assets were mostly higher among the largest U.S. money fund complexes in December. Money market fund assets increased $69.8 billion, or 1.4%, last month to $5.182 trillion. Assets increased by $152.4 billion, or 3.0%, over the past 3 months, and they've increased by $12.5 billion, or 0.2%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Federated Hermes, Schwab, Dreyfus, JPMorgan and BlackRock, which grew assets by $29.8 billion, $27.9B, $24.8B, $21.3B and $11.1B, respectively. Large declines in December were seen by Goldman Sachs and HSBC, which decreased by $38.9 billion and $22.7B, 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, and look at money fund yields, which jumped again in December, below.
Over the past year through Dec. 31, 2022, Schwab (up $132.4B, or 92.1%), American Funds (up $75.3B, or 55.0%), Invesco (up $52.1B, or 59.6%), Fidelity (up $28.9B, or 3.2%), and UBS (up $23.6B, or 49.9%) were the largest gainers. Schwab, Invesco, Dreyfus, Federated Hermes and Fidelity had the largest asset increases over the past 3 months, rising by $67.8B, $31.9B, $30.8B, $27.1B and $25.4B, respectively. The largest decliners over 12 months were seen by: BlackRock (down $85.3B), Northern (down $83.0B), Morgan Stanley (down $53.6B), JP Morgan (down $45.5B) and Allspring (down $34.9B). The largest decliners over 3 months included: SSGA (down $31.1B), Morgan Stanley (down $18.3B), HSBC (down $11.8B), Northern (down $10.2B) and American Funds (down $8.3B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $950.2 billion, or 18.6% of all assets. Fidelity was down $3.5B in December, up $25.4 billion over 3 mos., and up $28.9B over 12 months. BlackRock ranked second with $473.5 billion, or 9.3% market share (up $11.1B, up $1.6B and down $85.3B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $453.3 billion, or 8.9% of assets (up $1.1B, up $2.9B and down $7.1B). JPMorgan ranked fourth with $427.9 billion, or 8.4% market share (up $21.3B, up $15.4B and down $45.5B), while Goldman Sachs was the fifth largest MMF manager with $392.4 billion, or 7.7% of assets (down $38.9B, down $243M and down $11.9B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $367.4 billion, or 7.2% (up $29.8B, up $27.1B and up $18.5B), while Schwab was in seventh place with $278.9 billion, or 5.5% of assets (up $27.9B, up $67.8B and up $132.4B). Dreyfus ($265.1B, or 5.2%) was in eighth place (up $24.8B, up $30.8B and up $11.0B), followed by Morgan Stanley ($243.5B, or 4.8%; down $737M, down $18.3B and down $53.6B). American Funds was in 10th place ($207.5B, or 4.1%; up $131M, down $8.3B and up $75.3B).
The 11th through 20th-largest U.S. money fund managers (in order) include: SSGA ($157.7B, or 3.1%), Allspring (formerly Wells Fargo) ($152.4B, or 3.0%), Invesco ($146.9B, or 2.9%), Northern ($133.8B, or 2.6%), First American ($114.3B, or 2.2%), UBS ($72.2B, or 1.4%), T. Rowe Price ($51.3B, or 1.0%), HSBC ($42.0B, or 0.8%), Western ($37.3B, or 0.7%) and DWS ($36.3B, or 0.7%) and. Crane Data currently tracks 60 U.S. MMF managers, down 1 from last month. (Harbor Money Fund liquidated.)
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: JPMorgan moves up to the No. 3 spot, Goldman Sachs moves up to No. 4, Vanguard moves down to the No. 5 spot, Morgan Stanley moves up to the No. 7 spot, and Schwab falls to the 9th spot. 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 ($959.8 billion), BlackRock ($679.3B), JP Morgan ($617.5B), Goldman Sachs ($530.5B) and Vanguard ($453.3B). Federated Hermes ($374.9B) was in sixth, Morgan Stanley ($305.2B) was seventh, followed by Dreyfus/BNY Mellon ($286.6B), Schwab ($278.9B) and American Funds ($207.5B), 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 January issue of our Money Fund Intelligence and MFI XLS, with data as of 12/31/22, shows that yields jumped again in December across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 747), rose to 3.87% (up 40 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 3.68% (up 33 bps). The MFA's Gross 7-Day Yield rose to 4.19% (up 38 bps), and the Gross 30-Day Yield also moved up to 4.01% (up 32 bps). (Gross yields will be revised Tuesday at noon, though, once we download the SEC's Form N-MFP data for 12/31/22.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.05% (up 47 bps) and an average 30-Day Yield at 3.86% (up 38 bps). The Crane 100 shows a Gross 7-Day Yield of 4.19% (up 44 bps), and a Gross 30-Day Yield of 4.01% (up 36 bps). Our Prime Institutional MF Index (7-day) yielded 4.18% (up 44 bps) as of December 31. The Crane Govt Inst Index was at 3.89% (up 41 bps) and the Treasury Inst Index was at 3.88% (up 39 bps). Thus, the spread between Prime funds and Treasury funds is 30 basis points, and the spread between Prime funds and Govt funds is 29 basis points. The Crane Prime Retail Index yielded 4.00% (up 43 bps), while the Govt Retail Index was 3.60% (up 33 bps), the Treasury Retail Index was 3.69% (up 40 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.11% (up 164 bps) as of December 31.
Gross 7-Day Yields for these indexes to end December were: Prime Inst 4.43% (up 42 bps), Govt Inst 4.15% (up 40 bps), Treasury Inst 4.14% (up 38 bps), Prime Retail 4.38% (up 41 bps), Govt Retail 4.08% (up 32 bps) and Treasury Retail 4.05% (up 37 bps). The Crane Tax Exempt Index dropped to 2.58% (up 112 bps). The Crane 100 MF Index returned on average 0.32% over 1-month, 0.84% over 3-months, 1.44% YTD, 1.44% over the past 1-year, 0.62% over 3-years (annualized), 1.11% over 5-years, and 0.66% over 10-years.
The total number of funds, including taxable and tax-exempt, rose by 1 in December to 890. There are currently 747 taxable funds, up 1 from the previous month, and 143 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 January issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Money Fund Assets Hit Record $5.2 Trillion, Break 2020 High," which reviews the recent surge in MMFs; "Worldwide MF Assets Plunge in Q3'22, Led by China, France," which reviews ICI's latest global money fund asset data; and, "Top Money Funds of 2022; 14th Annual MFI Awards," which covers the highest performing money funds this past year. We also sent out our MFI XLS spreadsheet Monday a.m., and we've updated our Money Fund Wisdom database with 12/31/22 data. Our January Money Fund Portfolio Holdings are scheduled to ship on Wednesday, Jan. 11, and our January Bond Fund Intelligence is scheduled to go out on Friday, Jan. 13.
MFI's "Assets Hit Record" article says, "Money market mutual fund assets jumped to record levels in December and early January. Our Money Fund Intelligence XLS shows assets rising by $70.2 billion last month to an all-time high of $5.184 trillion, and our MFI Daily shows total money fund assets rising by $40.2 billion more in January 2023 (through 1/5) to $5.231 trillion. The latest asset surge breaks May 2020's and December 2021's previous record highs."
It continues, "Assets increased by $47.7 billion in November and by $34.9 billion in October. But according to our MFI XLS, money fund assets increased by just $12.3 billion, or 0.2%, in 2022 (after being in negative territory for most of the year). Taxable Retail MFs increased by $156.2 billion (10.8%) to $1.598 trillion, Taxable Institutional MFs fell by $168.9 billion (-4.6%) to $3.466 trillion, and Tax-Exempt money fund assets rose by $25.0 billion (26.6%) to $119.2 billion."
Our "Worldwide" piece states, "The Investment Company Institute's 'Worldwide Regulated Open-Fund Assets and Flows, Third Quarter 2022' shows that money fund assets globally fell by $176.8 billion, or -2.1%, in Q3’22 to $8.305 trillion. The decreases were led by sharp drops in money funds in China, France, Luxembourg and Ireland. Meanwhile, money funds in the U.S. and Mexico increased. MMF assets worldwide decreased by $145.3 billion, or -1.7%, in the 12 months through 9/30/22, and money funds in the U.S. now represent 55.0% of worldwide assets."
It continues, "ICI's release says, 'Worldwide regulated open-end fund assets decreased 6.1% to $56.19 trillion at the end of the third quarter of 2022, excluding funds of funds. Worldwide net cash outflow to all funds was $33 billion in the third quarter, compared with $146 billion of net outflows in the second quarter of 2022. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the second quarter of 2022 contains statistics from 46 jurisdictions.'"
Our "Top Money Funds" piece states, "This issue recognizes the top performing money funds, ranked by total returns, for calendar year 2022, as well as the top funds for the past 5‐year and 10‐year periods. We present the funds below with our annual Money Fund Intelligence Awards. These are given to the No. 1‐ranked funds based on 1‐year, 5‐year and 10‐year returns, through Dec. 31, 2022, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt."
MFI writes, "The Top-Performing Prime Institutional fund (and fund overall) was BlackRock Cash Inst MMF SL (BRC01), which returned 1.79%. Excluding private and internal funds, the best performer in 2022 was Allspring Heritage Select (WFJXX) with a return of 1.76%. Among Prime Retail funds, Allspring Money Market Fund Premier (WMPXX) had the best return in 2022 (1.75%)."
MFI also includes the News brief, "Bloomberg on 'Starving for Yield? Check Out Money-Market Funds.'" It says, "If you think high-yield savings accounts offer juicy rates to park some cash, wait until you see what money-market funds are paying. Yields ... spiked from 0.02% earlier this year to more than 3.6% as of early December, according to Crane Data's 100 money-market fund index. After this week’s rate increase by the Federal Reserve, money-market fund yields are poised to soar even higher."
Another News brief, "Federated Hermes' Deborah Cunningham Writes, 'Sweet Spot: Cash Should Still Reign.' She says, 'The liquidity industry's gain from stock and bond investor pain should continue in 2023. In particular, with yields rising with each Federal Reserve hike, money markets should retain their status as an in-demand asset class. Money funds in particular should hit a sweet spot even when hikes cease because they are able to invest further out the yield curve to seek higher yields.'"
A sidebar, "MMF Yields Break 4.0%," states, "Money fund yields jumped higher again last month; our Crane 100 Money Fund Index (7-Day Yield) rose 48 basis points to 4.05% in December. Yields are up from 3.59% on Nov. 30, up from 2.88% on Oct. 31 and up from 2.68% on Sept. 30. Yields should be flat or inch higher for a few weeks, then jump again after another expected Feb. 1 hike. The top-yielding money market funds have broken above 4.50% should push towards 5% in 2023."
Another sidebar, "Fed Z.1: Household MFs Jump," says, "The Federal Reserve's latest quarterly 'Z.1 Financial Accounts of the United States' statistical survey shows that Total MMF Assets increased by $52 billion to $5.084 trillion in Q3'22. The Household Sector, by far the largest investor segment with $2.781 trillion, saw an asset increase in Q3. The second largest segment, Nonfinancial Corporate Businesses, also experienced a jump in assets. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also shows asset decreases in MMF holdings for the Other Financial Business and Mutual Funds categories in Q3 2022."
Our January MFI XLS, with December 31 data, shows total assets increased $70.2 billion to $5.184 trillion, after increasing $55.4 billion in November, $42.2 billion in October, $1.7 billion in September, $2.3 billion in August, $26.0 billion in July and $31.9 billion in June. They decreased $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion in March, decreased $34.6 billion in February and decreased $128.1 billion in January.
Our broad Crane Money Fund Average 7-Day Yield was up 40 bps to 3.87%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 47 bps to 4.05% in December. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 4.19% and 4.19%, respectively. Charged Expenses averaged 0.39% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Tuesday once we upload the SEC's Form N-MFP data for 12/31/22.) The average WAM (weighted average maturity) for the Crane MFA was 16 days (unchanged from previous month) while the Crane 100 WAM was lower by one day at 14 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets hitting a record $4.814 trillion, breaking their previous record high of $4.789 trillion (made on May 20, 2020). Money funds showed their biggest weekly increase since April 29, 2020, and they've risen in 8 of the past 10 weeks, jumping by $229.3 billion, or 5.0%, since October 26. Over the past 52 weeks, money fund assets are up by $111 billion, or 2.4%, with Retail MMFs rising by $253 billion (17.2%) and Inst MMFs falling by $124 billion (-3.8%). ICI shows assets up by $79 billion, or 1.7%, year-to-date in 2023 (the first week), with Institutional MMFs up $35 billion, or 1.2% and Retail MMFs up $43 billion, or 2.6%. (See yesterday's Crane Data News, "Money Fund Assets Hit Record $5.23 Trillion; Weekly Holds; Fed Minutes.")
The weekly release says, "Total money market fund assets increased by $78.61 billion to $4.81 trillion for the week ended Wednesday, January 4, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $54.46 billion and prime funds increased by $18.81 billion. Tax-exempt money market funds increased by $5.34 billion." ICI's stats show Institutional MMFs rising $35.4 billion and Retail MMFs increasing $43.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.019 trillion (83.5% of all money funds), while Total Prime MMFs were $678.3 billion (14.1%). Tax Exempt MMFs totaled $115.9 billion (2.4%).
ICI explains, "Assets of retail money market funds increased by $43.25 billion to $1.72 trillion. Among retail funds, government money market fund assets increased by $24.00 billion to $1.19 trillion, prime money market fund assets increased by $15.06 billion to $428.85 billion, and tax-exempt fund assets increased by $4.19 billion to $103.42 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 69.1% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $35.35 billion to $3.09 trillion. Among institutional funds, government money market fund assets increased by $30.47 billion to $2.83 trillion, prime money market fund assets increased by $3.75 billion to $249.48 billion, and tax-exempt fund assets increased by $1.14 billion to $12.43 billion." Institutional assets accounted for 64.2% of all MMF assets, with Government Institutional assets making up 91.5% of all Institutional MMF totals.
As we wrote yesterday, money market mutual fund assets jumped to record levels on the first business day of 2023, according to our Money Fund Intelligence Daily. Crane Data shows total money fund assets rose by $34.2 billion on Tuesday (1/3/23) to an all-time high of $5.225 trillion, breaking previous record highs from early December 2022 and May 2020. Assets increased by $78.7 billion in December and by $58.3 billion in November, according to MFI Daily. (Assets increased another $4.1 billion on Wednesday, 1/4/23.) Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
In other news, a press release entitled, "Office of Financial Research Releases Proposal to Collect Data on Certain Repo Transactions," tells us, "The Office of Financial Research ... proposed a rule to improve transparency in the U.S. repurchase agreement market. The Office proposed collecting daily transaction level data from certain financial companies on their non-centrally cleared bilateral repurchase agreement trades." (See the full proposal here.)
James Martin, OFR's Deputy Director of Operations, comments, "This initiative to provide better visibility into this opaque financial market segment is vital to helping ensure financial stability. When significant stress on U.S. Treasuries spilled into the repo market in March 2020, regulators didn't have full insight into the segment of the repo market where participants were most active, namely the non-centrally cleared bilateral segment. This was due, in part, to the lack of data reported to officials on these transactions."
He adds, "The OFR is proposing to fill this data gap, and provide regulators with more insight into Treasury market functioning, by requiring the largest institutions in the repo market to submit data on their non-centrally cleared bilateral transactions to the OFR each day."
The release explains, "Repurchase agreements are critical to the U.S. financial system's securities and money markets. High-quality data are essential to assess and monitor risks in these markets, but historically little data has been available to regulators on bilateral repo activities. The OFR closed part of this data gap in 2019 by beginning to collect data on centrally cleared transactions and has now turned its attention to the non-centrally cleared bilateral repo market. `This segment of the repo market -- where repo transactions are conducted between two firms without a central counterparty or tri-party custodian -- is a blind spot for regulators and is also the largest of the four repo market segments."
It tells us, "The Financial Stability Oversight Council, among others, recommended that the OFR consider ways to obtain better data on the non-centrally cleared bilateral repurchase agreement market, an important source of leverage for hedge funds. After extensive discussions with market participants and consultations with the Council, as well as a pilot data collection initiative, the OFR chose to move forward with a permanent data collection."
The release states, "Specifically, the OFR proposed that firms submit daily trade and collateral information on all outstanding non-centrally cleared bilateral repurchase agreement transactions. The OFR proposed that covered firms submit 33 data elements each day for all transactions, such as haircut, rate, and optionality. The OFR estimates approximately 40 entities, including primary and nonprimary dealers, and bank- and nonbank-affiliated dealers, will be covered by the rule if adopted. For more information, see the OFR's Notice of Proposed Rulemaking fact sheet."
Money market mutual fund assets jumped to record levels on the first business day of 2023, according to our Money Fund Intelligence Daily. Crane Data shows total money fund assets rose by $34.2 billion on Tuesday (1/3/23) to an all-time high of $5.225 trillion, breaking previous record highs from early December 2022 and May 2020. Assets increased by $78.7 billion in December and by $58.3 billion in November, according to MFI Daily. (Assets have been inflated somewhat by the addition in November of Circle Reserve Fund, USDXX, which has quickly grown to $23.7 billion.) ICI will release its latest weekly asset totals later Thursday (so watch for more News on this tomorrow), and Crane Data will release its monthly MFI XLS totals on Monday, Jan. 9.
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 30) includes Holdings information from 40 money funds (down 14 from two weeks ago), which represent $1.063 trillion (down from $1.702 trillion) of the $5.191 trillion (20.5%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $698.5 billion (down from $1.026 trillion two weeks ago), or 65.7%; Treasuries totaling $252.4 billion (down from $461.7 billion two weeks ago), or 23.8%, and Government Agency securities totaling $67.8 billion (down from $97.0 billion), or 6.4%. Commercial Paper (CP) totaled $21.3 billion (down from two weeks ago at $50.4 billion), or 2.0%. Certificates of Deposit (CDs) totaled $6.5 billion (down from $22.8 billion two weeks ago), or 0.6%. The Other category accounted for $11.3 billion or 1.1%, while VRDNs accounted for $4.9 billion, or 0.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $505.0 billion (47.5%), the US Treasury with $252.4 billion (23.8% of total holdings), Fixed Income Clearing Corp with $46.0B (4.3%), Federal Home Loan Bank with $34.0B (3.2%), Federal Farm Credit Bank with $31.1B (2.9%), JP Morgan with $25.8B (2.4%), RBC with $17.0B (1.6%), Nomura with $12.3B (1.2%), Mitsubishi UFJ Financial Group Inc with $10.1B (1.0%) and BNP Paribas with $9.4B (0.9%).
The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($133.0B), Dreyfus Govt Cash Mgmt ($132.7B), Allspring Govt MM ($98.1B), Invesco Govt & Agency ($86.4B), State Street Inst US Govt ($78.4B), First American Govt Oblg ($68.4B), Morgan Stanley Inst Liq Treas Sec ($51.5B), Dreyfus Treas Obligations Cash Mgmt ($46.6B), Invesco Treasury Portfolio ($44.1B) and Dreyfus Treas Sec Cash Mg ($43.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Finally, the Federal Reserve released its "Minutes of the Federal Open Market Committee, December 13-14, 2022," yesterday, which contained some brief comments on money markets and money funds. They say, "The manager pro tem turned next to a discussion of operations and money markets and assessed that balance sheet runoff was proceeding smoothly. Repurchase agreement (repo) rates firmed modestly relative to the overnight reverse repurchase agreement (ON RRP) facility rate over the period with balance sheet reduction reportedly contributing, in part, to an increase in the demand for financing of Treasury securities. ON RRP balances declined, on net, as money market funds shifted investments out of the ON RRP facility, reportedly in favor of higher rates available in repo markets."
The Minutes state, "In recent months, banks continued to increase their use of wholesale funding. In addition, survey information suggested that banks expected to move deposit rates modestly higher relative to the target range in coming months. Over time, greater competition among banks for funding could contribute to drawdowns in the ON RRP facility. Staff indicated that they would continue to monitor money market conditions closely as balance sheet reduction proceeds."
They continue, "Looking ahead to year end, market participants anticipated limited pressures. The manager pro tem noted that if transitory pressures emerged in money markets, the Federal Reserve's backstop facilities are available to support effective policy implementation and smooth market functioning."
Finally, the Fed adds, "Conditions in short-term funding markets remained stable over the intermeeting period, with the November increase in the target range for the federal funds rate and the associated increases in the Federal Reserve's administered rates passing through quickly to overnight money market rates. In secured markets, repo rates were below the ON RRP offering rate less frequently than in the previous intermeeting period. Daily take-up in the ON RRP facility declined modestly, consistent with the recent firming in overnight repo rates. Net yields on money market funds rose further over the intermeeting period, mostly passing through the increase in administered rates, while bank deposit rates increased only slightly in October and November."
Money fund yields inched higher last week, with our Crane 100 Money Fund Index (7-Day Yield) rising 2 basis points to 4.06% for the week ended Friday, 12/30. Yields rose by 25 basis points the previous week. They're up from 3.59% on Nov. 30, up from 2.88% on Oct. 31 and up from 2.66% on Sept. 30. Yields broke the 4.0% level on Dec. 21, and they should inch a little higher as they digest the last of the Fed's 50 bps hike (then jump again after an expected Feb. 1 hike). The top-yielding money market funds have broken above 4.50% and should move towards 4.75% in coming weeks. (See our "Highest-Yielding Money Funds" table above).
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 680), shows a 7-day yield of 3.93%, up 2 bps in the week through Friday. Prime Inst MFs were up 1 bp to 4.22% in the latest week. Government Inst MFs rose by 1 bp to 3.95%. Treasury Inst MFs up 3 bps for the week at 3.90%. Treasury Retail MFs currently yield 3.70%, Government Retail MFs yield 3.70%, and Prime Retail MFs yield 4.05%, Tax-exempt MF 7-day yields were down at 3.15%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (12/30), every single money market fund (819 total) yields over 2.0%, and almost all are now over 3.0%; 43 funds yield between 2.00% and 2.99% with $16.9 billion, or 0.3%; 458 funds yield between 3.00% and 3.99% ($1.990 trillion, or 38.3%), and 318 funds yield 4.0% or more ($3.184 trillion, or 61.3%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, fell one basis point last week to 0.51% as R.W. Baird tweaked rates lower. The latest Brokerage Sweep Intelligence, with data as of Dec. 30, shows that RW Baird decreased rates to 1.58% for all balances between $1 and $999K, increased rates to 2.40% for balances between $1 million and $1.9 million, and increased rates to 3.08% for all balances over $5 million. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
For the month of December (through 12/31), MMF assets increased by $78.7 billion to $5.191 trillion according to Crane Data's Money Fund Intelligence XLS, which tracks a broader universe of funds than ICI. Crane Data's Prime asset totals, which broke the $1.0 trillion level in November, increased $46.7 billion last month to $1.077 trillion. We expect flows to slow in January as the seasonal strength of November and December subside. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.) According to MFI Daily, our Crane 100 Money Fund Index rose by 47 bps in December to 4.06%, while our broader Crane Money Fund Average rose by 48 bps to 3.93%.
In other news, The Boston Globe writes "For the first time in years, bank CDs are worth it." It says, "What a difference a year makes. Last year about this time, certificates of deposit were generally earning less than 1 percent in interest. But now many banks are advertising CDs that pay more than 4 percent, and they may well rise higher in coming months. People who are looking for safe places to invest can earn a very respectable return by putting cash into a CD. And given the rocky performance of stocks and mutual funds over the past two years, an investment that guarantees a gain is increasingly attractive to some people."
The Globe article continues, "There's little mystery about why interest rates on CDs have surged to some of the highest levels in more than 10 years. Confronted with rapidly rising prices on everything from food to energy, the Federal Reserve steadily ratcheted up its benchmark interest rate this year.... There is no direct relationship between the Fed rate and CD interest rates. But, historically, interest rates on CDs have tended to rise and fall with the Fed rate."
It asks, "What are the basics?" The piece answers, "Like traditional savings accounts, CDs are bank deposits. What's different about CDs is they must remain on deposit for a certain period. With a regular savings account, you can withdraw your money at any time without financial penalty (and you must accept a lower interest rate for the ability to do so). But with a CD you commit to not withdrawing your money for an agreed-upon term. If you nevertheless insist on withdrawing your money, the bank will impose a penalty."
Finally, an article by Benefits Pro, entitled, "Does your 401(k) plan offer the best 'cash' option? What you need to know about capital preservation," tells us, "Any discussion of capital preservation in a defined contribution plan can cause confusion or disinterest amongst plan fiduciaries.... As capital preservation continues to be one of the few asset classes providing participants with a positive nominal rate of return, fixed account products and stable value funds have come to the forefront when fiduciaries speak with recordkeepers and investment managers."
It explains, "Although these may fill the 'cash' bucket of the defined contribution plan investment menu, they might better be viewed as cash-like. Many include unique terms and conditions that could prove challenging in the future. We'll endeavor here to describe the different types of investment products that can be used as the capital preservation offering within a plan menu, discuss how they differ from one another, and explain the considerations that must be evaluated."
Discussing the "3 major capital preservation types," the piece says, "The most well-known of the three major capital preservation types is a money market fund. It is best described as a fixed income mutual fund that invests in short maturity, high credit quality securities. Money market funds are designed to hold a net asset value (NAV) of $1.00, regardless of economic circumstances. Earning a consistent yield can be challenging, as returns are strongly linked to interest rates."
It adds, "Next are stable value funds, which typically hold a diversified portfolio of short- and intermediate-maturity fixed income securities. Stable value funds provide participants with a guaranteed rate of interest dependent on the underlying securities, and they have an explicit expense ratio. Finally, fixed accounts are like stable value funds in that they have a guaranteed interest rate. However, occasionally those rates are negotiated rather than market-based and there may not be an explicit expense ratio."
Investor's Business Daily writes that, "Rising Interest Rates Can Make You Money." The article states, "Debtors hate rising interest rates, but investors? Some are cheering them. Retirees and others focused on holding a diversified portfolio can now get returns with less risk.... Now assets tied to interest rates are back in vogue. Due to the Federal Reserve raising interest rates to tamp down inflation, advisors say they're showing clients investments they haven't touted in years. Assets like CDs, bonds and bond ladders, money market funds, annuities and more are back in fashion. Some of these low-risk assets are offering returns of 6% and more. Perhaps that's less than thrilling -- until you recall that the S&P was down 26.7% in mid-October and the Nasdaq was down more than 32%."
It explains, "Conservative investors have been frustrated by the Fed's policies for more than a decade, when it held interest rates extremely low -- some would say artificially low. These moves pounded the bond market. And they left investors moving more money into stocks and stock-based funds in an effort to pull in returns. 'The fact that the Fed funds rate spent better part of 15 years at or close to zero was certainly a surprise,' said Greg McBride, chief financial analyst at Bankrate.com. Go back to December 1980 and the Fed funds rate was an astounding 19% to 20%, the highest ever. It had raised interest rates in an effort to combat double-digit inflation. By July 1990, inflation was down and the Fed funds rate was 8%, and by February 1995 it was 6%. Even as recently as March 2000, the Fed funds rate was still 6%."
IBD says, "If you haven't shopped for better savings rates for your emergency fund or other cash accounts, now's the time. Those 1% or less bank savings rates are so 2021. Accounts used by investment banks to hold funds between trades (some are money market funds and some are hybrid accounts) have been moving up steadily. 'They're offering 3% or even 4%,' said Reese. And money market fund rates are in the same range, says Bankrate.com. Even some previously stingy banks have started to raise savings interest rates."
Barron's piece, "The Best Income Investing Ideas for 2023," also has a brief section on "Cash Alternatives." They tell us, "Cash has become an appealing asset as short-term rates have risen from near-zero to more than 4%. Yields could hit 5% if the Federal Reserve continues to tighten monetary policy. Investors don't have to do much to get 4% yields now, with the $216 billion Vanguard Federal Money Market fund (VMFXX) yielding 4.2%."
The article explains, "There are plenty of other options. The SPDR Bloomberg 1-3 Month T-bill ETF (BIL) and iShares Short Treasury Bond ETF (SHV) yield over 4% and hold short-maturity Treasuries. The Vanguard Ultra-Short-Term Bond fund (VUBFX) takes a little more risk by holding corporate bonds maturing in less than a year. It yields more than 5%."
Barron's comments, "Berkshire Hathaway's Buffett favors direct investment in ultrasafe U.S. Treasury bills, which have maturities of one year or less. Individual investors can participate in regular auctions of three-, six-, and 12-month bills, as well as those maturing in four or eight weeks. T-bills can be purchased on the TreasuryDirect website or through banks and brokers. The three-month bill now yields 4.2%."
They add, "One nice aspect of Treasury bills, relative to bank certificates of deposit and corporate debt, is that the interest they generate is exempt from state and local taxes. That’s a particularly big plus for investors facing punishing 10%-plus state and local tax rates in New York and California."
In other news, a press release entitled, "Sarah ten Siethoff Named Deputy Director of the Division of Investment Management," tells us, "The Securities and Exchange Commission announced today that Sarah ten Siethoff has been named Deputy Director of the Division of Investment Management. In addition to serving as Deputy Director, Ms. ten Siethoff will continue serving as the Associate Director of the Division's Rulemaking Office, a position she has held since 2018."
SEC Chair Gary Gensler comments, "I thank Sarah ten Siethoff for taking on the role of Deputy Director of the Division of Investment Management. Sarah has provided invaluable counsel both as Acting Director of the Division and as head of its Rulemaking Office. She brings skill, judgment, and leadership to her service to the public, and I look forward to her many contributions in the new year."
William Birdthistle, Director of the Division of Investment Management, adds, "Sarah ten Siethoff provides extraordinary expertise and public service to the Division of Investment Management. We rely deeply upon her leadership in her roles as both the Division's Deputy Director and the head of our Rulemaking Office and are grateful for her willingness to serve in both roles."
"I am honored to serve the Commission in this new additional role and continue working with the talented staff in the Division of Investment Management to advance the Commission’s important mission," says Ms. ten Siethoff. The release adds, "Ms. ten Siethoff served as Acting Director of the Division of Investment Management from January 2021 to December 2021. She joined the Division of Investment Management in 2008 and previously served in a variety of roles in its Rulemaking Office, including Deputy Associate Director and Assistant Director.... Mr. Birdthistle also selected Kaitlin Bottock and Thoreau Bartmann to serve as Co-Chief Counsels of the Division of Investment Management, completing his senior leadership team."
