News Archives: May, 2023
The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for April 2023 on Tuesday. The monthly Trends shows money fund totals hitting record levels again in April after March's historic jump. The March jump ($371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. ICI's monthly "Trends" report shows that money fund assets increased $8.4 billion in April to a record $5.247 trillion. Bond fund assets also increased, jumping $23.3 billion to $4.653 trillion.
Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continue to hold a sizeable lead last month. MMFs have increased by $723.7 billion over the past 12 months. (The bond fund totals don't include bond ETFs, which total $1.362 trillion as of 4/30, according to ICI.) (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $5.8 trillion barrier last week and hit a record last Tuesday, 5/23, rising to $5.817 trillion, but they dipped slightly late last week. 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.)
Money funds' April asset increase follows gains of $371.0 billion in March, $60.0 billion in February, $31.5 billion in January, $105.3 billion in December, $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 last May. For the 12 months through April 30, 2023, money fund assets increased by $723.7 billion, or 16.0%. (For the month of May through 5/26, MMF assets have increased by $122.7 billion to $5.788 trillion according to MFI Daily. Crane Data's Prime asset totals have increased by $19.4 billion in May to $1.190 trillion.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $140.90 billion, or 0.6%, to $23.55 trillion in April, 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 inflow of $1.66 billion in April, compared with an outflow of $20.28 billion in March <b:>`_.... Money market funds had an outflow of $2.59 billion in April, compared with an inflow of $360.64 billion in March. In April funds offered primarily to institutions had an outflow of $21.58 billion and funds offered primarily to individuals had an inflow of $18.99 billion."
The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower last month. Taxable MMFs increased by $13.0 billion in April to $5.139 trillion. Tax-Exempt MMFs decreased $4.6 billion to $107.7 billion. Taxable MMF assets increased year-over-year by $708.7 billion (16.0%), and Tax-Exempt funds rose by $15.1 billion over the past year (16.3%). Bond fund assets increased by $23.3 billion (after increasing $62.0 billion in March) to $4.653 trillion; they've decreased by $390.3 billion (-7.7%) over the past year.
Money funds represent 22.3% of all mutual fund assets (down 0.1% from the previous month), while bond funds account for 19.8%, according to ICI. The total number of money market funds was 280, down 1 from the prior month and down from 301 a year ago. Taxable money funds numbered 232 funds, and tax-exempt money funds numbered 48 funds.
ICI's "Month-End Portfolio Holdings" confirm a jump in Repo and a decrease in Treasuries last month. Repurchase Agreements remained the largest composition segment in April, increasing $18.8 billion, or 0.6%, to $3.011 trillion, or 58.6% of holdings. Repo holdings have increased $835.2 billion, or 38.4%, over the past year. (See our May 10 News, "May Portfolio Holdings: TDs, Repo, CDs, Agencies Jump; Treasuries Drop.")
Treasury holdings in Taxable money funds decreased last month after rising previously; they remain the second largest composition segment. Treasury holdings decreased $31.8 billion, or -3.2%, to $964.8 billion, or 18.8% of holdings. Treasury securities have decreased by $595.8 billion, or -38.2%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $9.3 billion, or -1.3%, to $724.1 billion, or 14.1% of holdings. Agency holdings have increased by $367.1 billion, or 102.8%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $45.7 billion, or 22.1%, to $252.5 billion (4.9% of assets). CDs held by money funds rose by $77.6 billion, or 44.3%, over 12 months. Commercial Paper remained in fifth place, up $8.5 billion, or 5.1%, to $175.0 billion (3.4% of assets). CP increased $47.2 billion, or 36.9%, over one year. Other holdings decreased to $2.5 billion (0.0% of assets), while Notes (including Corporate and Bank) increased to $8.9 billion (0.2% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 57.948 million, while the Number of Funds was unchanged at 232. Over the past 12 months, the number of accounts rose by 673.4 thousand and the number of funds decreased by 10. The Average Maturity of Portfolios was 16 days, up 2 from the record low in February. Over the past 12 months, WAMs of Taxable money have decreased by 12.
As we wrote last Wednesday, the Investment Company Institute recently published its "2023 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. We reviewed much of the money fund content in our May 24 News, "ICI Publishes 2023 Fact Book, Reviews US, Worldwide Money Funds in '22." But below we focus on the numerous "Data Tables" involving "Money Market Mutual Funds." ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution. (Note: Please register ASAP for our Money Fund Symposium show, which will be held June 21-23, 2023 in Atlanta, Ga!)
ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 16 years. (See Table 35 in the Data Tables.) In 2022, according to the Fact Book, there were a total of 291 money funds, down from 305 in 2021, 340 in 2020, 364 in 2019, 802 in 2007, and down from 1,014 in 2001. The number of share classes stood at 1,045 in 2022, down from 1,061 in 2021, 1,108 in 2020, 1,126 in 2018 and 1,998 in 2008.
Table 36, "Money Market Funds: Total Net Assets by Type of Fund," shows that total net assets in taxable U.S. money market funds increased $21.0 billion to a record $4.777 trillion in 2022. At year-end 2022, $3.081 trillion (64.5%) was in institutional money market funds, while $1.696 trillion (35.5%) was in retail money market funds. Breaking the numbers down by fund type, $669.7 billion (14.0%) was in prime funds, $3.995 trillion (83.6%) was in government money market funds, and $112.4 billion (2.4%) was in tax-exempt accounts.
Also, Table 37, "Money Market Funds: Net New Cash Flow by Type of Fund," shows that there was a -$3.9 billion in net new cash flow into money market funds last year. A closer look at the data shows $258.1 billion in net cash outflows into institutional funds and a $254.3 billion cash inflow into retail funds. There were also $252.5 billion in net outflows from Government funds, versus $223.7 billion in net inflows from Prime funds.
Table 39, "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds were $26.6 billion, $13.9 billion of which was reinvested (52.2%). Dividends have been as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.
ICI's Tables 40 and 41, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $3.995 trillion in taxable government money market funds, 13.3% were in U.S. government agency issues, 59.1% were in Repurchase agreements, 17.1% were in U.S. Treasury bills, 10.1% were in Other Treasury securities, and 0.0% was in "Other" assets. The average maturity was 15 days, down 20 days from the end of 2021.
The second table shows that of the $669.7 billion in Prime funds at year-end 2022, 25.3% was in Certificates of deposit, 25.5% was in Commercial paper, 45.2% was in Repurchase agreements, 0.2% was in US government agency issues, 0.2% was in Other Treasury securities, 0.2% was in Corporate notes, 0.2% percent was in Bank notes, 0.1% was in US Treasury bills, 0.2% was in Eurodollar CDs, and 2.8% was in Other assets (which includes Banker's acceptances, municipal securities and cash reserves).
Table 60, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.750 trillion of assets in money funds with Institutional investors, and $3.027 trillion in MMF assets in Individual accounts in 2022.
Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.743 trillion in Total Institutional assets ($1.641 trillion in Institutional funds and another $102.4 billion in Retail funds), $738.5 billion were held by business corporations (42.4%), $757.2 billion were held by financial institutions (43.4%), $172.4 billion were held by nonprofit organizations (9.9%), and $75.4 billion were held by Other (4.3%).
In other news, The Wall Street Journal writes, "Tech Stocks Are Hot But Cash Is Cool." The Jason Zweig column tells us, "It's time for investors to change how they think about cash. The ultimate defensive asset, cash has always been the refuge from a storm in any market. For most of the past 15 years, though, cash has been trash -- almost literally. It earned you nothing, and it dragged down the rest of your portfolio as just about every other asset soared. By keeping interest rates at or near zero, the Federal Reserve was all but ordering you to move your money out of cash."
He writes, "This year, though, cash is far from trash, and it isn't just for defense anymore either. It's become an offensive weapon. You can earn more than 5% on U.S. Treasury bills and on bank certificates of deposit. Although that return doesn't count inflation, it's high enough not only to protect you from a drop in other assets, but to be competitive with them."
The article adds, "Being able to earn 5%-plus with a government guarantee is an advantage investors haven’t had since before the 2008-09 financial crisis. When the risk-free rate is this high, you should think twice about taking risk.... For maturities under one year, Treasurys and money-market funds tend to offer higher returns than CDs, at least for the time being. Even if you're the longest of long-term investors, every once in a while it pays to snap up short-term opportunities."
Securities & Exchange Commission Chair Gary Gensler spoke yesterday before the "2023 ICI Leadership Summit." "" His talk, entitled, "Bear in the Woods" tells us, "There is a saying when you're in the woods. 'You don't have to outrun the bear; you just have to outrun one of your fellow campers.' A bit gruesome, yet this helps explain why investors might try to cash out of investments before the proverbial bear -- of dilution and illiquidity -- catches them. It also helps explain why savers might try to cash out of deposits before that proverbial bear catches them at the bank. Bear this in mind, this is not a new feature of finance; it has been around for centuries. Runs, when otherwise uncorrelated actors suddenly become correlated, have brought down many a financial firm over time. Financial fires at banks and nonbanks alike have led policymakers to put in place laws to prevent such fires and associated runs, as well as to help fire departments contain fires."
He explains, "Registered investment funds have grown to more than $30 trillion, with more than 16,000 funds. More than half of American households and more than 120 million individual Americans own registered funds. When I started on Wall Street, it was less than 6 percent of households. There have been significant innovations over the decades. Money market funds came about in the early 1970s. Individual retirement accounts and 401(k)s began investing in mutual funds after the Revenue Act of 1978. Exchange-traded funds (ETFs) brought even lower costs to investors in the 1990s."
Gensler comments, "The 1940 Acts along with SEC rules to implement them addressed the failures of the Depression-era investment funds and have lowered the risk of financial fires spreading from funds. They've done so through fiduciary duty obligations, liquidity requirements, leverage limits, daily net-asset valuations, and pricing rules for sales and redemptions to help guard against dilution. To be sure, however, risk remains -- particularly in times of stress. Money market funds and open-end bond funds, by their design, have a potential liquidity mismatch -- between investors' ability to redeem daily on the one hand, and on the other, funds' securities holdings that may have lower liquidity."
He says, "Indeed, in 2008 and 2020, sparks emanated from registered funds, particularly money market and open-end bond funds, putting everyday Americans at risk. In 2008, after one money market fund 'broke the buck,' the government's fire departments stepped in with extraordinary actions. The Federal Reserve established liquidity facilities, and the Department of the Treasury temporarily guaranteed money market funds. In response, the SEC sought to address structural issues in these funds through a series of reforms adopted in 2010 and 2014."
Gensler continues, "At the onset of COVID-19, during the 'dash for cash,' again there were calls for fire department support both for money market and open-end bond funds -- in other words, Federal Reserve support. I'm not going to name any names, but you in the industry who called the SEC and other agencies know who you are. The government stepped in yet again to stabilize short-term funding markets, establishing the Money Market Mutual Fund Liquidity Facility and other programs. It also, for the first time, broadened that support to the corporate and municipal bond markets, including through the Secondary Market Corporate Credit Facility and the Municipal Liquidity Facility."
He states, "As these real-world events demonstrate, stress on these funds is not unsubstantiated hypothesis. President's Working Group and Financial Stability Oversight Council reports under several Treasury secretaries and presidents have written about them. The Financial Stability Board has written about them as well. Liquidity and dilution management has been a bedrock principle of open-end funds since the passing of the Investment Company Act. As Commissioner Healy said in the hearings leading to the Act: 'Due to the right of the stockholder to come in and demand a redemption, the [open-end fund] has to keep itself in a very liquid position. That is, it has to be able to turn its securities into money on very short notice.' Recent events are a reminder there is more work to be done. Thus, we've put out proposals intended to address the structural issues and enhance liquidity risk management for both money market and open-end funds."
On the SEC's Money Market Funds Proposals, he says, "Money market funds came about in the 1970s, offering a cash management tool to investors. This was a time when high inflation surpassed Federal Reserve regulations limiting what banks could pay on deposits. Money market funds gave shareholders market-based returns fully backed one to one in the markets. Money market funds and banks both are involved in the transformation of maturity and liquidity risk. Thus, policymakers over the years have put in place laws and rules to address such risks."
Gensler explains, "Based on the reforms of the 1940s and subsequent SEC rules, money market funds' assets are valued on a daily basis as well as priced for redeeming and purchasing shareholders. Money market funds are invested dollar for dollar in readily marketable securities -- in essence, a narrow bank concept. Further, money market funds are invested in instruments with short maturity duration. Subsequent to the SEC reforms adopted in 2014, nearly 80 percent of money market fund assets are in government funds. These funds primarily are invested in and funding the U.S. Treasury and Federal Reserve."
He comments to the ICI, "Such money market funds, though, are not without risk. Remember that bear rattling the campers -- there still is the risk of runs and resulting dilution. Money market funds also have no capital buffer. Money market funds now stand at $5.8 trillion. During the last year, when interest rates were rising, we saw an increase of $717 billion in these funds. Further, given the rise of the digital economy coupled with the higher-rate environment, we might see consequential changes to the deposit and banking landscape. Money market funds could potentially take a greater share."
Gensler also says, "This is all the more reason to update rules last addressed in 2014 to lower the chance the fire department, the Federal Reserve, has to be called in yet again. Given the experience of the last nine years, we proposed changing a rule from 2014 that could be procyclical in times of stress. The proposal would prevent money market funds from imposing limits on redemptions in times of stress, such as so-called 'gates.' We also proposed enhanced liquidity requirements. To better address pricing and reduce dilution in times of stress, we proposed so-called swing pricing as well as alternatives regarding liquidity fees. Such swing pricing or liquidity fees would apply only to institutional prime and tax-exempt money market funds, less than 20 percent of the field. These institutional funds invest in bank-issued commercial paper and certificates of deposit, which tend to be illiquid in stress times."
He adds, "Before I close, I want to touch upon two related forms of collective investment vehicles overseen by bank regulators, short-term investment funds and collective investment funds. Such funds managed by bank trust departments or for certain tax-qualified retirement funds are exempt from SEC oversight. Short-term investment funds, estimated to total more than $300 billion in assets, operate similarly to money market funds. Collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level. The Office of the Comptroller of the Currency last substantively revised rules for short-term investment funds in 2012."
Finally, he says, "Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. There is no limit on leverage, requirement for regular reporting on holdings to investors, or requirement for an independent board. We know from history that financial fires can spread from regulatory gaps as well as herding and network interconnectedness. Such gaps include when regulations don't treat like activities alike. Market participants may then seek to arbitrage such differences. We're in discussions with the bank regulators on these topics."
Gensler concludes, "I hope you can tell from my bear hug of collective investment vehicles that I believe they have really benefited investors. That doesn't mean, though, that we don't need to protect investors from the bear of dilution. To me, this is about getting back to what Roosevelt and Congress were trying to address in 1940 -- that funds are liquid to meet redemptions, and valuations appropriately reflect the prices of the underlying portfolio. We've benefitted from a great deal of feedback on the SEC's proposals. The goal, if adopted, is that the rules help keep investors from getting eaten by the bear and minimize calls for fire department support."
Money fund assets continue rising and hitting record levels daily; they broke the $5.8 trillion level for the first time ever on Monday and inched higher again on Tuesday. Crane Data's Money Fund Intelligence Daily shows assets increasing by 9.6 billion on Tuesday, increasing by $59.7 billion over the week through 5/23 and increasing by $152.2 billion in May month-to-date to a record $5.818 trillion. Retail MMFs have increased by $80.8 billion MTD, while Inst MMFs have increased by $66.7 billion. Tax Exempt MMFs are up $4.7 billion. Prime MMFs are up $24.5 billion on the month so far, and Government MMFs are up $123.0 billion. Treasury MMFs are up $16.5 billion, though Treasury Inst MMFs are off a slight $3.9 billion MTD. (Note: Register and make hotel reservations ASAP for our Money Fund Symposium show, which will be held June 21-23, 2023 in Atlanta, Ga!)
Reuters writes on the news in an article entitled, "US money market fund assets hit record highs despite debt-ceiling fears." It says, "U.S. money market fund assets hit a new record of $5.8 trillion this week as yield-hungry investors continued to turn to the short-term debt securities -- a stark contrast to the 2011 debt-ceiling standoff when there were large outflows from the funds. Money market mutual funds -- a key source of short-term corporate and municipal funding -- have enjoyed $614.8 billion in net inflows so far this year, with $48 billion of those in the past week as of Monday, according to Crane Data."
The article continues, "The influx comes despite growing concerns that the White House and Republican lawmakers may not reach a compromise to raise the $31.4 trillion debt ceiling ahead of a June 1 deadline, pushing the country into a devastating default. Although money market funds are considered safe havens, they have experienced runs during previous crises and government officials and ratings agencies have warned they may continue to be vulnerable to rapid redemptions in times of stress. In 2008, the collapse of Lehman Brothers sparked a run on money market funds, which also experienced severe stress in March 2020 as COVID-19 shut down the economy. Both episodes led the government to backstop the sector and to review its rules."
It explains, "And in the week leading up to the 11th-hour 2011 debt-ceiling deal, which caused Standard & Poor's to downgrade the U.S. credit rating for the first time, investors pulled $66 billion out of money market funds, which at the time held around $2.6 trillion, according to the Investment Company Institute. Investors moved much of the cash into bank deposits."
Reuters adds, "But this time there are several key differences buoying the sector. Those include higher interest rates, with money market funds today offering yields of as much as 5% compared with bank products which generally yield less than 1%. Recent bank failures have also prompted investors to move cash from bank accounts to money funds, said Crane Data President Peter Crane. 'In 2011 you had weakness in money funds anyhow, whereas now you have assets hitting record levels,' he said. 'The tide was going out then and now the cash tide is rising, or is high, and it would take a lot more to reverse that.'"
Finally, they tell us, "Money market funds that invest in Treasuries -- money funds invest in high-quality, liquid, short-term debt, including Treasuries, government agency debt and corporate securities -- are also avoiding exposure to Treasury bills that mature in June, said Crane. 'That's the sort of kryptonite that people are staying away from,' he said."
In other news, the Board of Governors of the Federal Reserve System released its "Minutes of the Federal Open Market Committee, May 2–3, 2023." The Minutes state, "Deposit outflows from small and mid-sized banks largely stopped in late March and April. Although equity prices for regional banks fell further over the period, for the vast majority of banks these declines appeared primarily to reflect expectations for lower profitability rather than solvency concerns. Market participants remained alert to the possibility of another intensification of banking stress."
They also comment, "Regarding the balance sheet and money markets, balance sheet runoff continued to proceed smoothly and overnight secured and unsecured rates continued to trade well within the target range for the federal funds rate. Respondents to the Desk's surveys generally expected that overnight reverse repurchase agreement (ON RRP) balances will remain elevated in the near-term before declining later this year. The ON RRP facility continued to support effective policy implementation and control over the federal funds rate, providing a strong floor for money market rates. Balances at the ON RRP facility remained within their recent range, indicating that use of the facility was not an important factor driving outflows of deposits from the banking system. Use of the ON RRP facility declined at times over the intermeeting period in response to increases in rates on overnight secured money market instruments and on short-term Federal Home Loan Bank debt."
The Fed writes, "U.S. markets for commercial paper (CP) and negotiable certificates of deposit (NCDs) stabilized over the intermeeting period. Spreads for lower-rated nonfinancial CP, which spiked following Silicon Valley Bank's closure, narrowed significantly. Outstanding levels of CP and NCDs increased modestly over the intermeeting period, while the share of short-maturity unsecured issuance of CP and NCDs fell to normal levels, reflecting a net easing of stress associated with regional banks."
They discuss, "Conditions in overnight bank funding and repurchase agreement markets remained stable over the intermeeting period, and the increase of 25 basis points in the Federal Reserve's administered rates following the March FOMC meeting fully passed through to overnight money market rates. The effective federal funds rate printed at 4.83 percent every day during the period, while the Secured Overnight Financing Rate averaged 4.81 percent -- slightly above the offering rate at the ON RRP facility. Daily take-up in the ON RRP facility remained elevated, reflecting continued significant usage by money market mutual funds, ongoing uncertainty around the policy path, and limited supply of alternative investments such as Treasury bills."
The Minutes also say, "With regard to vulnerabilities associated with funding risks, the staff assessed that although funding strains had been notable for some banks, such strains remained low for the banking system as a whole, especially in light of official interventions by the Federal Reserve, the Federal Deposit Insurance Corporation, and the U.S. Department of Treasury to support bank depositors. Outflows of funds from bank deposits in mid-March, which were concentrated at a limited number of banks, had slowed."
They write, "In their discussion of financial stability, various participants commented on recent developments in the banking sector. These participants noted that the banking system was sound and resilient, that actions taken by the Federal Reserve in coordination with other government agencies had served to calm conditions in that sector, but that stresses remained. A number of participants noted that the banking sector was well capitalized overall, and that the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities. These vulnerabilities included significant unrealized losses on assets resulting from rising interest rates, heavy reliance on uninsured deposits, or strained profitability amid higher funding costs."
The Fed adds, "Participants also commented on the susceptibility of some nonbank financial institutions to runs or instability. These included money market funds, which had recently experienced large cash inflows; hedge funds, which tend to use substantial leverage and may hold concentrated positions in some assets with low or zero margin; thinly capitalized nonbank mortgage servicers; and digital asset entities. Many participants mentioned that it is essential that the debt limit be raised in a timely manner to avoid the risk of severely adverse dislocations in the financial system and the broader economy. A few participants noted the importance of orderly functioning of the market for U.S. Treasury securities or stressed the importance of the appropriate authorities continuing to address issues related to the resilience of the market. A number of participants emphasized that the Federal Reserve should maintain readiness to use its liquidity tools, as well as its microprudential and macroprudential regulatory and supervisory tools, to mitigate future financial stability risks."
The Investment Company Institute released its "2023 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition tells us, "With stock markets down across the globe in 2022 -- 19% in the United States, 15% in Europe, and 17% in the Asia-Pacific region -- worldwide total net assets of equity funds, which invest primarily in publicly traded stocks, decreased by 20% to $26.9 trillion at year-end 2022. Bond funds -- which invest primarily in fixed-income securities -- saw their total net assets decrease 16% over the same period, primarily reflecting capital losses on bonds in the United States and Europe of 12% and 14%, respectively. In contrast, net assets of money market funds -- which are generally understood to be regulated funds that are restricted to holding short-term, high-quality debt instruments -- increased slightly." We excerpt from the latest "Fact Book" below.
Discussing "Worldwide" mutual funds (page 12), ICI writes, "Worldwide net sales of money market funds totaled $171 billion in 2022, down from $673 billion in 2021.... The decline in worldwide demand for money market funds was largely driven by a decrease in net sales in the United States and the Asia-Pacific region. Investor demand for money market funds in the United States decreased from $424 billion in 2021 to $10 billion in 2022; and in the Asia-Pacific region, money market funds experienced net inflows of $132 billion in 2022, down from $254 billion in 2021."
They explain, "Investors use money market funds because they are professionally managed, tightly regulated vehicles with holdings limited to high-quality, short-term debt instruments. As such, they are highly liquid, attractive, cash-like alternatives to bank deposits. Generally, demand for money market funds is dependent upon their yields and interest rate risk exposure relative to other high-quality fixed-income securities."
ICI continues, "In the United States, net sales of money market funds fell as purchases by retail investors were offset by redemptions from institutional investors.... In 2022, `short-term interest rates ramped up quickly in the United States, and in the second half of 2022, were higher than longer-dated fixed-income securities. US retail investors were particularly attracted to the relatively high yields and extremely low interest rate risk offered by money market funds, especially in light of the double-digit capital losses seen in stock and bond markets."
They comment, "By contrast, US institutional investors, on net, redeemed cash from money market funds. This development is consistent with historical patterns in institutional money market fund flows during a monetary policy tightening cycle. Because of their size and investment knowledge, some institutional investors can easily invest directly in short-term instruments. This allows those institutional investors to capture higher yields immediately when the Federal Reserve raises the federal funds rate rather than waiting for the yield in a money market fund to catch up as older, lower-yielding short-term securities mature and are replaced with newer, higher-yielding paper."
The Worldwide section adds, "Demand for money market funds in the Asia-Pacific region is dominated by Chinese money market funds, which hold the bulk of money market fund total net assets in the region. The People's Bank of China lowered interest rates in the summer of 2022, as China's economy was affected by the government's zero-COVID policy. As a result, net inflows into money market funds in the Asia-Pacific region in the first half of 2022 turned to net outflows, lowering the overall net sales of money market funds in the region for the year."
Chapter 2, "U.S.-Registered Investment Companies," states, "Total net assets in US-registered investment companies decreased in 2022 to a year-end level of $28.9 trillion, with the vast majority held by mutual funds and ETFs. US-registered investment company total net assets were concentrated in long-term funds, with equity funds alone holding $16.6 trillion -- 57% of all investment company total net assets at year-end 2022.... Bond funds held $5.9 trillion in assets, while money market funds, hybrid funds, and other funds -- such as those that invest primarily in commodities -- held the remaining $6.4 trillion."
It also says, "Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-term assets. Institutional investors also have contributed to the growing demand for ETFs.... Finally, mutual funds (primarily prime money market funds) held 17 percent of the US commercial paper market -- a critical source of short-term funding for many major corporations around the world.... US households and institutions also use money market funds as cash management tools."
ICI writes in Chapter 3, "Overview of Mutual Fund Trends," "With $22.1 trillion in total net assets, the US mutual fund industry remained the largest in the world at year-end 2022. The majority of US mutual fund net assets at year-end 2022 were in long-term mutual funds, with equity funds alone making up 51% of US mutual fund net assets. Money market funds were the second-largest category, with 22% of net assets. Bond funds (20%) and hybrid funds (7%) held the remainder."
They state, "US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and competitive short-term yields.... [D]emand for bond mutual funds weakened considerably in 2022, as the Federal Reserve raised interest rates at the fastest pace in four decades to combat rising inflation, which led to significant losses in bond markets. Demand for money market funds steadily shifted from outflows to inflows as investors -- particularly retail investors -- were attracted to rising short-term yields."
Discussing, "Investors in US Mutual Funds," they comment, "Demand for mutual funds is, in part, related to the types of investors who hold mutual fund shares.... Retail investors also held substantial money market fund net assets ($3.0 trillion), but this was a relatively small share (16%) of their total mutual fund net assets ($19.4 trillion). In contrast, institutional investors, such as nonfinancial businesses, financial institutions, and nonprofit organizations, held a relatively small portion of mutual fund net assets. At year-end 2022, institutions held 12% of mutual fund net assets.... The majority (64%) of the $2.7 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances."
The section on "Money Market Funds" (page 50), explains, "In 2022, money market funds saw net outflows of $4 billion.... Prime money market funds and tax-exempt money market funds received inflows ($224 billion and $25 billion, respectively), but these flows were offset by outflows from government money market funds ($253 billion). Most of the demand for money market funds in 2022 was from retail investors. Retail money market funds had net inflows of $254 billion while institutional money market funds had net outflows of $258 billion."
It continues, "In 2022, short-term interest rates ramped up quickly amid aggressive monetary tightening and by year-end were higher than longer dated fixed-income securities. Retail investors were particularly attracted to rising yields and extremely low interest rate risk offered by money market funds, especially in light of significant capital losses in stock and bond markets. To mitigate these losses, retail investors may have shifted some of their bond fund positions into money market funds to shorten the duration of their fixed-income investments."
Finally, ICI adds, "In contrast, institutional investors, on net, redeemed cash from money market funds -- a development that is consistent with previous monetary policy tightening cycles. Because of their size and investment knowledge, some institutional investors can easily invest directly in short-term instruments. This allows those institutional investors to capture higher yields immediately when the Federal Reserve raises the federal funds rate -- rather than waiting for yields on money market funds to catch up as older, lower-yielding short-term securities mature and are replaced with newer, higher-yielding paper."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $49.9 billion in April to an all-time high of $5.754 trillion. Assets at April month-end were well above their previous $5.70 trillion March 2023 record. The SEC shows that Prime MMFs increased by $36.0 billion in April to $1.186 trillion, Govt & Treasury funds increased $19.3 billion to $4.455 trillion and Tax Exempt funds decreased $5.4 billion to $113.1 billion. Taxable yields jumped again in April after surging in March. 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. (Month-to-date in May through 5/19, total MMF assets have jumped by $129.5 billion to a record $5.795 trillion, according to our MFI Daily.)
April's overall asset increase follows an increase of $364.4 billion in March, $52.1 billion in February, $53.2 billion in January, $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. Assets decreased $9.4 billion in September, but 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. Over the 12 months through 4/30/23, total MMF assets have increased by $717.0 billion, or 14.2%, according to the SEC's series.
The SEC's stats show that of the $5.754 trillion in assets, $1.186 trillion was in Prime funds, up $36.0 billion in April. Prime assets were down $22.2 billion in March, up $35.4 billion in February, $86.2 billion in January, $10.5 billion in December, $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. Prime funds represented 20.6% of total assets at the end of April. They've increased by $344.4 billion, or 40.9%, 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 $4.455 trillion, or 77.4% of assets. They increased $19.3 billion in April, $387.9 billion in March, $16.1 billion in February, decreased $33.2 billion in January and increased $41.3 billion in December and $23.1 billion in November. Govt MMFs decreased $12.8 billion in October, $20.8 billion in September and $47.1 billion in August. They 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. Govt & Treasury MMFs are up $359.7 billion over 12 months, or 8.8%. Tax Exempt Funds decreased $5.4 billion to $113.1 billion, or 2.0% of all assets. The number of money funds was 294 in April, unchanged from the previous month and down 15 funds from a year earlier.
Yields for Taxable MMFs and Tax Exempt MMFs moved higher yet again in April. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on April 30 was 4.96%, up 3 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.02%, up 1 bp from the previous month. Gross yields were 4.90% for Government Funds, up 3 basis points from last month. Gross yields for Treasury Funds were unchanged at 4.74%. Gross Yields for Tax Exempt Institutional MMFs were down 50 basis points to 3.55% in April. Gross Yields for Tax Exempt Retail funds were down 55 bps to 3.45%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 4.89%, up 3 bps from the previous month and up 449 basis points from 4/28/22. The Average Net Yield for Prime Retail Funds was 4.75%, up 1 bp from the previous month, and up 454 bps since 4/28/22. Net yields were 4.66% for Government Funds, up 3 bps from last month. Net yields for Treasury Funds were down 1 bp from the previous month at 4.52%. Net Yields for Tax Exempt Institutional MMFs were down 50 bps from March to 3.43%. Net Yields for Tax Exempt Retail funds were down 55 bps at 3.20% in April. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly down in April. The average Weighted Average Life, or WAL, was 44.1 days (up 4.2 days) for Prime Institutional funds, and 37.6 days for Prime Retail funds (down 0.7 days). Government fund WALs averaged 64.0 days (down 1.8 days) while Treasury fund WALs averaged 48.5 days (up 0.6 days). Tax Exempt Institutional fund WALs were 9.5 days (down 0.5 days), and Tax Exempt Retail MMF WALs averaged 15.3 days (down 1.0 days).
The Weighted Average Maturity, or WAM, was 19.8 days (up 2.1 days from the previous month) for Prime Institutional funds, 16.3 days (down 0.8 days from the previous month) for Prime Retail funds, 18.4 days (up 3.1 days from previous month) for Government funds, and 14.6 days (down 2.6 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.5 days to 9.4 days, while Tax Exempt Retail WAMs were down 0.9 days from previous month at 14.7 days.
Total Daily Liquid Assets for Prime Institutional funds were 51.7% in April (down 3.2% from the previous month), and DLA for Prime Retail funds was 46.2% (down 4.3% from previous month) as a percent of total assets. The average DLA was 68.8% for Govt MMFs and 97.7% for Treasury MMFs. Total Weekly Liquid Assets was 67.2% (down 0.7% from the previous month) for Prime Institutional MMFs, and 63.7% (up 2.2% from the previous month) for Prime Retail funds. Average WLA was 81.2% for Govt MMFs and 98.5% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for April 2023," the largest entries included: Canada with $113.9 billion, the U.S. with $97.7B, Japan with $94.3 billion, France with $81.6 billion, the Netherlands with $41.6B, Germany with $36.0B, the U.K. with $34.6B, Aust/NZ with $26.3B and Switzerland with $5.6B. The gainers among the "Prime MMF Holdings by Country" included: France (up $18.4B), Germany (up $14.3B), Japan (up $6.8B), Canada (up $3.3B), the U.K. (up $1.5B) and Netherlands (up $0.9B). Decreases were shown by: Aust/NZ (down $7.7B), the U.S. (down $1.2B) and Switzerland (down $0.2B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $211.6 billion (up $2.1B), while Eurozone had $177.6B (up $41.9B). Asia Pacific subset had $142.1B (down $0.7B), while Europe (non-Eurozone) had $91.5B (up $11.5B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.174 trillion in Prime MMF Portfolios as of April 28, $557.4B (47.5%) was in Government & Treasury securities (direct and repo) (down from $584.8B), $281.3B (24.0%) was in CDs and Time Deposits (up from $229.0B), $164.4B (14.0%) was in Financial Company CP (up from $159.8B), $126.4B (10.8%) was held in Non-Financial CP and Other securities (up from $118.4B), and $44.8B (3.8%) was in ABCP (down from $45.1B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $247.2 billion, Canada with $106.1 billion, France with $114.0 billion, the U.K. with $70.3 billion, Germany with $11.7 billion, Japan with $93.4 billion and Other with $35.1 billion. All MMF Repo with the Federal Reserve was down $17.1 billion in April to $2.214 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.4%, Prime Retail MMFs with 4.1%, Tax Exempt Inst MMFs with 0.2%, Tax Exempt Retail MMFs with 1.5%, Govt MMFs with 13.7% and Treasury MMFs with 8.1%.
Dreyfus published a Q&A and hosted a webinar entitled, "Unpacking the Debt Ceiling," which featured CIO John Tobin and Head of Portfolio Management & Trading Frank Gutierrez. It asks, "How likely is it that the debt ceiling limit will be breached without resolution?" They write, "We believe it is likely that Congress will resolve the current debt ceiling debate. Congress has faced debt ceiling concerns 78 times since 1960 and, in every instance, has raised or suspended the debt limit." (Note: Register and make hotel reservations ASAP for our Money Fund Symposium show, which will be held in just one month, June 21-23, 2023 in Atlanta, Ga!)
The Q&A also queries, "What is the likelihood that a failure to raise the US debt ceiling would result in a technical default?" Dreyfus replies, "We believe a technical default is unlikely as the US government has never failed to raise or suspend the ceiling since it was introduced in 1917. Also, the US Treasury has indicated that, if the debt ceiling is not raised or suspended in a timely manner, they would have the ability to prioritize Treasury principal and interest payments over other non-debt payments to preserve the full faith and credit of the United States. A technical default will have serious ramifications for the US economy and financial markets, very likely pushing Congress to solve the debt ceiling quickly. Even in the worst-case scenario of a default, markets expect that the Treasury would ultimately make investors whole on any missed principal or interest payments."
The piece continues, "How would money market funds handle a technical default of a Treasury held in a portfolio? A technical default would not require the immediate sale of US Treasury or government securities. There are no cross-default provisions on US Treasuries, meaning that a technical default would be security-specific and not applicable to all US government debt. Additionally, money market funds normally carry higher daily and weekly liquidity levels than required by Rule 2a7, which helps cushion net asset value (NAV) volatility and fund liquidity."
It explains, "Further, all government money market funds calculate a 'shadow NAV' each day, which calculates a portfolio's NAV based on mark-to-market pricing and quantifies the impact from any Treasury pricing changes. With the narrow universe of Treasuries impacted by the X date, we don't believe there will be a material impact to shadow NAVs."
Dreyfus also asks, "Are the credit ratings of the US government at risk, and if so, how would a downgrade impact money market funds?" They comment, "The United States is currently rated Aaa/P-1 by Moody's, AA+/A-1+ by S&P, and AAA/F-1+ by Fitch, each considered a high-grade rating. All three rating agencies maintain a stable outlook. The rating agencies view the risk of a technical default by the US as low. There is some variance as to how the rating agencies would address outcomes pertaining to the debt ceiling."
It states, "For instance, Fitch differs from Moody's and S&P in that Fitch would view prioritization of debt service payments over other obligations as being inconsistent with a AAA rating, although the magnitude of such a rating action is expected to be limited. Moody's would classify it as an event of default; however, they indicated that the rating would likely remain close to the highest level based on the expectation that the default would be short-lived with a recovery rate of 100%. Similarly, S&P and Fitch have indicated that they could temporarily assign a technical default rating (SD from S&P or RD from Fitch) if payments are delayed, with ratings returning to a level close to the highest level once the technical default is resolved. Importantly, a technical default would not require immediate sale of US Treasury or US government securities. There are no cross-default provisions on US Treasuries, so a technical default would be security-specific and not applicable to all US government debt."
The piece says, "We do not believe any AAA money market fund is at risk for a downgrade because of a Treasury technical default. In such a scenario, there is no expectation that the ratings on the underlying security would permanently change and/or fall below the threshold of required rating agency minimums. In addition, as outlined earlier, we don't expect that any temporary mark-to-market pricing changes would materially impact overall portfolio pricing sufficiently to put AAA ratings in jeopardy."
It also asks, "Would the Dreyfus Fund Board consider fees or gates for government money funds? Our government and treasury money market funds are not subject to fees and gates. Fund boards can choose to implement fees and gates but must provide a 60-day written notice to current investors. Dreyfus has never implemented fees and redemption gates on its government money market funds."
Dreyfus writes, "Could government money market funds 'break the buck'? 'Breaking the buck' occurs when the mark-to-market value of a fund's NAV drops below $0.9950, or more than 50 basis points below $1.00. We do not believe a short-term technical default would cause any money market fund to break the buck."
They continue, "What steps have we taken to enhance the ability of Dreyfus money market portfolios holding US Treasury or government securities to maintain stable NAVs? Dreyfus money market portfolios continue to maintain stable NAVs with liquidity levels well in excess of the daily and weekly requirements of Rule 2a-7, which is the principal rule governing money market funds. Moreover, our approved repurchase agreement (repo) counterparties are carefully reviewed by our Credit Team, approved by our Credit Committee, and subject to ongoing monitoring. As mentioned previously, we do not have any exposure to Treasury securities maturing in June."
The update adds, "Further, we routinely perform scenario analysis and stress tests on our money market funds against a range of hypothetical events. Our stress-testing practices are designed to assist portfolio managers in positioning portfolios to withstand reasonably foreseeable adverse market scenarios with minimal NAV impact."
Finally, they ask, "How does Dreyfus mitigate the risk of mark-to-market values of Treasury collateral supporting repurchase agreements? Repurchase agreements are a cornerstone of the money markets and facilitate liquidity and late-day trading for money market funds. We maintain repo relationships with highly rated financial institutions, which are approved as counterparties on an unsecured basis, so having collateral pledged in a repo transaction represents an extra layer of security. Should any of the repo collateral decline in value, such as US Treasuries affected by debt ceiling concerns, the triparty custodian is obligated to increase the collateral to fully collateralize the position. Collateral agreements between Dreyfus and the repo counterparty define specifically what collateral is allowed."
The Investment Company Institute's most recent "Money Market Fund Assets" report shows MMFs hitting record levels for the fourth week in a row and for the 9th week out of the past 10. Assets have risen by $521.3 billion, or 10.8%, over the past 12 weeks! ICI shows assets up by $607 billion, or 12.8%, year-to-date in 2023, with Institutional MMFs up $333 billion, or 10.9% and Retail MMFs up $274 billion, or 16.3%. Over the past 52 weeks, money fund assets have risen $857 billion, or 19.1%, with Retail MMFs rising by $534 billion (37.6%) and Inst MMFs rising by $323 billion (10.5%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record $5.763 trillion on Wednesday, 5/17. 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.)
The weekly release says, "Total money market fund assets increased by $13.56 billion to $5.34 trillion for the week ended Wednesday, May 17, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $9.55 billion and prime funds increased by $4.14 billion. Tax-exempt money market funds decreased by $130 million." ICI's stats show Institutional MMFs falling $0.6 billion and Retail MMFs rising $14.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.440 trillion (83.1% of all money funds), while Total Prime MMFs were $789.3 billion (14.8%). Tax Exempt MMFs totaled $112.7 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $14.17 billion to $1.95 trillion. Among retail funds, government money market fund assets increased by $7.44 billion to $1.32 trillion, prime money market fund assets increased by $6.77 billion to $532.04 billion, and tax-exempt fund assets decreased by $36 million to $102.09 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 67.5% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $616 million to $3.39 trillion. Among institutional funds, government money market fund assets increased by $2.11 billion to $3.12 trillion, prime money market fund assets decreased by $2.63 billion to $257.28 billion, and tax-exempt fund assets decreased by $94 million to $10.65 billion." Institutional assets accounted for 63.5% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals.
In other news, the Federal Reserve Bank of New York posted an article on its "Liberty Street Economics" blog entitled, "Banks' Balance-Sheet Costs and ON RRP Investment," which tells us, "Daily investment at the Federal Reserve's Overnight Reverse Repo (ON RRP) facility increased from a few billion dollars in March 2021 to more than $2.3 trillion in June 2022 and has stayed above $2 trillion since then. In this post, which is based on a recent staff report, we discuss two channels -- a deposit channel and a wholesale short-term debt channel -- through which banks' balance-sheet costs have increased investment by money market mutual funds (MMFs) in the ON RRP facility."
It says, "To facilitate financial intermediation by banks during the COVID-19 crisis, starting in April 2020 for bank holding companies and in June 2020 for depository institutions, the Federal Reserve excluded central bank reserves and U.S. Treasury securities from the SLR calculation. The temporary measure reduced regulatory pressure on the size of banks' balance sheets. When the measure expired on March 31, 2021, Treasury securities and reserves were again included in the SLR calculation, increasing banks' balance-sheet costs relative to the relief period. Our research shows that these tighter balance-sheet constraints increased MMFs' investment at the ON RRP facility through a deposit channel and through a wholesale short-term debt channel."
The paper continues, "Following the expiration of the SLR relief, banks subject to the SLR had an incentive to respond to the increase in balance-sheet costs by pushing deposits toward their affiliated MMFs (for example, MMFs sponsored by an asset manager belonging to the same bank-holding company). These affiliated MMFs should have therefore seen greater inflows after March 2021 compared to MMFs that are not affiliated with banks subject to the SLR. Indeed, the chart below shows that after the SLR relief expired, MMFs affiliated with banks subject to SLR grew larger relative to other MMFs."
It states, "We find that, on average, an MMF affiliated with a bank subject to the SLR grew $2.7 billion more than a non-affiliated MMF after the SLR relief period. The effect is stronger for government funds (which are closer substitutes for bank deposits than prime funds) and for funds eligible to invest in the ON RRP (which can easily accommodate large inflows by placing cash at the facility). To highlight how the tightness of the SLR constraint affects inflows to MMFs after the SLR-relief period, we additionally show that MMFs affiliated with banks closer to their SLR requirement experienced greater inflows."
The update adds, "Banks' balance-sheet constraints also limit MMFs' investment options by reducing banks' incentives to borrow in the wholesale funding market. Banks and especially dealers affiliated with bank holding companies are key intermediaries in the repo market, obtaining a significant proportion of their funding from MMFs. From the perspective of MMFs, banks' repos are an important investment option. If tighter balance-sheet constraints incentivize banks to reduce their issuance of wholesale short-term debt securities, including overnight repos, MMFs may turn to alternative, yet similar, investment opportunities, such as the ON RRP. Indeed, the next chart shows that, while MMFs' ON RRP usage increased substantially after the expiration of the SLR relief, MMFs' holdings of Treasury-backed private repos -- which are mainly issued by banks and dealers affiliated with bank holding companies -- decreased."
The blog also says, "To identify the impact of banks' balance-sheet costs on MMFs' ON RRP investment through the wholesale short-term funding channel, we exploit the fact that a reduction in banks' supply of repos affects government funds more than prime funds, since government funds can only lend to private counterparties via repos. This portfolio restriction, in practice, constrains government funds to only lend to banks and their affiliated dealers as banks and dealers are the main repo borrowers among the set of MMF counterparties. Prime funds, in contrast, can also lend to non-financial corporations and local governments. In a regression setting, we show that the share of ON RRP investment in the portfolio of government funds increased by 19 percentage points more than that of prime funds after the SLR relief ended."
It summarizes, "In this post, we explore how banks' balance-sheet constraints impact MMFs' investment in the ON RRP facility. We identify two channels: a deposit channel and a wholesale short-term debt channel. Through the deposit channel, constrained banks push excess deposits into affiliated MMFs, causing an increase in the size of the MMF industry and, therefore, in its ON RRP usage. Through the wholesale short-term debt channel, constrained banks also reduce their demand for wholesale short-term borrowing, causing MMFs to replace their private repo lending to banks with ON RRP investment."
Forbes recently published, "The Great Yield Chase: Why A Trillion Has Fled Traditional Bank Accounts," which is subtitled, "Rising interest rates and a trio of regional bank failures have turbocharged the movement of cash into higher yielding alternatives -- particularly money market mutual funds. Here's how to bump up your own yield." The piece says, "The movement of funds out of traditional bank accounts started slowly at first in the spring of 2022, after the Federal Reserve belatedly began its battle against pandemic-era inflation by raising interest rates. It accelerated dramatically this past March, when Silicon Valley Bank became the first of three large regional banks to fail this year. In all, over the past 13 months, a staggering $1 trillion in deposits has left the commercial banking system."
It continues, "No, despite the lightning speed bank run that toppled SVB, depositors haven't been panicking en masse. They aren't pulling money out of the banking system to stuff into their mattresses -- U.S. commercial banks still hold $17.15 trillion in deposits. Instead, bank customers have awakened to the fact that without much extra effort or risk, they can be earning 3% or 4% or even 5% in interest a year on cash they have left sitting in traditional bank checking and savings accounts earning little or nothing.... Margaret Wright [of] Truist Wealth in Atlanta [comments], 'We've all been so yield starved.... All of a sudden you see these percentages and people are excited.'"
Forbes explains, "All but 0.25% of that 5% percentage point increase came before the failure of Silicon Valley Bank this past March 10th. Yet the riveting drama -- complete with a Twitter fed bank run -- focused public attention on the reality that money can be moved quickly and easily, and that bank deposits that exceed the $250,000 guaranteed by the Federal Deposit Insurance Corp. aren't necessarily risk free."
They summarize, "The big winner from that wake up call? Money market mutual funds. During six weeks after the SVB failure, Moody's reports, commercial bank deposits decreased $399 billion, while money market fund assets increased $342 billion. 'You really saw dramatic change after the bank failures started and people, both retail and institutional, turned smartly back to money market fund products,' Neal Epstein, a senior credit officer at Moody's, says. 'It's a combination of safety and yield.'"
The piece adds, "According to the FDIC, as of mid-April, banks were paying an average annual interest rate of 0.06% on interest checking (many checking accounts don't pay interest at all); 0.39% on traditional savings accounts; and 0.57% on money market savings accounts. By contrast, the 100 largest money market mutual funds now pay an average of 4.83% according to Crane Data."
Forbes also recently wrote, "What A Debt Ceiling Crisis Could Mean For Money Market Funds," which asks, "Are your money market funds about to get steamrolled if Congress fumbles the debt ceiling and the U.S. Treasury defaults on its debt? In the bleakest scenario, some money market mutual funds could 'break the buck.' That's when a fund's price per share -- or its so-called net asset value (NAV) -- slides below $1. If that came to pass, panicked shareholders might yank out their money, forcing the funds to unload depressed assets at a loss."
In related news, J.P. Morgan Securities' new "Mid-Week US Short Duration Update" contains a "T-bill holders update." They write, "The primary holders of T-bills continue to evolve. MMFs significantly reduced their T-bill holdings during the first three months of 2023, comprising just 11% of the market at March-end, significantly below their year-end level of 16%.... Since the onset of the banking turmoil, depositors migrated nearly $400bn to MMFs during March, with government funds devoting a larger portion of that cash towards repo (including RRP) and agency debt."
The brief continues, "Interestingly, T-bill outstandings increased by 10%, or $371bn, during 1Q23, with the largest buyers possibly being corporates, SMAs and other similar accounts. Indeed, as of March-end, we estimate buyers that do not have access to the Fed's balance sheet held a staggering 70% of T-bills, while those that do have access only held 30% of total outstandings."
It states, "The Fed's ON RRP clearly continues to be utilized by MMFs, as evident in the current $2.2tn balance at the facility. In the near term, we suspect RRP usage will likely stay elevated, particularly as debt ceiling concerns remain forefront. With that said, our Treasury strategists are forecasting an X-date (when Treasury will likely exhaust all available resources) of June 7, with risks being skewed towards an even earlier date.... We suspect investors without access to the RRP facility will continue to tread carefully in the T-bill market and will likely extend maturities beyond the X-date. Meanwhile, some investors that might not be subject to the same headline risk as MMFs could continue to remain buyers of T-bills."
JPM adds, "Once a debt ceiling resolution is passed, our Treasury strategists foresee additional T-bill supply, bringing the CY23 net issuance total to $1,438bn.... The additional T-bill supply following a debt ceiling resolution will undoubtedly be welcomed by MMFs, and will likely help drain balances from the RRP facility and possibly bring MMFs' market share higher than their March-end levels."
Crane Data's latest Money Fund Portfolio Holdings data show money market funds with $998 billion in Treasury securities as of April 30, 2023 (out of a total of $5.595 trillion in taxable MMFs, or 17.8%). Of the $998 billion, 27.9% matures overnight, 13.3% matures in 2-7 days, 40.9% matures in 8-30 days, 11.72% matures in 31-60 days, 1.99% matures in 61-90 days and 4.17% matures in over 90 days. Our April 30 data shows just $12.25 billion of Treasuries maturing on June 1, $26.73 billion maturing on June 6, $8.58 billion maturing on June 8, $11.38 billion maturing on June 13, $9.47 billion maturing on June 15, $11.59 billion maturing on June 20, $4.85 billion maturing on June 22, $19.77 billion maturing on June 27, $6.10 billion maturing on June 29 and $368.6 million maturing on June 30.
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 May 12) includes Holdings information from 71 money funds (up 14 from two weeks ago), which totals $2.891 trillion (up from $2.495 trillion) of the $5.749 trillion in total money fund assets (or 50.3%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.706 trillion (up from $1.423 trillion two weeks ago), or 59.0%; Treasuries totaling $693.6 billion (up from $643.9 billion two weeks ago), or 24.0%, and Government Agency securities totaling $277.0 billion (up from $250.5 billion), or 9.6%. Commercial Paper (CP) totaled $70.1 billion (up from two weeks ago at $55.4 billion), or 2.4%. Certificates of Deposit (CDs) totaled $55.1 billion (up from $52.7 billion two weeks ago), or 1.9%. The Other category accounted for $62.3 billion or 2.2%, while VRDNs accounted for $27.1 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $1.081 trillion (37.4%), the US Treasury with $693.2 billion (24.0% of total holdings), Federal Home Loan Bank with $222.2B (7.7%), Fixed Income Clearing Corp with $152.9B (5.3%), Federal Farm Credit Bank with $49.5B (1.7%), JP Morgan with $47.6B (1.6%), Citi with $44.6B (1.5%), BNP Paribas with $36.3B (1.3%), Barclays PLC with $35.5B (1.2%) and RBC with $31.3B (1.1%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($269.4B), JPMorgan US Govt MM ($243.3B), Fidelity Inv MM: Govt Port ($177.5B), Morgan Stanley Inst Liq Govt ($161.1B), JPMorgan 100% US Treas MMkt ($136.9B), BlackRock Lq FedFund ($133.3B), Dreyfus Govt Cash Mgmt ($119.5B), Goldman Sachs FS Treas Instruments ($113.1B), BlackRock Lq Treas Tr ($104.1B) and Fidelity Inv MM: MM Port ($98.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
In other news, the Atlantic Council writes, "The US debt ceiling stalemate threatens money market funds -- and financial stability." They explain, "The current crisis among US regional banks has caused a huge outflow of bank deposits to money market funds (MMFs) offering higher interest rates. But MMFs are exposed to one of the greatest risks currently facing the global economy: the possibility that the US breaches its debt ceiling and defaults on its debt."
The piece continues, "Over the past year, bank deposits fell by almost $1 trillion while assets under management (AUM) of the MMFs increased by $700 billion. MMFs were growing before the banking turmoil, too: AUM has increased by $1.7 trillion since the beginning of 2020, to $5.7 trillion at present. Since MMFs largely invest in US Treasury bills [sic], their status as a safe and attractive alternative to bank deposits would be threatened if the national debt ceiling stalemate cannot be resolved in time. A debt ceiling breach would put in doubt the government's ability to meet its obligations, as soon as June 1."
It states, "This is known as the X-date when the Treasury Department will have exhausted all extraordinary measures to avoid breaching the $31.4 trillion debt ceiling. Even if the stalemate is resolved at the last moment, as market participants currently expect, the increase in the probability of government default would elevate uncertainty and further unsettle financial markets which have already been under stress. The tail-end risk of a messy and prolonged debt ceiling stalemate is higher this time around than previously -- and money markets will be the first to react if a deal isn't reached in time."
The Atlantic Council update claims, "MMFs are vulnerable to disruptions in the Treasury market since they hold a lot of Treasury bills. In particular, government MMFs -- with $4.4 trillion in AUM -- split their portfolios almost evenly between Treasury bills and lending to the Fed via the Overnight Reverse Repo facility [sic]. Under this facility, MMFs can lend money to the Fed on an overnight basis, taking US Treasury securities as collateral and agreeing to sell them back at predetermined rates. The Fed reserve repo facility has grown substantially in recent years, reaching $2.2 trillion in volume at present."
The speculate, "As the X-date approaches, one-year US sovereign Credit Default Swap (CDS) spreads (equivalent to the insurance premiums investors pay for protection against default) have jumped to more than 160 basis points—a record high compared to less than 20 basis points during normal times. That exceeds the CDS spreads for Mexico, Brazil and Greece. Investors have also avoided T-bills maturing right after the X-date, pushing up their yields. For example, at the latest auction on May 4, yields on one-month T-bills maturing on June 6 jumped to 5.76 percent, or 240 basis points higher than two weeks ago. Such a sharp and abrupt increase in yields has reduced the prices of fixed income instruments like T-bills, leading to mark-to-market losses at MMFs. Depending on their portfolio composition and risk management practices, some MMFs could suffer losses noticeable enough to discomfort their clients who expect stable values of these funds."
The article also says, "In short, possible mark-to-market losses and credit downgrades of Treasury securities, the main assets held by MMFs, would generate anxiety among MMF clients, probably prompting some to move their money elsewhere. (Much of it might flow to the top banks, further accelerating the consolidation of the US banking system.) While any outflow could be dampened to some extent by the gating arrangements and liquidity fees [sic] employed by MMFs to manage the outflow in an orderly way, this would nevertheless heighten uncertainty and a sense of nervousness in financial markets already struggling to cope with the regional banking crisis, high interest rates, and a credit crunch. Adding a run on MMFs to heighten market turmoil might trigger a more severe recession than hitherto expected. For that reason, the negative financial and economic impacts of the current debt ceiling stalemate could be more substantial than those of the previous episodes in 2011 and 2013."
Money fund yields moved higher over the past week as they continue to digest the Federal Reserve's latest 25 basis point rate increase (5/2). Our Crane 100 Money Fund Index (7-Day Yield) was up 13 bps to 4.84% in the week ended Friday, 5/12. Yields are up from 4.64% on April 30, 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. A number of the top-yielding money market funds now yield above the 5.0% level, and more should move above this level in coming days as they digest the remainder of the latest Fed hike. (Note: Register soon for our Money Fund Symposium show, which will take place June 21-23, 2023 in Atlanta, Ga!)
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 689), shows a 7-day yield of 4.71%, up 12 bps in the week through Friday. Prime Inst MFs were up 13 bps at 4.94% in the latest week. Government Inst MFs rose by 11 bps to 4.83%. Treasury Inst MFs up 9 bps for the week at 4.64%. Treasury Retail MFs currently yield 4.42%, Government Retail MFs yield 4.52%, and Prime Retail MFs yield 4.78%, Tax-exempt MF 7-day yields were down 32 bps at 2.78%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/12), just one money fund (out of 819 total) yields under 2.0%; 101 funds yield between 2.00% and 2.99% with $71.9 billion, or 1.3%; 50 funds yield between 3.00% and 3.99% ($73.9 billion, or 1.3%), 548 funds yield between 4.0% and 4.99% ($3.731 trillion, or 64.9%) and 119 funds now yield 5.0% or more ($1.872 trillion, or 32.6%). Over the past week, 88 funds have now officially surpassed the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow in coming weeks.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was up 3 bps to 0.59% after staying unchanged for the past 3 weeks. The latest Brokerage Sweep Intelligence, with data as of May 12, shows that there were three changes over the past week. Ameriprise Financial Services increased rates to 0.30% for all balances between $1K and $999K, to 0.50% for balances between $100K and $249K, to 0.65% for balances between $250K and $499K, to 0.85% for balances between $500K and $999K, to 1.88% for balances between $1 million and $4.9 million, and to 2.18% for all balances over $5 million.
Fidelity increased rates to 2.57% for all balances between $1k and over $5 million. And lastly, RW Baird increased rates to 1.92% for all balances between $1K and $999K, to 2.98% for balances between $1 million and $1.9 million, and to 3.85% for all balances of $5 million or more. 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.
In other news, Fitch Ratings recently posted the release, "Market Turmoil Boosts Flow Volatility of Bank Deposits, Money Fund Assets." They write, "While recent bank failures, rising rates and a weakening economy have created considerable headwinds for U.S. banks, asset quality, regulatory capital, funding and liquidity levels should allow them to withstand near-term challenges, Fitch Ratings says. U.S. money market funds (MMFs), have benefitted from corresponding inflows, although the looming Treasury debt ceiling and the impacts of bank-sector stresses on underlying fund investments are headwinds for Treasury/Government and prime MMFs, respectively. Nevertheless, the potential impacts for MMFs are viewed as within ratings expectations."
Fitch explains, "For U.S. banks, funding and liquidity remain key focuses, as do the second-order effects on profitability, credit, and capital. Further rating actions, if any, are likely to be institution-specific and not broad-based. We expect weaker U.S. bank financial performance in 2023, in line with our U.S. banks' sector outlook revision to 'Deteriorating' from 'Neutral' in November 2022. In December 2022, the global MMF 2023 outlook was revised to 'Deteriorating' driven in part by the bank sector outlook, as well as regulatory headwinds facing MMFs."
They comment, "MMFs, along with several large U.S. banks, have benefitted from outflows from banks experiencing heightened deposit attrition. However, the long-term 'stickiness' of those monies remains unclear. Deposit outflows for the most acutely affected banks have stabilized since late March. Deposits at U.S. commercial banks year-to-date through April 26 are down 3%, or $494 billion, to $16 trillion, with outflows led by small banks."
Fitch says, "Challenges faced by banks include elevated uninsured depositor sensitivity, deposit mix shifts between interest- and non-interest-bearing deposits and toward higher-cost wholesale funding, higher deposit betas, tightening underwriting standards' impact on loan growth and credit losses, and the regulatory response to recent events. As anticipated, rising rates and lagging deposit betas accelerated the migration of non-interest-bearing deposits into MMFs and other higher-yielding options such as short-duration bond funds, interest-bearing deposits and CDs."
They adds, "Potential liquidity and redemption risks are heightened for Treasury-only MMFs in light of the U.S. debt ceiling, particularly around the 'X-date.' As we have previously stated, we believe the debt limit will be raised or suspended to avoid a default. A default by the U.S. Treasury could pose liquidity and headline risks and ratings pressure for U.S. Treasury-only MMFs but would not necessarily result in downgrades, with considerations including the size of any exposure to impacted securities and alternative sources of fund liquidity. Government MMFs are exposed to similar risk, but to a lesser degree given the ability to diversify away from direct U.S. Treasury obligations. As the X-date approaches, the importance of portfolio and liquidity management becomes paramount, though hard to manage around the moving target."
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds fell over the past 30 days to $1.062 trillion. USD and GBP MMFs fell, while EUR MMFs rose. While still up year-to-date, European MMF assets remain well 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 $27.8 billion over the 30 days through 5/11. The totals are up $31.7 billion (3.1%) year-to-date. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. 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 decreased $19.5 billion over the last 30 days but are up $26.2 billion YTD to $575.7 billion. Euro funds increased E2.6 billion over the past month. YTD, they're up E2.6 billion to E183.0 billion. GBP money funds decreased L9.0 billion over 30 days; they are down by L27.4 billion YTD to L236.1B. U.S. Dollar (USD) money funds (200) account for over half (54.4%) of the "European" money fund total, while Euro (EUR) money funds (99) make up 18.5% and Pound Sterling (GBP) funds (130) total 27.3%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.
Offshore USD MMFs yield 4.93% (7-Day) on average (as of 5/11/23), up from 4.73% a month earlier. Yields averaged 4.20% on 12/30/22, 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 in the second half of 2022; they're yielding 2.89% on average, up from 2.76% a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21, -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 4.17%, up 10 bps from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's May MFI International Portfolio Holdings, with data as of 4/30/23, show that European-domiciled US Dollar MMFs, on average, consist of 22% in Commercial Paper (CP), 12% in Certificates of Deposit (CDs), 40% in Repo, 6% in Treasury securities, 16% in Other securities (primarily Time Deposits) and 4% in Government Agency securities. USD funds have on average 67.8% of their portfolios maturing Overnight, 10.9% maturing in 2-7 Days, 3.4% maturing in 8-30 Days, 4.9% maturing in 31-60 Days, 3.1% maturing in 61-90 Days, 5.0% maturing in 91-180 Days and 4.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (32.1%), France (16.5%), Canada (11.9%), Japan (9.3%), Sweden (7.0%), the Netherlands (4.9%), the U.K. (4.5%), Australia (2.8%), Germany (2.0%) and Spain (1.8%).
The 10 Largest Issuers to "offshore" USD money funds include: Fixed Income Clearing Corp with $36.6B (6.1%), the US Treasury with $34.9 billion (5.8% of total assets), Federal Reserve Bank of New York with $33.2B (5.6%), BNP Paribas with $29.4B (4.9%), RBC with $24.9B (4.2%), Bank of America with $23.5B (3.9%), Credit Agricole with $23.0B (3.9%), Barclays with $18.4B (3.1%), Sumitomo Mitsui Banking Corp with $17.4B (2.9%) and Citi with $16.9B (2.8%).
Euro MMFs tracked by Crane Data contain, on average 49% in CP, 16% in CDs, 24% in Other (primarily Time Deposits), 11% in Repo, 0% in Treasuries and 0% in Agency securities. EUR funds have on average 42.7% of their portfolios maturing Overnight, 13.7% maturing in 2-7 Days, 20.1% maturing in 8-30 Days, 8.3% maturing in 31-60 Days, 6.4% maturing in 61-90 Days, 5.0% maturing in 91-180 Days and 3.9% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (31.3%), Japan (11.5%), the U.S. (8.8%), Germany (8.3%), Austria (5.9%), Sweden (5.7%), Canada (5.6%), the U.K. (5.2%), the Netherlands (5.1%) and Belgium (2.8%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E10.0B (5.8%), Erste Group Bank AG with E8.2B (4.8%), BNP Paribas with E7.7B (4.5%), Republic of France with E7.0B (4.1%), Societe Generale with E6.7B (3.9%), Credit Mutuel with E6.4B (3.7%), Mitsubishi UFJ Financial Group with E6.4B (3.7%), DZ Bank AG with E5.7B (3.3%), BPCE SA with E4.8B (2.8%) and Landesbank Baden-Wurttemberg with E4.6B (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 4/30/23): 34% in CDs, 24% in CP, 25% in Other (Time Deposits), 14% in Repo, 3% in Treasury and 0% in Agency. Sterling funds have on average 32.6% of their portfolios maturing Overnight, 13.1% maturing in 2-7 Days, 17.7% maturing in 8-30 Days, 8.6% maturing in 31-60 Days, 10.6% maturing in 61-90 Days, 12.4% maturing in 91-180 Days and 5.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (17.5%), France (16.9%), Canada (14.2%), the U.K. (11.6%), the U.S. (6.0%), Australia (5.6%), the Netherlands (5.1%), Sweden (4.9%), Spain (3.2%) and Singapore (2.9%).
The 10 Largest Issuers to "offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L8.6B (4.9%), Mizuho Corporate Bank Ltd with L7.6B (4.3%), Toronto-Dominion Bank with L7.1B (4.1%), Sumitomo Mitsui Trust Bank with L6.3B (3.6%), RBC with L5.9B (3.4%), Banco Santander with L5.5B (3.2%), UK Treasury with L5.3B (3.0%), BNP Paribas with L5.2B (3.0%), Nordea Bank with L5.1B (2.9%) and BPCE SA with L5.1B (2.8%).
The May issue of our Bond Fund Intelligence, which will be sent to subscribers Friday morning, features the stories, "Bloomberg on Vanguard’s Barrickman, Passive Funds," which reviews a piece on bond index funds, and "JPM's Low Duration Bond Fund Update Says Inflows," which excerpts from a brief on ultra-short bond funds. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose again in April while yields inched lower. 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.) (Reminder: Make your hotel reservations soon for our big Money Fund Symposium show, which will take place June 21-23, 2023 in Atlanta, Ga.)
Our "Bloomberg" article quotes the piece, "Vanguard's Trillion-Dollar Man Leads a Fixed-Income Revolution." The piece says, "When March's bank failures ignited a historic bond rally, few, if any, made more money than Josh Barrickman. His army of funds gained roughly $26 billion, the equivalent of more than $1 billion in paper profits every single trading session."
It continues, "Yet Barrickman didn't predict Silicon Valley Bank's collapse, or Credit Suisse's tortured final days. He doesn't even have a view (at least that he's willing to share) on what the Federal Reserve will do next. He runs Vanguard Group Inc.’s $1 trillion bond indexing business for the Americas, a class of investing that -- to the outside world, at least -- is as vanilla as it gets."
Our "JPM" piece states: "J.P. Morgan Securities published a brief, "Low-duration bond fund update" in it latest "Short-Term Market Outlook And Strategy." They write, "For the low-duration bond funds we track, ultrashort and short-term bond funds saw decent inflows in January, with total AUMs higher by an estimated $9bn. This can be partly explained by investor appetite to extend in duration. However, the growth has since moderated, with total AUMs declining by $13bn over the past two months following January-end."
JPM explains, "This is consistent with the broader sell-off that occurred in the fixed income and equity markets during the same period, particularly as investors sought cover from the market volatility and positioned for possible changes to monetary policy and concerns following the regional banking crisis in March."
Our first News brief, "Returns Up Again, Yields Down in April," says, "Bond fund returns moved higher and yields were mixed last month. Our BFI Total Index rose 0.60% over 1-month and is up 0.53% over 12 months. The BFI 100 rose 0.84% in April and gained 0.32% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.61% over 1-month and is up 2.69% for 1-year; Ultra-Shorts rose 0.49% and are up 2.04% over 12 mos. Short-Term returned 0.56% and 0.85%, and Intm-Term rose 0.72% and -0.55% over 1-year. BFI's Long-Term Index rose 0.72% and -1.01%. High Yield rose 1.11% in April and 1.00% over 1-year."
A second News brief, "Morningstar Says, '`As Demand for Green Bonds Grows, Assets in Sustainable Bond Funds Surge,' writes, "Assets in sustainable and impact bond funds have grown 11 times over the past decade, reaching $516 billion at the end of 2022, according to Morningstar research. These funds own green, social, sustainability, and sustainability-linked bonds, all commonly referred to as GSS+ bonds. Even though net inflows into sustainable bond funds slowed in the challenging market environment of 2022, they remained positive. By contrast, traditional bond funds experienced massive outflows during the same period."
Our News brief, "BankRate Writes on the 'Best Short-Term Bond Funds in May 2023.' They comment, 'Bond prices fell throughout 2022 as the Federal Reserve hiked interest rates to combat high inflation, but with an end to rate increases potentially in sight, investors may be able to take advantage of attractive yields in short-term bonds.'"
Another brief, "Reuters Says, 'World's biggest bond markets left picking up the pieces after March mayhem.' The piece tells us, 'In mid-March, as prices for U.S. Treasury bonds swung wildly following the collapse of Silicon Valley Bank, the trading desk at Legal & General Investment Management hit its top limits for both profit and loss several times in a single day.'"
A BFI sidebar, "Barron's on 'Nirvana'," quotes the weekly's "Top Bond Investors See Opportunities in Turmoil. BlackRock's CIO Says It's 'Nirvana.'" It states, "After a rough 2022, the bond market has come roaring back this year. While it's hard to predict how bonds will perform ahead given interest rate uncertainty, top bond investors are enthusiastic about what the asset class has to offer."
Finally, another sidebar, "SIFMA on Bond Markets," comments, "SIFMA posted a report by Coalition Greenwich, titled, 'Understanding Fixed-Income Markets in 2023,' which gives some broad statistics on the overall bond market. It says, 'The U.S. fixed-income markets are the largest in the world, comprising 41.3% of the $122.6 trillion of securities outstanding across the globe, or $50.6 trillion (as of 2Q22). This is 2.2x the next largest market, the EU. U.S. market share has averaged 38.9% over the last 10 years, bottoming at 37.5% in 2013 and peaking last year."
The Board of Governors of the Federal Reserve published its most recent "Financial Stability Report" earlier this month, which briefly discusses money market funds. They write, "This report reviews conditions affecting the stability of the U.S. financial system by analyzing vulnerabilities related to valuation pressures, borrowing by businesses and households, financial-sector leverage, and funding risks. It also highlights several near-term risks that, if realized, could interact with these vulnerabilities. Since the November 2022 Financial Stability Report was released, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank failed following substantial deposit outflows prompted by concerns over poor management of interest rate risk and liquidity risk. In March, to prevent broader spillovers in the banking system, the Federal Reserve, together with the Federal Deposit Insurance Corporation (FDIC) and the Department of the Treasury, took decisive actions to protect bank depositors and support the continued flow of credit to households and businesses. Owing to these actions and the resilience of the banking and financial sector, financial markets normalized, and deposit flows have stabilized since March, although some banks that experienced large deposit outflows continued to experience stress. These developments may weigh on credit conditions going forward."
The report says about "Funding Risks,"Substantial withdrawals of uninsured deposits contributed to the failures of SVB, Signature Bank, and First Republic Bank and led to increased funding strains for some other banks, primarily those that relied heavily on uninsured deposits and had substantial interest rate risk exposure. Policy interventions by the Federal Reserve and other agencies helped mitigate these strains and limit the potential for further stress (discussed in the box 'The Federal Reserve's Actions to Protect Bank Depositors and Support the Flow of Credit to Households and Businesses'). Overall, domestic banks have ample liquidity and limited reliance on short-term wholesale funding. Structural vulnerabilities remained in short-term funding markets. Prime and tax-exempt money market funds (MMFs), as well as other cash investment vehicles and stablecoins, remained vulnerable to runs. Certain types of bond and loan funds experienced outflows and remained susceptible to large redemptions, as they hold securities that can become illiquid during periods of stress. Life insurers continued to have elevated liquidity risks, as the share of risky and illiquid assets remained high."
Discussing "Funding Risks," the Fed states, "The failures of SVB and Signature Bank, along with strains at some other banks, highlighted vulnerabilities associated with high concentrations of uninsured deposits. Uninsured deposits are prone to runs, in part because they lack an explicit government guarantee. From the start of the pandemic in 2020 to the end of 2021 -- a period when interest rates remained low -- banks received $3.7 trillion in domestic deposits, most of which were uninsured. As interest rates increased throughout 2022, bank deposits became less attractive for depositors and banks experienced outflows, led by uninsured deposits. As of the fourth quarter of 2022, aggregate uninsured deposits stood at $7.5 trillion. Although aggregate levels of uninsured deposits in the banking system were high, SVB and Signature Bank were outliers in terms of their heavy reliance on uninsured deposits, as most banks had a much more balanced mix of liabilities."
They explain, "Overall, estimated runnable money-like financial liabilities decreased 1.6 percent to $19.6 trillion (75 percent of nominal GDP) over the past year. As a share of GDP, runnable liabilities continued their post-pandemic decline but remained above their historical median.... Large banks that were subject to the liquidity coverage ratio (LCR) continued to maintain levels of high-quality liquid assets (HQLA) that suggested that their liquid resources would be sufficient to withstand expected short-term cash outflows."
The report continues, "Prime MMFs and other cash-investment vehicles remain vulnerable to runs and, hence, contribute to the fragility of short-term funding markets. In addition, some cash management vehicles, including retail prime MMFs, government MMFs, and short-term investment funds, maintain stable net asset values (NAVs) that make them susceptible to sharp increases in interest rates. The market capitalization of the stablecoin sector continued to decline, and the sector remains vulnerable to liquidity risks like those of cash-like vehicles. Some open-end bond mutual funds continued to be susceptible to large redemptions because they must allow shareholders to redeem every day even though the funds hold assets that can face losses and become illiquid amid stress. Liquidity risks at central counterparties (CCPs) remained low, while liquidity risks at life insurers appeared elevated."
It also says, "Data on bank assets and liabilities show that small domestic banks -- defined as banks outside the top 25 in terms of domestic assets -- initially experienced rapid deposit outflows in the wake of the SVB and Signature Bank failures. However, these outflows had slowed considerably by the end of March. The Federal Reserve, together with the U.S. Department of the Treasury and the FDIC, took decisive actions to reduce funding strains in the banking system (see the box 'The Federal Reserve's Actions to Protect Bank Depositors and Support the Flow of Credit to Households and Businesses'). Banks with funding needs increased borrowing from the Federal Reserve, including a notable increase in discount window borrowing and additional borrowing from the new Bank Term Funding Program (BTFP). In addition, Federal Home Loan Banks' total debt outstanding grew about $250 billion, to $1.5 trillion, during the week ending March 17, 2023, to meet a surge in demand for borrowing by their member banks."
The Financial Stability Report comments, "Prime MMFs remain a prominent vulnerability due to their susceptibility to large redemptions and the significant role they play in short-term funding markets. Since the November report, AUM in prime MMFs offered to the public increased $270 billion (53 percent), driven by $240 billion in inflows into retail prime funds.... In the immediate aftermath of the failures of SVB and Signature Bank, government MMFs had a surge in inflows, but prime MMFs experienced a jump in redemptions. Although outflows from prime MMFs eased after a few days, the episode illustrated again that these funds continue to be at risk of large redemptions during episodes of financial stress."
It adds, "Other cash-management vehicles, including dollar-denominated offshore MMFs and short-term investment funds, also invest in money market instruments, engage in liquidity transformation, and are vulnerable to runs. Since November, estimated aggregate AUM of these cash-management vehicles has edged up to about $1.7 trillion. Currently, between $600 billion and $1.5 trillion of these vehicles' AUM are in portfolios like those of U.S. prime MMFs, and large redemptions from these vehicles also have the potential to destabilize short-term funding markets."
They write, "Many cash-management vehicles -- including retail and government MMFs, offshore MMFs, and short-term investment funds -- seek to maintain stable NAVs that are typically rounded to $1.00. When short-term interest rates rise sharply or portfolio assets lose value for other reasons, the market values of these funds may fall below their rounded share prices, which can put the funds under strain, particularly if they also have large redemptions."
The report says about Stablecoins, "The total market capitalization of stablecoins, which are digital assets designed to maintain a stable value relative to a national currency or another reference asset, has fallen 21 percent since the beginning of 2022 to $130 billion. While not widely used as a cash-management vehicle by institutional and retail investors or for transactions for real economic activity, stablecoins are important for digital asset investors and remain structurally vulnerable to runs. On March 10, 2023, amid reports of large outflows of uninsured deposits at SVB, Circle Internet Financial, which operates the $31 billion stablecoin USD Coin (USDC), disclosed that it had $3.3 billion in dollar reserves held at SVB. This disclosure triggered large redemptions of USDC and caused it to drop temporarily below its target $1 value to as low as 87 cents. Following news of the government interventions assuring depositors of the safety of uninsured deposits at SVB and Signature Bank, USDC's price stabilized near $1."
Finally, the Fed comments on bond funds, "Mutual funds that invest substantially in corporate bonds, municipal bonds, and bank loans may be particularly exposed to liquidity transformation risks, given the relative illiquidity of their assets and the requirement that these funds offer redemptions daily. The total outstanding amount of U.S. corporate bonds held by mutual funds fell to its lowest level since 2013 on an inflation adjusted basis, primarily driven by a drop in valuations.... Mutual fund holdings at the end of 2022 were approximately 13 percent of all U.S. corporate bonds outstanding. Total AUM at high-yield bond and bank-loan mutual funds, which primarily hold riskier and less liquid assets, decreased sharply in real terms in 2022.... Bond and loan mutual funds experienced negative returns and notable outflows during most of 2022."
Crane Data's May Money Fund Portfolio Holdings, with data as of April 30, 2023, show that Time Deposits (Other), Repo, CDs and Agencies all showed big increases while Treasury holdings plunged in April. Money market fund assets, Repo and Agencies all jumped to record levels again. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $81.2 billion to a record $5.595 trillion, after increasing $390.5 billion in March, $34.5 billion in February and $49.7 billion in January. Repo remained the largest portfolio segment by far, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York saw its Fed RRP issuance held by MMFs fall $14.9 billion to $2.196 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 $19.6 billion (0.6%) to $3.223 trillion, or 57.6% of holdings, in April, after increasing $276.3 billion in March and $98.2 billion in February. Repo decreased $111.2 billion in January. Treasury securities fell $18.8 billion (-1.8%) to $1.012 trillion, or 18.1% of holdings, after increasing $20.7 billion in March but decreasing $41.2 billion in February and $17.8 billion in January. Government Agency Debt was up $18.4 billion, or 2.4%, to $794.3 billion, or 14.2% of holdings. Agencies increased $188.8 billion in March, decreased $27.0 billion in February and increased $51.8 billion in January. Repo, Treasuries and Agency holdings now total $5.029 trillion, representing a massive 89.9% of all taxable holdings.
Money fund holdings of CP and CDs increased in April. Commercial Paper (CP) increased $7.4 billion (3.1%) to $249.1 billion, or 4.5% of holdings. CP holdings decreased $33.0 billion in March and $7.3 billion in February, but increased $36.3 billion in January. Certificates of Deposit (CDs) increased $18.8 billion (12.4%) to $170.8 billion, or 3.1% of taxable assets. CDs decreased $17.1 billion in March and $4.5 billion in February, but increased $24.1 billion in January. Other holdings, primarily Time Deposits, increased $35.0 billion (34.3%) to $137.0 billion, or 2.4% of holdings, after decreasing $43.9 billion in March, but increasing $15.6 billion in February and $66.5 billion in January. VRDNs rose to $9.7 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Wednesday around noon.)
Prime money fund assets tracked by Crane Data rose to $1.159 trillion, or 20.7% of taxable money funds' $5.595 trillion total. Among Prime money funds, CDs represent 14.7% (up from 13.5% a month ago), while Commercial Paper accounted for 21.4% (down from 21.5% in March). The CP totals are comprised of: Financial Company CP, which makes up 14.1% of total holdings, Asset-Backed CP, which accounts for 3.7%, and Non-Financial Company CP, which makes up 3.6%. Prime funds also hold 6.7% in US Govt Agency Debt, 1.7% in US Treasury Debt, 32.6% in US Treasury Repo, 0.6% in Other Instruments, 9.5% in Non-Negotiable Time Deposits, 4.5% in Other Repo, 6.0% in US Government Agency Repo and 0.6% in VRDNs.
Government money fund portfolios totaled $2.914 trillion (52.1% of all MMF assets), up from $2.890 trillion in March, while Treasury money fund assets totaled another $1.522 trillion (27.2%), up from $1.502 trillion the prior month. Government money fund portfolios were made up of 24.6% US Govt Agency Debt, 18.9% US Government Agency Repo, 7.1% US Treasury Debt, 49.3% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 51.6% US Treasury Debt and 48.4% in US Treasury Repo. Government and Treasury funds combined now total $4.436 trillion, or 79.3% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $95.8 billion in April to $524.1 billion; their share of holdings jumped to 9.4% from last month's 7.8%. Eurozone-affiliated holdings increased to $359.1 billion from last month's $301.5 billion; they account for 6.4% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $213.1 billion (3.8% of the total) from last month's $193.4 billion. Americas related holdings fell to $4.850 trillion from last month's $4.883 trillion, and now represent 86.7% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $136.9 billion, or -5.1%, to $2.551 trillion, or 45.6% of assets); US Government Agency Repurchase Agreements (up $154.6 billion, or 33.2%, to $619.8 billion, or 11.1% of total holdings), and Other Repurchase Agreements (up $2.0 billion, or 4.0%, from last month to $51.9 billion, or 0.9% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $5.0 billion to $163.7 billion, or 2.9% of assets), Asset Backed Commercial Paper (down $0.3 billion to $43.4 billion, or 0.8%), and Non-Financial Company Commercial Paper (up $2.8 billion to $42.0 billion, or 0.8%).
The 20 largest Issuers to taxable money market funds as of April 30, 2023, include: the Federal Reserve Bank of New York ($2.196T, 39.3%), US Treasury ($1.012T, 18.1%), Federal Home Loan Bank ($682.4B, 12.2%), Fixed Income Clearing Corp ($227.5B, 4.1%), Federal Farm Credit Bank ($100.5B, 1.8%), RBC ($90.4B, 1.6%), JP Morgan ($80.0B, 1.4%), Bank of America ($75.0B, 1.3%), Citi ($74.7B, 1.3%), BNP Paribas ($74.4B, 1.3%), Barclays PLC ($67.6B, 1.2%), Goldman Sachs ($51.6B, 0.9%), Sumitomo Mitsui Banking Corp ($49.4B, 0.9%), Mitsubishi UFJ Financial Group Inc ($47.3B, 0.8%), Credit Agricole ($45.7B, 0.8%), Societe Generale ($39.6B, 0.7%), Wells Fargo ($39.3B, 0.7%), ING Bank ($38.1B, 0.7%), Toronto-Dominion Bank ($35.0B, 0.6%), and Mizuho Corporate Bank Ltd ($32.1B, 0.6%).
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 ($2.196T, 68.2%), Fixed Income Clearing Corp ($227.5B, 7.1%), JP Morgan ($72.9B, 2.3%), RBC ($69.7B, 2.2%), Citi ($66.8B, 2.1%), BNP Paribas ($62.9B, 2.0%), Bank of America ($62.1B, 1.9%), Barclays PLC ($52.2B, 1.6%), Goldman Sachs ($50.8B, 1.6%) and Sumitomo Mitsui Banking Corp ($38.2B, 1.2%). The largest users of the $2.196 trillion in Fed RRP include: Goldman Sachs FS Govt ($143.3B), Vanguard Federal Money Mkt Fund ($130.1B), Fidelity Govt Money Market ($119.7B), JPMorgan US Govt MM ($104.5B), Fidelity Govt Cash Reserves ($97.7B), Fidelity Inv MM: Govt Port ($91.3B), Morgan Stanley Inst Liq Govt ($74.9B), Vanguard Cash Reserves Federal MM ($63.7B), BlackRock Lq FedFund ($62.4B) and American Funds Central Cash ($60.5B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($23.4B, 4.8%), Toronto-Dominion Bank ($23.2B, 4.8%), Mizuho Corporate Bank Ltd ($22.7B, 4.7%), RBC ($20.8B, 4.3%), Bank of Nova Scotia ($19.5B, 4.0%), Mitsubishi UFJ Financial Group Inc ($18.1B, 3.7%), Sumitomo Mitsui Trust Bank ($17.0B, 3.5%), ING Bank ($16.8B, 3.5%), Barclays PLC ($15.5B, 3.2%) and Skandinaviska Enskilda Banken AB ($15.0B, 3.1%).
The 10 largest CD issuers include: Credit Agricole ($12.2B, 7.1%), Toronto-Dominion Bank ($12.1B, 7.1%), Sumitomo Mitsui Trust Bank ($11.9B, 7.0%), Mitsubishi UFJ Financial Group Inc ($11.8B, 6.9%), Mizuho Corporate Bank Ltd ($11.5B, 6.7%), Sumitomo Mitsui Banking Corp ($10.0B, 5.9%), Canadian Imperial Bank of Commerce ($7.3B, 4.3%), Svenska Handelsbanken ($6.4B, 3.8%), BNP Paribas ($5.5B, 3.2%) and Bank of Nova Scotia ($5.4B, 3.2%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Bank of Nova Scotia ($12.4B, 5.9%), Bank of Montreal ($10.4B, 4.9%), RBC ($10.4B, 4.9%), Toronto-Dominion Bank ($10.1B, 4.8%), Barclays PLC ($9.9B, 4.7%), Societe Generale ($8.0B, 3.8%), BPCE SA ($7.3B, 3.4%), JP Morgan ($7.0B, 3.3%), Mitsubishi UFJ Financial Group Inc ($6.2B, 2.9%) and Svenska Handelsbanken ($6.1B, 2.9%).
The largest increases among Issuers include: Barclays PLC (up $24.2B to $67.6B), Credit Agricole (up $21.0B to $45.7B), Federal Home Loan Bank (up $15.3B to $682.4B), Erste Group Bank AG (up $8.5B to $8.7B), Societe Generale (up $8.5B to $39.6B), Natixis (up $7.6B to $20.2B), Citi (up $7.5B to $74.7B), Wells Fargo (up $7.1B to $39.3B), Skandinaviska Enskilda Banken AB (up $6.1B to $15.0B) and Mizuho Corporate Bank Ltd (up $6.0B to $32.1B).
The largest decreases among Issuers of money market securities (including Repo) in April were shown by: US Treasury (down $18.8B to $1.012T), Bank of Montreal (down $17.3B to $30.1B), Federal Reserve Bank of New York (down $14.9B to $2.196T), Goldman Sachs (down $6.1B to $51.6B), JP Morgan (down $5.7B to $80.0B), Australia & New Zealand Banking Group Ltd (down $4.8B to $15.8B), Fixed Income Clearing Corp (down $4.2B to $227.5B), Bank of America (down $4.0B to $75.0B), RBC (down $3.4B to $90.4B) and Bank of Nova Scotia (down $2.1B to $26.8B).
The United States remained the largest segment of country-affiliations; it represents 82.7% of holdings, or $4.627 trillion. Canada (4.0%, $222.2B) was in second place, while France (3.7%, $205.7B) was No. 3. Japan (3.4%, $188.5B) occupied fourth place. The United Kingdom (1.9%, $103.3B) remained in fifth place. Netherlands (1.2%, $66.5B) was in sixth place, followed by Germany (0.8%, $43.8B), Sweden (0.8%, $43.3B) Australia (0.5%, $29.9B), and Spain (0.2%, $11.8B). (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 April 30, 2023, Taxable money funds held 72.4% (down from 73.0%) of their assets in securities maturing Overnight, and another 8.6% maturing in 2-7 days (up from 6.6%). Thus, 81.0% in total matures in 1-7 days. Another 9.2% matures in 8-30 days, while 3.9% matures in 31-60 days. Note that over three-quarters, or 94.0% 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 1.5% of taxable securities, while 2.3% matures in 91-180 days, and just 2.2% 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 Tuesday, and we'll be writing our regular monthly update on the new April 30 data for Wednesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (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 April 30, includes holdings information from 987 money funds (up 4 from last month), representing record assets of $5.760 trillion (up from $5.693 trillion). Prime MMFs now total $1.174 trillion, or 20.4% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses flat but money fund revenues up sharply in April. (Note: Please join us for our upcoming Money Fund Symposium, which is scheduled for June 21-23, 2023 in Atlanta, Ga.)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds increased to $3.270 trillion (up from $3.235 trillion), or 56.8% of all assets. Treasury holdings totaled $998.7 billion (down from $1.041 trillion), or 17.3% of all holdings, and Government Agency securities totaled $808.7 billion (up from $791.9 billion), or 14.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.078 trillion, or a massive 88.1% of all holdings.
Commercial paper (CP) totals $257.4 billion (up from $249.9 billion), or 4.5% of all holdings, and the Other category (primarily Time Deposits) totals $141.1 billion (up from $108.0 billion), or 2.5%. Certificates of Deposit (CDs) total $171.1 billion (up from $152.4 billion), 3.0%, and VRDNs account for $112.5 billion (down from $114.4 billion last month), or 2.0% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $164.4 billion, or 2.9%, in Financial Company Commercial Paper; $44.2 billion or 0.8%, in Asset Backed Commercial Paper; and, $48.8 billion, or 0.8%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.704 trillion, or 47.0%), U.S. Govt Agency Repo ($512.7B, or 8.9%) and Other Repo ($53.2B, or 0.9%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $251.7 billion (up from $243.9 billion), or 21.4%; Repo holdings of $504.0 billion (down from $548.0 billion), or 42.9%; Treasury holdings of $23.0 billion (down from $28.6 billion), or 2.0%; CD holdings of $171.1 billion (up from $152.4 billion), or 14.6%; Other (primarily Time Deposits) holdings of $135.8 billion (up from $99.9 billion), or 11.6%; Government Agency holdings of $81.9 billion (up from $58.3 billion), or 7.0% and VRDN holdings of $6.7 billion (up from $6.2 billion), or 0.6%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $164.4 billion (up from $159.8 billion), or 14.0%, in Financial Company Commercial Paper; $44.2 billion (down from $44.5 billion), or 3.8%, in Asset Backed Commercial Paper; and $43.1 billion (up from $39.5 billion), or 3.7%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($328.3 billion, or 32.6%), U.S. Govt Agency Repo ($70.2 billion, or 6.0%), and Other Repo ($51.5 billion, or 4.4%).
In related news, money fund charged expense ratios (Exp%) were unchanged in April. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.38%, respectively, as of April 30, 2023. 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 Monday 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 0.27%, unchanged from last month's level (and 19 bps higher than 12/31/21's 0.08%). The average is back at the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (but they are waiving a minimal amount of 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 April 30, 2023, unchanged from the month prior and now slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.31% (unchanged from last month), Government Inst MFs expenses average 0.26% (unchanged from last month), Treasury Inst MFs expenses average 0.30% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.52%, (down 1 bp from last month), Government Retail MFs expenses yield 0.55% (up 1 bp from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were down 1 bp at 0.40% on average.
Gross 7-day yields rose again during the month ended April 30, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 751), shows a 7-day gross yield of 4.82%, up 4 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 2 bps, ending the month at 4.73%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $15.143 billion (as of 4/30/23). Our estimated annualized revenue totals increased from $14.927B last month and are up from $14.135B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their recent surge as money funds continue to rake in assets from uninsured bank deposits.
Crane Data's latest monthly Money Fund Market Share rankings show assets were again higher among the largest U.S. money fund complexes in April. Money market fund assets jumped $56.5 billion, or 1.1%, last month to a record $5.685 trillion. Total MMF assets increased by $480.4 billion, or 9.2%, over the past 3 months, and they've increased by $707.2 billion, or 14.0%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by American Funds, Morgan Stanley, Schwab, SSGA and T Rowe Price, which grew assets by $22.6 billion, $9.6B, $7.8B, $6.5B and $5.1B, respectively. Declines in April were seen by Fidelity and Western, which decreased by $13.2 billion and $3.3B, 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 rose yet again in April, below. (Note: Please join us for our upcoming Money Fund Symposium conference, June 21-23, 2023 at The Hyatt Regency Atlanta, in Atlanta, Ga.)
Over the past year through April 30, 2023, Schwab (up $225.7B, or 157.7%), Fidelity (up $191.0B, or 20.4%), Federated Hermes (up $86.1B, or 27.3%), JPMorgan (up $67.6B, or 14.9%) and Goldman Sachs (up $55.7B, or 14.8%) were the largest gainers. Fidelity, JPMorgan, Schwab, Goldman Sachs and Morgan Stanley had the largest asset increases over the past 3 months, rising by $81.2B, $78.1B, $60.5B, $53.9B and $40.7B, respectively. The largest declines over 12 months were seen by: BlackRock (down $44.7B), Northern (down $22.8B), Allspring (down $16.7B), Morgan Stanley (down $10.1B) and SEI (down $4.4B). The largest decliners over 3 months included: Dreyfus (down $17.3B), Western (down $7.9B) and HSBC (down $2.5B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.088 trillion, or 20.7% of all assets. Fidelity was down $13.2B in April, up $81.2 billion over 3 mos., and up $191.0B over 12 months. JPMorgan ranked second with $521.3 billion, or 9.9% market share (up $2.0B, up $78.1B and up $67.6B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $508.6 billion, or 9.7% of assets (up $3.1B, up $34.4B and up $49.8B). BlackRock ranked fourth with $485.3 billion, or 9.2% market share (down $879 million, up $20.4B and down $44.7B), while Goldman Sachs was the fifth largest MMF manager with $438.7 billion, or 8.3% of assets (down $3.3B, up $53.9B and up $55.7B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $391.6 billion, or 7.4% (up $2.9B, up $37.2B and up $86.1B), while Schwab was in seventh place with $365.6 billion, or 6.9% of assets (up $7.8B, up $60.5B and up $225.7B). Dreyfus ($262.0B, or 5.0%) was in eighth place (up $683M, down $17.3B and up $29.5B), followed by Morgan Stanley ($259.9B, or 4.9%; up $9.6B, up $40.7B and down $10.1B). American Funds was in 10th place ($190.2B, or 3.6%; up 22.6B, up $15.5B and up $11.9B).
The 11th through 20th-largest U.S. money fund managers (in order) include: SSGA ($157.3B, or 5.0%), Invesco ($154.6B, or 2.9%), Allspring (formerly Wells Fargo) ($153.1B, or 2.9%), Northern ($150.7B, or 2.9%), First American ($120.9B, or 2.3%), UBS ($85.7B, or 1.6%), T. Rowe Price ($51.4B, or 1.0%), HSBC ($35.0B, or 0.7%), DWS ($34.1B, or 0.6%) and Western ($30.8B, or 0.6%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: BlackRock moves up to the No. 3 spot, Goldman Sachs moves up to No. 4 and Vanguard moves down to the No. 5 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 spot, and SSGA replaces American Funds at the No. 10 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 ($1.098 trillion), JP Morgan ($728.6B), BlackRock ($689.3B), Goldman Sachs ($582.2B) and Vanguard ($508.6B). Federated Hermes ($399.3B) was in sixth, Schwab ($365.6B) was seventh, followed by Morgan Stanley ($329.6B), Dreyfus/BNY Mellon ($281.4B) and SSGA ($192.7B), 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 May issue of our Money Fund Intelligence and MFI XLS, with data as of 4/30/23, shows that yields increased again in April across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 751), rose to 4.52% (up 4 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 4.49% (up 15 bps). The MFA's Gross 7-Day Yield rose to 4.81% (up 3 bps), and the Gross 30-Day Yield also moved up to 4.78% (up 15 bps). (Gross yields will be revised Monday at noon, though, once we download the SEC's Form N-MFP data for 4/30/23.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.64% (up 4 bps) and an average 30-Day Yield at 4.62% (up 16 bps). The Crane 100 shows a Gross 7-Day Yield of 4.75% (up 4 bps), and a Gross 30-Day Yield of 4.73% (up 15 bps). Our Prime Institutional MF Index (7-day) yielded 4.73% (up 3 bps) as of April 30. The Crane Govt Inst Index was at 4.62% (up 4 bps) and the Treasury Inst Index was at 4.50% (up 4 bps). Thus, the spread between Prime funds and Treasury funds is 23 basis points, and the spread between Prime funds and Govt funds is 11 basis points. The Crane Prime Retail Index yielded 4.56% (up 3 bps), while the Govt Retail Index was 4.32% (up 3 bps), the Treasury Retail Index was 4.28% (up 5 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.03% (down 58 bps) as of April.
Gross 7-Day Yields for these indexes to end April were: Prime Inst 4.96% (up 3 bps), Govt Inst 4.85% (up 4 bps), Treasury Inst 4.75% (up 4 bps), Prime Retail 4.90% (up 3 bps), Govt Retail 4.79% (up 3 bps) and Treasury Retail 4.56% (up 4 bps). The Crane Tax Exempt Index fell to 2.41% (down 48 bps). The Crane 100 MF Index returned on average 0.38% over 1-month, 1.09% over 3-months, 1.43% YTD, 2.90% over the past 1-year, 0.99% over 3-years (annualized), 1.32% over 5-years, and 0.80% over 10-years.
The total number of funds, including taxable and tax-exempt, was down 2 in April to 881. There are currently 751 taxable funds, up 5 from the previous month, and 130 tax-exempt money funds (down 7 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The May issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Cash Big Topic on Q1 Earnings Calls: BlackRock, Schwab, BNY," which discusses the huge shift in assets from bank deposits to MMFs; "Federated Hermes Talks Record Assets, LGIPs, ETFs," which quotes from the company's Q1'23 earnings call; and, "ICI Myths on Money Funds vs. Bank Deposits, Fed RRP," which dispels some recent criticisms of MMFs. We also sent out our MFI XLS spreadsheet Friday a.m., and we've updated our Money Fund Wisdom database with 4/30/23 data. Our May Money Fund Portfolio Holdings are scheduled to ship on Tuesday, May 9, and our May Bond Fund Intelligence is scheduled to go out on Friday, May 12.
MFI's "Cash Big Topic on Q1 Earnings Calls: BlackRock, Schwab, BNY" article says, "Quarterly earnings reports from major financial companies are shedding more light upon the huge March shift in assets from bank deposits to money market mutual funds. BlackRock's Q1'23 earnings call included a number of comments on the cash super-spike. (See the transcript here.) CFO Martin Small comments, 'Negative revenue impacts were partially offset by the elimination of discretionary money market fund fee waivers and higher securities lending revenue. BlackRock's cash management platform saw $8 billion of net inflows in the quarter. Flows were driven by surging demand for our cash management solutions in March as clients diversified away from deposits and enhance cash yields.'"
The piece continues, "He explains, 'We're actively working with clients on their liquidity management strategies, providing technology, market and operational insights and, of course, delivering a full range of cash management capabilities.'"
Our BFS "profile" piece states, "Federated Hermes, the 6th largest manager of money funds, reported Q1’23 earnings and hosted its latest earnings conference call late last week. President & CEO J. Christopher Donahue comments in a press release, 'Federated Hermes' record assets under management were driven by money market asset increases accompanied by further increases across nearly all other long-term asset classes from the previous quarter, demonstrating once again the value of our diversified business mix. As interest rates continued their rise and as investors considered regional banking issues, many withdrew deposits from small and medium-sized banks and continued to embrace the benefits of money market funds -- high credit quality, short duration, diversification, transparency, daily liquidity and market yields. Federated Hermes had positive net flows into a range of our money market products -- from government to prime.'"
It continues, "The release says, 'Money market assets were a record $505.8 billion at March 31, 2023, up $85.2 billion or 20% from $420.6 billion at March 31, 2022 and up $29.0 billion or 6% from $476.8 billion at Dec. 31, 2022. Money market fund assets were $357.3 billion at March 31, 2023, up $77.8 billion or 28% from $279.5 billion at March 31, 2022 and up $21.4 billion or 6% from $335.9 billion at Dec. 31, 2022.... Revenue increased $57.4 million or 18% primarily due to a decrease in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers) and an increase in revenue due to higher average money market assets [vs. a year ago].'"
Our "ICI Myths on Money Funds vs. Bank Deposits, Fed RRP" piece states, "Mutual fund trade association, the Investment Company Institute (ICI) recently posted a 'Viewpoint' entitled, 'Three Myths and Facts about Bank Deposits, Bank Lending, and Money Market Funds,' which argues against the media's misperception that the shift from bank deposits to money market funds is harming the real economy by reducing lending. Chief Economist Sean Collins writes, 'Following the difficulties at Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse in early March 2023, a number of media reports cited analysts who suggested that money market funds (MMFs) are drawing deposits away from banks, adding to stresses at banks and preventing them from lending more to businesses and consumers.... This narrative, though colorful and attention-grabbing, needs fact-checking.'"
MFI states "He cites 'Myth #1: In March 2023, $422 billion flowed into government MMFs, which became 'dead money' in the Fed's RRP facility that banks could otherwise have lent to businesses and households.' Collins responds with, 'Fact #1: Government MMFs recycled over 70 percent of the $422 billion back into the banking system, either directly or indirectly. As assets in government MMFs climbed in March, those funds invested an additional $190.5 billion in debt issued by Federal Home Loan Banks, which in turn lent the proceeds to banks. Government MMFs also raised by $112.4 billion their investments in repo, providing additional funding to banks or their broker subsidiaries. Only $68.5 billion of the increase was invested in the Fed's RRP.'"
MFI also includes the News brief, "Fed Hikes 10th Time to 5.00-5.25%." It tells us, "The release, 'Federal Reserve issues FOMC statement,' says, '[T]he Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent.' Our Crane 100 Money Fund Index (7-Day Yield) rose just 3 bps in April to 4.64%, but it should jump next week and push towards 5.0%."
Another News brief, "MMF Assets Break $5.7 Trillion," explains, "Crane Data's MFI XLS shows MMFs jumping another $56.8 billion in April to a record $5.685 trillion. Our MFI Daily shows assets jumping another $63.6 billion the first 3 days of March, breaking $5.7 trillion and rising to a record $5.729 trillion Wednesday."
A sidebar, "SEC: Private Funds $333 Bil.," states, "The SEC released its latest quarterly 'Private Funds Statistics' report late last month, which summarizes Form PF reporting and includes some data on 'Liquidity Funds,' or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q3'22) at $333 billion (up from $328 billion in Q2'22 and up from $302 billion in Q3'21)."
Another sidebar, "FP Hits Brokerage Sweep" states, "Financial Planning magazine published a piece, 'The wealth management industry's $1T conflict of interest,' which explains, '[T]he brokerage industry's widespread and lucrative practice of cash sweeps has drawn extensive regulatory scrutiny and the ire of consumer advocates since it started around 2000. As long as the firms fully disclose the conflict of interest, though, there is nothing illegal about rolling up clients' uninvested cash into bank accounts that pay brokerage firms the vast majority of rising interest yields that feed the industry's bottom line more every time the Fed raises rates.'"
Our May MFI XLS, with April 30 data, shows total assets increased $56.5 billion to $5.685 trillion, after increasing $345.1 billion in March, $56.0 billion in February, $22.5 billion in January, $70.2 billion in December and $55.4 billion in November. MMFs rose $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 2022.
Our broad Crane Money Fund Average 7-Day Yield was up 6 bps to 4.52%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 3 bps to 4.64% in April. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 4.81% and 4.75%, respectively. Charged Expenses averaged 0.38% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 4/30/23.) The average WAM (weighted average maturity) for the Crane MFA was 18 days (up 1 day from previous month) while the Crane 100 WAM was up 1 at 16 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Federal Reserve's Open Market Committee raised short-term interest rates for the 10th straight time Wednesday, bringing its Federal funds rate target up a quarter-point to a range of 5.0-5.25%. The release, entitled, "Federal Reserve issues FOMC statement," tells us, "Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks."
It explains, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."
The FOMC adds, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Watch for money market fund yields to move higher in coming days as the latest Fed hike gets digested.
In other news, investment newsletter The Independent Vanguard Adviser writes on "Stashing Cash at Vanguard." Editor Jeff DeMaso asks, "Is my money safe" He explains, "In normal times, that's not a question I hear very often. But with two large regional banks collapsing in the same weekend in March, my inbox suddenly became full of variations on that theme.... [T]he short answer is that I believe our investments and cash are safe at Vanguard. However, the banking fallout seemed like a prime opportunity to dig deeper into Vanguard's various cash-management solutions."
The article continues, "When's the last time you talked money markets over cocktails? Well, believe it or not, money market funds have suddenly gone from boring to bodacious. With banks failing and the survivors still paying paltry yields on checking and savings accounts, savers have flocked to money market funds. Yields there have marched higher over the past year as the Federal Reserve (Fed) hiked short-term interest rates from the near-zero bound to 5%. Vanguard's three taxable money market funds -- Treasury Money Market (VUSXX), Federal Money Market (VMFXX) and Cash Reserves Federal Money Market (VMRXX) -- pulled in over $30 billion in net new cash during the first quarter. About $20 billion of that flooded in in March alone!"
It says, "I've got a few important points I want to make about money market funds. They deal with safety and yields. Safety first. Vanguard's money market funds are rock-solid. The potential for one of Vanguard's funds to 'break the buck' -- trade below the sacred $1.00 NAV -- is simply not on my list of worries. In part, you can thank Vanguard's low-cost advantage, which means the portfolio managers tending to your cash can keep risk low and still offer competitive yields. That's a win-win for all of us."
The IVA comments, "Additionally, Vanguard has been running money market funds since the 1970s without a misstep. They are committed to ensuring their money market funds always trade at $1.00. Consider that the firm waived millions of dollars in fees during years when interest rates were near zero just so they could keep money market yields after fees above 0%. (A drop below a 0% yield would've pulled their NAVs below $1.00.)"
They state, "This 'sponsor' commitment isn't idle talk, either. Technically, only two money markets have ever broken the buck -- the Primary Reserve Fund in 2008 and the Community Bankers US Government Fund in 1994. However, according to the New York Fed, at least 28 other money market funds would've broken the buck in September 2008 if the firms behind the funds hadn't stepped in."
DeMaso also writes, "Speaking of Vanguard's taxable money market funds, choosing among the three amounts to splitting hairs. Just pick one and stick with it -- chasing the tiny differences in their yields isn't a good use of your time. When it comes those yields, money market yields closely track the fed funds rate. You can see this clearly in the chart below plotting Federal Money Market's yield against the fed funds target rate over the past two decades or so. (I'm using quarterly data here.)"
Finally, he comments, "Not content to leave well enough alone, Vanguard's been testing out some other cash solutions for investors even as its money market funds have raked in the dough. A year ago (April 2022), Vanguard began testing something it called Cash Deposit with a limited number of clients. Cash Deposit is meant to be an alternative for cash in your investment account. Rather than hold Federal Money Market, Cash Deposit sweeps your money into several banks that Vanguard has relationships with to give you an attractive yield and FDIC coverage -- or at least that's the idea. You can find a landing page for Cash Deposit here."
The post adds, "Last fall, Vanguard rolled out Cash Plus Account on a limited basis. No, I didn't get an invite to test this one out either. And sorry if the names are confusing -- blame Vanguard, not me! You can find a landing page for Cash Plus Account here, and like Cash Deposit, it functions by sweeping your money into partner banks to deliver a competitive yield. The big difference is that Cash Plus Account is separate from your investment account. It'll have its own account and routing number, so you can set up bill-pay or receive direct deposits. It'll also connect to digital payment apps like PayPal and Venmo. What it doesn't have, like some other cash accounts offered by competitors, is an ATM card or the ability to write checks."
Crane Data's latest Money Fund Intelligence Daily shows money market mutual fund assets again jumping to record levels on Monday (5/1), breaking the $5.7 trillion barrier for the first time ever. Assets increased by $45.1 billion on Monday to $5.711 trillion, after dipping by $21.2 billion on Friday, the last day of April (4/28). In April assets increased by $55.9 billion after skyrocketing by $357.1 billion in March, the 3rd largest monthly increase ever (behind the coronavirus lockdown panic months of March and April 2020). Year-to-date through 5/1, money fund assets have increased by $511.1 billion. With this year's modest tax-related outflows behind us and with the ongoing turmoil in the banking sector (and concerns over uninsured deposits), we expect to see the strong assets growth continue, though the looming debt ceiling limit could see a pause in the inflows for Treasury-related money funds. (Note: Please join us for Crane's Money Fund Symposium, which is June 21-23, 2023 in Atlanta, Ga. We hope to see you at our big show!)
In other news, a press release entitled, "ICD 2023 Client Survey Shows Companies Concerned About Counterparty Risk Before Bank Failures," tells us, "Even before the banking turmoil sparked by Silicon Valley Bank's failure, 80% of corporate treasury organizations responding to ICD's 2023 Client Survey said they were concerned about bank and other counterparty concentration risk. The annual survey from ICD, an independent portal provider of short-term investments, closed in February with 116 treasury organizations responding from the Americas, UK and Europe."
CEO Tory Hazard comments, "The vast majority of corporate treasury teams are risk averse and invest in money market funds to diversify their cash portfolios, maintain daily liquidity and earn a competitive yield.... Our clients are quite sophisticated and use all the tools available to them through ICD Portal to achieve their investment objectives."
The release explains, "Current or planned investments in bank Time Deposits from the Americas were down 31% from last year, indicating a move away from single counterparty risk. Most survey respondents (93%) from all regions said they planned on increasing or maintaining investments in money market funds this year, up 12% from 2022. New clients investing through ICD Portal increased 283% in the first quarter of 2023, compared to the same period last year, and the average daily balance of those client investments grew 27 times.... Following the FDIC's takeover of SVB, usage of ICD's exposure analytics tool, which provides transparency into counterparties, countries, sectors and more, spiked 15 times its normal usage."
It adds, "Among other highlights from ICD's 2023 Client Survey: 74% of Treasury organizations expect to maintain or increase cash balances in H1; 90% of Americas respondents indicated they are investing in US Government MMFs; 86% of UK/Europe respondents indicated they are investing in Short-Term LVNAV MMFs; 55% of Treasury organizations are currently engaged in or are planning a tech project; and, 23% of Treasury teams say they are implementing a treasury management system this year."
The full "ICD 2023 Client Survey" says, "ICD is an independent portal provider of money market funds and other short-term investments, exclusively serving the treasury industry. We service more than $4 trillion trades annually on ICD Portal for treasury organizations across 65 industries operating in 43 countries. Our annual ICD Client Survey takes the pulse of treasury professionals in the Americas, UK and Europe on trading, short-term investments and technology. This year, 116 treasury organizations participated in the survey, which closed in February."
When asked, "What is your average Earnings Credit Rate (ECR) today?" The results tell us, "44% answered 'Less than 3%'; 28% answered '3-4%'; 8% answered '4-4.5%'; zero answered 'Greater than 4.5%'; and 20% answered 'N/A'." When asked, "Is your treasury team concerned with bank and other counterparty concentration risk?" The survey finds, "7% answered 'Highly concerned'; 73% answered 'Moderately concerned'; and 20% answered 'Not concerned'."
Finally, 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 April 28) includes Holdings information from 57 money funds (down 20 from a week ago), which totals $2.495 trillion (down from $2.814 trillion) of the $5.666 trillion in total money fund assets (or 44.0%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.423 trillion (down from $1.574 trillion a week ago), or 57.0%; Treasuries totaling $643.9 billion (down from $655.4 billion a week ago), or 25.8%, and Government Agency securities totaling $250.5 billion (down from $301.9 billion), or 10.0%. Commercial Paper (CP) totaled $55.4 billion (down from a week ago at $97.2 billion), or 2.2%. Certificates of Deposit (CDs) totaled $52.7 billion (down from $69.5 billion a week ago), or 2.1%. The Other category accounted for $48.3 billion or 1.9%, while VRDNs accounted for $21.9 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $948.2 trillion (38.0%), the US Treasury with $643.9 billion (25.8% of total holdings), Federal Home Loan Bank with $205.7B (8.2%), Fixed Income Clearing Corp with $120.9B (4.8%), JP Morgan with $42.4B (1.7%), Federal Farm Credit Bank with $41.7B (1.7%), Goldman Sachs with $31.9B (1.3%), BNP Paribas with $30.0 (1.2%), Citi with $27.3B (1.1%) and RBC with $23.5B (0.9%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($267.9B), JPMorgan US Govt MM ($226.2B), Fidelity Inv MM: Govt Port ($164.6B), Morgan Stanley Inst Liq Govt ($154.9B), JPMorgan 100% US Treas MMkt ($132.9B), BlackRock Lq FedFund ($130.8B), Dreyfus Govt Cash Mgmt ($116.6B), Goldman Sachs FS Treas Instruments ($108.6B), BlackRock Lq Treas Tr ($100.0B) and Fidelity Inv MM: MM Port ($97.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Mutual fund trade association, the Investment Company Institute (ICI) recently posted a "Viewpoint" entitled, "Three Myths and Facts about Bank Deposits, Bank Lending, and Money Market Funds," which argues against the media's misperception that the shift from bank deposits to money market funds is harming the real economy by reducing lending. Chief Economist Sean Collins writes, "Following the difficulties at Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse in early March 2023, a number of media reports cited analysts who suggested that money market funds (MMFs) are drawing deposits away from banks, adding to stresses at banks and preventing them from lending more to businesses and consumers. The reports claim that this process has been abetted by MMFs being able to invest at favorable rates with the Federal Reserve's (Fed's) reverse repo (RRP) facility, something the Fed created almost a decade ago to absorb excess cash in funding markets. Since May 2021, the facility has grown by about $2.2 trillion and MMFs are the biggest investors in the facility. This, it is suggested, is a concern the Fed could address by making the terms of the RRP facility less attractive to MMFs. This narrative, though colorful and attention-grabbing, needs fact-checking."
He cites "Myth #1: In March 2023, $422 billion flowed into government MMFs, which became 'dead money' in the Fed's RRP facility that banks could otherwise have lent to businesses and households." Collins responds with, "Fact #1: Government MMFs recycled over 70 percent of the $422 billion back into the banking system, either directly or indirectly. As assets in government MMFs climbed in March, those funds invested an additional $190.5 billion in debt issued by Federal Home Loan Banks, which in turn lent the proceeds to banks. Government MMFs also raised by $112.4 billion their investments in repo, providing additional funding to banks or their broker subsidiaries. Only $68.5 billion of the increase was invested in the Fed's RRP facility."
The update says, "Myth #2: Banks could lend a lot more to businesses and consumers if the Fed made terms of the RRP facility less attractive to MMFs." It continues, "Fact #2: Bank deposits, which have grown substantially since 2010, totaled about $18 trillion by February 2023 but bank loans totaled only a fraction of that. Because of banking regulations, banks often must hold deposits in US government securities or in their accounts with the Fed, preventing them from lending the deposits to businesses and consumers. Thus, an extra dollar of bank deposits will not necessarily result in more lending to the real economy."
Collins tells us, "Myth #3: MMFs increased their investments in the Fed's RRP facility over the past two years, drawing deposits from banks. Fact #3: Government MMFs did increase their investments in the Fed's RRP facility substantially over the past two years, but this was not because their assets grew. Instead, they exchanged one type of federal government liability (Treasury bills) for another (investments in the Federal Reserve's RRP facility), leaving their assets virtually unchanged."
He explains, "From March 31, 2021, to February 28, 2023 -- right before the difficulties at SVB surfaced publicly -- government MMFs' investments in the RRP facility rose by nearly $1.7 trillion.... However, their holdings of Treasury bills fell $1.4 trillion, in large measure because the US Treasury pared issuance of Treasury bills (which, given their short maturities, MMFs can hold) in favor of greater issuance of Treasury bonds (which, given their longer maturities, MMFs generally cannot hold). On balance, the assets of government MMFs were virtually unchanged over this period."
ICI's piece adds, "In light of the facts, the colorful narrative that MMFs are preventing increased lending to the real economy is strained at best and incorrect at worst. Sufficient financing to the real economy depends primarily on adroit monetary policy: sufficient financing will be forthcoming if the Fed can thread the needle of reducing inflation while avoiding a recession. Impugning MMFs as culpable in regional bank difficulties won't help thread that needle."
In other news, money fund yields were relatively flat again last week, unchanged after inching higher by just one basis point the week prior. They've now digested the Fed's March 22nd 25 basis point rate hike but should jump again after the Fed hikes rates on May 2 (if they hike as expected). Our Crane 100 Money Fund Index (7-Day Yield) was unchanged at 4.64% in the week ended Friday, 4/28. Yields are up from 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. Just a handful of the top-yielding money market funds yield above the 5.0% level, but more should move above this level after the next hike.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 687), shows a 7-day yield of 4.53%, unchanged in the week through Friday. Prime Inst MFs were unchanged at 4.74% in the latest week. Government Inst MFs rose by 1 bp to 4.64%. Treasury Inst MFs down 2 bps for the week at 4.50%. Treasury Retail MFs currently yield 4.29%, Government Retail MFs yield 4.33%, and Prime Retail MFs yield 4.58%, Tax-exempt MF 7-day yields were up 79 bps at 2.98%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/28), zero money funds (out of 816 total) yield under 2.0%; 61 funds yield between 2.00% and 2.99% with $20.4 billion, or 0.4%; 112 funds yield between 3.00% and 3.99% ($118.8 billion, or 2.1%), and 643 funds yield 4.0% or more ($5.528 trillion, or 97.5%). Eleven funds have now officially surpassed the 5.0% mark (though many are private and not listed in our "Highest-Yielding Funds" table above) but we expect a lot more to follow in coming weeks.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.56% after increasing one basis point 2 weeks ago. The latest Brokerage Sweep Intelligence, with data as of April 28, 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.
Finally, an article on the website, Cointelegraph, "Circle's Fed payment rail goal could be crushed by NY Fed's policy change," states, "The New York Federal Reserve has published new rules for counterparties looking to use its money market balancer, casting uncertainty over intentions by stablecoin issuer Circle to use the Fed's systems. In an April 25 statement, the New York Fed announced adjustments to its guidelines to determine which parties are eligible to participate in its reverse repurchase agreements (RRP)."
It states, "The updated guidelines could potentially hinder Circle's chances of gaining access to the Fed's reverse-repurchase program -- a process where the Fed sells securities to eligible counterparties with an agreement to repurchase them at the maturity date. According to the New York Fed, accessing such a system 'should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing RPP operations.'" (For more, see our April 27 News, "Financial Planning Mag Criticizes Brokerage Sweeps; NYFed Tightens RRP.")
Federated Hermes, the 6th largest manager of money funds, reported Q1'23 earnings Thursday night and hosted its latest earnings conference call on Friday morning. President & CEO J. Christopher Donahue comments in a press release, "Federated Hermes' record assets under management were driven by money market asset increases accompanied by further increases across nearly all other long-term asset classes from the previous quarter, demonstrating once again the value of our diversified business mix. As interest rates continued their rise and as investors considered regional banking issues, many withdrew deposits from small and medium-sized banks and continued to embrace the benefits of money market funds -- high credit quality, short duration, diversification, transparency, daily liquidity and market yields. Federated Hermes had positive net flows into a range of our money market products -- from government to prime." (See the Seeking Alpha earnings call transcription here.)
The release says, "Money market assets were a record $505.8 billion at March 31, 2023, up $85.2 billion or 20% from $420.6 billion at March 31, 2022 and up $29.0 billion or 6% from $476.8 billion at Dec. 31, 2022. Money market fund assets were $357.3 billion at March 31, 2023, up $77.8 billion or 28% from $279.5 billion at March 31, 2022 and up $21.4 billion or 6% from $335.9 billion at Dec. 31, 2022.... Revenue increased $57.4 million or 18% primarily due to a decrease in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers) and an increase in revenue due to higher average money market assets [vs. a year ago]."
It explains, "During Q1 2023, Federated Hermes derived 52% of its revenue from long-term assets (33% from equity, 13% from fixed income and 6% from alternative/private markets and multi-asset), 47% from money market assets, and 1% from sources other than managed assets. Operating expenses increased $56.2 million or 23% due to increased distribution expenses resulting primarily from lower voluntary yield-related fee waivers.... There were no voluntary yield-related fee waivers during the quarter ended March 31, 2023. During the quarter ended March 31, 2022, voluntary yield-related fee waivers totaled $75.8 million. These fee waivers were partially offset by related reductions in distribution expenses of $57.5 million."
On the earnings call, Donahue comments, "The first quarter increase reflected movement into money market strategies from bank deposits in March as investors became increasingly concerned following the failure of certain banks. Money market strategies also continued to benefit from favorable market conditions for cash as an asset class, higher yields, elevated liquidity levels in the financial system and favorable yields compared to bank deposits. As short-term interest rates peak, we expect market conditions for money market strategies will remain favorable compared to both direct markets and bank deposit rates."
Asked about state and local government investment pools, he replies, "There are many other opportunities on the state pool front and let's divide that up in certain ways. In many of these states, even where we have the main pool, there are sub-pools in the state as well. Those pools are always viewed as a polite competition for the big state pool, and the extent to which those pools don't buy the right securities or don't have the right yields or don't have sufficient size to make things happen, that tends to enable the big pool to get bigger and therefore our claim on assets to manage to grow. That's one part of it."
The Federated CEO continues, "Overall, it does not appear that the things happening to the regional banks are impacting the state pools. That business is done based on long-term contracts with long lead times with bid processes, and RFPs that are very complicated. So it's really hard for those state pools to turn on a dime. Obviously, that's a tough thing for getting new business, but it's a pretty good thing for keeping old business.... Whenever there is an opportunity in whatever state [we look at it]. We are working on right now a small handful of states ... where we think we can become the manager of the pool.... We are at an all-time high of $148 billion in state pools."
Money Market CIO Debbie Cunningham comments, "Chris mentioned the long lead time for ... taking over the state pools themselves and local government investment pools. But the participants don't have such long lead time, and the participants do have choices. They don't have to be in the state pools. They could be in a bank [and] they are oftentimes looking at money market funds as an alternative. We have a substantial amount of cash in our money market funds from participants in state pools, some of which we manage, some of which are managed by others. So there are a lot of competitors to this business."
She explains, "Much like our outlook for money market funds, however, our outlook for the state pools from a participant gathering assets basis going forward is excellent. Generally speaking, in an increasing rate environment ... assets are not going out that quickly. It's when they reach a terminal rate and actually start going down the other direction and getting lower, that money generally comes flooding into these types of products. And much like our money market outlook, we see the same trajectory for our state pools."
Cunningham adds, "There are a lot of cash flow idiosyncrasies with regard to the state pools, though. Generally the state [or] the local municipalities receive cash at certain times, the same with the school districts within those state pools, and then they have a period of time when they are no longer receiving the cash receipts or the disbursements from the state themselves but are rather spending it. So there are definitely annual cyclical cycles that we deal within those pools as well."
In response to a question on the debt ceiling, Cunningham responds, "[Yellen] will continue to use extraordinary measures until they're almost exhausted and then there'll be some resolution. So our expectation is similar to past experiences with this, that it will be passed, it will get resolved.... But we are not expecting any type of even a technical default from a U.S. Treasury perspective. Now having said that, the market has prepared over the course of the last decade, let's call it, for such an event from both an operational perspective, from a systems standpoint, etc. The ICI, SIFMA, their DTCC are prepared if there were a technical default of a single Treasury security in the marketplace, and there are ways of rolling debt within the current limit that exists, that again in our minds keep this ... a very remote event."
On rates, she says, "Our expectation, even when the Fed reaches the terminal rate, is not for rates to go back to zero. That's not normal despite the fact that people that have been in the market for maybe the last 15 years think that's the landing ... but in fact, it is not. So when you get rates that are 3%, 4% or 5% and you are at a point when the Fed is at the top of its cycle, you see flows into products like the ultra-short funds, the micro-short funds, the cash-plus funds, that will maintain those higher rates for a longer period of time because of the Fed is not taking a trajectory that takes it back to zero."
In reply to a question on competition, Donahue answers, "Recently we haven't noticed any new competitive pressures on pricing.... Customers have the ability to move ... and a lot of them use three or so different purveyors for their cash because they like diversification. If anything, you may see more of that ... given what happened in the banking world.... You mentioned other short-term investments like ETFs or ultra-short funds ... they have variable net asset values, so the ETF is never really going to be competitive with the money market fund. They don't pay dividends every day. You don't know if you're going to get a buck back or not.... If someone wants to do a longer cash thing, then fine, we have the products for that. But those products are not going to compete specifically with money market funds."
Cunningham comments, "The only thing I'd add to that is: generally, ETFs are settling on a T+2 basis -- that is certainly not what's expected and for the most part, needed and utilized in the liquidity world for money market funds. They are expecting T+0 settlement for putting their cash with us and for redeeming their cash for its various uses. So that's also a big negative [for] the ETF sector."
When asked about tax outflows and cash "sorting," Donahue replies, "So on cash sorting, ... that generally means that the customer is figuring out that maybe zero or 10 or 25 basis points is not the market for a cash return, and ... some of the banks are having to pay up in order to keep, maintain or gain deposits. [T]he marketplace having its effect, the deposit beta rate is basically and administered or concocted rate with the design of giving beta to the bank for its net interest income and there's a little shift because of what happened in the banking industry for how people are actually looking at that."
Finally, Cunningham adds, "If you look at deposits in the marketplace, total deposits are down several trillion, and it did not start just in March. It was kick-started in March ... but it began in earnest back in March of 2022 when the Fed began raising interest rates.... When you look at the deposit beta historically for banks in a rising interest rate environment, it's about generally 40%. In today's environment, we're still less than 20% from a deposit beta perspective.... It's hard to say what others will do. But given that they're nowhere close to that number yet, and we are close to reaching what seems like a peak or a terminal rate in short-term rates, there's still a lot to go in this ballgame. I'm not sure what exactly inning it would be, but I'd say, we're still in the first half."
