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The Investment Company Institute'​s released its latest weekly "Money Market Fund Assets" report and its latest monthly "Trends in Mutual Fund Investing" and "Month-​End Portfolio Holdings of Taxable Money Funds" for August 2023 on Thursday. The former shows MMF assets rebounding in the past week to almost record levels after dipping last week. MMFs have hit records in 8 out of the past 11 weeks. ICI'​s weekly asset series rose to $​5.​644 trillion, just $​1 billion shy of ICI'​s revised weekly record of two weeks ago. Assets are up by $​909 billion, or 19.​2%, year-​to-​date in 2023, with Institutional MMFs up $​453 billion, or 14.​8% and Retail MMFs up $​456 billion, or 27.​2%. (​Totals are up $​823.​5 billion, or 17.​1%, since 2/​22/​23.) Over the past 52 weeks, money funds have risen a massive $​1.​054 billion, or 23.​0%, with Retail MMFs rising by $​606 billion (​39.​6%) and Inst MMFs rising by $​448 billion (​14.​6%).

Their weekly release says, "Total money market fund assets increased by $​6.​31 billion to $​5.​64 trillion for the week ended Wednesday, September 27, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​6.​13 billion and prime funds decreased by $​1.​08 billion. Tax-​exempt money market funds increased by $​1.​26 billion." ICI'​s stats show Institutional MMFs falling $​1.​5 billion and Retail MMFs rising $​7.​8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​635 trillion (​82.​1% of all money funds), while Total Prime MMFs were $​892.​9 billion (​15.​8%). Tax Exempt MMFs totaled $​115.​8 billion (​2.​1%).

ICI explains, "Assets of retail money market funds increased by $​7.​80 billion to $​2.​13 trillion. Among retail funds, government money market fund assets increased by $​3.​92 billion to $​1.​40 trillion, prime money market fund assets increased by $​2.​83 billion to $​627.​28 billion, and tax-​exempt fund assets increased by $​1.​06 billion to $​104.​89 billion." Retail assets account for over a third of total assets, or 37.​8%, and Government Retail assets make up 65.​7% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $​1.​49 billion to $​3.​51 trillion. Among institutional funds, government money market fund assets increased by $​2.​22 billion to $​3.​23 trillion, prime money market fund assets decreased by $​3.​91 billion to $​265.​57 billion, and tax-​exempt fund assets increased by $​196 million to $​10.​93 billion." Institutional assets accounted for 62.​2% of all MMF assets, with Government Institutional assets making up 92.​1% of all Institutional MMF totals.

According to Crane Data'​s separate Money Fund Intelligence Daily series, money fund assets broke the $​6.​0 trillion level on Sept. 1 and hit a record $​6.​065 trillion on Tuesday, Sept. 26, before easing back to $​6.​032 trillion Wednesday (​9/​27). Assets have risen by $​52.​5 billion in September through 9/​27 after rising by $​98.​3 billion in August and $​34.​7 billion in July. Note that ICI'​s asset totals don'​t include a number of funds tracked by the SEC and Crane Data, so they'​re over $​400 billion lower than Crane'​s asset series.

ICI'​s monthly Trends shows money fund totals rising $​123.​9 billion in August to a record $​5.​605 trillion (​after increases in July, June, May and April). Prior to this, the March jump (​a $​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. Bond fund assets decreased, dropping $​24.​9 billion to $​4.​638 trillion.

MMFs have increased by $​1.​037 trillion, or 22.​7%, over the past 12 months. Money funds' August asset increase follows gains of $​31.​4 billion in July, $​30.​6 billion in June, $​172.​7 billion in May, $​8.​4 billion in April, $​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. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (​The bond fund totals don'​t include bond ETFs, which total $​1.​391 trillion as of 8/​31, according to ICI.)

ICI'​s monthly release states, "The combined assets of the nation'​s mutual funds decreased by $​290.​30 billion, or 1.​2 percent, to $​24.​49 trillion in August, according to the Investment Company Institute’​s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $​1.​12 billion in August, compared with an inflow of $​11.​10 billion in July.... Money market funds had an inflow of $​111.​01 billion in August, compared with an inflow of $​17.​82 billion in July. In August funds offered primarily to institutions had an inflow of $​64.​22 billion and funds offered primarily to individuals had an inflow of $​46.​79 billion."

The Institute'​s latest statistics show that Taxable MMFs and Tax Exempt MMFs were both higher last month. Taxable MMFs increased by $​120.​3 billion in August to $​5.​490 trillion. Tax-​Exempt MMFs increased $​3.​7 billion to $​115.​8 billion. Taxable MMF assets increased year-​over-​year by $​1.​024 trillion (​22.​9%), and Tax-​Exempt funds rose by $​13.​6 billion over the past year (​13.​3%). Bond fund assets decreased by $​24.​9 billion (​after increasing $​26.​0 billion in July) to $​4.​638 trillion; they'​ve decreased by $​134.​7 billion (-​2.​8%) over the past year.

Money funds represent 22.​9% of all mutual fund assets (​up 0.​8% from the previous month), while bond funds account for 18.​9%, according to ICI. The total number of money market funds was 278, down 1 from the prior month and down from 296 a year ago. Taxable money funds numbered 230 funds, and tax-​exempt money funds numbered 48 funds.

ICI'​s "Month-​End Portfolio Holdings" confirm a drop in Repo and a jump in Treasuries last month. Repurchase Agreements remained the largest composition segment in August but decreased $​110.​8 billion, or -​3.​8%, to $​2.​839 trillion, or 51.​7% of holdings. Repo holdings have increased $​490.​1 billion, or 20.​9%, over the past year. (​See our Sept. 12 News, "Sept. Portfolio Holdings: Treasuries Skyrocket, Surpass Fed Repo in Size.")

Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $​168.​0 billion, or 12.​6%, to $​1.​505 trillion, or 27.​4% of holdings. Treasury securities have increased by $​165.​0 billion, or 12.​3%, over the past 12 months. U.​S. Government Agency securities were the third largest segment; they increased $​24.​6 billion, or 4.​0%, to $​637.​5 billion, or 11.​6% of holdings. Agency holdings have increased by $​226.​1 billion, or 55.​0%, over the past 12 months.

Certificates of Deposit (​CDs) remained in fourth place; they increased by $​37.​7 billion, or 14.​7%, to $​293.​6 billion (​5.​3% of assets). CDs held by money funds rose by $​105.​5 billion, or 56.​1%, over 12 months. Commercial Paper remained in fifth place, up $​15.​7 billion, or 7.​9%, to $​215.​1 billion (​3.​9% of assets). CP increased $​68.​5 billion, or 46.​7%, over one year. Other holdings decreased to $​18.​0 billion (​0.​3% of assets), while Notes (​including Corporate and Bank) increased to $​10.​8 billion (​0.​2% of assets).

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased to 60.​731 million, while the Number of Funds was down 1 at 230. Over the past 12 months, the number of accounts rose by 2.​237 million and the number of funds decreased by 7. The Average Maturity of Portfolios was 24 days, up 1 from July. Over the past 12 months, WAMs of Taxable money have increased by 4.

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J.​P. Morgan published a new "Stablecoin market update," which explains, "It has been a year of turmoil in the crypto industry, marked by the collapses of several entities including FTX, Three Arrows Capital, BlockFi, Celsium, Genesis, and others. Even before then, confidence in cryptocurrency, including stablecoins, was weakening given the run on TerraUSD in early 2022. It'​s no surprise, then, that the stablecoin market has shrunk, along with the broader cryptocurrency market. According to CoinGecko, the size of the stablecoin market has fallen from a peak of ~$​180bn in May 2022 to ~$​120bn today."

It continues, "Interestingly, a look at the composition of the stablecoin market shows Tether meaningfully gained market share over the past year, increasing from a low of 46% last summer to 70%, while USDC'​s market share has fallen to 22% from a high of ~​40% last summer. Notably, despite a shrinking market, PayPal, in partnership with Paxos Trust, recently announced that it will issue a new stablecoin, PayPal USD (​PYUSD). PayPal'​s foray into the stablecoin market will mark the first stablecoin with an already-​established presence in the consumer payments market."

JPM says, "PayPal'​s decision to launch a stablecoin speaks to its positive view on stablecoin regulations, in our opinion. To that end, in July, the U.​S. House Financial Services Committee passed a bill to establish a federal regulatory framework for payment stablecoins, called the 'Clarity for Payment Stablecoins Act of 2023,' one of the first pieces of legislation we have seen that focuses specifically on payment stablecoins. At present, there are two other bills that have been introduced that look to establish a comprehensive and unified regulatory scheme for digital assets and their derivatives ..., both of which have received bipartisan support."

They write, "Though far from final, the proposed legislation would generally require stablecoin issuers to maintain reserves backing the issuer'​s outstanding payment stablecoins on an at least one-​to-​one basis and subject issuers to additional regulatory requirements. Reserves would comprise of HQLA, ranging from insured deposits, T-​bills (​with a maturity <​90 days), repos (​with a maturity of <​7 days and backed by Treasury bills with a maturity of <​90 days), central bank reserves, and other assets deemed appropriate."

J.​P. Morgan also writes, "In the meantime, stablecoin issuers continue to actively manage their reserves as they see fit. Based on Circle'​s disclosures, the majority of USDC'​s reserve assets are in an SEC 2a-​7 registered government MMF of which Circle is the sole shareholder (​aptly named Circle Reserve Fund). Meanwhile, Tether'​s reserve portfolio has turned significantly more conservative since we started looking two years ago. Figure 2 and Figure 3 show allocation breakdowns of the respective coins' reserve portfolios."

Finally, they add, "Relatedly, earlier this year, the Fed announced a change to the terms of the Fed ON RRP facility, noting, '​SEC registered 2a-​7 funds that, in the sole judgment of the New York Fed, are organized for a single beneficial owner, or exhibit sufficient similarities to a fund so organized, generally will be deemed ineligible to access reverse repo operations.' The revision also clarifies that financial stability and ensuring bank safety and soundness are factors considered when evaluating ON RRP counterparties. We suspect this announcement was in response to the application filed by Circle Reserve Fund to get access to the Fed'​s ON RRP facility. The Fed'​s change to the terms of its ON RRP facility would effectively close the back door for a non-​standard MMF counterparty to get access to the Fed'​s balance sheet."

Bloomberg wrote about the JPM piece in its update, "Stablecoin Issuers Risk Disrupting Funding Markets, JPMorgan Says." They comment, "Stablecoin issuers vying for assets in the short-​term funding space risk disrupting the market after the Federal Reserve limited access to a key facility, according to JPMorgan Chase & Co. The central bank decided in April that money funds created for the sole purpose of accessing its overnight reverse repo facility, or ON RRP, were deemed ineligible as a counterparty. That means stablecoins, seeking to park cash in liquid assets and unable to access the Fed facility, will likely have to compete with the $​5.​64 trillion money-​market fund industry for assets like Treasury bills, potentially pushing those rates below the offering level on the RRP -- currently 5.​3%."

Last week, The Wall Street Journal published "Tether Is Lending Its Stablecoins Again," which tells us, "Tether Holdings resumed lending out its own stablecoins to customers, less than a year after it said it would wind down the practice. The cryptocurrency issuer in its latest quarterly financial update said its assets included $​5.​5 billion of loans as of June 30, up from $​5.​3 billion a quarter earlier. A company spokeswoman confirmed that Tether made new loans. The company, which is incorporated in the British Virgin Islands, calls them secured loans and discloses little about the borrowers or the collateral accepted. The loans are issued and denominated in the company'​s tether tokens. Stablecoins such as tether are anchors in the crypto market. The premise of digital assets such as tether -- and other stablecoins -- is that the issuer always will redeem one coin for $​1. Issuers take pains to demonstrate they have ample funds available to do so."

The Journal also writes, "The World'​s Biggest Crypto Firm Is Melting Down." This piece says, "After FTX crashed, the world of crypto seemed to belong to the largest exchange, Binance. Less than a year later, Binance is the one in distress. Under threat of enforcement actions by U.​S. agencies, Binance'​s empire is quaking. Over the past three months, more than a dozen senior executives have left, and the exchange has laid off at least 1,​500 employees this year to cut costs and prepare for a decline in business. And while Binance still looms large in crypto, its dominance is dwindling. Binance now handles about half of all trades where cryptocurrencies are directly bought and sold, down from about 70% at the start of the year, according to data provider Kaiko."

Finally, staff from the Federal Reserve Bank of New York and Federal Reserve Bank of Boston re-​posted their paper, "Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?" The Abstract expains, "Stablecoins and money market funds both seek to provide investors with safe, money-​like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similarly to money market fund investors, stablecoin investors engage in flight to safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds, run risk has historically materialized only in prime funds, with stablecoins, runs occurred in different stablecoin types across the 2022 and 2023 episodes. We also show that, similarly to intrafamily flows in money market funds, stablecoin flows tend to be within blockchains. Finally, for stablecoins, we estimate a discrete “​break-​the-​buck” threshold of $​0.​99, below which redemptions accelerate."

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A press release entitled, "Dreyfus Launches SPARK Shares of Dreyfus Government Cash Management Available Exclusively through BNY Mellon," tells us, "Dreyfus, one of the largest, trusted cash and liquidity managers, announced today the launch of SPARK shares (​SPKXX). The share class allows clients to drive change with their liquidity investments by directing a donation to an eligible non-​profit organization of their choice. The donation is expected to result in a positive, quantifiable impact for the selected organization." (Note: Thanks again to those who attended our European Money Fund Symposium in Edinburgh this week! Mark your calendars for next year'​s show, Sept. 19-​20, 2024 in London!)

Laide Majiyagbe, Head of Financing and Liquidity at BNY Mellon Markets, comments, "Dreyfus created SPARK shares to give clients the power to drive change by selecting a charitable cause that aligns with their giving goals. SPARK shares support clients' philanthropic aspirations, and we are pleased to make it available exclusively through BNY Mellon, including our LiquidityDirect platform."

The release explains, "Offered through the flagship Dreyfus Government Cash Management fund, Dreyfus' largest money market fund with $​115 billion in assets and nearly 40 years in operation, SPARK shares will donate 10% of net revenue annually to the selected non-​profit based on each client'​s average balance. Our inaugural investors, including Jefferies, Macquarie Group and Protective Life Corporation, have invested $​1 billion in SPARK shares."

Stephanie Pierce, CEO for Dreyfus, Mellon and Exchange-​Traded Funds, adds, "​Investors in SPARK shares can make a difference where they believe it matter the most. Our aspiration is to help our clients make their cash work harder by positively impacting their communities. Our flagship Dreyfus Government Cash Management fund is an industry-​leading money market fund that offers a competitive yield and is led by a seasoned team. Dreyfus is proud to extend our legacy of innovation by helping clients make an impact while managing their liquidity."

Dreyfus also says, "The launch of SPARK shares is another example of BNY Mellon'​s endeavor to leverage its financial platforms and global capabilities to support local communities. Dreyfus and BNY Mellon are proud to offer investors the opportunity to fulfill their own philanthropic goals, as well as their core liquidity needs, through SPARK shares. For more information on SPARK shares please visit: https://​www.​dreyfus.​com/​products/​the-​spark-​shares.​html."

The Wall Street Journal broke the news in a brief entitled, "Dreyfus Puts Charitable Twist on Money-​Market Fund Investing. It states, "​One of the biggest names in money-​market funds is making an unusual play to get investors' attention. Dreyfus, a unit of BNY Mellon, will let big clients of its flagship, $​115 billion Government Cash Management fund effectively redirect 10% of the annual fees they pay toward a nonprofit of their choice."

The update adds, "​Investors have parked a record $​5.​6 trillion in money-​market funds, taking advantage of the highest interest rates in decades for these low-​risk investments. Clients need to invest at least $​75 million in a new class of money-​market securities known as Spark shares to take part in the program. The donations will be based on net revenues generated by BNY Mellon from Spark share management fees."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (​with data as of Sept 22) includes Holdings information from 77 money funds (​up 6 from a week ago), or $​2.​970 trillion (​down from $​2.​989 trillion) of the $​6.​019 trillion in total money fund assets (​or 49.​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.​501 billion (​down from $​1.​552 trillion a week ago), or 50.​5%; Treasuries totaling $​910.​1 billion (​down from $​960.​5 billion a week ago), or 30.​6%, and Government Agency securities totaling $​228.​2 billion (​down from $​238.​9 billion), or 7.​7%. Commercial Paper (​CP) totaled $​106.​3 billion (​up from a week ago at $​79.​3 billion), or 3.​6%. Certificates of Deposit (​CDs) totaled $​91.​9 billion (​up from $​73.​0 billion a week ago), or 3.​1%. The Other category accounted for $​96.​4 billion or 3.​2%, while VRDNs accounted for $​36.​0 billion, or 1.​2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​910.​1 billion (​30.​6% of total holdings), the Federal Reserve Bank of New York with $​608.​7 billion (​20.​5%), Fixed Income Clearing Corp with $​227.​4B (​7.​7%), Federal Home Loan Bank with $​167.​6B (​5.​6%), RBC with $​55.​9B (​1.​9%), JP Morgan with $​54.​8B (​1.​8%), BNP Paribas with $​54.​6B (​1.​8%), Federal Farm Credit Bank with $​52.​7B (​1.​8%), Citi with $​51.​0B (​1.​7%), and Barclays PLC with $​47.​6B (​1.​6%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($​259.​6B), Fidelity Inv MM: Govt Port ($​186.​3B), JPMorgan 100% US Treas MMkt ($​155.​9B), Morgan Stanley Inst Liq Govt ($​154.​1B), Federated Hermes Govt ObI ($​144.​1B), BlackRock Lq FedFund ($​136.​8B), State Street Inst US Govt ($​130.​4B), Dreyfus Govt Cash Mgmt ($​111.​9B), Fidelity Inv MM: MM Port ($​111.​7B) and Allspring Govt MM ($​111.​2B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary.)

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A new publication called "Income Matters Today," written by former Barron'​s columnist Lawrence Strauss recently interviewed our Peter Crane in a piece entitled, "Juicy Yields: An industry expert weighs in on money market funds."​It explains, "For many years, as interest rates were very depressed thanks in no small part to the Federal Reserve'​s quantitative easing program, money market mutual funds had puny yields. But that'​s reversed. To fight inflation, the Federal Open Market Committee has aggressively raised short-​term rates since early last year, effectively boosting yields across the bond market. Money market funds have been a big beneficiary. Assets total about $​6 trillion, an all-​time record. For some perspective on these funds, which typically invest in shorter-​term securities such as Treasury bills, Income Matters Today spoke with Peter Crane, a leading expert on these funds. This is an edited version of that conversation." (Note: Thanks to those who attended and supported our European Money Fund Symposium in Edinburgh this week! Watch for highlights of the show in coming days and in our next Money Fund Intelligence!)

The interview asks, "What'​s important for retail investors to be thinking about when it comes to money market mutual funds?" Crane comments, "Money markets and cash are just for money that you might need tomorrow -- the shortest-​term and the safest investment bucket. Money market mutual funds, which aren'​t bank deposits and aren'​t insured by the FDIC [​Federal Deposit Insurance Corporation], became popular because bank interest rates stunk in the past. They are not very good now, in most cases."

"Money funds got to be a $​6 trillion vehicle because they give investors what the market gives them. That'​s an important point that has been lost. Often with investing, you have to know where the market is. If the market is paying 5.​25% and you'​re getting 5%, you'​re good. If the market'​s paying 2% and you are getting 5%, you are taking a major risk -- and there'​s something wrong with that. So that market rate of return has been the key to the success of money market mutual funds. And, of course, they offer convenience -- notably liquidity and safety."

"Money market yields have been very attractive lately at around 5% on average, but that wasn'​t the case for many years with ultra-​low interest rates. Prior to early last year when the Fed started hiking short-​term rates, money market rates had been almost zero for 14 out of the last 17 years. So, we'​ve come through an unusual period of zero yields. Historically, money funds have had a yield advantage over bank deposits. Bank deposits, though, had a safety advantage, owing to the FDIC protection, but that'​s sort of shifted. Of course, when there'​s no yield, all you care about is safety and liquidity. But now that money funds are almost entirely invested in government securities such as Treasuries, that safety differential has changed as well."

The newsletter says, "U.​S money market fund assets have surged to $​6 trillion. What'​s driving that?" Crane responds, "The assets keep hitting records every day. Money market fund inflows show no signs of stopping. The retail flows are being driven by money trying to get a competitive rate. That'​s brokerage money moving out of bank sweep [​accounts] and into money funds. It'​s also high net-​worth money and institutional money coming in. Those 5% yields are definitely bringing in a lot of cash. Retail assets have been growing at 40% over the last year; institutional at 15%."

Income Matters Todays writes, "Where are the money market flows coming from right now?" Crane tells them, "Most of the money in money markets isn'​t going into the stock market; it'​s being used for different personal finance business purposes and cash. Most of the money we'​ve seen coming into money markets this year isn'​t coming out of the stock market; it'​s coming out of bank deposits. In general, everybody, because the markets have done so well over the past 20, 30 years, is overweight stocks and bonds and underweighted cash. But the world'​s still a dangerous place. If investors don'​t have that cash cushion -- and if they don'​t have that emergency buying power -- it'​s a great time to reconsider that. But it'​s bank deposits that have been the main driver of money market mutual fund flows these days, because bank deposit rates are so low generally."

They query, "What kind of yields are you seeing?" We respond, "The Crane 100 money fund index, which is an average of the largest funds, was 5.​16% as of Sept. 14. It'​s sort of flatlined there over the last two, three weeks as the most recent Fed hike in late July gets digested."

The article also asks, "Have you seen any other factors contribute to the pick up in money market fund inflows?" Crane says, "They'​ve gradually been building for the last year and a few months. In March, when you saw the Silicon Valley Bank tremor, and concerns about the health of regional banks you had a big shift of institutional assets. Until the government guarantees all bank deposits, that uninsured deposit slice remains vulnerable. It'​s still around $​7 trillion out of the $​18 trillion total."

The piece adds in an "Editor'​s note: The U.​S. Securities And Exchange Commission recently approved amendments to some of its rules for these funds, partly owing to concerns about transparency and liquidity. SEC Chairperson Gary Gensler noted in a July statement outlining the proposals that there'​s '​a potential structural liquidity mismatch' for money market funds. 'Investors can redeem their money market fund holdings on a daily basis, even if those funds keep some of their holdings in securities with less liquidity,' he added."

The article tells us, "The new rules attempt to shore that up. There have been a few times -- during the financial crisis in 2008 and early in the pandemic in March of 2020 -- when liquidity surfaced as an issue. What'​s important to keep in mind here?" Crane comments, "The SEC has changed Rule 2a-​7 of the Investment Company Act of 1940 a number of times since the birth of money funds a little over 50 years ago. This latest round increases the liquidity requirements so you'​re going to see even more government money funds -- that means more Treasury bill holdings and the like."

He adds, "During the last couple of rounds of rule changes, you saw a big shift away from credit [​securities] and into government holdings to make them safter. Most of the technical changes relate primarily to the prime institutional funds, whose holdings can include commercial paper, and certificates of deposit, corporate notes. Retail investors as a whole, though, won'​t see that much change in money funds."

Finally, they ask, "What kinds of holdings are you seeing in government money market funds catering to retail investors?" We tell them, "The weighted average for how long it takes a money fund to turn over its portfolio is 25 days. So even a one-​month Treasury bill is longer than that. But one- and three-​month Treasury bills are usually what you are looking at for a lot of the holdings in these particular funds."

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The Investment Company Institute published, "Worldwide Regulated Open-​Fund Assets and Flows, Second Quarter 2023," last week, which shows that money fund assets globally jumped by $​257.​9 billion, or 2.​7%, in Q2'​23 to $​9.​719 trillion. The increases were led by a sharp jump in money funds in U.​S., while India, France, Mexico and Luxembourg also rose. Meanwhile, money funds in China and Ireland were lower. MMF assets worldwide increased by $​1.​237 trillion, or 14.​6%, in the 12 months through 6/​30/​23, and money funds in the U.​S. now represent 56.​1% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Thanks to those attending and supporting our European Money Fund Symposium, which takes place Sept. 25-​26, 2023 in Edinburgh. Welcome to Scotland!)

ICI'​s release says, "Worldwide regulated open-​end fund assets increased 3.​1 percent to $​65.​07 trillion at the end of the second quarter of 2023, excluding funds of funds. Worldwide net cash inflow to all funds was $​461 billion in the second quarter, compared with $​667 billion of net inflows in the first quarter of 2023. The Investment Company Institute compiles worldwide regulated open-​end fund statistics on behalf of the International Investment Funds Association (​IIFA), the organization of national fund associations. The collection for the second quarter of 2023 contains statistics from 46 jurisdictions."

It explains, "The growth rate of total regulated open-​end fund assets reported in US dollars was decreased by US dollar appreciation over the second quarter of 2023. For example, on a US dollar–​denominated basis, fund assets in Europe increased by 1.​9 percent in the second quarter, compared with an increase of 2.​0 percent on a euro-​denominated basis."

ICI'​s quarterly continues, "​On a US dollar–​denominated basis, equity fund assets increased by 4.​6 percent to $​29.​83 trillion at the end of the second quarter of 2023. Bond fund assets increased by 1.​8 percent to $​12.​21 trillion in the second quarter. Balanced/​mixed fund assets decreased by 0.​1 percent to $​7.​22 trillion in the second quarter, while money market fund assets increased by 2.​7 percent globally to $​9.​72 trillion."

The release also tells us, "At the end of the second quarter of 2023, 46% of worldwide regulated open-​end fund assets were held in equity funds. The asset share of bond funds was 19% and the asset share of balanced/​mixed funds was 11%. Money market fund assets represented 15% of the worldwide total. By region, 54% of worldwide assets were in the Americas in the second quarter of 2023, 31% were in Europe, and 15 percent were in Africa and the Asia-​Pacific regions."

ICI adds, "​Net sales of regulated open-​end funds worldwide were $​461 billion in the second quarter of 2023..... Globally, bond funds posted an inflow of $​225 billion in the second quarter of 2023, after recording an inflow of $​145 billion in the first quarter.... Money market funds worldwide experienced an inflow of $​300 billion in the second quarter of 2023 after registering an inflow of $​544 billion in the first quarter of 2023."

According to Crane Data'​s analysis of ICI'​s "​Worldwide" fund data, the U.​S. sustained its position as the largest money fund market in Q2'​23 with $​5.​450 trillion, or 56.​1% of all global MMF assets. U.​S. MMF assets increased by $​211.​6 billion (​4.​0%) in Q2'​23 and have increased by $​909.​1 billion (​20.​0%) in the 12 months through June 30, 2023. China remained in second place among countries overall. China saw assets decrease $​11.​3 billion (-​0.​7%) in Q2 to $​1.​583 trillion (​16.​3% of worldwide assets). Over the 12 months through June 30, 2023, Chinese MMF assets have increased by $​1.​3 billion, or 0.​1%.

Ireland remained third among country rankings, ending Q2 with $​711.​5 billion (​7.​3% of worldwide assets). Irish MMFs were down $​7.​1B for the quarter, or -​1.​0%, and up $​61.​7B, or 9.​5%, over the last 12 months. Luxembourg remained in fourth place with $​501.​4 billion (​5.​2% of worldwide assets). Assets there increased $​10.​9 billion, or 2.​2%, in Q2, and were up $​74.​1 billion, or 17.​3%, over one year. France was in fifth place with $​427.​5B, or 4.​4% of the total, up $​14.​0 billion in Q2 (​3.​4%) and up $​82.​7B (​24.​0%) over 12 months.

Australia was listed in sixth place with $​253.​5 billion, or 2.​6% of worldwide assets. Its MMFs decreased by $​265 million, or -​0.​1%, in Q2. Korea was the 7th ranked country and saw MMF assets decrease $​8.​6 billion, or -​6.​2%, in Q2'​23 to $​129.​3 billion (​1.​3% of the total); they'​ve increased $​15.​1 billion (​13.​2%) for the year. Brazil was at 8th place with $​116.​7 billion (​1.​2%); assets there increased $​6.​0 billion (​5.​4%) in Q2 and increased by $​9.​9 billion (​9.​3%) over 12 months. Mexico moved up to 9th place, as assets increased $​12.​3 billion, or 12.​4%, to 111.​8 billion (​1.​2% of total assets) in Q2. They'​ve increased $​33.​3 billion (​42.​5%) over the previous 12 months. ICI'​s statistics show Japan fell down to 10th place with $​105.​8B, or 1.​1% of total assets, up $​4.​8 billion (​4.​7%) for the quarter.

India was in 11th place, increasing $​14.​5 billion, or 27.​0%, to $​68.​2 billion (​0.​6% of total assets) in Q2 and increasing $​8.​3 billion (​13.​8%) over the previous 12 months. Canada ($​48.​8B, up $​5.​9B and up $​19.​8B over the quarter and year, respectively) ranked 12th ahead of Switzerland. ($​36.​9B, up $​3.​0B and up $​14.​7B). Chile ($​30.​2B, up $​2.​4B and up $​10.​6B) and The United Kingdom ($​26.​1B, up $​1.​7B and down $​288M), rank 14th and 15th, respectively. Chinese Taipei, Argentina, South Africa, Belgium and Germany round out the 20 largest countries with money market mutual funds.

ICI'​s quarterly series shows money fund assets in the Americas total $​5.​782 trillion, up $​736.​3 billion in Q2. Asian MMFs decreased by $​1.​3 billion to $​2.​175 trillion, and Europe saw its money funds jump $​22.​4 billion in Q2'​23 to $​1.​741 trillion. Africa saw its money funds decrease $​1.​4 billion to $​20.​5 billion.

Note that Ireland and Luxembourg'​s totals are primarily "​offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'​d like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI'​s data. (Let us know too if you'​d like to see our latest Money Fund Intelligence International product, which tracks "​offshore" money market funds domiciled in Europe and outside the U.​S.)

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Bloomberg published the article, "The Higher-​for-​Longer Interest-​Rate Bonanza," which is subtitled, "With yields passing 5%, money-​market funds rake in cash while banks fail to keep pace." They tell us, "With the US Federal Reserve keeping interest rates pinned around zero for most of the past 15 years, depositors grew resigned to earning virtually nothing on their cash, whether it was sitting in a bank or a money-​market fund. A turning point came in the spring. Thanks to the Fed'​s inflation-​fighting interest-​rate hikes, people started to see they could earn 4% or more on their money. The regional bank crisis that began with the collapse of Silicon Valley Bank in March served as another wake-​up call. '​If you maintain idle balances at a bank, that'​s an unsecured risk that you'​re not getting compensated for,' says Barclays Plc strategist Joseph Abate. 'People became more aware in March after SVB, which is when the deposit awakening kicked off.'"

The piece continues, "In the wake of the Fed'​s July rate hike, yields on money-​market funds climbed above 5% for the first time since before the 2008 financial crisis, giving savers even more reason to act. To enjoy those higher yields, savers can'​t stand pat. The average yield on a savings account is about 0.​45% as of Sept. 18, which compares with the 5.​16% on the Crane 100 Money Fund Index, an average yield of the 100 largest taxable funds, as of August. That spread 'is so wide you can drive a truck through it,' says Peter Crane, president of money-​market information provider Crane Data LLC."

It says, "Since the Fed began raising rates 18 months ago, total money-​market fund assets have climbed by more than $​1 trillion, Investment Company Institute data show, pushing total assets to an all-​time high $​5.​64 trillion. About $​900 billion of that has poured in this year. The retail money-​fund sector now accounts for 38% of total industry assets, up from about 30% at the end of 2021. Michael Bird is a senior fund manager at Allspring Global Investments, which has seen assets rise about 26% across its money-​fund complex this year, with assets in its retail money funds more than doubling. 'A 5% money-​market-​fund yield versus what your bank is paying you -- it'​s a no-​brainer,' Bird says."

Bloomberg' Alex Harris writes, "Banks were unfazed as cash began leaving for money-​market funds at the onset of the hiking cycle. That'​s because having too much in deposits can be a handicap for some banks. Deposits are considered liabilities, and larger liabilities can force banks to increase capital and subject them to increased regulation. As a result, the banks have felt no urgency to pass along the central bank'​s aggressive interest-​rate hikes."

She comments, "Money funds don'​t have such worries. To make sure they can respond quickly to rising rates, money-​fund managers have been keeping assets in ultrashort investments, such as in the central bank'​s overnight reverse repurchase agreement facility. So if the Fed announces an increase on a Wednesday, money funds can pass along that hike to investors as early as Thursday."

Bloomberg adds, "Since March, banks have lost almost $​700 billion in deposits. And there are signs the outflows are beginning to hurt. After declines in June and July, the largest US banks increased their borrowing in August by 9%, or $​70 billion, Federal Reserve data show. Concurrently, the Federal Home Loan Bank System, a general liquidity provider for banks, saw total debt outstanding rise to $​1.​249 trillion from $​1.​245 trillion in July. The increase in borrowing by large banks indicates that they'​re 'not comfortable letting reserves fall much further from current levels,' Citibank strategists Shuo Li and Jason Williams wrote in a report issued on Sept. 15."

Finally, they state, "With Fed officials indicating that they'​ll be holding interest rates at elevated levels for an extended period, the cash exodus from banks is likely to increase, putting them in a bind. 'Banks have a terrible choice -- crush profitability or lose deposits,' Crane says. '​In this case they'​re doing both.'"

In related news, the Investment Company Institute'​s latest "Money Market Fund Assets" report shows MMF assets dropping, likely due to Sept. 15 quarterly tax payments, after hitting record levels for 8 out of the previous 9 weeks. ICI'​s weekly asset series fell to $​5.​636 trillion, but MMFs remain up a massive $​1.​05 trillion, or 23.​0%, over the past 52 weeks. Assets are up by $​901 billion, or 19.​0%, year-​to-​date in 2023, with Institutional MMFs up $​455 billion, or 14.​9% and Retail MMFs up $​445 billion, or 26.​5%. (​Totals are up $​815.​6 billion, or 16.​9%, since 2/​22/​23.) Over the past 52 weeks, money funds have risen $​1.​052 billion, or 23.​0%, with Retail MMFs rising by $​604 billion (​39.​8%) and Inst MMFs rising by $​447 billion (​14.​6%).

Their weekly release says, "Total money market fund assets decreased by $​7.​04 billion to $​5.​64 trillion for the week ended Wednesday, September 20, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $​10.​12 billion and prime funds increased by $​5.​20 billion. Tax-​exempt money market funds decreased by $​2.​11 billion." ICI'​s stats show Institutional MMFs falling $​14.​4 billion and Retail MMFs rising $​7.​3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​627 trillion (​82.​1% of all money funds), while Total Prime MMFs were $​893.​9 billion (​15.​9%). Tax Exempt MMFs totaled $​114.​6 billion (​2.​0%).

ICI explains, "Assets of retail money market funds increased by $​7.​31 billion to $​2.​12 trillion. Among retail funds, government money market fund assets increased by $​3.​12 billion to $​1.​40 trillion, prime money market fund assets increased by $​6.​15 billion to $​624.​45 billion, and tax-​exempt fund assets decreased by $​1.​96 billion to $​103.​83 billion." Retail assets account for over a third of total assets, or 37.​7%, and Government Retail assets make up 65.​7% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $​14.​35 billion to $​3.​51 trillion. Among institutional funds, government money market fund assets decreased by $​13.​24 billion to $​3.​23 trillion, prime money market fund assets decreased by $​956 million to $​269.​48 billion, and tax-​exempt fund assets decreased by $​154 million to $​10.​73 billion." Institutional assets accounted for 62.​3% of all MMF assets, with Government Institutional assets making up 92.​0% of all Institutional MMF totals.

According to Crane Data'​s separate Money Fund Intelligence Daily series, money fund assets broke the $​6.​0 trillion level on Sept. 1 and hit a record $​6.​046 trillion on Sept. 12, before easing back to $​6.​033 trillion Wednesday (​9/​20). Assets have risen by $​53.​8 billion in September through 9/​20 after rising by $​98.​3 billion in August and $​34.​7 billion in July. 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.

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State Street Global Advisors' latest "Monthly Cash Review - August 2023 (​USD)" discusses, "Money Market Fund Reform 2023." Author Will Goldthwait writes, "The Securities Exchange Commission (​SEC) recently proposed some changes to Rule 2a-​7, the standard that governs money market mutual funds (​MMFs). We consider some of the challenges of the new rule and what it could mean for the industry, fund providers and investors. (Note: We hope to see some of you next week at our European Money Fund Symposium, which will take place Sept. 25-​26, 2023 in Edinburgh. The agenda features sessions on U.​S. and European MMFs regulations. For those attending, safe travels and see you in Scotland!)

Giving us "A Brief History," he states, "Moving cash back and forth between banks and non-​bank entities, such as investment managers and brokerages, had become cumbersome, and sparked the invention of money market mutual funds in 1971. These new funds used amortized cost accounting, allowing them to report a steady USD 1.​00 as net asset value (​NAV), and, in theory, resembled a bank deposit. There were challenges in the early days, similar to what the cryptocurrency space is experiencing today."

Goldthwait continues, "It took the SEC more than a decade to create Rule 2a-​7, in 1983, which would specifically govern MMFs, making them separate and distinct from other (​stock and bond) mutual funds. The rule was revised in the early 1990s and again after the Global Financial Crisis (​GFC), in 2010 and 2014, to create a more robust, commingled vehicle. The 2014 rule change that took effect in 2016 spurred the most significant shift in MMF strategies and led to over USD 1 trillion in assets moving from prime funds to government funds."

He says, "But some of the 2014 rule changes created unintended consequences, such as the first-​mover advantage, thus necessitating further changes to the rule in 2023. The 2023 rule changes continue to focus on investor behavior during market disruptions and how to protect shareholders. For instance, the SEC made several observations regarding the COVID-​19-​induced investor panic in March 2020. One of them was that institutional investors fled a week before retail investors."

SSGA'​s piece then states, "During the first two weeks of market turmoil (​11–​24 March), publicly offered institutional prime funds experienced a 30% redemption rate (​about USD 100 billion). Some institutional prime MMFs experienced redemptions greater than 50% of their AuM. Alternatively, privately offered institutional prime funds had redemptions of just ~​6% of their assets. Retail prime funds lost approximately 11% of their assets (​about USD 48 billion), while tax-​exempt funds, mostly retail, lost 8% (​about USD 12 billion). The SEC'​s current reform is mainly aimed at rebalancing risks and eliminating the first-​mover advantage for institutional prime funds."

It tells us, "The SEC has increased the liquidity requirements of prime funds. Reminder: Liquidity is considered ready cash or securities that can be easily converted to ready cash, like US Treasury securities. The daily (​1-​business-​day) liquidity requirement will increase to 25% of AuM, when previously it was 10%. The weekly (​5-​business-​day) liquidity requirement will increase to 50% of AuM, when previously it was 30%. This increase could be worth 1–​3 bp of yield depending on the interest rate environment. Most funds have already been running their liquidity levels at or close to these new requirements; therefore, this rule change is not a game-​changer."

Goldthwait then comments, "The SEC had proposed a swing price mechanism. This mechanism is common in Europe and in other non-​SEC-​regulated comingled vehicles in the US. The regulator had proposed that if a fund loses 4% of its AuM, the fund would have to calculate a swing price. This means the fund would calculate the cost of selling a pro rata amount of each security in the portfolio and apply that cost to the NAV. Most, if not all, fund managers said this would not work. Simply, there was not enough time between the fund closing and determining the amount of the redemptions, and then implementing a swing price. The SEC listened, modified, and adopted a different rule. The new rule will require a fund that loses 5% or more of its AuM to apply a determined fee to the NAV for those who are redeeming. The amount of the fee will be calculated using a good faith estimate on market liquidity and the cost of liquidating those bonds in the portfolio."

He writes, "​The SEC has made it clear that there is no discretion in applying the fee. The fee will be determined anytime there are redemptions of 5% or more of AuM and it will be applied at the start of the redemptions, not at the end. The current rule would allow the fee to be applied after the fund had seen redemptions, essentially after everyone had '​run.' If the impact to the NAV from the estimated cost of the redemption is less than 1 bp of the fund'​s NAV, no fee needs to be applied. The impact will be considered de-​minimis. The SEC believes this to be the result the majority of the time."

SSGA continues, "In the event that the estimated cost of liquidity is larger than 1 bp, the size of the fee would be determined by making a good faith estimate of the liquidity costs the fund would incur if it were to sell a pro rata share of each position in the fund. This gets complicated. If the fund cannot estimate the cost of liquidity, the fee would default to 1.​0%. Recall '​breaking the buck' is a 0.​5% move in NAV. There is no limit on the size of the fee a fund can apply. The previous rule (​2014) limited the fee to 2%. The SEC has removed this limit."

They add, "The board is responsible for administrating the fee, but it can delegate that authority to the fund'​s investment advisor. We suspect all boards would delegate. The current rule does not allow the board to delegate. Thus the current rule creates a delay in applying a fee. The new rule will trigger the fee; no decision making is necessary by the board or anyone else. The cost of a vertical slice is intended to compensate the remaining shareholders for staying in the fund, and not penalize them for staying in the fund as the current rule allows. The SEC is trying very hard to remove the first-​mover advantage."

Finally, state, "A good faith estimate can be difficult because not all securities price easily. Because of this, the SEC has provided guidance for estimating the price of a security. First, grouping securities in certain categories by region, sector, issuance size, credit worthiness, distribution (​widely held), etc. Second, daily and weekly liquidity should incur zero cost. Third, a grid could be used to apply different market conditions to the vertical slice: credit stress, liquidity stress, and interest rate stress. This grid would need to be updated from time to time. Importantly, the fee is only applied to redemptions. Thus, intermediaries that net their flows will need to update their reporting. There will be two prices -- one for subscribing and one for redeeming in case a fee is applied."

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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 Sept 15) includes Holdings information from 71 money funds (​up 17 from two weeks ago), or $​2.​989 trillion (​up from $​2.​307 trillion) of the $​5.​998 trillion in total money fund assets (​or 49.​8%) 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.​552 billion (​up from $​1.​188 trillion two weeks ago), or 51.​9%; Treasuries totaling $​960.​5 billion (​up from $​743.​7 billion two weeks ago), or 32.​1%, and Government Agency securities totaling $​238.​9 billion (​up from $​186.​1 billion), or 8.​0%. Commercial Paper (​CP) totaled $​79.​3 billion (​up from two weeks ago at $​61.​9 billion), or 2.​7%. Certificates of Deposit (​CDs) totaled $​73.​0 billion (​up from $​54.​8 billion two weeks ago), or 2.​4%. The Other category accounted for $​58.​1 billion or 1.​9%, while VRDNs accounted for $​27.​4 billion, or 0.​9%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​960.​5 billion (​32.​1% of total holdings), the Federal Reserve Bank of New York with $​686.​1 billion (​23.​0%), Fixed Income Clearing Corp with $​234.​8B (​7.​9%), Federal Home Loan Bank with $​176.​1B (​5.​9%), RBC with $​55.​0B (​1.​8%), Federal Farm Credit Bank with $​53.​2B (​1.​8%), JP Morgan with $​51.​8B (​1.​7%), Barclays PLC with $​51.​2B (​1.​7%), BNP Paribas with $​50.​3B (​1.​7%) and Citi with $​49.​6B (​1.​7%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($​251.​1B), Goldman Sachs FS Govt ($​251.​0B), Fidelity Inv MM: Govt Port ($​183.​6B), JPMorgan 100% US Treas MMkt ($​154.​7B), Morgan Stanley Inst Liq Govt ($​152.​9B), BlackRock Lq FedFund ($​139.​1B), State Street Inst US Govt ($​125.​8B), Allspring Govt MM ($​116.​5B), Dreyfus Govt Cash Mgmt ($​112.​0B) and Fidelity Inv MM: MM Port ($​110.​8B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary.)

In related news, ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (​WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (​ICI) reports that, as of the final Friday in August, prime money market funds held 39.​9 percent of their portfolios in daily liquid assets and 58.​3 percent in weekly liquid assets, while government money market funds held 81.​8 percent of their portfolios in daily liquid assets and 88.​4 percent in weekly liquid assets." Prime DLA was down from 41.​9% in July, and Prime WLA was down from 59.​5%. Govt MMFs' DLA was down from 82.​0% and Govt WLA decreased from 88.​8% the previous month.

ICI explains, "At the end of August, prime funds had a weighted average maturity (​WAM) of 25 days and a weighted average life (​WAL) of 51 days. Average WAMs and WALs are asset-​weighted. Government money market funds had a WAM of 24 days and a WAL of 65 days." Prime WAMs were 3 days longer and WALs were 5 days longer from the previous month. Govt WAMs were unchanged and WALs were 1 day longer from July.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $​432.​67 billion in July to $​450.​36 billion in August. Government money market funds’ holdings attributable to the Americas rose from $​4,​150.​11 billion in July to $​4,​205.​05 billion in August."

The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​450.​4 billion, or 51.​7%; Asia and Pacific at $​134.​9 billion, or 15.​5%; Europe at $​271.​7 billion, or 31.​2%; and, Other (​including Supranational) at $​14.​9 billion, or 1.​7%. The Government Money Market Funds by Region of Issuer table shows Americas at $​4.​205 trillion, or 90.​5%; Asia and Pacific at $​103.​2 billion, or 2.​2%; Europe at $​326.​9 billion, 7.​0%, and Other (​Including Supranational) at $​13.​7 billion, or 0.​3%.

Finally, another recent release from the Investment Company Institute tells us that, "Retirement Assets Total $​36.​7 Trillion in Second Quarter 2023." It includes data tables showing that money market funds held in retirement accounts rose to $​666 billion (​up from $​632 billion) in total, or 12% of the total $​5.​450 trillion in money funds. MMFs represent just 6.​0% of the total $​11.​167 trillion of mutual funds in retirement accounts.

This release says, "Total US retirement assets were $​36.​7 trillion as of June 30, 2023, up 3.​1 percent from March 31, 2023. Retirement assets accounted for 31 percent of all household financial assets in the United States at the end of June 2023. Assets in individual retirement accounts (​IRAs) totaled $​13.​0 trillion at the end of the second quarter of 2023, an increase of 3.​9 percent from the end of the first quarter of 2023. Defined contribution (​DC) plan assets were $​10.​2 trillion at the end of the second quarter, up 4.​1 percent from March 31, 2023. Government defined benefit (​DB) plans—​including federal, state, and local government plans—​held $​8.​0 trillion in assets as of the end of June 2023, a 0.​8 percent increase from the end of March 2023. Private-​sector DB plans held $​3.​2 trillion in assets at the end of the second quarter of 2023, and annuity reserves outside of retirement accounts accounted for another $​2.​3 trillion."

The ICI tables also show money funds accounting for $​482 billion, or 9%, of the $​5.​470 trillion in IRA mutual fund assets and $​184 billion, or 3%, of the $​5.​697 trillion in defined contribution plan holdings. (​Money funds in 401k plans totaled $​123 billion, or 3% of the $​4.​497 trillion of mutual funds in 401k'​s.)

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The FDIC'​s latest, "Quarterly Banking Profile Second Quarter 2023," tells us, "Total deposits declined $​98.​6 billion (​0.​5 percent) between first and second quarter 2023. This was the fifth consecutive quarter that the industry reported lower levels of total deposits. A reduction in estimated uninsured deposits (​down $​180.​6 billion, or 2.​5 percent) drove the quarterly decline. Estimated insured deposits continued to increase (​up $​84.​9 billion, or 0.​8 percent) during the quarter. The decline in total deposits in second quarter 2023 was nearly offset by increased wholesale funding (​up $​79.​9 billion, or 1.​5 percent) from the previous quarter. Wholesale funding as a percentage of total assets rose from 17.​1 percent in the year ago quarter to 22.​8 percent in second quarter 2023." (Note too: Last call for next week'​s European Money Fund Symposium, which will take place Sept. 25-​26, 2023 in Edinburgh. For those attending, safe travels and see you in Scotland!)

It says, "Community banks reported a slight decline in total deposits of 0.​1 percent ($​1.​5 billion) during second quarter 2023, down from growth of 0.​5 percent reported in first quarter 2023. More than half of all community banks (​60.​3 percent) reported a decrease in deposit balances from the prior quarter. Growth in insured deposit accounts ($​13.​5 billion, 0.​9 percent) was offset by a decline in uninsured balances ($​14.​2 billion, 2.​1 percent). In the second quarter, growth in interest-​bearing deposit balances ($​16.​1 billion, or 1.​0 percent) was offset by a decline in noninterest-​bearing deposits ($​17.​6 billion, 3.​1 percent). Total deposits rose 1.​0 percent ($​22.​5 billion) from one year ago. (​See the press release, "FDIC-​Insured Institutions Reported Net Income of $​70.​8 Billion in Second Quarter 2023.")

Accompanying, "Remarks by FDIC Chairman Martin Gruenberg on the Second Quarter 2023 Quarterly Banking Profile," quote the Chair, "​Despite the period of stress earlier this year, the banking industry continues to be resilient.... But banks reported tightening net interest margins and funding pressures for a second consecutive quarter. In the second quarter, total deposits declined for the fifth consecutive quarter. However, deposit outflows moderated substantially from the large outflows reported last quarter when the industry experienced significant stress and two regional banks failed. The level of liquid assets declined in the second quarter through a combination of greater pledging of securities and a decline in liquid assets such as cash and securities, though most of the increase in pledging activity was for prudent liquidity contingency planning."

He states, "​The next chart shows the quarter-​over-​quarter changes in the industry'​s yield on loans and cost of deposits <​b:>`​_. Both loan yields, the interest banks charge on loans, and deposit costs, the interest banks pay on deposits, began to increase in the second quarter of 2022 when market interest rates began to increase rapidly. Loan yields increased significantly more than deposit costs between second quarter 2022 and fourth quarter 2022. This trend reversed in the first quarter, as the banking industry reported a sizeable shift from lower-​yielding accounts such as transaction and savings accounts into higher-​yielding time deposits. Though the trend of depositors seeking higher yields continued in the second quarter -- which can be seen in deposit costs rising by 36 basis points -- loan yields more than kept pace as they increased by 39 basis points."

Gruenberg continues, "​As I indicated earlier, the reason for the decline in the industry'​s net interest margin is that the cost of non-​deposit liabilities, such as Federal Home Loan Bank advances and borrowings from the Bank Term Funding Program, increased significantly in the second quarter. The cost of non-​deposit liabilities rose by 87 basis points to 4.​0 percent, driving the industry'​s cost of funds to exceed the yield on earning assets. Community banks reported the same 36 basis-​point increase in deposit costs as the industry in the second quarter, but their loan yields only increased by 28 basis points, putting downward pressure on net interest margins."

He comments, "The FDIC continues to closely monitor liquidity and access to funds across the banking industry. This chart shows liquid assets as a ratio of estimated uninsured deposits, which is one measure of a bank'​s ability to meet an outflow of deposits. This ratio increased significantly during the pandemic as bank deposits and liquid assets swelled, but has since declined back to more historical levels. The second quarter liquid-​assets-​to-​uninsured-​deposits ratio declined to 84.​7 percent, which is below the pre-​pandemic average. A substantial increase in pledged securities, the vast majority of which was for prudential liquidity contingency planning, drove the decline in liquid assets this quarter. A decline in securities portfolios and in cash and balances due from depository institutions also contributed to the quarterly decrease."

Discussing the "Quarterly Change in Deposits," Gruenberg says, "​This chart shows that deposits declined for a fifth consecutive quarter. Total deposits were $​18.​6 trillion, down 0.​5 percent quarter over quarter, a reduction from the 2.​5 percent decline reported in the first quarter. In the second quarter, we observed the continuation of the trend in which customers are actively seeking higher yields. Lower-​earning accounts such as transaction, money market deposit, and other savings accounts declined by $​412.​8 billion during the quarter, while time deposits increased by $​306.​7 billion. Brokered deposits increased by $​177.​4 billion, or 17.​3 percent, during the quarter.... In the second quarter, uninsured deposits declined by 2.​5 percent, far less than the 8 percent decline reported in the first quarter. By contrast, insured deposits increased by 0.​8 percent during the second quarter, driven by higher insured brokered deposits and reciprocal deposits."

He then states, "There has been a great deal of discussion about deposit flows between the nation'​s larger banks, primarily under the assumption that deposits have flowed from regional banks to the largest banks. While deposit balances may have suggested that such flows occurred on a limited basis toward the end of the first quarter, that does not appear to have been the case in the second quarter. The nation'​s global systemically important banks reported a 1.​2 percent quarterly decline in total deposits in the second quarter, primarily driven by a 3 percent decline in uninsured deposits. Rather than a simple story of deposits flowing to the largest banks, the second quarter'​s deposit story appears to have been more about pricing pressures from depositors seeking higher yields, often at nonbank financial institutions, particularly money market mutual funds."

Finally, his commentary adds, "Insured deposits increased by 0.​8 percent during the second quarter, bringing year-​over-​year insured deposit growth to 4.​7 percent. This growth of insured deposits more than offset the growth of the DIF balance, resulting in the reserve ratio falling by one basis point to 1.​10 percent as of June 30. However, the banking industry still faces significant challenges from the effects of inflation, rising market interest rates, and geopolitical uncertainty. These risks, combined with concerns about commercial real estate fundamentals, especially in office markets, as well as pressure on funding levels and net interest margins, will be matters of continued supervisory attention by the FDIC." (​See also, Bloomberg'​s "`​Big Bank Borrowing Rebound Seen as Sign of Alarm on Reserves.")

In somewhat related news, Allspring'​s latest "Portfolio Manager Commentary" tells us, "In the government space, the stories of the summer have been the Treasury'​s drive to rebuild its cash balance (​the Treasury General Account, or TGA) and how easy of a drive it has been. The TGA was dangerously low when the debt ceiling was resolved in early June, and investors were prepared for a nearly historic surge in Treasury bill (​T-​bill) issuance as the Treasury sought to restore a more comfortable cushion in the TGA. The open question was how smoothly the market could digest the large and rapid issuance at a time when the Fed'​s interest rate path was still unclear. Three months in, there hasn'​t been a hint of indigestion."

They write, "In that period, T-​bills outstanding have grown $​992 billion, from $​4.​0 trillion to $​5.​0 trillion.... The extra nearly $​1 trillion of issuance hasn'​t all gone to TGA replenishment, though, as the U.​S. operates at a deficit, especially in these summer months. The net result of all the government flows has been an increase in the TGA of $​519 billion, to $​542 billion on August 31 -- still short of the Treasury'​s comfort zone of about $​650 billion, meaning elevated levels of issuance should continue into the fall."

Allspring comments, "The T-​bills were easily absorbed by the market because there'​s an abundance of cash in the system -- a remnant of the Fed'​s efforts to boost the economy during the pandemic. As we'​ve noted a few dozen times before, much of the extra cash is parked in the Fed'​s reverse repurchase (​repo) program (​RRP), and the owners of that cash have proven ready buyers of the extra T-​bills. Over that same summer period, RRP usage fell by $​603 billion, from $​2.​255 trillion to $​1.​652 trillion on August 31."

They add, "There are plenty of other moving parts in the money markets, not the least of which lately has been money sensibly moving from lower-​yielding bank deposits to higher-​yielding alternatives such as money market funds or T-​bills themselves. That said, this summer'​s experience has shown that it'​s likely that so long as hundreds of billions of dollars reside in the RRP, extra T-​bill supply will not be a problem for the market."

​

Crane Data'​s latest Money Fund Intelligence International shows that assets in European or "​offshore" money market mutual funds surged higher over the past 30 days to a record $​1.​103 trillion, as yields also continued higher. Assets for USD, EUR and GBP MMFs all rose over the past month. European MMF assets just recently broke above their previous record high of $​1.​101 trillion set in mid-​December 2021. These U.​S.-​style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $​20.​5 billion over the 30 days through 9/​14. The totals are up $​72.​8 billion (​7.​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. These funds are only available to qualified, non-​U.​S. investors.) (Note too: Please join us next week for our European Money Fund Symposium, which will take place Sept. 25-​26, 2023 in Edinburgh. For those attending, safe travels and see you in Scotland!)

Offshore US Dollar money funds increased $​16.​7 billion over the last 30 days and are up $​52.​7 billion YTD to $​602.​2 billion. Euro funds increased E4.​5 billion over the past month. YTD, they'​re up E15.​1 billion to E195.​5 billion. GBP money funds increased L3.​4 billion over 30 days, but they'​re still down L31.​7 billion YTD at L231.​8B. U.​S. Dollar (​USD) money funds (​206) account for over half (​54.​6%) of the "​European" money fund total, while Euro (​EUR) money funds (​116) make up 19.​0% and Pound Sterling (​GBP) funds (​139) total 26.​4%. 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 5.​28% (​7-​Day) on average (​as of 9/​14/​23), up from 5.​24% 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 and should keep moving higher again in coming days following the ECB'​s latest rate hike. They'​re yielding 3.​62% on average, up from 3.​57% 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 broke the 5.​0% barrier 2 months ago and now yield 5.​17%, up 15 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 September MFI International Portfolio Holdings, with data as of 8/​31/​23, show that European-​domiciled US Dollar MMFs, on average, consist of 22% in Commercial Paper (​CP), 15% in Certificates of Deposit (​CDs), 29% in Repo, 18% in Treasury securities, 15% in Other securities (​primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 55.​5% of their portfolios maturing Overnight, 5.​0% maturing in 2-​7 Days, 10.​1% maturing in 8-​30 Days, 8.​2% maturing in 31-​60 Days, 6.​5% maturing in 61-​90 Days, 10.​2% maturing in 91-​180 Days and 4.​4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​38.​4%), France (​12.​3%), Canada (​9.​8%), Japan (​9.​6%), Sweden (​5.​3%), the U.​K. (​5.​2%), the Netherlands (​4.​4%), Australia (​2.​7%), Germany (​2.​1%) and Austria (​1.​6%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​115.​0 billion (​17.​9% of total assets), Fixed Income Clearing Corp with $​33.​2B (​5.​2%), Federal Reserve Bank of New York with $​22.​5B (​3.​5%), BNP Paribas with $​21.​9B (​3.​4%), Credit Agricole with $​21.​8B (​3.​4%), Barclays with $​18.​6B (​2.​9%), Sumitomo Mitsui Banking Corp with $​18.​1B (​2.​8%), RBC with $​18.​1B (​2.​8%), Mizuho Corporate Bank Ltd with $​17.​2B (​2.​7%) and Citi with $​16.​2B (​2.​5%).

Euro MMFs tracked by Crane Data contain, on average 44% in CP, 20% in CDs, 23% in Other (​primarily Time Deposits), 11% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 41.​8% of their portfolios maturing Overnight, 11.​3% maturing in 2-​7 Days, 16.​4% maturing in 8-​30 Days, 7.​5% maturing in 31-​60 Days, 7.​9% maturing in 61-​90 Days, 9.​9% maturing in 91-​180 Days and 5.​2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​28.​7%), Japan (​13.​1%), the U.​S. (​10.​5%), Germany (​8.​6%), Canada (​6.​4%), the U.​K. (​5.​6%), Sweden (​5.​2%), Austria (​5.​2%), Belgium (​3.​5%) and the Netherlands (​3.​4%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E10.​7B (​5.​8%), Republic of France with E9.​0B (​4.​9%), BNP Paribas with E8.​4B (​4.​6%), Erste Group Bank AG with E7.​8B (​4.​2%), Landesbank Baden-​Wurttemberg with E6.​8B (​3.​7%), DZ Bank AG with E6.​4B (​3.​5%), Credit Mutuel with E6.​0B (​3.​2%), Societe Generale with E5.​9B (​3.​2%), Mitsubishi UFJ Financial Group Inc with E5.​8B (​3.​1%) and Sumitomo Mitsui Banking Corp with E5.​6B (​3.​0%).

The GBP funds tracked by MFI International contain, on average (​as of 8/​31/​23): 36% in CDs, 18% in CP, 27% in Other (​Time Deposits), 16% in Repo, 3% in Treasury and 0% in Agency. Sterling funds have on average 39.​2% of their portfolios maturing Overnight, 11.​0% maturing in 2-​7 Days, 11.​6% maturing in 8-​30 Days, 11.​4% maturing in 31-​60 Days, 9.​7% maturing in 61-​90 Days, 9.​8% maturing in 91-​180 Days and 7.​3% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​16.​7%), Japan (​16.​5%), Canada (​14.​5%), the U.​K. (​13.​4%), Australia (​7.​5%), the U.​S. (​6.​8%), the Netherlands (​5.​4%), Sweden (​4.​3%), Spain (​3.​1%) and Singapore (​2.​8%).

The 10 Largest Issuers to "​offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L9.​5B (​4.​6%), Toronto-​Dominion Bank with L9.​5B (​4.​6%), BNP Paribas with L8.​4B (​4.​0%), Mizuho Corporate Bank Ltd with L8.​4B (​4.​0%), BPCE SA with L8.​3B (​4.​0%), UK Treasury with L8.​1B (​3.​9%) Sumitomo Mitsui Trust Bank with L7.​8B (​3.​8%), RBC with L7.​3B (​3.​5%), Banco Santander with L6.​3B (​3.​1%) and Credit Agricole with L6.​3B (​3.​0%).

​

The September issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the stories, "Rough Year for Short-​Term Bond Flows Says MStar, JPM," which reviews how investors are moving out of shorter funds, and "T. Rowe Price: Ultra Short-​Term Bond Fund vs. MMFs," which discusses "a strategic or long-​term approach to cash investing." BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in August while yields rose. We excerpt from the new issue below. (Contact us if you'​d like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

Our lead article "Rough Year for Short-​Term Bond Flows Say MStar, JPM" piece states, "​While they'​re some of the only sectors in the bond fund space to show positive returns, Ultra-​Short and Short-​Term Bond Funds have seen big asset declines over the past year. Conservative Ultra-​Short and Ultra-​Short BFs have seen assets decline by over 20%, while Short-​Term BFs are down almost 13%."

It continues, "Morningstar writes, 'Bond-​Fund Investors Are Going Long. Should They?' They explain, '​It'​s no surprise that money market funds have received $​600 billion of net new money.... With the Federal Reserve Bank continuing to raise interest rates, many money market funds now yield over 5%. That'​s a far cry from essentially nothing, which they paid until recently. Curiously, though, taxable short-​term bond funds have suffered net redemptions, despite enjoying similar conditions. Meanwhile, taxable intermediate- and long-​term funds have registered impressive inflows.'"

Our "T. Rowe Price" article states, "T. Rowe Price published an update entitled, 'Seeking to Optimize Cash Allocations With Low Duration Bonds,' which discusses cash segmentation and ultra-​short bond fund investing. Written by Cheryl Mickel, Alex Obaza and Thomas Heidenberger, it states, 'Low duration bond funds, such as the T. Rowe Price Ultra Short-​Term Bond Fund, have provided a sustained yield advantage over time compared with a traditional money market fund. These low duration strategies can take on marginally more credit and interest rate exposure and risk, which creates the potential for compelling returns versus traditional cash management vehicles. This naturally leaves investors asking themselves about the opportunity cost of their cash holdings.'"

It states, "​They write, 'In order to capitalize on higher potential returns, an investor can consider a strategic or long-​term approach to cash investing. This requires an investor to separate immediate liquidity needs from cash that is not needed for at least 3 to 6 months. Investors can consider an investment product for the latter portion, such as the T. Rowe Price Ultra Short-​Term Bond Fund, where they can potentially benefit from higher yield and total return compared with traditional cash alternatives.'"

Our first News brief, "Returns Lower, Yields Higher in August," states, "Bond fund returns fell while yields were higher last month. Our BFI Total Index decreased 0.​29% over 1-​month but is up 1.​77% over 12 months. The BFI 100 fell 0.​32% in August but rose 1.​03% over 1-​year. Our BFI Conservative Ultra-​Short Index was up 0.​45% over 1-​month and is up 4.​33% for 1-​year; Ultra-​Shorts rose 0.​51% and are up 4.​02% over 12 mos. Short-​Term rose 0.​33% and 2.​07%, and Intm-​Term decreased 0.​55% and fell 0.​72% over 1-​year. BFI'​s Long-​Term Index fell 0.​87% and 0.​92%. High Yield rose 0.​35% in August and 6.​25% over 1-​year."

A second News brief, "Bloomberg on '​Cash-​Like ETFs,' quotes from their article, 'Cash-​Like ETFs Lure Billions as Traders Shelter From Volatility." It tells us, 'Rising cross-​asset volatility in August has sent investors piling into cash-​like ETFs at the fastest clip in months. Traders have poured $​7 billion into ultra-​short bond exchange-​traded funds this month, according to data compiled by Bloomberg Intelligence. More than $​2 billion of that went to the SPDR Bloomberg 1-​3 Month T-​Bill ETF (​BIL), reversing four months of outflows.'"

Our next News brief is: "Morningstar Features '2 Ultrashort Bond Funds That Benefit From an Inverted Yield Curve.' They comment, '​After spending years in the wilderness of low interest rates, fixed-​income investors no longer have to stretch to find yield. An inverted yield curve means that ultrashort bond funds are now yielding almost as much as longer-​dated bond funds without the interest-​rate risk, presenting an attractive opportunity for income investors.... While ultrashort bond funds are yielding almost as much if not more than their core-​plus bond counterparts with a fraction of the duration risk, they could be worth a look. These conservative funds can also provide some downside protection during periods of stress in credit markets. Let'​s explore two ultrashort bond funds that look attractive.... Fidelity Conservative Income Bond (​FCNVX) [​and] Pimco Short-​Term (​PSHAX).'"

Another brief, "Hartford Funds on Bonds vs. Cash," asks, 'Cash vs. Fixed Income: Time to Trade Up?' It says, 'If you held money in money-​market accounts or certificates of deposit (​CDs) instead of bonds over the past 12 months, you'​re probably feeling pretty good about yourself. Trailing returns on cash-​equivalent investments are approximately 3.​59% vs. -​0.​94% for core bonds. Year-​to-​date, the returns are somewhat similar.... However, history would suggest that yield curves don’​t stay inverted forever, and cash rarely outperforms fixed income in the long run.... If history is any guide, longer-​dated rates will eventually be higher than shorter-​date rates. Not surprisingly, many investors are now considering ways to get ahead of a possible momentum shift and make the move from cash to core bonds. They'​re also wondering about the risks of being wrong: What if rates continue to rise?'"

A BFI sidebar, "FT: PIMCO Preps for Harder," says, "​The FT published, 'Bond fund giant Pimco prepares for '​harder landing' for global economy.' It tells us, 'The world'​s largest active bond fund manager says markets are too optimistic about central banks' ability to dodge a recession as they battle inflation in the US and Europe. Daniel Ivascyn, chief investment officer at Pimco, which manages $​1.​8tn of assets, said he was preparing for a '​harder landing' than other investors while top central bank chiefs prepare to continue their campaign of interest rate rises.'"

Finally, another sidebar, "Gross on Gundlach," comments, "​Bloomberg writes, 'Bill Gross Blasts Gundlach: To Be Bond King, You Need a Kingdom.' They explain, 'When it comes to whether there’​s a new bond king in town, Bill Gross is sure of one thing: Jeffrey Gundlach certainly does not carry the crown. The money manager -- widely known by the moniker 'The Bond King' for having built Pacific Investment Management Co. over many decades into a fixed-​income giant -- didn'​t mince words against the billionaire founder of DoubleLine Capital, whose investment success he downplayed. 'First of all, to be a bond king or queen, you need a kingdom,' Gross said at a live recording of the Odd Lots podcast at the Future Proof conference.... 'Pimco had $​2 trillion, ok? DoubleLine'​s got like $​55 billion. Come on -- that'​s no kingdom, that'​s like Latvia or Estonia.'"

​

The Federal Reserve released its latest quarterly "Z.​1 Financial Accounts of the United States" statistical survey (​a.​k.​a. "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Second Quarter 2023 edition shows that Total MMF Assets increased by $​224 billion to $​5.​917 trillion in Q2'​23. The Household Sector, by far the largest investor segment with $​3.​526 trillion, saw the biggest asset increase in Q2, followed by Nonfinancial Corporate Businesses. The Fed'​s latest Z.​1 numbers, which contain one of the few looks at money fund investor segments available, also showed noticeable increases for the Other Financial Business (​formerly Funding Corps), the Rest of World and the Mutual Fund categories in Q2 2023. (Note: There'​s still time to register for our European Money Fund Symposium, which is Sept. 25-​26, 2024 in Edinburgh. We hope to see you in Scotland!)

Private Pension Funds, Property-​Casualty Insurance, Life Insurance Companies, State & Local Governments, Exchange-​traded funds and the Nonfinancial Noncorporate Business categories saw small asset increases in Q2. The State & Local Govt Retirement category was the only one to stay unchanged and there were no categories that saw assets decreases last quarter. Over the past 12 months, the Household Sector, Nonfinancial Corporate Business, Rest of World, Property-​Casualty Insurance and State & Local Governments categories showed the biggest asset increases, while Mutual Funds and Private Pension Funds saw the biggest asset decreases.

The Fed'​s "​Table L.​206," "​Money Market Mutual Fund Shares," shows that total assets increased by $​224 billion, or 3.​9%, in the second quarter to $​5.​917 trillion. The largest segment, the Household sector, totals $​3.​526 trillion, or 59.​6% of assets. The Household Sector increased by $​137 billion, or 4.​0%, in the quarter. Over the past 12 months through June 30, 2023, Household assets were up $​707 billion, or 25.​1%.

Nonfinancial Corporate Businesses, the second-​largest segment according to the Fed'​s data series, held $​844 billion, or 14.​3% of the total. Assets here increased by $​34 billion in the quarter, or 4.​2%, and they'​ve increased by $​104 billion, or 14.​0%, over the past year. Other Financial Business was the third-​largest investor segment with $​468 billion, or 7.​9% of money fund shares. This category jumped $​17 billion, or 3.​8%, in the latest quarter. Other Financial Business, which we believe includes Securities Lending, has increased by $​16 billion, or 3.​6%, over the previous 12 months.

The fourth-​largest segment, Mutual Funds (​a recent addition to the tables), held $​238 billion (​4.​0%). Private Pension Funds was the 5th largest category with 4.​0% of money fund assets ($​236 billion); it was up by $​7 billion (​3.​1%) for the quarter and down $​4 billion, or -​1.​7% over the last 12 months. The Rest of World remained sixth place in market share among investor segments with 3.​5%, or $​208 billion, while Nonfinancial Noncorporate Business held $​139 billion (​2.​3%), Life Insurance Companies held $​81 billion (​1.​4%), State & Local Governments held $​74 billion (​1.​3%), Property-​Casualty Insurance held $​48 billion (​0.​8%), Exchange-​traded Funds held $​33 billion (​0.​6%), and State & Local Govt Retirement held $​23 billion (​0.​4%) according to the Fed'​s Z.​1 breakout.

The Fed'​s "​Flow of Funds" Table L.​121 shows "​Money Market Mutual Funds" largely invested in “​Security Repurchase Agreements” with $​3.​233 trillion, or 54.​6% and "​Debt Securities," or Credit Market Instruments, with $​2.​393 trillion, or 40.​4% of the total. Debt securities includes: Open market paper ($​263 billion, or 4.​4%; we assume this is CP), Treasury securities ($​1.​244 trillion, or 21.​0%), Agency and GSE-​backed securities ($​755 billion, or 12.​8%), Municipal securities ($​121 billion, or 2.​0%) and Corporate and foreign bonds ($​10 billion, or 0.​2%).

Another large MMF position in the Fed'​s series includes `​Time and savings deposits ($​267 billion, or 4.​5%). Money funds also hold minor positions in Miscellaneous assets ($​22 billion, or 0.​4%) and Foreign deposits ($​3 billion, 0.​1%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $​44 billion.

During Q2, Debt Securities were up $​186 billion. This subtotal included: Open Market Paper (​up $​13 billion), Treasury Securities (​up $​203 billion), Agency- and GSE-​backed Securities (​down $​37 billion), Corporate and Foreign Bonds (​up $​1 billion) and Municipal Securities (​up $​7 billion). In the second quarter of 2023, Security Repurchase Agreements were down $​2 billion, Foreign Deposits were up $​1 billion, Time and Savings Deposits were up by $​40 billion, and Miscellaneous Assets were up $​1 billion.

Over the 12 months through 6/​30/​23, Debt Securities were up $​168 billion, which included Open Market Paper (​up $​42B), Treasury Securities (​down $​215B), Agencies (​up $​332B), Municipal Securities (​up $​4B), and Corporate and Foreign Bonds (​up $​6B). Foreign Deposits (​up $​2 billion), Time and Savings Deposits were up $​80B, Securities repurchase agreements were up $​637 billion and Miscellaneous Assets were down $​1B.

The L.​121 table shows `​Stable NAV money market funds with $​5,​263 billion, or 88.​9% of the total (​up $​218.​3 or 4.​3% in Q2 and up $​878B or 20.​0% over 1-​year), and Floating NAV money market funds with $​654 billion, or 11.​1% (​up $​6.​1B or 0.​9% in Q2 and up $​7B or 1.​1% over 1-​year). Government money market funds total $​4.​597 trillion, or 77.​7% (​up $​161.​5B or 3.​6% in Q2 and up $​525B or 12.​9% over 1-​year), Prime money market funds total $​1.​198 trillion, or 20.​3% (​up $​59.​3B or 5.​2% in Q2 and up $​349B or 41.​0% over 1-​year) and Tax-​exempt money market funds $​122B, or 2.​1% (​up $​3.​5B or 3.​0% in Q2 and up $​11B or 9.​4% last year).

The Federal Reserve made changes to the Z.​1 tables six quarters ago. Describing a "Money market funds sector data source change," the report says, "The money market mutual funds (​MMF) sector (​tables F.​121 and L.​121) has been revised beginning 2010:​Q4 to reflect a change in data source to Securities and Exchange Commission Form NMFP. The level of assets and shares outstanding of the sector have increased due to the inclusion of private placement MMFs in the source data. Changes in the level due to changes in the data source in 2010:​Q4 are recorded as other volume changes in the Financial Accounts."

On "Mutual funds sector holdings of money market funds," Z.​1 tells us, "​The mutual funds sector (​tables F.​122 and L.​122) has been revised beginning 2010:​Q4 to reflect holdings of money market funds not previously reported on the tables. In addition, holdings of repurchase agreements, commercial paper, corporate bonds, and miscellaneous assets have been revised. Additional and revised holdings are estimated using data from Morningstar and Investment Company Institute.... The exchange-​traded funds sector (​tables F.​124 and L.​124) has been revised beginning 2010:​Q4 to reflect holdings of money market funds not previously reported on the tables."

​

Crane Data'​s September Money Fund Portfolio Holdings, with data as of Aug. 31, 2023, show that Treasury holdings surged in August while Repo plunged. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) increased by $​106.​7 billion to a record $​5.​919 trillion, after increasing $​78.​3 billion in July, $​46.​1 billion in June, $​92.​6 billion in May, $​81.​2 billion in April and $​390.​5 billion in March. Repo dropped but continues to lead as the largest portfolio segment, falling by nearly $​100 billion. Treasuries jumped by over $​160 billion but remained in the No. 2 spot. But the U.​S. Treasury surpassed the Federal Reserve Bank of New York as the largest Issuer to MMFs, jumping to $​1.​586 trillion vs. the Fed RRP'​s $​1.​560 trillion (​down $​188.​5 billion). 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) decreased $​96.​8 billion (-​3.​1%) to $​3.​005 trillion, or 50.​8% of holdings, in August, after decreasing $​99.​4 billion in July and $​146.​4 billion in June. Repo increased $​111.​8 billion in May and $​33.​1 billion in April. Treasury securities rose $​163.​3 billion (​11.​5%) to $​1.​586 trillion, or 26.​8% of holdings, after increasing $​185.​5 billion in July and $​355.​7 billion in June. They decreased $​116.​9 billion in May and $​32.​3 billion in April. Government Agency Debt was up $​16.​4 billion, or 2.​5%, to $​683.​7 billion, or 11.​6% of holdings. Agencies decreased $​66.​5 billion in July and $​119.​3 billion in June, but increased $​58.​8 billion in May and $​18.​5 billion in April. Repo, Treasuries and Agency holdings now total $​5.​275 trillion, representing a massive 89.​1% of all taxable holdings.

Money fund holdings of CP and CDs both increased in August. Commercial Paper (​CP) increased $​4.​8 billion (​1.​7%) to $​280.​2 billion, or 4.​7% of holdings. CP holdings increased $​22.​0 billion in July, decreased $​2.​3 billion in June and increased $​6.​5 billion in May. Certificates of Deposit (​CDs) increased $​14.​4 billion (​7.​7%) to $​202.​5 billion, or 3.​4% of taxable assets. CDs increased $​7.​2 billion in July, $​7.​9 billion in June and $​2.​1 billion in May. Other holdings, primarily Time Deposits, increased $​4.​3 billion (​2.​9%) to $​151.​2 billion, or 2.​6% of holdings, after increasing $​29.​3 billion in July, decreasing $​49.​8 billion in June and increasing $​30.​4 billion in May. VRDNs rose to $​10.​3 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.​239 trillion, or 20.​9% of taxable money funds' $​5.​919 trillion total. Among Prime money funds, CDs represent 16.​3% (​up from 15.​5% a month ago), while Commercial Paper accounted for 22.​7% (​unchanged from 22.​7% in July). The CP totals are comprised of: Financial Company CP, which makes up 14.​8% of total holdings, Asset-​Backed CP, which accounts for 4.​7%, and Non-​Financial Company CP, which makes up 3.​2%. Prime funds also hold 4.​2% in US Govt Agency Debt, 7.​3% in US Treasury Debt, 24.​4% in US Treasury Repo, 0.​6% in Other Instruments, 10.​0% in Non-​Negotiable Time Deposits, 5.​2% in Other Repo, 7.​3% in US Government Agency Repo and 0.​6% in VRDNs.

Government money fund portfolios totaled $​3.​124 trillion (​52.​8% of all MMF assets), up from $​3.​059 trillion in July, while Treasury money fund assets totaled another $​1.​557 trillion (​26.​3%), up from $​1.​539 trillion the prior month. Government money fund portfolios were made up of 20.​2% US Govt Agency Debt, 17.​0% US Government Agency Repo, 19.​4% US Treasury Debt, 43.​3% in US Treasury Repo, 0.​0% in Other Instruments. Treasury money funds were comprised of 57.​2% US Treasury Debt and 42.​8% in US Treasury Repo. Government and Treasury funds combined now total $​4.​680 trillion, or 79.​1% of all taxable money fund assets.

European-​affiliated holdings (​including repo) increased by $​28.​4 billion in August to $​680.​3 billion; their share of holdings rose to 11.​5% from last month'​s 11.​2%. Eurozone-​affiliated holdings increased to $​456.​6 billion from last month'​s $​442.​1 billion; they account for 7.​7% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $​253.​5 billion (​4.​3% of the total) from last month'​s $​238.​6 billion. Americas related holdings rose to $​4.​975 trillion from last month'​s $​4.​911 trillion, and now represent 84.​1% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​down $​113.​1 billion, or -​4.​7%, to $​2.​319 trillion, or 39.​2% of assets); US Government Agency Repurchase Agreements (​up $​17.​3 billion, or 2.​9%, to $​621.​6 billion, or 10.​5% of total holdings), and Other Repurchase Agreements (​down $​1.​0 billion, or -​1.​6%, from last month to $​65.​1 billion, or 1.​1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​4.​7 billion to $​183.​3 billion, or 3.​1% of assets), Asset Backed Commercial Paper (​down $​1.​3 billion to $​57.​7 billion, or 1.​0%), and Non-​Financial Company Commercial Paper (​up $​1.​4 billion to $​39.​1 billion, or 0.​7%).

The 20 largest Issuers to taxable money market funds as of August 31, 2023, include: the US Treasury ($​1.​586T, 26.​8%), the Federal Reserve Bank of New York ($​1.​560 trillion, or 26.​4%), Federal Home Loan Bank ($​560.​9B, 9.​5%), Fixed Income Clearing Corp ($​358.​3B, 6.​1%), RBC ($​135.​4B, 2.​3%), BNP Paribas ($​110.​5B, 1.​9%), Citi ($​105.​0B, 1.​8%), Federal Farm Credit Bank ($​103.​9B, 1.​8%), Barclays PLC ($​102.​4B, 1.​7%), JP Morgan ($​91.​8B, 1.​6%), Bank of America ($​86.​9B, 1.​5%), Goldman Sachs ($​73.​7B, 1.​2%), Credit Agricole ($​58.​4B, 1.​0%), Wells Fargo ($​56.​0B, 0.​9%), Societe Generale ($​54.​7B, 0.​9%), Mitsubishi UFJ Financial Group Inc ($​53.​0B, 0.​9%), Sumitomo Mitsui Banking Corp ($​47.​7B, 0.​8%), Mizuho Corporate Bank Ltd ($​41.​9B, 0.​7%), ING Bank ($​40.​5B, 0.​7%) and Bank of Montreal ($​38.​6B, 0.​7%).

In the repo space, the 10 largest Repo counterparties (​dealers) with the amount of repo outstanding and market share (​among the money funds we track) include: Federal Reserve Bank of New York ($​1.​560T, 51.​9%), Fixed Income Clearing Corp ($​358.​3B, 11.​9%), RBC ($​114.​1B, 3.​8%), BNP Paribas ($​96.​7B, 3.​2%), Citi ($​92.​6B, 3.​1%), Barclays PLC ($​86.​1B, 2.​9%), JP Morgan ($​81.​5B, 2.​7%), Goldman Sachs ($​73.​4B, 2.​4%), Bank of America ($​62.​8B, 2.​1%), and Wells Fargo ($​46.​9B, 1.​6%). The largest users of the $​1.​560 trillion in Fed RRP include: JPMorgan US Govt MM ($​100.​3B), Vanguard Federal Money Mkt Fund ($​87.​5B), Goldman Sachs FS Govt ($​86.​0B), Fidelity Govt Money Market ($​74.​0B), Fidelity Inv MM: Govt Port ($​61.​2B), Fidelity Govt Cash Reserves ($​58.​8B), Morgan Stanley Inst Liq Govt ($​54.​2B), BlackRock Lq T-​Fund ($​50.​5B), BlackRock Lq FedFund ($​50.​3B) and Schwab Treasury Oblig MF ($​49.​4B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($​28.​7B, 5.​0%), Bank of America ($​24.​0B, 4.​2%), Credit Agricole ($​22.​9B, 4.​0%), RBC ($​21.​2B, 3.​7%), Toronto-​Dominion Bank ($​20.​7B, 3.​6%), Bank of Montreal ($​19.​5B, 3.​4%), Mitsubishi UFJ Financial Group Inc ($​19.​3B, 3.​4%), Svenska Handelsbanken ($​17.​9B, 3.​1%), ING Bank ($​17.​3B, 3.​0%) and Bank of Nova Scotia ($​17.​3B, 3.​0%).

The 10 largest CD issuers include: Bank of America ($​14.​7B, 7.​2%), Mitsubishi UFJ Trust and Banking Corporation ($​12.​9B, 6.​4%), Sumitomo Mitsui Banking Corp ($​12.​3B, 6.​1%), Credit Agricole ($​12.​1B, 6.​0%), Mitsubishi UFJ Financial Group Inc ($​11.​8B, 5.​8%), Toronto-​Dominion Bank ($​11.​8B, 5.​8%), Canadian Imperial Bank of Commerce ($​10.​6B, 5.​2%), Mizuho Corporate Bank Ltd ($​10.​4B, 5.​1%), Sumitomo Mitsui Trust Bank ($​10.​3B, 5.​1%), and Wells Fargo ($​9.​1B, 4.​5%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: Bank of Montreal ($​15.​3B, 6.​1%), RBC ($​11.​4B, 4.​5%), Bank of Nova Scotia ($​11.​2B, 4.​5%), Societe Generale ($​11.​0B, 4.​4%), JP Morgan ($​10.​4B, 4.​1%), Barclays PLC ($​9.​8B, 3.​9%), UBS AG ($​8.​9B, 3.​6%), Toronto-​Dominion Bank ($​8.​5B, 3.​4%), BPCE SA ($​7.​8B, 3.​1%) and Mitsubishi UFJ Financial Group Inc ($​7.​4B, 3.​0%).

The largest increases among Issuers include: US Treasury (​up $​163.​3B to $​1.​586T), Fixed Income Clearing Corp (​up $​35.​4B to $​358.​3B), Federal Home Loan Bank (​up $​16.​1B to $​560.​9B), BNP Paribas (​up $​11.​6B to $​110.​5B), Citi (​up $​11.​2B to $​105.​0B), Wells Fargo (​up $​10.​1B to $​56.​0B), Barclays PLC (​up $​9.​4B to $​102.​4B), RBC (​up $​7.​4B to $​135.​4B), Bank of America (​up $​6.​0B to $​86.​9B) and Svenska Handelsbanken (​up $​4.​5B to $​17.​9B).

The largest decreases among Issuers of money market securities (​including Repo) in August were shown by: Federal Reserve Bank of New York (​down $​188.​5B to $​1.​560T), JP Morgan (​down $​9.​1B to $​91.​8B), Goldman Sachs (​down $​4.​1B to $​73.​7B), Rabobank (​down $​2.​4B to $​6.​7B), Australia & New Zealand Banking Group Ltd (​down $​1.​6B to $​13.​6B), Swedbank AB (​down $​1.​4B to $​9.​1B), Societe Generale (​down $​1.​0B to $​54.​7B), Federal Home Loan Mortgage Corp (​down $​0.​9B to $​10.​5B), Toronto-​Dominion Bank (​down $​0.​7B to $​37.​3B) and National Australia Bank Ltd (​down $​0.​5B to $​8.​0B).

The United States remained the largest segment of country-​affiliations; it represents 79.​1% of holdings, or $​4.​683 trillion. Canada (​4.​9%, $​291.​0B) was in second place, while France (​4.​7%, $​280.​1B) was No. 3. Japan (​3.​9%, $​230.​5B) occupied fourth place. The United Kingdom (​2.​6%, $​151.​3B) remained in fifth place. Netherlands (​1.​2%, $​68.​9B) was in sixth place, followed by Germany (​1.​0%, $​57.​7B), Sweden (​0.​9%, $​53.​6B), Australia (​0.​5%, $​28.​1B), and Spain (​0.​3%, $​18.​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 August 31, 2023, Taxable money funds held 61.​7% (​down from 65.​4%) of their assets in securities maturing Overnight, and another 9.​2% maturing in 2-​7 days (​up from 7.​4%). Thus, 70.​8% in total matures in 1-​7 days. Another 7.​6% matures in 8-​30 days, while 8.​5% matures in 31-​60 days. Note that over three-​quarters, or 86.​9% 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 5.​2% of taxable securities, while 4.​8% matures in 91-​180 days, and just 3.​1% matures beyond 181 days. (​Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

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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 August 31 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 Aug. 31, includes holdings information from 972 money funds (​up 16 from last month), representing record assets of $​6.​098 trillion (​up from $​5.​965 trillion). Prime MMFs now total $​1.​252 trillion, or 20.​5% 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 hitting another record in August. (Note: Register soon for our European Money Fund Symposium, which is Sept. 25-​26, 2024 in Edinburgh.)

Our latest Form N-​MFP Summary for All Funds (​taxable and tax-​exempt) shows Repurchase Agreement (​Repo) holdings in money market funds totaling $​3.​032 trillion (​down from $​3.​118 trillion), or 49.​7% of all assets. Treasury holdings totaled $​1.​597 trillion (​up from $​1.​415 billion), or 26.​2% of all holdings, and Government Agency securities totaled $​699.​5 billion (​up from $​688.​9 billion), or 11.​5%. Holdings of Treasuries, Government agencies and Repo (​almost all of which is backed by Treasuries and agencies) combined total $​5.​328 trillion, or a massive 87.​4% of all holdings.

Commercial paper (​CP) totals $​288.​7 billion (​up from $​284.​2 billion), or 4.​7% of all holdings, and the Other category (​primarily Time Deposits) totals $​156.​8 billion (​up from $​152.​9 billion), or 2.​6%. Certificates of Deposit (​CDs) total $​202.​9 billion (​up from $​188.​2 billion), 3.​3%, and VRDNs account for $​121.​1 billion (​up from $​117.​8 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: $​183.​9 billion, or 3.​0%, in Financial Company Commercial Paper; $​58.​2 billion or 1.​0%, in Asset Backed Commercial Paper; and, $​46.​7 billion, or 0.​8%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​2.​343 trillion, or 38.​4%), U.​S. Govt Agency Repo ($​618.​4B, or 10.​1%) and Other Repo ($​70.​1B, or 1.​2%).

The N-​MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $​282.​2 billion (​up from $​277.​9 billion), or 22.​5%; Repo holdings of $​460.​9 billion (​down from $​478.​4 billion), or 36.​8%; Treasury holdings of $​93.​7 billion (​up from $​66.​7 billion), or 7.​5%; CD holdings of $​202.​9 billion (​up from $​188.​2 billion), or 16.​2%; Other (​primarily Time Deposits) holdings of $​150.​3 billion (​up from $​143.​8 billion), or 12.​0%; Government Agency holdings of $​55.​0 billion (​down from $​66.​1 billion), or 4.​4% and VRDN holdings of $​7.​5 billion (​up from $​7.​3 billion), or 0.​6%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​183.​9 billion (​up from $​179.​4 billion), or 14.​7%, in Financial Company Commercial Paper; $​58.​2 billion (​down from $​59.​4 billion), or 4.​6%, in Asset Backed Commercial Paper; and $​40.​2 billion (​up from $​39.​1 billion), or 3.​2%, in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​305.​3 billion, or 24.​4%), U.​S. Govt Agency Repo ($​91.​2 billion, or 7.​3%), and Other Repo ($​64.​3 billion, or 5.​1%).

In related news, money fund charged expense ratios (​Exp%) were mostly flat in August. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.​27% and 0.​37%, respectively, as of Aug. 31, 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%, up 1 bp from last month'​s level (​and 19 bps higher than 12/​31/​21'​s 0.​08%). The average is now back at the level (​0.​27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (​though 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.​37% as of Aug. 31, 2023, unchanged from the month prior and slightly below the 0.​40% at year-​end 2019.

Prime Inst MFs expense ratios (​annualized) average 0.​28% (​unchanged from last month), Government Inst MFs expenses average 0.​27% (​up 1 bp from last month), Treasury Inst MFs expenses average 0.​29% (​unchanged from last month). Treasury Retail MFs expenses currently sit at 0.​52%, (​unchanged from last month), Government Retail MFs expenses yield 0.​55% (​unchanged from last month). Prime Retail MF expenses averaged 0.​48% (​unchanged from last month). Tax-​exempt expenses were also unchanged at 0.​40% on average.

Gross 7-​day yields rose again during the month ended Aug. 31, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 750), shows a 7-​day gross yield of 5.​32%, up 8 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 8 bps, ending the month at 5.​24%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $​15.​964 billion (​as of 8/​31/​23). Our estimated annualized revenue totals increased from $​15.​554B last month and are up from $​15.​521B 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 climb higher as money funds continue to rake in assets from uninsured bank deposits.

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Crane Data'​s latest monthly Money Fund Market Share rankings show assets were again higher among the largest U.​S. money fund complexes in August. Money market fund assets grew by $​104.​2 billion, or 1.​8%, last month to a record $​6.​006 trillion. Total MMF assets have increased by $​152.​8 billion, or 2.​6%, over the past 3 months, and they'​ve increased by $​965.​4 billion, or 19.​2%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Schwab, SSGA, Federated Hermes, Fidelity and JPMorgan, which grew assets by $​18.​5 billion, $​16.​7B, $​16.​3B, $​15.​0B and $​14.​3B, respectively. Declines in August were seen by Invesco, American Funds and T Rowe Price, which decreased by $​7.​4 billion, $​4.​9B and $​2.​6B, 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 also moved higher in August, below. (Note: Register soon for our European Money Fund Symposium, which is Sept. 25-​26, 2023 in Edinburgh.)

Over the past year through Aug. 31, 2023, Fidelity (​up $​233.​3B, or 25.​3%), Schwab (​up $​227.​5B, or 117.​6%), JPMorgan (​up $​185.​4B, or 44.​0%), Federated Hermes (​up $​72.​7B, or 21.​5%) and Vanguard (​up $​72.​3B, or 15.​8%) were the `​largest gainers. Schwab, Allspring, JPMorgan, SSGA and Fidelity had the largest asset increases over the past 3 months, rising by $​38.​8B, $​30.​6B, $​30.​1B, $​29.​8B and $​24.​7B, respectively. The largest declines over 12 months were seen by: American Funds (​down $​36.​8B), HSBC (​down $​25.​4B), Morgan Stanley (​down $​5.​6B), T Rowe Price (​down $​4.​9B) and SSGA (​down $​2.​9B). The largest decliners over 3 months included: Goldman Sachs (​down $​21.​7B) and American Funds (​down $​20.​7B).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​1.​154 trillion, or 19.​2% of all assets. Fidelity was up $​15.​0B in August, up $​24.​7 billion over 3 mos., and up $​233.​3B over 12 months. JPMorgan ranked second with $​606.​2 billion, or 10.​1% market share (​up $​14.​3B, up $​30.​1B and up $​185.​4B for the past 1-​month, 3-​mos. and 12-​mos., respectively). Vanguard ranked in third place with $​529.​2 billion, or 8.​8% of assets (​up $​3.​3B, up $​13.​4B and up $​72.​3B). BlackRock ranked fourth with $​495.​4 billion, or 8.​2% market share (​up $​483M, down $​5.​9B and up $​17.​9B), while Goldman Sachs was the fifth largest MMF manager with $​421.​4 billion, or 7.​0% of assets (​up $​1.​9B, down $​21.​7B and up $​42.​0B for the past 1-​month, 3-​mos. and 12-​mos.).

Schwab was in sixth place with $​421.​0 billion, or 7.​0% (​up $​18.​5B, up $​38.​8B and up $​227.​5B), while Federated Hermes was in seventh place with $​411.​3 billion, or 6.​8% of assets (​up $​16.​3B, up $​19.​6B and up $​72.​7B). Dreyfus ($​260.​1B, or 4.​3%) was in eighth place (​up $​6.​9B, up $​300M and up $​13.​8B), followed by Morgan Stanley ($​256.​6B, or 4.​3%; down $​733M, up $​4.​6B and down $​5.​6B). Allspring (​formerly Wells Fargo) was in 10th place ($​191.​6B, or 3.​2%; up $​8.​6B, up $​30.​6B and up $​39.​8B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: SSGA ($​188.​3B, or 3.​1%), American Funds ($​174.​5B, or 2.​9%), Northern ($​157.​3B, or 2.​6%), Invesco ($​150.​2B, or 2.​5%), First American ($​133.​4B, or 2.​2%), UBS ($​92.​7B, or 1.​5%), T. Rowe Price ($​50.​1B, or 0.​8%), DWS ($​40.​1B, or 0.​7%), HSBC ($​38.​5B, or 0.​6%) and Western ($​27.​4B, or 0.​5%). 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 also, SSGA replaces Allspring 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 ($​1.​164 trillion), JP Morgan ($​821.​8B), BlackRock ($​711.​7B), Goldman Sachs ($​565.​3B) and Vanguard ($​529.​2B). Schwab ($​421.​0B) was in sixth, Federated Hermes ($​420.​5B) was seventh, followed by Morgan Stanley ($​333.​1B), Dreyfus/​BNY Mellon ($​280.​7B) and SSGA ($​230.​2B), 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 September issue of our Money Fund Intelligence and MFI XLS, with data as of 8/​31/​23, shows that yields increased again in August across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 750), rose to 5.​04% (​up 10 bps) for the 7-​Day Yield (​annualized, net) Average, the 30-​Day Yield increased to 5.​02% (​up 18 bps). The MFA'​s Gross 7-​Day Yield rose to 5.​31% (​up 10 bps), and the Gross 30-​Day Yield also moved up to 5.​29% (​up 17 bps). (Gross yields will be revised Monday at noon, though, once we download the SEC'​s Form N-​MFP data for 8/​31/​23.)

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 5.​16% (​up 8 bps) and an average 30-​Day Yield at 5.​15% (​up 23 bps). The Crane 100 shows a Gross 7-​Day Yield of 5.​24% (​up 11 bps), and a Gross 30-​Day Yield of 5.​22% (​up 22 bps). Our Prime Institutional MF Index (​7-​day) yielded 5.​24% (​up 13 bps) as of Aug. 31. The Crane Govt Inst Index was at 5.​10% (​up 9 bps) and the Treasury Inst Index was at 5.​09% (​up 9 bps). Thus, the spread between Prime funds and Treasury funds is 15 basis points, and the spread between Prime funds and Govt funds is 14 basis points. The Crane Prime Retail Index yielded 5.​05% (​up 8 bps), while the Govt Retail Index was 4.​81% (​up 10 bps), the Treasury Retail Index was 4.​87% (​up 7 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.​79% (​up 39 bps) as of August.

Gross 7-​Day Yields for these indexes to end August were: Prime Inst 5.​41% (​up 10 bps), Govt Inst 5.​33% (​up 11 bps), Treasury Inst 5.​32% (​up 10 bps), Prime Retail 5.​36% (​up 10 bps), Govt Retail 5.​28% (​up 11 bps) and Treasury Retail 5.​11% (​up 7 bps). The Crane Tax Exempt Index rose to 2.​94% (​up 24 bps). The Crane 100 MF Index returned on average 0.​44% over 1-​month, 1.​26% over 3-​months, 3.​12% YTD, 4.​19% over the past 1-​year, 1.​53% over 3-​years (​annualized), 1.​54% over 5-​years, and 0.​97% over 10-​years.

The total number of funds, including taxable and tax-​exempt, was down 1 in August to 879. There are currently 750 taxable funds, down 1 from the previous month, and 129 tax-​exempt money funds (​unchanged from last month). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.)

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The September issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "MF Assets Break $​6.​0 Trillion; Retail Still Driving, Inst Next?," which reviews the dramatic growth in retail assets; "Dechert on Recent Reforms; Deep Dive Into Liquidity Fees," which excerpts from a recent webinar; and, "15-​Years Ago: A Look Back at Reserve '​Breaking the Buck'," which reviews the events that occurred in September 2008. We also sent out our MFI XLS spreadsheet Friday a.​m., and we'​ve updated our Money Fund Wisdom database with 8/​31/​23 data. Our September Money Fund Portfolio Holdings are scheduled to ship on Tuesday, September 12, and our September Bond Fund Intelligence is scheduled to go out on Friday, September 15. (Note: register ASAP for our European Money Fund Symposium, which is Sept. 25-​26, 2024 in Edinburgh. We look forward to seeing you in Scotland!)

MFI'​s "Assets Break $​6.​0 Trillion" article says, "Money fund assets broke the $​6.​0 trillion level for the first time ever, according to our monthly Money Fund Intelligence XLS. ​Assets rose $​104.​2 billion in August to a record $​6.​007 trillion; it was the 11th straight monthly increase. Retail money funds continue to drive the flows, though Institutional MMFs now account for about 40% of increases. The inflows show no signs of stopping either as we approach the fourth quarter, seasonally the strongest period of the year for money fund inflows. Given the expected seasonal boost, MMFs could even break the $​7.​0 trillion level by yearend."

It continues, "Total assets tracked by Crane Data have increased by $​965.​4 billion, or 19.​1%, over the 12 months through 8/​31/​23, and YTD assets have risen by $​838.​3 billion, or 16.​2%. Taxable Inst MMFs have increased by $​378.​4 billion, or 10.​9%, to $​3.​851 trillion, while Taxable Retail MMFs have jumped by $​575.​9 billion, or 39.​5%, to $​2.​034 trillion the past year. Tax Exempt MMFs rose $​11.​1 billion, or 10.​0%, to $​122.​2 billion."

We write in our Recent Reforms article, "Dechert LLP recently hosted a webinar, 'Navigating the Recent SEC Rulemakings: Money Market Fund Reforms' featuring Partners Brenden Carroll, Stephen Cohen & Megan Johnson. The summary states, 'The SEC approved amendments to Rule 2a-​7 and other rules that govern money market funds under the Investment Company Act of 1940, representing the most substantial effort by the SEC to reform the money market fund industry since the series of reforms it adopted following the 2007-​2008 financial crisis. The amendments will have a significant effect on money market funds and will likely have commercial implications for institutional prime and institutional tax-​exempt MMFs that price at multiple times per day and/​or offer same-​day settlement. In this webinar, Dechert panelists reviewed the amendments and discussed the impact on money market funds and their advisers, boards of directors, compliance officers, service providers, intermediaries and investors.' Our excerpts from the webinar follow."

It continues: "​Carroll comments, 'Today, we'​ll be discussing the SEC'​s long awaited Money Market Fund Reforms.... [​L]​ast month, after a fairly lengthy comment period, the SEC adopted its reforms. Specifically, the SEC adopted a mandatory liquidity fee framework for institutional money market funds instead of swing pricing. The SEC removed redemption gates from rule 2a-​7. But they preserved the discretion to impose liquidity fees for non-​government funds. Now, these discretionary fees are uncoupled from liquidity levels. Next, the SEC increased liquidity requirements for all funds just as proposed. And in a departure from the proposal, the SEC is now permitting stable NAV funds to use certain share cancellation measures in a negative interest rate environment to maintain a stable $​1 share price.'"

Our "Look Back" piece states, "Fifteen years ago, the money market mutual fund industry, and the world economy, were irrevocably changed as Reserve Primary Fund '​broke the buck' following the bankruptcy of Lehman Brothers. This event triggered a panic in the money markets and an unprecedented level of government intervention and support. Below, we look back and excerpt from Crane Data'​s Sept. 2008 News Archives, and the week which will live in infamy, Sept. 15-​19."

It explains, "​On Sept. 15, 2008, as the unexpected Lehman bankruptcy news hit, we expected to see yet another cluster of routine support actions from money fund advisors. Crane Data wrote (​incorrectly, it turns out) early Monday, in 'Fed Moves, Limited Exposure Should Shield Money Mkts From Lehman,' 'The bankruptcy filing of Lehman Brothers has led to a downgrade of the company'​s short-​term debt by Moody'​s from P-​1 to Not Prime. The impact to money market fund is likely to be contained, however, since Lehman had been a minor issuer in the commercial paper (​CP) and medium-​term note (​MTN) marketplace, with about $​3 billion in CP.... These issues should be alleviated by the other news -- the Fed'​s move to expand its liquidity facilities, and the takeover of Merrill Lynch by Bank of America.'"

MFI also includes the News brief, "Barron'​s: MMFs Yield $​300B a Year." It states, "​The article, 'The Fed Made Lots of 30,​000% Winners,' says, 'The Federal Reserve’​s rate increases have raised the income from money-​market funds 300 times.... Peter Crane of Crane Data told me that as of February 2022, the average interest earned by money-​market fund holders was 0.​02%.... But as of July 31 of this year ... the funds' interest yield was 5.​08%, and their assets were ... $​5.​903 trillion. By Crane'​s math, the funds' yields were running at the rate of $​299.​9 billion a year.'"

Another News brief, "August Portfolio Holdings: Treasuries Skyrocket; Repo, Agencies Plunge," tells readers, "​Our latest Money Fund Portfolio Holdings show that Treasury holdings surged in July while Repo and Agencies plunged. Repo, the largest portfolio segment, fell by nearly $​100 billion. Treasuries jumped by over $​180 billion but remained in the No. 2 spot. Agencies were the third largest segment CP remained fourth, ahead of CDs, Other/​Time Deposits and VRDNs."

A third News brief, "SEC Stats: MMF Assets Hit Record $​5.​96 Trillion in July, Yields Jump Again," says, "​The Securities and Exchange Commission'​s latest monthly 'Money Market Fund Statistics' summary shows that total money fund assets increased by $​28.​8 billion in July to a record high of $​5.​959 trillion. The SEC shows Prime MMFs jumping $​28.​9 billion in July to $​1.​240 trillion, Govt & Treasury funds increased $​3.​1 billion to $​4.​600 trillion and Tax Exempt funds decreased $​3.​2 billion to $​119.​1 billion. Taxable yields jumped again in July after moving higher in June."

A sidebar, "MS Renames ESG MMF," says, "Morgan Stanley is the latest fund company to abandon its ESG Money Market Fund. (​See our Sept. 19, 2022 News, 'SSGA to Liquidate State Street ESG Liquid Reserves.') A filing for Morgan Stanley Institutional Liquidity Funds says, '​At a meeting ... April 19-​20, 2023, the Board of Trustees of Morgan Stanley Institutional Liquidity Funds approved various changes to the Fund, including changing its name from '​ESG Money Market Portfolio' to '​Money Market Portfolio', modifying its principal investment strategies to remove references to an investment process which incorporates information about environmental, social and governance ('​ESG') issues, and eliminating a policy to invest ... in securities whose issuer or guarantor, in the Adviser'​s opinion at the time of purchase, meets the Fund'​s ESG criteria, each change effective June 20, 2023.'"

Our September MFI XLS, with August 31 data, shows total assets increased $​104.​2 billion to a record $​6.​007 trillion, after increasing $​21.​0 billion in July, $​20.​3 billion in June, $​152.​7 billion in May, $​56.​5 billion in April, $​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 and $​1.​7 billion last September.

Our broad Crane Money Fund Average 7-​Day Yield was up 10 bps to 5.​04%, and our Crane 100 Money Fund Index (​the 100 largest taxable funds) was up 8 bps to 5.​16% in August. On a Gross Yield Basis (​7-​Day) (​before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 5.​31% and 5.​24%, respectively. Charged Expenses averaged 0.​37% and 0.​26% 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 8/​31/​23.) The average WAM (​weighted average maturity) for the Crane MFA was 24 days (​unchanged from previous month) and the Crane 100 WAM was also unchanged at 23 days. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

​

Another new academic research paper involving money market funds, entitled, "The Imperfect Intermediation of Money-​Like Assets," was recently published by Jeremy Stein of Harvard University and NBER and Jonathan Wallen of Harvard Business School. Their "Abstract" explains, "We study supply-​and-​demand effects in the U.​S. Treasury bill market by comparing the returns on T-​bills to the administered policy rate on the Federal Reserve'​s reverse repurchase (​RRP) facility. In spite of the arguably more money-​like properties of an investment in RRP, we observe repeated episodes where one-​month T-​bill rates fall well below expected RRP rates. This gap frequently exceeds 50 basis points in 2022, before spiking to over 160 basis points during the initial period of uncertainty over the debt ceiling in March and April of 2023." (Reminder: Register ASAP for our European Money Fund Symposium, which takes place Sept. 25-​26, 2024 in Edinburgh!)

It continues, "In an effort to understand this phenomenon, we develop and test a simple model where the RRP-​bill spread is policed by a group of heterogeneous money funds, who differ in their elasticity of substitution between the two assets. Our main finding is that when T-​bills are scarce, and the spread is large, the marginal money fund is more inelastic, as the more elastic funds have already exhausted their holdings of T-​bills. As a result, for a given shift in T-​bill supply, the effect on rates is an order of magnitude larger when T-​bills are scarce, and when more money funds are out of the market."

The paper'​s "Introduction" comments, "​A growing literature emphasizes how the frictions and constraints associated with financial intermediation can influence the behavior of asset prices. In this paper, we apply a frictional-​intermediation lens to study pricing anomalies in the U.​S. Treasury bill market, where money-​market funds are among the most important players. However, unlike much of the work in this area, which focuses on the behavior of a single representative intermediary, we emphasize heterogeneities in the responsiveness of different money funds to supply and demand shocks in the T-​bill market. We show that these heterogeneities play a crucial role in shaping the price impact of such shocks."

It tells us, "More specifically, we compare the returns on T-​bills to those on another safe money-​like government claim, namely an investment in the Federal Reserve'​s reverse repurchase (​or RRP) facility. The RRP facility allows a pre-​approved group of eligible counterparties, including primary dealers, government-​sponsored enterprises, and a set of roughly 140 money-​market funds, to lend to the Fed on an overnight basis against Treasury collateral, at an administered policy rate. Both of these markets are large, with $​4.​5 trillion in T-​bills (​excluding T-​bills held by the Fed) and $​1.​8 trillion in RRP outstanding as of July 31st 2023."

The authors write, "Figure 1 displays the one-​month realized and ex-​ante expected returns on the RRP facility alongside the rate on one-​month T-​bills, over the period from June 2021 to July 2023. A priori, one might have guessed that the expected RRP rate would be a lower bound on the T-​bill rate. Both instruments have the full backing of the U.​S. government, and hence are free of credit risk. Moreover, in addition to having zero duration and hence no exposure to interest-​rate risk, an investment in RRP can also be said to be more purely money-​like than one in T-​bills, since it liquidates and hence can be monetized at zero cost on an overnight basis; by contrast, to monetize a T-​bill overnight would require selling it and thereby accepting some bid-​ask cost. These differences should in principle translate into a weakly lower rate of return on the RRP as compared to T-​bills."

They comment, "​Yet, as Figure 1 shows, this hypothesis is violated in the data, sometimes dramatically so. While T-​bill and expected RRP rates are nearly identical from June 2021 through early 2022, after that they begin to diverge, with one-​month T-​bill rates falling well below expected RRP rates. This gap frequently exceeds 50 basis points in 2022, before spiking to over 160 basis points during the initial period of uncertainty over the debt ceiling in March and April of 2023."

The paper states, "In an effort to understand this puzzling behavior, we zero in on two types of frictions that can impede the seemingly simple arbitrage that would appear to be available whenever T-​bills offer a lower return than that on the RRP facility -- namely, one would expect anyone holding the lower-​yielding T-​bills to sell these T-​bills and to replace them with an investment in the RRP. The first friction is a form of market segmentation created by the fact that the Fed'​s RRP facility is not available to all investors. Rather, as noted above, access is limited to primary dealers, GSEs, and a select group of money funds, with money funds being by far the dominant participants in the facility, holding on average about 90 percent of the outstanding volume of RRP."

It adds, "​This paper aims to make two contributions. First, and most concretely, we hope to shed some light on the factors that influence rate dynamics in one of the most important money markets in the world, the market for Treasury bills. The movements in spreads that we document have obvious first-​order consequences for the U.​S. government'​s borrowing costs, as well as for any other borrowing rates that are tied to T-​bills, such as those on adjustable-​rate mortgages. And the fact that T-​bill rates can become quite disconnected from the rate paid by the Fed on its RRP facility would seem to suggest that the RRP facility as currently designed is not fully living up to the Fed'​s articulated goal for it, which is to put a floor on all short-​term money-​market rates. On the Federal Reserve Bank of New York'​s website, a description of the program says that: 'The [​RRP] provides a floor under overnight interest rates by offering a broad range of financial institutions that are ineligible to earn [​interest on reserve balances] an alternative risk-​free investment option.'"

Finally, they say, "At a second, and somewhat more general level, we hope to contribute to the broader literature on intermediary asset pricing by highlighting the role of heterogeneity among intermediaries, and the implications this heterogeneity has for the responsiveness of asset prices to various shocks."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (​with data as of Sept 1) includes Holdings information from 54 money funds (​down 24 from a week ago), which totals $​2.​307 trillion (​down from $​3.​102 trillion) of the $​6.​010 trillion in total money fund assets (​or 38.​4%) 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.​188 billion (​down from $​1.​628 trillion a week ago), or 51.​5%; Treasuries totaling $​743.​7 billion (​down from $​909.​8 billion a week ago), or 32.​2%, and Government Agency securities totaling $​186.​1 billion (​down from $​254.​1 billion), or 8.​1%. Commercial Paper (​CP) totaled $​61.​9 billion (​down from a week ago at $​104.​8 billion), or 2.​7%. Certificates of Deposit (​CDs) totaled $​54.​8 billion (​down from $​84.​5 billion a week ago), or 2.​4%. The Other category accounted for $​51.​0 billion or 2.​2%, while VRDNs accounted for $​21.​8 billion, or 0.​9%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​743.​7 billion (​32.​2% of total holdings), the Federal Reserve Bank of New York with $​583.​3 billion (​25.​3%), Fixed Income Clearing Corp with $​155.​1B (​6.​7%), Federal Home Loan Bank with $​140.​6B (​6.​1%), JP Morgan with $​46.​4B (​2.​0%), Barclays PLC with $​37.​8B (​1.​6%), Federal Farm Credit Bank with $​37.​5B (​1.​6%), Goldman Sachs with $​34.​6B (​1.​5%), Citi with $​33.​7B (​1.​5%) and BNP Paribas with $​33.​6B (​1.​5%).

The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($​260.​0B), JPMorgan US Govt MM ($​259.​5B), Morgan Stanley Inst Liq Govt ($​159.​4B), JPMorgan 100% US Treas MMkt ($​156.​5B), BlackRock Lq FedFund ($​136.​6B), Allspring Govt MM ($​119.​5B), State Street Inst US Govt ($​114.​2B), Dreyfus Govt Cash Mgmt ($​107.​7B), BlackRock Lq Treas Tr ($​102.​7B) and BlackRock Lq T-​Fund ($​93.​8B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary.)

​

ESMA, or the European Securities & Markets Authority, posted a working paper entitled, "Bang for (​breaking) the buck: Regulatory constraints and money market funds reforms." Written by Michel Baes, Antoine Bouveret and Eric Schaanning, write in the Abstract, "Despite substantial regulatory reforms, US and EU money market funds (​MMFs) experienced severe stress in March 2020. Funds investing in private assets such as EU Low Volatility Net Asset Value (​LVNAV) MMFs faced acute challenges to meet regulatory requirements while facing high redemptions. Such funds must maintain their mark-​to-​market net asset value (​NAV) within 20 basis points of a constant net asset value and must maintain a 30% share of assets that mature within one week. We develop a stylized model to show that under certain conditions related to outflows and the market liquidity of their assets, LVNAVs may face difficulties in fulfilling both regulatory constraints at the same time." (Note: We'​re still taking registrations to our upcoming European Money Fund Symposium, which is Sept. 25-​26 in Edinburgh, Scotland. We hope to see you there!) (Note too: Money fund assets broke the $​6.​0 trillion level for the first time ever on Friday, according to our Money Fund Intelligence Daily. Assets rose $​30.​4 billion on Sept. 1 to a record $​6.​010 trillion.)

They explain, "​We calibrate our model to EU and US data and evaluate different regulatory reforms. Removing the use of amortised cost has the largest positive effect in terms of resilience, while higher liquidity requirements have more limited effects [​and] improving the market liquidity of the assets MMFs invest in would substantially improve the resilience of MMFs. Introducing countercyclical liquidity buffers would also enhance their resilience, especially when the assets eligible to meet liquidity requirements are more liquid than the rest of the portfolio, and the effect is larger than increasing liquidity requirements. Overall, we find that, based on our market impact estimates, the NAV constraint is generally the binding one."

The paper'​s "Non-​technical Summary" says, "Money market funds (​MMFs) offer daily redemptions to investors while investing in short-​term fixed income assets such as Commercial Paper (​CP) or Certificate of Deposits (​CDs) issued by financial institutions. Over time, MMFs have become key intermediaries in the financial system most notably on the short-​term funding markets. Investors tend to treat MMF shares like deposits or a cash-​like instrument and use them as short-​term cash management vehicles. MMF vulnerabilities emerge from their liquidity and maturity transformation activities: they offer daily redemptions to investors while investing in instruments of longer maturity and of varying degrees of liquidity."

It tells us, "Despite substantial regulatory reforms after the Global Financial Crisis of 2007-​2008, US and EU MMFs exposed to private debt experienced acute challenges during the COVID-​19 crisis in March 2020. MMFs faced large redemptions from investors while short-​term markets froze, resulting in liquidity issues for MMFs and the intervention of central banks to provide a backstop."

The ESMA piece comments, "This paper provides a framework to assess MMFs resilience and shows that the maximum redemptions a MMF can face depends on regulatory constraints and asset liquidity. We use detailed portfolio data for a sample of 78 US and EU MMFs with USD 1,​353bn in assets to assess each individual fund resilience. The maximum redemptions a fund can face ranges between 40% and 80% of the net asset value. We use our model to assess the impact of regulatory reforms such as an increase in liquidity requirements, changes to the allowed price deviation for MMFs using amortised cost or requirements to invest in more liquid assets. Overall, we find that removing the use of amortised cost has the largest positive effect in terms of resilience, while higher liquidity requirements have more limited effects."

It adds, "​This paper complements existing literature in three ways. First, we model how the interaction between regulatory requirements, asset liquidity and investor redemptions determine the resilience of MMFs. Second, we show how to measure the resilience of MMFs and how the maximum level of redemption a fund can withstand can be heterogenous across EU and US MMFs. Finally, we provide a quantitative assessment of regulatory reforms on MMF resilience."

Finally, ESMA'​s paper concludes, "We have shown how the use of amortised cost and liquidity requirements can create challenges for MMFs exposed to instruments with limited liquidity. In particular, in times of stress, MMFs face difficulties in selling assets to meet redemptions while complying with regulatory requirements. Using data on EU LVNAV MMFs and US Prime MMFs, we use our model to assess the impact of policy reform on the resilience of MMFs. Overall, we find that changing required liquidity requirements has limited effects on the resilience of funds. In contrast, increasing the NAV deviation and at the limit removing the use of amortised cost have a large effect on the maximum amount of redemptions a fund can meet. Relatedly, introducing countercyclical liquidity buffers can foster resilience by providing additional flexibility to MMFs in times of stress. Finally, improving the liquidity of underlying markets has also a significant impact on the resilience of MMFs. The framework outlined in this paper can be used by Authorities when considering regulatory options for MMFs."

In other news, money fund yields remained unchanged over the past week at 5.​16% on average, their highest levels since 1999. They broke the 5.​0% level for the first time since August 2007 six weeks ago <​b:>`​_. The Crane 100 Money Fund Index (​7-​Day Yield) was unchanged at 5.​16% in the week ended Friday, 9/​1, after increasing by 1 bp the previous week. We expect yields to inch higher in coming days as they finish digesting the Fed'​s July 26th 25 basis point hike.

Yields are up from 4.​94% on June 30, 4.​61% on March 31 and 4.​05% on 12/​31/​22. Three-​quarters of money market fund assets now yield 5.​0% or higher. (​They should get more company in coming days.) Assets of money market funds rose by $​54.​9 billion last week to $​6.​010 trillion according to Crane Data'​s Money Fund Intelligence Daily, and they have risen by $​128.​7 billion since the start of August (​after rising $​34.​7 billion in July). Weighted average maturities were unchanged last week and mostly unchanged in July (​at 24 days), after increasing by 3 days during June.

The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 683), shows a 7-​day yield of 5.​05%, up 1 bp in the week through Friday. Prime Inst MFs were unchanged at 5.​26% in the latest week. Government Inst MFs were up 1 bp at 5.​12%. Treasury Inst MFs up 1 bps for the week at 5.​10%. Treasury Retail MFs currently yield 4.​87%, Government Retail MFs yield 4.​82%, and Prime Retail MFs yield 5.​07%, Tax-​exempt MF 7-​day yields were up 12 bps to 3.​64%.

According to Tuesday'​s Money Fund Intelligence Daily, with data as of Friday (​9/​1), 9 money funds (​out of 812 total) yield under 3.​0% with $​13.​3 billion in assets, or 0.​2%; 108 funds yield between 3.​00% and 3.​99% ($​90.​1 billion, or 1.​5%), 248 funds yield between 4.​0% and 4.​99% ($​1.​289 trillion, or 21.​5%) and 447 funds now yield 5.​0% or more ($​4.​617 trillion, or 76.​8%).

Our Brokerage Sweep Intelligence Index, an average of FDIC-​insured cash options from major brokerages, was unchanged at 0.​62% after rising 1 bp three weeks prior. The latest Brokerage Sweep Intelligence, with data as of Sept 1, shows that there was no changes over the past week. Three of the 11 major brokerages tracked by our BSI still offer rates of 0.​01% for balances of $​100K (​and lower tiers). These include: E*​Trade, Merrill Lynch and Morgan Stanley.

​

Columnist Allan Sloan demonstrates just how much higher rates in money funds are throwing off in interest income in a Barron'​s piece entitled, "The Fed Made Lots of 30,​000% Winners. The Loser? The Fed." He writes, "The Federal Reserve'​s rate increases have raised the income from money-​market funds 300 times, but its own losses are about to hit $​100 billion.... Now that the Federal Reserve'​s 18 months of rate increases may finally be nearing an end, this is a good time to take a look at some of the biggest winners created by the Fed'​s interest-​raising moves.... The winners, of course, are people who own money-​market mutual funds, whose current income is running more than 30,​000% -- or 300 times -- above what it was in February 2022, the month before the Fed began raising short-​term interest rates to combat inflation.... [​A]​ll sorts of individual and institutional money-​market fund investors have seen their income soar. But the Fed itself has been losing lots and lots of money."

He explains, "[​L]​et me show you the money fund math. Peter Crane of Crane Data told me that as of February 2022, the average interest earned by money-​market fund holders was 0.​02%. The funds' assets totaled $​5.​009 trillion, making their interest yield about $​1 billion a year. But as of July 31 of this year, Crane told me, the funds' interest yield was 5.​08%, and their assets were up to $​5.​903 trillion. By Crane'​s math, the funds' yields were running at the rate of $​299.​9 billion a year. But wait, there'​s more. As of Aug. 18, Crane said, the funds' average yields were up to 5.​15%. If we assume that assets stayed the same, which is a ​very conservative assumption, the funds would be yielding more than $​300 billion a year to their owners."

The article continues, "Crane cautions, however, that the $​300 billion-​plus is an '​annualized' rate -- you take the current situation and extrapolate it for an entire year. It ​isn'​t money that fund holders have actually collected. Money fund holders' income is rising because the funds buy short-​term securities, and over the past 18 months, the Fed has raised its short-​term federal-​funds rate to 5.​25%-​5.​50% from essentially zero. Money fund holders' income has risen along with the Fed’​s rate increases."

It quotes Crane, "Five percent is the magic number. It holds psychological import, and money starts pouring into money funds at 5%. That'​s what happened in the late '​90s and early 2000s, and that'​s what'​s happening now." It tells us, "​But while money fund investors are making 30,​000% more than they did before the  Fed began raising rates in  ​March of last year, the Fed itself -- ironically -- is running losses because of the rate increases.... In other words, money fund investors' gains are to some extent the Fed'​s -- and the Treasury'​s and U.​S. taxpayers' -- losses."

Sloan adds, "I don'​t know what the future holds for money fund investors -- no one does. But for now, they are profiting substantially from the Fed'​s rate increases. And are likely to stay big winners for at least the immediate future. So if you have substantial money-​market mutual fund accounts, it'​s time to be happy. Enjoy it while you can."

In related news, The Wall Street Journal discusses the benefits of higher rates in "Rates Are Up. We'​re Just Starting to Feel the Heat." After listing a lot of bad things about higher rates, the article states, "Still, one person'​s debt is another person'​s asset. As borrowers wince under the pressure of rising costs, many retirees and other will celebrate finally being able to earn a safe return above the rate of inflation."

It says, "Against this backdrop, companies will need to think differently about how they manage their cash. They will need not only to consider debt payments, but how they invest their cash and how much to keep liquid. New York-​based Tradeweb CFO Sara Furber, for example, prioritized the online bond-​trading company'​s cash positions more than a year ago. 'As we think about a higher-​interest-​rate environment, the first thing is to figure out where all the cash is and make sure it'​s not trapped,' said Furber, referring to strategies to free up investible cash."

The Journal also comments, "​Retirees living on a fixed income have been squeezed by inflation. Higher rates provide some relief. Years of anemic returns in the bond market pushed many baby boomers to keep most of their portfolios in stocks. Now they have more options. Better returns on savings accounts, CDs, money markets and bonds give older Americans low-​risk ways to stretch their nest eggs further.... June Dever feels like she'​s won the lottery.... 'The saver is finally rewarded,' she said."

The WSJ also wrote recently that, "Investors Are Finally Making Money on Bonds and CDs. Be Prepared to Pay Taxes." That article tells us, "Americans are taking advantage of higher returns on their Treasury bills and other fixed-​income investments. That joy might be dampened when they see their tax bills. Over the past five weeks, investors have put a net $​91.​1 billion into money-​market funds, according to Refinitiv Lipper data.... U.​S. government bonds, high-​yield bonds and bond funds, and a host of other fixed-​income assets have been similarly popular."

It adds, "The driving force pushing Americans back into fixed income is returns. For over a decade, most of these assets gave investors next to nothing to hold them. Now, many are returning 4% or more a year. All that extra return comes with a catch. The same investment that left you with a tiny tax bill two years ago might now cost a lot of money at tax time. In nearly all cases, no tax is withheld, meaning many taxpayers will get a surprise tax bill next spring."

​

The Investment Company Institute'​s latest "Money Market Fund Assets" report shows MMF assets hitting record levels for 6th week out of the past 7 (​they were flat last week). ICI'​s asset series hit a record $​5.​583 trillion level, and shows MMFs up over $​1.​0 trillion, or 22.​2%, over the past year. Assets are up by $​848 billion, or 17.​9%, year-​to-​date in 2023 (​and up $​762.​7 billion, or 15.​8%, since 2/​22/​23), with Institutional MMFs up $​438 billion, or 14.​3% and Retail MMFs up $​411 billion, or 24.​5%. Over the past 52 weeks, money funds have risen $​1.​015 billion, or 22.​2%, with Retail MMFs rising by $​596 billion (​39.​9%) and Inst MMFs rising by $​420 billion (​13.​7%). (Note: We'​re still taking registrations to our upcoming European Money Fund Symposium, which is Sept. 25-​26 in Edinburgh, Scotland. We hope to see you there!)

Their weekly release says, "Total money market fund assets increased by $​14.​37 billion to $​5.​58 trillion for the week ended Wednesday, August 30, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​8.​44 billion and prime funds increased by $​4.​13 billion. Tax-​exempt money market funds increased by $​1.​80 billion." ICI'​s stats show Institutional MMFs rising $​10.​9 billion and Retail MMFs rising $​3.​5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​4.​590 trillion (​82.​2% of all money funds), while Total Prime MMFs were $​878.​4 billion (​15.​7%). Tax Exempt MMFs totaled $​115.​1 billion (​2.​1%).

ICI explains, "Assets of retail money market funds increased by $​3.​46 billion to $​2.​09 trillion. Among retail funds, government money market fund assets decreased by $​1.​69 billion to $​1.​38 trillion, prime money market fund assets increased by $​3.​38 billion to $​606.​43 billion, and tax-​exempt fund assets increased by $​1.​76 billion to $​104.​23 billion." Retail assets account for over a third of total assets, or 37.​4%, and Government Retail assets make up 66.​0% of all Retail MMFs.

They add, "Assets of institutional money market funds increased by $​10.​91 billion to $​3.​49 trillion. Among institutional funds, government money market fund assets increased by $​10.​13 billion to $​3.​21 trillion, prime money market fund assets increased by $​745 million to $​271.​97 billion, and tax-​exempt fund assets increased by $​37 million to $​10.​89 billion." Institutional assets accounted for 62.​6% of all MMF assets, with Government Institutional assets making up 91.​9% of all Institutional MMF totals.

According to Crane Data'​s separate Money Fund Intelligence Daily series, money fund assets broke the $​5.​9 trillion level on August 1 and hit a record $​5.​967 trillion on Tuesday, 8/​15, before easing back to $​5.​959 trillion yesterday. Assets have risen by $​77.​8 billion in August through 8/​30 after rising by $​34.​7 billion in July. Note that ICI'​s asset totals don'​t include a number of funds tracked by the SEC and Crane Data, so they'​re over $​400 billion lower than Crane'​s asset series.

In other news, Fitch Ratings published "Local Government Investment Pools:​2Q23," which states, "Fitch Ratings' two local government investment pool (​LGIP) indices experienced an aggregate asset increase in the second quarter of 2023 (​2Q23). Combined assets for the Fitch Liquidity LGIP Index and the Fitch Short-​Term LGIP Index were $​576 billion at the end of 2Q23, representing increases of $​17 billion qoq and $​70 billion yoy, respectively. The Fitch Liquidity LGIP Index was up 2.​2% qoq and the Fitch Short-​Term LGIP Index was up 4.​6% qoq, compared to average growth of 5.​9% and 7.​2%, respectively, in the second quarter over the past three years."

The update tells us, "Weighted average maturities (​WAMs) rose in 2Q23 as the Fed slowed the pace of rate hikes. The WAM of the Fitch Liquidity LGIP Index increased to 30 days, still higher than prime '​2a-​7' money market funds at 27 days. The Fitch Short-​Term LGIP Index ended the quarter with a duration of 1.​20 years, up 5% since last quarter. Both Fitch indices ended 2Q23 with improved average yield profiles with average net yields of 5.​10% for the Liquidity Index and 3.​73% for the Short-​Term Index. Due to its duration profile, the Liquidity Index is more positively responsive to the Fed'​s 2Q23 actions in comparison to the Short-​Term Index."

It says, "The Fitch Liquidity LGIP Index increased exposure to Treasuries by 7.​42% and decreased exposure to Government Agencies by -​6.​32% qoq. Exposure to CP, Corporates, and ABS cumulatively increased by 4%. This aligns with investor behavior following the resolution of the U.​S. debt ceiling, where managers diversified back into U.​S. Treasury exposure."

The Public Funds Investment Institute also recently published an update on LGIPs entitled, "LGIP Trends: Higher Yields, Plateauing Assets, a Bit More Risk." They comment, "Moderating asset growth, higher yields, and a move to a somewhat less defensive market risk position sum up local government investment pool fundamentals in the second quarter. Let'​s look at the numbers: LGIP assets grew modestly, and yields rose apace with rising short-​term interest rates according to tracking reports recently published by FitchRatings and S&​P Global."

The brief continues, "Several factors are behind the trend in LGIP assets: The sharp rise in short-​term rates beginning 18 months ago encouraged investors to pay more attention to reducing uninvested balances.... The inflow of COVID-​19 relief funds boosted state and local government financial assets in 2021. The flow is now reversed, with state and local governments required to spend Federal relief funds by 2026; The growth of state and local government tax revenue, which responds to the overfall pace of economic growth [​and].... The level of bank deposits, which are the main alternative to LGIP investments for many governments. Deposits grew strongly beginning in 2020 -- from $​13.​7 trillion to $​18.​1 trillion in May 2022 when they peaked. They have since declined."

It adds, "To sum it up LGIP asset trends could weaken modestly in coming quarters as local government spending accelerates and banks compete vigorously to attract and hold deposits. Good news on the yield front. LGIP yields topped 5% at quarter-​end for the first time in nearly 20 years. Interest earnings are now a meaningful contributor to state and local government revenues, especially for those entities that have significant investment balances."

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