News Archives: May, 2024
The Investment Company Institute published its latest weekly "Money Market Fund Assets" report, as well as its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for April 2024 Thursday. ICI's weekly shows money market mutual fund assets rising for the sixth straight week to $6.069 trillion, just $42 billion below their April 3 record of $6.111 trillion. MMF assets are up by $183 billion, or 3.9%, year-to-date in 2024 (through 5/29/24), with Institutional MMFs up $39 billion, or 1.3% and Retail MMFs up $144 billion, or 8.6%. Over the past 52 weeks, money funds have risen by $649 billion, or 12.0%, with Retail MMFs rising by $463 billion (23.5%) and Inst MMFs rising by $187 billion (5.4%). (Note: We're still taking registrations for our big Money Fund Symposium show in Pittsburgh June 12-14. We hope to see you there!)
The weekly release says, "Total money market fund assets increased by $3.80 billion to $6.07 trillion for the week ended Wednesday, May 29, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $3.60 billion and prime funds decreased by $105 million. Tax-exempt money market funds increased by $311 million." ICI's stats show Institutional MMFs increasing $1.9 billion and Retail MMFs rising $2.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.905 trillion (80.8% of all money funds), while Total Prime MMFs were $1.036 trillion (17.1%). Tax Exempt MMFs totaled $129.2 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $1.95 billion to $2.43 trillion. Among retail funds, government money market fund assets increased by $140 million to $1.55 trillion, prime money market fund assets increased by $1.25 billion to $765.14 billion, and tax-exempt fund assets increased by $563 million to $117.56 billion." Retail assets account for over a third of total assets, or 40.1%, and Government Retail assets make up 63.7% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $1.85 billion to $3.64 trillion. Among institutional funds, government money market fund assets increased by $3.46 billion to $3.35 trillion, prime money market fund assets decreased by $1.35 billion to $270.47 billion, and tax-exempt fund assets decreased by $252 million to $11.65 billion." Institutional assets accounted for 59.9% of all MMF assets, with Government Institutional assets making up 92.2% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have risen by $88.0 billion in May (through 5/29) to $6.470 trillion. (They hit a record $6.538 trillion on 4/2.) Assets fell $15.8 billion in April and $68.8 billion in March. But they rose $72.1 billion in February, $93.9 billion in January, $32.7 billion in December and $226.4 billion in November. MMF totals fell by $31.9 billion in October. They rose $93.9 billion in September, $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 $4.3 billion in April to $5.988 trillion (after a drop in March and a jump in February, January, December and November, a decrease in October, and increases in September, August, July, June and May). Prior to this, the March 2023 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 $75.2 billion to $4.771 trillion, and bond ETF assets decreased and still remain above the $1.5 trillion level (after passing it for the first time ever 4 months ago).
MMFs have increased by $741.4 billion, or 14.1%, over the past 12 months (according to ICI's Trends through 4/30). Money funds' April asset increase follows a decrease of $73.0 billion in March, an increase of $55.1 billion in February, $82.4 billion in January, $34.9 billion in December, $213.9 billion in November, a decrease of $13.6 billion in October and gains of $74.1 billion in September, $123.9 billion in August $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 and $31.5 billion in January. 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 $1.518 trillion as of 4/30, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds decreased by $768.09 billion, or 2.9 percent, to $26.05 trillion in April, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $8.13 billion in April, compared with an inflow of $26.63 billion in March.... Money market funds had an outflow of $14.91 billion in April, compared with an outflow of $89.33 billion in March. In April funds offered primarily to institutions had an outflow of $2.69 billion and funds offered primarily to individuals had an outflow of $12.22 billion."
The Institute's latest statistics show that Taxable MMFs and Tax Exempt MMFs were both higher from last month. Taxable MMFs increased by $0.4 billion in April to $5.863 trillion. Tax-Exempt MMFs increased $3.9 billion to $125.2 billion. Taxable MMF assets increased year-over-year by $723.9 billion (14.1%), and Tax-Exempt funds rose by $17.5 billion over the past year (16.2%). Bond fund assets decreased by $75.2 billion (after increasing $63.8 billion in March) to $4.771 trillion; they've increased by $118.4 billion (2.5%) over the past year.
Money funds represent 23.0% of all mutual fund assets (up 0.7% from the previous month), while bond funds account for 18.3%, according to ICI. The total number of money market funds was 276, up 1 from the prior month and down from 280 a year ago. Taxable money funds numbered 231 funds, and tax-exempt money funds numbered 45 funds.
ICI's "Month-End Portfolio Holdings" confirms a drop in Treasuries and CP last month. Treasury holdings in Taxable money funds decreased last month; they became the largest composition segment in February. In April they fell back to the 2nd largest, Treasury holdings decreased $138.8 billion, or -5.8%, to $2.244 trillion, or 38.3% of holdings. Treasury securities have increased by $1.280 trillion, or 132.6%, over the past 12 months. (See our May 10 News, "May Money Fund Portfolio Holdings: Repo Jumps to No. 1, T-Bills Plunge.")
Repurchase Agreements fell to become the second largest composition segment in February, but in April they regained the lead for largest segment, they increased $83.0 billion, or 3.7%, to $2.328 trillion, or 39.7% of holdings. Repo holdings have decreased $682.9 billion, or -22.7%, over the past year. U.S. Government Agency securities were the third largest segment; they increased $70 million, or 0.0%, to $676.3 billion, or 11.5% of holdings. Agency holdings have decreased by $47.8 billion, or -6.6%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they increased by $20.7 billion, or 6.6%, to $336.8 billion (5.7% of assets). CDs held by money funds rose by $84.3 billion, or 33.4%, over 12 months. Commercial Paper remained in fifth place, down $9.9 billion, or -4.0%, to $240.4 billion (4.1% of assets). CP increased $65.4 billion, or 37.3%, over one year. Other holdings increased to $20.0 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $4.7 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 67.045 million, while the Number of Funds was up 1 at 231. Over the past 12 months, the number of accounts rose by 9.097 million and the number of funds decreased by 1. The Average Maturity of Portfolios was 35 days, down 4 from March. Over the past 12 months, WAMs of Taxable money have increased by 19.
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets fell by $17.7 billion in April to $6.439 trillion, after falling $68.5 billion the month prior and hitting a record $6.525 trillion two months prior. The SEC shows Prime MMFs decreasing $30.0 billion in April to $1.385 trillion, Govt & Treasury funds increasing $9.3 billion to $4.923 trillion and Tax Exempt funds increasing $3.0 billion to $131.3 billion. Taxable yields inched lower in April after dipping in March. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Month-to-date in May through 5/28, total money fund assets increased by $99.8 billion to $6.482 trillion, according to Crane Data's separate, and slightly smaller, MFI Daily series.)
April's overall asset decrease follows a decrease of $68.5 billion in March, an increase of $65.9 billion in February, $87.7 billion in January, $34.0 billion in December and $225.7 billion in November. MMFs decreased $41.2 billion in October, but increased $79.7 billion in September, $114.2 billion in August and $28.8 billion in July. Assets rose $19.6 billion in June and $156.6 billion in May. Over the 12 months through 4/30/24, total MMF assets increased by $684.9 billion, or 11.9%, according to the SEC's series.
The SEC's stats show that of the $6.439 trillion in assets, $1.385 trillion was in Prime funds, down $30.0 billion in April. Prime assets were up $8.1 billion in March, $33.5 billion in February, $52.5 billion in January, $1.2 billion in December, $32.5 billion in November, $13.9 billion in October, $14.3 billion in September, $18.5 billion in August, $28.9 billion in July, $11.0 billion in June and $13.7 billion in May. Prime funds represented 21.5% of total assets at the end of April. They've increased by $198.2 billion, or 16.7%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $4.923 trillion, or 76.5% of assets. They increased $9.3 billion in April, decreased $78.8 billion in March, increased $33.1 billion in February, $39.7 billion in January, $31.7 billion in December, $193.7 billion in November, decreased $62.4 billion in October, increased $64.6 billion in September, $92.2 billion in August, $3.1 billion in July, $4.9 billion in June and $137.4 billion in May. Govt & Treasury MMFs are up $468.5 billion over 12 months, or 10.5%. Tax Exempt Funds increased $3.0 billion to $131.3 billion, or 2.0% of all assets. The number of money funds was 288 in April, down 1 from the previous month and down 6 funds from a year earlier.
Yields for Taxable MMFs inched lower while Tax Exempt MMFs were mixed in April. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Apr. 30 was 5.43% <b:>`_, down 1 bp from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.49%, down 1 bp from the previous month. Gross yields were 5.37% for Government Funds, down 1 bp from last month. Gross yields for Treasury Funds were down 1 bp at 5.36%. Gross Yields for Tax Exempt Institutional MMFs were down 17 basis points to 3.62% in April. Gross Yields for Tax Exempt Retail funds were up 5 bps to 3.69%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.36%, down 2 basis points from the previous month and up 47 bps from 4/30/23. The Average Net Yield for Prime Retail Funds was 5.22%, down 1 bp from the previous month, and up 47 bps since 4/30/23. Net yields were 5.13% for Government Funds, down 1 bp from last month. Net yields for Treasury Funds were down 1 bp from the previous month at 5.14%. Net Yields for Tax Exempt Institutional MMFs were down 11 bps from March to 3.50%. Net Yields for Tax Exempt Retail funds were up 7 bps at 3.45% in April. (Note: These averages are asset-weighted.)
WALs and WAMs were down in April. The average Weighted Average Life, or WAL, was 44.8 days (down 4.5 days) for Prime Institutional funds, and 48.0 days for Prime Retail funds (down 1.8 days). Government fund WALs averaged 85.0 days (down 2.1 days) while Treasury fund WALs averaged 78.7 days (down 2.1 days). Tax Exempt Institutional fund WALs were 6.6 days (down 0.8 days), and Tax Exempt Retail MMF WALs averaged 24.9 days (down 0.5 days).
The Weighted Average Maturity, or WAM, was 27.6 days (down 5.2 days from the previous month) for Prime Institutional funds, 31.7 days (down 4.0 days from the previous month) for Prime Retail funds, 34.5 days (down 3.2 days from previous month) for Government funds, and 40.4 days (down 3.4 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.9 days to 6.6 days, while Tax Exempt Retail WAMs were down 0.4 days from previous month at 24.3 days.
Total Daily Liquid Assets for Prime Institutional funds were 61.6% in April (up 3.9% from the previous month), and DLA for Prime Retail funds was 45.8% (up 3.8% from previous month) as a percent of total assets. The average DLA was 67.1% for Govt MMFs and 94.4% for Treasury MMFs. Total Weekly Liquid Assets was 74.4% (up 2.2% from the previous month) for Prime Institutional MMFs, and 60.3% (up 0.2% from the previous month) for Prime Retail funds. Average WLA was 80.9% for Govt MMFs and 99.2% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for April 2024," the largest entries included: the U.S. with $176.3B, Canada with $145.8 billion, Japan with $126.2 billion, France with $107.8 billion, the U.K. with $51.5B, the Netherlands with $44.6B, Germany with $36.3B, Aust/NZ with $29.1B and Switzerland with $7.8B. The gainers among the "Prime MMF Holdings by Country" included: France (up $9.6B), Japan (up $3.4B), Aust/NZ (up $1.8B), Germany (up $1.3B) and Switzerland (up $0.6B). Decreases were shown by: Canada (down $36.4B), Netherlands (down $9.3B), the U.S. (down $5.2B) and the U.K. (down $2.1B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $322.1 billion (down $41.6B), while Eurozone had $208.0B (up $5.4B). Asia Pacific subset had $178.1B (up $1.1B), while Europe (non-Eurozone) had $131.2B (up $13.2B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.377 trillion in Prime MMF Portfolios as of Apr. 30, $620.1B (45.0%) was in Government & Treasury securities (direct and repo) (down from $636.4B), $358.2B (26.0%) was in CDs and Time Deposits (up from $343.2B), $179.1B (13.0%) was in Financial Company CP (down from $197.7B), $147.4B (10.7%) was held in Non-Financial CP and Other securities (down from $147.8B), and $72.4B (5.3%) was in ABCP (down from $78.0B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $454.4 billion, Canada with $176.5 billion, France with $198.4 billion, the U.K. with $138.1 billion, Germany with $22.6 billion, Japan with $143.1 billion and Other with $45.1 billion. All MMF Repo with the Federal Reserve was down $29.1 billion in April to $508.7 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 5.8%, Prime Retail MMFs with 6.0%, Tax Exempt Inst MMFs with 0.0%, Tax Exempt Retail MMFs with 3.3%, Govt MMFs with 16.4% and Treasury MMFs with 13.4%.
A press release titled, "FSB examines vulnerabilities in short-term funding markets" states, "The Financial Stability Board (FSB) published ... a report analysing the functioning of, and considering potential ways to address vulnerabilities in, CP and negotiable CD markets. The report identifies a number of vulnerabilities in CP and CD markets, including limited secondary market activity due to the buy-and-hold nature of these instruments, investor and dealer concentration, and opacity. Dealers' activity and revenues are concentrated in primary markets and while dealers may increase intermediation in times of stress, this has proven insufficient to meet spikes in liquidity demand. The high interconnectedness of CP and CD markets with other funding markets means that stress can be transmitted within the financial system and across borders, as experienced during the March 2020 market turmoil." (Note: There are just 2 weeks to go until our big Money Fund Symposium! We're still taking registrations, and we hope to see you in Pittsburgh June 12-14!)
It explains, "The report notes that moves towards electronification of trading platforms have gained little traction over recent years and, where platforms are used, they primarily facilitate primary market CP and CD issuance. Industry-led initiatives have been limited in scale and impact so far, in part due to relatively low margins in this market. The significant diversity of CP and CD markets across jurisdictions presents a challenge for formulating a uniform policy response."
The release continues, "The report examines potential market reforms by industry and public authorities to improve the functioning and potentially the resilience of CP and CD markets. They include changes in market microstructure; increased transparency (regulatory reporting and public disclosure); and increasing liquidity through private repo markets. While these reforms may have a positive impact for market functioning in normal times -- particularly if used in combination and appropriately tailored to each jurisdiction -- they would likely not, on their own, significantly enhance the resilience of CP and CD markets. Authorities are encouraged to explore the usefulness of these reforms for their own markets and to consider how these could complement other policies, such as addressing vulnerabilities in money market funds (MMFs)."
It adds, "This work forms part of the FSB's work programme on enhancing the resilience of NBFI [non-bank financial institutions]. It follows up on the 2021 FSB report with policy proposals to enhance MMF resilience, which noted that policies to enhance the resilience of MMFs could be accompanied by measures to improve the functioning of the underlying short-term funding markets. Further details on the FSB's work programme to enhance resilience in NBFI can be found in its latest progress report."
The Financial Stability Board's full report, "Enhancing the Functioning and Resilience of Commercial Paper and Negotiable Certificates of Deposit Markets," states, "The focus of this report is commercial paper (CP) and negotiable certificates of deposit (CD) (henceforth referred to as CP and CD) in core funding jurisdictions (EU, Japan, UK, US). With a total of USD 4.7 trillion outstanding as of end-March 2023, the US CP and CD market is the largest globally. Europe has different market segments across issuer domicile and currency as well as two international markets -- London-based Euro Commercial Paper (ECP) and Paris-based Negotiable European Commercial Paper (NEU CP). The ECP market is the second largest (estimated at USD 1 trillion outstanding as of March 2021), around 48% of which is denominated in US dollars."
It tells us, "The NEU CP market has USD 315 billion outstanding as of end-March 2023, 85% of which is Euro-denominated. The Japanese market has USD 380 billion outstanding as of end-March 2023, with all issuance in JPY. The overall size of US and EU markets remains much smaller than its all-time high in 2007. By comparison, the Japanese market has grown since 2007. The microstructure, legal framework and existing transparency vary across jurisdictions and markets, highlighting the importance of tailoring potential market reforms to the characteristics of each market."
Discussing "Vulnerabilities," the report says, "The analysis has largely confirmed the findings of previous work -- namely, that these markets, although subject to inefficiencies, tend to generally function well in normal times but are susceptible to illiquidity in times of stress. Investors tend to buy CP and CDs when they are first issued and usually hold them until maturity given the short-term nature of these instruments, which results in very limited secondary market activity in normal times. Dealers' activity and revenues are concentrated in primary markets. Investor requests to sell CP and CD in the secondary market pick up in times of stress, and whilst dealers may increase their intermediation in such episodes, this has proven insufficient to meet the spike in liquidity demand observed in, for example, the March 2020 market turmoil."
It continues, "Concentrations of investor and dealer participation/activity also represent sources of vulnerability, especially during times of stress. The primary issuance market, where most activity takes place, is intermediated by a small number of core dealers <b:>`_that typically act as a single point of market entry. `The limited number of intermediaries means that they may not be able to respond to spikes in liquidity demand in times of stress. Moreover, money market funds (MMFs) that are important CP and CD investors -- particularly in European markets -- can be susceptible to large and sudden redemption requests in times of stress, thereby exacerbating the demands on liquidity, while there do not currently appear to be many other investors that could act countercyclically."
The FSB writes, "The opaqueness of CP and CD markets may exacerbate illiquidity due to information asymmetry amongst market participants and could contribute to reliance on dealers. A lack of public data across CP and CD markets -- especially on issuers' outstanding amounts, the profile of investors, and post-trade information, including pricing -- presents a challenge for the monitoring of these markets, and may at the margin discourage broader investor participation. Disclosures vary by market -- for instance, there is no single comprehensive publication of all issuances in the ECP market. Whilst several commercial data providers offer subscription services, they do not cover all data gaps, and can be prohibitively expensive for smaller market participants."
They explain, "With regards to market microstructure, the focus of FSB work had previously been on dealers, but this initiative shed light on the role of the electronic trading platforms. These platforms mainly facilitate CP and CD issuance in the primary market and are typically dealer intermediated. Platforms may also serve as 'workflow tools', but operational inefficiencies remain, while the variety and fragmentation of platforms may inhibit broader investor adoption. Moves towards electronification and digitisation in both primary and secondary CP and CD markets have not gained much traction, and little has changed in terms of enhancing liquidity and resilience in times of stress. In addition, digitisation of documentation is not currently widespread across markets -- only the NEU CP and Japanese markets currently have market-wide digitisation -- but pockets of digitisation exist within markets, for instance, on certain platforms."
The FSB report adds, "The high interconnectedness of these markets with other global funding markets means that stress can be transmitted across the financial system and across borders. While issuers in general have diversified sources of funding, including contingency funding (a number of corporate issuers have backup lines of credit in place, and bank issuers have access to central bank facilities), losing access to CP and CD markets may put pressure on alternative sources of funding. A freeze of these markets can generate cross-border spillovers, especially for non-US banks issuing CP and CD for USD-denominated funding. Evidence of these vulnerabilities can be found in the March 2020 market turmoil when CP and CD market stress prompted public authorities to intervene to restore market functioning and access to this type of funding."
On money market funds, they write, "Since March 2020, some authorities have taken or are planning measures to improve the resilience of key investors in CP and CD markets, such as MMFs. As noted in the FSB's MMF peer review, it is important that effective measures to enhance MMF resilience are implemented across jurisdictions. While these measures are expected to have a positive effect on overall market conditions, the susceptibility of CP and CD markets to illiquidity in times of stress remains. Hence, there is merit in exploring structural changes in CP and CD markets to complement reforms on the investor side and enhance the functioning and resilience of those markets."
The FSB also says, "Private repo markets may provide a channel for investors and intermediaries to generate liquidity against CP and CD collateral, but expansion of these markets is subject to a number of challenges and risks. Expanded ability to finance CP and CD in the repo market may increase dealers' funding efficiency in normal times. Certain jurisdictions may want to consider whether repo markets might also potentially reduce selling pressure in times of stress. Well-functioning but modest sized repo markets for CP and CD collateral already exist in the US and to a much lesser extent in Europe."
U.S. Securities & Exchange Commission Chair Gary Gensler spoke last week at the Investment Company Institute's "2024 Leadership Summit." The Q&A, entitled, "The Regulatory Landscape: A Conversation with SEC Chair Gary Gensler," discussed Prime Institutional money market funds and recent regulatory changes briefly. ICI's Eric Pan comments, "Money market funds. So that is a rule that you had mentioned. It is one of the rules that you have finalized. You introduced a mandatory liquidity fee. [But] I remember at the time of the adoption [you hadn't proposed this]." Gensler replies, "But we did profile liquidity fees in the proposal as an alternative. It may well be that you just didn't remember that, but we did do that.... Well, [it] may well be that you ... didn't comment on it or something, but it was definitely [in there]. We did get some comments on it, and we heard from a lot of people not to do swing pricing. [So] we went with one of the alternatives that was in the proposal."
Pan comments, "Let me respond on behalf of the ICI, which says that a mandatory liquidity fee may have appeared in the original proposal as an alternative, but there was no description as to what that fee would look like or how such a fee would operate. As a result, we did not feel like it was part of the core proposal, nor was there adequate information in the proposal for us to provide meaningful comment. It has proven to be a tremendously complex, complicated mechanism, and it would have benefited from an opportunity for people to tell the SEC there may have been a better way of doing this fee if this is what the Commission wanted to do."
He tells us, "So I feel the need just to explain our position there. But with that said, at the time, I believe it was Commissioner Pierce who really suggested that there was going to be an effect [from] this.... [It was] going to eliminate the institutional prime money market fund. We are still [a ways away from] October as the implementation deadline, but already various firms have announced that they are exiting the business."
Pan asks, "So, two questions. One is, does that surprise you that institutional prime money market funds are shrinking? And the second is, if that wasn't the intention, because I think at the time of the Open Meeting the response to Commissioner Pierce from the staff was they were not planning to do that, don't you think that the re-proposal of the mandatory liquidity fee would have been beneficial?"
Gensler answers, "I'm very proud of the work we did, so I'm standing by that Eric. I think that the risk in the money market fund field was more accentuated in this one area. So, anybody listening at home or in public, you are, in the public might have a money market fund that's backed by U.S. governments. That's called a Government Money Market Fund. But there are some called Prime that have investments also in other, short-term money markets, commercial paper, certificates of deposits and so forth."
He explains, "I would note that commercial paper specific deposits don't have much of a secondary market in normal times. But in stress times, it's hard to find anybody to buy that paper. It's unsecured paper and it's in the middle of a crisis and it's not Government paper. So in the middle of stress periods [like the] 2008 financial crisis, in 2020, in the midst of the onset of Covid, there was particular stress."
Gensler adds, "Now you put on the other side the investors, institutions, large, generally sophisticated corporate treasuries, and other institutions. They understand that risk, and they start pulling out of those funds a little faster. So it's that set of risks that puts pressure on the system and stress times. So institutional, where the investors are more likely to run, and prime where you had underlying assets that [during] stress time generally has very poor or no liquidity. So. I think the system's safer and will be even safer after October with these changes."
Pan then asks, "So, if Institutional Prime goes away or becomes smaller, I say to you, that's not a bad result?" Gensler responds, "Look, policy is about trade-offs. But I think it's not a good thing to have a $6.5 trillion money market complex that is reliant on the U.S. Federal Reserve, or broad government action in times of stress, the way that we saw in, '08, in 2020. So, both in '08 and in 2020, it became a very real consideration for policymakers at the Federal Reserve, the U.S. Treasury Department, so forth, as to, how to support that complex."
He states, "My Dad had a little business. He had 30 employees. My Dad and Mom never went to college, but if he couldn't make payroll on a Friday, the City of Baltimore was never going to support him, provide liquidity or bail them out. And I think you want the money market complex to kind of be like my Dad's business and not ... say, well, actually, this whole complex should be just regulated by the Federal Reserve or something and it should have like bank like capital. `It's a collective investment vehicle under the '40 Act, where redemptions need to be able to be met without diluting the rest of the shareholders."
Pan queries, "I would love to talk to you about that, `but I just want to again ask: is the reduction of the prime institutional market a feature or a bug?" Gensler replies, "I think all of these considerations are captured and talked about in the role in the economic analysis at the time. But I would say that the risk of Institutional Prime was one on our minds as policymakers [considered] the law."
As we wrote a week ago, the Investment Company Institute recently published its "2024 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. We reviewed much of the money fund content in our May 17 News, "ICI Publishes 2024 Fact Book, Reviews US, Worldwide Money Funds in '23." But below we focus on the numerous "Data Tables" involving "Money Market Mutual Funds." ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution. (Note: Please register ASAP for our Money Fund Symposium show, which will be held June 12-14, 2024 in Pittsburgh, Pa!)
ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 17 years. (See Table 35 in the Data Tables.) In 2023, according to the Fact Book, there were a total of 275 money funds, down from 291 in 2022, 305 in 2021, 340 in 2020, 364 in 2019, 802 in 2007, and down from 1,014 in 2001. The number of share classes stood at 1,009 in 2022, down from 1,044 in 2022, 1,060 in 2021, 1,108 in 2020, 1,126 in 2018 and 1,998 in 2008.
Table 36, "Money Market Funds: Total Net Assets by Type of Fund," shows that total net assets in taxable U.S. money market funds increased $1.143 trillion to a record $5.919 trillion in 2023. At year-end 2023, $3.613 trillion (61.0%) was in institutional money market funds, while $2.306 trillion (39.0%) was in retail money market funds. Breaking the numbers down by fund type, $952.4 billion (16.1%) was in prime funds, $4.843 trillion (81.8%) was in government money market funds, and $123.6 billion (2.1%) was in tax-exempt accounts.
Also, Table 37, "Money Market Funds: Net New Cash Flow by Type of Fund," shows that there was a 957.0 billion in net new cash flow into money market funds last year. A closer look at the data shows $443.2 billion in net cash inflows into institutional funds and a $513.9 billion cash inflow into retail funds. There were also $699.5 billion in net inflows from Government funds, versus $249.1 billion in net inflows from Prime funds.
Table 39, "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds were a new record, $247.7 billion, $170.3 billion of which was reinvested (68.8%). Dividends previous record was as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.
ICI's Tables 40 and 41, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $4.843 trillion in taxable government money market funds, 13.4% were in U.S. government agency issues, 43.9% were in Repurchase agreements, 36.2% were in U.S. Treasury bills, 7.3% were in Other Treasury securities, and -1.0% was in "Other" assets. The average maturity was 37 days, up 22 days from the end of 2022.
The second table shows that of the $952.4 billion in Prime funds at year-end 2023, 27.4% was in Certificates of deposit, 23.8% was in Commercial paper, 40.9% was in Repurchase agreements, 0.2% was in US government agency issues, 2.6% was in Other Treasury securities, 0.2% was in Corporate notes, 0.3% percent was in Bank notes, 0.7% was in US Treasury bills, 0.6% was in Eurodollar CDs, and 3.4% was in Other assets (which includes Banker's acceptances, municipal securities and cash reserves).
Table 60, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.976 trillion of assets in money funds with Institutional investors, and $3.943 trillion in MMF assets in Individual accounts in 2023.
Finally, Table 62, "Taxable Money Market Funds: Total Net Assets of Institutional Investors by Type of Institution and Type of Fund," shows of the total of $1.970 trillion in Total Institutional assets ($1.813 trillion in Institutional funds and another $157.4 billion in Retail funds), $893.1 billion were held by business corporations (45.3%), $810.6 billion were held by financial institutions (41.1%), $179.6 billion were held by nonprofit organizations (9.1%), and $86.9 billion were held by Other (4.4%).
The Financial Times asks "What happens when money market funds close?" in a recent issue of a newsletter called "Unhedged." They discuss "Money market fund closures," writing, "A handful of cash managers including Vanguard and Capital Group are planning to shut some of their US money market funds, or convert them to different structures, instead of paying for upgrades to comply with new rules due later this year. So, what happens to the short-dated debt held by these funds? Will it be scooped up by other buyers? Is there enough demand elsewhere? The short answer appears to be: yes, probably. But it's a situation we'll be monitoring closely in the next few months." (Note: With less than 3 weeks to go until our big Money Fund Symposium show, we're still taking registrations. We hope to see you in Pittsburgh June 12-14!)
The article explains, "The Securities and Exchange Commission will implement regulations in early October that target prime institutional money market funds. Unlike government funds, these can hold short-dated company and bank debt. The new rules mean that a liquidity fee will be imposed on departures whenever net redemptions exceed 5 percent of a fund's total net assets in a single day. The idea, in essence, is that such charges will help protect investors by preventing large-scale exits from prime institutional vehicles like those seen at the start of the Covid crisis in 2020, when some managers had to sell assets at discounts to handle outflows." [Crane Data Note: The rule changes also require prices to move substantially for any fee to be imposed.]
The FT piece tells us, "But as we wrote last month, a few cash managers have said they'll either close funds or convert them to another type of vehicle before the SEC rules come into play. Vanguard and Capital Group are two such converters, both switching multibillion-dollar internal funds used by their portfolio managers for cash management from prime to government assets. Based on overall announced closures or conversions so far, US institutional prime money market fund assets are on course to shrink by more than a third this year, or roughly $220bn out of a total market size of $625bn, according to Crane Data."
They ask, "So, what are the implications for some of the assets these funds own -- namely US commercial paper and US banks' certificates of deposit? First off, the buyer base for these instruments has diversified significantly since the last set of US money market reforms in 2016, which also prompted a wave of conversions. One big change is that prime retail funds -- the domain of private investors -- have grown considerably, and are now larger overall than their institutional counterparts. Crucially, prime retail money market funds will not be affected by October's rules. That should help to plug any potential demand gaps."
They quote, "Robert Crowe, Citi's head of money markets origination, predicts that borrowing premiums (aka spreads) for commercial paper may widen a little in the next few months. But this could entice other buyers into the space, attracted by cheaper pricing to move opportunistically.... '[W]e're pretty confident that the commercial paper market will be robust for some time', says Citi's Adam Lollos, head of short-term credit trading and origination. 'Especially as we have higher interest rates that seem like they're going to hang around for some time.'"
In other news, the latest "Minutes of the Federal Open Market Committee April 30–May 1, 2024" tell us, "The policy rate path derived from futures prices implied fewer than two 25 basis point rate cuts by year-end. The modal path based on options prices was quite flat, suggesting at most one such rate cut in 2024. The median of the modal paths of the federal funds rate obtained from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants also indicated fewer cuts this year than previously thought. Respondents' baseline expectations for the timing of the first rate cut -- which had been concentrated around June in the March surveys -- shifted out significantly and became more diffuse."
They continue, "The manager then turned to money markets and Desk operations. Unsecured overnight rates were stable over the intermeeting period. In secured funding markets, rates on overnight repurchase agreements firmed somewhat over the March quarter-end reporting date, in line with recent history. Market participants generally reported that the return of somewhat higher rates around reporting dates had not been associated with any issues in market functioning. Despite the ongoing balance sheet runoff, take-up at the overnight reverse repurchase agreement (ON RRP) facility was largely steady over the period, likely reflecting fewer attractive private-market alternatives for money market funds (MMFs) amid a recent reduction in Treasury bills outstanding as well as a decrease in MMFs' weighted average maturities. ON RRP usage was also likely supported by typical month-end dynamics. The staff and respondents to the Desk's Survey of Primary Dealers expected ON RRP take-up to decline in coming months."
The Minutes say, "Over the intermeeting period, the market-implied path for the federal funds rate through 2024 increased markedly, and federal funds futures rates suggested that market participants were placing lower odds on significant policy easing in 2024 than they did just before the March FOMC meeting. Consistent with the rise in the implied policy path, nominal Treasury yields at all maturities also rose substantially as investors appeared to reassess the persistence of inflation and the implications for monetary policy. Market-based measures of interest rate uncertainty remained elevated by historical standards."
They also state, "Conditions in U.S. short-term funding markets remained stable over the intermeeting period, with typical dynamics observed surrounding quarter-end. Usage of the ON RRP facility leveled off during the first few weeks of the period, primarily reflecting MMFs slowing their re-allocation into Treasury bills."
The Minutes continue, "Funding risks were also characterized as notable. Assets in prime MMFs and other cash management vehicles continued to grow steadily. The staff assessed that the financial stability risks associated with the fast-growing private credit sector were limited so far because of the modest leverage used by private debt funds and business development companies and the limited maturity mismatch present in their funding vehicles. However, the staff also noted the growing connections between private credit and the banking sector, the growth of some forms of private credit, and the fact that the private credit market has yet to experience a severe credit downturn."
Finally, the Fed comments, "In their consideration of monetary policy at this meeting, all participants judged that, in light of current economic conditions and their implications for the outlook for employment and inflation, as well as the balance of risks, it was appropriate to maintain the target range for the federal funds rate at 5 1/4 to 5 1/2 percent. Participant assessed that maintaining the current target range for the federal funds rate at this meeting was supported by intermeeting data indicating continued solid economic growth and a lack of further progress toward the Committee's 2 percent inflation objective in recent months."
A new Prospectus Supplement filing for the $505 million "DWS ESG Liquidity Fund" tells us, "Upon the recommendation of DWS Investment Management Americas, Inc., the investment advisor for DWS ESG Liquidity Fund, the Board of Trustees of Investors Cash Trust has authorized, on behalf of the fund, the fund's termination and liquidation, which will be effective on or about August 14, 2024. Accordingly, the fund will redeem all of its outstanding shares on the Liquidation Date. The liquidation will be effected according to a Plan of Liquidation and Termination. The costs of the liquidation, including the mailing of notification to shareholders, will be borne by the fund but reimbursed by the Advisor, after taking into account applicable contractual expense caps then in effect by the Advisor to waive or reimburse certain operating expenses of the fund." This most recent notice makes DWS ESG the 7th Prime Institutional fund tracked by Crane Data to announce either its liquidation or conversion to a Government fund. (Note: There are just 3 weeks to go until our Money Fund Symposium in Pittsburgh! Our hotel block is sold out but we're still accepting registrations. We hope to see you there!)
DWS continues, "Shareholders who elect to redeem their shares prior to the Liquidation Date will receive the net asset value per share on such redemption date for all shares they redeem. Shareholders whose shares are redeemed automatically on the Liquidation Date will receive the net asset value per share for all shares they own on the Liquidation Date. As the Liquidation Date approaches, the fund's assets not already converted to cash or cash equivalents will be converted to cash or cash equivalents and the fund will not be pursuing its investment objective."
They add, "The fund will be closed to new investors effective immediately, though existing shareholders may continue to invest in the fund until the Liquidation Date. The liquidation is expected to be a taxable event for shareholders other than shareholders who are investing through a tax-advantaged arrangement or are tax-exempt." For more on liquidations in the ESG MMF space, see these Crane Data News stories, "UBS Latest to Abandon ESG Money Funds; JNL Liquidates Money Fund" (10/13/23) and "Morgan Stanley Latest to Abandon ESG MMFs; Weekly, ICI Portfolio Holds" (8/16/23).
For more on recent Prime Institutional MMF liquidations and conversions, see our May 13 News, "Dreyfus Files to Liquidate Cash Management Prime Inst MMF, Tax Exempt," which explains, "Another Prime Institutional money market fund filed to liquidate Friday, bringing the total of MMF portfolios liquidating or "going Government" to 6 to date. A Prospectus Supplement filing for the $6.6 billion Dreyfus Cash Management Fund, including its Admin (DACXX), Institutional (DICXX), Investor (DVCXX) and Preferred (DCEXX) Shares, explains, "The Board of Trustees of Dreyfus Cash Management has approved the liquidation of the Fund, effective on or about September 6, 2024. (See too these Crane Data News stories: "Goldman Files to Liquidate Prime Inst MMFs; Barron's: MMFs Tempting" (4/22/24), "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).)
In other news, we recently found a pair of "basic training" articles on the money markets and money funds. SSGA published the primer, "Understanding Money Market Funds," while AFP posted, "Understanding Money Markets."
SSGA's article states, "A money market fund is a mutual fund that invests in cash equivalent short term high quality debt instruments. Money market funds have a key feature that distinguishes them from other cash options: most use amortized cost accounting, which enables them to maintain a consistent net asset value (NAV) of 1.00 per share in nearly all circumstances. To pursue that goal, they invest in very short term debt safety and liquidity as the primary objective."
It explains, "Organizations can hold their cash in a variety of vehicles. Each option offers a different combination of key characteristics, including: Safety: preservation of your principal value; Liquidity: the ability to withdraw your cash on demand; (and) Potential return: interest income the vehicle generates."
SSGA continues, "Money market funds are among the most common and useful tools for managing cash holdings. Any professional who may be asked to weigh in on decisions related to cash management can benefit from a basic understanding of money market funds -- what they are, how they work, and how they compare to other options."
They add, "Depending on the specific fund, eligible investments may include: Government/Sovereign Treasuries debt -- Securities issued and guaranteed by their respective government; Government agency debt -- Securities issued by government agencies like the US based Federal Home Loan Bank; Corporate or Financial Institution debt -- Securities such as commercial paper, certificates of deposit, medium-term notes, or other unsecured debt issued by some of the largest corporations and banks; (and) Repurchase agreements -- A form of short-term lending in which an investor agrees to loan money in exchange for collateral in excess of the loan. Most repurchase agreements are short-term loans with maturities of one day to one week."
AFP's piece says, "Money market securities have a maturity of one year or less and are typically debt instruments, such as negotiable certificates of deposit, banker's acceptances, government securities (e.g., U.S. Treasury bills, municipal securities), commercial paper, municipal notes and repurchase agreements. Participants in money markets include banks, corporations, governments and institutional investors, who borrow and lend money for short periods to meet short-term funding needs, manage liquidity or earn returns on surplus cash."
It tells us, "Money markets are important to treasury professionals as they play a crucial role in providing liquidity to the financial system and facilitating the efficient allocation of short-term funds. They serve as a key resource of short-term financing when flexibility and quick access to cash are needed."
Citi Research recently published a research piece titled, "Short-End Notes Impact from MMF reform and AUM expectations," which tells us, "Do not expect a repeat of 2016 this October." Author Jason Williams writes, "We've gotten multiple questions on the front-end impact due to the full implementation of the new money market fund reform, specifically the SEC's liquidity fee which is set to turn on in October. As a reminder, last year the SEC passed the next wave of Money Market Fund (MMF) reform. The big story was that the SEC dropped swing pricing, which would have required the fund's NAV to be adjusted to incorporate transaction costs and liquidity challenges around redemptions across the entire portfolio, not just the subset being redeemed. Instead, the SEC implemented a liquidity fee to be applied when daily withdrawals hit 5% if liquidity costs are 'not small.' Other changes were an increase in requirements for daily and weekly liquid assets -- 25% and 50% respectively -- and the removal of gates and fees tied to weekly liquidity."
He explains, "Likely due to the regulatory cost of running a prime fund, there is growing expectation for more prime fund AUM to shift into government funds, which could impact repo and T-bill pricing and widen CP/OIS and XCCY spreads (XCCY would be indirectly impacted). This year thus far, two large prime funds with AUM totaling around $220bn announced their conversion into government-only. In 2016, a material amount of AUM shifted from prime to government funds [over $1 trillion], as investors wished to avoid ramifications of the first MMF reform.... This sharp move pushed front-end repo and T-bill yields back towards the RRP rate.... We don't expect a repeat of that size this time around. Indeed, thus far, retail prime MMFs -- which are exempt from the liquidity fee -- haven't seen a shift in inflows, which should cushion any material shift in institutional flows."
A section titled, "Fund level analysis does not show impending flight," states, "We see multiple reasons why this cycle will be materially different to 2016. The two key risks are investors in prime funds moving into government only, and prime funds converting into government only due to growing regulatory costs."
It continues, "Institutional prime fund AUM is smaller in aggregate, and retail prime AUM has been growing. Institutional prime MMF AUM is smaller now than it was at the end of 2015, moreso when we consider the two large funds that are set to convert to government-only. More importantly, retail prime AUM has increased materially over the past year, which should more than offset further allocation departing from institutional funds.... Indeed, we suspect MMF AUM may continue to grow for the rest of the year."
Citi tells us, "Institutional prime MMF allocation into CD/CP likely to remain minimal. Even if more institutional prime MMF AUM shifts into government funds later this year, we don't expect there to be a lot of CP to unload, if any. Institutional prime funds are already very underweight CP – especially for maturities beyond 1m.... Indeed, historically prime funds hold much less CP than pre-COVID."
They comment, "This does not necessarily signify they are shifting into government-only, as there are good reasons to be underweight CP. Firstly, spreads are tight. Secondly, the anticipation for some light spread widening as we approach October may limit fund's appetite to buy longer-dated paper, as well as riskier paper such as financials. Thirdly, the current Fed backdrop encourages sitting in shorter-date product such as repo. Hence, even if more funds do shift away, there should be little impact as holdings are mostly short-dated."
Citi adds, "In conclusion, we could not find a strong discernable pattern signifying that multiple funds are lining up to convert in coming months. Having said that, we raise a 'worst case' estimate based on the funds sitting in the lower quadrants of Figure 6. The four funds that are lowest along the Y-axis have only ~$30bn of CP (excluding government converts). Even if we take in the outlier fund in the top-left quadrant, holdings barely surpass $30bn. Thus, we don't see material impact on the CP market resulting from another round of MMF reform. If the repo market had to take in this ~$30bn of new cash, it would not be impacted either."
The Citi update also asks, "Where does MMF AUM go from here?" They answer, "After seasonal decline around April tax receipts, MMF AUM has roughly recovered, with ~$60bn more to go to reach all-time highs. Generally, the increase in MMF AUM over the past few years has likely been driven by flows from the interest rate differential to non-yielding bank deposits as well as the large increase in bank reserves, which increases commercial deposits, due to QE4.... [W]e think investors forget how important bank reserves, and therefore commercial deposits, are to MMF AUM (since more reserves = more deposits, all else equal)."
They also ask, "Where do we go from here? Based on historical patterns, we don't expect a structural decline in MMF AUM over the next 12 months. If anything, some marginal increase should continue from here.... [W]e expect QT to continue into H2 2025, barring a recession.... More QT could drain reserves, assuming RRP is somewhat static in the short-term. Still, we don't expect MMF AUM to be pulled down. For instance, the recent TGA increase around April tax receipts appears to have created only a temporary impact."
Finally, Citi writes, "Will another few hundred billion impact front-end markets? If MMF AUM grows materially, say on the order of 500bn over the next 12 months (in reality, it may just be another $100bn-$200bn), we don't think there will be much as much impact to front-end markets as one might surmise. What we mean by that is such a large increase would probably be the result of banks losing some deposits to MMFs. Presumably, these same banks would need to issue either CP or timed deposits, which would be bought by retail prime funds. Banks may also tap advances, which are funded via discount notes bought by government MMFs."
On Thursday, U.S. Securities & Exchange Commission Chair Gary Gensler gave a speech entitled, "'Jack Bogle, Haystacks, and Putting the Interest of the Clients First,' Prepared Remarks Before the 2024 Conference on Emerging Trends in Asset Management," which mainly dealt with "collective investment vehicles" including mutual funds (and the SEC's domain), and he also mentioned money market funds on several occasions. He explains, "Jack Bogle, the father of index funds, once said: 'Don't look for the needle in the haystack. Just buy the haystack.' Of course, he was talking about collective investment vehicles -- when well-regulated, one of the great financial innovations. They provide everyday investors with diversification and lower costs than investing in individual stocks or bonds. Today, registered investment advisers advise 57 million clients with respect to $129 trillion in assets." (Note: There's still time to register for our Money Fund Symposium next month in Pittsburgh, June 12-14. We hope you'll join us!)
Genser says, "[T]he U.S. has long benefitted from robust competition between nonbanks and banks in our $110-plus trillion capital markets. In fact, each of the registered funds and private funds sectors surpasses the size of the banking sector. Further, U.S. debt capital markets facilitate 75 percent of debt financing of non-financial corporations. In Europe, the U.K., and Asia, only 12-29 percent is raised in capital markets. Now turning to trends in asset management, I will discuss registered funds, private funds, and separately managed accounts."
He comments, "Investment funds registered with the SEC have grown to more than $32 trillion. This includes $6.5 trillion in money market funds as well as more than $26 trillion in other mutual funds, closed-end funds, and exchange-traded funds. This all compares to the $23 trillion banking sector.... More than half of American households, representing more than 115 million individual investors, own registered funds.... That said, concentration worried Bogle.... As it relates to U.S. money market funds, the largest 10 complexes manage 80 percent of the $6.5 trillion in net assets."
Gensler continues, "A third trend I want to touch upon is the relationship of registered funds to financial stability. In 2008 and 2020, we saw issues emanate from registered funds, particularly money market and open-end bond funds, putting everyday Americans at risk. Open-end funds have potential liquidity mismatches—between investors’ ability to redeem daily on the one hand, and, on the other, funds' securities holdings that may have lower liquidity. In the 1940 Act, Congress gave the Commission authority -- and over the years, we have adopted rules -- to address liquidity and dilution risks. We did so through reforms of money market funds in 2010 and 2014 in response to the 2008 financial crisis. We did so again in 2023 in response to the 2020 market events."
He states, "Further, the Commission has proposed amendments to enhance the liquidity risk management of open-end funds. SEC staff also has been in discussions with bank regulators regarding collective investment funds, which are managed by bank trust departments or for certain tax-qualified retirement funds and are exempt from SEC oversight. Such collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level. Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. We know from history that financial fires can spread from regulatory gaps, including when regulations don't treat like activities alike."
Gensler also comments on "Private Funds," telling us, "Many hedge funds are receiving the vast majority of their repo financing in the non-centrally cleared market. In a study of non-centrally cleared bilateral repurchase agreement (repo) data collected in June 2022, the Office of Financial Research said that 74 percent of pilot volume was transacted at zero haircut. We adopted rules last year to enhance access to central clearing in the Treasury markets. These rules will help address some of the risk in the Treasury repo markets."
Finally, he says, "Before I close, I would like to update you on some of the SEC's work in publishing aggregate data with regard to the securities markets. SEC staff yesterday began publishing a new report based on aggregated data filed by investment advisers on Form ADV.... Last month, SEC staff began publishing the Registered Fund Statistics report, which aggregates data about the registered fund industry. We recently added new data visualization pages on money market funds on our website, adding to our monthly publication of money market fund and private fund statistics, which we've done since 2014. Further, I've asked staff to make recommendations about other areas where we might update periodically published aggregate market statistics, including from Form PF."
In other news, a new Prospectus has been filed for Popular U.S. Government Money Market Fund, which is affiliated with Banco Popular de Puerto Rico. The filing lists Class A Withholding Shares (MMYXX), Class A Non-Withholding Shares (MMTXX), Class I Institutional Withholding Shares (MMFXX) and Class I Institutional Non-Withholding Shares (MMGXX), and states, "The Fund's investment objective is to seek to provide current income consistent with preservation of capital and liquidity." A table on Shareholder Fees shows "Total Annual Fund Operating Expenses after Fee Waivers and/or Expense Reimbursements for the Class A Withholding Shares & Class A Non-Withholding Shares at 1.00% and Class I Institutional Withholding Shares & Class I Institutional Non-Withholding Shares at 0.83%.
It continues, "The Fund is a U.S. 'government money market fund' (as defined in Rule 2a-7 under the 1940 Act, as amended ('Rule 2a-7')) that seeks to maintain a stable price of $1.00 per share by using the amortized cost method to value portfolio securities and rounding the share value to the nearest cent. The Fund invests at least 99.5% of its total assets in cash, government securities, and repurchase agreements collateralized by cash or government securities.... In compliance with regulatory requirements for money market funds, the Fund primarily invests in U.S. Treasury obligations and 'government securities' (as defined in section 2(a)(16) of the 1940 Act) maturing within 397 calendar days of the date of purchase, with certain exceptions permitted by applicable regulations, and repurchase agreements collateralized fully by U.S. treasury obligations and government securities. The Fund may also hold cash."
The Popular fund says, "In selecting securities for the Fund's portfolio, the Adviser focuses on securities that offer safety, liquidity, and a competitive yield. The Fund normally holds portfolio securities to maturity, but may sell a security when the Adviser deems it advisable, such as when market or credit factors materially change. The Fund is designed solely for Qualifying Investors (as defined in the section entitled 'Taxation' below). The tax treatment of this Fund differs from that typically accorded to other investment companies registered under the 1940 Act that qualify as regulated investment companies ('RICs') under Subchapter M of the Internal Revenue Code of 1986, as amended.... `The Fund does not intend to qualify as a RIC and non-Qualifying Investors may suffer adverse consequences as a result."
It discusses, "Puerto Rico Tax Exemption Risk," writing, "The Fund intends to operate in a manner that will cause it to be exempt from Puerto Rico income and municipal license tax under the Puerto Rico Internal Revenue Code of 2011, as amended, and the Puerto Rico Municipal Code, as amended, as a registered investment company. To be exempt from Puerto Rico income tax the Fund must meet certain requirements. In Puerto Rico Treasury Determination 19-04, the Puerto Rico Treasury Department held that an investment company that (i) is organized in Puerto Rico, (ii) has its principal office in Puerto Rico, and (iii) is registered with the United States Securities and Exchange Commission (the 'SEC') under the 1940 Act, will be treated as a registered investment company under the Investment Companies Act of 2013 ... and thus will be entitled to the tax exemption and other tax benefits available under the PR Code to registered investment companies."
The filing adds, "The Fund's investment adviser is Popular Asset Management LLC, a registered investment adviser ..., a wholly-owned subsidiary of Popular, Inc., a diversified, publicly-owned financial holding company registered under the Bank Holding Company Act of 1956, as amended, and subject to supervision and regulation by the Board of Governors of the Federal Reserve System. In the future, the Adviser may retain one or more sub-advisers to manage a portion of the Fund's assets."
The Investment Company Institute released its "2024 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition tells us, "With stock markets rising across the globe in 2023 (26% in the United States, 21% in Europe, and 12% in the Asia-Pacific region) worldwide total net assets of equity funds, which invest primarily in publicly traded stocks, increased by 18% to $31.8 trillion at year-end 2023. Bond funds -- which invest primarily in fixed-income securities -- saw their total net assets increase 12% over the same period, somewhat reflecting total returns (capital gains and interest income) on bonds in Europe and the Asia-Pacific region of 7% and 6%, respectively. Net assets of money market funds, which are regulated funds restricted to holding short-term, high-quality debt instruments, also increased substantially. We excerpt from the latest "Fact Book" below.
Discussing "Worldwide" mutual funds (page 18), ICI writes, "Worldwide net sales of money market funds totaled $1.5 trillion in 2023, up from $161 billion in 2022.... The increase in worldwide demand for money market funds was spread across all geographical regions but was primarily driven by a substantial increase in net inflows in the United States. Investor demand for money market funds in the United States increased from $1 billion in 2022 to $1.1 trillion in 2023. In the Asia-Pacific region, money market funds experienced net inflows of $136 billion in 2023, about even with the net inflows of $132 billion in 2022."
They explain, "Investors use money market funds because they are professionally managed, tightly regulated vehicles with holdings limited to high-quality, short-term debt instruments. As such, they are highly liquid, attractive, cash-like alternatives to bank deposits. Generally, demand for money market funds is dependent upon their yields and interest rate risk exposure relative to other high-quality fixed-income securities."
ICI continues, "In the United States, net sales of money market funds increased because of heightened demand from both retail and institutional investors. In 2023, money market fund yields reached their highest level in more than 15 years. Both retail and institutional investors were attracted to the high market yields and low interest rate risk offered by money market funds, especially in light of the substantial interest rate volatility that bond funds were experiencing during this time."
The Worldwide section adds, "Demand for money market funds in the Asia-Pacific region is dominated by Chinese money market funds, which hold the bulk of money market fund total net assets in the region. The People's Bank of China lowered interest rates further in 2023, decreasing the official one-year Loan Prime Rate to 3.45%. The reduction in the short-term interest rate was in response to sluggish economic performance. Regardless, net inflows into money market funds in the Asia-Pacific region remained positive for the year."
Under the section "Role of Investment Companies in Financial Markets," they say, "Investment companies held 22% of bonds issued by US corporations and foreign bonds held by US residents at year-end 2023 and 15% of the US Treasury and government agency securities outstanding. Investment companies also have been important investors in the US municipal securities market, holding 27% of the securities outstanding at year-end 2023. Finally, mutual funds (primarily prime money market funds) held 22% of the US commercial paper market -- a critical source of short-term funding for many major corporations around the world."
ICI writes in Chapter 3, "Overview of Mutual Fund Trends," "With $25.5 trillion in total net assets, the US mutual fund industry remained the largest in the world at year-end 2023. The majority of US mutual fund net assets at year-end 2023 were in long-term mutual funds, with equity funds alone making up 52% of US mutual fund net assets. Money market funds were the second-largest category, with 23% of net assets. Bond funds (19%) and hybrid funds (6%) held the remainder."
They state, "A variety of factors influence investor demand for mutual funds, such as funds' ability to assist investors in achieving their investment objectives. For example, US households rely on equity, bond, and hybrid mutual funds to meet long-term personal financial objectives, such as preparing for retirement, saving for emergencies, or saving for education. US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and access to prevailing short-term market yields."
ICI adds, "Investor demand for mutual funds increased in 2023 -- driven by significant inflows into money market funds that more than offset outflows from long-term funds. Money market funds experienced strong demand as investors were attracted to the highest short-term yields in the more than 15 years. By contrast, equity mutual funds experienced outflows in 2023 (despite strong stock market returns), reflecting an ongoing shift to other products. Additionally, bond mutual funds experienced modest outflows, which may reflect investors shifting some of their bond fund positions into money market funds to mitigate interest rate risk amid substantial interest rate volatility."
Discussing, "Investors in US Mutual Funds," they comment, "Demand for mutual funds is, in part, related to the types of investors who hold mutual fund shares. Retail investors (i.e., households) held the vast majority (88%) of the $25.5 trillion in US mutual fund total net assets at year-end 2023.... When looking at only long-term mutual funds, the share of net assets held by retail investors was even higher (95%). Retail investors also held substantial money market fund net assets ($3.9 trillion), but this was a relatively small share (18%) of their total mutual fund net assets ($22.5 trillion)."
The Fact Book continues, "By contrast, institutional investors such as nonfinancial businesses, financial institutions, and nonprofit organizations held a relatively small portion of mutual fund net assets. At year-end 2023, institutions held 12% of mutual fund net assets.... The majority (66%) of the $3.0 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances."
The section on "Money Market Funds" (page 57), explains, "In 2023, money market funds saw substantial inflows of $957 billion -- a significant reversal from outflows of $13 billion in 2022.... Government money market funds experiencing the bulk of inflows ($700 billion), while prime money market funds and tax-exempt money market funds saw inflows of $249 billion and $8 billion, respectively."
Finally, ICI writes, "Robust demand for money market funds was particularly pronounced in March 2023, when investors rushed to these funds in response to the regional banking crisis, which began with the failure of Silicon Valley Bank. Money market funds continued to experience strong demand at various times during the rest of the year. Investors were drawn to the elevated market yields and low interest rate risk that these funds offered, especially in light of persistently high interest rate volatility in the bond markets during this time. To manage interest rate risk and shorten the duration of their fixed-income investments, some investors may have strategically reallocated a portion of their bond fund investments into money market funds."
A press release titled, "J.P. Morgan Asset Management launches EUR Government CNAV Fund," states, "J.P. Morgan Asset Management (JPMAM) is pleased to announce the launch of JPMorgan Liquidity Funds -- EUR Government CNAV Fund, a short-term public debt constant net asset value (CNAV) money market fund designed for investors seeking government exposure. The fund will invest in short-term EUR denominated government or government-backed debt securities, including government bonds, treasury bills, and other money market instruments, as well as reverse repurchase agreements (RRP). These RRP's will be fully collateralised by EUR denominated Government Debt Securities, with all investments denominated in Euros." J.P. Morgan's makes it just the 4th Euro Government money market fund to launch since Euro rates returned to positive territory in 2015, according to Crane Data's Money Fund Intelligence International. Euro Govt MMFs total just $6.6B, or 2.7% of E249 billion in Euro MMFs. (Note: Funds tracked by MFI International are only available to institutional investors in Europe and outside the U.S.)
JPMAM's Jim Fuell, Head of Global Liquidity Sales, International, comments, "With interest rates in Europe now firmly in positive territory after a decade of negative levels, we've observed growing demand from investors for a money market fund with exposure to short-term government rather than bank-issued short-term debt.... Our EUR Government CNAV Fund is likely to appeal to investors seeking an alternative to cash deposits for their medium-term or temporary cash investments, including seasonal operating cash or the liquidity components of investment portfolios."
The release adds, "The new fund, managed by Joe McConnell and Ian Crossman, will be part of JPMAM's Global Liquidity business, complementing two existing EUR denominated money market funds: the JPMorgan Liquidity Funds - EUR Liquidity LVNAV Fund and the JPMorgan Liquidity Funds – EUR Standard Money Market VNAV Fund, and will offer share classes for both retail and institutional investors."
A separate press release, "Moody's Ratings assigns Aaa-mf rating to JPMorgan Liquidity Funds - EUR Government CNAV Fund," tells us, "Moody's Ratings has assigned an Aaa-mf rating to JPMorgan Liquidity Funds - EUR Government CNAV Fund ..., a short term public debt constant net asset value (CNAV) money market fund domiciled in Luxembourg and managed by JPMorgan Asset Management (UK) Limited. The Fund's primary investment objective is to achieve a return in EUR in line with prevailing money market rates whilst aiming to preserve capital consistent with such rates and to maintain a high degree of liquidity. The Fund will be launched on 13 May 2024."
It continues, "The Aaa-mf rating reflects Moody's view that the Fund will have a very strong ability to meet its objectives of providing liquidity and preserving capital. This view is supported by the portfolio's high credit quality and liquidity, strong asset profile, and low exposure to market risk. The Fund will primarily invest in short term EUR denominated government or government backed debt securities and reverse repurchase agreements."
Moody's explains, "The Fund will make direct investments in government securities issued by European Union (EU) 'core' countries, such as Germany, the Netherlands, Luxembourg, Austria, France and Belgium. However, its reverse repurchase agreements will be fully collateralized by EUR denominated government debt securities issued by EU 'core' countries or EU 'periphery' countries such as Spain and Italy, which are of lower credit quality and therefore add risk to the portfolio."
They comment, "The Fund's weighted average maturity will be below 60 days and we expect the Fund to maintain a very strong liquidity profile given its underlying assets. As a result, we expect the Fund to have a very low exposure to market risk. Moody's expects modest shareholder concentration risk during the Fund's ramp-up period to diminish as the Fund grows in size and its institutional shareholders, primarily composed of corporates, diversifies. The Fund is managed by JPMorgan Asset Management (UK) Limited, part of JPMorgan Chase & Co. (A1 stable). JPMorgan Asset Management (UK) Limited's assets under management (AUM) amounted to USD3.4 trillion as of end of December 2023 of which about USD939 billion were invested in liquidity funds."
For more, see these Crane Data News stories: "ESMA, FSB Push European Money Fund Reforms; New HSBC ESG Euro MF" (3/27/23), "JPMorgan Launches Standard Euro MF" (7/14/20), "S&P Upgrades SSGA Standard Euro" (12/17/19), and "More Euro Money Funds Liquidate; Fitch, Deutsche on European MMFs" (8/6/15).
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 May 10) includes Holdings information from 68 money funds (up 5 from two weeks ago), or $3.088 trillion (up from $2.933 trillion) of the $6.422 trillion in total money fund assets (or 48.1%) 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 and our May 10 News, "May Money Fund Portfolio Holdings: Repo Jumps to No. 1, T-Bills Plunge.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Treasuries totaling $1.397 trillion (up from $1.370 trillion two weeks ago), or 45.3%; Repurchase Agreements (Repo) totaling $1.172 trillion (up from $1.064 trillion two weeks ago), or 38.0%, and Government Agency securities totaling $258.2 billion (up from $242.3 billion), or 8.4%. Commercial Paper (CP) totaled $91.0 billion (up from two weeks ago at $87.9 billion), or 2.9%. Certificates of Deposit (CDs) totaled $70.2 billion (down from $72.4 billion two weeks ago), or 2.3%. The Other category accounted for $66.3 billion or 2.1%, while VRDNs accounted for $32.0 billion, or 1.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.397 trillion (45.3% of total holdings), Fixed Income Clearing Corp with $258.7B (8.4%), Federal Home Loan Bank with $196.3B (6.4%), the Federal Reserve Bank of New York with $144.5 billion (4.7%), BNP Paribas with $81.7B (2.6%), Citi with $80.2B (2.6%), JP Morgan with $77.3B (2.5%), RBC with $63.6B (2.1%), Federal Farm Credit Bank with $59.5B (1.9%) and Goldman Sachs with $43.2B (1.4%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($250.9B), Goldman Sachs FS Govt ($224.0B), JPMorgan 100% US Treas MMkt ($199.1B), Fidelity Inv MM: Govt Port ($193.6B), BlackRock Lq FedFund ($139.9B), Morgan Stanley Inst Liq Govt ($138.9B), State Street Inst US Govt ($129.9B), Fidelity Inv MM: MM Port ($128.1B), Allspring Govt MM ($118.8B) and BlackRock Lq Treas Tr ($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.)
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds moved higher again over the past 30 days to $1.244 trillion, while yields were mostly flat. Assets for USD and EUR MMFs both rose over the past month, while GBP MMF assets fell. Like U.S. money fund assets, European MMFs have repeatedly hit record highs in 2023 and 2024 (though they are just below the record currently). These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $7.0 billion over the 30 days through 5/13. The totals are up $46.9 billion (3.9%) year-to-date for 2024, they were up $166.9 billion (16.2%) for the year 2023. (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 and are almost entirely institutional.)
Offshore US Dollar money funds increased $4.7 billion over the last 30 days and are up $16.3 billion YTD to $665.8 billion; they increased $100.0 billion in 2023. Euro funds increased E4.4 billion over the past month. YTD, they're up E14.1 billion to E249.0 billion, for 2023, they increased by E54.5 billion. GBP money funds decreased L1.9 billion over 30 days, and they're up L10.1 billion YTD at L245.5B, for 2023, they fell L28.1 billion. U.S. Dollar (USD) money funds (214) account for over half (53.5%) of the "European" money fund total, while Euro (EUR) money funds (120) make up 21.6% and Pound Sterling (GBP) funds (143) total 24.9%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Tuesday), below.
Offshore USD MMFs yield 5.23 (7-Day) on average (as of 5/13/24), down 1 bp from 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 but they should remain flat until the ECB moves rates again. They're yielding 3.84% on average, down 1 bp from 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 10 months ago and now yield 5.15%, down 1 bp 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 April MFI International Portfolio Holdings, with data as of 4/30/24, show that European-domiciled US Dollar MMFs, on average, consist of 25% in Commercial Paper (CP), 17% in Certificates of Deposit (CDs), 22% in Repo, 23% in Treasury securities, 12% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 44.8% of their portfolios maturing Overnight, 8.5% maturing in 2-7 Days, 9.9% maturing in 8-30 Days, 8.9% maturing in 31-60 Days, 7.6% maturing in 61-90 Days, 12.7% maturing in 91-180 Days and 7.7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (39.2%), France (12.0%), Japan (9.4%), Canada (8.5%), Sweden (5.8%), the U.K. (4.9%), the Netherlands (4.4%), Australia (3.4%), Germany (2.5%) and Belgium (1.7%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $151.7 billion (22.7% of total assets), Fixed Income Clearing Corp with $39.9B (6.0%), Credit Agricole with $20.2B (3.0%), Barclays PLC with $17.7B (2.6%), Mizuho Corporate Bank Ltd <b:>`_ with $16.4B (2.5%), BNP Paribas with $15.1B (2.3%), JP Morgan with $14.9B (2.2%), RBC with $14.2B (2.1%), Nordea Bank with $13.8B (2.1%) and Bank of America with $13.0B (1.9%).
Euro MMFs tracked by Crane Data contain, on average 45% in CP, 19% in CDs, 19% in Other (primarily Time Deposits), 15% in Repo, 1% in Treasuries and 1% in Agency securities. EUR funds have on average 37.3% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 14.4% maturing in 8-30 Days, 13.2% maturing in 31-60 Days, 8.5% maturing in 61-90 Days, 10.5% maturing in 91-180 Days and 7.2% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.3%), Japan (11.9%), the U.S. (8.3%), Germany (8.0%), Canada (6.7%), the U.K. (5.7%), Sweden (4.4%), Austria (4.3%), Australia (3.3%) and Spain (3.1%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E15.7B (6.9%), BNP Paribas with E12.0B (5.3%), Credit Mutuel with E9.5B (4.2%), Republic of France with E8.3B (3.7%), Societe Generale with E7.7B (3.4%), Mitsubishi UFJ Financial Group Inc with E7.5B (3.3%), JP Morgan with E7.4B (3.3%), BPCE SA with E7.3B (3.2%), Erste Group Bank AG with E6.6B (2.9%) and DZ Bank AG with E6.5B (2.9%).
The GBP funds tracked by MFI International contain, on average (as of 4/30/24 ): 38% in CDs, 18% in CP, 23% in Other (Time Deposits), 17% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 31.7% of their portfolios maturing Overnight, 10.7% maturing in 2-7 Days, 10.4% maturing in 8-30 Days, 12.2% maturing in 31-60 Days, 13.5% maturing in 61-90 Days, 13.2% maturing in 91-180 Days and 8.3% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.4%), Japan (15.4%), the U.K. (13.8%), Canada (12.6%), the U.S. (9.9%), Australia (9.1%), Sweden (4.7%), the Netherlands (3.7%), Singapore (2.9%) and Abu Dhabi (2.3%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L17.5B (7.7%), Toronto-Dominion Bank with L10.0B (4.4%), BNP Paribas with L8.5B (3.8%), Mitsubishi UFJ Financial Group Inc with L8.5B (3.7%), Mizuho Corporate Bank Ltd with L8.2B (3.6%), Sumitomo Mitsui Banking Corp with L7.5B (3.3%), JP Morgan with L7.1B (3.1%), Commonwealth Bank of Australia with L6.9B (3.1%), Sumitomo Mitsui Trust Bank with L6.7B (3.0%), and BPCE SA with L6.5B (2.9%).
The May issue of our Bond Fund Intelligence, which was sent to subscribers Tuesday morning, features the stories, "Bill Gross Blasts Bullish Bond Fund Managers, Bond Funds," which critiques bond funds selling total return, and "Capital Group on Active ETFs; PIMCO on Core Bond Funds," which quotes from a recent American Funds piece. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in April while yields were higher. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our "Gross Blasts" article states, "Bill Gross posted a piece titled, 'They Just Wanna Sell You a Bond Fund,' which takes a shot at all the bullish forecasts of bond fund managers. He writes, 'No not Pimco -- or me.... No, I'm talking about investment managers touting bullish forecasts for 4.60% 10-year Treasuries. Pimco's not one of 'em nor am I. Reunited in spirit at least. But many managers are bullish on bonds.'"
The piece continues, "Gross explains, 'Vanguard's Total Bond Market Index Fund has provided a negative 0.1% total return over the last 5 years -- includes income plus percentage price change. Now, however, bond bulls cite 2-3% forward inflation and a Fed cut, two, or three to suggest 10-year yields move to 4% which would produce a 7%+ total return for the balance of 2024. Not gonna happen in my view.'"
Our "Capital Group" article states, "American Funds' Capital Group recently published an article titled, 'Why you should be leaning into active fixed income ETFs,' which quotes its President & CEO Mike Gitlin, 'Active bond management has come to the ETF market, and it's a true benefit for clients.... It means they no longer need to settle for benchmark results and the limited interest rate and credit flexibility that may come with passive bond management.'"
It states: "The piece says, 'The overall market for fixed income mutual funds is $4.5 trillion, and 78% of those assets are actively managed, showing a preference for active management of fixed income mutual fund assets. ETFs in comparison, while increasingly popular, have only $1.5 trillion in assets under management and $176 billion in active fixed income ETFs -- despite the preference for active management in the other commonly used investment vehicle. This chasm could be the result of a historical lack of active ETF availability and less understanding about active ETFs.'"
Our first News brief, "Returns Retreat, Yields Jump in April." says, "Bond fund returns fell in April, while yields jumped. Our BFI Total Index fell 1.18% over 1-month but is up 3.10% over 12 months. (Money funds rose 5.20% over 1-year as measured by our Crane 100 Index.) The BFI 100 decreased 1.58% in April but rose 1.91% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.30% over 1-month and 5.51% for 1-year; Ultra-Shorts rose 0.25% and 5.95%. Short-Term returned -0.80% and 3.88%, and Intm-Term fell 2.12% in April and fell 0.10% over 1-year. BFI's Long-Term Index fell 2.70% and 0.61%. High Yield fell 0.60% in April but is up 8.26% for 12 mos."
A second News brief, "Barron's on 'How to Be Smart About Your Bond Strategy," comments, "Bonds have disappointed in recent years, burning investors with losses and leading some to wonder if they should bother with them at all. Short answer: Yes, but it pays to be strategic.... Amplifying that concern is the fact that cash remains an attractive alternative. Why take a chance of bond losses when you can get risk-free yields of 5% in money-market funds? Bond mutual funds and exchange-traded funds may be more volatile, but they offer more liquidity and a much more affordable entry point for investors than individual bonds."
Our next News brief, "Bloomberg Says, 'Bond Mutual Funds Rake in $108 Billion to Break Two-Year Exodus.' The article says, 'Fixed-income mutual funds are doing something rare: Attracting new money -- and besting their tax-efficient ETF brethren. Nearly $110 billion has flowed into mutual funds so far this year, with the bulk of the cash gravitating towards active managers, Bloomberg Intelligence data show. It breaks two straight years of net outflows that saw the industry bleed more than half a trillion dollars.'"
A BFI sidebar, "Payden Limited Maturity 30," says, "A press release titled, 'Payden & Rygel Celebrates 30 Years of the Limited Maturity Fund (PYLMX) Amidst Four Decades of Investment Excellence,' tells us, 'Payden & Rygel is proud to announce the 30-year anniversary of its Limited Maturity Fund (PYLMX). This milestone coincides with the firm's celebration of 4 decades as a global investment adviser.'"
Finally, another sidebar, "Barron's Bearish on Bonds" comments, "Barron's is almost always bullish on bond funds, but even they've been concerned of late. 'Bonds Are a Minefield. Where to Find 5% to 8% Yields Now,' tells us, 'It was supposed to be a banner year for bonds. Instead it has been a bust so far. But the rest of the year could be more fruitful, if you know where to look. The U.S. bond market is once again proving to be a minefield. Falling prices have pushed bond total returns down an average 3% this year, and no area of the market has been spared.... The 'higher for longer' scenario is punishing bonds. The 10-year Treasury yield has leapt from 3.95% at the end of 2023 to 4.63%. Overall, long-term bonds are down nearly 9% in total return for the iShares 20+ Year Treasury Bond ETF. On an annualized basis, long-term Treasuries are enduring their worst stretch in 65 years."
Another Prime Institutional money market fund filed to liquidate Friday, bringing the total of MMF portfolios liquidating or "going Government" to 6 to date. A Prospectus Supplement filing for the $6.6 billion Dreyfus Cash Management Fund, including its Admin (DACXX), Institutional (DICXX), Investor (DVCXX) and Preferred (DCEXX) Shares, explains, "The Board of Trustees of Dreyfus Cash Management (the "Fund") has approved the liquidation of the Fund, effective on or about September 6, 2024. Before the Liquidation Date, and at the discretion of Fund management, the Fund's portfolio securities will be sold and/or allowed to mature in their normal course and the Fund may cease to pursue its investment objective and policies. The liquidation of the Fund may result in one or more taxable events for shareholders subject to federal income tax." The 6 Prime Institutional money funds declaring either pending conversions to Government or pending liquidations now represent $218.2 billion in assets, or 34.9% of the $624.9 billion total in Prime Inst MMFs (assets as of 4/30/24). (For more, see these Crane Data News stories: "Goldman Files to Liquidate Prime Inst MMFs; Barron's: MMFs Tempting" (4/22/24), "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).)
The filing explains, "Accordingly, effective on or about June 14, 2024, the Fund will be closed to any investments for new accounts, except that new accounts may be established for 'sweep accounts' and by participants in group retirement plans if the Fund is established as an investment option under the plans before the Closing Date. The Fund will continue to accept subsequent investments until the Liquidation Date."
It adds, "Fund shares held on the Liquidation Date in Individual Retirement Accounts and retirement plans sponsored by BNY Mellon Investment Adviser, Inc. or its affiliates, if any, will be exchanged for Wealth shares of Dreyfus Government Cash Management ("DGCM"). Investors may obtain a copy of the Prospectus of DGCM by calling 1-800-373-9387."
Dreyfus also filed to liquidate its $586 million Dreyfus Tax-Exempt Cash Mgmt Ins (DEIXX). They write, "The Board of Trustees of Dreyfus Tax Exempt Cash Management Funds has approved the liquidation of Dreyfus Tax Exempt Cash Management, a series of the Trust, effective on or about September 6, 2024. Before the Liquidation Date, and at the discretion of Fund management, the Fund's portfolio securities will be sold and/or allowed to mature in their normal course and the Fund may cease to pursue its investment objective and policies. The liquidation of the Fund may result in one or more taxable events for shareholders subject to federal income tax."
The filing adds, "Accordingly, effective on or about June 14, 2024, the Fund will be closed to any investments for new accounts, except that new accounts may be established for 'sweep accounts' and by participants in group retirement plans if the Fund is established as an investment option under the plans before the Closing Date. The Fund will continue to accept subsequent investments until the Liquidation Date." The Tax Exempt Institutional Money Fund sector is tiny, containing just 12 funds with $14.5 billion in assets.
Though we haven't found the official filing or news, we also noticed that internal money fund Fidelity Money Market Central Fund (FID03) no longer has any portfolio holdings or assets, so we assume it has merged or liquidated. It was $1.1 billion on March 20, but the fund hasn't reported any assets since. The $49.8 billion Prime Inst Fidelity Cash Central Fund (FID01) remains undeclared to date. If we count this fund, it brings the total to 7 of Prime Inst MMF portfolios planning to exit.
Separately, a Prospectus Supplement for the AB Government Money Market Portfolio (unrelated to the Prime shifts) explains, "AllianceBernstein L.P. recently notified the Portfolio that it intends to discontinue a contractual agreement with AB Fixed-Income Shares, Inc., on behalf of the Portfolio, to waive 0.05% of the Portfolio's Management Fee upon the expiration of the current term of the agreement on August 31, 2024. Accordingly, effective September 1, 2024, the Portfolio will pay the Adviser 0.20% of average daily net assets for investment advisory services."
In other news, the U.S. Treasury's Financial Stability Oversight Council (FSOC) met Friday and released the minutes from its previous meeting. The Feb. 23 Minutes say, "Chair Gensler stated that the SEC had adopted a rule regarding money market funds in July 2023, with a compliance date of April 2024. He also stated that the SEC had proposed rules in November 2022 regarding liquidity and risk management at open-end funds. He noted that over $6 trillion is also held in collective investment trusts."
The FSOC minutes tell us, "Chair Gensler noted that with respect to private funds, the SEC and the CFTC had finalized a joint rule on hedge fund reporting in February 2024, and that the SEC had also issued rules regarding reporting requirements for private fund advisors in May 2023. Chair Gensler then described rules the SEC had adopted in November 2023 regarding clearing agency governance. He also noted that under rules adopted by the SEC in February 2023, the securities settlement cycle would be shortened to T+1 for trades occurring on or after May 28, 2024 in stocks, bonds, exchange-traded funds, and certain other instruments."
Discussing the "OFR's collection of data on bilateral repo <b:>`_," Sriram Rajan of the OFR comments, "[T]he OFR had presented to the Council on non-centrally cleared bilateral repurchase agreements (NCCBR) in July 2022. He stated that at that time, the OFR had been conducting outreach regarding a data collection pilot on this market, which he noted is an important source of secured financing for financial institutions. He stated that the OFR's pilot study had informed the OFR about collateral, counterparties, pricing terms, market size, and other market characteristics in this market."
The minutes explain, "He stated that the OFR had subsequently issued a proposed rulemaking in January 2023 to establish an ongoing collection regarding NCCBR transactions. He stated that the proposed rule was designed to fill a data gap in the short-term funding market. He stated that the proposed rule would require daily, transaction-level reporting from financial companies. He noted that companies required to report under the proposed rule would be those with average daily outstanding commitments to borrow cash and extend guarantees during the prior calendar quarter of at least $10 billion. He noted that the most recent estimates were that as proposed, the NCCBR collection initially would capture reporting on over $2 trillion in daily transaction volume through approximately 40 companies."
Finally, they add, "He stated that the OFR had received over 30 public comments on the proposed rule. He stated that commenters had supported the objectives of the proposed collection. He noted that the OFR was considering certain issues raised by the comment letters. He noted that the SEC had published a final rule regarding central clearing in Treasury markets in December 2023, and that the SEC's rule would require the clearing of repo transactions on Treasury collateral. He noted that upon implementation in June 2026, the SEC's rule may reduce the NCCBR collection's coverage and volume. He noted, however, that the OFR's collection remained critical, including because it would provide regulators with market data prior to the implementation of the SEC's rule and would provide transparency on the migration of trading to central clearing, and on transactions in the NCCBR market following implementation of the SEC's rule. He concluded by noting that the OFR expects to publish its final rule in the spring of 2024." (See Crane Data's May 8 Link of the Day, "OFR Adopts Rule on Repo Reporting.)
Crane Data's May Money Fund Portfolio Holdings, with data as of April 30, 2024, show that Repo holdings jumped while Treasuries plunged and CP fell. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $61.4 billion to $6.241 trillion in April, after decreasing $63.1 billion in March. Assets increased $66.9 in February, $86.6 in January, $51.1 billion in December and $244.0 billion in November. They decreased $57.9 billion in October, but increased $56.1 in September, $106.7 billion in August and $78.3 billion in July. Repo continued to bounce back and reclaimed its spot as the largest portfolio segment, increasing $94.9 billion, after a steep slide two months prior. Treasuries plummeted by $144.9 billion, falling to the No. 2 spot among portfolio segments. The U.S. Treasury continues to be the single largest Issuer to MMFs. `In April, U.S. Treasury holdings fell to $2.395 trillion, while FICC Repo jumped $20.4 billion to $512.3 billion, surpassing the Fed RRP's $508.0 billion total (which fell $28.8 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) increased $94.9 billion (4.0%) to $2.454 trillion, or 39.3% of holdings, in April, after increasing $13.4 billion in March, decreasing $137.6 billion in February, decreasing $163.2 billion in January and increasing $74.8 billion in December. Treasury securities fell $144.9 billion (-5.7%) to $2.395 trillion, or 38.4% of holdings, after decreasing $19.6 billion in March. Treasuries increased $206.2 billion in February, $104.7 billion in January and $69.6 billion in December. Government Agency Debt was up $3.8 billion, or 0.5%, to $721.0 billion, or 11.6% of holdings. Agencies decreased $14.2 billion in March and $6.7 billion in February. They increased $43.9 billion in January, but decreased $21.8 billion in December. Repo, Treasuries and Agency holdings now total $5.570 trillion, representing a massive 89.2% of all taxable holdings.
Money fund holdings of CP and CDs decreased in April, while Time Deposits rose. Commercial Paper (CP) decreased $30.7 billion (-10.1%) to $273.3 billion, or 4.4% of holdings. CP holdings decreased $3.9 billion in March and $2.1 billion in February, increased $18.6 billion in January and decreased $14.8 billion in December. Certificates of Deposit (CDs) decreased $2.2 billion (-1.0%) to $215.2 billion, or 3.4% of taxable assets. CDs decreased $18.7 billion in March, increased $0.8 billion in February and $19.5 billion in January, and decreased $5.4 billion in December. Other holdings, primarily Time Deposits, increased $17.7 billion (11.6%) to $170.5 billion, or 2.7% of holdings, after decreasing $20.3 billion in March, increasing $5.7 billion in February and $63.4 billion in January, and decreasing $52.1 billion in December. VRDNs rose to $12.2 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Friday around noon.)
Prime money fund assets tracked by Crane Data fell to $1.363 trillion, or 21.8% of taxable money funds' $6.241 trillion total. Among Prime money funds, CDs represent 15.8% (up from 15.7% a month ago), while Commercial Paper accounted for 20.1% (down from 21.8% in March). The CP totals are comprised of: Financial Company CP, which makes up 13.1% of total holdings, Asset-Backed CP, which accounts for 5.2%, and Non-Financial Company CP, which makes up 1.8%. Prime funds also hold 3.6% in US Govt Agency Debt, 16.4% in US Treasury Debt, 17.4% in US Treasury Repo, 0.3% in Other Instruments, 10.5% in Non-Negotiable Time Deposits, 6.2% in Other Repo, 7.5% in US Government Agency Repo and 0.7% in VRDNs.
Government money fund portfolios totaled $3.180 trillion (51.0% of all MMF assets), down from $3.190 trillion in March, while Treasury money fund assets totaled another $1.698 trillion (27.2%), down from $1.724 trillion the prior month. Government money fund portfolios were made up of 21.1% US Govt Agency Debt, 18.8% US Government Agency Repo, 29.8% US Treasury Debt, 30.1% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 72.1% US Treasury Debt and 27.9% in US Treasury Repo. Government and Treasury funds combined now total $4.878 trillion, or 78.2% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $101.9 billion in April to $778.9 billion; their share of holdings rose to 12.4% from last month's 10.7%. Eurozone-affiliated holdings increased to $499.5 billion from last month's $453.7 billion; they account for 7.9% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $299.7 billion (4.8% of the total) from last month's $281.0 billion. Americas related holdings fell to $5.157 trillion from last month's $5.336 trillion, and now represent 81.8% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $79.0 billion, or 5.0%, to $1.668 trillion, or 26.7% of assets); US Government Agency Repurchase Agreements (up $11.9 billion, or 1.7%, to $701.0 billion, or 11.2% of total holdings), and Other Repurchase Agreements (up $3.9 billion, or 4.9%, from last month to $84.7 billion, or 1.4% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $18.4 billion to $178.0 billion, or 2.9% of assets), Asset Backed Commercial Paper (down $5.6 billion to $71.2 billion, or 1.1%), and Non-Financial Company Commercial Paper (down $6.7 billion to $24.1 billion, or 0.4%).
The 20 largest Issuers to taxable money market funds as of April 30, 2024, include: the US Treasury ($2.395T, 38.4%), Federal Home Loan Bank ($590.3B, 9.5%), Fixed Income Clearing Corp ($512.3B, 8.2%), the Federal Reserve Bank of New York ($508.0B, or 8.1%), JP Morgan ($171.7B, 2.8%), Citi ($143.3B, 2.3%), BNP Paribas ($140.4B, 2.2%), RBC ($138.6B, 2.2%), Federal Farm Credit Bank ($124.7B, 2.0%), Bank of America ($123.9B, 2.0%), Barclays PLC ($119.7B, 1.9%), Goldman Sachs ($109.3B, 1.8%), Credit Agricole ($70.3B, 1.1%), Wells Fargo ($68.9B, 1.1%), Sumitomo Mitsui Banking Corp ($64.1B, 1.0%), Mitsubishi UFJ Financial Group Inc ($63.9B, 1.0%), Societe Generale ($55.7B, 0.9%), Mizuho Corporate Bank Ltd ($52.5B, 0.8%), Toronto-Dominion Bank ($51.6B, 0.8%) and Canadian Imperial Bank of Commerce ($48.8B, 0.8%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Corp ($512.3B, 20.9%), the Federal Reserve Bank of New York ($508.0B, 20.7%), JP Morgan ($162.2B, 6.6%), Citi ($131.2B, 5.3%), BNP Paribas ($127.7B, 5.2%), RBC ($111.4B, 4.5%), Goldman Sachs ($108.7B, 4.4%), Bank of America ($99.6B, 4.1%), Barclays ($98.7B, 4.0%) and Wells Fargo ($58.5B, 2.4%). The largest users of the $508.0 billion in Fed RRP include: Vanguard Federal Money Mkt Fund ($95.6B), Vanguard Cash Reserves Federal MM ($34.0B), Fidelity Cash Central Fund ($32.6B), Goldman Sachs FS Govt ($32.0B), Fidelity Govt Money Market ($26.7B), Northern Instit Treasury MMkt ($24.4B), Schwab Value Adv MF ($21.7B), Federated Hermes Govt Oblig ($20.0B), Fidelity Sec Lending Cash Central Fund ($18.2B) and Fidelity Inv MM: Treas Port ($16.7B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($32.0B, 5.4%), RBC ($27.3B, 4.6%), Toronto-Dominion Bank ($26.0B, 4.4%), Bank of America ($24.3B, 4.1%), Credit Agricole ($23.2B, 3.9%), DNB ASA ($22.3B, 3.7%), Barclays PLC ($21.0B, 3.5%), Bank of Montreal ($19.9B, 3.3%), Mitsubishi UFJ Financial Group Inc ($18.7B, 3.1%) and Canadian Imperial Bank of Commerce ($18.0B, 3.0%).
The 10 largest CD issuers include: Bank of America ($16.4B, 7.6%), Sumitomo Mitsui Banking Corp ($14.8B, 6.9%), Credit Agricole ($13.7B, 6.3%), Mizuho Corporate Bank Ltd ($13.4B, 6.2%), Toronto-Dominion Bank ($12.3B, 5.7%), Sumitomo Mitsui Trust Bank ($10.5B, 4.9%), Mitsubishi UFJ Financial Group Inc ($10.5B, 4.9%), Wells Fargo ($10.4B, 4.8%), Canadian Imperial Bank of Commerce ($9.2B, 4.3%) and Mitsubishi UFJ Trust and Banking Corporation ($8.7B, 4.1%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($16.8B, 6.8%), Toronto-Dominion Bank ($13.6B, 5.5%), Bank of Montreal ($11.9B, 4.8%), Barclays PLC ($11.4B, 4.6%), JP Morgan ($9.5B, 3.9%), BPCE SA ($9.4B, 3.8%), Mitsubishi UFJ Financial Group Inc ($8.1B, 3.3%), Bank of Nova Scotia ($7.7B, 3.1%), Landesbank Baden-Wurttemberg ($7.6B, 3.1%) and BSN Holdings Ltd ($7.0B, 2.9%).
The largest increases among Issuers include: Barclays PLC (up $39.2B to $119.7B), Citi (up $29.1B to $143.3B), JP Morgan (up $22.7B to $171.7B), Credit Agricole (up $22.5B to $70.3B), Fixed Income Clearing Corp (up $20.4B to $512.3B), Societe Generale (up $12.6B to $55.7B), Federal Home Loan Bank (up $11.8B to $590.3B), Bank of America (up $10.1B to $123.9B), Mizuho Corporate Bank Ltd (up $9.5B to $52.5B) and Erste Group Bank AG (up $8.5B to $9.0B).
The largest decreases among Issuers of money market securities (including Repo) in April were shown by: US Treasury (down $144.9B to $2.395T), RBC (down $66.1B to $138.6B), the Federal Reserve Bank of New York (down $28.8B to $508.0B), Goldman Sachs (down $5.3B to $109.3B), National Bank of Canada (down $4.8B to $7.8B), Bank of Nova Scotia (down $4.7B to $26.4B), Canadian Imperial Bank of Commerce (down $4.5B to $48.8B), Mitsubishi UFJ Financial Group Inc (down $4.2B to $63.9B), Rabobank (down $2.5B to $12.9B) and HSBC (down $2.3B to $33.4B).
The United States remained the largest segment of country-affiliations; it represents 77.5% of holdings, or $4.835 trillion. Canada (5.2%, $322.4B) was in second place, while France (5.1%, $315.9B) was No. 3. Japan (4.4%, $272.3B) occupied fourth place. The United Kingdom (3.2%, $196.5B) remained in fifth place. Netherlands (1.1%, $65.6B) was in sixth place, followed by Germany (0.9%, $57.0B), Sweden (0.8%, $51.0B), Australia (0.6%, $38.7B), and Norway (0.4%, $22.3B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of April 30, 2024, Taxable money funds held 48.2% (up from 44.6%) of their assets in securities maturing Overnight, and another 11.4% maturing in 2-7 days (down from 12.4%). Thus, 59.6% in total matures in 1-7 days. Another 12.1% matures in 8-30 days, while 9.7% matures in 31-60 days. Note that over three-quarters, or 81.3% 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 5.4% of taxable securities, while 8.3% matures in 91-180 days, and just 5.0% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Thursday, and we'll be writing our regular monthly update on the new April 30 data for Friday's News. But we also already uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Wednesday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of April 30, includes holdings information from 972 money funds (down 3 from last month), representing assets of $6.425 trillion (down from $6.492 trillion). Prime MMFs inched down to $1.377 trillion (down $25.9 billion), or 21.4% of the total. (Note too that there were no funds reclassifying away from "Prime" in the SEC's latest monthly data set.) We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses inching higher and money fund revenues hitting a record $17.3 billion (annualized) in April.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) taking back the top spot for largest type of portfolio holding in money market funds, Repo holdings in money market funds now total $2.472 trillion (up from $2.382 trillion), or 38.5% of all assets, while Treasury holdings plunged to $2.415 trillion (down from $2.564 billion), or 37.6% of all holdings. Government Agency securities total $733.4 billion (up from $728.8 billion), or 11.4%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.620 trillion, or a massive 87.5% of all holdings.
Commercial paper (CP) totals $283.7 billion (down from $314.8 billion), or 4.4% of all holdings, and the Other category (primarily Time Deposits) totals $175.1 billion (up from $158.1 billion), or 2.7%. Certificates of Deposit (CDs) total $215.2 billion (down from $217.4 billion), 3.3%, and VRDNs account for $131.3 billion (up from $127.9 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: $179.1 billion, or 2.8%, in Financial Company Commercial Paper; $71.7 billion or 1.1%, in Asset Backed Commercial Paper; and, $32.8 billion, or 0.5%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.721 trillion, or 26.8%), U.S. Govt Agency Repo ($659.3B, or 10.3%) and Other Repo ($91.3B, or 1.4%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $276.7 billion (down from $307.5 billion), or 20.1%; Repo holdings of $428.0 billion (up from $426.7 billion), or 31.1%; Treasury holdings of $228.8 billion (down from $241.6 billion), or 16.6%; CD holdings of $215.2 billion (down from $217.4 billion), or 15.6%; Other (primarily Time Deposits) holdings of $168.4 billion (up from $151.5 billion), or 12.2%; Government Agency holdings of $50.4 billion (up from $48.7 billion), or 3.7% and VRDN holdings of $9.6 billion (unchanged from $9.6 billion), or 0.7%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $179.1 billion (down from $197.7 billion), or 13.0%, in Financial Company Commercial Paper; $71.7 billion (down from $77.3 billion), or 5.2%, in Asset Backed Commercial Paper; and $25.8 billion (down from $32.6 billion), or 1.9%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($240.6 billion, or 17.5%), U.S. Govt Agency Repo ($100.3 billion, or 7.3%), and Other Repo ($87.1 billion, or 6.3%).
In related news, money fund charged expense ratios (Exp%) were fractionally higher in April. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.37%, respectively, as of April 30, 2024. 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 Wednesday 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, then.) 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 (but 19 bps higher than 12/31/21's 0.08%). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.37% as of April 30, 2024, unchanged from the month prior and slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.32% (up 4 bps from last month), Government Inst MFs expenses average 0.26% (unchanged from last month), Treasury Inst MFs expenses average 0.28% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.52%, (unchanged from last month), Government Retail MFs expenses yield 0.54% (unchanged from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were also down 2 bps at 0.40% on average.
Gross 7-day yields were slightly lower during the month ended April 30, 2024. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 760), shows a 7-day gross yield of 5.39%, down 1 bp 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 also down 1 bp, ending the month at 5.40%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $17.301 billion (as of 4/30/24), a new all-time high record. Our estimated annualized revenue totals increased from $16.883B last month and the previous record of $17.070B 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 inflows resume to money funds following a pause around April 15.
Crane Data's latest monthly Money Fund Market Share rankings show assets decreased among most of the largest U.S. money fund complexes in April, after falling in March. Money market fund assets fell by $17.6 billion, or -0.3%, last month to $6.386 trillion. Total MMF assets have decreased by $21.7 billion, or -0.3%, over the past 3 months, but they've increased by $694.3 billion, or 12.2%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Goldman Sachs, BlackRock, JPMorgan, Morgan Stanley and Allspring, which grew assets by $13.5 billion, $6.0B, $4.7B, $4.1B and $3.9B, respectively. Declines in April were seen by Fidelity, American Funds, Vanguard, SSGA and UBS, which decreased by $12.6 billion, $10.5B, $6.3B, $5.9B and $3.4B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which were flat in April.
Over the past year through Apr. 30, 2024, Fidelity (up $210.7B, or 19.3%), Schwab (up $149.8B, or 41.0%), JPMorgan (up $127.2B, or 24.4%), Vanguard (up $81.4B, or 15.9%) and Federated Hermes (up $55.4B, or 14.2%) were the `largest gainers. Schwab, Vanguard, Fidelity, Morgan Stanley and Federated Hermes had the largest asset increases over the past 3 months, rising by $23.2B, $19.8B, $14.0B, $3.8B and $3.2B, respectively. The largest declines over 12 months were seen by: Goldman Sachs (down $56.0B), American Funds (down $32.0B), Invesco (down $22.0B), and Morgan Stanley (down $18.0B). The largest declines over 3 months included: SSGA (down $27.7B), American Funds (down $15.6B) and HSBC (down $12.1B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.304 trillion, or 20.4% of all assets. Fidelity was down $12.6B in April, up $14.0 billion over 3 mos., and up $210.7B over 12 months. JPMorgan ranked second with $648.3 billion, or 10.2% market share (up $4.7B, down $8.1B and up $127.2B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $592.1 billion, or 9.3% of assets (down $6.3B, up $19.8B and up $81.4B). Schwab ranked fourth with $515.4 billion, or 8.1% market share (down $283M, up $23.2B and up $149.8B), while BlackRock was the fifth largest MMF manager with $510.0 billion, or 8.0% of assets (up $6.0B, up $116M and up $24.7B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $447.0 billion, or 7.0% (down $2.5B, up $3.2B and up $55.4B), while Goldman Sachs was in seventh place with $382.8 billion, or 6.0% of assets (up $13.5B, up $194M and down $56.0B). Dreyfus ($276.7B, or 4.3%) was in eighth place (up $468M, up $3M and up $14.8B), followed by Morgan Stanley ($241.8B, or 3.8%; up $4.1B, up $3.8B and down $18.0B). SSGA was in 10th place ($210.3B, or 3.3%; down $5.9B, down $27.7B and up $52.3B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($195.5B, or 3.1%), Northern ($163.6B, or 2.6%), American Funds ($158.8B, or 2.5%), First American ($139.0B, or 2.2%), Invesco ($132.6B, or 2.1%), UBS ($104.7B, or 1.6%), T. Rowe Price ($47.8B, or 0.7%), DWS ($41.8B, or 0.7%), HSBC ($36.8B, or 0.6%) and Western ($28.2B, or 0.4%). Crane Data currently tracks 61 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, Vanguard moves down to the No. 4 spot and Schwab moves down to No. 5. Goldman Sachs moves up to the No. 6 spot, while Federated Hermes moves down to the No. 7 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 spot <b:>`_. 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 ($1.317 trillion), JP Morgan ($885.1B), BlackRock ($750.1B), Vanguard ($592.1B) and Schwab ($515.4B). Goldman Sachs ($509.6B) was in sixth, Federated Hermes ($458.1B) was seventh, followed by Morgan Stanley ($322.8B), Dreyfus/BNY Mellon ($299.5B) and SSGA ($255.2B), 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 May issue of our Money Fund Intelligence and MFI XLS, with data as of 4/30/24, shows that yields were flat in April across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 760), was 5.03% (unchanged) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was down 1 bp at 5.02%. The MFA's Gross 7-Day Yield was at 5.40% (unchanged), and the Gross 30-Day Yield also was down 1 bp at 5.39%. (Gross yields will be revised Wednesday at noon, though, once we download the SEC's Form N-MFP data for 4/30/24.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 5.13% (down 1 bp) and an average 30-Day Yield at 5.13% (down 1 bp). The Crane 100 shows a Gross 7-Day Yield of 5.40% (down 1 bp), and a Gross 30-Day Yield of 5.39% (down 1 bp). Our Prime Institutional MF Index (7-day) yielded 5.20% (down 2 bps) as of Apr. 30. The Crane Govt Inst Index was at 5.11% (down 1 bp) and the Treasury Inst Index was at 5.08% (unchanged). Thus, the spread between Prime funds and Treasury funds is 12 basis points, and the spread between Prime funds and Govt funds is 9 basis points. The Crane Prime Retail Index yielded 5.02% (down 2 bps), while the Govt Retail Index was 4.83% (unchanged), the Treasury Retail Index was 4.84% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 3.30% (up 6 bps) as of April.
Gross 7-Day Yields for these indexes to end April were: Prime Inst 5.48% (down 2 bps), Govt Inst 5.37% (down 1 bp), Treasury Inst 5.36% (unchanged), Prime Retail 5.51% (down 1 bp), Govt Retail 5.37% (down 1 bp) and Treasury Retail 5.36% (unchanged). The Crane Tax Exempt Index rose to 3.71% (up 7 bps). The Crane 100 MF Index returned on average 0.42% over 1-month, 1.26% over 3-months, 1.70% YTD, 5.20% over the past 1-year, 2.66% over 3-years (annualized), 1.93% over 5-years, and 1.30% over 10-years.
The total number of funds, including taxable and tax-exempt, was unchanged in April at 881. There are currently 760 taxable funds, unchanged from the previous month, and 121 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The May issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Goldman Latest Prime Inst Exit; CP/CDs Should Be Okay," which covers the continued exodus from Prime Institutional MMFs; "Corporate Treasurers Leaning Away from Prime, to SMAs," which quotes from recent TEXPO 2024 & NEAFP conferences; and, "NY Fed Says Money Funds in Europe Reflect Rates Fast Too," which reviews an article from The Federal Reserve Bank of NY. We also sent out our MFI XLS spreadsheet Tuesday a.m., and we've updated our Money Fund Wisdom database with 4/30/24 data. Our May Money Fund Portfolio Holdings are scheduled to ship on Thursday, May 9, and our May Bond Fund Intelligence is scheduled to go out on Tuesday, May 14. (Note: Register soon for our Money Fund Symposium next month in Pittsburgh, June 12-14. We hope you'll join us!)
MFI's "Prime Exit" article says, "The hits keep coming to the Prime Institutional MMF sector, as Goldman Sachs becomes the latest fund firm to announce an exit. A filing for the $1.6 billion Goldman Sachs Financial Square Money Market Fund and the $2.9 billion Goldman Sachs Financial Square Prime Obligations Fund, including its Administration, Capital, Institutional, Preferred, Select, Service, and Drexel Hamilton Class shares, explains, 'At a meeting held on April 16-17, 2024, upon the recommendation of Goldman Sachs Asset Management, the Board ... approved a proposal to liquidate the Goldman Sachs Financial Square Money Market Fund and Goldman Sachs Financial Square Prime Obligations Fund.'"
It continues, "This brings the total of Prime Institutional money funds declaring either pending conversions to Government or pending liquidations to 5 funds to date, representing $229.3 billion in assets, or 34.9% of the $657.0 billion total in Prime Inst MMFs (assets as of 3/31/24)."
We write in our Treasurers Leaning Away article, "Over the past month, a number of money fund providers (as well as Crane Data) attended and spoke at a series of regional corporate treasury events, shedding light on the recent dramatic growth of money funds and the current shifts and changes in money fund lineups. We attended TEXPO 2024, the Texas treasury event in Houston (4/14-16) and New England AFP in Boston (4/25-26), and sat through almost a dozen sessions involving money funds, liquidity and short-term investing. We quote from some of the sessions and highlights below."
It tells us, "TEXPO includes a presentation titled, 'Regulatory, Rate and Regime Changes: A Perfect Storm for Liquidity Investors?' with Jeff Jones of Twisted X, Wes Rager of Invesco, and Brittany O'Shea of Texas Capital. Rager explains, 'So, for us we’re just very defensive. We're trying to stay nimble. Typically in the rate environment that we're in, where we've seen what we think is the last rate hike, you want to start extending your portfolio. But if you extend to soon, you're locking in lower rates for a longer period of time."
Our "NY Fed" piece says, "The Federal Reserve Bank of New York's Liberty Street Economics featured the article, 'Monetary Policy and Money Market Funds in Europe.' It states, 'As shown in a past [post], the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is also positive -- as long as policy rates are positive; after the ECB introduced negative policy rates in 2015, that relationship broke down, as MMFs received large inflows during this period.'"
It continues, "The piece explains, 'Similar to their U.S. counterparts, European MMFs can be divided into government funds ... and prime funds based on their portfolio holdings <b:>`_.... European MMFs are regulated under Regulation (EU) 2017/1131 of the European Parliament and of the Council of the European Union (EU), which was adopted in 2017 in response to the 2008 run experienced by MMFs.'"
MFI also includes the News brief, "MMF Assets Fall on Tax Payments." It states, "Money fund assets fell by $17.6 billion to $6.387 trillion in April (after falling $68.5B in March). Outflows from the long Good Friday weekend last month-end and April 15 tax payments have temporarily paused MMFs record run. Over 12 months, money funds have risen by $694.5 billion, or 12.2%, with Taxable Retail MMFs jumping $490.2 billion (26.4%) and Taxable Inst MMFs rising by $186.1 billion (5.0%)."
Another News brief, "The Wall Street Journal's CFO Journal Writes, 'Companies Belly Up to Cash Buffet, in Five Charts.' The article tells us, 'Companies are socking away cash at the fastest rate since the onset of the pandemic. Four years ago, companies boosted their cash holdings to weather economic uncertainty stemming from virus-related lockdowns. Now, with interest rates hovering at two-decade highs, they are allocating more of their portfolios to high-yielding cash ... investments, getting a welcome boost from yields that top 5% on money-market funds.'"
A third News brief, "Barron's Says, 'Money-Market Funds Look Like a Tempting Place for Your Cash.' They write, 'Most of the time, money-market mutual funds are about as exciting as watching paint dry. That's what they're designed to be: boring and reliable. But these days, money funds have gotten interesting. And tempting. Maybe overly tempting.'"
A sidebar, "Payden Limited Maturity 30," says, "A release, 'Payden & Rygel Celebrates 30 Years of the Limited Maturity Fund (PYLMX) Amidst Four Decades of Investment Excellence' states, 'Payden & Rygel is proud to announce the 30-year anniversary of its Limited Maturity Fund (PYLMX).... Payden & Rygel has cemented its reputation as a leader in short-duration strategies.... The short duration strategy team has worked together for 15 years and currently oversees $70 billion in assets.'"
Our May MFI XLS, with April 30 data, shows total assets decreased $17.6 billion to $6.387 trillion, after decreasing $66.7 billion in March, increasing $50.0 billion in February, $87.0 billion in January, $24.5 billion in December and $219.8 billion in November. Assets decreased $39.3 billion in October, but increased $77.8 billion in September, $104.2 billion in August, $21.0 billion in July, $20.3 billion in June and $152.7 billion in May."
Our broad Crane Money Fund Average 7-Day Yield was unchanged at 5.03%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 1 bp to 5.13% in April. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 averaged 5.40% and 5.40%, respectively. Charged Expenses averaged 0.37% and 0.26% for the Crane MFA and the Crane 100. (We'll revise expenses on Wednesday once we upload the SEC's Form N-MFP data for 4/30/24.) The average WAM (weighted average maturity) for the Crane MFA was 35 days (down 2 bps from previous month) and the Crane 100 WAM was down 3 bps at 35 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
J.P. Morgan published an update titled, "MMF reform spotlight," which discusses how the latest round of money fund reforms might impact the short-term credit funding markets. Authors Teresa Ho, Pankaj Vohra and Holly Cunningham write, "With the deadline to implement mandatory liquidity fees for institutional prime MMFs rapidly approaching (in October), the potential impact this change could have on the CP/CD market has come into greater focus. Recall that the last time institutional prime funds went through a structural change was in 2016 (on the back of the 2014 MMF reforms), when they had to convert from a stable NAV to a floating NAV. In the months leading up to the effective date, numerous funds announced they were converting their prime funds to government funds." (Note: Register soon for our Money Fund Symposium next month in Pittsburgh, June 12-14. We hope you'll join us!)
They explain, "Ultimately, ~$1tn left the institutional prime fund market, and 3m bank CP/CD spreads to OIS widened by as much as 32bp.... Certainly, we can draw parallels in terms of how this upcoming round of MMF reforms could unfold. However, a closer look at the market structure today reveals there are more differences than similarities that we believe will ultimately translate to a much more benign impact on the CP/CD market, all else equal."
The piece tells us, "Current total prime fund AUMs register about $1400bn, roughly the same level before the last round of reforms came into effect. However, the underlying composition of the prime market is substantially different today versus that in 2016. Notably, balances in institutional prime funds (i.e., the funds that are subject to the structural reforms) currently register around $600-$650bn, meaningfully LOWER than the ~$1.0tn in balances in early 2016."
It continues, "Meanwhile, balances at retail prime fund AUMs are much HIGHER today, increasing from ~$500bn in early 2016 to nearly $800bn currently, with expectations that balances could continue to grow as the Fed delays rate cuts. In other words, institutional prime funds make up only 45% of the prime MMF market today, versus over 70% in 2016. Given their significantly smaller size, this should meaningfully reduce the impact of this round of reforms on the CP/CD market."
JPM says, "Prior to 2016, MMFs dominated the CP market, buying 42% of the short-term credit supply.... However, as of 4Q23, their share of the CP market has fallen drastically to 24%, despite overall growth in prime fund AUMs over the past year, particularly in retail prime funds. Meanwhile, other buyers, such as corporates, state and local governments, and securities lenders, have stepped in and played a much larger role in buying front-end credit, supporting the growth of the CP market from a low in 2016. As such, even if prime fund exposure to the CP market were to decrease slightly, the buyer base is now much more diverse and could step in to absorb some of the lost capacity from institutional prime funds as a result of reforms."
They add, "Taken together, we see a much more benign impact on CP/CD spreads as a result of MMF reform, all else equal. That's not to say the risk of wider spreads could not transpire in the coming months, but we believe they will be driven by other factors. To be sure, 6m SOFR FRN spreads have widened 5-10bp from their local tights in early March as liquidity investors turned more defensive heading into quarter-end and tax season.... There might be room to widen further as Fed policy uncertainty remains elevated and as the deadline for MMF reform approaches. But the scale of the impact as a result of reforms will not be anywhere close to what we saw in 2016, for reasons noted above. Moreover, the technical backdrop continues to be very supportive of spreads, with liquidity remaining ample in the front end."
In other news, Federated Hermes' Deborah Cunningham writes on, "Extra innings" in her latest "Month in Cash." She says, "In our view, the U.S. economy isn't moving backward or running in place, but simply in overtime in a game in which cash remains king. Two cuts are likely the most we will get this year. This makes investing tricky. Moving out of liquidity vehicles too soon might mean losing out on yield if the contest stretches on; but waiting to extend the duration of a portfolio until the first cut can lead to the same. We are sticking to our game plan of keeping our weighted average maturities long as we seek higher-yielding securities and paper further out the yield curve. This is no time to let up."
She also comments on reforms, stating, "The second of four phases of the new SEC money market rules went into effect last month with no notable bumps across the industry. Money market funds now must maintain at least 25% in daily liquid assets (previously 10%) and at least 50% in weekly liquid assets (previously 30%). Tax-exempt money funds are not subject to the daily requirement."
Cunningham adds, "The third phase, which arrives next month, is entirely administrative. Its changes primarily concern mandatory reporting, such as if a money fund invested less than 25% of its total assets in weekly liquid assets or less than 12.5% of its total assets in daily liquid assets. Phase four, which imposes mandatory fees on institutional prime and institutional municipal funds if net redemptions exceed 5% of fund's net assets, comes in October. None of the so-called reforms change our conviction that liquidity vehicles are an important and viable option for investors."
Finally, WSJ's "Buy Side" posted, "The Real Fed News: You Should Be Earning 5% or More on Your Cash," which says, "Americans are still feeling the sting of inflation, with goods and services costing 3.5% more than they did a year ago. But with the Federal Reserve holding rates steady this week, there's good news for savers: High-yield savings accounts make it easy to beat inflation, and it's starting to look as though that won't change anytime soon."
They quote DepositAccounts' Ken Tumin, "Today, there's no reason to accept anything less than 5% on savings accounts and CDs." The article adds, "That leaves savers with an unusually potent weapon against inflation, says Tumin. 'It's rare for risk-free savings products to yield significantly more than the CPI [Consumer Price Index] rate."
S&P Global Ratings published, "U.S. Domestic 'AAAm' Money Market Fund Trends (First-Quarter 2024)," earlier this week, which tells us, "Flows into rated MMFs were net positive for the first quarter. A small decline (-0.3%) for government MMFs was offset by the 6% growth for prime MMFs. The decline in government MMF assets was the first in more than 12 months. In our view, while interest rates remain high, the small dip in government MMF assets is likely temporary. It's not uncommon for seasonal swings to occur around the long, Good Friday holiday weekend and the April 15 tax date. Rated government and prime MMFs ended the quarter at $3.3 trillion and $279 billion, respectively."
They comment, "Yields for rated MMFs peaked and began trending in the opposite direction from prior quarters. Markets have begun pricing in potential rate cuts by the Federal Reserve later this year, driving yields lower. First quarter-end yields ranged from 4.3% to 5.5% for rated government funds and 5.2% to 5.6% for prime funds."
S&P writes, "Managers of rated government funds continued to shift exposure from repurchase agreements (repo) into Treasury bills, given relative value and supply. Average Treasury bill exposure increased to 36% from 32% over the quarter, whereas average weightings in repo decreased to 40% from 44%. Net Treasury bill issuance began declining during the quarter, and the U.S. Treasury Department has indicated that it will reduce the bill supply. Consequently, there may be movement back into repo and possibly increased usage of the Fed's Reverse Repo Program (RRP). For rated government funds with agency exposure, the level of agency holdings was stable, but exposure became biased towards fixed rate securities."
They state, "Asset allocations in rated prime funds were generally stable quarter over quarter. Managers purchased additional Treasury bills, bringing average exposure to approximately 4%. Weightings in certificates of deposits (CDs) and bank deposits decreased moderately, and like government funds, there was a slight preference for fixed rate exposure. Effective 'A-1 +' credit quality increased slightly in rated government MMFs and more noticeably in rated prime MMFs. Higher effective 'A-1 +' credit quality exposure in prime MMFs was primarily driven by managers shortening the maturity profiles of their funds."
S&P says, "Managers of rated government and prime MM Fs shifted gears with respect to maturity profiles. During the quarter, average weighted average maturities (WAMs) for government funds increased to as high as 42 days in February, but soon after decreased by quarter-end. Prime fund average WAMs decreased throughout the quarter, by nine days overall. Through our engagement, managers cited various reasons for shortening portfolios, like expecting delayed rate cuts and preparing for new 2a-7 MMF regulations."
The piece adds, "Specifically, prime fund managers increased short-dated exposures to meet the 25% (daily) and 50% (weekly) liquidity requirements, which became effective in April 2024. Additionally, a number of prime funds are avoiding maturities after the October timeframe, as fund sponsors work through adapting to the remaining new rules, especially the logistics of the mandatory liquidity fee, and subsequently which liquidity products to offer investors.... The distribution of NAV per share for rated MMFs narrowed quarter over quarter as a result of some funds moving downward. At quarter-end, the range for rated fund NAVs was 0.9993-1 .0010."
S&P also posted the summary, "European 'AAAm' Money Market Fund Trends (First Quarter 2024)." This update says, "Europe-domiciled MMFs rated by S&P Global Ratings reached another all-time high in terms of assets under management (AUM) as of March 31, 2024, totalling €1 .15 trillion. In the 12 months to March 2024, net assets in euro and U.S. dollar-denominated funds have increased 55% (see chart 3) and 13% (see chart 7), respectively, while sterling-denominated fell 4% over the period (see chart 5). Since the U.K.'s mini-budget crisis and the recorded asset highs of £266 billion in October 2022, sterling-denominated fund assets have fallen 16% but have operated within a +/-5% range of monthly totals over the past 1 2 months."
It continues, "Since interest rate cuts are on the horizon in 2024, in the first quarter we have seen seven-day net yields fall, with sterling and U.S. dollar-denominated funds both dropping by seven basis points (bps) to 5.16% and 5.28%, respectively. Seven-day net yields for euro-denominated funds rose five bps over the first quarter but have since fallen seven bps from their January 2024 peak to finish the quarter at 3.86%."
They write, "We have commented in the past that as interest rates decrease, we are likely to see an extension of weighted-average maturities (WAM) profiles. Sterling-denominated funds have had the largest WAM extension during the quarter with an average extension of 10-days, finishing the quarter at 44 days. Correspondingly, euro and U.S. dollar funds each extended one day during the first quarter. Notably, though, in the 12 months to March 2024, euro funds have extended 15 days, sterling funds 12 days, and U.S. dollar funds 21 days."
S&P tells us, "We consider credit quality to be a key factor in the stability of net asset value (NAV) and view the price of higher-rated assets as more stable than investments with lower ratings. All three currencies show a consistent trend of average 'A-1 +' portfolio credit quality during the first quarter increasing to 60% from 58% (see chart 2). Average 'A-1 +' credit quality in U.S. dollar funds was flat at 75% in the fourth quarter of 2023, while average 'A-1 +' credit quality of sterling MMFs decreased slightly to 64% from 65%. Consistent with our expectations, 'A-1 +' credit quality in Europe-domiciled MMFs has been maintained above the minimum 50% minimum metric for 'AAAm' rated funds."
Finally, S&P also published "'AAAm' Local Government Investment Pool Trends (First-Quarter 2024)," which says, "Both government and prime LGIPs continued their seasonal growth in the first quarter. Government LGIPs expanded to $98 billion (a 10% increase from the prior quarter), and prime LGIPs grew to $279 billion (an 8.6% increase from the prior quarter).... Prime LGIPs are those that have the ability to invest in corporate and bank credit securities -- similar to prime money market funds. Inflows at year-end and into the first quarter are common due to the cyclical nature of LGIPs, primarily attributed to seasonal tax revenue."
The LGIP update explains, "In our view, LGIPs maintain a competitive edge net of fees as they outpace bank deposits and institutional money market funds. Following the U.S. Federal Reserve's rate hikes in 2023, LGIP seven-day and 30-day net yields remain above 5%.... In first-quarter 2024, there was a slight decrease in both prime (5-basis-point decline) and government seven-day net yields (4-basis-point decline). Although still notable, the slight decline can be attributed to a small drop in Treasury yields in addition to other securities LGIPs utilize (such as commercial paper and deposits) as part of their asset allocation."
It states, "The net asset value (NAV) per share has remained stable for 'AAAm' PSFRs.... In our view, this is a result of managers continuing to prioritize liquidity and high-quality investments. The first-quarter NAV average is 25-basis-points higher than our lowest NAV threshold of 0.9975 for 'AAAm' rated PSFRs. Weekly liquid assets for government funds stood at 49% while prime funds were 40%, relatively even to prior-quarter figures."
S&P adds, "Given the direction of rates typically influences fund managers, there was a consistent rise in weighted average maturities (WAM) in 2023. First-quarter 2024 marked the first occurrence in over a year that WAMs remained the same or declined, implying uncertainty on direction and timing of rate cuts from the Fed. Additionally, limited value in extending may be a contributing factor. On average, government-focused LGIPs had a WAM of 36 days in March, the same as at the end of fourth quarter. Prime LGIPs averaged a 40-day WAM in March, a decrease from 46 days."
J.P. Morgan's last "Short-Term Market Outlook And Strategy discusses, "A deep dive into weekly MMF holdings and Treasury repo clearing." It a section entitled, "MMF holdings update special edition: tax season flows," they write, "In a departure from our usual monthly MMF holdings update, we took a look at Crane's weekly MMF holdings data to see how their portfolios evolved around tax season -- a time period when MMFs tend to see larger outflows. [A table] shows the composition of their portfolios as of March month-end, 4/11 or 4/12, and 4/18 or 4/19. This is based on 42 taxable MMFs with reported holdings data as of at least 4/18, representing close to 40% of the entire MMF universe." (Note: Let us know if you'd like to see our latest Weekly Money Fund Portfolio Holdings data set, which is a shifting subset of our monthly Money Fund Portfolio Holdings collection.)
The piece explains, "Not surprisingly, the weekly holdings data reveal that MMFs shifted away from T-bills during the first two weeks of April, declining by $11bn MTD through April 12 and by another $22bn on and in the days following April 15. This observed drop in T-bill holdings makes sense -- at the same time that net bill issuance had fallen MTD by a full $134bn as of a week ago, MMFs were in many cases seeing tax-related outflows and/or shortening portfolios in response to growing hawkishness."
It states, "On average, taxable MMFs have reduced WAMs by 2-3 days MTD. To the degree that MMFs were shedding T-bills to fund potential outflows, this might have also contributed to elevated primary dealer T-bill inventories and the resilience of T-bill/SOFR spreads. As our Treasury strategists noted, the negative T-bill issuance heading into tax season did not result in a richening in T-bill/SOFR spreads, as the higher-than-expected primary dealer T-bill inventories might have counterbalanced the impact of reduced issuance."
They then say, "Meanwhile, the weekly holdings data also reveal a notable pickup in non-Fed repo. It appears that numerous MMFs eagerly sought funding away from the Fed in the days just before April 15, with the above-mentioned subset of funds increasing non-Fed repo holdings by $53bn from March-end. This suggests funds found non-Fed repo attractive relative to RRP, a fact that could partly explain the meaningful drop in ON RRP on April 12. This appears to be supported by the data: on a weighted-average basis, many funds (at least 21) secured overnight Treasury funding at a coupon rate of 5.31% or above on 4/11 or 4/12, versus RRP's 5.30%."
JPM then states, "Looking ahead, by the end of April, we're likely to see a significant month-over-month drop in MMFs' total T-bill holdings, especially considering that we've now seen T-bill outstandings fall by a total of $180bn MTD. Aside from bills, we also expect MMF flows to return to positive and ON RRP balances to remain fairly sticky in the near term."
Their section, "Get in the clear: more details on Treasury repo clearing," tells us, "Last December, the SEC finalized the Treasury clearing mandate, which would require covered clearing agencies to have direct participants submit all eligible repo and cash trades for central clearing. All repo and reverse repo trades done with a direct participant, other than those facing certain public sector entities, are scoped in under the rule, with an implementation date of June 30, 2026. This is a big deal, as only about 30% of the Treasury repo market is currently cleared ..., and most of the remaining $3.2tn would need to be moved over to central clearing."
It continues, "In order to access clearing at FICC, scoped-in market participants (MMFs, hedge funds, banks, insurance companies, asset managers, retirement funds, pension funds, etc.) must be/become one of the following: 1) a GSD netting member, 2) a Sponsored Member of a Sponsoring Member, 3) an Indirect Participant of an Agent Clearer, or 4) a direct limited member of FICC's Centrally Cleared Institutional Tri-Party Service. Importantly, last month, FICC submitted an NPR change to the SEC in terms of how it plans on modifying GSD rules with respect to the separation, collection, and holding of margin for proprietary transactions and that of indirect participant transactions. Margin collection/posting varies depending on how a market participant accesses clearing and whether the repos are being transacted in a 'done-with' or 'done-away' model."
JPM writes, "For the most part, market participants have gravitated towards becoming a sponsored member and engaging in sponsored repo, which is transacted in a 'done-with' model. Notably, the SEC provided a 5-year exemption for registered funds, including MMFs, to place margin at FICC to support their sponsored repo transactions, but because FICC's current infrastructure prohibits end users from posting directly to FICC, dealers will likely continue to post margin on behalf of MMFs. While sponsored repo is currently the primary form of clearing for many market participants, there are still challenges with this access, particularly with respect to hedge funds and their inability to engage in portfolio margining or engage in repo with a 'done-away' model."
They conclude, "In general, clearing repos should increase dealer repo capacity given balance-sheet netting benefits and capital efficiencies gained. However, there are meaningful operational and regulatory considerations that could limit the benefits gained from moving into clearing. At this time, it's unclear whether FICC's Agent Clearing Model is a commercially-viable one that will incentivize firms to become agent clearers to facilitate 'done-away' Treasury repo transactions, which is uncommon in the current Treasury repo ecosystem. Even if they get Rule 15c3-3a relief by posting customer margin on a gross basis, the economics of running an agent clearing business could change meaningfully."
In other news, Fitch Ratings recently published "U.S. Money Market Funds: 1Q24," which says, "Total taxable money market fund (MMF) assets increased by $100.1 billion to $6.3 trillion from December 31, 2023 to March 31, 2024, according to Crane Data. Government MMFs lost $22.2 billion in assets during this period, prime MMFs gained $94.6 billion, and treasury MMFs gained $27.6 billion."
They also write, "Taxable MMFs increased their exposure to Treasury securities from December to March. Treasury holdings increased by $291 billion from December 31, 2023 to March 31, 2024 while Repo holdings decreased by $287 billion over the same period, according to Crane Data. In February, Treasury securities overtook Repo as Taxable MMFs' top asset allocation.... As of March 31, 2024, institutional government and prime MMF net yields were 5.12% and 5.24%, respectively, per Crane Data. Yields increased significantly in 2023 but have remained stable since the last Fed rate hike in July."
Finally, an article titled, "Franklin Templeton Launches Money Market Fund on Polygon" states, "Franklin Templeton has revealed that the Franklin OnChain U.S. Government Money Fund (FOBXX) will be integrated into the Polygon (MATIC) blockchain. This is a significant step for the first-ever U.S.-registered mutual fund, which now uses public blockchains to perform transactions." (Another brief was just posted by this a.m. by Axios, "BlackRock tokenized fund overtakes Franklin Templeton.")
For more, see these Crane Data News stories: "European Money Fund Symposium London, Sept. 19-20; Tokenized MMFs" (4/25/24), "CoinDesk on Tether Stablecoin; Paxos" (2/5/24), "Forbes: SEC Targets PayPal Stablecoin" (11/13/23), "J.P. Morgan on Stablecoin Shrinkage, Risks; Bloomberg, WSJ and NY Fed" (9/28/23), "CNBC on PayPal, Paxos' Stablecoin" (8/10/23) and "NY Fed on 'Runs on Stablecoins'" (7/19/23).
The Investment Company Institute, the trade group for the mutual fund industry, published its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for March 2024 earlier this week. ICI's monthly Trends shows money fund totals falling $73.0 billion in March to $5.984 trillion (after a jump in February, January, December and November, a decrease in October, and increases in September, August, July, June, May and April). Prior to this, the March 2023 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 increased $63.8 billion to $4.846 trillion, and bond ETF assets increased and remain above the $1.5 trillion level (after passing it for the first time ever 3 months ago).
MMFs have increased by $745.5 billion, or 14.2%, over the past 12 months (according to ICI's Trends through 3/31). Money funds' March asset decrease follows an increase of $55.1 billion in February, $82.4 billion in January, $34.9 billion in December, $213.9 billion in November, a decrease of $13.6 billion in October and gains of $74.1 billion in September, $123.9 billion in August $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 and $31.5 billion in January. 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 $1.533 trillion as of 3/31, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased $432.10 billion, or 1.6 percent, to $26.81 trillion in March, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $26.63 billion in March, compared with an inflow of $37.53 billion in February.... Money market funds had an outflow of $89.33 billion in March, compared with an inflow of $38.16 billion in February. In March funds offered primarily to institutions had an outflow of $114.10 billion and funds offered primarily to individuals had an inflow of $24.77 billion."
The Institute's latest statistics show that Taxable MMFs were lower while Tax Exempt MMFs were higher from last month. Taxable MMFs decreased by $75.2 billion in March to $5.863 trillion. Tax-Exempt MMFs increased $2.2 billion to $121.3 billion. Taxable MMF assets increased year-over-year by $736.5 billion (14.4%), and Tax-Exempt funds rose by $9.0 billion over the past year (8.0%). Bond fund assets increased by $63.8 billion (after increasing $3.2 billion in February) to $4.846 trillion; they've increased by $216.7 billion (4.7%) over the past year.
Money funds represent 22.3% of all mutual fund assets (down 0.7% from the previous month), while bond funds account for 18.1%, according to ICI. The total number of money market funds was 275, up 3 from the prior month and down from 281 a year ago. Taxable money funds numbered 230 funds, and tax-exempt money funds numbered 45 funds.
ICI's "Month-End Portfolio Holdings" confirms a drop in Treasuries and CDs last month. Treasury holdings in Taxable money funds decreased last month; they became the largest composition segment in February. In March, Treasury holdings decreased $28.2 billion, or -1.2%, to $2.383 trillion, or 40.7% of holdings. Treasury securities have increased by $1.387 trillion, or 139.1%, over the past 12 months. (See our Apr. 10 News, "April Money Fund Portfolio Holdings: Repo Rises, Treasuries, TDs Fall.")
Repurchase Agreements fell to become the second largest composition segment in February, but in March they increased $15.8 billion, or 0.7%, to $2.245 trillion, or 38.3% of holdings. Repo holdings have decreased $747.1 billion, or -25.0%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $14.7 billion, or -2.1%, to $676.2 billion, or 11.5% of holdings. Agency holdings have decreased by $57.2 billion, or -7.8%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $32.5 billion, or -9.3%, to $316.1 billion (5.4% of assets). CDs held by money funds rose by $109.2 billion, or 52.8%, over 12 months. Commercial Paper remained in fifth place, up $17 million, or 0.0%, to $256.4 billion (4.4% of assets). CP increased $89.9 billion, or 54.0%, over one year. Other holdings decreased to $19.8 billion (0.3% of assets), while Notes (including Corporate and Bank) decreased to $3.8 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 66.445 million, while the Number of Funds was up 3 at 230. Over the past 12 months, the number of accounts rose by 8.658 million and the number of funds decreased by 2. The Average Maturity of Portfolios was 39 days, down 1 from February. Over the past 12 months, WAMs of Taxable money have increased by 23.
