News Archives: March, 2020
After dropping below the 1.0% level two weeks ago, average yields on money market funds dropped to the 0.5% level in the latest week. Yields on Government money market funds plunged, and some Treasury funds began closing to new investors. Our flagship Crane 100 Money Fund Index fell 22 basis points to 0.50%, according to Money Fund Intelligence Daily (data as of Friday, 3/27). The Crane 100 is down from 1.46% at the start of the year and down 1.73% from the beginning of 2019 (2.23%). Our Crane Brokerage Sweep Index remained at 0.02% (for balances of $100K), the same as a week ago and down 26 bps from the end of 2018 (0.28%), as most brokerages have already hit the 0.01% floor. Our latest Brokerage Sweep Intelligence, with data as of March 27, shows three out of 11 major brokerages cut rates in the past week, and ten out of 11 major brokerages now offer rates of 0.01% for balances of $100K.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.50%, down 17 basis points in the week through Friday, March 27. Prime Inst MFs were down 9 bps to 0.92% in the latest week, while Government Inst MFs fell by 21 bps to 0.46% and Treasury Inst MFs dropped by 23 bps to 0.36%. Treasury Retail MFs currently yield 0.11%, (down 19 bps), Government Retail MFs yield 0.31% (down 17 bps), and Prime Retail MFs yield 0.82% (down 9 bps), Tax-exempt MF 7-day yields increased 1.02% to 3.61%.
Yesterday's Brokerage Sweep Intelligence shows that RW Baird lowered rates across the board in the past week, while Ameriprise and TD Ameritrade dropped their higher tier rates. RW Baird cut rates through their $100K balance by 0.09%; their 100K balance dropped to 0.01%. RW Baird cut their $250K, $500K, $1M and >$5M balances by 11 bps, 11 bps, 14 bps and 19 bps, respectively. Ameriprise and TD Ameritrade both dropped their upper tiers, while both of their $100K balances remained at 0.01%. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months.
Crane's Brokerage Sweep Index remained unchanged at 0.02% in the week ended March 27 (for balances of $100K.) Ameriprise, E*Trade, TD Ameritrade, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, UBS, Wells Fargo and RW Baird all currently have the lowest rate (0.01%) for balances at the $100K level. Fidelity is the only major brokerage firm paying more than 0.01% on $100K balances; their $100K balance is 0.07%.
In other news, the Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing – February 2020" and "Month-End Portfolio Holdings of Taxable Money Funds." These reports shows that money fund assets increased by $32.9 billion to $3.647 trillion in February. Last month's increase follows a decrease of $18.1 billion in January and increases of $67.0 billion in December and $47.0 billion in November. For the 12 months through Feb. 29., 2020, money fund assets have increased by $556.0 billion, or 18.0%. (Our MFI Daily shows assets up by as massive $612.1 billion in March to $4.578 trillion through 3/27.)
ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds decreased by $833.69 billion, or 3.9 percent, to $20.41 trillion in February, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."
It explains, "Bond funds had an inflow of $12.75 billion in February, compared with an inflow of $57.16 billion in January.... Money market funds had an outflow of $30.30 billion in February, compared with an outflow of $21.29 billion in January. In February funds offered primarily to institutions had an inflow of $5.25 billion and funds offered primarily to individuals had an inflow of $25.06 billion."
ICI's latest statistics show that Taxable MMFs gained assets while Tax Exempt MMFs lost assets last month. Taxable MMFs increased by $34.3 billion in February to $3.512 trillion. Tax-Exempt MMFs decreased $1.4 billion in February to $134.7 billion. Taxable MMF assets increased year-over-year by $559.6 billion (19.0%). Tax-Exempt funds fell by $3.6 billion over the past year (-0.02%). Bond fund assets increased by $53.2 billion in February (0.01%) to $4.884 trillion; they've risen by $698.4 billion (16.7%) over the past year.
Money funds represent 17.9% of all mutual fund assets (up 0.9% from the previous month), while bond funds account for 23.9%, according to ICI. The total number of money market funds was 361, down three from the month prior and down from 367 a year ago. Taxable money funds numbered 281 funds, and tax-exempt money funds numbered 80 funds.
ICI's "Month-End Portfolio Holdings" update confirms a jump in Repo and increases in Agencies and Treasuries last month. Repurchase Agreements remained in first place among composition segments; they increased by $15.2 billion, or 1.2%, to $1.260 trillion, or 35.9% of holdings. Repo holdings have risen $218.3 billion, or 21.0%, over the past year. (See our Mar. 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.")
Treasury holdings in Taxable money funds increased by $4.9 billion, or 0.5%, to $959.0 billion, or 27.3% of holdings. Treasury securities have increased by $127.4 billion, or 15.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $7.1 billion, or 1.0%, to $725.1 billion, or 20.6% of holdings. Agency holdings have risen by $82.4 billion, or 12.8%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they decreased by $3.9 billion, or -1.2%, to $306.8 billion (8.7% of assets). CDs held by money funds have grown by $73.8 billion, or 31.7%, over 12 months. Commercial Paper remained in fifth place, up $1.3 billion, or 0.5%, to $238.0 billion (6.8% of assets). CP has increased by $29.7 billion, or 14.3%, over one year. Notes (including Corporate and Bank) were down $1.4 billion, or-12.1%, to $10.5 billion (0.3% of assets), while Other holdings increased $489 million to $12.9 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 417.8 thousand to 38.115 million, while the Number of Funds decreased three to 281. Over the past 12 months, the number of accounts rose by 4.122 million and the number of funds decreased by five. The Average Maturity of Portfolios was 32 days, one less than in January. Over the past 12 months, WAMs of Taxable money have increased by three.
This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below. (Note: The following is reprinted from the March issue of Money Fund Intelligence, which was published on March 6. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us a little bit of history. Curry: We've been running money funds for over 25 years in a very broad range of currencies. We treat liquidity as an asset class in its own right, so we've got dedicated investment professionals, client service teams, distribution teams, product teams, all focused on this asset class. Liquidity represents around 20 percent of the AUM ... of HSBC Global Asset Management. It's a very important part of the of the asset management franchise here at HSBC. I joined HSBC in 2010, as the Global Chief Investment Officer for Liquidity. I moved to the U.S. in Q'3 2016, to take on the additional responsibilities that I have today. Prior to joining HSBC, I was at Barclays Global Investors.
MFI: Tell us about the fund lineup. Curry: For liquidity, we finished 2019 with just under $100 billion, $98.1 billion to be precise. We manage liquidity solutions in 11 currencies globally, which is one the widest breadth of currencies of any manager. It covers both developed and emerging market currencies. We have offerings in U.S. dollar, in sterling, in euros, which are where the bulk of the assets that we have are managed. In Asia, we have Hong Kong dollar funds, RMB, Australian dollar, Taiwan dollar and Indian rupee. In addition to sterling and euros in Europe, we have Turkish lira. In the Americas, in addition to US dollars, we have a Canadian dollar offering and an Argentinian peso offering.
The flagship funds are our European-domiciled, Dublin-based Global Liquidity Fund range and our [U.S.] '40-Act range. That houses a good percentage of the AUM that we manage. Within the Global Liquidity Fund range we have U.S. dollar, sterling, euro, Canadian dollar and Aussie dollar. In the US, we have a Government fund and a Treasury fund. We have just under a $5.5 billion U.S. dollar equivalent in Hong Kong. That's the largest currency outside of the three main currencies.... We're the only money fund in Hong Kong dollar that is triple-A rated and offers same-day settlement.
MFI: What's your biggest priority? Curry: There are a number of priorities that we have for 2020. Firstly, we want to continue to grow the business. We saw some good growth in 2019 particularly, and we'd like to see that continue into 2020 and beyond.... In our U.S. government 2a-7 money fund, we've seen growth in both assets and market share. In 2019, we were the second highest percentage increase in assets of the top 20 money fund providers in the U.S. We were up 48% across the U.S. domestic platform in 2019, in both money funds and separately managed accounts. We also saw some good growth in Europe, in the flagship global liquidity fund range and we added several separately managed accounts globally.
ESG is another one. We already have a strong track record and credentials in ESG integration in our existing investment processes, and we're a leading provider of liquidity solutions globally. So we're working towards combining these two capabilities to deliver ESG liquidity products to our clients. As part of that strategy, for the existing funds that we already have in the market, we're going to be further emphasizing and demonstrating how ESG factors are integrated into our existing credit and investment process; we're going to be providing more information to clients to help them better understand how we've factored ESG considerations into our existing funds. But they will not necessarily be branded 'ESG funds' per se.
We're also looking at whether to introduce ESG specific products where the client demand exists for that type of solution. [W]e will be using client feedback to [select] specific criteria that will help define the investable universe for specifically-labelled ESG money market funds. That investable universe may differ from [those of] 'vanilla' money market funds. [W]e believe we can be clearer on what ESG criteria does and does not apply to an ESG money fund solution. (See Crane Data's Feb. 19 News, "HSBC Files to Launch ESG Prime Money Market Fund; Proprietary Scoring" and HSBC's new fund filing for more.)
We have clearly a very broad range of money market fund solutions across a wide range of currencies and markets. But we are also looking to expand our fund range, both in the standard money fund space in Europe and in the ultrashort duration space. We're also in the process of enhancing our existing HSBC Liquidity Portal. We have an existing offering today, which supports our own funds for HSBC clients. We are working to upgrade and enhance the functionality to allow clients more seamless access to the existing fund families on that platform and expand the offering to other HSBC fund ranges globally. We are targeting launch in late 2020.
Then more broadly, we're responding to regulatory change in the different markets that we operate in. The LIBOR transition is an example of that. We've been spending time thinking about these implications ... and making sure that not only are we prepared for that change, but our clients are too.... That's the focus for us in 2020 and 2021.
MFI: What's your biggest challenge? Curry: I think negative rates are a challenge, there's no point in denying that. But the challenge really is when a rate pivots from a positive or zero rate to a negative rate. It's that transition period that really is the biggest challenge. Once that has happened and stabilized, our experience is that investors will continue to think about this in the same way, [asking] 'What does the money fund offer to me from a return perspective relative to other solutions they have?' They'll factor in the efficiencies of using the money market fund, the benefits of diversification, etc.
I think one of the biggest challenges of managing cash globally [is] delivering a globally consistent investment process, but factoring in local money market nuances and also local regulation. What we want to be able to offer clients is the comfort that if they’re investing in any currency that we have on our platform, they know that there is a consistent philosophy and a consistent investment process.
MFI: What are you buying? Curry: I think we are pretty consistent with the rest of the money fund market in terms of the types of instruments that we're using in different locations. Certainly repo is a key instrument type for us in the U.S.... We also make use of it for our European domiciled range, particularly for the U.S. dollar fund within that range, but also at times with other currencies. The repo markets in some of the other markets that we operate in are non-existent or less developed. We do use them in India and China.... Typically deposits are pretty critical in some of the markets where repo doesn't exist. And then [there are] also other familiar money market instruments, such as certificates of deposit and commercial paper.
MFI: How about customer feedback? Curry: There are quite a few things that we're hearing from customers.... They're looking for ideas and solutions [and looking] for ways to optimize the use of their cash.... They're interested in understanding how asset managers manage sustainability factors within their fund ranges. They're looking to understand, measure and assess variances in risk across fund providers in a post-reform world. One of the things regulation has done, particularly in European domiciled funds, is change approaches and risk between different managers. On the surface they may not be obvious to the end investor, but it is important that those risks are understood.
They're also continuing to look for ways to invest restricted cash.... They're looking to improve cash forecasting [which] allows them to open up opportunities to segment cash and explore longer duration options. This makes a lot of sense in the current environment, and clearly technology is playing and will continue to play an important part in how investors access money market funds and how they get information on money market funds.
We've always had to be very close to our clients, whether those clients invest in our funds directly or whether they invest via a third party. We've always needed insight into our clients, who they are, how they operate. That is a very critical part of liquidity risk management. So, whilst the regulation puts a more explicit prescription around recognizing that money funds should know their clients ... it's something we've always done.
MFI: Anything to add on China? Curry: China is clearly now a very important market for money market funds globally. Their significant growth has been due to the domestic retail client base. Our focus has been on global institutional or multinational clients that have operations in China that are looking for a solution from a manager that they work with already.... That's the market that we've targeted and been successful in growing.... We expect to see continued growth in that market, both in our offering and also in the market more broadly. There's been a number of iterations of regulatory change, which we're very supportive of and which I think is good for the industry.
MFI: What about negative rates? Curry: In terms of rates, I think our view is pretty consistent with the market -- lower for longer in the majority of markets that we operate in, which includes negative rates in the case of euros. From a credit perspective, in terms of the approved issuance that we operate off of, we're broadly comfortable with credit ... again in the majority of the markets that we operate in, particularly in developed markets. There are one or two markets that we operate in where we've probably de-risked from a credit perspective because of a concern of potential further credit deterioration. India would be an example of that. But otherwise we're broadly comfortable in credit at the moment.
MFI: What's your outlook? Curry: I think the regulation that has been enacted in pretty much all the markets we operate in post-global financial crisis makes this industry stronger. I think part of the reason why we continue to see growth in money market funds globally, whether it's in our own suite of products or whether it's in the industry more broadly ... is because the regulation has given investors even more confidence in money market funds as a fantastic tool to invest short term cash.
The benefits of a money market fund generically that we all know and love ... have not changed. You've got the same features, the same benefits that have always existed in money market funds, in arguably, a better risk-controlled framework as stipulated by the regulation. I think that's been positive for the industry, and I think those factors will continue to support growth in the industry for hopefully many years to come.
The Investment Company Institute's latest "Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2019" release shows that money fund assets globally rose by $311.2 billion, or 4.7%, in Q4'19 to a record $6.937 trillion. The increase was driven by big gains in U.S.-based money funds, and increases in Ireland-, China- and Luxembourg-based money funds. MMF assets worldwide have increased by $860.7 billion, or 14.2%, the past 12 months, and money funds in the U.S. now represent 52.4% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)
ICI's release says, "Worldwide regulated open-end fund assets increased 6.4 percent to $54.88 trillion at the end of the fourth quarter of 2019, excluding funds of funds. Worldwide net cash inflow to all funds was $836 billion in the fourth quarter, compared with $675 billion of net inflows in the third quarter of 2019. The Investment Company Institute compiles worldwide open-end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the fourth quarter of 2019 contains statistics from 47 jurisdictions."
It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the fourth quarter of 2019. For example, on a US dollar-denominated basis, fund assets in Europe increased by 6.5 percent in the fourth quarter, compared with an increase of 3.3. percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets increased by 8.3 percent to $24.51 trillion at the end of the fourth quarter of 2019. Bond fund assets increased by 3.6 percent to $11.80 trillion in the fourth quarter. Balanced/mixed fund assets increased by 5.9 percent to $6.84 trillion in the fourth quarter, while money market fund assets increased by 4.8 percent globally to $6.94 trillion."
The release also says, "At the end of the fourth quarter of 2019, 45 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 21 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 13 percent of the worldwide total."
ICI adds, "Net sales of regulated open-end funds worldwide were $836 billion in the fourth quarter of 2019. Flows into equity funds worldwide were $143 billion in the fourth quarter, after experiencing $3 billion of net outflows in the third quarter of 2019. Globally, bond funds posted an inflow of $257 billion in the fourth quarter of 2019, after recording an inflow of $271 billion in the third quarter.... Money market funds worldwide experienced an inflow of $287 billion in the fourth quarter of 2019 after registering an inflow of $311 billion in the third quarter of 2019."
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. strengthened its position as the largest money fund market in Q419 with $3.632 trillion, or 52.4% of all global MMF assets. U.S. MMF assets increased by $191.0 billion (5.6%) in Q4'19 and increased by $595.0B (19.6%) in the 12 months through Dec. 31, 2019. China remained in second place among countries overall, despite assets declining over the past 12 months. China saw assets increase $31.9 billion (3.2%) in Q4, passing $1.0 trillion again after last quarter's decline, to $1.022 trillion (14.7% of worldwide assets). Over the 12 months through Dec. 31, 2019, Chinese MMF assets have fallen by $88.0 billion, or -7.9%.
Ireland remained third among country rankings, ending Q4 with $632.3 billion (9.1% of worldwide assets). Dublin-based MMFs were up $32.5B for the quarter, or 5.4%, and up $73.6B, or 13.2%, over the last 12 months. Luxembourg remained in fourth place with $408.1 billion (5.9% of worldwide assets). Assets there increased $17.0 billion, or 4.4%, in Q4, and were up $24.7 billion, or 6.4%, over one year. France was in fifth place with $352.3B, or 5.1% of the total, down $16.0 billion in Q4 (-4.4%) and down $21.4B (-5.7%) over 12 months.
Australia was listed in sixth place with $243.1 billion, or 3.5% of worldwide assets. Its MMFs increased by $8.0 billion, or 3.4% in Q4. Note that ICI's data includes this footnote for Australia: "Due to a reclassification, a portion of the assets from the 'other' category have been moved into the money market and real estate categories." Australia's MMF assets were mysteriously shifted into the "Other" category several years ago but just reappeared last quarter. Japan was in seventh place with $116.2 billion (1.7%); assets there rose $11.7 billion (11.2%) in Q4 and increased by $16.0 billion (16.0%) over 12 months.
Korea, the 8th ranked country, saw MMF assets increase $5.0 billion, or 5.8%, in Q4'19 to $91.3 billion (1.3% of the world's total MMF assets); they've risen $10.7 billion (13.3%) for the year. Brazil was in 9th place, as assets increased $3.5 billion, or 4.3%, to $84.4 billion (1.2% of total assets) in Q4. They've increased $7.9 billion (10.2%) over the previous 12 months. ICI's statistics show India increased to 10th place with $69.7B, or 1.0% of total, up $5.8B (9.1%) in Q4 and up $6.1 (9.6%) for the year. Mexico was in 11th place, increasing $680 million, or 1.0%, to $65.8 billion (0.9% of total assets) in Q4 and increasing $7.2 billion (12.2%) over the previous 12 months.
The United Kingdom ($28.6, up $2.4B and up $3.4B over the quarter and year, respectively) ranked 12th ahead of Chili ($27.6B, up $9.4B and up $6.2B). Canada ($27.0B, up $2.4B and up $5.4B) and Chinese Taipei ($26.7 up $1.9B and up $4.1M), rank 13th through 15th, respectively. South Africa, Switzerland, Norway, Germany and Belgium round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $3.845 trillion, up $208.3 billion in Q4. Asian MMFs increased by $65.1 billion to $1.577 trillion, while Europe saw its money funds increase by $36.9 billion in Q4'19 to $1.490 trillion. Africa saw its money funds increase $943M to $25.0 billion.
Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data.
The Securities and Exchange Commission's latest "Money Market Fund Statistics" summary shows that total money fund assets increased by $17.3 billion in February to $4.034 trillion, the 19th increase in the past 20 months. (Month-to-date in March through 3/24, assets have skyrocketed by an incredible $464.4 billion to $4.430 trillion according to our MFI Daily.) The SEC shows that Prime MMFs dropped $13.9 billion in February to $1.109 trillion, while Govt & Treasury funds jumped by $32.0 billion to $2.784 trillion. Tax Exempt funds fell by $0.8 billion to $141.0 billion. (MFI Daily shows Prime down $145.1 billion, and Govt MMFs up $618.6B in March so far.) Yields were down for Prime MMFs, Govt MMFs remained flat and Tax-Exempt MMF yields increased in February. 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.
February's asset increase follows a decrease of $4.3 billion in January and increases of $37.2 billion in December, $45.6 billion in November, $88.6 billion in October, $82.9 billion in September, $76.3 billion in August, $75.6 billion in July, $41.9 billion in June, $78.2 billion in May, $690 million in April and $87.9 billion in March. Over the 12 months through 2/29/20, total MMF assets increased by $627.7 billion, or 18.4%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not reported to ICI or others, though Crane Data tracks most of these.)
The SEC's stats show that of the $4.034 trillion in assets, $1.109 trillion was in Prime funds, which fell $13.9 billion in February. This follows an increase of $28.1 billion in January, a decrease of $26.5 billion in December and increases of $20.2 billion in November, $38.4 billion in October, $11.7 billion in September and $10.6 billion in August. Prime funds represented 27.5% of total assets at the end of February. They've increased by $236.4 billion, or 27.1%, over the past 12 months.
Government & Treasury funds totaled $2.784 trillion, or 69.0% of assets. They jumped 32.0 billion in February after falling $31.4 billion in January and rising $64.7 billion in December, $24.2 billion in November, $46.6 billion in October, $72.9 billion in September and $66.0 billion in August. Govt & Treas MMFs are up $394.0 billion over 12 months, or 16.5%. Tax Exempt Funds decreased $0.8B to $141.0 billion, or 3.5% of all assets. The number of money funds was 367 in January, unchanged from the previous month and down 3 funds from a year earlier.
Yields for Taxable MMFs were mixed in February, with only Tax Exempt yields rising. The declines of the past 11 months follow almost 24 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Feb. 29 was 1.73%, down 10 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 1.79%, down 4 basis points. Gross yields were 1.64% for Government Funds, unchanged from last month. Gross yields for Treasury Funds were also unchanged at 1.63%. Gross Yields for Muni Institutional MMFs rose from 0.97% in January to 1.17%. Gross Yields for Muni Retail funds jumped from 1.00% to 1.20% in February.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 1.65%, down 9 bps from the previous month and down 87 bps since 2/29/19. The Average Net Yield for Prime Retail Funds was 1.58%, down 4 bps from the previous month and down 0.85% since 2/29/19. Net yields were 1.38% for Government Funds, unchanged from last month. Net yields for Treasury Funds decreased 1 basis points to 1.40%. Net Yields for Muni Institutional MMFs jumped from 0.84% in January to 1.05%. Net Yields for Muni Retail funds increased from 0.73% to 0.93% in February. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in February. The average Weighted Average Life, or WAL, was 64.4 days (up 1.0 days from last month) for Prime Institutional funds, and 63.0 days for Prime Retail funds (down 1.1 days). Government fund WALs averaged 91.9 days (down 1.1 days) while Treasury fund WALs averaged 97.4 days (up 2.4 days). Muni Institutional fund WALs were 15.7 days (down 0.6 days), and Muni Retail MMF WALs averaged 33.8 days (down 0.9 days).
The Weighted Average Maturity, or WAM, was 31.1 days (up 0.5 days from the previous month) for Prime Institutional funds, 33.3 days (up 1.0 days from the previous month) for Prime Retail funds, 29.4 days (down 0.7 days) for Government funds, and 38.2 days (up 0.1 days) for Treasury funds. Muni Inst WAMs were down 0.8 days to 115.1 days, while Muni Retail WAMs decreased 0.9 days to 31.5 days.
Total Daily Liquid Assets for Prime Institutional funds were 47.3% in February (up 0.3% from the previous month), and DLA for Prime Retail funds was 25.7% (up 1.1% from previous month) as a percent of total assets. The average DLA was 46.8% for Govt MMFs and 89.6% for Treasury MMFs. Total Weekly Liquid Assets was 51.3% (down 1.8% from the previous month) for Prime Institutional MMFs, and 41.1% (up 0.5% from the previous month) for Prime Retail funds. Average WLA was 70.3% for Govt MMFs and 97.6% for Treasury MMFs.
In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for February 2020," the largest entries included: Canada with $164.1 billion, the US with $113.1 billion, Japan with $107.3 billion, France with $101.1B, Germany with $56.1B, the UK with $50.1B, Australia/New Zealand with $46.5B, the Netherlands with $44.6B and Switzerland with $26.6B. The biggest gainers among the "Prime MMF Holdings by Country" include: Canada (up $14.5B), the UK (up $5.4B), the Netherlands (up $1.8B) and Germany (up $1.6B). The biggest decreases were the Japan (down $8.4B), Australia/New Zealand (down $8.3B), France (down $7.1B), Switzerland (down $6.3B) and the U.S. (down $6.0B).
The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $133.6B (down $4.3B from last month), the Eurozone subset had $21.18.9B (down $3.9B). The Americas had $277.7 billion (up $8.6B), while Asia Pacific had $174B (down $20.2B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.106 trillion in Prime MMF Portfolios as of February 29, $360.8B (32.6%) was in CDs and Time Deposits (down from $369.1B), $308.4B (27.9%) was in Government & Treasury securities (direct and repo) (down from $311.0B), $209.9B (19.0%) was in Financial Company CP (down from $226.9B), $162.9B (14.7%) was held in Non-Financial CP and Other securities (up from $153.9B), and $64.4B (5.8%) was in ABCP (up from $60.3B).
The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $210.7 billion, Canada with $166.5 billion, France with $213.7 billion, the UK with $121.2 billion, Germany with $24.5 billion, Japan with $151.7 billion and Other with $41.6 billion. All MMF Repo with the Federal Reserve fell by $2.3 billion in February to $2.2 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 10.3%, Prime Retail MMFs with 7.7%, Muni Inst MMFs with 2.3%, Muni Retail MMFs 5.9%, Govt MMFs with 18.1% and Treasury MMFs with 17.2%.
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics, which track a shifting subset of our monthly Portfolio Holdings collection, yesterday. The most recent cut (with data as of Mar. 20) includes Holdings information from 94 money funds (up 16 from a week ago), which represent $2.312 trillion (up from $1.859 trillion) of the $3.835 trillion (60.3%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website. For our latest monthly Holdings, see our March 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.")
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $827.0 billion (up from $654.8 billion a week ago), or 35.8%, Treasury totaling $732.9 billion (up from $609.3 billion a week ago), or 31.7% and Government Agency securities totaling $474.6 billion (up from $354.2 billion), or 20.5%. Certificates of Deposit (CDs) totaled $91.7 billion (down from $92.1 billion), or 4.0%, and Commercial Paper (CP) totaled $87.5 billion (up from $78.7 billion), or 3.8%. A total of $60.3 billion or 2.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $37.9 billion, or 1.6%. Funds in our weekly collection shortened maturities substantially; a massive 55.2% of assets matures in 1-7 days.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $732.9 billion (31.7% of total holdings), Federal Home Loan Bank with $332.2B (14.4%), Fixed Income Clearing Co with $159.8B (6.9%), BNP Paribas with $85.8B (3.7%), Federal Farm Credit Bank with $70.0B (3.0%), RBC with $67.0B (2.9%), JP Morgan with $49.3B (2.1%), Federal Home Loan Mortgage Co with $44.1B (1.9%), Barclays PLC with $43.9B (1.9%) and Credit Agricole with $39.6B (1.7%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($175.2B), Fidelity Inv MM: Govt Port ($165.8B), Goldman Sachs FS Govt ($131.9B), BlackRock Lq FedFund ($127.9B), Federated Govt Oblg ($121.2B), Wells Fargo Govt MM ($102.7B), Morgan Stanley Inst Liq Govt ($96.9B), JP Morgan 100% US Treas MMkt ($91.5B), BlackRock Lq T-Fund ($80.4B) and Goldman Sachs FS Treas Instruments ($78.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
In other news, an update entitled, "US Prime Money Mkt Fund Outlook Negative on Liquidity Challenge" explains, "Fitch Ratings has revised its sector outlook for U.S. prime money market funds (MMFs) to Negative from Stable, reflecting heightened redemptions and reduced liquidity in short-term markets, which have pressured MMFs' liquidity management capabilities. Fitch believes risks for the MMF sector remain elevated given investor risk aversion and unprecedented market volatility, despite recent Fed /policy measures to improve secondary liquidity in the commercial paper (CP) markets. Furthermore, banks and corporate entities are facing increased credit risks, which could pressure funds' underlying investment portfolios."
It continues, "Underscoring the importance of recent central bank measures, Fitch's current rating and/or outlook views for the sector may have been more adversely affected if not for the policy measures. Prime MMF ratings could be negatively impacted by a material degradation in fund credit profiles, outsized redemptions that result in impaired liquidity positions or if recently announced market interventions do not alleviate broader short-term market pressures sufficiently. The suspension of redemptions by a fund would result in a downgrade to at least 'BBmmf', consistent with Fitch's MMF rating definitions."
Fitch comments, "In addition to central bank facilities to support the short-term market broadly, the Fed's newly announced Money Market Mutual Fund Liquidity Facility (MMLF) will indirectly support MMF liquidity. Certain financial institutions will be allowed to take non-recourse advances from the Fed against CP and other securities acquired from prime MMFs. Fitch is aware of several MMFs that have taken advantage of the MMLF program to sell highly rated securities to financial institutions, both affiliated and unaffiliated to the funds, to raise liquidity to meet redemptions while maintaining weekly liquidity ratios above 30%."
They also tell us, "Fitch-rated funds have weathered outflows to date, meeting redemptions using natural liquidity and selling of securities while broadly maintaining liquidity above regulatory minimums and within Fitch's 'AAAmmf' rating range. Between March 5 and 20, U.S. prime MMFs had outflows of around $137 billion, or approximately 12% of March 5 assets under management (AUM), driven by investors' increasing appetite for low risk assets as the coronavirus pandemic increases risk aversion. These outflows fall within historical ranges considering prior stressed periods, such as 2008, but are elevated relative to recent trends. However, individual U.S. prime institutional funds experienced outflows as high as 63% over this period."
It continues, "U.S. prime institutional MMFs had 44% weekly liquidity on average as of March 19 (according to Crane Data). However, liquidity buffers have eroded due to outflows, with a number of large U.S. prime institutional funds' weekly liquidity falling to under 35%. Fund managers have been selling assets to maintain at least 30% weekly liquidity, as regulations allow fund boards to impose liquidity fees or redemption gates upon a breach of this threshold. A breach of the threshold, and even approaching it, may cause accelerated outflows as investors may attempt to redeem their cash ahead of a potential imposition of fees or gates."
Fitch adds, "However, the imposition of fees or gates is entirely at the discretion of the fund's board. Thus far, Fitch is aware of one large non-Fitch-rated prime MMF that saw its weekly liquidity dip below the regulatory threshold of 30%. The fund has not imposed fees or gates, with redemptions after this breach not significantly larger than on prior days."
Finally, they state, "Elevated industry outflows also mean that MMFs' need to reinvest cash from maturing assets is reduced. Fitch believes recent allocations have been, and will continue to be, increasingly directed toward higher quality and shorter-dated securities. This will likely result in more conservative fund profiles, with increased liquidity and lower sensitivity to market risk through reduced weighted average lives (WALs). However, in the short term, WALs may actually increase as shorter-dated securities are used to meet redemptions."
Separately, Fitch also published the brief, "China Exposure Down (New Coronavirus Adds to Limited Appetite for China Exposure." They write, "U.S. prime money market funds (MMFs) reduced exposure to Chinese issuers in February 2020, and relative to prime funds' total assets, exposure to China remains slight. Of 32 U.S. prime money fund managers tracked by Crane Data, only six had invested in Chinese issuers as of the end of February 2020. Chinese exposure fell from 0.51% of U.S. prime MMF assets in January 2020 to 0.38% in February 2020, a notional decline of $1.5 billion."
Fitch adds, "Due to the small overall dollar exposure to China in U.S. MMFs, changes in exposure levels were driven by one very large fund manager that let some of its Chinese securities mature and roll off. Based on differences in holdings between January and February, it appears that managers had not sold any securities with Chinese exposure, but, instead, exposures decreased as securities matured."
The Federal Reserve pulled out all the stops to support the money markets Monday, as its Money Market Mutual Fund Liquidity Facility, announced March 18, reached full force and was expanded to include almost all major asset classes owned by MMFs (CDs and VRDNs were the keys adds over the weekend. The move appears to be ratcheting down the level of danger in the money markets substantially, though we're not out of the woods yet. Prime outflows have decreased for 5 days in a row and weekly liquid assets increased noticeably Monday. The recently posted "Money Market Mutual Fund Liquidity Facility FAQs" explains, "How will this program support money market mutual funds (MMMFs)? In the days prior to the initiation of the program, some MMMFs experienced significant demands for redemptions by investors. Under ordinary circumstances, they would have been able to meet those demands by selling assets. Recently, however, many money markets have become extremely illiquid due to uncertainty related to the coronavirus outbreak. Pursuant to Section 13(3) of the Federal Reserve Act, and with prior approval of the Secretary of the Treasury, the Board of Governors of the Federal Reserve System (Board) authorized the Federal Reserve Bank of Boston (FRBB) to establish the MMLF. In addition, the Secretary of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion of credit protection to FRBB. The MMLF will assist MMMFs in meeting demands for redemptions by households and other investors, enhancing overall market functioning and the provision of credit to households, businesses and municipalities."
The FAQ asks, "How does the program work?" It answers, "Under the MMLF, the FRBB will provide a non-recourse advance to an eligible borrower to purchase certain types of assets from an eligible MMMF. The MMMF must be a fund that identifies itself as a Prime, Single State, or Other Tax Exempt money market fund under item A.10 of Securities and Exchange Commission Form N-MFP. The assets are pledged to the FRBB as collateral (eligible collateral).... The program will open on March 23, 2020, and will accept as collateral certain types of assets purchased by the borrower from MMMFs (i) concurrently with the borrowing or (ii) on or after March 18, 2020, but before the opening of the Facility."
The Fed explains, "This program was established to respond to uncertainty related to the coronavirus and is authorized through September 30, 2020. No new credit extensions will be made after September 30, 2020, unless the MMLF is extended by the Board of Governors of the Federal Reserve. Terms of the program may be adjusted before that time as market conditions warrant.... It will be administered by the FRBB, which is authorized to make loans under this facility to eligible borrowers in any of the twelve Federal Reserve districts."
The FAQ also asks, "Who is eligible to participate in the program?" It answers, "Eligible borrowers include all U.S. depository institutions, U.S. bank holding companies (parent companies incorporated in the United States or their U.S. broker-dealer subsidiaries), or U.S. branches and agencies of foreign banks. Eligible borrowers must provide the FRBB with necessary certifications, which include a certification that both the borrower and the MMMF from which the collateral is purchased are solvent."
One question is, "Can the eligible borrower pledge commercial paper bought from proprietary funds under this facility?" They respond, "Yes. For example, if eligible borrower 'XYZ' manages a qualified MMMF, 'Blue Ribbon Fund,' XYZ may fund the purchase of CP from Blue Ribbon Fund under this Facility, so long as the transaction does not otherwise violate banking laws, securities laws or any other laws.... A qualified borrower may pledge ABCP from one of its own programs.... Assets must be concurrently purchased and pledged as collateral in order to secure an Advance under MMLF; provided that an eligible borrower may purchase assets between March 18, 2020, and the date that the program begins so long as the assets purchased in such time period are expeditiously pledged to the FRBB following the date that the program begins."
Finally, they explain, "All advances under the MMLF must be secured by a pledge of eligible collateral. Specifically, eligible collateral for pledge under the MMLF includes: U.S. Treasuries & Fully Guaranteed Agencies; Securities issued by U.S. Government Sponsored Entities; Asset-backed commercial paper that is issued by a U.S. issuer, is U.S. dollar denominated, and ... is rated not lower than A1, F1, or P1 ...; Unsecured commercial paper ...; or U.S. municipal short-term debt.... In addition, the facility may accept receivables from certain repurchase agreements."
In other news, a release entitled, "OCC Revises Short-Term Investment Fund Rule" tells us, "The Office of the Comptroller of the Currency (OCC) today announced an interim final rule to revise its short-term investment fund (STIF) rule for national banks acting in a fiduciary capacity. The rule allows the OCC to authorize banks to temporarily extend maturity limits of these funds. The financial markets are in a period of significant stress negatively affecting the ability of banks to operate in compliance with maturity limits identified in the rule. The rule is effective immediately. The agency will accept comments for 45 days following publication in the Federal Register."
It continues, "Simultaneously to announcing the interim final rule, the OCC also announced an order extending the maturity limits for STIFs affected by the market effects of COVID-19. The order provides that a bank will be deemed in compliance with the rule if: The STIF maintains a dollar-weighted average portfolio maturity of 120 days or less, as determined in the same manner as is required by the Securities and Exchange Commission SEC) pursuant to Rule 2a-7 for money market mutual funds (17 CFR 270.2a-7); The STIF maintains a dollar-weighted average portfolio life maturity of 180 days or less ...; The bank is acting in the best interests of the STIF under applicable law in connection with using these temporary limits; and The bank makes any necessary amendments to the written plan for the STIF to reflect these temporary changes."
The OCC's release adds, "The OCC also determined that the relief provided by this administrative order terminates on July 20, 2020, unless the OCC revises this order to provide otherwise before that date. The OCC has established a single web page with all of its COVID-19 related information at https://occ.gov/covid-19."
Finally, yields on money market funds and rates on brokerage sweep accounts both plummeted in the latest week. Our flagship Crane 100 Money Fund Index fell below the 1.0% level, dropping 36 basis points to 0.72%, according to Money Fund Intelligence Daily (data as of Friday, 3/20). The Crane 100 is down from 1.46% at the start of the year and down 1.51% from the beginning of 2019 (2.23%). The Crane Brokerage Sweep Index fell to 0.02% (for balances of $100K), down from 0.07% a week ago and down 26 bps from the end of 2018 (0.28%). Our latest Brokerage Sweep Intelligence, with data as of March 20, shows eight out of 11 major brokerages cut rates in the past week. Yields should continue falling towards zero as markets continue to digest the Fed's panic rate cut in coming days.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.67%, down 31 basis points in the week through Friday, March 20. Prime Inst MFs were down 22 bps to 1.01% in the latest week, while Government Inst MFs fell by 41 bps to 0.67% and Treasury Inst MFs dropped by 35 bps to 0.59%. Treasury Retail MFs currently yield 0.30%, (down 36 bps), Government Retail MFs yield 0.49% (down 31 bps), and Prime Retail MFs yield 0.91% (down 14 bps), Tax-exempt MF 7-day yields increased 1.75% to 2.58%.
Yesterday's Brokerage Sweep Intelligence shows that Ameriprise, Raymond James and Fidelity all lowered rates across the board in the past week, while Merrill Lynch, Morgan Stanley, Schwab, UBS and Wells Fargo dropped their higher tier rates. Fidelity cut all rates by 50 basis points, their 100K balance dropped to 0.07%. The cut cost them their long reining title of highest brokerage sweep rate.
Ameriprise also trimmed rates across the board; their $100K balance tier now pays 0.01%. Raymond James cut its rates; its $100K balance declined from 0.02% to 0.01%. Merrill Lynch, Morgan Stanley, Schwab, UBS and Wells Fargo all dropped their upper tiers, all of their $100K balances remained at 0.01%. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months.
Crane's Brokerage Sweep Index fell five basis points to 0.02% in the week ended March 20 (for balances of $100K.) Ameriprise, E*Trade, TD Ameritrade, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, UBS and Wells Fargo all currently have the lowest rate (0.01%) for balances at the $100K level. Meanwhile, RW Baird now has the highest sweep rate (0.10%) and Fidelity is paying 0.07%.
Money market mutual funds experienced one of the craziest weeks in their 50 year history last week as the Federal Reserve and Treasury launched emergency measures to calm turmoil and outflows in the Prime and Municipal segments of the market. Meanwhile, Government money funds saw record-shattering inflows and overall assets surged to record levels not seen since January 2009. Late last week, two fund groups, Goldman Sachs and Dreyfus, acted to provide liquidity to their funds. Dreyfus parent BNY Mellon took steps to provide liquidity and support NAVs by purchasing blocks of 'money good' securities at par, while Goldman Sachs Bank USA provided liquidity by purchasing assets from the fund at market value as fears over the coronavirus wreaked havoc across the economy and impaired liquidity in financial markets. Prime money assets declined by $97.7 billion to $981.3 billion in the week through Thursday, March 19, but the flows have begun slowing under the onslaught of Federal Reserve and Treasury support programs. Government money market funds jumped by $264.5 billion to $3.150 trillion, and Tax Exempt MMFs fell $6.1 billion to $134.0 billion. (We'll publish our 3/20 asset totals, and our 3/19 MNAVs and WLAs, Monday morning at 8am in our latest Money Fund Intelligence Daily.) Month-to-date in March (through 3/19), Prime assets have fallen by $113.9 billion, Govt funds have risen by $419.5 billion, and Tax Exempt have fallen by $5.8 billion. (See here for the Federal Reserve's new FAQ on its Money Market Mutual Fund Liquidity Facility.)
On Thursday and Friday, we saw four "Form N-CR Money Market Fund Material Event" filings, which occur in the case of a default, the "provision of financial support" or a "breaking of the buck." No defaults or buck-breakings were involved here or have occurred to date, but these are the first material instances of financial support for funds being provided to funds since the Subprime Liquidity Crisis in 2007-2008. (For details on N-CR, see our May 21, 2015 News, "Dechert Examines Upcoming Form N-CR and Disclosure Requirements.")
The Form N-CR filing for Goldman Sachs Financial Square Money Market (FSMXX), says, "The purchases reported herein were made in reliance on Rule 17a-9 and Investment Company Institute, SEC No-Action Letter (pub. avail. March 19, 2020)." They show under the "Provision of financial support to fund," the purchase of $722 million in securities, including CP or other "credit" instruments from Commonwealth Bank of Australia, DNB, Mizuho, Nordea, Natixis and a couple others, at market value. These securities are all still highly rated and most likely will pay off when they mature (there have been no defaults in the CP market to date, just illiquidity). But affiliated Goldman Sachs Bank USA took them out of the fund to promote liquidity in the short-term credit markets and increase the weekly liquid assets (WLA), which were already above the 30% regulatory liquidity levels. FS Money market was 34% WLA on 3/19 when the action was taken. This fund saw assets decline $7.1 billion in the week through Thursday to $9.6 billion, and its NAV stood at 0.9982 on Thursday and WLA stood at 46.0% on Friday.
Another fund, Goldman Sachs Financial Square Prime Obligations (FPOXX), reports that, "Goldman Sachs Bank USA purchased $301,201,274 of securities from the Fund," including most of the same financial names. (More than one-third of these purchases were of securities with maturities longer than 6 months.) This fund saw assets decline $1.7 billion in the week through Thursday to $5.5 billion, and its NAV stood at 0.9988 while WLA stood at 44% in the fund when this action was taken. The fund finished the week with weekly liquid assets at 50% on Friday.
David Fishman, head of the Liquidity Solutions portfolio management team within Goldman Sachs Asset Management, tells us, "These actions underscore our commitment to the GSAM funds providing liquidity to clients focused on the near-term implications of the current market environment." (See also Reuters', "Goldman injects $1 billion into own money-market funds after heavy withdrawals.")
Finally, Dreyfus Cash Management (DICXX), which posted the first filing of the week, announced the purchase of $1.2 billion on Thursday, then also posted another filing Friday announcing the purchase of $949 million. The latter says, "Bank of New York Mellon purchased securities from the Fund in accordance with Rule 17a-9." Securities listed include those from Bank of Montreal, Swedbank, Credit Suisse, Bank of Nova Scotia, Westpac Banking and TD Bank. This fund saw the largest outflows on a percentage basis among Prime Institutional MMFs, with assets declining $6.0 billion in the week through Thursday to $5.1 billion. Its NAV stood at 0.9991 and weekly liquid assets stood at 39.0% on Thursday.
Fund reporter ignites broke the Dreyfus news Friday, in "BNY Mellon Buys $1.2B in Securities from Prime Fund Beset by Outflows." They wrote, "BNY Mellon on Wednesday propped up its Dreyfus Cash Management fund – an institutional prime money market fund – by buying $1.2 billion in securities from the product, according to a Thursday regulatory filing. The fund had suffered $6 billion in net outflows over the week ended March 19, according to Crane Data. Its assets under management stood at $5.4 billion as of Thursday."
They quote BNY Mellon spokesperson, "The Dreyfus Cash Management fund liquidity level was approaching the 30% weekly liquid asset level, which prompted BNY Mellon to purchase $1.2 billion of securities in the fund, providing additional liquidity to the fund to meet shareholder redemptions." The ignites piece explains, "SEC reforms passed in 2014 allow prime funds to impose liquidity fees on redemptions – or suspend redemptions -- after weekly liquid assets drop below 30% of total assets. The SEC also requires funds to assess a 1% liquidity fee if weekly assets fall below 10% of total assets, unless the fund’s directors decide this would not be in the interest of its shareholders."
It continues, "The Dreyfus fund has a floating net asset value -- a requirement for all institutional prime funds under the SEC's 2014 reforms. As such, the fund wasn't in danger of dipping below a stable $1.00 net asset value -- breaking the buck -- but fund managers may fear negative repercussions from a NAV dropping 'too much,' Crane says. Before the question of whether to impose redemption gates and liquidity fees arose, 'BNY Mellon must have just decided to protect the fund,' says Peter Crane, president and CEO of the money fund tracker."
They add, "If a fund imposes liquidity fees or redemption gates, the advisor must disclose this to the public. The fund did not impose a liquidity fee or suspend redemptions, the filing states. The disclosure also states that BNY Mellon will provide more details in an amended filing early next week. The securities that BNY Mellon purchased are bank holdings, the SEC filing shows." "You may see a few more of these [disclosures] until the outflows ... have lessened," Crane says. "The outflows are slowing, but they're continuing."
The FT also posted an article, "BNY Mellon steps in to support money market fund after outflows," which says, "BNY Mellon stepped in to support one of its money market funds amid sharp outflows from parts of the sector this week, buying $1.2bn of the fund’s assets so it had cash to help cover redemptions. The US bank made the liquidity injection as investors withdrew $6bn from the Dreyfus Cash Management fund in the week ending Thursday, around half of its assets, according to Crane Data."
Also on Friday, a statement entitled, "Federal Reserve Board expands its program of support for flow of credit to the economy by taking steps to enhance liquidity and functioning of crucial state and municipal money markets," explains, "The Federal Reserve Board on Friday expanded its program of support for the flow of credit to the economy by taking steps to enhance the liquidity and functioning of crucial state and municipal money markets. Through the Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will now be able to make loans available to eligible financial institutions secured by certain high-quality assets purchased from single state and other tax-exempt municipal money market mutual funds."
For the Federal Reserve's previous support actions, see: "Coordinated central bank action to further enhance the provision of U.S. dollar liquidity" (3/20), "Federal Reserve Board encouraged by increase in discount window borrowing to support the flow of credit to households and businesses" (3/19), "Federal Reserve announces the establishment of temporary U.S. dollar liquidity arrangements with other central banks" (3/19), "Federal bank regulatory agencies issue interim final rule for Money Market Liquidity Facility" (3/19), "Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF)" (3/18) and "Federal Reserve Board announces establishment of a Primary Dealer Credit Facility (PDCF) to support the credit needs of households and businesses" (3/17).
For recent Crane Data News, see: "Fed Announces Commercial Paper Funding Facility; ICI Holdings Update" (3/18), "Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF" (3/19) and "MMF Assets Hit Record High on Huge Govt Jump, Prime Drop; More MMLF" (3/20). See also, The Wall Street Journal's update, "Why the Fed Had to Backstop Money-Market Funds, Again."
Money market mutual fund assets broke above their previous January 2009 record levels this week on a record jump in assets, as assets of Government funds skyrocketed and Prime MMFs plunged, according to the ICI's latest weekly "Money Market Fund Assets" report. It explains, "Total money market fund assets increased by $158.62 billion to $3.94 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $249.33 billion and prime funds decreased by $85.38 billion. Tax-exempt money market funds decreased by $5.32 billion." ICI's weekly series shows Institutional MMFs rising $123.2 billion and Retail MMFs increasing $35.5 billion. Total Government MMF assets, including Treasury funds, were $3.094 trillion (78.6% of all money funds), while Total Prime MMFs were $712.7 billion (18.1%). Tax Exempt MMFs totaled $129.2 billion, 3.3%.
Money fund assets are up $304 billion, or 8.4%, year-to-date in 2020, and they've increased for 6 weeks in a row and in 10 out of the last 13 weeks. Over the past 52 weeks, ICI's money fund asset series has increased by $871 billion, or 28.4%, with Retail MMFs rising by $261 billion (21.6%) and Inst MMFs rising by $610 billion (32.8%).
ICI explains, "Assets of retail money market funds increased by $35.46 billion to $1.47 trillion. Among retail funds, government money market fund assets increased by $58.61 billion to $892.08 billion, prime money market fund assets decreased by $18.73 billion to $458.58 billion, and tax-exempt fund assets decreased by $4.42 billion to $117.21 billion." Retail assets account for over a third of total assets, or 37.3%, and Government Retail assets make up 60.8% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $123.16 billion to $2.47 trillion. Among institutional funds, government money market fund assets increased by $190.72 billion to $2.20 trillion, prime money market fund assets decreased by $66.65 billion to $254.13 billion, and tax-exempt fund assets decreased by $907 million to $11.97 billion." Institutional assets accounted for 62.7% of all MMF assets, with Government Institutional assets making up 89.2% of all Institutional MMF totals.
Crane Data's separate Money Fund Intelligence Daily asset series shows up $261.5 billion to a record $4.227 trillion month-to-date in March through 3/18. (We'll publish our 3/19 asset totals at 8am Friday, 3/20.) Prime MMF assets have fallen by $93.1 billion MTD to $1.002 trillion, while Government MMFs (including Treasury MMFs) have skyrocketed by an incredible $358.1 billion to $3.089 trillion. Tax Exempt MMFs have fallen by $3.6 billion to a mere $136.1 billion.
We briefly mentioned the launch of the Fed's new MMLF support program in yesterday's News ("Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF"), but we discuss the announcement in more detail below. A statement entitled, "Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF)" tells us, "The Federal Reserve Board on Wednesday broadened its program of support for the flow of credit to households and businesses by taking steps to enhance the liquidity and functioning of crucial money markets. Through the establishment of a Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds."
It continues, "Money market funds are common investment tools for families, businesses, and a range of companies. The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy. The attached term sheet details the types of assets, including unsecured and secured commercial paper, agency securities, and Treasury securities, that are eligible, as well as additional information. The MMLF program will purchase a broader range of assets, but its structure is very similar to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, that operated from late 2008 to early 2010."
The Fed adds, "The MMLF is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The Department of the Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the MMLF from the Treasury's Exchange Stabilization Fund."
An accompanying "Term Sheet," "Money Market Mutual Fund Liquidity Facility", elaborates, "To provide liquidity to Money Market Mutual Funds ('Funds'), the Federal Reserve Bank of Boston ('Reserve Bank') would lend to eligible borrowers, taking as collateral certain types of assets purchased by the borrower from Funds (i) concurrently with the borrowing; or (ii) on or after March 18, 2020, but before the opening of the Facility."
It explains, "All U.S. depository institutions, U.S. bank holding companies (parent companies incorporated in the United States or their U.S. broker-dealer subsidiaries), or U.S. branches and agencies of foreign banks are eligible to borrow under the Facility. Funds: A Fund must identify itself as a prime money market fund under item A.10 of Securities and Exchange Commission Form N-MFP.... The maturity date of an advance will equal the maturity date of the eligible collateral pledged to secure the advance made under this Facility except in no case will the maturity date of an advance exceed 12 months."
The document adds, "Advances made under the Facility that are secured by U.S. Treasuries & Fully Guaranteed Agencies or Securities issued by U.S. Government Sponsored Entities will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made. All other advances will be made at a rate equal to the primary credit rate in effect at the Reserve Bank that is offered to depository institutions at the time the advance is made plus 100 bps.... There are no special fees associated with the Facility."
It also explains, "The collateral valuation will either be amortized cost or fair value. For asset-backed and unsecured commercial paper, the valuation will be amortized cost.... The Department of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion as credit protection to the Reserve Bank.... Advances made under the Facility are made without recourse to the Borrower, provided the requirements of the Facility are met. For avoidance of doubt, borrowers under the MMLF will bear no credit risk."
Finally, the Fed writes, "Separately and consistent with the purposes of the MMLF, the Board, the OCC, and FDIC will act to fully neutralize the impact of a depository institution holding company or depository institution's participation in the facility for purposes of regulatory capital requirements, including risk-based capital and leverage requirements. The Board, OCC, and FDIC will fully exempt from risk-based capital and leverage requirements (i) any asset pledged to the MMLF and (ii) any asset purchased from a Fund on or after March 18, 2020 that the firm intends to pledge to the MMLF upon opening of the Facility.... No new credit extensions will be made after September 30, 2020, unless the Facility is extended by the Board of Governors of the Federal Reserve System."
An update on FXStreet, entitled, "Fed's Rosengren: US economy to suffer a 'significant shock' with higher unemployment quotes Boston Federal Reserve Bank President Eric Rosengren, "The goal of the new money market fund facility is to provide liquidity to prime money market funds that were experiencing some runoffs.... Money market liquidity facility is designed to give people confidence that the funds they view as liquid and secure are liquid and secure."
He adds, "The Fed can't do much about the pandemic but can take steps to mitigate financial spillovers.... Government securities money market funds are actually seeing funds flow in.... [The program] will be protected by collateral and $10 billion backstop from the Treasury."
Following days of concern about illiquidity in the commercial paper markets and outflows from Prime money market funds, the U.S. Treasury sought approval from Congress to launch a program to guarantee money market mutual funds for the second time in history. The Federal Reserve also stepped in with another support program. While details are scant, they should be forthcoming in coming days, and this, along with the launch of the new MMLF lending facility, should put an end to the budding run. The Wall Street Journal broke the news in its brief, "Treasury Department Asks Congress to Let It Backstop Money Markets." Subtitled, "Officials want to relieve strains in financial sector seen as safe place to park cash temporarily," they explain, "The Treasury Department is seeking authority from Congress to temporarily backstop money markets amid intense strains in the financial sector -- as part of a broader fiscal package to bolster the economy due to the coronavirus pandemic. In a memo outlining the administration's proposal, The Treasury Department said it is asking lawmakers to temporarily suspend restrictions on its Exchange Stabilization Fund so it can develop guarantee programs for the money-market mutual fund industry." (See also the Fed's MMLF statement here.)
The Journal piece states, "Money-market funds are investments designed to be a safe place to park cash temporarily with little risk of taking a loss. The program would last until the White House terminates the national state of emergency President Trump declared on March 13, 2020, according to the memo viewed by The Wall Street Journal. In 2008, the Treasury intervened to guarantee money-market funds after the collapse of Lehman Brothers spooked investors, who pulled out more than $200 billion from the funds over two days. The U.S. backstop calmed investors, who generally consider money-market funds as safe as cash, but an uproar over Wall Street bailouts led Congress in 2010 to prohibit Treasury from issuing such guarantees in the future."
The Washington Post, in its "Senate passes bill" news update, comments, "The White House is also looking for Congress to allow it to temporarily backstop money market mutual funds, a sign that government officials are worried that an investor panic could lead to a run on these funds. A similar structure was used during the Great Recession, but lawmakers had sought to block its future use."
The Treasury memo, in a section on "Appropriation to the Exchange Stabilization Fund for Specified Uses," contains a section to "Temporarily Permit Use of the Exchange Stabilization Fund to Guarantee Money Market Mutual Funds."
It is meant to, "Temporarily suspend the statutory limitation on the use of the Exchange Stabilization Fund (Section 131 of the Emergency Economic Stabilization Act of 2008) for guarantee programs for the United States money market mutual fund industry." The memo adds a, "Sunset date: Terminate authority to establish any new MMMF guarantee program upon the conclusion of the National Emergency Concerning the Coronavirus Disease 2019 (COVID-19) Outbreak declared by the President on March 13, 2020."
Bloomberg, who also broke the news, writes in their article, "Treasury Proposes to Guarantee Money Funds in Stimulus," that "The U.S. Treasury Department proposed to temporarily guarantee money market mutual funds with taxpayer dollars as part of its coronavirus stimulus plan, according to a document obtained by Bloomberg News. In a proposal sent to lawmakers early Wednesday, the department laid out plans to temporarily permit use of its exchange stabilization fund to guarantee money markets, according to the document."
They quote, "Peter Crane, president of money fund tracking firm Crane Data LLC, said outflows from institutional funds this week were putting those vehicles under stress as investors rush into cash and government debt holdings. A Treasury guarantee is 'probably not necessary today, but who knows tomorrow,' Crane said. 'A blanket guarantee is sometimes the only thing that can stop these runs.'"
Bloomberg explains, "A slew of actions from the Federal Reserve earlier this week have helped ease the squeeze for funding that had reached levels not seen since 2008. But Treasury backstopping money market mutual funds, that have trillions in assets, could be essential if conditions worsen.... Reforms to the industry passed in 2016 forced a tiering of investments into funds with differing levels of safety and segregated retail customers from institutional. Much of the industry's assets are now held in Treasury-only funds that remain stable." Only [prime] vehicles are coming under stress, Crane said."
They add, "The Treasury took a similar step during the global financial crisis when a run on money funds helped cripple credit markets. Under Secretary Henry Paulson, the department guaranteed more than $3 trillion of fund holdings against losses for almost a year using its Exchange Stabilization Fund. In the backlash against government bailouts, Congress subsequently stripped Treasury’s ability to repeat that program."
Finally, the piece says, "While the 2016 reforms may have made funds safer, some of the new rules may still make some funds vulnerable to runs. For example, when funds drop below certain liquidity thresholds, they may impose restrictions or extra fees on withdrawals. In an unsettled market, that could incentivize investors to pull out money before gates and fees are imposed.
Also, the New York Times writes that the "Fed will offer emergency loans to money market mutual funds." They tell us, "The Federal Reserve said late Wednesday night that it would offer emergency loans to money market mutual funds, its latest in a series of steps to keep the financial system functioning and prop up the economy as it spirals toward recession during the coronavirus pandemic. Officials said they would establish a so-called Money Market Mutual Fund Liquidity Facility, which would be backed by $10 billion from the Treasury Department. That facility joins a similar lending program for banks, established earlier this week."
The Fed's statement says, "The Federal Reserve Board on Wednesday broadened its program of support for the flow of credit to households and businesses by taking steps to enhance the liquidity and functioning of crucial money markets. Through the establishment of a Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds. Money market funds are common investment tools for families, businesses, and a range of companies. The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy."
In related news, ignites wrote, "Fed Acts to Thwart Possible Run on Prime Money Funds," which tells us, "The Federal Reserve on Tuesday morning responded to growing fears that businesses and retail investors strapped by the coronavirus pandemic would stampede out of prime money market funds. Amid bank analyst warnings of a potential run on such funds, the Fed announced it had established a Commercial Paper Funding Facility to 'provide a liquidity backstop' to companies that issue commercial paper for their financing needs. The Fed also established a similar commercial paper facility in October 2008, at the height of the financial crisis. It was wound down about two years later."
They also write, "Retail and institutional prime money funds represented about $797 billion in combined assets as of March 11, according to Investment Company Institute data. Those funds bled more than $54 billion over the past week, including $17 billion on Monday, Crane Data reports. The bulk of those redemptions were from institutional prime funds. The outflows are 'big but not near record levels or worrisome,' [writes] Peter Crane.... The redemptions would be 'problematic if they accelerate,' he adds, 'but I'd expect the Fed's actions to stop any budding run.' Prime money funds held about $237 billion in commercial paper as of the end of February, ICI compilations of SEC data show. That represents 21% of the $1.1 trillion in outstanding commercial paper."
For more on the previous version of the Treasury Guarantee Program for Money Funds, see these Crane Data News stories: "Money Fund Outflows Minimal Following Treasury Guarantee Expiration" (9/22/09), "Treasury Guarantee Ending Friday, But Plenty of Support Remains" (9/17/09), "Dechert on Suspending Redemptions Under Treasury Guarantee" (6/11/09), "Government Money Funds Ditch Treasury Guarantee Writes ignites.com" (4/17/09), "Largest Money Funds All Renew Treasury Guarantee for Prime Funds" (4/15/09), "Fidelity, Federated, AIM Renew Treasury Guarantee; Drop Govt Funds?" (4/14/09), "An(other) Offer Funds Couldn't Refuse: All Renew Treasury Guarantee" (12/7/08), "JPMorgan, UBS Add Treasury Guarantee; 9 of 11 Largest Now Signed" (10/3/08), "Treasury Guarantee Program for Money Funds Live, Fee Is One Bps" (9/29/08).
A statement released yesterday, entitled, "Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF)" explains, "The Federal Reserve Board announced ... that it will establish a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses. Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies. The CPFF program is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary." (NOTE: See also the WSJ article, "Treasury Department Asks Congress to Let It Backstop Money Markets.")
The Fed's comment continues, "The commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak. By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak."
It adds, "The Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the CPFF from the Treasury's Exchange Stabilization Fund (ESF). The Federal Reserve will then provide financing to the SPV under the CPFF. Its loans will be secured by all of the assets of the SPV. A brief description of the program is attached. More detailed program terms and conditions and an operational calendar will be subsequently published."
A supplemental document, "Commercial Paper Funding Facility 2020: Program Terms and Conditions" explains, "The CPFF2020 will be structured as a credit facility to a special purpose vehicle (SPV) authorized under section 13(3) of the Federal Reserve Act. The SPV will serve as a funding backstop to facilitate the issuance of term commercial paper by eligible issuers. The Federal Reserve Bank of New York will commit to lend to the SPV on a recourse basis. The New York Fed will be secured by all the assets of the SPV. The U.S. Treasury Department -- using the Exchange Stabilization Fund (ESF) -- will provide $10 billion of credit protection to the FRBNY in connection with the CPFF."
It explains, "The SPV will purchase from eligible issuers three-month U.S. dollar-denominated commercial paper through the New York Fed's primary dealers. Eligible issuers are U.S. issuers of commercial paper, including U.S. issuers with a foreign parent company. The SPV will only purchase U.S. dollar-denominated commercial paper (including asset-backed commercial paper (ABCP)) that is rated at least A-1/P-1/F-1 by a major nationally recognized statistical rating organization (NRSRO) and, if rated by multiple major NRSROs, is rated at least A-1/P-1/F-1 by two or more major NRSROs, in each case subject to review by the Federal Reserve."
The Terms document adds, "Pricing will be based on the then-current 3-month overnight index swap (OIS) rate plus 200 basis points. At the time of its registration to use the CPFF, each issuer must pay a facility fee equal to 10 basis points of the maximum amount of its commercial paper the SPV may own. The SPV will cease purchasing commercial paper on March 17, 2021, unless the Board extends the facility. The New York Fed will continue to fund the SPV after such date until the SPV's underlying assets mature."
In other news, ICI released its monthly "Money Market Fund Holdings" summary earlier this week, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our March 11 News, "March MF Portfolio Holdings: Repo, Treas Up, Agencies, CDs, CP Down.)
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in February, prime money market funds held 27.1 percent of their portfolios in daily liquid assets and 41.2 percent in weekly liquid assets, while government money market funds held 61.1 percent of their portfolios in daily liquid assets and 78.2 percent in weekly liquid assets." Prime DLA increased from 26.9% in January, and Prime WLA increased from 41.1%. Govt MMFs' DLA decreased from 61.6% in January and Govt WLA decreased from 78.8% from the previous month.
ICI explains, "At the end of February, prime funds had a weighted average maturity (WAM) of 33 days and a weighted average life (WAL) of 71 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 32 days and a WAL of 94 days." Prime WAMs were unchanged and WALs decreased by one day from the previous month. Govt WAMs decreased by one day while WALs were unchanged from the previous month.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $332.60 billion in January to $340.25 billion in February. Government money market funds' holdings attributable to the Americas declined from $2,198.77 billion in January to $2,187.10 billion in February."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $340.2 billion, or 43.0%; Asia and Pacific at $146.2 billion, or 18.5%; Europe at $297.2 billion, or 37.6%; and, Other (including Supranational) at $7.4 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $2.187 trillion, or 80.3%; Asia and Pacific at $142.6 billion, or 5.2%; Europe at $379.7 billion, or 13.9%, and Other (Including Supranational) at $15.1 billion, or 0.6%."
Crane Data's latest MFI International shows assets in European or "offshore" money market mutual assets falling in US Dollar MMFs and rising in GBP and Euro funds in the latest month. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, increased by $35.9 billion over the last 30 days to $933.5 billion; they're up by $56.9 billion year-to-date. Offshore USD money funds, which hit a record $500 billion in January, are down $7.4 billion over the last 30 days and are down $4.2 billion YTD. Euro funds are up E17.8 billion over the previous 30 days, and YTD they're up E28.1 billion. GBP funds have risen by L681 million over 30 days, and are up by L6.0 billion YTD. U.S. Dollar (USD) money funds (189, unchanged from the previous month) account for over half ($490.2 billion, or 52.2%) of our "European" money fund total, while Euro (EUR) money funds (92, unchanged from the previous month) total E126.8 billion (14.9%) and Pound Sterling (GBP) funds (123, unchanged from the previous month) total L230.9 billion (30.4%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below. (See also, "Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF)," and watch for coverage of this tomorrow.)
Offshore USD MMFs yield 1.24% (7-Day) on average (as of 3/13/20), down from 2.29% on 12/31/18, but up from 1.19% at the end of 2017. EUR MMFs yield -0.58% on average, compared to -0.49% at year-end 2018 and -0.55% on 12/29/17. Meanwhile, GBP MMFs yielded 0.58%, down from 0.64% as of 12/31/18 and up from 0.24% at the end of 2017. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's MFII Portfolio Holdings, with data (as of 2/29/20), show that European-domiciled US Dollar MMFs, on average, consist of 30% in Commercial Paper (CP), 21% in Certificates of Deposit (CDs), 18% in Repo, 15% in Treasury securities, 14% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 36.3% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 14.2% maturing in 8-30 Days, 15.0% maturing in 31-60 Days, 11.4% maturing in 61-90 Days, 10.8% maturing in 91-180 Days and 3.5% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (25.5%), France (14.3%), Canada (10.7%), Japan (10.0%), the United Kingdom (7.1%), Germany (7.0%), the Netherlands (5.1%), Sweden (4.6%), Australia (2.8%), Belgium (2.5%), Switzerland (2.3%), Norway (1.7%), Singapore (1.6%) and China (1.4%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $83.4 billion (15.1% of total assets), BNP Paribas with $19.4B (3.5%), Credit Agricole with $17.4B (3.1%), Bank of Nova Scotia with $15.4B (2.8%), Barclays PLC with $15.4B (2.8%), Mitsubishi UFJ Financial Group Inc with $15.3B (2.8%), Mizuho Corporate Bank Ltd with $12.6B (2.3%), Standard Chartered Bank with $11.5B (2.1%), Sumitomo Mitsui Banking Corp with $11.3B (2.1%) and RBC with $10.8B (2.0%).
Euro MMFs tracked by Crane Data contain, on average 48% in CP, 18% in CDs, 22% in Other (primarily Time Deposits), 10% in Repo, 1% in Treasuries and 1% in Agency securities. EUR funds have on average 24.8% of their portfolios maturing Overnight, 7.0% maturing in 2-7 Days, 12.6% maturing in 8-30 Days, 18.9% maturing in 31-60 Days, 14.3% maturing in 61-90 Days, 18.7% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.1%), the US (12.0%), Japan (11.6%), Germany (8.8%), Sweden (8.4%), the U.K. (6.4%), the Netherlands (5.7%), Switzerland (4.4%), Canada (3.0%), Belgium (2.6%), China (2.1%), Finland (1.4%) and Austria (1.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.6B (6.4%), BNP Paribas with E4.4B (4.2%), Societe Generale with E3.8B (3.6%), ING Bank with E3.7B (3.6%), Nordea Bank with E3.4B (3.2%), Mitsubishi UFJ Financial Group Inc with E3.3B (3.2%), BPCE SA with E3.3B (3.2%), Svenska Handelsbanken with E3.3B (3.2%), Sumitomo Mitsui Banking Corp with E3.2B (3.1%) and Procter & Gamble Co with E2.8B (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 2/29/20): 38% in CDs, 25% in CP, 21% in Other (Time Deposits), 14% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 27.5% of their portfolios maturing Overnight, 8.7% maturing in 2-7 Days, 12.5% maturing in 8-30 Days, 13.1% maturing in 31-60 Days, 13.3% maturing in 61-90 Days, 19.5% maturing in 91-180 Days and 5.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (19.0%), Japan (15.2%), the U.K. (14.5%), Canada (9.3%), Germany (6.9%), the US (5.5%), the Netherlands (5.3%), Sweden (4.5%), Switzerland (3.6%), Singapore (3.6%) and Australia (3.4%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L11.7B (6.7%), BNP Paribas with L7.6B (4.4%), Mizuho Corporate Bank Ltd with L7.4B (4.3%), Credit Agricole with L7.4B (4.2%), BPCE SA with L7.3B (4.2%), Mitsubishi UFJ Financial Group Inc with L6.5B (3.7%), Nordea Bank with L6.3B (3.6%), Sumitomo Mitsui Banking Corp with L5.6B (3.2%), ING Bank with L5.5B (3.2%) and Toronto-Dominion Bank with L5.3B (3.1%).
In other news, yields on money market funds and rates on brokerage sweep accounts both fell sharply in the week ahead of the Federal Reserve's 100 basis point rate cut. Our flagship Crane 100 Money Fund Index fell 20 basis points to 1.09%, according to yesterday's Money Fund Intelligence Daily (with data as of Friday, 3/13). The Crane 100 is down from 1.46% at the start of the year and down 1.14% from the beginning of 2019 (2.23%). The Crane Brokerage Sweep Index fell to 0.07% (for balances of $100K), down from 0.10% a week ago and down 21 bps from the end of 2018 (0.28%). Our latest Brokerage Sweep Intelligence, with data as of March 13, shows five out of 11 major brokerages cut rates in the past week (six brokerages lowered rates the previous week). Yields should plunge towards zero as markets digest the Fed's latest panic cut in coming days.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.98%, down 19 basis points in the week through Friday, March 13. Prime Inst MFs were down 16 bps to 1.23% in the latest week, while Government Inst MFs fell by 18 bps to 1.08% and Treasury Inst MFs dropped by 25 bps to 0.94%. Treasury Retail MFs currently yield 0.66%, (down 24 bps), Government Retail MFs yield 0.80% (down 16 bps), and Prime Retail MFs yield 1.05% (down 14 bps), Tax-exempt MF 7-day yields increased 0.05% to 0.83%.
Yesterday's Brokerage Sweep Intelligence shows that Ameriprise, Raymond James, RW Baird and Wells Fargo all lowered rates across the board in the past week, while TD Ameritrade dropped their rates on balances of $200K and up. RW Baird cut rates under $250K by 0.23%, their 100K balance is now 0.10%. RW Baird cut tiers over 250K by 0.26%, $1M and up by 0.34% and >$5M by 0.45%.
Ameriprise also trimmed rates across the board; their $100K balance tier now pays 0.03%. Raymond James cut its rates; its $100K balance declined from 0.05% to 0.02%. Wells Fargo also dropped rates for all tiers. Schwab's $100K balance shifted from 0.05% down to 0.01%. TD Ameritrade cut rates among its higher tiers, with their $100K balance remaining at 0.01%. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months.
Crane's Brokerage Sweep Index fell three basis points to 0.07% in the week ended March 13 (for balances of $100K.) E*Trade, TD Ameritrade, Merrill Lynch, Morgan Stanley, Schwab, UBS and Wells Fargo all currently have the lowest rate (0.01%) for balances at the $100K level. Meanwhile, Fidelity continues to have the highest sweep rate (0.57%). (Fidelity also has a higher-yielding money fund option for new accounts.) Raymond James is paying 0.02%, Ameriprise is paying 0.33%, and RW Baird is paying 0.10% for balances of $100K.
Our MFI Daily, with data as of March 13, shows money fund assets have risen $65.4 billion over the past week to $4.101 trillion. Crane Data's daily collection totals broke above the $4.0 trillion level for the first time ever roughly two weeks ago, as assets jumped with market volatility. Prime assets were down $39.1 billion, while Government assets jumped by $104.4B. Tax-Exempt MMFs increased $82 million. Month-to-date money fund assets have risen $135.4 billion. Prime assets are down $30.1 billion MTD, while Government assets jumped up $165.6 billion. Tax-Exempt MMFs fell by $98 million.
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States statistical survey (formerly the "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Fourth Quarter 2019 edition shows that Total MMF Assets increased by $192 billion to $3.634 trillion in Q4'19. The Household Sector, by far the largest investor segment with $2.148 trillion, saw assets jump, as did the next largest segments, Nonfinancial Corporate Businesses and Other Financial Business (formerly Funding Corporations). Treasuries accounted for the biggest increase in money fund assets in Q4, but Repos and Agencies jumped as well. (Note: In other news, the Federal Reserve Board made an emergency move to cut its Federal funds rate by 100 basis points to a range of 0.00 to 0.25%. See the FOMC Statement here.)
The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show a slight asset increase in MMF holdings for the Rest of the World category in Q4 2019. Private Pension Funds, Nonfinancial Noncorporate Business, State & Local Govts, Property-Casualty Insurance, Life Insurance Companies and State & Local Government Retirement also saw assets inch higher in Q3. No categories saw decreases. Over the past 12 months, the Household Sector, Nonfinancial Corporate Businesses and Other Financial Business showed the biggest asset increases. Every category showed increases over the past year.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $201 billion, or 5.8%, in the fourth quarter to $3.643 trillion. Over the year through Dec. 31, 2019, assets were up $605 billion, or 19.9%. The largest segment, the Household sector, totals $2.148 trillion, or 59.0% of assets. The Household Sector increased by $85 billion, or 4.1%, in the quarter, after increasing $156 billion in Q3'19. Over the past 12 months through Q4'19, Household assets were up $348 billion, or 19.4%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $577 billion, or 15.8% of the total. Assets here rose by $49 billion in the quarter, or 9.2%, and they've increased by $111 billion, or 23.7%, over the past year. Other Financial Business was the third-largest investor segment with $309 billion, or 8.5% of money fund shares. They rose by $41 billion, or 15.1%, in the latest quarter. Other Financial Business has increased by $74 billion, or 31.6%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds held 4.5% of money fund assets ($165 billion), up by $1 billion (0.5%) for the quarter, and up $3 billion, or 2.0%, for the year. The Rest of the World, category which held $130 billion (3.6%), was in 5th place. The Nonfinancial Noncorporate Business dropped to sixth place in market share among investor segments with 3.1%, or $114 billion, while State and Local Government Retirement Funds held $68 billion (1.8%), Life Insurance Companies held $63 billion (1.7%), Property-Casualty Insurance held $36 billion (1.0%), and State and Local Governments held $25 billion (0.7%) according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $2.181 trillion, or 59.9% of the total. Debt securities includes: Open market paper ($237 billion, or 6.5%; we assume this is CP), Treasury securities ($1.037 billion, or 28.4%), Agency and GSE-backed securities ($755 billion, or 20.7%), Municipal securities ($134 billion, or 3.7%) and Corporate and foreign bonds ($19 billion, or 0.5%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($1.175 trillion, or 32.3%) and Time and savings deposits ($259 billion, or 7.1%). Money funds also hold minor positions in Miscellaneous assets ($11 billion, or 0.3%), Foreign deposits ($7 billion, 0.2%) and Checkable deposits and currency ($1 billion, 0.0%). Note: The Fed also lists "Variable Annuity Money Funds;" they currently total $35 billion.
During Q4, Debt Securities were up $152 billion. This subtotal included: Open Market Paper (down $5 billion), Treasury Securities (up $91 billion), Agency- and GSE-backed Securities (up $59 billion), Corporate and Foreign Bonds (up $2 billion) and Municipal Securities (up $4 billion). In the fourth quarter of 2019, Security Repurchase Agreements were up $3 billion, Foreign Deposits were up $4 billon, Checkable Deposits and Currency were up $32 billion, Time and Savings Deposits were up by $3 billion, and Miscellaneous Assets were unchanged.
Over the 12 months through 12/31/19, Debt Securities were up $319B, which included Open Market Paper up $44B, Treasury Securities up $163B, Agencies up $110B, Municipal Securities (down $9), and Corporate and Foreign Bonds (up $11B). Foreign Deposits were up $6 billon, Checkable Deposits and Currency were up $45B, Time and Savings Deposits were up $68B, Securities repurchase agreements were up $156B and Miscellaneous Assets were up $2B.
Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."
The March issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Coronavirus Ends Bond Inflow Party; Yields Headed to Zero?," which covers the sudden reversal of bond fund flows, and, "Sustainable Research's Shilling on ESG Bond Funds," which interviews SRA's Henry Shilling. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show bond fund yields fell sharply and returns surged in February. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Note: As a reminder, our Bond Fund Symposium conference has been cancelled!)
Our "Coronavirus Ends Bond Inflows" article says, "Suddenly it's all about the coronavirus. Bond yields plunged towards zero and inflows reversed in the latest week as the world froze over fears of the pandemic. We review ICI's most recent update, as well as other flow data, below."
ICI's "Viewpoint," entitled, "Mutual Fund Flows in the COVID-19 Crisis," explains, "The novel coronavirus disease, or COVID-19, is taking a heavy toll on the world economy -- in lives, in the costs of responding, and in lost production and consumption. To be sure, mutual funds and ETFs have seen outflows. And the outflows have been sizable in dollar terms. For example, during the week ending March 4, equity mutual funds had outflows of $14 billion. Bond funds saw outflows of $24 billion."
It continues, "But the outflows were small as a percentage of funds' assets. For the week of March 4, the $14 billion outflow from equity funds totaled just 0.12% of their assets as of the end of January. Outflows from bond funds were 0.50% of their assets as of the end of January, but still quite modest given the size of recent market movements."
Our SRA's Shilling profile reads, "This month, Bond Fund Intelligence interviews Henry Shilling, Director of Research at Sustainable Research and Analysis LLC (www.sustainableinvest.com). We discuss the growing trend of ESG, or environmental, social and governance bond funds and fixed-income investing. Our Q&A follows."
BFI says, "Give us some history." Shilling answers, "SRA is an independent provider of research that's focused on sustainable investing for the benefit of institutional investors. The focus is to monitor and report on this industry through the lens of mutual funds and ETFs that characterize themselves as sustainable, or as sustainable investment vehicles. I started this forum two and a half years ago after I left Moody's, where I spent 25 years."
Shilling continues, "I thought that there was an opportunity to fill an information gap. More and more mutual funds and ETFs were adopting sustainable investing strategies, but I thought that there was a gap between the implementation of those strategies, and reporting and disclosure for the benefit of investors around how those strategies were being implemented."
Our Bond Fund News includes the brief, "Yields Lower, Returns Jump in Feb.," which tells us, "Bond fund yields fell and returns leapt again last month. Our BFI Total Index returned 0.83% over 1-month and 7.30% over 12 months. The BFI 100 returned 0.69% in Feb. and 8.29% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.19% over 1-mo and 2.66% over 1-yr; Ultra-Shorts averaged 0.44% in Feb. and 2.95% over 12 mos. Short-Term returned 0.57% and 5.04%, and Intm-Term gained 1.23% last month and rose 9.72% over 1-year. BFI's Long-Term Index returned 2.27% in Feb. and 13.58% for 1-yr; our High Yield Index fell 1.16% in Feb. but is up 5.11% over 1-year."
In another News brief, we quote the Wall Street Journal piece, "Investors Rush Into Bonds to Shelter from Market Storm." They comment, "Turmoil in financial markets triggered by an oil price war and the outbreak of the coronavirus sent government bond yields to historic lows Monday, as investors sought safety in the least-risky assets they could find.... 'I've never seen this, and I've been doing this for 30 years,' said Scott Thiel, chief fixed-income strategist at BlackRock."
A third News update covers the Financial Times article, "Risks Build in World's Largest Bond Funds." They tell us, "Ultra-low interest rates and a flood of debt issuance by US companies have led to a silent accumulation of risks in some of the world's largest bond funds. Exchange traded funds managed by BlackRock, Vanguard, Charles Schwab and State Street control assets of about $140bn that follow the Bloomberg Barclays US Aggregate bond index.... But soaring US bond prices and record low yields have increased the risk of losses for investors in Agg tracking funds, according to GMO."
Finally, BFI also features a sidebar that covers "Morningstar's "A Compelling Core Bond Fund." The piece explains, "A disciplined process and attractive fees make Baird Aggregate Bond a top choice. The dynamic team behind Baird Aggregate Bond adheres to a disciplined process and benefits from attractive fees. The strategy earns a Morningstar Analyst Rating of Gold on its cheaper share class, while its pricier iteration earns a Silver."
Federated Hermes President & CEO J. Christopher Donahue spoke earlier this week (Tuesday) at RBC Capital Markets' "2020 Financial Institutions Conference," and briefly discussed the recent Federated Hermes merger and money market funds. He comments, "This is an exciting thing for Federated Hermes. We started talking to our friends at Hermes back in 2012 because we were looking for a global footprint, excellent investment performance, professionals and most importantly, a cultural match. We had six years before we closed the trade in the second half of 2018 to do what I call, cultural due diligence." We quote from the Federated CEO below, and we also excerpt from press releases from Aviva Investors and ICD Portal.
Donahue continues, "What we called it was a reverse transformational merger. We wanted to take the beautiful things that Hermes had created, the ESG, the responsible investing, the sustainability ... and bring it inside Federated.... We're actually engaging other companies, and this engagement is a part of the experience that we hope to create for investors as part of the whole branding move. Engagement is a way to tell the story and create an experience for investors.... We're changing all the funds and we are changing the name, to bring two together, to make two plus two a lot more than four."
On money fund growth, he explains, "A lot of things are now possible this year, that might not have been before.... The market volatility today does send some on a flight for quality, and so we have seen positive flows on the money market fund side. It should not surprise you to know that on total liquidity year-to-date we're up $13 billion, and $10 billion for the month. If you look at it strictly in the point of view of money market mutual funds, we're up about $5 billion year-to-date and about $8 billion through the one-month period here in March. So, you've seen some movements there. On the other hand, when you see rates coming down ... the inspiration to transfer from a deposit account to a money market fund does get diminished. It doesn't get destroyed but it is reduced."
Donahue also says, "In terms of the overall business, from the Fed's point of view, our people believe that they're going to knock rates down next week by 50 basis points at the regular meeting. We believe strongly that negative rates are out of the question. We keep in contact with the Fed; they call us at various times to do little tests and exercises. They have added, as you know, $50 billion to the repo market, $45 billion to the one week markets and their tool chest remains loaded with other tools ... all on top of a bank structure that is a lot stronger than before."
He adds, "What we're seeing now in our trading desk and money market funds, is basically business as normal. Yes, a few more positive flows -- usually this week we're looking at some amount of negatives ... because of the tax day coming up on Friday. But the flows are pretty normal from our point of view. They're coming in both Prime and Govt, [and] the spreads between Prime and Govt are maintaining their 17-18 basis point difference. From the point of view of issuers: buyers, transactions, liquidity, etc., it is all quiet on the Western Front."
In other news, a press release entitled, "Aviva Investors launches US Dollar Liquidity Fund" tells us, "Aviva Investors, the global asset management business of Aviva plc ('Aviva'), announces the launch of the Aviva Investors US Dollar Liquidity Fund, a Low-Volatility Net Asset Value (LVNAV) fund, targeting low-risk returns and daily liquidity through a diversified portfolio of high-grade, US dollar-denominated short-term debt instruments."
It continues, "Sitting alongside Aviva Investors' existing range of sterling- and euro-denominated liquidity strategies, the fund aims to provide an actively managed alternative to bank deposits, allowing investors to diversify cash holdings across a range of high-quality money market instruments. Katie DellaMaria, who joins Aviva Investors' Chicago-based investment team from BMO Global Asset Management where she was Director and Fixed Income Portfolio Manager, will be manager of the fund which launches with almost $800 million of initial seed capital, sourced from existing Aviva Investors clients. Aviva Investors currently manages over £45 billion in assets on behalf of its liquidity investors."
Aviva's Anthony Callcott comments, "Cash management is one of Aviva Investors' core capabilities, developed over decades of managing assets for our parent and third-party investors. This launch complements our existing range of AAA-rated Money Market Funds and satisfies the investor appetite we are seeing from our European investor base, where there is increasing demand for low-risk, US Dollar-denominated investments. We also welcome Katie to the business, whose prior experience in managing short-intermediate bond strategies will complement and strengthen the existing skillset of our Liquidity team."
Caroline Hedges adds, "As investors continue to look for diversified and liquid portfolios, we believe this fund represents an off-balance sheet alternative to those traditional short-term bank deposits, which aims to deliver competitive yields and daily liquidity without diluting the security of capital." (Note: These funds are only available to non-U.S. institutional investors. Let us know if you'd like to see our latest Money Fund Intelligence International, which tracks the "offshore" money fund marketplace.)
Finally, another release, "Corporate Assets in Money Market Funds Grew 38% Y/Y in 2019 on ICD Portal," states, "ICD, corporate treasury's trusted independent portal provider of money market funds and other short-term investments, closed 2019 with its strongest quarter ever, ending the year with 24% revenue growth. The Q4 average daily balance of corporate treasury investments on ICD Portal grew 38% year-over-year, outpacing the market's 21% increase in institutional money market fund use tracked by the Investment Company Institute (ICI)."
CEO Tory Hazard says, "Growth in assets as well as in the number of clients on ICD Portal demonstrates treasury's need for greater access, visibility and control over cash and short-term investments.... Our growth confirms corporates' preference for independent providers, unbiased fund selection, investment risk analysis and consolidated reporting. We will continue to deliver the leading-edge technology and excellent service the corporate investment community has come to rely on from ICD. It's all we do."
The release adds, "ICD clients include the world's largest corporations from the Fortune 1000 and FTSE 350. ICD provides access to over 300 money market funds from more than 30 fund companies. Through one, secure platform, clients research, trade, settle and report on money market funds and other investments, such as: Time Deposits, Short Duration Bond Funds, Federally Insured Cash Accounts (FICA), Federally Insured Brokered CDs and Direct Commercial Paper."
Crane Data released its March Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of Feb. 29, 2020, shows an increase in Repo and Treasuries but a drop in Agencies, CDs, CPs, Other (Time Deposits) and VDRNs. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $5.0 billion to $3.835 trillion last month, after increasing $19.0 billion in January, $24.7 billion in December and $20.8 billion in November. Repo continues to be the largest portfolio segment, followed by Treasury securities, then Agencies. CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)
Among taxable money funds, Repurchase Agreements (repo) rose by $10.9 billion (0.84%) to $1.311 trillion, or 34.2% of holdings, after increasing $66.6 billion in January, $75.3 billion in December and decreasing $35.2 billion in November. Treasury securities rose $10.4 billion (1.0%) to $1.038 trillion, or 27.1% of holdings, after decreasing $83.6 billion in January, $14.7 billion in December and increasing $55.3 billion in November. Government Agency Debt decreased by $9.7 billion (-1.3%) to $757.7 billion, or 19.8% of holdings, after decreasing $40.4 billion in January, increasing $42.0 billion in December and decreasing $19.2 billion in November. Repo, Treasuries and Agencies totaled $3.107 trillion, representing a massive 81.0 % of all taxable holdings.
Money funds' holdings of CP, CD and Other (mainly Time Deposits) securities all fell in February. Commercial Paper (CP) decreased $1.2 billion (-0.4%) to $324.1 billion, or 8.5% of holdings, after increasing $16.1 billion in January, decreasing $37.6 billion in December and increasing $5.1 billion in November. Certificates of Deposit (CDs) fell by $3.8 billion (-1.3%) to $286.4 billion, or 7.5% of taxable assets, after rising $25.5 billion in January, decreasing $10.5 billion in December and increasing $12.6 billion in November. Other holdings, primarily Time Deposits, decreased $1.5 billion (-1.4%) to $111.1 billion, or 2.9% of holdings, after increasing $35.1 billion in January, decreasing $29.5 billion in December and increasing $2.3 billion in November. VRDNs dropped to $6.3 billion, or 0.2% of assets, from $6.4 billion the previous month. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)
Prime money fund assets tracked by Crane Data decreased $14 billion to $1.081 trillion, or 28.2% of taxable money funds' $3.835 trillion total. Among Prime money funds, CDs represent 26.5% (unchanged from a month ago), while Commercial Paper accounted for 30.0% (up from 28.9%). The CP totals are comprised of: Financial Company CP, which makes up 18.2% of total holdings, Asset-Backed CP, which accounts for 6.6%, and Non-Financial Company CP, which makes up 5.2%. Prime funds also hold 4.0% in US Govt Agency Debt, 9.2% in US Treasury Debt, 6.6% in US Treasury Repo, 1.2% in Other Instruments, 6.3% in Non-Negotiable Time Deposits, 5.5% in Other Repo, 7.9% in US Government Agency Repo and 0.4% in VRDNs.
Government money fund portfolios totaled $1.888 trillion (49.2% of all MMF assets), up $32 billion from $1.856 trillion in January, while Treasury money fund assets totaled another $866 billion (22.6%), down from $879 billion the prior month. Government money fund portfolios were made up of 37.9% US Govt Agency Debt, 23.4% US Government Agency Repo, 17.3% US Treasury debt, 21.2% in US Treasury Repo, 0.1% in Other Repurchase Agreement, and 0.1% in Investment Company. Treasury money funds were comprised of 70.8% US Treasury debt and 29.2% in US Treasury Repo. Government and Treasury funds combined now total $2.754 trillion, or 71.8% of all taxable money fund assets.
European-affiliated holdings (including repo) rose by $29.2 billion in February to $768.3 billion; their share of holdings rose to 20.0% from last month's 19.3%. Eurozone-affiliated holdings rose to $492.5 billion from last month's $480.1 billion; they account for 12.8% of overall taxable money fund holdings. Asia & Pacific related holdings fell by $26.0 billion to $336.3 billion (8.8% of the total). Americas related holdings fell $3.0 billion to $2.726 trillion and now represent 71.1% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $66.8 billion, or -8.5%, to $724.0 billion, or 18.9% of assets); US Government Agency Repurchase Agreements (up $86.1 billion, or 19.5%, to $527.7 billion, or 13.8% of total holdings), and Other Repurchase Agreements (down $8.3 billion, or -12.3%, from last month to $59.4 billion, or 1.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $11.8 billion to $197.0 billion, or 5.1% of assets), Asset Backed Commercial Paper (up $5.0 billion to $71.3 billion, or 1.9%), and Non-Financial Company Commercial Paper (up $5.6 billion to $55.8 billion, or 1.5 %).
The 20 largest Issuers to taxable money market funds as of Feb. 29, 2020, include: the US Treasury ($1,038.4 billion, or 27.1%), Federal Home Loan Bank ($557.6B, 14.5%), Fixed Income Clearing Co ($200.8B, 5.2%), RBC ($140.1B, 3.7%), BNP Paribas ($124.5B, 3.2%), JP Morgan ($88.0B, 2.3%), Federal Farm Credit Bank ($86.7B, 2.3%), Barclays ($86.5B, 2.3%), Federal Home Loan Mortgage Co ($85.0B, 2.2%), Credit Agricole ($81.4B, 2.1%), Mitsubishi UFJ Financial Group Inc ($74.5B, 1.9%), Wells Fargo ($66.5B, 1.7%), Sumitomo Mitsui Banking Co ($62.6B, 1.6%), Bank of America ($52.4B, 1.4%), HSBC ($52.2B, 1.4%), Societe Generale ($51.9B, 1.4%), Bank of Montreal ($46.6B, 1.2%), Citi ($46.0B, 1.2%), Bank of Nova Scotia ($45.5B, 1.2%) and Toronto-Dominion Bank ($44.9B, 1.2%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($200.8B, 15.3%), RBC ($110.8B, 8.5%), BNP Paribas ($110.3B, 8.4%), JP Morgan ($77.2B, 5.9%), Barclays ($69.2B, 5.3%), Credit Agricole ($56.2B, 4.3%), Wells Fargo ($54.5B, 4.2%), Mitsubishi UFJ Financial Group ($50.4B, 3.8%), Bank of America ($45.8B, 3.5%) and Goldman Sachs ($43.6B, 3.3%). Fed Repo positions among MMFs on 2/29/20 included only two funds: Goldman Sachs FS Treas Sol ($2.1B) and Vanguard Federal Money Mkt Fund ($0.1B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($29.3B, 4.7%), Toronto-Dominion Bank ($29.2B, 4.7%), Bank of Nova Scotia ($25.4B, 4.1%), Credit Agricole ($25.2, 4.1%), Mitsubishi UFJ Financial Group ($24.1, 3.9%), Credit Suisse ($23.7B, 3.8%), Mizuho Corporate Bank Ltd ($20.5B, 3.3%), Sumitomo Mitsui Banking Co ($20.3B, 3.3%), Federated ($19.8B, 3.2%) and Canadian Imperial Bank of Commerce ($18.1B, 2.9%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($17.8B, 6.2%), Bank of Montreal ($17.0B, 5.9%), Sumitomo Mitsui Banking Co ($16.6B, 5.8%), Mizuho Corporate Bank ($14.7B, 5.1%), Toronto-Dominion Bank ($13.6B, 4.8%), Bank of Nova Scotia ($13.1B, 4.6%), Credit Suisse ($13.0B, 4.5%), DZ Bank ($11.9B, 4.1%), Wells Fargo ($11.6B, 4.1%) and Credit Agricole ($11.4B, 4.0%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($20.4B, 7.7%), Toronto-Dominion Bank ($14.2B, 5.3%), Bank of Nova Scotia ($12.1B, 4.6%), JP Morgan ($10.8B, 4.1%), Credit Suisse ($10.7B, 4.0%), BNP Paribas ($10.3B, 3.9%), Canadian Imperial Bank of Commerce ($9.7B, 3.7%), National Australia Bank Ltd ($8.7B, 3.3%), Societe Generale ($8.1B, 3.0%) and Australia & New Zealand Banking Group ($7.8B, 2.9%).
The largest increases among Issuers include: Barclays PLC (up $15.7B to $86.5B), RBC (up $13.6B to $140.1B), BNP Paribas (up $10.6B to $124.5B), US Treasury (up $10.4B to $1,038.4B), HSBC (up $8.6B to $52.2B), Goldman Sachs (up $8.1B to $44.4B), Federal National Mortgage Association (up $4.3B to $22.7B), Societe Generale (up $3.9B to $51.9B), JP Morgan (up $3.5B to $88.0B) and Citi (up $3.2B to $46.0B).
The largest decreases among Issuers of money market securities (including Repo) in February were shown by: Fixed Income Clearing Corp (down $31.5B to $200.8B), Mitsubishi UFJ Financial Group Inc (down $10.1B to $74.5B), Federal Home Loan Bank (down $7.4B to $557.6B), Credit Suisse (down $7.2B to $30.7B), Natixis (down $4.8B to $41.1B), Australia & New Zealand Banking Group Ltd (down $4.2B to $17.5B), Bank of Montreal (down $4.0B to $46.6B), Nomura (down $3.8B to $33.0B), Federal Home Loan Mortgage Corp (down $3.2B to $85.0B) and Federal Farm Credit Bank (down $3.0B to $86.7B).
The United States remained the largest segment of country-affiliations; it represents 62.2% of holdings, or $2.387 trillion. Canada (8.9%, $339.4B) was number two, and France (8.4%, $322.3B) was third. Japan (6.9%, $264.6B) occupied fourth place. The United Kingdom (4.6%, $175.4B) remained in fifth place. Germany (2.1%, $82.1B) was in sixth place, followed by The Netherlands (1.9%, $71.6B), Australia (1.4%, $51.7B), Sweden (1.2%, 45.6B) and Switzerland (1.0%, $38.0B). (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 Feb. 29, 2020, Taxable money funds held 38.1% (up from 37.9%) of their assets in securities maturing Overnight, and another 15.3% maturing in 2-7 days (up from 14.6% last month). Thus, 53.4 % in total matures in 1-7 days. Another 17.4% matures in 8-30 days, while 11.4% matures in 31-60 days. Note that over three-quarters, or 82.2% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.5% of taxable securities, while 6.7% matures in 91-180 days, and just 2.6% matures beyond 181 days.
Yields on money market funds and rates on brokerage sweep accounts both fell sharply in the week following the Federal Reserve's surprise 50 basis point rate cut, and there's likely a lot more where that came from. Our flagship Crane 100 Money Fund Index fell 13 basis points to 1.29%, according to yesterday's Money Fund Intelligence Daily (with data as of 3/6). (Note: It fell another 6 bps yesterday/Monday to 1.23%.) The Crane 100 is down from 1.46% at the start of the year and down 94 bps from the beginning of 2019 (2.23%). The Crane Brokerage Sweep Index fell to 0.10% (for balances of $100K), down from 0.14% a week ago and down 18 bps from the end of 2018 (0.28%). Our latest Brokerage Sweep Intelligence, with data as of Friday, March 6, shows six out of 11 major brokerages cut rates in the past week. Yields should continue towards zero as markets anticipate yet another emergency Fed rate cut in coming days.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 677), shows a 7-day yield of 1.17%, down 12 basis points in the week through Friday, March 6. Prime Inst MFs were down 11 bps to 1.39% in the latest week, while Government Inst MFs fell by 12 bps to 1.26% and Treasury Inst MFs dropped by 13 bps to 1.19%. Treasury Retail MFs currently yield 0.90%, (down 15 bps), Government Retail MFs yield 0.96% (down 11 bps), and Prime Retail MFs yield 1.19% (down 12 bps), Tax-exempt MF 7-day yields increased 0.04% to 0.78%.
Yesterday's Brokerage Sweep Intelligence shows that Fidelity, Merrill Lynch, Morgan Stanley, Charles Schwab and UBS all lowered rates across the board in the past week, while E*Trade dropped their rates on balances of $500K and up. Fidelity cut rates on all tiers by 25 basis points. For $100K balances, they fell from 0.82% to 0.57%.
Merrill Lynch also trimmed rates; their $100K balance tier now pays 0.01%. Morgan Stanley cut its rates; its $100K balance declined from 0.03% to 0.01%. Schwab and UBS also dropped rates for all tiers. Schwab's $100K balance shifted from 0.06% down to 0.01%, while UBS' $100K tier dropped from 0.05% to 0.01%. E*Trade cut rates among its higher tiers, with their $100K balance remaining at 0.01%. No brokerage sweep rates or money fund yields have dropped to zero or gone negative to date, but this could become a distinct possibility in coming weeks or months.
Crane's Brokerage Sweep Index fell four basis points to 0.10% in the week ended March 6 (for balances of $100K.) E*Trade, TD Ameritrade, Merrill Lynch, Morgan Stanley, Schwab and UBS all currently have the lowest rate (0.01%) for balances at the $100K level. Meanwhile, Fidelity continues to have the highest sweep rate (0.57%), though its rate fell by 25 bps on the week. (Fidelity also has a higher-yielding money fund option for new accounts.) Wells Fargo is paying 0.05%, Ameriprise is paying 0.08% and RW Baird is paying 0.33% for balances of $100K.
Our MFI Daily, with data as of March 6, shows money fund assets have risen $69.9 billion over the past week (and month to date) to $4.036 trillion. Crane Data's daily collection totals broke above the $4.0 trillion level for the first time ever late last week, as assets jumped with market volatility. Prime assets were up $9.0 billion, while Government assets jumped by $61.1B. Tax-Exempt MMFs decreased $180 million.
In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be released later today, and we'll be writing our normal monthly update on the Feb. 29 data for Wednesday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings, and we posted these to the website yesterday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Feb. 29, 2020, includes holdings information from 1,082 money funds, representing assets of a record $4.031 trillion (unchanged from last month). MMFs totaled over $4.0 trillion for the first time ever in January, according to the SEC's data series. We review the latest N-MFP data below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,326 billion (up from $1,308 billion), or 32.9% of all assets. Treasury holdings total $1,047 billion (up from $1,038 billion), or 26.0%, and Government Agency securities totaled $777.1 billion (down from $787.7 billion), or 19.3%. Holdings of Treasuries, Government agencies and Repo (the vast majority of which is backed by Treasuries and agencies) combined total $3.144 trillion, or 78.0% of all holdings.
Commercial paper (CP) totals $338.2 billion (down from $340.3 billion), or 8.4%, and Certificates of Deposit (CDs) total $292.1 billion (down from $295.3 billion), or 7.2%. The Other category (primarily Time Deposits) totals $156.8 billion (down from $163.9 billion), or 3.9%, and VRDNs account for $94.1 billion (down from $98.2 billion last month), or 2.3%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $209.9 billion, or 5.2%, in Financial Company Commercial Paper; $63.4 billion or 1.6%, in Asset Backed Commercial Paper; and, $64.9 billion, or 1.6%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($774.0B, or 19.2%), U.S. Govt Agency Repo ($491.2B, or 12.2%) and Other Repo ($60.8B, or 1.5%).
The N-MFP Holdings summary for the 220 Prime Money Market Funds shows: CP holdings of $332.3 billion (down from $334.2 billion), or 30.0%; CD holdings of $292.1 billion (down from $295.3 billion), or 26.4%; Repo holdings of $220.6 billion (up from $213.1 billion), or 19.9%; Other (primarily Time Deposits) holdings of $107.9 billion (down from $113.1 billion), or 9.8%; Treasury holdings of $103.4 billion (up from $91.1 billion), or 9.3%; Government Agency holdings of $45.0 billion (down from $69.1 billion), or 4.1%; and VRDN holdings of $5.2 billion (down from $5.3 billion), or 0.5%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $209.9 billion (down from $226.9 billion), or 19.0% in Financial Company Commercial Paper; $63.4 billion (up from $59.4 billion) or, 5.7% in Asset Backed Commercial Paper; and $59.0 billion (up from $47.9 billion), or 5.3% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($74.4 billion, or 6.7%), U.S. Govt Agency Repo ($85.6 billion, or 7.7%), and Other Repo ($60.5 billion, or 5.5%).
Crane Data's latest Money Fund Market Share rankings show assets were higher for the majority of U.S. money fund complexes in February. Money market fund assets increased $23.5 billion, or 0.6%, last month to $3.975 trillion. Assets have risen by $56.5 billion, or 1.4%, over the past 3 months, and they've increased by $674.3 billion, or 20.4%, over the past 12 months through Feb. 29, 2020. The biggest increases among the 25 largest managers last month were seen by Fidelity, Vanguard, Federated, Morgan Stanley, JP Morgan and SSGA, which increased assets by $14.9 billion, $6.8B, $3.9B, $3.8B, $2.9B and $2.7B, respectively. Declines in assets among the largest complexes in February were seen by Goldman Sachs, Invesco, UBS, BlackRock and Northern, which decreased by $7.3B, $3.8B, $1.7B, $1.4B and $1.2B. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in February. (Note: Crane's Bond Fund Symposium, which was to take place March 23-24 in Boston, has been cancelled due to fears over the coronavirus and travel bans put into effect by financial firms. Contact us for details.)
Over the past year through Feb. 29, 2020, Fidelity (up $146.0B, or 22.0%), American Funds (up $104.3B, or 577.5%; this was inflated by the addition last year of the $108 billion American Funds Central Cash Fund), Federated (up $78.5B, or 32.7%), BlackRock (up $60.7B, or 21.3%), Vanguard (up $56.2B, or 15.5%), JP Morgan (up $53.0B, or 17.5%) and Schwab (up $46.7B, or 29.9%) were the largest gainers. These complexes were followed by Goldman Sachs (up $39.3B, or 19.8%), SSGA (up $31.9B, or 35.7%), Northern (up $16.5B, or 14.3%) and Morgan Stanley (up $15.8B, or 13.6%).
Fidelity, Federated, BlackRock, Vanguard and Northern had the largest money fund asset increases over the past 3 months, rising by $22.2B, $10.1B, $9.0B, $8.8B and $7.9B, respectively. Decliners over 3 months included: American Funds (down $16.3B, or -11.7%), Goldman Sachs (down $4.0B, or -1.7%), Invesco (down $2.4B, or -3.8%), Morgan Stanley (down $1.5B, or -1.1%), SSGA (down $1.5B, or -1.2%), UBS (down $1.4B, or -2.2%) and Franklin (down $1.2B, or -6.2%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with a record $809.4 billion, or 20.4% of all assets. This is Fidelity's first time over $800 billion and its highest level ever. They were up $14.9 billion in February, up $22.2 billion over 3 mos., and up $146.0B over 12 months. Vanguard ranked second with $417.4 billion, or 10.5% market share (up $6.8B, up $8.8B and up $56.2B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $355.2 billion, or 8.9% market share (up $2.9B, up $5.8B and up $53.0B). BlackRock ranked fourth with $346.3 billion, or 8.7% of assets (down $1.4B, up $9.0B and up $60.7B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $318.5 billion, or 8.0% of assets (up $3.9B, up $10.1B and up $78.5B).
Goldman Sachs remained in sixth place with $237.7 billion, or 6.0% of assets (down $7.3 billion, down $4.0B and up $39.3B), while Schwab was in seventh place with $202.6 billion, or 5.1% (up $1.6B, up $5.4B and up $46.7B). Dreyfus ($159.3B, or 4.0%) was in eighth place (down $1.1B, up $5.2B and down $413M), followed by Morgan Stanley ($132.5B, or 3.3%, up $3.8B, down $1.5B and up $15.8B). Northern was in 10th place ($131.9B, or 3.3%; down $1.2B, up $7.9B and up $16.5B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Wells Fargo ($130.4B, or 3.3%), American Funds ($122.3B, or 3.1%), SSGA ($121.2B, or 3.0%), First American ($71.7B, or 1.8%), UBS ($62.3B, or 1.6%), Invesco ($59.6B, or 1.5%), T Rowe Price ($42.8B, or 1.1%), DWS ($29.1B, or 0.7%), Western ($22.8B, or 0.6%) and HSBC ($22.1B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard and Goldman moves ahead of Federated. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($820.8 billion), J.P. Morgan ($521.5B), BlackRock ($516.8B), Vanguard ($417.4B) and Goldman Sachs ($357.7B). Federated ($328.4B) was sixth, Schwab ($202.6B) was in seventh, followed by Dreyfus/BNY Mellon ($180.5B), Morgan Stanley ($170.2B) and Northern ($156.6B) 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 March issue of our Money Fund Intelligence and MFI XLS, with data as of 2/29/20, shows mixed but predominantly lower yields in February across all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 750), fell 1 basis points to 1.27% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 1 bps to 1.28%. The MFA's Gross 7-Day Yield was unchanged at 1.68%, while the Gross 30-Day Yield fell 1 bps 1.69%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.41% (down 1 bps) and an average 30-Day Yield that decreased to 1.42%. The Crane 100 shows a Gross 7-Day Yield of 1.68% (down 1 bps), and a Gross 30-Day Yield of 1.69%. Our Prime Institutional MF Index (7-day) yielded 1.48% (down by 2 bps) as of February 29, while the Crane Govt Inst Index was 1.36% (up 1 bps) and the Treasury Inst Index was 1.31% (unch.). Thus, the spread between Prime funds and Treasury funds is 17 basis points, while the spread between Prime funds and Govt funds is 12 basis points. The Crane Prime Retail Index yielded 1.31% (down 3 bps), while the Govt Retail Index was 1.06% (up 1 bps) and the Treasury Retail Index was 1.05% (unch.). The Crane Tax Exempt MF Index yield jumped in February to 0.74% (up 20 bps).
Gross 7-Day Yields for these indexes in February were: Prime Inst 1.80% (down 2 bps), Govt Inst 1.64% (up 1 bps), Treasury Inst 1.62% (unch.), Prime Retail 1.80 (down 3 bps), Govt Retail 1.65% (up 1 bps) and Treasury Retail 1.62% (unch.). The Crane Tax Exempt Index increased 20 basis points to 1.18%. The Crane 100 MF Index returned on average 0.11% over 1-month, 0.36% over 3-months, 0.24% YTD, 1.91% over the past 1-year, 1.54% over 3-years (annualized), 0.99% over 5-years, and 0.51% over 10-years. The total number of funds, including taxable and tax-exempt, increased by four to 932. There are currently 750 taxable funds, seven more than the previous month, and 181 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 March issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Consolidations & Liquidations Again Loom in MMF Sector," which features the merger trend that is likely to continue; "HSBC Global AM's Curry on US, European & EM MMFs," which profiles Jonathan Curry of HSBC Global Asset Management; and, "Deposit Growth Rebounds After Stall; Sweeps Fueling," which compares the growth of bank deposits vs. money fund assets. We've also updated our Money Fund Wisdom database with Feb. 29 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our March Money Fund Portfolio Holdings are scheduled to ship on Tuesday, March 10, and our March Bond Fund Intelligence is scheduled to go out Friday, March 13. (Note: Our apologies, but we've cancelled our upcoming Bond Fund Symposium in Boston!)
MFI's "Consolidations" article says, "Pressure on asset management and financial stocks is heating up the merger market, as evidence by the recent announcements between Franklin and Legg Mason and Morgan Stanley and E*TRADE. Given the potential of looming negative yields and fee waivers, this trend should only accelerate as we move through 2020. We review the latest news here."
It explains, "Last year, we saw Federated take over PNC's fund business and Invesco absorb OppenheimerFunds, and now it appears we'll see more fund consolidation in 2020. A press release entitled, 'Franklin Templeton to Acquire Legg Mason, Creating $1.5 Trillion AUM Global Investment Manager,' tells us, 'Franklin Resources ... operating as Franklin Templeton ... announced that it has entered into a definitive agreement to acquire Legg Mason, Inc.'"
Our "HSBC Global AM" profile reads, "This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below.
MFI says, "Give us a little bit of history." Curry answers, "We've been running money funds for over 25 years in a very broad range of currencies. We treat liquidity as an asset class in its own right, so we've got dedicated investment professionals, client service teams, distribution teams, product teams, all focused on this asset class. Liquidity represents around 20 percent of the AUM ... of HSBC Global Asset Management. It's a very important part of the of the asset management franchise here at HSBC. I joined HSBC in 2010, as the Global Chief Investment Officer for Liquidity. I moved to the U.S. in Q'3 2016, to take on the additional responsibilities that I have today. Prior to joining HSBC, I was at Barclays Global Investors."
MFI says, "Tell us about the fund lineup." Curry continues, "For liquidity, we finished 2019 with just under $100 billion, $98.1 billion to be precise. We manage liquidity solutions in 11 currencies globally, which is one the widest breadth of currencies of any manager. It covers both developed and emerging market currencies. We have offerings in U.S. dollar, in sterling, in euros, which are where the bulk of the assets that we have are managed. In Asia, we have Hong Kong dollar funds, RMB, Australian dollar, Taiwan dollar and Indian rupee. In addition to sterling and euros in Europe, we have Turkish lira. In the Americas, in addition to US dollars, we have a Canadian dollar offering and an Argentinian peso offering."
The article on "Deposits" tells readers, "U.S. money fund assets grew by 20.8% in 2019, the biggest increase since 2007. Meanwhile, bank deposits picked up the pace to grow by 5.4% last year, after growing a mere 1.7% in 2018 (the slowest rate since 1995), according to the Federal Reserve's H.6 data series. Money funds added $565.5 billion (to $3.311 trillion) and MMDAs gained $503.6 billion (to $9.868 trillion) for 2019, while Small Time Deposits, or bank CDs, grew by $60.3 billion."
It adds, "Assets of MMDAs began growing again in June 2019, following a stall starting in late 2018. Meanwhile, money fund assets have paused year-to-date in 2020, after a scorching 2019."
The latest MFI also includes the News brief, "Money Fund Assets Up in February," which writes, "Crane Data shows MMFs grew by $23.4 billion to $3.977 trillion in February, following January's $3.7 billion decline. ICI shows assets jumping $49.3 billion in the first week of March."
A second News piece titled, "Fed Cuts by 50; Yields Head to 1.0%," says, "Worried over volatility and the coronavirus, the Federal Reserve cut rates in a surprise 50 basis point move, lowering the Fed funds target rate range to 1.00-1.25%. Money fund yields are expected to plummet in coming days and should break below the 1.0% level in April."
Our March MFI XLS, with Feb. 29 data, shows total assets rose by $23.4 billion in February to $3.977 trillion, after falling $7.8 billion in January and rising $72.7 billion in December and $40.9 billion in November. Our broad Crane Money Fund Average 7-Day Yield fell to 1.27% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down a basis points to 1.41%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 1.68% and the Crane 100 fell to 1.68%. Charged Expenses averaged 0.41% (unchanged from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 32 (up two days) and 33 days (unchanged) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
J.P. Morgan Asset Management recently hosted a webinar entitled, "Opportunities in Short-Term Bonds," which featured JPMAM Portfolio Managers James McNerny and Rick Taormina. They discuss "current market conditions and [the company's] two ultra-short duration bond strategies," in particular JPMorgan Ultra-Short Municipal Income ETF (JMST) and JPMorgan Ultra-Short Income ETF (JPST). We excerpt from their comments below. (Note: Crane Data continues to plan for its upcoming Bond Fund Symposium, which is March 23-24 in Boston. We're monitoring coronavirus developments carefully, but Boston continues to be low risk according to the latest from officials. We'll keep you posted and will offer credit if attendees, sponsors or we need to cancel. Please let us know if you want more info, or an extra ticket!)
On the recent webinar, JPMAM's McNerny explains, "One thing I want to do is ... define what the ultra-short space is for anybody who's not aware. Ultra-short portfolios, by definition, are those which have a weighted average duration of one year or less at the portfolio level. To be in the Morningstar category, that's the only characteristic that you have to meet.... Typically, here at J.P. Morgan anyway, we are buying five years and shorter in maturity on the curve."
He asks, "Why ultra-short? Why should clients be interested, and why have we seen tremendous interest in ultra-short in general? It's the steady returns that the space has delivered historically with low volatility, which obviously then results in strong risk adjusted returns.... All in all, [the fund has] an attractive yield/duration profile.... I think the space has been well received by clients ... as evidenced by [all the] money in motion."
McNerny discusses bond fund assets by category in 2019, saying, "[Among] the top 10 categories of flows in the mutual fund and ETF space ... the ultra-short space was the number eight category overall. And so, [it was] a good year for ultra-short, [with] $38 billion in. But [this is] after a tremendous record-setting year in 2018 with over $90 billion in net new flows.... It's important to note that the lion's share of this space is going to be [in] the active space. There aren't too many passive managers here and the majority of those are going to be in longer floating rate passive products.... In January, we saw about another $6 billion [move] into the category. If you think anecdotally, just talking about JPST here, we've seen over $1.25 billion in year-to-date, which eclipses our quarterly average over the last two years."
He continues, "Again, this space is going to be one-year weighted duration -- it's just outside of money market funds. But you should not think of these as cash replacements or money market funds. These are low duration bond funds, [so] you have exposure to price movement and you could have some volatility, albeit we would expect it to be low. That being said, for a lot of clients that have too much cash in money market funds and are looking for a little bit more income, if they're willing to move out the curve.... We would recommend at least a six month investment horizon, [so] this is a space where we see a lot of interest in. And, similarly if you're looking to reduce interest rate duration, especially on the rally that we've had in here, we see clients moving down the curve and coming out of risk into this space as well."
Taormina comments, "This space is very interesting, and as rates fall, it becomes actually more interesting. [A] lot of folks use it just as a core holding when they step out of cash to pick up an extra 30 to 50 bps. I think when you look at some of the yields … [they] really [look] quite attractive versus the 10-year.... So, we see them using that as a step out. We also see a lot of folks using it for an event. They have retirement, they have a sale of a business, any type of asset deployment or cash that they've come into that they're going to redeploy into markets, maybe an equity market like today, where we see equities off significantly. So, it's really a holding tank."
He adds, "What we're seeing more recently are folks that may be taking chips off the table, whether that be in a high risk asset [in] equities or in fixed income, or maybe some of the higher yield sectors ... that maybe are a little bit more volatile.... They're moving down the spectrum into these types of accounts, and I think it could be a very useful tool as part of a total portfolio process. We see a lot of folks pairing accounts like JPST and JMST with longer duration strategies and they toggle back and forth depending on the opportunity set."
Taormina also tells us, "I think it's crucial to have a large team, whether it's taxable or tax-exempt, in front of you. [With] the tax-exempt team ... Josh Brunner has been with us for multiple decades. Josh really is an expert in structured product, he manages insurance assets for us and really keeps track of flows in the marketplace and opportunities where we see folks selling and structuring deals for us in the front end. And then [we also have] Curt White, again a multi-decade veteran with us. He grew up in the money market arena, which has been really crucial. I think when you look at JMST and where the yield is, there's a nuance here with the timing, where we are in the year, and in the seasonal factors."
He states, "It's crucial not only to have the PM side, but the analyst side here. And again, [we have] a very deep, seasoned team, a very large team. And when we see events like ... what's going on currently in the marketplace, you have to have a team that's going to separate the noise from the facts and really look at what's going on, and what could be going on three to six months down the road if this escalates into a situation where we see state and local tax revenues start to slip. So, again, [we have] a deep and seasoned team that's had not one default since I've been here. We want to keep that in mind, that credit is crucial and knowing the risks that you're taking ... is paramount."
Finally, McNerny says, "J.P. Morgan Global Liquidity ... is the business within which we reside. It includes our money market fund business and then our Managed Reserves book of business (including JPST), which is the next step out of money market funds, and some short duration product as well. Portfolios with a longer duration than that would be run by our fixed income team.... It's important to note that ... it's a business that's anchored by our roughly half a trillion dollar money market fund complex. It's a big, important business for J.P. Morgan, and certainly, when you think about the conservative style with which money market funds are going to be managed, that is going to permeate throughout our organization and everything that we do here in these ... products."
He adds, "We would say our alpha target on the fund is 40 to 60 basis points over a prime money market fund per annum through a cycle.... Even given the compression in the yield curve and prior to this recent move, the compression in credit spreads, we are still finding active opportunities to generate that alpha and meet that alpha target." (Note also: Let us know if you'd like to see our most recent Bond Fund Intelligence publication, which tracks the bond fund marketplace and which focuses on the ultra-short sector.)
After a tumultuous week in the market caused by the spreading coronavirus, the Federal Reserve Board cut interest rates yesterday in a surprise 50 basis point intra-meeting move, lowering its Federal funds target rate range to 1.00-1.25 percent. The Fed had cuts rate by a quarter-point three times in 2019, the last one being in October. Money fund yields, which have been flat or inching lower in 2020 to date, are expected to plummet in coming days and should break below the 1.0% level over the next month. The cut comes roughly two weeks prior to the Fed's scheduled March meeting and is the first out-of-meeting cut since the 2008 financial crisis. We review the Fed move, and Fidelity's latest annual report, below.
A posting entitled, "Federal Reserve issues FOMC statement," tell us, "The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1 1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy."
According to our Money Fund Intelligence Daily, the Crane 100 Money Fund Index, an average of the 100 largest taxable money funds, yielded 1.41% as of March 2, 2020. Given that these funds' average WAM, or weighted average maturity, is 32 days, this means the Crane 100 should fall below the 1.0% level for the first time since November 2017 in coming weeks and should approach the 0.91% level by early April. The broader Crane Money Fund Average currently yields 1.29%, so it should approach 0.8% after April Fool's Day. Though funds won't have to start waiving partial fees just yet, the next cut no doubt will bite.
In other news, Fidelity Investments, the largest manager of money market mutual funds, released a document entitled, "`Shareholder Update 2019." The annual report, which briefly mentions money market mutual funds in a couple different places, gives a brief review of the asset management giant's varied businesses.
Chairman & CEO Abigail Johnson writes, "For the year, FMR LLC, which represents results from Fidelity Financial Services and FMR's diversified businesses, achieved revenue of $20.9 billion, surpassing last year's revenue of $20.4 billion. Operating income, at $6.9 billion, was 9.5% higher than the $6.3 billion achieved in 2018.... Net asset flows to Fidelity's platform ... totaled $315 billion.... This increase was led by the growth in Fidelity managed accounts, index funds, and money market funds, where flows increased 26%, 49%, and 38%, respectively, over 2018 levels."
The report tells us, "Fidelity's Personal Investing (PI) division delivered another strong year, with assets and client accounts reaching record-high levels.... PI disrupted the industry when it announced that Fidelity customers' core cash holdings in new retail brokerage, retirement, and health savings accounts (HSAs) would be automatically swept into money market products. This move was in stark contrast to many firms that provide no investment choices for clients' core cash holdings or that default customers into low-yielding offerings."
In its "Personal Investing Overview, Fidelity repeats, "In 2019, Fidelity announced that new retail brokerage, retirement, and health savings account (HSA) customers would be automatically swept into higher-yielding money market offerings for their core cash holdings. This move is contrary to many firms that default customers into low-yielding offerings and provide no investment choices for clients' core cash holdings."
The Fidelity Institutional update explains, "Despite three interest rate cuts and a decline in interest-bearing balances, net interest income grew by 2.8%, thanks in large part to other increases in securities finance revenue generated by FCM's Prime Services, which provides a consolidated prime brokerage offering for hedge fund clients.... The FIAM (Fidelity Institutional Asset Management) business achieved strong sales.... FIAM saw rapid growth in the areas of money market and passive investing. Flows into FIAM money market funds grew 133% year over year, and passive flows were up 32%."
Within its Asset Management overview, Fidelity comments, "This year brought record asset flows and strong market tailwinds, bringing total discretionary managed assets to $3.2 trillion, up 26% year over year from $2.5 trillion at year-end 2018.... Growth of discretionary investment products was largely driven by strong inflows into money market funds ($121 billion), index funds ($66 billion), and managed accounts ($49 billion).... Fidelity's broad array of investment strategies -- including index, bond, money market, target-date, and managed account solutions -- increases the likelihood that any redemptions are exchanged into other products on Fidelity's platforms."
They continue, "Overall investment performance was strong across the board in 2019. In aggregate, Fidelity's mutual funds beat 74%, 78%, and 78% of their peers on a one-, three-, and five-year basis, respectively.... AM's Fixed Income division continued to deliver excellent performance. For the one-, three-, and five-year periods, fixed income funds beat 74%, 79%, and 80% of their peers, respectively."
Finally, a table shows that Fidelity's Money Market Funds outperformed 78% of their peers over 1 year (down from 81% last year), 82% of their peers over 3 years (down from 83% last year), and 83% of their peers over 5 years (up from 82% last year). (The table says they use Lipper data and describes it as "Weighted % of peers outperformed.")
According to our Money Fund Intelligence XLS, Fidelity has $794.5 billion in money market fund assets, or a massive 20.1% of the market. Their assets increased by $131.7 billion, or 19.9%, over the past 12 months (through 1/31/20). Meanwhile, total money market fund assets tracked by Crane Data are up $705.6 billion, or 21.7%, over the last 12 months to $3.951 trillion. Fidelity also has $263.7 billion of bond fund assets, or 7.2% of the market (according to our Bond Fund Intelligence XLS with info as of 1/31/20). Fidelity's bond fund assets have risen by $37.9 billion, or 16.8%, over the last 12 months. Bond fund assets hold $3.672 trillion, up $618.0 billion, or 20.2%, over the past year.
Yields inched lower for money funds, but were flat for brokerage sweeps and bank deposits in the latest week. Rates should begin moving lower again in earnest in coming days as the money markets digest today's surprise 50 basis point rate cut. Our Money Fund Intelligence Daily shows the flagship Crane 100 MF Index down a basis point to 1.41% (as of Friday, Feb. 28) and our broader Money Fund Average down one bps to 1.29%. The Crane 100 is down from 1.81% on Sept. 30 and down from 2.18% on June 30. It is down 82 bps from the beginning of 2019 (2.23%), but up from its near low of 0.06% ten years ago (12/31/09). Given the Federal Reserve's big (50 bps) cut today, money fund yields should immediately begin reflecting the new lower levels. It normally takes a month to fully reflect any Fed move, and yields should begin falling hard in coming days as the money markets react to Tuesday's cut.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.29%, down a basis point in the week through Friday, Feb. 28. Treasury Inst MFs and Prime Inst MMFs were down a basis point each at 1.32% and 1.50%, respectively. Government Inst MFs remained flat at 1.38%. Treasury Retail MFs currently yield 1.05%, (down 0.01%), Government Retail MFs yield 1.07% (unch.), and Prime Retail MFs yield 1.31% (down a basis point), Tax-exempt MF 7-day yields increased 0.01% to 0.74%.
Crane's Brokerage Sweep Index remained flat at 0.14% in the week ended February 28 (for balances of $100K. The average sweep rate has been flat all year so far in 2020, but is down 14 bps from the end of 2018 (0.28%) and up 9 bps from ten years ago (0.05%). E*Trade and TD Ameritrade currently have the lowest rates for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also has a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill, Raymond James and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Ameriprise is paying 0.08% and RW Baird is paying 0.33% for balances of $100K.
While many expected to see assets jump given last week's market volatility, we didn't see anything of note. (Money funds aren't really used as brokerage "sweeps" any more; almost all brokerages sweep to bank deposits now.) Our MFI Daily, with data as of February 28, shows money fund assets have risen $617 million over the past week to $3.966 trillion. Prime assets were down $19.1 billion while Government assets were up by $21.4B. Tax-Exempt MMFs decreased $1.7 billion. The MFI Daily also shows money fund assets up $40.1 billion for the month of February to $3.966 trillion. Prime assets are up $7.4 billion MTD, while Government assets are up by $33.7B. Tax-Exempt MMFs decreased $1.1 billion. Prime and Government MF assets were up $378.7 billion and $492.6 billion in 2019, respectively.
For more on "sweeps", see our latest Brokerage Sweep Intelligence, or see these Crane Data News articles: Sweeps Big Part of Morgan Stanley, E*Trade Purchase; Rates Flat Again (2/25/20), N-MFP Holdings Shows MMF Assets Hold Above $4.0 Trillion; Sweeps Flat (2/11/20), Concerns Remain about Brokerage Cash Says Investment News; Sweeps (2/4/20), FINRA Fallout: More on Sweeps, Fin-Tech Cash Accounts by ignites, FP (1/22/20), Finra Latest To Scrutinize Sweeps (1/15/20), Ignites on UBS Sweep Changes (12/9/19), More on Regulators and Sweeps (11/25/19) and SEC Warns on Cash Sweeps (11/12/19).
In related news, the Federal Deposit Insurance Corporation published its latest "Quarterly Banking Profile," which reviews the fourth quarter of 2019 in the banking industry in the U.S. A press release entitled, "FDIC-Insured Institutions Reported Net Income of $55.2 Billion in Fourth Quarter 2019," states, "For the 5,177 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC), aggregate net income totaled $55.2 billion in fourth quarter 2019, a decline of $4.1 billion (6.9 percent) from a year ago. The decline in net income was led by lower net interest income and higher expenses. Financial results for fourth quarter 2019 are included in the FDIC's latest Quarterly Banking Profile."
The release tells us, "Net Interest Margin Declined from a Year Ago to 3.28 Percent: The average net interest margin declined by 20 basis points from a year ago to 3.28 percent. Net interest income fell by $3.4 billion (2.4 percent) from a year ago. This was the first annual decline since third quarter 2013. Lower yields on earning assets drove the reduction in net interest income."
FDIC Chairman Jelena McWilliams comments, "The banking industry remains strong, despite declines in full-year and quarterly net income. Loan balances continue to rise, asset quality indicators are stable, and the number of 'problem banks' remains low. Community banks reported another positive quarter. Net income at community banks improved because of higher net operating revenue, and the annual loan growth rate at community banks exceeded the overall industry."
She adds, "During the second half of 2019, we saw three reductions in short-term interest rates and yield-curve inversions. These factors present challenges for banks' credit extension and funding. It is vital that banks maintain careful underwriting standards and prudent risk management in order to maintain lending through economic fluctuations."
The full "Quarterly Profile" report adds, "Total deposit balances increased by $258.4 billion (1.8 percent) from the previous quarter, as interest-bearing accounts rose by $216.3 billion (2.2 percent) and noninterest-bearing accounts grew by $22.6 billion (0.7 percent). Deposits held in foreign offices increased by $19.5 billion (1.5 percent)."
Finally, it states, "Nondeposit liabilities, which include fed funds purchased, repurchase agreements, Federal Home Loan Bank (FHLB) advances, and secured and unsecured borrowings, fell by $69 billion (5 percent) from the previous quarter. The change in nondeposit liabilities Insured Institutions was led by a decline in securities sold under agreements to repurchase (down $30 billion, or 13.3 percent), the largest quarterly dollar decline since fourth quarter 2013. FHLB advances were lower by $16.3 billion (3.3 percent)."
Federated Hermes' Deborah Cunningham writes in her latest "Month in Cash" about the Fed, coronavirus and the money markets. The piece, entitled, "Is it 'material'? The Fed must decide, on its own, if the coronavirus outbreak qualifies as such," tells us, "Early February seems like years ago. As December and January data flowed in with positive reports on manufacturing, housing, employment and retail sales, the Federal Reserve looked pretty smart saying it would refrain from policy moves unless there were 'material' changes to the economy. Well, the coronavirus may very well qualify as one. When the outbreak reached Europe this week, it hit close to home. You don't have to have your eyes glued to a screen to know this outbreak will be with us for a while and that it will have some economic impact. But will it be material and, in turn, how should the Fed react?"
She explains, "Earlier this week, Fed Vice Chair Richard Clarida acknowledged the virus likely would disrupt the global economy but it was too soon to speculate about how large that might be and how long it would last. Investors seemingly have made up their minds that it will be significant and expect a rate cut at April's Federal Open Market Committee meeting. But there is, of course, the little matter of the FOMC meeting in March."
The Federated brief continues, "We think the Fed should not lower the fed funds rate then. The Fed likely is viewing the virus like a natural disaster: it wants to get ahead of it, but not make things worse. The markets seem to want the Fed to fear the future as much as they do. Policymakers must make clear they make their own decisions -- that they indeed operate independently. And this stance needs to be true. Just like the market shouldn't fight the Fed, the Fed can't be led by it. Its job is to forge monetary policy consistent with the broadest point of view."
It states, "It is debatable just how effective a cut would be at this point, and policymakers know that. There certainly is no lack of liquidity in the marketplace. In fact, the situation might stoke higher inflation as that is often a byproduct of a supply chain disruption. Anytime you introduce inefficiencies into the marketplace, there is potential for prices to rise. The Fed might be looking for higher prices, but a cut could allow for too much. More than likely is that things will return to the abnormal normal state of low inflation once the virus abates."
Cunningham adds, "What the Fed needs to do now is to talk the market in the right direction. Former chairs Bernanke and Yellen were fluent in Fedspeak. It's not that Powell isn't, but it has been more of a challenge with the current Fed because it has dissention in the ranks. You have Rosengren talking one way in Boston, Fisher at Dallas talking a completely different way and then Kashkari with a different take in Minneapolis. Time for some solidarity."
Finally, she comments, "As a firm, we are making 'maintenance trades' to keep us within our weighted average maturity (WAM) ranges of 35-45 days for government funds and 40-50 days for prime and tax-free ones. This has not been easy because of the lack of good relative value with the London interbank offered rate (Libor) and the Treasury curves' flattening, although Sifma rates have been attractive. So we have cast our net wide, buying securities, both fixed and floating, all across the short-end of the curve without any real conviction that one area is better than another. We are positioned for further lowering of yields but also prepared for a rise when the clouds break."
In other news, online money fund portal ICD recently hosted a webinar, "ESG for Short Term Investing: ESG Data & Decision-Making," which featured ICD Portal's Sebastian Ramos, SSGA's Will Goldthwait and Fitch Ratings' Alastair Sewell. Ramos explains, "We've observed with much interest the evolution of ESG investing in the cash space over the last few years. What began as a limited number of offerings has grown into a larger movement and we're excited to see it continue to mature and become a larger component of day to day product consideration for our clients."
He continues, "Taking a look at some of the data behind the trends.... While global AUM is still predominantly non-ESG ... 34 percent ESG, 66 percent non-ESG, there is now a significant proportion of AUM that is ESG based. This is likely to continue increasing.... The proportion of asset owners who now require an ESG policy to be in place in order for a bidder to pre-qualify for selection of an asset manager has exceeded 85 percent. Similarly, when assessing the performance of their asset managers, nearly 80 percent of asset owners, in addition to financial metrics, now also use ESG criteria to measure performance of portfolios. It's particularly worth noting as well, the rapid acceleration in this trend between 2017 and 2018." (Note: We believe these statistics are for overall investments, not for money markets.)
Ramos comments, "In our 2020 [global client] survey, launched in mid-January, we have some early feedback on ESG. Of the over 100 respondents, 32 percent indicate that they are or will be investing in ESG products in 2020, so we know the interest from our client base is there." A poll conducted during the webinar asked listeners, "Would you be interest in incorporating any sustainability or ESG analysis into your short-term investment?" Sixty-four percent of listeners answered yes, 20 percent answered no, while 16% answered 'no, but reviewing now.'
Sewell tells us, "We have seen increased investor interest in ESG. If we look over a long period of time, we can see that there have been certain investors who have invested through an ESG framework for a very significant period of time. It really depends how you define ESG. For example, someone who invested in say, an ethical fund which might have excluded certain sectors which they didn't like for whatever reason, you could actually say that was an ESG fund or an ESG investment. Although, it probably wouldn't have acquired the ESG nomenclature until more recently."
He continues, "Investors and other market participants have been asking us about how we look at ESG as a credit rating agency since at least 2015. We've noticed that the level of interest, and the frequency that we're getting questions.... We're getting it from the investor side, the regulator side, and we conclude that this is a major trend.... ESG is definitely a growing and dynamic area and we absolutely see rating agencies playing an important role here. We are now defining, or demonstrating, in our ratings which environmental, social and governance risks effect an entity and we're showing whether that effect is significant in the actual end credit rating that we've assigned."
Sewell adds, "There is a strong increase in the assets under management in ESG funds. Now, the majority of those assets are in equity funds, but fixed income funds are starting to catch up.... Whilst this trend is clearly strongly positive in terms of growth, the share of these assets remains relatively low compared with the total assets in mutual funds globally. So, this started as an equity theme, it's moved into fixed income more recently, and the most recent development has been in the money market fund space, where we've seen multiple new launches or conversions of money market funds to an 'E', 'S' or 'G' framework. This started with DWS in September 2018 coming out with an ESG fund, that was a conversion, and since then, multiple other providers of money market funds have launched or converted funds."
Finally, Goldthwait states, "We spent a considerable amount of time thinking about this, as far as, converting a pre-existing fund or starting something from scratch. Ultimately, what we decided was that we would start something from scratch. We decided to do that because we felt as though it was important to start fresh, so to speak. We also realized that we wanted to be able to score every asset that went into the fund. So, the objective of the fund remains the same as our non-ESG prime money market fund, which is principal preservation, liquidity and a market rate of return as the top priorities, and then an ESG tilt as that fourth priority. One thing that's been interesting as we've tilted the portfolio is that we've noticed there is a strong correlation between stronger credits in the market, or companies that have higher ESG scores, and longer and larger term limits ... from our credit team. So, there is this idea that if you build a portfolio around an ESG tilt, you're going to ultimately have stronger underlying credit in that portfolio."
For more on ESG and Social Money Market Funds, see these Crane Data News articles: HSBC Files to Launch ESG Prime Money Market Fund; Propriety Scoring (2/19/20), Fitch Ratings, ICD Host Webinars on ESG Money Funds, Cash Investing (2/6/20), Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP (1/24/20), Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/5/19), BNP Insticash Adds ESG Overlay (11/29/19), Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19), Goldman Adds ESG Screen (11/14/19), Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG (11/6/19), UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19) and SSGA Goes Live with ESG Money Market Fund (7/3/19).
