News Archives: April, 2023
The Investment Company Institute released its latest "Money Market Fund Assets" report, as well as its monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for March 2023 on Thursday. The monthly Trends shows money fund totals hitting record levels, while the Weekly update puts assets just shy of their record 2 weeks ago. The March jump was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Over the past 52 weeks, money fund assets have risen $753 billion, or 16.7%, with Retail MMFs rising by $498 billion (35.6%) and Inst MMFs rising by $206 billion (6.6%). ICI shows assets up by $528 billion, or 11.1%, year-to-date in 2023, with Institutional MMFs up $258 billion, or 8.4% and Retail MMFs up $221 billion, or 13.2%. (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record on Wednesday, 4/26. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
The weekly release says, "Total money market fund assets increased by $53.83 billion to $5.26 trillion for the week ended Wednesday, April 26, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $50.79 billion and prime funds increased by $5.71 billion. Tax-exempt money market funds decreased by $2.67 billion." ICI's stats show Institutional MMFs surging $48.9 billion and Retail MMFs rising $5.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.383 trillion (83.3% of all money funds), while Total Prime MMFs were $772.3 billion (14.7%). Tax Exempt MMFs totaled $107.5 billion (2.0%).
ICI explains, "Assets of retail money market funds increased by $4.98 billion to $1.90 trillion. Among retail funds, government money market fund assets increased by $3.24 billion to $1.29 trillion, prime money market fund assets increased by $4.05 billion to $514.11 billion, and tax-exempt fund assets decreased by $2.32 billion to $96.94 billion." Retail assets account for over a third of total assets, or 36.1%, and Government Retail assets make up 67.8% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $48.86 billion to $3.36 trillion. Among institutional funds, government money market fund assets increased by $47.55 billion to $3.10 trillion, prime money market fund assets increased by $1.66 billion to $258.21 billion, and tax-exempt fund assets decreased by $358 million to $10.54 billion." Institutional assets accounted for 63.9% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.
ICI's monthly "Trends" report shows that money fund assets increased $371.0 billion in March to a record $5.238 trillion. Bond fund assets also increased, jumping $62.0 billion to $4.629 trillion. But money fund assets, which surpassed bond fund assets in September 2022 for the first time since 2010, saw their lead over bond funds grow last month. MMFs have increased by $647.9 billion over the past 12 months. (The bond fund totals don't include bond ETFs, which total $1.346 trillion as of 3/31, according to ICI.)
Money funds' March asset increase follows gains of $60.0 billion in February, $31.5 billion in January, $105.3 billion in December, $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. MMFs decreased $6.4 billion in August, but they increased $34.3 billion in July and $25.0 billion in June. MMFs decreased $8.0 billion in May and $71.0 billion in April. For the 12 months through March 31, 2023, money fund assets increased by $647.9 billion, or 14.1%. (For the month of April through 4/26, MMF assets have increased by $77.0 billion to a record $5.687 trillion according to MFI Daily. Crane Data's Prime asset totals have increased by $49.9 billion in April to $1.176 trillion.)
ICI's monthly release states, "The combined assets of the nation's mutual funds increased by $667.07 billion, or 2.9 percent, to $23.41 trillion in March, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $20.28 billion in March, compared with an inflow of $18.07 billion in February.... Money market funds had an inflow of $360.64 billion in March, compared with an inflow of $50.48 billion in February. In March funds offered primarily to institutions had an inflow of $292.04 billion and funds offered primarily to individuals had an inflow of $68.61 billion."
The Institute's latest statistics show that Taxable MMFs were higher while Tax Exempt MMFs were lower last month. Taxable MMFs increased by $372.1 billion in March to $5.126 trillion. Tax-Exempt MMFs decreased $1.2 billion to $112.3 billion. Taxable MMF assets increased year-over-year by $622.9 billion (13.8%), and Tax-Exempt funds rose by $25.0 billion over the past year (28.6%). Bond fund assets increased by $62.0 billion (after decreasing $70.5 billion in Feb.) to $4.629 trillion; they've decreased by $623.4 billion (-11.9%) over the past year.
Money funds represent 22.4% of all mutual fund assets (up 1.0% from the previous month), while bond funds account for 19.8%, according to ICI. The total number of money market funds was 281, unchanged from the prior month and down from 302 a year ago. Taxable money funds numbered 232 funds, and tax-exempt money funds numbered 49 funds.
ICI's "Month-End Portfolio Holdings" confirm a jump in Repo and a slight increase in Treasuries last month. Repurchase Agreements remained the largest composition segment in March, increasing $244.6 billion, or 8.9%, to $2.992 trillion, or 58.4% of holdings. Repo holdings have increased $802.5 billion, or 36.6%, over the past year. (See our April 13 News, "April MF Portfolio Holdings: Repo, Govt Agencies Jump to Record Levels.")
Treasury holdings in Taxable money funds increased last month after falling previously, they remained the second largest composition segment. Treasury holdings increased $44.1 billion, or 4.6%, to $996.6 billion, or 19.4% of holdings. Treasury securities have decreased by $639.4 billion, or -39.1%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $194.7 billion, or 36.2%, to $733.4 billion, or 14.3% of holdings. Agency holdings have increased by $376.1 billion, or 105.3%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $47.1 billion, or -18.6%, to $206.8 billion (4.0% of assets). CDs held by money funds rose by $62.8 billion, or 43.6%, over 12 months. Commercial Paper remained in fifth place, down $32.4 billion, or -16.3%, to $166.5 billion (3.2% of assets). CP increased $32.3 billion, or 24.0%, over one year. Other holdings increased to $15.9 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $7.5 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased to 57.787 million, while the Number of Funds was unchanged at 232. Over the past 12 months, the number of accounts fell by 970.4 thousand and the number of funds decreased by 11. The Average Maturity of Portfolios was 16 days, up 2 from the record low in February. Over the past 12 months, WAMs of Taxable money have decreased by 13.
Financial Planning magazine published a piece, "The wealth management industry's $1T conflict of interest," which explains, "[T]he brokerage industry's widespread and lucrative practice of cash sweeps has drawn extensive regulatory scrutiny and the ire of consumer advocates since it started around 2000. As long as the firms fully disclose the conflict of interest, though, there is nothing illegal about rolling up clients' uninvested cash into bank accounts that pay brokerage firms the vast majority of rising interest yields that feed the industry's bottom line more every time the Fed raises rates."
They continue, "Some argue that the sweeps help pay for commission-free trades, boost access to capital and expand FDIC coverage of cash deposits. Others question whether advisors and their clients are aware that there is an estimated $1 trillion in brokerage cash sweeps that they could move into money markets, certificates of deposit and other higher-yielding accounts to tap into those climbing interest rates themselves."
The article quotes, "There's 'nothing nefarious' about cash sweeps, according to Josh Siegel, the founder of New York-based StoneCastle Partners, whose subsidiary, StoneCastle Cash Management, offers one of the other options for a better yield on clients' liquid assets, FICA For Advisors."
They write, "The statistics show the huge stakes to clients and the industry alike from cash. Liquid assets in general may not receive enough attention, even in times of low or zero interest rates. Americans lost more than $600 billion in yields over the past eight years on their holdings in savings and checking accounts by keeping cash with mega-bank 'money center' institutions like Bank of America and Wells Fargo, The Wall Street Journal estimated in a January study. The publication came up with the figure by comparing the assets in those accounts to their values if they had been held in cash vehicles with higher yields."
The article continues, "Cash sweeps deal clients out of the mix for the value to be gained on those assets, as evinced by the disparity between them and money market funds or certificates of deposit. As of April 19, money-market research service Crane Data's Crane 100 Money Fund Index had reached an average annualized yield of 4.64%. Charles Schwab's money funds, for example, carried yields of up to 4.83%, and the firm's CDs offer returns of as much as 5.15%. In contrast, the 'everyday cash' at Schwab -- meaning uninvested assets in brokerage and retirement accounts -- paid a rate of 0.45%."
It also tells us, "[B]rokerages are 'absolutely addicted and dependent on those flows' into cash sweep accounts, and 'right now, the hottest game in town is cash harvesting,' said Tim Welsh, the CEO of industry consulting firm Nexus Strategy. Like many experts, he attributed the rise of cash sweeps to vanishing trade commissions and fee compression in asset management."
The cover story mentions, "Two of the largest technology firms providing cash sweep services to brokerages, IntraFi and R&T Deposit Solutions, explain the service clearly on their respective websites. 'With IntraFi Sweep, your firm can: significantly increase profit margins over those earned from short-term investment accounts, like money-market mutual funds; control the margin earned from the service; tier the rate offered to various customer segments, if desired; fund affiliate banks, if desired or applicable -- and switch back and forth between placing funds with affiliated and unaffiliated banks based on the affiliated bank's liquidity needs."
It adds, "A pair of the biggest competitors to IntraFi, Reich & Tang Deposit Networks and Total Bank Solutions, combined into R&T Deposit Solutions last June under an acquisition by Reich & Tang and its private equity backer, Estancia Capital Partners, as well as institutional co-investors. The combined firm's sweep programs have reached more than $200 billion in assets under administration in a network of 100 wealth management firms as clients and 350 banks and other institutions, according to Kevin Bannerton, R&T's head of wealth management."
In other news, the Federal Reserve Bank of New York posted a "Statement Regarding the Policy on Counterparties for Market Operations and Reverse Repurchase Counterparties." It states, "The New York Fed has made the following adjustments to the Policy on Counterparties for Market Operations and expectations and eligibility requirements for Reverse Repo Counterparties. The Policy on Counterparties for Market Operations has been updated to clarify that, in addition to implementing monetary policy, broader policy goals including fostering financial stability and ensuring bank safety and soundness, are considered when reviewing a prospective or existing counterparty."
The statement continues, "To ensure alignment with counterparty policies for other market operations, expectations and eligibility criteria for Reverse Repo (RRP) counterparties have been updated to clarify that accessing RRP operations should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing RRP operations. SEC registered 2a-7 funds that, in the sole judgment of the New York Fed, are organized for a single beneficial owner, or exhibit sufficient similarities to a fund so organized, generally will be deemed ineligible to access reverse repo operations."
It adds, "This generally would not disqualify a fund that serves as the cash management vehicle for multiple funds or investment entities in an investment fund complex. Accordingly, eligibility criteria and the expression of interest form for these funds have been updated. These updates are intended to clarify the New York Fed's existing counterparty management practices and do not impact the participation of current RRP counterparties."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $364.4 billion in March to an all-time high of $5.704 trillion. Assets at March month-end were well above their previous $5.34 trillion February 2023 record. The SEC shows that Prime MMFs decreased by $22.2 billion in February to $1.150 trillion, Govt & Treasury funds increased $387.9 billion to $4.435 trillion and Tax Exempt funds decreased $1.3 billion to $118.5 billion. Taxable yields jumped again in March after surging 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. (Month-to-date in April through 4/24, total MMF assets have jumped by $54.1 billion to $5.664 trillion, according to our MFI Daily.) (See also the Federal Reserve Bank of NY's "Statement Regarding the Policy on Counterparties for Market Operations and Reverse Repurchase Counterparties.")
March's overall asset increase follows an increase of $52.1 billion in February, $53.2 billion in January, $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. Assets decreased $9.4 billion in September, but MMFs increased $3.5 billion in August, $57.4 billion in July and $26.6 billion in June. They decreased $19.7 billion in May and $63.3 billion in April. Over the 12 months through 3/31/23, total MMF assets have increased by $603.6 billion, or 11.8%, according to the SEC's series.
The SEC's stats show that of the $5.704 trillion in assets, $1.150 trillion was in Prime funds, down $22.2 billion in March. Prime assets were up $35.4 billion in February, $86.2 billion in January, $10.5 billion in December, $28.0 billion in November, $36.6 billion in October, $15.8 billion in September, $43.5 billion in August, $56.6 billion in July, $8.5 billion in June and $9.4 billion in May. Prime was down $11.7 billion in April. Prime funds represented 20.2% of total assets at the end of March. They've increased by $296.5 billion, or 34.7%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $4.435 trillion, or 77.8% of assets. They increased $387.9 billion in March, $16.1 billion in February, decreased $33.2 billion in January and increased $41.3 billion in December and $23.1 billion in November. Govt MMFs decreased $12.8 billion in October, $20.8 billion in September and $47.1 billion in August. They increased $8.2 billion in July and $14.4 billion in June. But they decreased by $36.7 billion in May and $57.1 billion in April. Govt & Treasury MMFs are up $283.3 billion over 12 months, or 6.8%. Tax Exempt Funds decreased $1.3 billion to $118.5 billion, or 2.1% of all assets. The number of money funds was 294 in March, up 1 from the previous month and down 15 funds from a year earlier.
Yields for Taxable MMFs and Tax Exempt MMFs moved higher yet again in March. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on March 31 was 4.93%, up 21 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.01%, up 22 bps from the previous month. Gross yields were 4.87% for Government Funds, up 26 basis points from last month. Gross yields for Treasury Funds were up 13 bps at 4.74%. Gross Yields for Tax Exempt Institutional MMFs were up 90 basis points to 4.05% in March. Gross Yields for Tax Exempt Retail funds were up 69 bps to 4.00%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 4.86%, up 21 bps from the previous month and up 455 basis points from 3/31/22. The Average Net Yield for Prime Retail Funds was 4.74%, up 21 bps from the previous month, and up 460 bps since 3/31/22. Net yields were 4.63% for Government Funds, up 29 bps from last month. Net yields for Treasury Funds were also up 14 bps from the previous month at 4.53%. Net Yields for Tax Exempt Institutional MMFs were up 89 bps from February to 3.93%. Net Yields for Tax Exempt Retail funds were up 69 bps at 3.75% in March. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly up in March. The average Weighted Average Life, or WAL, was 39.9 days (up 1.7 days) for Prime Institutional funds, and 38.3 days for Prime Retail funds (down 0.7 days). Government fund WALs averaged 65.8 days (up 5.4 days) while Treasury fund WALs averaged 47.9 days (down 5.6 days). Tax Exempt Institutional fund WALs were 10.0 days (up 0.5 days), and Tax Exempt Retail MMF WALs averaged 16.3 days (up 0.7 days).
The Weighted Average Maturity, or WAM, was 17.7 days (down 0.1 days from the previous month) for Prime Institutional funds, 17.1 days (down 0.7 days from the previous month) for Prime Retail funds, 15.3 days (up 4.8 days from previous month) for Government funds, and 17.2 days (down 1.6 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 0.6 days to 9.9 days, while Tax Exempt Retail WAMs were up 1.0 days from previous month at 15.6 days.
Total Daily Liquid Assets for Prime Institutional funds were 54.9% in March (up 1.1% from the previous month), and DLA for Prime Retail funds was 50.5% (up 2.7% from previous month) as a percent of total assets. The average DLA was 68.8% for Govt MMFs and 98.9% for Treasury MMFs. Total Weekly Liquid Assets was 67.9% (down 0.3% from the previous month) for Prime Institutional MMFs, and 61.5% (up 1.3% from the previous month) for Prime Retail funds. Average WLA was 79.4% for Govt MMFs and 99.6% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for March 2023," the largest entries included: Canada with $110.6 billion, the U.S. with $98.9B, Japan with $87.5 billion, France with $63.2 billion, the Netherlands with $40.7B, Aust/NZ with $34.0B, the U.K. with $33.1B, Germany with $21.7B and Switzerland with $5.8B. The gainers among the "Prime MMF Holdings by Country" included: the U.S. (up $6.3B) and Switzerland (up $0.1B). Decreases were shown by: Germany (down $17.0B), Japan (down $16.7B), France (down $9.2B), Canada (down $3.4B), the U.K. (down $2.1B), Aust/NZ (down $1.8B) and Netherlands (down $0.3B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $209.5 billion (up $3.0B), while Eurozone had $135.7B (down $34.9B). Asia Pacific subset had $142.8B (down $22.0B), while Europe (non-Eurozone) had $80.0B (down $18.6B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.137 trillion in Prime MMF Portfolios as of March 31, $584.8B (51.4%) was in Government & Treasury securities (direct and repo) (up from $513.7B), $229.0B (20.1%) was in CDs and Time Deposits (down from $291.5B), 159.8B (14.1%) was in Financial Company CP (down from $185.0B), $118.4B (10.4%) was held in Non-Financial CP and Other securities (down from $123.5B), and $45.1B (4.0%) was in ABCP (down from $48.7B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $244.0 billion, Canada with $112.2 billion, France with $83.0 billion, the U.K. with $44.2 billion, Germany with $11.5 billion, Japan with $89.5 billion and Other with $35.6 billion. All MMF Repo with the Federal Reserve was up $133.6 billion in March to $2.231 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.5%, Prime Retail MMFs with 4.8%, Tax Exempt Inst MMFs with 0.1%, Tax Exempt Retail MMFs with 1.2%, Govt MMFs with 13.1% and Treasury MMFs with 7.1%.
The SEC released its latest quarterly "Private Funds Statistics" report earlier this month, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q3'22) at $333 billion (up from $328 billion in Q2'22 and up from $302 billion in Q3'21). (Note: Register soon for our Money Fund Symposium, which is June 21-23, 2023 in Atlanta, Ga. We hope you'll join us!)
The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Fourth Calendar Quarter 2020 through Third Calendar Quarter 2022 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools.)
The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2022," with the most recent data available, show 79 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), down 1 from last quarter and up 2 from a year ago. (There are 51 Section 3 Liquidity Funds out of the 79 Liquidity Funds.) The SEC receives Form PF reports from 40 Liquidity Fund advisers (21 of which are Section 3 Liquidity Fund advisers), unchanged from last quarter and up 3 from a year ago.
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $333 billion, up $5 billion from Q2'22 and up $31 billion from a year ago (Q3'21). Of this total, $327 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $336 billion, up $1 billion from Q2'22 and up $26 billion from a year ago (Q3'21). Of this total, $331 billion in is Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $106 billion is held by Other (32.4%), $64 billion is held by Private Funds (19.6%), $68 billion is held by Unknown Non-U.S. Investors (20.7%), $15 billion is held by SEC-Registered Investment Companies (4.6%), $8 billion is held by Insurance Companies (2.5%) and $3 billion is held by Non-Profits (0.8%).
The tables also show that 68.1% of Section 3 Liquidity Funds have a liquidation period of one day, $313 billion of these funds may suspend redemptions, and $281 billion of these funds may have gates. WAMs average a short 26 days (30 days when weighted by assets), WALs are 42 days (48 days when asset-weighted), and 7-Day Gross Yields average 2.70% (2.75% asset-weighted). Daily Liquid Assets average about 54% (54% asset-weighted) while Weekly Liquid Assets average about 63% (66% asset-weighted).
Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (35.3%) are fully compliant with Rule 2a-7. When calculating NAVs, 72.5% are "Stable" and 27.5% are "Floating." For more, see our Jan. 27, 2022 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting."
In other news, money fund yields were relatively flat again last week, inching higher by just one basis point. They've mostly digested the Fed's March 22nd 25 basis point rate hike and should remain flat until the Fed hikes again on May 2 (if they hike as expected). Our Crane 100 Money Fund Index (7-Day Yield) was up 1 bp to 4.64% in the week ended Friday, 4/21. Yields are up from 4.61% on March 31, 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. Just a handful of the top-yielding money market funds yield above the 5.0% level, but more should move above this level after the next hike.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 687), shows a 7-day yield of 4.53%, up 1 bp in the week through Friday. Prime Inst MFs were up 1 bp at 4.74% in the latest week. Government Inst MFs rose by 1 bp to 4.63%. Treasury Inst MFs up 2 bps for the week at 4.52%. Treasury Retail MFs currently yield 4.30%, Government Retail MFs yield 4.32%, and Prime Retail MFs yield 4.57%, Tax-exempt MF 7-day yields were unchanged at 2.19%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (4/21), only 26 money funds (out of 823 total) yield under 2.0% with $405 million, or 0.0%; 111 funds yield between 2.00% and 2.99% with $114.4 billion, or 2.0%; 37 funds yield between 3.00% and 3.99% ($23.0 billion, or 0.4%), and 649 funds yield 4.0% or more ($5.510 trillion, or 97.6%). Ten funds have now officially surpassed the 5.0% mark (though most are private and not listed in our "Highest-Yielding Funds" table above) but we expect more to follow in coming weeks.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.56% after increasing 1 bp the week prior to last. The latest Brokerage Sweep Intelligence, with data as of April 21, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
The New York Times comments on cash in, "Why Money Market Funds Are Now Leading the Pack." The piece explains, "The markets have been rocky ever since the Federal Reserve started raising interest rates to combat inflation last year.... But it's been a glorious time for one part of the financial world: money market mutual funds. The biggest money funds tracked by Crane Data are paying more than 4.6 percent interest, and a handful have yields around 5 percent." (Note: With less than two months to go until our big Money Fund Symposium show, June 21-23, 2023 in Atlanta, Ga, we wanted to remind readers to register soon and make hotel reservations ASAP! We hope to see you in June!)
It tells us, "Their gaudy interest rates closely follow the Fed funds rate, set by the central bank. The effective Fed funds rate is now about 4.83 percent. That's onerous for people who need to borrow money, and deliberately so: The Fed is raising rates because it is trying to squelch inflation by slowing the economy. What's painful for borrowers is great for people who need a place to park money they have put aside to pay the bills. In a bid to hold onto customers, some banks have begun raising rates in savings accounts and for certificates of deposit, though most bank deposits remain in accounts that pay close to nothing."
The Times says, "That's given money market funds magnetic appeal. Their assets have swollen to more than $5.6 trillion, from $5.2 trillion in December 2021, when the Fed began talking about impending interest rate increases. Money market funds are likely to keep growing if the Fed holds rates at their current level, or raises them further."
Author Jeff Sommer comments, "I've used money market funds on and off for decades with no problems, and consider them to be fairly -- though not entirely -- safe. I think it's reasonable to put some of your cash in them, as long as you are careful and keep your eyes wide open. The days of being consigned to receiving nothing for the privilege of keeping your money in a financial institution were over, if you were willing to make a move. When interest rates started to rise, money market rates started levitating immediately, opening up a wide gap with bank deposit rates."
He continues, "By now, that gap has widened to its greatest level in decades. The advantages of money market funds are increasingly obvious, not just for the corporate financial officers who have always used them as an efficient and high-yielding place to hold money, but for thousands of ordinary people, who are at last receiving something for their cash."
The article also says, "Investors have never had major losses in money market funds in the United States, and I find that record comforting. But it doesn't mean that the funds are without risk. For one thing, there are already indications that their growing popularity comes partly at the expense of banks, especially smaller ones that have lost deposits. Such losses -- which contributed to the collapses of Silicon Valley Bank and Signature Bank last month -- have created stress in the entire financial system."
It adds, "More than $560 billion in deposits exited the commercial banking system this year through April 5, according to government figures. At the same time, more than $442 billion flowed into money market funds, according to Crane Data. That's been great for the income of the fund investors, but it's not an unalloyed good for financial institutions. You can see this in individual companies. At Charles Schwab, for example, which has just reported its quarterly earnings, the firm's banking arm lost $41 billion in deposits in the first three months of the year. At the same time, Schwab's money market funds gained $80 billion."
In other news, the Financial Times published an article on the miniscule ($24.6 billion) retail U.K. money fund market." The update, "Investors swell money market funds," says, "UK-based money market funds saw a swell in inflows ahead of the tax year end on April 5, as rising rates boosted their appeal to retail investors. Investment platforms, headed by market leaders Hargreaves Lansdown and Interactive Investor, said they had seen customers turn to money market funds in the first quarter of the year as yields increased. Hargreaves reported a 'huge increase' in net flows into money market funds in the first quarter year-on-year, while Interactive Investor experienced a 300 per cent increase in the same period. Analysts said this was from a low base, but showed funds were coming back into play for some investors after years of near-zero interest rates."
It quotes BlackRock's Beccy Milchem, "Uncertainty is causing investors to pause a bit longer before making investment decisions, though, from a longer outlook perspective, investors will need to get back into other asset classes," and adds, "Changing patterns of behaviour signal a tentativeness among retail investors whose confidence has been dented by volatility, with improved offers on cash providing a safe haven for savers seeking to top up tax wrappers. Money market funds invest in what are considered safe liquid assets, such as short-term government debt, which are due to mature soon. Investments are considered low risk, though, unlike bank deposits, they are not covered by any deposit protection scheme."
The FT adds, "Despite growing demand, funds flows have remained lower proportionally than in the US, where retail investors flocked to money market funds late last year after major banks such as JPMorgan Chase and Bank of America offered low returns on deposits despite increases in the Federal Reserve rate. Unlike their US counterparts, most UK banks and building societies have moved swiftly to increase rates on savings accounts in the wake of monetary tightening. Easy access accounts have circled around 3 per cent, while Barclays offers Reward customers 5 per cent on up to £5,000."
Finally, The Wall Street Journal writes on Morgan Stanley's Q1'23 earnings, in "Managing Rich People's Money Isn't Always Easy." They state, "Morgan Stanley's wealth management net interest income, which is generated by interest earned on the bank's assets minus the interest expense of funding them, rose 40% year-over-year in the first quarter.... But unlike a megabank such as Bank of America that funds much of its lending with customers' superlow or zero-interest day-to-day checking accounts, Morgan Stanley gets its deposits through its network of wealthy and affluent clients. And those customers appear to increasingly want that money to work harder for them."
The piece tells us, "Its cheapest source of deposits -- the money swept into bank accounts from uninvested cash balances -- was down more than 40% from a year earlier in the first quarter. Meanwhile other deposits, which include higher-yielding accounts, have about quadrupled. Likewise, the fact that many customers can earn yields of around 4% on plain cash might be decreasing the appeal of paying an adviser to help them invest.... A lot of this might be a temporary phenomenon, reflecting this highly strange moment. Right now, adviser-led assets at Morgan Stanley are at a peak level of about 23% invested in cash and cash equivalents. That is well above the historical average of 18%, the firm said."
Morgan Stanley CEO James Gorman comments, "We've had a pretty significant shock to the system in the last few months, which thankfully the financial world got through.... So it's entirely rational that people would take advantage of higher rates and increased uncertainty by pocketing cash.... [But] they're not going to stay in cash at 4% forever. That's not going to happen."
Money fund assets fell in the latest week, most likely on tax-related outflows, after hitting records in the previous 5 weeks and in 9 out of the last 11 weeks. The Investment Company Institute's latest "Money Market Fund Assets" report shows money fund totals falling $68.6 billion to $5.21 trillion, but they've risen by $315.0 billion, or 6.4%, since March 8 and $388.4 billion, or 7.9%, since Feb. 22. The failure of Silicon Valley Bank raised concerns over uninsured bank deposits, and both large and small investors stepped up their asset shifts into money funds. Over the past 52 weeks, money fund assets have risen $740 billion, or 16.6%, with Retail MMFs rising by $485 billion (34.4%) and Inst MMFs rising by $256 billion (8.4%). ICI shows assets up by $474 billion, or 10.0%, year-to-date in 2023, with Institutional MMFs up $258 billion, or 8.4% and Retail MMFs up $216 billion, or 12.9%.
The weekly release says, "Total money market fund assets decreased by $68.64 billion to $5.21 trillion for the week ended Wednesday, April 19, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $60.42 billion and prime funds decreased by $2.00 billion. Tax-exempt money market funds decreased by $6.23 billion." ICI's stats show Institutional MMFs falling $58.9 billion and Retail MMFs falling $9.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.332 trillion (83.2% of all money funds), while Total Prime MMFs were $766.6 billion (14.7%). Tax Exempt MMFs totaled $110.2 billion (2.1%).
ICI explains, "Assets of retail money market funds decreased by $9.72 billion to $1.89 trillion. Among retail funds, government money market fund assets decreased by $2.98 billion to $1.28 trillion, prime money market fund assets decreased by $1.22 billion to $510.06 billion, and tax-exempt fund assets decreased by $5.52 billion to $99.25 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 67.8% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $58.92 billion to $3.31 trillion. Among institutional funds, government money market fund assets decreased by $57.44 billion to $3.05 trillion, prime money market fund assets decreased by $779 million to $256.55 billion, and tax-exempt fund assets decreased by $702 million to $10.90 billion." Institutional assets accounted for 63.6% of all MMF assets, with Government Institutional assets making up 91.9% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets have declined every day over the past week after hitting a record $5.667 trillion last Wednesday (4/12). Our asset collection shows MMFs down by $7.5 billion on Wednesday, 4/19, and down by $44.8 billion over the past week. Assets are still up, though barely, by $12.2 billon month-to-date in April. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
Also, Citi Research in a new "Short Duration Strategy update, asks, "Will money funds continue to expand their footprint?" They write, "Money funds' assets under management (AUM) have grown at a record clip this year and have breached a high-water mark of $5.2 trillion. As we discuss, there are numerous reasons for this growth in assets -- e.g., better yield offerings, recent concerns about uninsured bank deposits, large banks unwilling to take on more deposits etc. But will money fund assets continue to grow at this rapid pace, or can we expect plateauing or even a slight slump in AUM? While tax season may not make a dent in money funds' AUM this year (though this has been true in the past mainly for tax-exempt money funds), we discuss other factors that could impact asset growth negatively."
The piece explains, "The reasons for the surge in money fund assets are well documented but let's do a quick recap. Higher policy rates and an inverted yield curve have enabled money funds to offer far more attractive rates: Money fund rates have surged higher with policy rates though deposit rates [and] those offered by large banks have not moved up. As a result, money funds have continued to attract assets, at the expense of banks, at a record pace.... MMF assets have risen by $353.4 billion, or 7.2% since March 8 as the failure of regional banks has raised concerns over uninsured bank deposits, which has led large investors to shift assets into money funds (though they're now being joined by some big retail inflows)."
They discuss "Recent concerns about uninsured deposits," stating, "The recent liquidity crisis in the banking sector has impacted public perception of the non-GSIB designated regional banks, and this has led to deposits leaving smaller and regional banks. However, deposits leaving smaller banks do not show up with large banks commensurately and money funds have gained these assets at the expense of large banks."
Citi says, "Retail investors (households and non-profits) have built up enormous amounts of cash on their balance sheets since the end of 2019 (before the pandemic).... [C]heckable deposits and currency holdings are up by a staggering 312% ($3.8 trillion) since end-2019. That makes for a large amount of dry powder that can be put to use at a moment's notice. So far, the growth in money fund assets has primarily come from increases in institutional money fund asset holdings (up 11.5% since March 8, 2023) while increases in retail money fund holdings have been more subdued (up 4.2% since March 8, 2023). But, if retail investors decide to move even a small portion of their cash into money funds, it could lead to an explosive surge in inflows."
They state, "Money market fund assets are definitely much less vulnerable since 2008 and have experienced an investor run only once since September 2008 (in March 2020). In both 2008 and 2020, institutional prime MMFs experienced more severe runs than retail prime funds. Still, this is not to say that MMF assets can't fall from their current highs, and we can think of a few factors that could cause it though we would be the first to admit that we lack conviction." These include "Fed policy change that lowers the RRP rate" and "The looming debt ceiling crisis could reduce the appeal of money fund products."
Finally, on latter, they write, "The debt ceiling debate could trip the surge of inflows witnessed by money funds this year, particularly government money funds. While we definitely do not expect the US to default on its obligations, a prolonged stand-off in Washington over raising the debt limit could create frictions in the short-term sector, potentially leading to some losses for money funds. Thus, investors, now confronted by the political stand-off over the US debt ceiling that threatens to potentially disrupt their investment portfolios, could choose to look for alternatives including mutual funds with longer dated debt holdings."
Earlier this week, Charles Schwab released its "First Quarter Earnings," which quotes CFO Peter Crawford, "Our first quarter revenue picture reflected the company's sustained business momentum and the benefits of rising interest rates, partially offset by clients' asset allocation decisions. Total revenue was up 10% year-over-year and exceeded $5 billion for the fourth consecutive quarter. While bank deposits shrank by 11% versus the prior year-end as clients realigned their allocations across our expansive selection of transaction and investment cash solutions, we observed a decline in the average daily pace of bank sweep movements from January to March -- even when allowing for a temporary spike in activity at the onset of the banking system turmoil." (Note: Register soon for our big Money Fund Symposium, June 21-23, 2023 in Atlanta, Ga. We hope to see you there!)
He adds, "Concurrently, we benefited from higher asset yields resulting from the Federal Reserve's pronounced tightening program. This helped expand net interest margin by 81 basis points from the first quarter of 2022 -- growing net interest revenue by 27% to $2.8 billion. Additionally, asset management and administration fees increased slightly, while trading revenue declined, and bank deposit account revenue was down due in part to a $97 million one-time breakage fee relating to ending our arrangements with certain third-party banks ahead of the initial Ameritrade client transition group."
Schwab's table on "Net Interest Revenue information," shows bank deposits for the three months ended March 31, 2023, at $343.1 billion vs. 2022's $452.7 billion, a decline of $109.6 billion. A table on "`Asset Management and Administration Fees Information," shows Schwab money market funds for three months ended March 31, 2023 at $316.4 billion for 2023 vs. 2022's $144.7 billion, a gain of $171.7 billion. Another table, "Growth in Client Assets and Accounts," shows money market funds at the end of Q1'23 at $357.8 billion, a 150% change from a year earlier, when money market funds were at $159.2 billion.
The New York Times, in "Charles Schwab's Deposits Shrink, but Profits Grow Faster Than Expected," writes, "Customer deposits dropped significantly in the first quarter, falling by $41 billion, or 11 percent, from the previous quarter. But client holdings in Schwab's money market funds rose by nearly $80 billion, or 28 percent. The company opened one million new brokerage accounts in the first quarter, which brought in $132 billion of net new assets."
The Bank of New York Mellon also released earnings earlier this week and made mention of money market funds. The "Q4 2022 Earnings Call Transcript quotes CFO Emily Portney, "Fee revenue was flat as the benefit of lower money market fee waivers and healthy organic growth across our Security Services and Market and Wealth Services segment was offset by the impact of lower market values from both equity and fixed income markets and the unfavorable impact of a stronger US dollar.... In Asset Servicing, investment services fees were down 1% as the impact of lower market values at a stronger US dollar were mostly offset by the abatement of money market fee waivers, higher client activity and net new business. In Issuer services, investment services fees were up 7%, driven by the reduction of money market fee waivers and higher depositary receipt issuance and cancellation fees."
She continues, "Market and Wealth Services reported total revenue of $1.4 billion, up 19%. Fee revenue was up 14% and net interest revenue increased by 33%. In Pershing, investment services fees were up 22%. This increase reflects lower money market fee waivers, higher fees on suite balances and higher client activity, partially offset by the impact of lost business in the prior year and lower market levels.... In Treasury Services, investment services fees were flat. The benefit of lower money market fee waivers and net new business was offset by the negative impact to fees from higher earnings credit on the back of higher interest rates."
Portney says, "Investment and Wealth Management reported total revenue of $825 million, down 19%. Fee revenue was down 18% and net interest revenue was up 2%. Assets under management of $1.8 trillion declined by 25% year-over-year. This decrease largely reflects lower market values and the unfavorable impact of the stronger US dollar partially offset by cumulative net inflows. As it relates to flows in the quarter, we saw $6 billion of net outflows from long term products and $27 billion of net inflows into cash. Among our long term active strategy, liability driven investments continued to be a bright spot with $19 billion of net inflows in the quarter, a real testament to our market leading capabilities and resilient performance during the recent market dislocation, a very healthy net inflows into our cash strategies come on the back of strong investment performance, most notably in our Dreyfus money market funds."
In other news, J.P. Morgan Securities writes in a "March MMF holdings update," "As we well know, March was an eventful month for money funds, with an influx of cash pouring into government MMFs following the onset of the recent banking crisis. As of March-end, government MMF AUMs saw over $400bn in growth month over month, with inflows devoted in large part to Agencies (+$125bn in FRNs and +$42bn in discos) and repo (+$56bn in ON RRP and +$123bn ex-Fed). Meanwhile, prime MMFs saw a slight decline in total AUMs month over month, and allocated less towards credit and more towards repo and ON RRP."
They tell us, "Notably, in March, government MMFs devoted the largest allocation to FRNs of this hiking cycle yet ($810bn, or 18.4% of their portfolios) as the market outlook on Fed policy wavered, and their overall WAMs pushed up to 14 days from 10 days a month earlier.... Furthermore, unusual of quarter-end, government funds appeared to direct a significant portion of their inflows towards non-Fed repo, with TGCR no longer trading through RRP as of March-end.... Of course, balances at the RRP facility saw increases in March as well, with prime funds contributing an additional $65bn and government funds an additional $56bn month over month. Total RRP balances climbed to $2375bn as of 3/31, with government MMFs making up about 76% of total uptake and prime MMFs a whopping 17%."
Finally, JPM writes, "Meanwhile, government MMFs have shown a noticeable shift in their T-bill maturity profiles this year. Continuing last month's trend, government MMF bill holdings showed a dramatic drop in 91-180d bills, both in absolute terms and as a percentage of total bill holdings, which fell to a measly 2% as of March-end.... At the same time, government funds dramatically increased holdings of 31-60d T-bills in March by about $100bn, with the 31-60d tenor now making up an entire 44% of funds' bill portfolios in total.... This historic shift could be attributed to stark changes in monetary policy outlook certainty in combination with precaution surrounding the drop-dead date, which likely falls within the 91-180d period. As we discussed last week, flows into MMFs were primarily driven by institutional investors' flight to safety in the wake of the recent banking crisis, though we also saw retail investors move cash into government MMFs during the same period to a lesser extent.... In the near term, we could continue to see MMF AUMs trend higher, though likely not by the same degree."
Quarterly earnings reports from major financial companies are shedding more light upon the huge March shift in assets from bank deposits to money market mutual funds. Late last week, BlackRock reported its "First Quarter 2023 Earnings," and answered a number of questions on the cash super-spike. (See the Earnings Call Transcript here.) New CFO Martin Small comments on the quarter, "Negative revenue impacts were partially offset by the elimination of discretionary money market fund fee waivers and higher securities lending revenue. BlackRock's cash management platform saw $8 billion of net inflows in the first quarter. Flows were driven by surging demand for our cash management solutions in March as clients look to diversify away from deposits and enhance cash yields. March net inflows offset net redemptions in the first two months of the quarter that were primarily due to client-specific activity such as SPAC unwinds."
He explains, "We're actively working with clients on their liquidity management strategies, providing technology, market and operational insights and, of course, delivering a full range of cash management capabilities. BlackRock's first quarter results highlight the benefits of the investments we've made to build a diversified and resilient investment technology platform."
CEO Laurence Fink says, "The powerful simplicity of our business model is that when we deliver value for our clients, we also create more value for all our shareholders.... Clients also came to BlackRock for immediate liquidity and tactical allocation needs, whether it was through our diversified cash management offerings, our short-duration fixed income products, precision ETFs or exposures in valuational tools in Aladdin. Liquidity has also become paramount for our clients. Cash is the lifeblood of individuals and organizations, especially in times of stress."
He continues, "Our teams have been partnering with clients as they reevaluate where they put their cash and how to balance holdings assets and traditional bank deposits alongside other options like money market funds or ultra-short bond strategies. In the month of March, BlackRock saw over $40 billion of net inflows into our cash management strategies. We expect to shift from deposits to money market funds to be a longer-term trend and are actively working with clients to help them diversify and enhance the yields they're earning on their cash."
Fink adds, "Cash often gets overlooked. Now that yields are back after a decade -- a lost decade -- of near zero rates, we're excited to help clients put their cash to work at BlackRock. Through our Cachematrix and Aladdin technology, our risk management and product innovation and collaboration across the $3.3 trillion fixed income and cash platforms, we are positioning BlackRock to be a partner of choice for our clients' liquidity and cash management needs."
During the Q&A, a number of analysts asked about deposit outflows. Small responds, "It is an incredibly dynamic time for the cash and liquidity markets. This has historically been a stable value, low or no expected return asset class where people do lots of operational things. But we've obviously entered into this period that started with [higher] rates and inflation and has been supercharged essentially by banking sector tremors. As you correctly flagged, we've seen an extraordinary amount of inflows into money market funds. Clients, I think, are paying very close attention to where they keep their operating cash and ... where they can earn a yield premium over deposits. And in every single cycle, deposits obviously tend to lag where money market rates are and deposit betas are just lower."
He tells us, "So I think there is absolutely a structural shift in the marketplace that's driven by two things. One, just rates inflation, but also just clients paying a lot more attention about where they're going to keep their cash balances for purpose of what they do. We're really well positioned here. We had $40 billion-plus of flows in March. We had some outflows in January and February that were really resulting from SPAC unwinds. But we feel very good about our positioning. We have a $683 billion cash platform. We've grown at 50% over the last five years. And I think uniquely, as is with most things at BlackRock, we have a tech-first distribution strategy with assets like Cachematrix and Aladdin. And we also have a very global business that has real diversity of offering across money funds, ETFs, separate accounts."
Small adds, "The last thing I'd just say about that is, I would think about the structural shift that you proposed is not just being about money funds or segregated accounts, but [also] about all of the cash and cash surrogates. I mean there are so many things you can go throw a dart at that yield 5% now. And I would look at a lot of what's happening in the bond ETF world is also being about picking up a yield premium over cash. So we expect to be really well positioned as clients do a lot of that work to use the ETF markets, to use money funds as well as a whole array of active fixed income solutions."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of April 14) includes Holdings information from 64 money funds (up 8 from two weeks ago), which totals $2.285 trillion (up from $2.130 trillion) of the $5.629 trillion in total money fund assets (or 40.6%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.398 trillion (up from $1.271 trillion two weeks ago), or 61.2%; Treasuries totaling $550.0 billion (up from $531.1 billion two weeks ago), or 24.1%, and Government Agency securities totaling $235.0 billion (up from $234.2 billion), or 10.3%. Commercial Paper (CP) totaled $45.0 billion (up from two weeks ago at $40.3 billion), or 2.0%. Certificates of Deposit (CDs) totaled $21.2 billion (up from $18.9 billion two weeks ago), or 0.9%. The Other category accounted for $21.3 billion or 0.9%, while VRDNs accounted for $14.7 billion, or 0.6%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $907.9 billion (39.7%), the US Treasury with $550.0 billion (24.1% of total holdings), Federal Home Loan Bank with $184.0B (8.1%), Fixed Income Clearing Corp with $137.0B (6.0%), Federal Farm Credit Bank with $47.5B (2.1%), JP Morgan with $45.4B (2.0%), Citi with $26.6B (1.2%), Barclays PLC with $26.4B (1.2%), RBC with $26.1B (1.1%) and BNP Paribas with $24.9B (1.1%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($261.3B), Fidelity Inv MM: Govt Port ($163.2B), Morgan Stanley Inst Liq Govt ($148.6B), BlackRock Lq FedFund ($134.3B), Dreyfus Govt Cash Mgmt ($119.3B), BlackRock Lq Treas Tr ($107.3B), Goldman Sachs FS Treas Instruments ($100.1B), Fidelity Inv MM: MM Port ($98.2B), Allspring Govt MM ($92.0B) and BlackRock Lq T-Fund ($90.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds rose strongly over the past month to $1.079 trillion. USD, EUR & GBP MMFs all surged higher over the past 30 days, though European MMF assets remain below their record high of $1.101 trillion set in mid-December 2021. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $23.0 billion over the 30 days through 4/14. The totals are up $48.5 billion (4.7%) year-to-date. (Note that decreases in the U.S. dollar caused Euro and Sterling totals to jump when they're translated back into dollars. See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Offshore US Dollar money funds increased $10.8 billion over the last 30 days and are up $36.8 billion YTD to $586.3 billion. Euro funds increased E12.9 billion over the past month. YTD, they're down E0.2 billion to E180.2 billion. GBP money funds increased L4.2 billion over 30 days; they are down by L19.9 billion YTD to L243.6B. U.S. Dollar (USD) money funds (200) account for half (54.4%) of the "European" money fund total, while Euro (EUR) money funds (100) make up 17.9% and Pound Sterling (GBP) funds (130) total 27.7%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below.
Offshore USD MMFs yield 4.73% (7-Day) on average (as of 4/14/23), up from 4.52% a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs finally left negative yield territory 7 months ago; they're yielding 2.77% on average, up from 2.35% a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 4.08%, up 21 bps from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's April MFI International Portfolio Holdings, with data as of 3/31/23, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 13% in Certificates of Deposit (CDs), 40% in Repo, 7% in Treasury securities, 14% in Other securities (primarily Time Deposits) and 3% in Government Agency securities. USD funds have on average 67.7% of their portfolios maturing Overnight, 5.0% maturing in 2-7 Days, 6.2% maturing in 8-30 Days, 7.6% maturing in 31-60 Days, 4.3% maturing in 61-90 Days, 5.2% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (38.4%), France (13.8%), Canada (11.6%), Japan (8.6%), the Netherlands (5.2%), Sweden (4.7%), Australia (2.9%), the U.K. (2.7%), Germany (2.5%) and Abu Dhabi (1.5%).
The 10 Largest Issuers to "offshore" USD money funds include: Fixed Income Clearing Corp with $47.2B (7.6%), Federal Reserve Bank of New York with $41.2B (6.7%), the US Treasury with $40.1 billion (6.5% of total assets), BNP Paribas with $26.6B (4.3%), RBC with $24.4B (3.9%), Bank of America with $20.0B (3.2%), Sumitomo Mitsui Banking Corp with $18.0B (2.9%), Federal Home Loan Bank with $16.6B (2.7%), Bank of Nova Scotia with $15.7B (2.5%) and Citi with $15.3B (2.5%).
Euro MMFs tracked by Crane Data contain, on average 52% in CP, 15% in CDs, 22% in Other (primarily Time Deposits), 10% in Repo, 1% in Treasuries and 0% in Agency securities. EUR funds have on average 42.7% of their portfolios maturing Overnight, 13.3% maturing in 2-7 Days, 15.9% maturing in 8-30 Days, 11.1% maturing in 31-60 Days, 6.2% maturing in 61-90 Days, 5.6% maturing in 91-180 Days and 5.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (34.9%), Germany (9.6%), Japan (9.4%), the U.K. (6.2%), the U.S. (5.9%), Canada (5.7%), Sweden (5.3%), the Netherlands (4.7%), Austria (4.5%) and Belgium (3.4%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Mutuel with E9.1B (5.6%), Credit Agricole with E8.4B (5.2%), BNP Paribas with E8.0B (4.9%), Republic of France with E7.8B (4.8%), Erste Group Bank AG with E6.3B (3.9%), Landesbank Baden-Wurttemberg with E5.7B (3.5%), Societe Generale with E5.5B (3.4%), Barclays PLC with E5.1B (3.1%), DZ Bank AG with E5.1B (3.1%) and BPCE SA with E4.5B (2.8%).
The GBP funds tracked by MFI International contain, on average (as of 3/31/23): 31% in CDs, 25% in CP, 23% in Other (Time Deposits), 19% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 43.0% of their portfolios maturing Overnight, 10.4% maturing in 2-7 Days, 9.7% maturing in 8-30 Days, 14.3% maturing in 31-60 Days, 6.7% maturing in 61-90 Days, 11.4% maturing in 91-180 Days and 4.6% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.5%), Japan (16.0%), Canada (14.4%), the U.K. (11.1%), the Netherlands (6.3%), Australia (5.9%), the U.S. (5.4%), Sweden (4.0%), Germany (3.5%) and Spain (3.5%).
The 10 Largest Issuers to "offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L8.0B (4.9%), Toronto-Dominion Bank with L6.2B (3.8%), Mizuho Corporate Bank Ltd with L6.1B (3.7%), RBC with L5.8B (3.6%), BNP Paribas with L5.7B (3.5%), Banco Santander with L5.7B (3.4%), Barclays PLC with L5.5B (3.3%), Bank of Nova Scotia with L5.1B (3.1%), Sumitomo Mitsui Trust Bank with L4.8B (2.9%) and Societe Generale with L4.8B (2.9%).
In related news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. Their release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in March, prime money market funds held 48.3 percent of their portfolios in daily liquid assets and 60.9 percent in weekly liquid assets, while government money market funds held 80.2 percent of their portfolios in daily liquid assets and 86.5 percent in weekly liquid assets." Prime DLA was up from 43.6% in February, and Prime WLA was up from 58.9%. Govt MMFs' DLA was down from 82.4% and Govt WLA decreased from 88.6% the previous month.
ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 18 days and a weighted average life (WAL) of 45 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 16 days and a WAL of 60 days." Prime WAMs were 1 day shorter and WALs were unchanged from the previous month. Govt WAMs were 3 days longer and WALs were 2 days longer from February.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $400.60 billion in February to $437.12 billion in March. Government money market funds’ holdings attributable to the Americas rose from $3,700.28 billion in February to $4,116.94 billion in March."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $437.1 billion, or 58.4%; Asia and Pacific at $119.3 billion, or 15.9%; Europe at $181.7 billion, or 24.3%; and, Other (including Supranational) at $10.9 billion, or 1.5%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.117 trillion, or 94.2%; Asia and Pacific at $82.8 billion, or 1.9%; Europe at $163.4 billion, 3.7%, and Other (Including Supranational) at $7.5 billion, or 0.2%.
The April issue of our Bond Fund Intelligence, which will be sent to subscribers Monday morning, features the stories, "Worldwide BF Assets Jump to $11.5 Trillion, Led by U.S., Lux," which reviews ICI's latest stats on global bond fund markets, and "Highlights from Bond Fund Symposium '23 in Boston," which excerpts from our recent ultra-short bond fund event. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped in March while yields also moved higher. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.) (Reminder: Make your hotel reservations soon for our big Money Fund Symposium show, which will take place June 21-23, 2023 in Atlanta, Ga.)
Our "Worldwide" article says, "Bond fund assets worldwide increased in the latest quarter to $11.5 trillion, led higher by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and Brazil. ICI's 'Worldwide Open-End Fund Assets and Flows, Fourth Quarter 2022' says, 'Worldwide regulated open-end fund assets increased 7.1% to $60.15 trillion at the end of the fourth quarter of 2022.... ICI compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).'"
It continues, "They explain, '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 2022.... Bond fund assets increased by 2.6% to $11.55 trillion in the fourth quarter. Balanced fund assets increased by 7.7% to $7.09 trillion in the fourth quarter, while money fund assets increased by 6.7% globally to $8.86 trillion.'"
Last month, we hosted our latest Crane's Bond Fund Symposium in Boston. The keynote, “Ultra‐Shorts: Yield Is Back After Rough Year,” featured Peter Crane with J.P. Morgan A.M.’s Dave Martucci and PIMCO’s Jerome Schneider. We quote from this segment. (Thanks again to those who attended and supported BFS, and Crane Data subscribers may access the conference materials via our Bond Fund Symposium 2022 Download Center.)
Our "BFS Highlights" piece states, "Last month, we hosted our latest `Crane's Bond Fund Symposium in Boston. The keynote, 'Ultra‐Shorts: Yield Is Back After Rough Year,' featured Peter Crane with J.P. Morgan A.M.'s Dave Martucci and PIMCO's Jerome Schneider. We quote from this segment. (Thanks again to those who attended and supported BFS, and Crane Data subscribers may access the Powerpoints, recordings and conference materials via our Bond Fund Symposium 2023 Download Center.)"
It continues, "Schneider says, 'Pete, thanks very much for doing this. This is fantastic for the industry and it's a great forum for us. Obviously, cash is back, and the front-end is in focus.... I think that ... this environment is one where there's going to be a lot of differentiation.... While we are here to talk about cash and money markets and front-end opportunities, one thing that's come into mind is ... the nature of cash management and how important it is.'"
Our first News brief, "Returns Jump Sharply, Yields Up in March," explains, "Bond fund returns rebounded strongly and yields moved higher last month. Our BFI Total Index rose 1.51% over 1-month but is down 2.09% over 12 months. The BFI 100 rose 1.99% in March and lost 2.66% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.33% over 1-month and is up 2.20% for 1-year; Ultra-Shorts rose 0.33% and are up 1.35% over 12 mos. Short-Term returned 1.13% and -0.40%, and Intm-Term rose 2.07% and -3.99% over 1-year. BFI's Long-Term Index rose 2.39% and -5.87%. High Yield rose 1.00% and fell 2.18% over 1-yr."
A second News brief, "Morningstar: Ultra-Shorts Not Cash," discusses, 'Why Ultrashort Bond Funds Aren't Cash Substitutes.' It tells us, 'CDs, money market funds, and other cash-like assets are finally generating attractive yields for the first time in decades. At the same time, however, investors have sold off ultrashort bond funds, which focus on investment-grade bonds with shorter-term durations (typically less than one year). The category -- which raked in more than $260 billion in cumulative net inflows over the 10-year period ended in 2021 -- suffered about $9.2 billion in net outflows during 2022. These outflows suggest a potential mismatch between investors' expectations for safety and the performance they actually received.... I'll delve into why ultrashort bond funds aren’t a cash substitute.'"
Our News brief, "BlackRock's Fink on Q1 Earnings Call," quotes the CEO, "BlackRock led the industry with $34 billion of bond ETF net inflows and we're representing over 60% of total fixed income ETF trading volumes during the quarter. Especially as the U.S. Treasury market experienced large and historic moves, investors turn to bond ETF access treasury markets and manage interest rate risk."
Another brief, "Bond Funds Aren't as Safe as You Think. What to Know," excerpts from a Barron's article, 'The pain isn't over for bond funds. Bond investors who had forgotten what a rising interest-rate environment was like were reminded last year. Bonds move inversely to interest rates, and with the Fed raising rates from 0.25% to 4.5%, prices fell by double digits.'"
A BFI sidebar, "Q&A w/T. Rowe's Mickel," says, "Barron's published a Q&A with T. Rowe Price's Cheryl Mickel entitled, 'Finding Good Yields in the Banking Tumult.' It says, 'As banking turmoil roils markets, Cheryl Mickel, who oversees money markets, short-term taxable bonds, and stable value for T. Rowe Price's fixed-income group, is finding opportunities amid the chaos -- even in the short-term debt of banks.... Mickel, who heads T. Rowe Price's U.S. Taxable Low Duration Group, oversee[s] more than $100 billion in assets. But rather than hunker down, Mickel's team is searching for opportunities to lock in higher yields.'"
Finally, another sidebar, "ICI Expense Survey," says, "Late last month, mutual fund trade group the Investment Company Institute' published the report, 'Trends in the Expenses and Fees of Funds, 2022.' It tells us, 'On an asset-weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past 26 years.... Average expense ratios of hybrid and bond mutual funds, as well as money market funds, have ... declined meaningfully since 1996.' A table, shows bond fund averages falling from 0.84% to 0.37% over this period."
Both ICI's weekly asset series and Crane Data's MFI Daily asset collection continued to hit record highs this week. The Investment Company Institute's latest "Money Market Fund Assets" report shows money fund totals hitting record levels for the 5th week in a row and 9th out of the last 10 weeks; they've risen by $383.7 billion, or 7.8%, since March 8 and $457.0 billion, or 9.3%, since Feb. 22. The failure of Silicon Valley Bank raised concerns over uninsured bank deposits, and large investors continue shifting assets into money funds (though they've been joined by some big retail inflows). Over the past 52 weeks, money fund assets have risen $748 billion, or 16.5%, with Retail MMFs rising by $475 billion (33.2%) and Inst MMFs rising by $273 billion (8.8%). ICI shows assets up by $542 billion, or 11.5%, year-to-date in 2023, with Institutional MMFs up $317 billion, or 10.4% and Retail MMFs up $226 billion, or 13.5%. (Note: Register soon for our upcoming Money Fund Symposium, which is scheduled for June 21-23, 2023 in Atlanta, Ga.)
The weekly release says, "Total money market fund assets increased by $30.28 billion to $5.28 trillion for the week ended Wednesday, April 12, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $26.75 billion and prime funds increased by $3.33 billion. Tax-exempt money market funds increased by $198 million." ICI's stats show Institutional MMFs jumping $22.2 billion and Retail MMFs rising $8.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.392 trillion (83.2% of all money funds), while Total Prime MMFs were $768.6 billion (14.6%). Tax Exempt MMFs totaled $116.4 billion (2.2%).
ICI explains, "Assets of retail money market funds increased by $8.10 billion to $1.90 trillion. Among retail funds, government money market fund assets increased by $5.25 billion to $1.29 trillion, prime money market fund assets increased by $2.19 billion to $511.28 billion, and tax-exempt fund assets increased by $654 million to $104.78 billion." Retail assets account for over a third of total assets, or 36.1%, and Government Retail assets make up 67.6% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $22.17 billion to $3.37 trillion. Among institutional funds, government money market fund assets increased by $21.49 billion to $3.10 trillion, prime money market fund assets increased by $1.13 billion to $257.33 billion, and tax-exempt fund assets decreased by $455 million to $11.60 billion." Institutional assets accounted for 63.9% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit yet another record of $5.667 trillion on Wednesday, April 12. Our asset collection shows MMFs up by $8.2 billion Wednesday, up by $28.8 billion over the past week and up $57.0 billon month-to-date in April. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
In related news, ignites published the article, "Money Funds to Brighten Shops' First-Quarter Earnings." It explains, "A confluence of factors -- the highest short-term interest rates in more than 15 years, March's banking crisis and relatively low returns in bank deposit products -- have [pushed] money market funds [to record levels] this year. The influx of money -- about $461 billion across all money funds year-to-date through March 31, according to Crane Data -- and the fact that many shops have dropped fee waivers could improve first-quarter earnings for large sponsors of the products, or at least provide a bright spot for struggling managers."
They tell us, "Money funds' March haul of $362 billion was the third-largest in the products' history, overshadowed only by inflows at the onset of the pandemic, said Peter Crane, chief executive of Crane Data. The elevated inflows have continued in April, Crane noted. 'It's a new record every day,' he said. Investors added $56 billion to money funds on Monday, according to Crane Data. Money funds climbed to $5.6 trillion in assets as of March 31, a record high, up from $5.1 trillion at the end of December, Crane Data shows."
The piece adds, "Money funds were 'eking out' records ... prior to Silicon Valley Bank's collapse on March 10, but there was a 'super spike' in sales after that event due to market jitters about the safety of some banks, Crane said. In addition to the boost in assets, revenue generated from money funds has increased because many firms have dropped the fee waivers that they instituted in 2020. They put the waivers in place because at the time near-zero interest rates threatened to result in zero or negative yields, absent the waivers."
Morningstar writes in an earlier article, "Investors Flood Money Market Funds in Search of Yield, Not Just Bank Worries." They state, "Investors have been pouring cash into money market funds, but unlike previous episodes, it doesn't appear to be a signal of rampant fears about the outlook for the stock or bond markets. Instead, investors are moving cash out of lower-yielding bank accounts, a trend that was building even before the regional banking crisis spurred concerns among large depositors over the safety of their money."
Finally, a CNBC piece, "How the market's biggest companies, from Apple to Tesla and Microsoft, invest their cash," comments, "Silicon Valley Bank wasn't the only U.S. company with a lot of cash to put to work, but corporate America's bulging balance sheets aren't likely to cause any of the same kinds of problems. The cash balances of big companies will, though, be in focus again as another earnings season begins. U.S. companies are sitting on at least $2 trillion of cash, with a quarter of it concentrated in a few top technology companies, according to Moody's Investor Service."
Crane Data's April Money Fund Portfolio Holdings, with data as of March 31, 2023, show that Repo holdings and Government agencies (primarily Federal Home Loan Bank) jumped to record levels in the latest month. Treasury holdings also rebounded in March after a 12-month slide, as money market fund assets surged to record levels. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $390.5 billion to a record $5.514 trillion, after increasing $34.5 billion in February, $49.7 billion in January and $72.6 billion in December. Repo remained the largest portfolio segment by far, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York saw its Fed RRP issuance held by MMFs jump $131.4 billion to $2.211 trillion. Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.
Among taxable money funds, Repurchase Agreements (repo) increased $276.3 billion (9.4%) to $3.203 trillion, or 58.1% of holdings, in March, after increasing $98.2 billion in February, decreasing $111.2 billion in January and increasing $253.2 billion in December. Treasury securities rose $20.7 billion (2.1%) to $1.031 trillion, or 18.7% of holdings, after decreasing $41.2 billion in February, $17.8 billion in January and $77.5 billion in December. Government Agency Debt was up $188.8 billion, or 32.2%, to $775.8 billion, or 14.1% of holdings. Agencies decreased $27.0 billion in February, increased $51.8 billion in January and decreased $24.5 billion in December. Repo, Treasuries and Agency holdings now total $5.009 trillion, representing a massive 90.8% of all taxable holdings.
Money fund holdings of CP and CDs decreased in March. Commercial Paper (CP) decreased $33.0 billion (-12.0%) to $241.7 billion, or 4.4% of holdings. CP holdings decreased $7.3 billion in February, increased $36.3 billion in January and decreased $16.9 billion in December. Certificates of Deposit (CDs) decreased $17.1 billion (-10.1%) to $152.0 billion, or 2.8% of taxable assets. CDs decreased $4.5 billion in February, increased $24.1 billion in January, decreased $4.3 billion in December, and increased $4.4 billion in November. Other holdings, primarily Time Deposits, decreased $43.9 billion (-30.1%) to $102.0 billion, or 1.8% of holdings, after increasing $15.6 billion in February and $66.5 billion in January. VRDNs fell to $8.9 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday around noon.)
Prime money fund assets tracked by Crane Data fell to $1.122 trillion, or 20.3% of taxable money funds' $5.514 trillion total. Among Prime money funds, CDs represent 13.5% (down from 14.7% a month ago), while Commercial Paper accounted for 21.5% (down from 24.0% in February). The CP totals are comprised of: Financial Company CP, which makes up 14.1% of total holdings, Asset-Backed CP, which accounts for 3.9%, and Non-Financial Company CP, which makes up 3.5%. Prime funds also hold 4.9% in US Govt Agency Debt, 2.3% in US Treasury Debt, 37.9% in US Treasury Repo, 0.6% in Other Instruments, 6.8% in Non-Negotiable Time Deposits, 4.4% in Other Repo, 6.1% in US Government Agency Repo and 0.5% in VRDNs.
Government money fund portfolios totaled $2.890 trillion (52.4% of all MMF assets), up from $2.685 trillion in February, while Treasury money fund assets totaled another $1.502 trillion (27.2%), up from $1.291 trillion the prior month. Government money fund portfolios were made up of 25.0% US Govt Agency Debt, 13.7% US Government Agency Repo, 8.0% US Treasury Debt, 53.1% in US Treasury Repo, 0.1% in Other Instruments. Treasury money funds were comprised of 51.5% US Treasury Debt and 48.5% in US Treasury Repo. Government and Treasury funds combined now total $4.392 trillion, or 79.7% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $49.5 billion in March to $428.2 billion; their share of holdings dropped to 7.8% from last month's 9.3%. Eurozone-affiliated holdings decreased to $301.5 billion from last month's $333.1 billion; they account for 5.5% of overall taxable money fund holdings. Asia & Pacific related holdings fell to $193.4 billion (3.5% of the total) from last month's $213.8 billion. Americas related holdings rose to $4.883 trillion from last month's $4.424 trillion, and now represent 88.6% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $237.0 billion, or 9.7%, to $2.688 trillion, or 48.7% of assets); US Government Agency Repurchase Agreements (up $38.8 billion, or 9.1%, to $465.3 billion, or 8.4% of total holdings), and Other Repurchase Agreements (up $0.6 billion, or 1.2%, from last month to $49.9 billion, or 0.9% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $24.9 billion to $158.7 billion, or 2.9% of assets), Asset Backed Commercial Paper (down $4.0 billion to $43.8 billion, or 0.8%), and Non-Financial Company Commercial Paper (down $4.1 billion to $39.2 billion, or 0.7%).
The 20 largest Issuers to taxable money market funds as of March 31, 2023, include: the Federal Reserve Bank of New York ($2.211T, 40.1%), US Treasury ($1.031T, 18.7%), Federal Home Loan Bank ($667.2B, 12.1%), Fixed Income Clearing Corp ($231.7B, 4.2%), Federal Farm Credit Bank ($99.1B, 1.8%), RBC ($93.8B, 1.7%), JP Morgan ($85.7B, 1.6%), Bank of America ($79.1B, 1.4%), BNP Paribas ($69.5B, 1.3%), Citi ($67.2B, 1.2%), Goldman Sachs ($57.7B, 1.0%), Sumitomo Mitsui Banking Corp ($48.8B, 0.9%), Mitsubishi UFJ Financial Group Inc ($48.6B, 0.9%), Bank of Montreal ($47.4B, 0.9%), Barclays ($43.4B, 0.8%), ING Bank ($37.6B, 0.7%), Toronto-Dominion Bank ($33.5B, 0.6%), Wells Fargo ($32.3B, 0.6%), Societe Generale ($31.1B, 0.6%) and Bank of Nova Scotia ($28.8B, 0.5%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($2.211T, 69.0%), Fixed Income Clearing Corp ($231.7B, 7.2%), JP Morgan ($77.9B, 2.4%), RBC ($72.3B, 2.3%), Bank of America ($66.4B, 2.1%), BNP Paribas ($58.7B, 1.8%), Goldman Sachs ($56.7B, 1.8%), Citi ($56.3B, 1.8%), Sumitomo Mitsui Banking Corp ($38.4B, 1.2%) and Bank of Montreal ($32.7B, 1.0%). The largest users of the $2.211 trillion in Fed RRP include: Goldman Sachs FS Govt ($137.9B), Fidelity Govt Money Market ($122.6B), Vanguard Federal Money Mkt Fund ($121.9B), JPMorgan US Govt MM ($109.2B), Fidelity Govt Cash Reserves ($102.1B), Fidelity Inv MM: Govt Port ($101.8B), BlackRock Lq FedFund ($71.1B), BlackRock Lq T-Fund ($64.0B), Morgan Stanley Inst Liq Govt ($60.5B) and Dreyfus Govt Cash Mgmt ($58.0B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($22.8B, 5.2%), RBC ($21.5B, 4.9%), Mitsubishi UFJ Financial Group Inc ($20.8B, 4.8%), Mizuho Corporate Bank Ltd ($19.0B, 4.4%), Australia & New Zealand Banking Group Ltd ($18.1B, 4.2%), Bank of Nova Scotia ($17.8B, 4.1%), Barclays PLC ($15.4B, 3.5%), Bank of Montreal ($14.7B, 3.4%), ING Bank ($14.5B, 3.3%) and Sumitomo Mitsui Trust Bank ($14.2B, 3.3%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($12.7B, 8.3%), Toronto-Dominion Bank ($11.7B, 7.7%), Sumitomo Mitsui Trust Bank ($10.0B, 6.6%), Sumitomo Mitsui Banking Corp ($9.4B, 6.2%), Mizuho Corporate Bank Ltd ($9.2B, 6.1%), Credit Agricole ($6.8B, 4.5%), Svenska Handelsbanken ($6.5B, 4.3%), Canadian Imperial Bank of Commerce ($6.0B, 3.9%), Citi ($5.7B, 3.7%) and Bank of Nova Scotia ($5.3B, 3.5%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Bank of Nova Scotia ($12.6B, 6.0%), RBC ($11.9B, 5.7%), Bank of Montreal ($10.8B, 5.1%), Toronto-Dominion Bank ($10.2B, 4.9%), Barclays PLC ($9.5B, 4.5%), JP Morgan ($7.8B, 3.7%), Societe Generale ($7.5B, 3.6%), Mitsubishi UFJ Financial Group Inc ($6.7B, 3.2%), National Australia Bank Ltd ($6.7B, 3.2%) and Svenska Handelsbanken ($6.6B, 3.1%).
The largest increases among Issuers include: Federal Home Loan Bank (up $187.2B to $667.2B), Federal Reserve Bank of New York (up $131.4B to $2.211T), Fixed Income Clearing Corp (up $54.7B to $231.7B), Bank of America (up $28.5B to $79.1B), US Treasury (up $20.7B to $1.031T), Bank of Montreal (up $18.7B to $47.4B), Wells Fargo (up $12.9B to $32.3B), ING Bank (up $12.0B to $37.6B), Citi (up $8.8B to $67.2B) and JP Morgan (up $7.7B to $85.7B).
The largest decreases among Issuers of money market securities (including Repo) in March were shown by: Credit Agricole (down $16.5B to $24.7B), Mizuho Corporate Bank Ltd (down $12.9B to $26.1B), Skandinaviska Enskilda Banken AB (down $11.8B to $8.8B), Landesbank Baden-Wurttemberg (down $7.8B to $5.1B), Natixis (down $7.6B to $12.6B), Societe Generale (down $3.2B to $31.1B), Swedbank AB (down $2.8B to $6.0B), Sumitomo Mitsui Trust Bank (down $2.6B to $14.7B), National Australia Bank Ltd (down $2.4B to $8.3B) and Bank of Nova Scotia (down $2.2B to $28.8B).
The United States remained the largest segment of country-affiliations; it represents 84.3% of holdings, or $4.645 trillion. Canada (4.3%, $237.9B) was in second place, while Japan (3.2%, $178.8B) was No. 3. France (2.8%, $153.6B) occupied fourth place. The United Kingdom (1.4%, $76.3B) remained in fifth place. Netherlands (1.3%, $69.2B) was in sixth place, followed by Australia (0.7%, $37.7B), Sweden (0.7%, $36.1B) Germany (0.5%, $28.7B), and Spain (0.2%, $11.7B). (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 March 31, 2023, Taxable money funds held 73.0% (up from 72.6%) of their assets in securities maturing Overnight, and another 6.6% maturing in 2-7 days (down from 7.2%). Thus, 79.6% in total matures in 1-7 days. Another 6.2% matures in 8-30 days, while 8.3% matures in 31-60 days. Note that over three-quarters, or 94.1% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 2.6% of taxable securities, while 1.8% matures in 91-180 days, and just 1.5% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our regular monthly update on the new March 31 data for Thursday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of March 31, includes holdings information from 983 money funds (down 4 from last month), representing record assets of $5.693 trillion (up from $5.294 trillion). Prime MMFs now total $1.137 trillion, or 20.0% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses flat but money fund revenues up sharply in March. (Note: Please join us for our upcoming Money Fund Symposium, which is scheduled for June 21-23, 2023 in Atlanta, Ga. Contact us or visit the MFS site for the agenda and more details.)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds increased to $3.235 trillion (up from $2.965 trillion), or 56.8% of all assets. Treasury holdings totaled $1.041 trillion (up from $1.006 trillion), or 18.3% of all holdings, and Government Agency securities totaled $791.9 billion (up from $604.8 billion), or 13.9%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.068 trillion, or a massive 89.0% of all holdings.
Commercial paper (CP) totals $249.9 billion (down from $284.2 billion), or 4.4% of all holdings, and the Other category (primarily Time Deposits) totals $108.0 billion (down from $179.9 billion), or 1.9%. Certificates of Deposit (CDs) total $152.4 billion (down from $169.5 billion), 2.7%, and VRDNs account for $114.4 billion (up from $85.1 billion last month), or 2.0% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $159.8 billion, or 2.8%, in Financial Company Commercial Paper; $44.5 billion or 0.8%, in Asset Backed Commercial Paper; and, $45.6 billion, or 0.8%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.711 trillion, or 47.6%), U.S. Govt Agency Repo ($471.1B, or 8.3%) and Other Repo ($53.2B, or 0.9%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $243.9 billion (down from $277.9 billion), or 21.4%; Repo holdings of $548.0 billion (up from $462.6 billion), or 48.2%; Treasury holdings of $28.6 billion (down from $40.8 billion), or 2.5%; CD holdings of $152.4 billion (down from $169.5 billion), or 13.4%; Other (primarily Time Deposits) holdings of $99.9 billion (down from $143.8 billion), or 8.8%; Government Agency holdings of $58.3 billion (down from $60.8 billion), or 5.1% and VRDN holdings of $6.2 billion (down from $7.2 billion), or 0.5%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $159.8 billion (down from $184.5 billion), or 14.1%, in Financial Company Commercial Paper; $44.5 billion (down from $48.5 billion), or 3.9%, in Asset Backed Commercial Paper; and $39.5 billion (down from $44.9 billion), or 3.5%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($429.2 billion, or 37.7%), U.S. Govt Agency Repo ($68.8 billion, or 6.0%), and Other Repo ($50.0 billion, or 4.4%).
In related news, money fund charged expense ratios (Exp%) were unchanged in March. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.27% and 0.38%, respectively, as of March 31, 2023. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Tuesday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout, yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.27%, unchanged from last month's level (and 19 bps higher than 12/31/21's 0.08%). The average is back at the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (but they are waiving a minimal amount of fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.38% as of March 31, 2023, unchanged from the month prior and now slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.31% (unchanged from last month), Government Inst MFs expenses average 0.26% (down 1 bp from last month), Treasury Inst MFs expenses average 0.30% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.53%, (up 1 bp from last month), Government Retail MFs expenses yield 0.54% (down 1 bp from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were up 1 bp at 0.41% on average.
Gross 7-day yields rose again during the month ended March 31, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 746), shows a 7-day gross yield of 4.78%, up 20 bps from the prior month. The Crane Money Fund Average was 1.72% at the end of 2019, 0.15% at the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was up 20 bps, ending the month at 4.71%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $14.927 billion (as of 3/31/23). Our estimated annualized revenue totals increased from $14.135B last month and are up from $13.746B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their recent surge as money funds continue to rake in assets from uninsured bank deposits.
Crane Data's latest monthly Money Fund Market Share rankings show assets jumped higher among the largest U.S. money fund complexes in March. Money market fund assets surged $345.1 billion, or 6.6%, last month to a record $5.612 trillion, their 3rd largest increase ever. Total MMF assets increased by $444.5 billion, or 8.6%, over the past 3 months, and they've increased by $565.7 billion, or 11.3%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by JPMorgan, Fidelity, Goldman Sachs, Schwab and Morgan Stanley, which grew assets by $76.3 billion, $55.6B, $48.9B, $28.3B and $25.3B, respectively. Declines in March were seen by Dreyfus and American Funds, which decreased by $12.3 billion and $5.5B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which rose yet again in March, below. (Note: Please join us for our upcoming Money Fund Symposium conference, which is scheduled for June 21-23, 2023 <b:>`_ at The Hyatt Regency Atlanta, in Atlanta, Ga! See the latest agenda here.)
Over the past year through March 31, 2023, Schwab (up $214.7B, or 149.0%), Fidelity (up $158.7B, or 17.1%), Federated Hermes (up $73.9B, or 22.8%), JPMorgan (up $65.8B, or 14.6%), and Goldman Sachs (up $65.2B, or 17.7%) were the largest gainers. Fidelity, JPMorgan, Schwab, Goldman Sachs, and Vanguard had the largest asset increases over the past 3 months, rising by $116.1B, $93.8B, $78.9B, $49.3B and $38.4B, respectively. The largest declines over 12 months were seen by: Northern (down $45.4B), BlackRock (down $31.0B), Allspring (down $27.0B), Morgan Stanley (down $22.9B) and SSGA (down $9.1B). The largest decliners over 3 months included: SSGA (down $7.0B), HSBC (down $6.0B), American Funds (down $4.7B), DWS (down $3.8B), and T Rowe Price (down $3.8B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.093 trillion, or 21.0% of all assets. Fidelity was up $55.6B in March, up $116.1 billion over 3 mos., and up $158.7B over 12 months. JPMorgan ranked second with $519.3 billion, or 10.0% market share (up $76.3B, up $93.8B and up $65.8B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $501.2 billion, or 9.6% of assets (up $20.7B, up $38.4B and up $39.6B). BlackRock ranked fourth with $486.2 billion, or 9.3% market share (up $25.1B, up $12.7B and down $31.0B), while Goldman Sachs was the fifth largest MMF manager with $441.8 billion, or 8.5% of assets (up $48.9B, up $49.3B and up $65.2B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $388.7 billion, or 7.5% (up $23.5B, up $21.3B and up $73.9B), while Schwab was in seventh place with $357.8 billion, or 6.9% of assets (up $28.3B, up $78.9B and up $214.7B). Dreyfus ($262.5B, or 5.0%) was in eighth place (down $12.3B, up $603M and up $23.1B), followed by Morgan Stanley ($250.2B, or 4.8%; up $25.3B, up $6.7B and down $22.9B). American Funds was in 10th place ($164.6B, or 3.2%; down $5.5B, down $4.7B and down $7.9B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Invesco ($156.5B, or 3.0%), SSGA ($150.8B, or 2.9%), Allspring (formerly Wells Fargo) ($150.4B, or 2.9%), Northern ($145.9B, or 2.8%), First American ($121.7B, or 2.3%), UBS ($87.7B, or 1.7%), T. Rowe Price ($46.2B, or 0.9%), HSBC ($36.0B, or 0.7%), Western ($34.1B, or 0.7%) and DWS ($32.4B, or 0.6%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except: BlackRock moves up to the No. 3 spot, Goldman Sachs moves up to No. 4 and Vanguard moves down to the No. 5 spot. Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 spot, and SSGA replaces American Funds at the No. 10 spot. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($1.104 trillion), JP Morgan ($729.4B), BlackRock ($695.4B), Goldman Sachs ($580.9B) and Vanguard ($501.2B). Federated Hermes ($395.9B) was in sixth, Schwab ($357.8B) was seventh, followed by Morgan Stanley ($319.8B), Dreyfus/BNY Mellon ($285.3B) and SSGA ($186.1B), 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 April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/31/23, shows that yields increased again in March across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 746), rose to 4.46% (up 20 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 4.34% (up 12 bps). The MFA's Gross 7-Day Yield rose to 4.77% (up 19 bps), and the Gross 30-Day Yield also moved up to 4.65% (up 12 bps). (Gross yields will be revised Tuesday at noon, though, once we download the SEC's Form N-MFP data for 3/31/23.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 4.61% (up 23 bps) and an average 30-Day Yield at 4.47% (up 13 bps). The Crane 100 shows a Gross 7-Day Yield of 4.72% (up 22 bps), and a Gross 30-Day Yield of 4.59% (up 13 bps). Our Prime Institutional MF Index (7-day) yielded 4.70% (up 22 bps) as of March 31. The Crane Govt Inst Index was at 4.55% (up 23 bps) and the Treasury Inst Index was at 4.46% (up 15 bps). Thus, the spread between Prime funds and Treasury funds is 24 basis points, and the spread between Prime funds and Govt funds is 15 basis points. The Crane Prime Retail Index yielded 4.53% (up 22 bps), while the Govt Retail Index was 4.24% (up 20 bps), the Treasury Retail Index was 4.24% (up 16 bps from the month prior). The Crane Tax Exempt MF Index yielded 3.59% (up 70 bps) as of March.
Gross 7-Day Yields for these indexes to end March were: Prime Inst 4.93% (up 21 bps), Govt Inst 4.80% (up 23 bps), Treasury Inst 4.71% (up 15 bps), Prime Retail 4.87% (up 21 bps), Govt Retail 4.72% (up 19 bps) and Treasury Retail 4.54% (up 15 bps). The Crane Tax Exempt Index rose to 2.88% (up 49 bps). The Crane 100 MF Index returned on average 0.38% over 1-month, 1.06% over 3-months, 1.06% YTD, 2.54% over the past 1-year, 0.87% over 3-years (annualized), 1.26% over 5-years, and 0.76% over 10-years.
The total number of funds, including taxable and tax-exempt, was unchanged in March at 883. There are currently 746 taxable funds, unchanged from the previous month, and 137 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 April issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "MMFs Break $5.6 Trillion on SVB, Deposit Super Surge," which discusses the huge inflows coming from uninsured deposits; "Northern's LaRocco, Fidelity's Pope on MMF Inflows at BFS," which quotes from our recent Bond Fund Symposium; and, "ICI Worldwide MMFs Jump in Q4, Led by US, Ireland, France," which covers recent data on money fund markets outside the U.S. We also sent out our MFI XLS spreadsheet Monday a.m., and we've updated our Money Fund Wisdom database with 3/31/23 data. Our April Money Fund Portfolio Holdings are scheduled to ship on Wednesday, April 12, and our April Bond Fund Intelligence is scheduled to go out on Monday, April 17.
MFI's "MMFs Break $5.6 Trillion" article says, "Money fund assets, which had already been hitting record levels earlier this year, skyrocketed in March as the failure of Silicon Valley Bank raised concerns over uninsured bank deposits. Crane Data's MFI XLS shows money fund assets increasing by $345.1 billion to a record $5.613 trillion, their 3rd largest increase ever. (Only March and April 2020 show bigger gains, when MMFs jumped $688.1 billion and $471.2 billion, respectively.)
The piece continues, "Year-to-date through 3/31/23, money fund assets have increased by $444.5 billion, or 8.6%, and over 12 months assets have increased by $565.1 billion, or 11.2%. Our MFI Daily shows assets continuing to increase in April, rising by $28.2 billion to a record $5.638 trillion. (Note: MFI Daily's assets series differs slightly from our monthly MFI XLS series.)
Our BFS "profile" piece states, "Two and a half weeks ago, we hosted our latest Crane's Bond Fund Symposium in Boston. The only session focusing on cash, "Money Funds & Conservative Ultra‐Shorts," featured our Peter Crane along with Northern Trust Asset Management's Dan LaRocco and Fidelity's Kerry Pope. We excerpt from this segment below. (Thanks again to those who attended and supported BFS, and attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or via our Bond Fund Symposium 2022 Download Center.)"
It continues, "Pope comments, 'We've certainly benefiting from all the turmoil within the banking sector. Each and every day you wake up, there's new money coming in, new accounts being opened. So we've got a lot of tailwinds right now. The good thing is that we're actually able to earn some money on it.... A few years ago in the zero-rate environment, we were having to waive fees all over the place. So now it's a good combination of being able to recognize the fees, plus the volume.'"
Our "ICI Worldwide" piece states, "The Investment Company Institute published, 'Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2022,' which shows that money fund assets globally jumped by $550.7 billion, or 6.6%, in Q4'22 to $8.856 trillion. The increases were led by sharp jumps in money funds in U.S., Ireland, France and Luxembourg. Meanwhile, only money funds in Brazil were lower. MMF assets worldwide increased by $22.4 billion, or 0.3%, in the 12 months through 12/31/22; money funds in the U.S. now represent 53.9% of worldwide assets."
MFI states" "ICI's release says, 'Worldwide regulated open-end fund assets increased 7.1% to $60.15 trillion at the end of the fourth quarter of 2022, excluding funds of funds.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the fourth quarter of 2022 contains statistics from 46 jurisdictions.'"
MFI also includes the News brief, "Fed Hikes to 4.75-5.0%; Yields 4.6%. A release, 'Federal Reserve issues FOMC statement,’ says, '[T]he Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5%.' Our Crane 100 Money Fund Index (7-Day Yield) rose 24 bps to 4.61%."
Another News brief, "NY Fed on MMFs, Rates," tells us, "The post, 'Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update,' tells us, 'The size of the money market fund industry co-moves with the monetary policy cycle.'"
A sidebar, "Vanguard's Smith on MMFs," states, "Vanguard writes 'Tried and true money markets get boost with rising rates,' which summarizes, 'Nafis Smith, principal and head of Vanguard's taxable money markets, discusses money markets in a rising interest rate environment, the stress tests behind Vanguard's stability mandate, and how a low fee structure advantages money market portfolios.'"
Another sidebar, "Yellen Hits MMFs in Speech," states, "Treasury Secretary Janet Yellen said in a recent speech, 'As we strengthen the banking sector, we are also making progress on one of FSOC's top priorities: mitigating vulnerabilities in nonbank financial intermediation. Many of these nonbank institutions engage in liquidity and maturity transformation: they profit by issuing short-term obligations while investing in riskier and longer-term assets. But they are generally not regulated to account for spillovers to the rest of the financial system during times of ... stress.'"
Our March MFI XLS, with March 31 data, shows total assets increased $345.1 billion to $5.613 trillion, after increasing $56.0 billion in February, $22.5 billion in January, $70.2 billion in December and $55.4 billion in November. MMFs rose $42.2 billion in October, $1.7 billion in September, $2.3 billion in August, $26.0 billion in July and $31.9 billion in June. They decreased $10.7 billion in May and $74.3 billion in April. MMFs increased $24.1 billion last March.
Our broad Crane Money Fund Average 7-Day Yield was up 21 bps to 4.46%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 22 bps to 4.61% in March. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 4.76% and 4.72%, respectively. Charged Expenses averaged 0.38% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Tuesday once we upload the SEC's Form N-MFP data for 3/31/23.) The average WAM (weighted average maturity) for the Crane MFA was 17 days (unchanged from previous month) while the Crane 100 WAM was up 1 at 15 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Money market funds resumed their surge to new record highs on Tuesday (after a dip Monday), rising $28.0 billion to a new high of $5.630 trillion. They increased by $357.1 billion in March and have risen by $37.8 billion over the past week (through 4/4). The massive asset shift continues to attract the attention of the non-cash world, with articles and mentions almost too numerous to count. The Wall Street Journal posted two articles Wednesday, and MarketWatch added another one to its coverage. The Journal's "Deposit Outflows Shine Light on Fed Program That Pays Money-Market Funds," explains, "Banks are under pressure from depositors' embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight. Money-market fund assets are increasing at a record clip. Much of that cash is making its way to the Fed's overnight reverse repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day."
They write, "The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out. As of Wednesday, more than $2.2 trillion sat in the Fed's reverse repo facility, paying a 4.8% annualized rate. That is well above the rates on offer at most banks. Some analysts are suggesting the Fed should change the terms of the facility to limit further bank distress."
They quote William Dudley, formerly of the New York Fed, "What's different this time is the money-market funds aren't really as good at recycling money back into the banking system." The WSJ continues, "Other analysts said it wouldn't be appropriate for the Fed to reduce the interest rate on the reverse repo facility to provide relief to banks that have been slow to raise deposit rates."
They state, "The facility has been meeting its core objective of 'providing highly effective control of overnight interest rates,' said Brian Sack, a former senior executive at the New York Fed who helped design the facility. 'I don't think the Fed should be trying to force savers into bank deposits by making the alternatives less attractive. I don't see reducing the reverse repo rate as an appropriate policy step."
The Journal also wrote the brief, "Rush to Money-Market Funds Could Be Search for Safety, Rather than Yield." It says, "With yields of more than 4%, money-market funds have sapped up more than $300 billion of cash as depositors flee banks. But some evidence indicates the migration into cash-like funds after the collapses of Silicon Valley Bank and Signature Bank may have more to do with safety than income."
The article adds, "Prime money-market funds -- which offer higher rates than their government-oriented counterparts by lending to companies -- have shed $24 billion since the start of March, according to data from the Investment Company Institute. Government funds, considered to be safer investments, have received $334 billion. (Note: Prime MMFs have seen inflows of $10.3 billion over the past week through 4/4, according to Crane Data.)
They quote Ryan Weldon, portfolio manager of the IFM US Dollar Liquidity Fund, "In the weeks following Silicon Valley Bank, institutional money managers yanked cash from prime funds.... The flow is very psychological -- some managers thought the excess risk wasn't worth it; better to be safe in government funds."
MarketWatch also writes about MMFs (again) in the oddly-titled, "'It's like cash under the mattress.' But some see systemic risks as money-market funds park trillions with Fed." Their article tells us, "Investors continue piling into money market-mutual funds, causing assets to swell to more than $5.6 trillion as of Tuesday, a record level, according to data provided by Crane Data, a longtime chronicler of the money-market fund space."
It explains, "While the pace of inflows slowed during the second half of March, investors added an additional $242 billion to money-market funds since March 15. These funds typically see outflows in the weeks leading up to tax day, according to Peter Crane, founder of Crane Data, who has been tracking the sector for about 25 years. Much of this is being parked at the Federal Reserve via its overnight reverse repo facility, or 'RRP,' where funds can reap returns as high as 4.8% on an annualized basis, according to data from the New York Fed."
MarketWatch cautions, "The concern is that if investors and savers can nab such attractive yields in money-market funds, they might continue to migrate away from the banking system into a venue where it can't be recirculated into the economy in the form of loans.... `U.S. money-market funds have roughly 40% of their holdings parked in the RRP, Crane said. These funds make up almost all of the $2.2 trillion in the RRP as of Wednesday, per the Fed's data."
They add, "As a result, their weighted average maturity, or 'WAM,' the shorthand used by money-market pros, has declined to just 15 days for the 100 largest money-market mutual funds tracked by Crane, down from 35 days on average in the past decade. Analysts and money-fund portfolio managers say that much of their inflows are coming from bank deposits, which have continued to see outflows. Savers pulled $125.7 billion from the banking system in the week ended March 22, the latest data available from the Fed, representing outflows from banks for nine straight weeks."
Finally, MarketWatch says, "While higher returns might be a welcome change for savers and investors who earned essentially nothing from their deposits for more than a decade following the financial crisis, some experts worry that relatively attractive yields on offer at the RRP could exacerbate concerns about stability in the banking system."
Vanguard published an article entitled, "Tried and true money markets get boost with rising rates," which summarizes, "Nafis Smith, principal and head of Vanguard's taxable money markets, discusses money markets in a rising interest rate environment, the stress tests behind Vanguard's stability mandate, and how a low fee structure advantages money market portfolios." Smith comments, "Money market rates surpassed the 4.5% mark in February 2023; they were close to 0% at the start of 2022. This higher rate makes money markets very attractive right now, but it also makes the hurdle rate -- the minimum acceptable rate of return -- for investing in other asset classes very high. This probably won't change until we get a little more clarity about when the U.S. Federal Reserve will stop hiking rates and where inflation will shake out."
He explains, "For investors, it's like they're getting paid to be patient while the Fed works toward its goals around inflation. Inflation has been at a 40-year high and, while you don't typically think of money markets as a hedge against inflation, at current yield levels, they take a big step toward neutralizing the erosion in purchasing power today's inflation is creating -- and that's in a portfolio without any price volatility."
Smith tells us, "Money market funds are typically used as a short-term savings instrument, an emergency reserve, or a general allocation to cash. Historically, when the Fed is raising rates, bank deposit rates will adjust much more slowly than will a money market fund's rate. From that perspective, you might be better off with a money market portfolio, but with regard to asset allocation, that really depends on an investor's goals and objectives."
He continues, "That said, money market funds are designed to seek both stability and provide current income. We've gone through two periods since 2008 when rates have been close to zero; if you're an investor who likes the income-generating feature of money market funds, well, you haven't seen a lot of that during these recent low-rate periods. But with money market yields where they are now -- 4.5%-plus and possibly higher in the coming months -- it's an attractive time to be a money market investor."
Smith also says, "Money market funds are highly correlated with short-term interest rates. If you look backward at how much the federal funds target rate has changed over the past year, you'll see that money market rates have moved right along with them. So, as we move into a different interest rate regime, we expect money market fund yields will reflect that movement."
He adds, "At the same time, investors may want to consider whether they're being fairly compensated for their cash reserves. Traditional checking and savings accounts are great for paying bills or building an emergency savings account, but rising rates mean money markets may bring better returns. Right now could be an exciting time to be invested in the money markets."
The Vanguard piece quotes Smith, "The primary mandate of any money market fund is to seek both stability and provide current income. In a rising interest rate environment, any of these four types of money market funds -- U.S. Treasury, government, municipal, and prime funds -- should meet that decree. They all hold high-quality assets, are very liquid, and are subject to the same SEC regulation, Rule 2a-7, which is very prescriptive in terms of how much duration risk a fund can take on and how much liquidity must be maintained.... Treasury and government funds are on the safer end of the spectrum; at the same time, investors may want to understand the risks associated with a prime fund, which can invest in a broader spectrum of money market eligible securities."
He states, "Since their introduction in 1971, money market funds have broken the buck just two times. The first was in 1994, when a fund was liquidated at 96 cents per share because of large losses in derivatives. The second was during the financial crisis of 2008, because of assets held with the then recently bankrupt Lehman Brothers. In response to the 2008 event, the Securities and Exchange Commission amended Rule 2a-7, which increased the resilience of money market portfolios and made them much safer than they used to be. Since then, we've seen several additional rounds of reform. In short, breaking the buck was a rare event before, but since the regulations have changed, it's even less likely to occur."
Smith also states, "Fed repurchase agreements are very common in the money market space. It's an overnight lending arrangement between us, in this instance, and the Federal Reserve, which is one of the world's highest-quality organizations in terms of credit risk. We're lending cash and receiving U.S. Treasuries, which are extremely high-quality securities held on the Federal Reserve's balance sheet. The Fed buys back the U.S. Treasuries the next day at a higher price based on Fed target rates, which provides income to money markets."
He adds, "In a rising interest rate environment like the one we're experiencing, any repurchase agreements are very good at dampening market volatility because they allow us to increase stability by reducing interest rate risk. Repurchase agreements also allow us to pass along the higher interest rate to investors much more quickly."
Finally, when asked what makes Vanguard unique, Smith responds, "Our greatest advantage is our low expense ratio, which allows us to do things differently than some of our competitors. We don't have to take on unnecessary risk to reach for yield, and we can manage our portfolios with much shorter durations, maintain higher credit standards, and enforce stricter underwriting standards for our repurchase agreements while still offering a competitive return."
The Federal Reserve Bank of New York published "Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update" on its "Liberty Street Economics blog. The piece explains, "The size of the money market fund (MMF) industry co-moves with the monetary policy cycle. In a post published in 2019, we showed that this co-movement is likely due to the stronger response of MMF yields to monetary policy tightening relative to bank deposit rates, combined with MMF shares and bank deposits being close substitutes from an investor's perspective. In this post, we update the analysis and zoom in to the current monetary policy tightening by the Federal Reserve." (Note: Total money fund assets eked out another record on Friday, March 31, rising $3.5 billion to $5.610 trillion. For the month of March, MMF assets jumped $357.1 billion.)
Discussing "Differential Betas on Bank Deposits and MMF Shares," they write, "The Federal Open Market Committee (FOMC) adjusts the stance of monetary policy primarily by changing the target range for the federal funds rate, the interest rate banks charge each other for overnight unsecured loans of funds. Changes in the target range are implemented via two policy tools -- the rate paid on banks' reserve balances and the rate offered at the overnight reverse repo facility -- that influence rates in the federal funds market. Changes in federal funds rates are then passed through to other rates, including the interest rates banks and non-bank money managers offer to their clients. The pace at which changes in the policy stance are transmitted and affect broad financial conditions is a key determinant of the impact of monetary policy on economic conditions."
A chart in the article shows that, "the response of retail three-month CD rates to changes in monetary policy (the so-called deposit beta) is much slower than that of MMF shares, which for symmetry with the deposit beta, we call the MMF beta. Indeed, since March 2022, yields on MMFs have risen by 4.13 percentage points, or 97 percent of the EFFR increase, whereas CD rates have only risen by 0.32 percentage points, or 8 percent of the increase in the EFFR."
The blog says, "The differential betas are not just a feature of the most recent policy cycle; ... between 2002 and January 2023, the deposit beta was 26 percent: that is, a one percentage point increase in the EFFR leads to a 0.26 percentage point increase in the CD rate. In contrast, a one percentage point increase in the EFFR increases MMF yields by 0.88 percentage points. One reason for the difference in betas could be the level of sophistication of retail and institutional investors. However, while the yields of MMFs catering to institutional investors respond more quickly to monetary policy changes, as we show in this post, retail MMFs also have much higher betas than bank deposits: in 2002-23, for instance, the beta on retail MMF shares was 86 percent, three times larger than the deposit beta."
It continues, "The deposit and MMF betas have also diverged over time. As discussed in this post, deposit betas have attenuated over the last twenty years, whereas the betas on MMF shares have remained roughly constant. Indeed, ... the deposit beta decreased from 42 percent in 2002-09 to 8 percent in 2010-23, while the MMF beta stayed flat at around 90 percent across the two periods."
The blog comments, "In a recently published staff report, we show that a one percentage point increase in the EFFR increases the AUM of the average MMF by roughly 6 percent over two years. Given that our sample contains 500 MMFs with an average AUM of $5 billion, a one percentage point increase in the EFFR is estimated to increase the AUM of the MMF industry by $150 billion over the following two years. Similarly, the ratio of MMFs' AUM to bank deposits increases by 6 percent over the same horizon."
It adds, "It is worth noting that, ... the MMF industry did not shrink significantly after rates were cut in 2020; rather, it grew after the Federal Reserve rapidly increased its balance sheet in response to the COVID-19 financial crisis. The reason, as we will explain in a future post, is that a larger balance sheet puts pressure on depository institutions by affecting their regulatory constraints, and gives them an incentive to shed deposits, which in turn flow to MMF shares, a close substitute. Moreover, current policy tightening has just started to have an impact on the MMF industry, with the size of the industry starting to tick upward after August 2022."
Finally, the blog summarizes, "This post updates the findings of our previous work on the relationship between monetary policy, MMF yields, and the size of the MMF industry. During the current tightening cycle, MMF yields have increased by 4.13 percentage points, in line with our previous estimate of the beta on MMF shares between 2002 and 2020; in contrast, deposit rates have remained flat. Moreover, consistent with these results, the AUM of the MMF industry has increased as the Federal Reserve has tightened rates, from $4.31 trillion in April 2022 to $4.62 trillion in January 2023. The relatively small magnitude of this increase in the size of the MMF industry, against a rate hike of 4.25 percentage points, is likely due to a lag with which monetary policy affects investor flows in MMFs; the recent monetary policy tightening, in fact, could lead to a further expansion of the MMF industry in the near future."
In other news, "money fund yields were higher last week as they continued to digest the Fed's March 22nd 25 basis point rate hike. Yields should inch higher this week as the Fed move continues to work its way through funds' 7-day yields. Our Crane 100 Money Fund Index (7-Day Yield) was up 12 bps at 4.61% in the week ended Friday, 3/31. Yields are up from 4.39% on Feb. 28, 4.15% on Jan. 31 and 4.05% on 12/31/22. They've increased from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. A handful of the top-yielding money market funds (8) broke the 5.0% level over the past week.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 687), shows a 7-day yield of 4.49%, up 11 bps in the week through Friday. Prime Inst MFs were up 13 bps at 4.72% in the latest week. Government Inst MFs rose by 12 bps to 4.58%. Treasury Inst MFs up 6 bps for the week at 4.46%. Treasury Retail MFs currently yield 4.24%, Government Retail MFs yield 4.29%, and Prime Retail MFs yield 4.55%, Tax-exempt MF 7-day yields were up at 3.59%.
According to Monday's Money Fund Intelligence Daily, with data as of Friday (3/31), zero money funds (out of 823 total) yield under 2.0%; just 8 funds yield between 2.00% and 2.99% with $37 million, or 0.0%; 169 funds yield between 3.00% and 3.99% ($137.4 billion, or 2.4%), and 646 funds yield 4.0% or more ($5.472 trillion, or 97.6%). Eight funds have now officially surpassed the 5.0% mark (though most are private and not listed in our "Highest-Yielding Funds" table above) and we expect more to follow in coming days.
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.55% after increasing 1 bp the week prior. The latest Brokerage Sweep Intelligence, with data as of March 31, shows that there were no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
Late last week, mutual fund trade group the Investment Company Institute published a press release entitled, "Average Equity and Bond Mutual Fund Expense Ratios Continue to Decline," along with the report, "Trends in the Expenses and Fees of Funds, 2022." The full report tells us, "On an asset-weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past 26 years.... In 1996, equity mutual fund investors incurred expense ratios of 1.04 percent, on average, or $1.04 for every $100 in assets. By 2022, that average had fallen to 0.44 percent. Average expense ratios of hybrid and bond mutual funds, as well as money market funds, have also declined meaningfully since 1996." A table, "Average Expense Ratios for Long-Term Mutual Funds Have Fallen," lists expense ratios by type from 1996 to 2022 and shows bonds fund averages falling from 0.84% to 0.37% over this period and money fund ratios falling from 0.52% to 0.13%. (Note: Crane Data shows the average expense ratio for money market mutual funds at 0.27% as of 2/28/23 as measured by our Crane 100 Money Fund Index.)
It explains, "The decrease in the average expense ratios of equity, hybrid, and bond mutual funds in 2022 primarily reflects a long-running shift by investors toward lower-cost funds or fund share classes. In particular, investors have been moving toward no-load share classes -- those that had neither a front-end load fee, nor a back-end load fee, nor a 12b-1 fee of more than 0.25 percent."
ICI writes, "In addition to varying from year to year, fund expense ratios can also vary by fund type.... For example, bond and money market mutual funds tend to have lower expense ratios than equity and hybrid mutual funds." Another table, "Mutual Fund Expense Ratios Vary Across Investment Objectives," shows bond fund expenses averaging 0.35% at the 10th percentile, 0.71% at the Median, 1.54% at the 90th percentile, 0.37% for the asset-weighted average and 0.82% for the simple average. For money market funds, it shows averages of 0.06% at the 10th percentile, 0.15% at the Median, 0.39% at the 90th percentile, 0.13% for the asset-weighted average and 0.19% for the simple average."
A section on "Money Market Funds," comments, "The average expense ratio of money market funds increased 2 basis point to 0.13 percent in 2022.... Over the past 15 years, developments that stemmed from changes in short-term interest rates have been the primary factors affecting average money market fund expense ratios."
It continues, "Over 2008–2009, the Federal Reserve sharply reduced short-term interest rates. By 2009, the federal funds rate was hovering at a little more than zero. Gross yields on taxable money market funds (the yield before deducting the fund's expense ratio) -- which closely track short-term interest rates -- fell to all-time lows. This situation remained in stasis from 2010 to late 2015."
ICI states, "In this environment, most money market funds adopted expense waivers to ensure that net yields (the yield on a fund after deducting fund expenses) did not fall below zero. With an expense waiver, a fund's adviser agrees to absorb the cost of all or a portion of a fund's fees and expenses for some time. The expense waiver, by reducing the fund's expense ratio, boosts the fund's net yield. These expense waivers are costly for fund advisers, reducing their revenues and profits. From 2009 to 2015, advisers waived an estimated $36 billion in money market fund expenses.... It was expected that when short-term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat."
They write, "That, ultimately, is what happened. In December 2015, the Federal Reserve raised the federal funds rate by 0.25 percent, signifying a strengthening economy; it was raised eight more times from 2016 to 2018, each time by 0.25 percent. In 2019, however, this trend reversed -- as global trade tensions grew more uncertain and expectations around future global growth fell, the Federal Reserve lowered the federal funds rate three times. These actions were reflected in short-term interest rates and gross yields on money market funds."
ICI says, "In 2020, the Federal Reserve slashed the federal funds rate back to near-zero territory as the COVID-19 pandemic effectively shut down the global economy. With short-term interest rates at nearly zero by the end of April 2020, it became more likely that the net yields of money market funds could fall below zero. Consequently, advisers reinstituted the expense waivers they had provided to their money market funds in the ultralow interest rate environment that persisted from 2009 through 2015."
Finally, they add, "In 2022, the Federal Reserve responded to rising inflation by raising the federal funds rate seven times and bringing it to between 4.25 and 4.50 percent. As a result, fewer money market funds found it necessary to provide expense waivers to prevent yields from falling below zero as was the case in 2021. Total money market fund waivers decreased sharply from $8.4 billion in 2021 to $4.1 billion in 2022. In addition, the percentage of money market funds offering waivers declined from 96 percent in February 2022 (just prior to when the Federal Reserve started tightening monetary policy) to 74 percent in December 2022. Despite fewer expense waivers in 2022, the average expense ratio for money market funds rose only 2 basis points to 0.13 percent."
In other news, the Financial Times published, "Flood of cash into US money market funds could add to banking strains." The piece says, "The flood of cash pouring into US money market funds is unlikely to stop soon, analysts and investors say, and has the potential to exacerbate strains in the banking system. The returns offered by money market funds, vehicles that invest largely in safe assets such as short-term government debt, have soared far above the interest rates banks pay to depositors, as the Federal Reserve rapidly raised borrowing costs over the past year. Despite the yawning gap, it took the banking crisis sparked by the collapse of Silicon Valley Bank to spark the recent stampede: money market funds have drawn in more than $340bn since the beginning of March."
The article quotes T. Rowe Price's Doug Spratley, "People that were making half a per cent in bank accounts were ignoring the 4 per cent they could make in money market funds.... And now they just got a big swift kick in the pants."
It adds, "The recent flows into money market funds have drawn the attention of Treasury secretary Janet Yellen, who on Thursday warned over the 'structural vulnerabilities' of the sector. 'If there is any place where the vulnerabilities of the system to runs and fire sales have been clear-cut, it is money market funds,' she said in a speech at a conference hosted by the National Associations of Business Economics. 'The financial stability risks posed by money market and open-end funds have not been sufficiently addressed.'" (See our March 31 Link of the Day, "Yellen Hits MMFs in Stability Speech.")
