Daily Links Archives: June, 2015

The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing," which confirms that May was the first positive month in 2015 for money market funds. Money market funds rose to $2.603 trillion in May from $2.565 trillion at the end of April, a jump of $38 billion of 1.5%. MMF assets dropped by $80.0 billion in April, $32.9 billion in March, $13.9 billion in February, and $33.4 billion in January. The report says, "The combined assets of the nation's mutual funds increased by $120.95 billion, or 0.7 percent, to $16.30 trillion in May, according to the Investment Company Institute's official survey of the mutual fund industry. Bond funds had an inflow of $5.47 billion in May, compared with an inflow of $6.77 billion in April.... Money market funds had an inflow of $36.17 billion in May, compared with an outflow of $81.50 billion in April. In May funds offered primarily to institutions had an inflow of $34.10 billion and funds offered primarily to individuals had an inflow of $2.06 billion." The total number of money market funds stood at 521 (360 Taxable, 161 Tax-Exempt), down 2 from the previous month. MMFs represent 16.0% of all mutual fund assets, while bond funds represent 21.7%, according to ICI's statistics. In other news, Bloomberg writes, "Who Will Save the Repo Market? Barclays Has a Few Ideas." It says, "It's no secret that the vast and shadowy "repo market," where a wide variety of banks and investors pawn their assets in exchange for short-term loans, has had a tough time of it in recent years. It was ground zero for the financial crisis, and the size of the repo market has since fallen off a cliff, because of new rules that make the transactions more expensive for banks as well as the deep scars left by the 2008 crisis."

The Federal Reserve Bank of New York issued a "Statement to Revise the Time of Day of the Overnight Reverse Repurchase Agreement Operation for June 30, 2015" Friday, which says, "The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (FOMC). Regarding the overnight reverse repurchase agreement (ON RRP) operation to be conducted on Tuesday, June 30, 2015, the Desk will conduct the operation from 9:30 to 10:00 a.m. Eastern Time, several hours earlier than usual. All other terms of the exercise will remain the same. This change only applies to the ON RRP operation conducted on June 30, 2015. The ON RRP operation conducted on Monday, June 29, and those conducted on and after Wednesday, July 1, 2015, will be conducted at the usual time of 12:45 to 1:15 p.m. Any future changes to these operations will be announced with at least one business day's prior notice on the New York Fed's website. As an operational readiness exercise, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

ICI's latest "Money Market Mutual Fund Assets" report says, "Total money market fund assets increased by $2.68 billion to $2.60 trillion for the week ended Wednesday, June 24, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $3.81 billion and prime funds increased by $1.63 billion. Tax-exempt money market funds decreased by $2.76 billion.... Assets of retail money market funds decreased by $10 million to $866.41 billion. Among retail funds, Treasury money market fund assets increased by $830 million to $192.60 billion, prime money market fund assets increased by $900 million to $496.19 billion, and tax-exempt fund assets decreased by $1.74 billion to $177.62 billion. Assets of institutional money market funds increased by $2.69 billion to $1.74 trillion. Among institutional funds, Treasury money market fund assets increased by $2.98 billion to $767.52 billion, prime money market fund assets increased by $730 million to $901.78 billion, and tax-exempt fund assets decreased by $1.01 billion to $65.87 billion."

CNN Money writes, "Bubble Fears: Is it Time to Consider a Rainy Day Fund?." It says, "It's been mostly sunny on Wall Street for six years now as stocks have soared. But some investors are worried that the next rainy day could come soon. Stocks are pricey, we haven't had a correction in years, and America's central bank -- the Federal Reserve -- could shake things up in September. One place to weather the storm is a money market fund. It's considered one of the surest investments available, outside of stashing your cash in a bank account. Here's how it works: You put your cash into a fund, and the fund manager invests some of it in relatively safe bets: U.S. government bonds, corporate debt or municipal debt. The goal is to get people a better bang for their buck than just putting their money into a savings account, but keep the risk low -- far lower than investing in stocks or even most bond funds. "It often serves as a surrogate to a bank account," says Tim Huyck, Fidelity's chief investment officer of money markets. Most people invest in a money market fund for a few months, often to try to beat the interest you get on a bank account." It continues, "Money market funds, often called "money funds," could stand to win big from a Fed rate hike, which many believe will happen in September. "Money market funds become a nice alternative during these times," says Esther Chance, senior portfolio manager at Invesco, which manages $68 billion in money market funds. After a Fed rate hike, money market funds "definitely stand to win." A rate hike would do two things. First, it sometimes disrupts the momentum in the stock market, spooking investors to put money in safer assets. Second, it would bump up the interest that investors earn on their savings and bonds. Since the Fed put interest rates at near zero in 2008, money funds and bank accounts basically have given you the same return -- nothing. But historically, when rates are higher -- like they're expected to go this year -- money funds have higher returns than your average savings account." It continues, "Over $2.6 trillion is invested in money market funds in the United States. That's down from recent highs during the recession, but it's still almost 50% higher than 15 years ago, according to data from Morningstar and Investment Company Institute. The growth is impressive considering that over the same time span, there are half as many money market funds today as there were in 2000. Money funds have consolidated over the years into a few mega-powers players, like Fidelity and Vanguard. New rules that arrive in 2016 could change the game too."

A press release entitled, "Fitch: US Prime Money Funds Differing on Views of Fed Rate Hike," says, "US money fund managers have, on average, significantly reduced portfolio maturities in recent months, as the industry positions for rising rates and money fund reform; however, there is evidence of widely differing views within these broad trends, according to Fitch Ratings. Fitch sees some of the significant weighted average maturity (WAM) variations in part reflecting differing expectations on the timing of the Fed's first rate increase. An example of two large prime money fund managers with diverging WAMs can be seen in the chart here. The WAM of Morgan Stanley-managed prime funds has been trending materially lower since the beginning of 2015, dropping to a trough of 12 days seen at the beginning of June, from 31 days recorded in January. On the opposite end, JPMorgan-managed prime funds are trending in a much higher range, with WAM increasing to 53 days from 44 days over the same time period. Across all US prime money market funds, WAMs have declined to 37 days at the beginning of June 2015, from 48 days at the end of October 2014, according to iMoneyNet data. Adjusting maturities is a key strategy for money funds, as portfolios with shorter maturities will generally tend to outperform if the Fed raises rates faster than the market expects, while longer-positioned funds will likely outperform if the Fed moves slower than expected. However, we recognize that a range of factors including credit quality considerations, investor profiles and asset flows can also explain maturity positions. An additional important consideration for prime fund managers is the approaching effective date for the implementation of money fund reform. The Securities and Exchange Commission set October 2016 as the time when certain prime money funds will start floating their share prices and may be subject to redemption restrictions. The industry generally expects these provisions to cause large asset outflows from prime money funds to government funds in the months leading up to the reform implementation date. Therefore, many fund managers have begun building up liquidity positions to withstand redemptions. So far, however, outflows from prime funds have been muted. Institutional government fund assets have increased 9% since reform was enacted in July 2014, but institutional prime funds have also risen by 6%, according to data from Crane. Seasonal factors affect money fund flows, so it is hard to tell whether the data indicate a reform-related preference toward government funds, which will likely intensify closer to the reform implementation date. Anecdotally, Fitch is aware that a small number of institutional money fund clients have switched from prime to government funds in response to reform. The increased demand for government funds may bump against shortages in supply and, consequently, lead to wider spreads between government and prime funds."

A press release entitled, "Federated Investors Completes Transition of Assets into Federated Ohio Municipal Cash Trust," says, "Federated Investors, Inc., one of the nation's largest investment managers, completed the acquisition of certain assets of Touchstone Advisors, Inc. related to the reorganization of the Touchstone Ohio Tax-Free Money Market Fund into the Federated Ohio Municipal Cash Trust. Since the acquisition was announced in March, approximately $100 million in Ohio tax-free money market assets have been transitioned, either before or as part of the reorganization, to the Federated Ohio Municipal Cash Trust. With approximately $18 billion in tax-free money market assets under management as of March 31, 2015, Federated offers more tax-free state money market products than any other investment manager. "Federated is a leading provider of liquidity management services, and we regularly work with many different types of organizations as they evaluate their cash-management needs," said Joe Machi, director of alliances at Federated. "We will continue to consider and evaluate alliance and acquisition opportunities with asset managers, banks, insurers and broker/ dealers in the United States and around the world." Also, Reuters writes, "July Bills Rates Hold in Negative Territory." It says, "Interest rates on U.S. Treasury bills that mature in July held in negative territory on Monday as cash investors scrambled for low-risk vehicles to park their money as the end of the second quarter approaches <b:>`_next week. `Money market funds and other investors have shifted more cash into the U.S. Federal Reserve's reverse repurchase agreement (RRP) program, given the relative scarcity of ultra short-dated government debt, analysts said.... T-bill rates, depending on maturity, were at their most negative since the end of 2011, Tradeweb data showed." Finally, the New York Fed issued a "Statement Regarding Term Reverse Repurchase Agreements," announcing an updated schedule for Term Operations. It says, "For the June quarter-end, the Desk previously announced its plans to offer at least $200 billion in term reverse repurchase agreement transactions that cross the quarter-end, noting that the schedule would be updated on or around June 22." The updated schedule has operation/settlement dates of June 25 and June 29 with an RRP offering rate of +3 basis points. Both are for $100 billion.

Bloomberg posted an article on how the seasons impact fund flows called, "The Unseen Driver of Mutual Fund Inflows: What Time the Sun Sets." It says, "As seasons change, so do the habits of fund investors. When it's spring and the days get longer, risk appetites grow and cash flows to equities, according to a new study. As winter approaches, safer alternatives like the money market come into favor. Seasonal depression is to blame, the researchers said. A reduction in sunlight worsens people's moods. More is at work in the market than robots battling over earnings and valuation, according to the behavioral branch of analysis from which the study springs. The updated findings, from the paper "Seasonal Asset Allocation: Evidence from Mutual Fund Flows" to run in the Journal of Financial and Quantitative Analysis, surprised its own authors. "I initially thought that depressed people would throw all caution to the wind and do risky things just to get back into a decent frame of mind," Maurice Levi, the University of British Columbia professor who coauthored the report, said by phone. "But they actually tend to withdraw. It's enough to affect the markets." Results like these may interest the mutual fund industry, which spends more than $500 million a year on advertising, the authors said. More research may show that managers anticipating the patterns affect returns in stocks and bonds, they added." It continues, "The study examined monthly fund flows from 1985 to 2006. It concluded that seasons had a statistically significant influence on which asset classes got the most through the year. Levi, along with York University professor Mark Kamstra, University of Toronto associate professor Lisa Kramer and University of Maryland professor Russ Wermers, quantified monthly flows into five fund categories with varying risk profiles. Money market funds were treated as the safest and equities the riskiest. They found net flows into U.S. stocks were below average from September through December and highest from March to June. The opposite was true in money markets, which saw greater inflows in the autumn and subpar inflows for spring. The patterns reduce net flows to equity funds by about $13 billion as days shorten, the authors estimated. They boost flows to safer products by as much as $4 billion in September. "We find strong evidence that this seasonality is correlated with the timing of seasonal variation in risk aversion," the authors wrote. The consequences are "economically large, representing tens of billions of dollars," they said." Note: We're not sure about the reasons behind the flows, but money market funds have seen outflows during the first half of the year and inflows in the second half of the year for 4 years straight.

Bloomberg writes, "No Relief for Mom and Pop's Money Funds When Fed Tightens." It says, "Investors parking cash in the safest of U.S. assets probably won't see immediate relief from depressed returns when the Federal Reserve starts raising interest rates. The possibility of as many as two rate increases by year-end has failed to outweigh a mismatch between supply and demand for the shortest and safest of debt, with Treasury bill rates maturing through October locked at about zero percent. Global regulatory changes are boosting the need for high-quality assets from bills to repurchase agreements to bank deposits just as the supply is sliding." It adds, "Ahead of the first policy tightening since 2006, even more money may temporarily flow into the safest of government debt." Bloomberg quotes Northern Trust's Peter Yi, "Some core fixed-income investors are just concerned about rising rates. As they wait for the market to sell off in longer-maturity instruments, they may temporarily park themselves in cash and cash-like securities." The piece adds, "A mix of post-crisis regulations has boosted demand for repurchase agreements, where investors temporarily lend cash and take in securities as collateral, just as banks are backing away from the transactions as they have become costly as regulators push to shore up banks capital. A Fed reverse repo program, which the central bank has been testing since 2013 as one of several tools to manage its eventual removal of monetary accommodation, has provided some relief by giving investors a new place to park funds. Yet strategists say the market's current size, at $300 billion for overnight deals, won't suffice or alleviate downward pressure on rates." In other news, money fund assets were down for the second straight week (which included a quarterly tax payment date, June 15), according to ICI's latest weekly "Money Market Mutual Fund Assets." The release says, "Total money market fund assets decreased by $11.06 billion to $2.60 trillion for the week ended Wednesday, June 17, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $2.42 billion and prime funds decreased by $9.13 billion. Tax-exempt money market funds increased by $500 million. Assets of retail money market funds increased by $3.04 billion to $866.43 billion. Among retail funds, Treasury money market fund assets increased by $380 million to $191.77 billion, prime money market fund assets increased by $2.42 billion to $495.29 billion, and tax-exempt fund assets increased by $240 million to $179.36 billion. Assets of institutional money market funds decreased by $14.09 billion to $1.73 trillion. Among institutional funds, Treasury money market fund assets decreased by $2.81 billion to $764.54 billion, prime money market fund assets decreased by $11.55 billion to $901.05 billion, and tax-exempt fund assets increased by $260 million to $66.88 billion." Year-to-date, money market fund assets are down $134 billion or 4.9%.

In its OnPoint publication, industry law firm Dechert released an article, "SEC Staff Issues Money Market Fund Reform Frequently Asked Questions." It says, "This Dechert OnPoint briefly discusses the background and the events leading up the FAQs and describes key responses from the Staff in the FAQs." On Funds that Invest Only in Securities that Mature in 60 Days or Less (FAQ No. 9) it says, "As discussed in the Adopting Release and in the FAQs, a floating NAV money market fund may use the amortized cost method of valuation to value certain portfolio securities with a remaining maturity of 60 days or less. However, in the FAQs, the Staff cautioned that a floating NAV money market fund may not disclose in its advertising, sales literature or prospectus that it will seek to maintain a stable NAV per share by investing only in securities with a remaining maturity of 60 days or less and valuing those securities using the amortized cost method of valuation. The Staff stated its belief that such a statement would be misleading to investors because "there will be market circumstances that may require a floating NAV money market fund's share price to fluctuate, regardless of how it limits its investment duration or its use of amortized cost for certain portfolio securities." Moreover, under Form N-1A, a floating NAV money market fund must disclose that its share price will fluctuate. The Staff expressed concern over the potential contradictions between this disclosure and a statement by a floating NAV fund that it will seek to maintain a stable NAV." On Amortized Cost Guidance (FAQ No. 10), it says, "The Adopting Release provided guidance on the use of the amortized cost method of valuation to value individual portfolio securities that mature in 60 days or less. Certain fund groups had questioned the scope of this guidance. The FAQs clarified that this guidance would generally not be relevant to stable NAV money market funds, given that those funds are allowed by Rule 2a-7 to use amortized cost to value their entire portfolio, and not just individual securities. This guidance is, however, relevant to floating NAV money market funds, as well as to non-money market funds, that use the amortized cost method of valuation to value individual portfolio securities that mature in 60 days or less." In conclusion it says, "The FAQs provided Staff guidance on many of the issues that have arisen under the Amendments and will undoubtedly have a profound effect on how the money market fund industry implements the Amendments. Although compliance with the most significant provisions of the Amendments -- the floating NAV requirement and the imposition of liquidity fees and redemption gates -- will not be required until October 14, 2016, money market fund advisers and their boards would be well-advised to consider the FAQs and the issues discussed above in advance of the compliance dates, in order to make sure that their funds are on track to comply with the Amendments by those dates."

The Investment Company Institute released its latest "Money Market Fund Holdings" report (with data as of May 31, 2015), which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 25.4% as of May 31, up from 23.3% on April 30. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 21.2% (vs. 18.1% last month) and "Other treasury securities," which added 4.3% (down from 5.2% last month). Prime funds' Weekly liquid assets totaled 38.2% (vs. 37.6% last month), which was made up of "All securities maturing within 5 days" (32.3% vs. 31.1% in April), Other treasury securities (4.2% vs. 5.0% in April), and Other agency securities (1.7% vs. 1.5% a month ago). (See also Crane Data's June 11 "News", "June Portfolio Holdings Show Jumps in Time Deposits, CD, Repo, CP.") The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 62.8% as of May 31 vs. 61.6% in April. All securities maturing within 1 day totaled 28.0% vs. 26.3% last month. Other treasury securities added 34.8% (vs. 35.3% in April). Weekly liquid assets totaled 80.0% (vs. 80.2%), which was comprised of All securities maturing within 5 days (39.5% vs. 39.5%), Other treasury securities (32.8% vs. 33.1%), and Other agency securities (7.7% vs. 7.7%). ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 41.5% in the Americas (vs. 41.6% last month), 19.5% in Asia Pacific (vs. 19.6%), 38.7% in Europe (vs. 38.5%), and 0.4% in Other and Supranational (vs. 0.4% last month). Government Money Market Funds held 85.8% in the Americas (vs. 84.4% last month), 0.4% in Asia Pacific (vs. 0.5%), 13.8% in Europe (vs. 15.2%), and 0.1% in Supranational (vs. 0.1%). The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 38 days as of May 31, down from 40 days last month. WALs were at 75 days, down from 78 days last month. Government MMFs' WAMs was at 41 days, down from 43 days last month, while WALs was at 78 days, down from 82 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for April covers funds holding 94 percent of taxable money market fund assets." Note: ICI publishes aggregates but doesn't publish individual fund holdings.

The Financial Times posted an article, "Huge Growth in China's Money Funds Poses Risk." It says, "China's asset management industry has had explosive growth in the last two years following the arrival of online money market funds, which have transformed the way millions of Chinese invest their savings. The booming popularity of money funds, however, has led several investment experts to raise serious concerns about risks developing in the industry as a result. The funds' appeal is strong given that most of them offer annual returns of 4-6 per cent, compared with the 3 per cent Chinese individuals receive on their bank deposits. The returns have helped money market funds' assets under management grow nearly 15-fold in the past four years to Rmb1.9tn ($306bn) at the end of 2014, according to Goldman Sachs Asset Management. Robert Pozen, senior lecturer at Harvard Business School and former chairman of MFS Investment Management, the oldest US mutual fund company, fears investors are being drawn to the high interest rates without any understanding of the risks. The funds offer high interest rates, he says, but "they are not explaining that in many cases this type of paper is not top quality. This is essentially what we would call primary junk funds in the US -- paper that's usually below investment grade, fluctuates daily in terms of interest rates and from time to time defaults. "The big risk is selling to relatively unsophisticated investors over the internet who probably do not know what they are getting into. There is a real possibility of loss here." The FT piece continues, "The biggest winners from the influx of cash into online money funds have been large Chinese internet companies like Alibaba, Tencent and Baidu <b:>_. They were quick to recognise that selling money funds over the internet to consumers who were comfortable with online transactions could translate into big business. `Alibaba's money fund Yu'E Bao (Leftover Treasure), which is marketed to users of the group's online payment platform Alipay, has been particularly successful. Cash transfers from bank accounts to Yu'E Bao take just one click. `Its assets have risen from zero to Rmb578bn in less than two years. Rating agency Fitch has highlighted the level of retail investor cash flowing into the funds as a cause for concern. (See our June 9 "Link of the Day," "Fitch on China's MMFs.") FT adds, "The Chinese authorities should be more proactive, according to Mr. Pozen. "Do investors in China know what kind of fund they are getting into?" he asks. "Do they realise it is a fluctuating junk bond fund and not a safe money market fund? I bet a lot of people do not understand those risks." These funds need to be labelled properly, he adds, and the value of their underlying holdings needs to be "disclosed properly.""

Dechert writes in a piece entitled, "U.S. SEC Approves Proposal to Modernize Investment Company Reporting Regime," "The U.S. Securities and Exchange Commission (SEC or Commission) unanimously approved a proposal (Proposal) to modernize the reporting of information provided by registered investment companies (funds). Guided by the recent implementation of enhanced data reporting requirements for money market funds that make filings on Form N-MFP and for private funds that make filings on Form PF, the Proposal is designed to improve the quality and type of information that all funds provide to the SEC and investors." (Note: We also discuss the SEC's recent proposal and its implications for bond funds in our latest Bond Fund Intelligence, which was sent to subscribers late Friday <b:>`_.) Dechert's piece explains, "Among other things, certain new reporting requirements would be provided in a "structured data format," which would allow the SEC to efficiently analyze the data to respond to market, fund-specific or adviser-specific events. As SEC Chair Mary Jo White stated at the open meeting at which the Proposals were approved, the Proposal would allow the SEC to have "more and better information to monitor risks in the asset management industry." The Proposal has four key components: Adoption of Form N-PORT, for reporting portfolio-wide and position-level holdings information, and the rescission of Form N-Q; Revisions to Regulation S-X that would standardize reporting of derivatives holdings in financial statements; Adoption of Rule 30e-3, to allow funds to provide website disclosure of shareholder reports in lieu of mailing; and, Adoption of Form N-CEN, for reporting census-type information, and the rescission of Form N-SAR. This Dechert OnPoint summarizes these key components of the Proposal and highlights issues that may be raised by this new reporting regime." (Note also: Crane Data encourages interested parties to comment on the SEC proposal and to urge the SEC to revise it to make these new monthly portfolio holdings reporting public, and to reduce the lag time in disclosures, to make this information more useful to competing funds, securities issuers, fund servicers and investors (and of course to companies that analyze fund data for a living). We also believe that `the proposal requests far too much information, and that a simple listing of monthly portfolio holdings made public in a timely manner would be sufficient.)

Money market fund assets were down last week after 3 weeks of gains, according ICI's latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $7.70 billion to $2.61 trillion for the week ended Wednesday, June 10, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $3.30 billion and prime funds decreased by $2.21 billion. Tax-exempt money market funds decreased by $2.20 billion. Assets of retail money market funds decreased by $1.59 billion to $863.39 billion. Among retail funds, Treasury money market fund assets increased by $840 million to $191.39 billion, prime money market fund assets decreased by $1.14 billion to $492.88 billion, and tax-exempt fund assets decreased by $1.29 billion to $179.12 billion. Assets of institutional money market funds decreased by $6.11 billion to $1.75 trillion. Among institutional funds, Treasury money market fund assets decreased by $4.14 billion to $767.34 billion, prime money market fund assets decreased by $1.07 billion to $912.60 billion, and tax-exempt fund assets decreased by $910 million to $66.62 billion." Money fund assets increased by $26.8 in May, after 4 straight months of declines, according to our June Money Fund Intelligence. Year-to-date through June 10, money market fund assets are down $123 billion or 4.5% (according to ICI's weekly series). In 2014, year-to-date through June 11, money fund assets were down by a larger margin, $136 billion, or 5.0%, so declines have been slightly milder so far in 2015. We expect money fund assets to recoup their deficit in the second half of 2015, since the past 3 years straight asset gains in the second half have outweighed first half asset outflows. June 15 and 30, though, are normally seasonally weak, so we expect to see more outflows in the coming weeks first.

Wells Fargo Advantage Funds released its latest "Overview, Strategy, and Outlook" portfolio manager commentary, which discusses the Treasury's debt ceiling. It reads, "With the U.S. government having recently entered a debt-issuance suspension period, quietly financing its deficit operations using what are euphemistically called extraordinary measures, the debt ceiling is likely to remain a back-burner issue through the summer before heating up in the fall. Here we explore the issue in greater detail, providing lazy-summer beach reading while the issue simmers in the background.... For the 13-month period that ended March 15, 2015, the U.S. Treasury operated without a debt limit because Congress had suspended it until that date. With the debt limit reestablished, the Treasury went from having no debt limit at all (carte blanche) to being tapped out (the public debt essentially at the limit) in one fell swoop. Talk about feast to famine! Taking the first steps down a well-trodden path, Treasury Secretary Jack Lew notified Congress in a March 13 letter of his intention to declare a "debt-issuance suspension period," allowing the Treasury "to employ further extraordinary measures to continue to finance the government" and specifying the expected actions.... At some point later this summer or early this fall, the Treasury will have exhausted those [extraordinary] measures, and the debt ceiling will begin to bind. The issue will then collide with Treasury's new policy of maintaining a larger operating cash balance, which it announced on May 6, explaining: "Events that have occurred over the last 15 years, such as the terrorist attacks on September 11 and Superstorm Sandy, have caused disruptions to the broader financial system and Treasury's auction capabilities ... to help protect against a potential interruption in market access, Treasury will hold a level of cash generally sufficient to cover one week of outflows in the Treasury General Account, subject to a minimum balance of roughly $150 billion."" Wells adds, "The prospects for the upcoming debt ceiling engagement are unclear. In the recent past, we have had incredibly messy political battles that became global focal points for the financial world, where investors actually sold or avoided Treasuries to find something safer. We've also had occasions where the limit was raised with little fanfare or rancor. However it plays out, one position we've taken during previous disputes is unlikely to change. To borrow from our September 2013 Outlook: "We do believe an accord will be reached, and while the consequences would obviously be quite severe, we would assign an extremely low probability to a default or disruption in the market for Treasury securities." Until the day comes when Congress takes action, market pundits will content themselves with issuing forecasts of the exact date the Treasury is in danger of default, absent any congressional action."

Fitch Ratings released "U.S. MMF Quarterly: Post-Money Fund Reform Cash Management Landscape Takes Shape," which says, "The post-money fund reform cash management landscape in the U.S. is taking shape as fund managers unveil adaptation plans. The moves hint at a sizable shift into government funds, a wound-down institutional prime space and growth in alternative products, such as separately managed accounts, private money funds and short-term bond funds. Managers responsible for over $1.4 trillion, or 59% of U.S. money market fund assets, have provided guidance thus far. As managers announce plans in response to reform, an overriding theme appears to be more options for investors. Two managers announced plans to convert over $100 billion of prime retail funds into government funds to maintain a stable NAV and avoid fees and gates. [Note: Crane Data believe this is just one manager, Fidelity.] Asset managers also said they will introduce new "short-maturity" institutional prime money funds, which will only buy securities maturing in less than 60 days to reduce the likelihood of, albeit not eliminate, NAV volatility. BlackRock went further, committing to establish a 7-day-maturity institutional prime fund, which could potentially avoid triggering the new fees and gates provision. However, all managers also committed to maintaining the existing large institutional prime funds (which will have floating NAVs in 2016) and noted that they will opt out of the fees and gates feature, which is optional for government funds. While the industry largely expects assets to shift from prime to government funds due to reform, so far, flows have been muted. Institutional government fund assets have increased 8% since reform was enacted in July 2014, but institutional prime funds have also risen, by 2%. Seasonal factors affect money fund flows, so it is hard to tell if the data indicate reform-related flows toward government funds, which will likely intensify closer to the implementation date for floating NAVs and fees and gates in October 2016. Anecdotally, Fitch is aware that a small number of institutional money fund clients have switched from prime to government funds in response to reform. The increased demand for government funds may bump against shortages in supply and, consequently, wider spreads between government and prime funds." It adds, At the end of March, Fitch-rated prime MMFs had on average 26% and 39% of their portfolios in daily and weekly liquid assets, respectively. This is down from 24% and 41% at the end of December but remains well above Fitch's criteria guidelines for 'AAAmmf' funds. The weighted average maturity (WAM) and weighted average life (WAL) of Fitch-rated prime MMFs were at 40 days and 72 days, respectively, at the end of March 2015, compared with December figures of 36 and 65 days.... Allocations to the U.S. remained high (28.3% of prime fund assets) as prime money funds took advantage of the availability of the Fed's reverse repo facility. Exposure to Japanese banks (12.9%) increased 1.6% over the quarter, while exposure to French issuers (10.8% of assets) decreased 1.9%."

Last week, the Securities and Exchange Commission released its "Money Market Fund Statistics" report for April, which shows total MMF assets down in April and yields up slightly. The report, with data as of April 30, 2015, summarizes Form N-MFP data and which includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. The data is produced by the SEC's Division of Investment Management. Overall, total money market fund assets stood at $2.936 trillion at the end of April, down $73.7 billion from March 31, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $2.936 trillion, $1.704 trillion was in Prime funds (up $16.8B from March 31), $979.4B was in Government/Treasury funds (down $14.7B), and $252.2 billion was in Tax-Exempt funds down $14.7B). Taking a closer look at money market fund assets, total assets were down $145.0 billion year to date through April 30. Prime assets were down $68.2 billion year-to-date through April 30, while Government/Treasury MMF assets were down $58.7 billion year-to-date. Tax exempt assets were down $18.0 billion year-to-date. The number of money funds was 542, same as last month. Looking at other statistics, the Weighted Average Gross 7-Day Yield for Prime Funds on April 30 was 0.22% (up from 0.21% last month), 0.10% for Government/Treasury funds (unchanged), and 0.12% for Tax-Exempt funds (up from 0.06% and 0.07% on Jan 1). The Weighted Average Net Prime Yield was 0.06% -- same as last month. The Weighted Average Prime Expense Ratio was 0.16% (unchanged). The Weighted Average Life, or WAL, for Prime funds at month-end was 76.3 days (down from 77.5 last month), for Government/Treasury funds was 82.2 days (up from 81.9 days), and for Tax Exempt funds was 30.8 days (down from 32.1 days). The Weighted Average Maturity, or WAM, for Prime funds was 39.6 days (down from 41.6 days), for Govt/Treasury funds was 42.8 days (down from 44.2 days), and for Tax-Exempt funds was 29.1 days (down from 30.6 days). Total Daily Liquidity for Prime funds was 24.6% in April -- down from 25.1% last month. Total Weekly Liquidity was 39.8%, up from 38.8% last month. In the category Prime MMF Holdings of Bank Related Securities by Country, Canada topped the list with $205.0 billion, followed by the US at $197.0 billion. Japan was third with $172.9 billion, jumping ahead of France with $167.3 billion. The UK was fifth with $106.6 billion, followed by Sweden ($102.1B), Australia/New Zealand ($95.4B), Switzerland ($56.9B), The Netherlands ($55.9B), and Germany ($47.4B). The biggest gainers for the month were France (up $44.8B), UK (up $38.7B), and Norway ($18.8B). The biggest drops came from The Netherlands (down $7.4B), Japan (down $6.6B), and Canada ($5.3B). For Prime MMF Holdings of Bank-Related Securities by Region, Europe had $586.5 billion (up $118.5B from the previous month) while its subset, the Eurozone, had $286.5 (up $37.8B). The Americas was next with $404.8 billion (up $3.4B), while Asia and Pacific had $290.8 (down $11.2B). The Total Amortized Cost of Prime MMF Portfolios was $1.703 trillion as of April 30, 2015. That was made up of $564.3 billion in CDs, $350.5 billion in Government (including direct and repo), $439.6 billion in Non-Financial CP and Other Short term Securities, $258.4 billion in Financial Company CP, and $90.3 billion in ABCP. Also, the Proportion of Non-Government Securities in All Taxable Funds was 50.7% at month-end, up from 45.3% the previous month. All MMF Repo with Federal Reserve was $121.2 billion on April 30, down from $366.7 billion on March 31. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 42.2% were in maturities of 60 days and over, while 11.2% were in maturities of 180 days and over.

Irish law firm William Fry posted an "EU MMF Reform Update. Writes Niall Crowley, "As reported in the May issue of our Funds ezine, the European Parliament has voted in favour of amendments, proposed by its Committee on Economic and Monetary Affairs (ECON), to the Commission proposal for a Regulation on Money Market Funds (MMF Regulation). Following this vote, it was necessary for Latvia's European Union presidency to facilitate talks in the European Council so that the Council can agree a general approach on the MMF Regulation. However, no progress has been made to date by the Latvian presidency in this regard. The Chair of ECON has urged the Latvian presidency to do their utmost to ensure a general approach is reached as soon as possible. However, it appears unlikely that any significant progress will be made before Latvia hands over the presidency to Luxembourg in July of this year." Also, speaking Friday, New York Fed President and CEO William Dudley said, "I am very confident that the Federal Reserve has the tools in place to ensure that the FOMC can successfully raise the federal funds rate into a new, higher target range when the time comes to do so. This reflects several factors. Most importantly, we have demonstrated that the interest rate paid on banks' reserve balances (IOER) -- which is our primary tool to raise the federal funds rate target -- and daily overnight reverse repo (ON RRP) operations -- which is a supplementary tool to help put a floor under money market rates -- have been effective in keeping the federal funds rate well within the FOMC's desired target range. Moreover, in the unlikely event that the rates we initially selected for the IOER and ON RRP were insufficient to move the federal funds rate into the desired range, we could alter the level of these rates and/or the spread between these rates so as to move the federal funds rate into the desired range. Finally, we also have other tools, such as the Term Deposit Facility and term reverse repo that could be used if needed to help achieve the targeted range for the federal funds rate. While I don't expect that these tools will prove necessary, it is nice to have them available should we need to deal with unanticipated contingencies." He added, "I continue to expect that monetary policy normalization is likely to begin later this year."

Money market fund assets were up for the 4th week of the last 5, according to ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets increased by $3.14 billion to $2.62 trillion for the week ended Wednesday, June 3, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $4.07 billion and prime funds increased by $4.71 billion. Tax-exempt money market funds increased by $2.50 billion. Assets of retail money market funds increased by $590 million to $865.00 billion. Among retail funds, Treasury money market fund assets decreased by $900 million to $190.55 billion, prime money market fund assets increased by $100 million to $494.04 billion, and tax-exempt fund assets increased by $1.39 billion to $180.41 billion. Assets of institutional money market funds increased by $2.56 billion to $1.75 trillion. Among institutional funds, Treasury money market fund assets decreased by $3.17 billion to $771.48 billion, prime money market fund assets increased by $4.61 billion to $913.67 billion, and tax-exempt fund assets increased by $1.11 billion to $67.52 billion." It's the third straight week MMF assets have increased. However, year-to-date, assets are down $115 billion or 4.2%.

The Financial Times writes "Negative Rates Pose Corporate Conundrum." It says, "Life for companies in Europe has been turned upside down. Like individuals, corporate treasurers are accustomed to paying when they wish to borrow and being rewarded for building up cash piles. No longer. Companies, particularly large ones, are now able to borrow at historically low interest rates. But saving money has never yielded so little. Some banks have even imposed negative interest rates on deposits -- charging corporate clients for holding their cash. On Monday, HSBC became the latest to introduce a charge on cash held in a basket of European currencies. "Treasurers must now be questioning whether it makes sense to have substantial cash balances when you are not remunerated for it," says Myriam Durand, Emea managing director for corporate finance at Moody's, the credit rating agency. In Europe, in particular, low or negative interest rates bring a further worrying downside. Companies have been sitting on their cash for some years now, when investment is badly needed to drive lacklustre growth. However, even with rates at their current levels, companies' bosses -- and their investors -- find themselves in a Catch 22 situation: they hold high levels of cash on their balance sheets, on which they are earning almost no return, but remain puzzled about how to put it to better use. Among European companies, this conundrum is widespread -- unlike in the US, where large cash piles tend to be concentrated in a few companies and sectors. Cash piles at European non-financial companies stood at more than $1tn a year ago -- more than 40 per cent higher than in 2008. Analysts believe there has been little decrease since. "The desire to hold cash despite ever-lower returns reflects the high level of uncertainty that has been palpable since the financial crisis, particularly in Europe," Goldman Sachs points out." Also, the New York Fed updated its Reverse Repo Counterparties List, adding "Federal Home Loan Bank of Seattle merged into Federal Home Loan Bank of Des Moines, effective May 31."

Invesco released commentary on money market reform called, "Understanding New Rules for Liquidity Fees and Redemption Gates." It says, "On July 23, 2014, the Securities and Exchange Commission (SEC) voted to approve new amendments to Rule 2a-7 which governs money market funds. The SEC stated that the structural and operational reforms included in these rules will address risks of investor runs in money market funds, while preserving their benefits to investors. The reforms included the following new rules regarding redemption gates and liquidity fees for money market funds: 1. Redemption gates -- Current Rule 2a-7: Gives a fund's board of directors the power to suspend redemptions under extreme market conditions. However, once redemptions are suspended, the fund must be liquidated. Amended Rule 2a-7: If "weekly liquid assets" fall below 30%, a fund's board of directors may temporarily suspend redemptions for up to 10 business days in any 90-day period . 2. Liquidity fees -- Current Rule 2a-7: Does not provide for liquidity fees. Amended Rule 2a-7: If "weekly liquid assets" fall below 30%, a fund's board may impose up to a 2% fee on redemptions. If "weekly liquid assets" fall below 10%, redemptions will be subject to a 1% fee, unless that funds board determines it is not in the best interests of the fund and its shareholders. Broadly, the amendments to Rule 2a-7 give the fund's board discretion whether to impose fees and gates, depending on the circumstances and best interest of a fund and its shareholders. For more than 30-years, Invesco Global Liquidity has worked to gain and keep the trust of our investors through our deep industry knowledge and our investment expertise. Our primary goal through the money market fund reform process is to provide our investors with a full suite of liquidity management solutions to meet their investing needs with the least amount of disruption while remaining focused on our disciplined investment process. For Invesco Global Liquidity, safety is of paramount importance in the investment process for all of our money market funds. Our conservative investment philosophy has always focused on providing safety, liquidity and yield -- in that order -- to our money market fund investors. Also, Goldman Sachs President and CEO Gary Cohn presented Tuesday at the Deutsche Bank Global Financial Services Investor Conference. On interest rates, he said, "While the pace and magnitude of future interest rate changes will be heavily debated, we believe we are well positioned for any outcome.... If rates rise, we will help our investing clients navigate that transition. Certain products like our money market funds will become more relevant." A Reuters article, "Goldman Sachs' Cohn Says Volatility Has Helped Profits," reports Cohn as saying, "Goldman rebates on money market funds because of low rates would add $100 million to profit."

Federated Investors' Global Money Markets CIO Deborah Cunningham, released her latest "Month in Cash" column, entitled, "Economy Continues to Meander." She writes, "The U.S. economy has been taking steps forward and backward since the financial crisis, but May's data might be better described as "sideways". We had a slight rebound from the poor first quarter, but certainly not any affirmation that the second quarter is going to be overly strong.... September is now the most likely policy meeting in which the hike will come. If we have resurgence in economic strength in June, a July meeting could be possible now that the Fed has implemented a conference-call capability. Chair Janet Yellen says that will operate just like the press conference that would come following such a major announcement. That would certainly be a good test of that capability! Yellen, Fed Vice Chair Stanley Fischer and other Fed officials have been repeatedly telling the market to focus more on the movement of rates beyond liftoff. Initially everyone was thinking there would be three hikes before the end of this year, but now many think there will be two at most. The thought is that rates would rise only every other FOMC meeting and pause for a period of time around 1%. That's quite possible, but it is really dependent on the overall economic performance. On the positive side, although U.S. growth isn't rebounding as fast as we thought it could, other parts of the world are, including Europe. Speaking of Europe, cash managers will be keeping an eye on a new regulatory proposal by the European Parliament that would compel off-shore money market funds to float their net asset values (NAV). Sound familiar? It's quite similar to the reforms implemented by the SEC last summer. Like the SEC's rules, the European proposal has several exemptions: government funds that can invest in eurozone government securities; retail funds for consumers versus institutions; and "Low Volatility" funds, which invest in securities of up to 90-day maturities. The latter goes out farther down the curve than the SEC, which only allows up to 60 days. In any case, it is helpful that the regulatory landscape on both sides of the Atlantic is similar so as not to confuse investors. Back in the U.S., our weighted average maturity (WAM) for May didn't change much from April, with a range of 45-55 days for government funds (with most in the lower end of that span). Prime funds are still in the 40-50 day range, but have drifted from the high end to near 40. While this is a significant move, it is not enough of one to technically shift the range. But if you looked at it on a true number basis, it is closer to the bottom than the top."

U.S. News & World Report writes "Yes, Cash Has a Role in Your Portfolio". The piece says, "For investors, cash need not be a four-letter word. After all, without cash -- money in a liquid account you can withdraw immediately without penalty -- you can't seize fleeting market opportunities.... "Don't expect to make any money with it," [`Ahmad Adnan, a certified financial planner with Ameriprise Financial Services] adds. "Clients ask, 'What's the cash earning?' and the answer is 'nothing.'" He and other advisors agree that with interest rates so low, cash accounts are lucky to reap even a fraction of a percentage point. That doesn't make much of a difference when you are parking cash for a few months or a couple of years in anticipation of a major purchase, such as a house down payment. In fact, advisors agree, it's smarter to table the funds in a cash account than risk losing some of it in an equity investment. The rule of thumb, they agree, is that if you need a certain amount of money on a certain date, keep the money in a cash account. "Cash is for short-term circumstances," Adnan says. The flip side is that the longer the cash languishes in the sweep account, the greater the chance you will start to lose money thanks to inflation, advisors say."

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