Daily Links Archives: April, 2021

SIFMA's Asset Management Group also submitted comments to the SEC in response to its "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." SIFMA's letter, entitled, "Potential Reform Measures for Money Market Funds," says, "The Asset Management Group of the Securities Industry and Financial Markets Association ('SIFMA AMG') respectfully submits this comment letter to the U.S. Securities and Exchange Commission with respect to the Commission's request for comment on potential reform measures for money market funds.... We appreciate the opportunity to provide our views to the Commission on these matters that have the potential to impact not only the direct regulation of money market funds, but also the overall functioning of the short-term funding markets. Our comments focus on the following main points: The important role of money market funds and the effectiveness of previously enacted reforms to money market funds. Money market funds play an important role in the orderly functioning of the short-term funding markets and serve valuable financial and economic functions for a variety of investors (including both retail and institutional investors) and the capital markets more broadly. Policy measures that have the effect of eliminating or significantly decreasing the size of the prime, retail, and tax-exempt money market fund sectors will significantly impair the resilience and orderly functioning of the short-term funding markets." Their second main point involves, "The liquidity crisis in March 2020 and a narrowly tailored money market fund policy response. An unprecedented and rapidly developing market-wide liquidity crisis occurred in March 2020 fueled by the COVID-19 pandemic. Money market funds were not the root cause of the stresses in the short-term funding markets in March 2020, but, rather, like other participants in the short-term funding markets, were reacting to and managing through a market-wide liquidity crisis. Policy responses to the liquidity crisis in March 2020 should focus on and prioritize addressing root causes in the segments of the short-term funding markets that caused market stresses in March 2020. Any policy measures should be narrowly tailored, data driven, simple to understand and implement, and calibrated to address the liquidity pressures that manifested in a relatively small segment of the money market fund industry in a manner that preserves the viability of such products for investors." SIFMA's third point addresses, "Effectiveness of policy measures in the Report. As more fully discussed herein, SIFMA AMG views delinking liquidity thresholds and liquidity fees and redemption gates as the most effective way to achieve the stated goals of money market fund reform." It adds, "SIFMA AMG strongly agrees with the Report's exclusion of money market funds that operate as 'government money market funds' from future rulemaking.... SIFMA AMG strongly opposes bank-like requirements for money market funds, such as minimum balance at risk ('MBR') requirements, capital buffers, requiring liquidity exchange bank ('LEB') membership, or requiring sponsor support. Such policy measures do not advance the stated goals of money market fund reform and are not responsive to (and therefore not effective in addressing) the liquidity stresses that arose in March 2020. Such requirements would have the effect of eliminating or significantly decreasing the size of the prime and tax-exempt money market fund sectors, thereby impairing the resilience and orderly functioning of the short-term funding markets. SIFMA highlights the role of the Commission as the primary regulator of money market funds and urges the Commission to advance market-driven regulatory solutions rather than bank-driven measures." Finally, they write, "SIFMA AMG generally opposes a requirement for all prime and tax-exempt money market funds to float their net asset value because such policy measure does not address the types of money market funds that experienced the largest outflows in March 2020 and the implementation of a floating net asset value for prime institutional money market funds did not prove effective in slowing redemptions in March 2020. Many of our members generally do not view this policy measure as advancing the stated goals of money market fund reform, and find such policy measure not responsive to (and therefore not effective in addressing) the market-wide liquidity stresses that arose in March 2020."

PIMCO's Jerome Schneider and Ken Chambers write on "Rethinking Cash Holdings to Avoid Near‑Zero Yields." The piece explains, "Since the disruptions that roiled financial markets in March 2020, investors have turned more to cash and other short-term instruments typically associated with risk aversion and preservation of capital and liquidity. Yet such investments can come with their own sets of risks. Recent bouts of volatility in U.S. prime (credit) money market funds have heightened the focus on unexpected liquidity issues in seemingly 'safe' investments, as well as on the pitfalls of taking credit risk for minimal additional compensation. When considering cash allocations today, investors should be mindful of how near-zero short-term interest rates coupled with traditional liquidity-management strategies may hinder attempts to preserve the purchasing power of capital while posing potential hidden opportunity costs." They tell us, "Efforts to combat the economic effects of the pandemic have contributed to historically low short-term yields for money market instruments, elevated levels of savings and bank deposits, as well as increased demand for cash-like investments. The U.S. Federal Reserve last year cut its policy rate near 0% and could keep it there well into 2023, we believe, anchoring front-end rates and suppressing yields on Treasury bills and money market funds. A temporary relaxation of bank capital regulations ended in March ... which could make large lenders resist taking on new deposits and push more investors into money market funds. Continued growth in such funds -- where balances are already near record highs, at about $4.5 trillion -- as well as in excess reserves could keep cash investment yields close to 0% for a prolonged period." The update adds, "Much of the money investors have shifted into cash since last March has remained there, often due to worries about rising long-term bond yields or elevated valuations in equity markets. Yet having too much defensive cash in today's environment can impose a cost if it's concentrated largely in traditional money market funds offering near-zero returns. The recent Treasury yield-curve steepening has increased the penalty associated with holding cash, as the broader opportunity set outside regulated money markets offers higher starting yields for a modest increase in risk.... Strategies that offer some modest 'step out' from money market funds can capitalize on a wider array of opportunities, while offering a diversified means to potentially have higher risk-adjusted returns than traditional cash investments." (See also, PIMCO's SEC comment letter on "Revisiting Money Market Reform".)

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 23, 2021) includes Holdings information from 72 money funds (up 7 funds from a week ago), which represent $1.999 trillion (down from $2.022 trillion) of the $4.888 trillion (40.9%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.018 trillion (down from $1.129 trillion a week ago), or 50.9%, Repurchase Agreements (Repo) totaling $489.0 billion (up from $468.4 billion a week ago), or 24.5% and Government Agency securities totaling $235.8 billion (up from $234.7 billion), or 11.8%. Commercial Paper (CP) totaled $88.4 billion (up from $64.0 billion), or 4.4%. Certificates of Deposit (CDs) totaled $62.9 billion (up from $50.1 billion), or 3.1%. The Other category accounted for $78.6 billion or 3.9%, while VRDNs accounted for $26.1 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.018 trillion (50.9% of total holdings), Federal Home Loan Bank with $131.3B (6.6%), BNP Paribas with $54.9B (2.7%), Fixed Income Clearing Corp with $51.3B (2.6%), RBC with $49.0B (2.5%), Federal Farm Credit Bank with $46.2B (2.3%), Federal National Mortgage Association with $37.7B (1.9%), JP Morgan with $34.6B (1.7%), Credit Agricoel with $31.6B (1.6%) and Mitsubishi UFJ Financial Group Inc with $28.5B (1.4%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($216.3 billion), Wells Fargo Govt MM ($136.8B), Fidelity Inv MM: Govt Port ($133.0B), Federated Hermes Govt Obl ($126.3B), Morgan Stanley Inst Liq Govt ($116.6B), JP Morgan 100% US Treas MMkt ($109.3B), Dreyfus Govt Cash Mgmt ($98.1B), First American Govt Oblg ($93.6B), State Street Inst US Govt ($86.2B) and JPMorgan Prime MM ($79.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Today, we quote from the American Banker Association's comment letter to the SEC in response to the "President's Working Group Report." It tells us, "The American Bankers Association (ABA) appreciates the opportunity to comment on potential reforms for certain money market funds (MMFs) raised in the December 2020 report of the President's Working Group on Financial Markets. The Securities and Exchange Commission (SEC) is requesting comments on these potential reforms to improve stability of MMFs specifically and the short-term funding markets, generally. Banks and their affiliates interact with prime MMFs in numerous ways, including as investors on behalf of bank customers, as sponsors of MMFs, and issuers of certificates of deposit and commercial paper in which prime MMFs invest. In addition, as participants in the short-term funding markets, banks have a great interest in maintaining and improving general market stability. We understand that the SEC is working in conjunction with other federal financial regulators through the President's Working Group (PWG) and Financial Stability Oversight Council (FSOC) on MMF reforms, as well as with international standard-setting bodies, such as the Financial Stability Board (FSB) and the International Organization of Securities Commissions. We make these comments for the broader audience, while acknowledging the SEC's focus on their regulatory authority over MMFs. Money market mutual funds are important cash providers to global funding markets. We agree with the PWG that, 'the orderly functioning of short-term funding markets is essential to the performance of broader financial markets and our economy more generally.' As participants in these markets, ABA member banks appreciate the work the SEC is doing to make markets more resilient through times of stress. We note that throughout the COVID-19 pandemic, including during the market turmoil in March 2020, banks have been a reliable source of funding and liquidity for their customers, the markets, and the U.S. economy. Given this source of financial strength, additional regulation for the banking sector to address concerns regarding MMFs would be inappropriate and unnecessary. Similarly, the SEC's evaluation and reform efforts should not focus on government MMFs, which performed as needed and expected in late March 2020." The letter continues, "In designing potential reforms, ABA urges the SEC to opt for rules that would maintain prime and tax-exempt municipal MMFs. Although less popular after the 2016 reforms, these MMFs continue to play an important role for stability in our financial markets and as an investment opportunity for institutional and retail investors. These MMFs offer investors an alternative to government MMFs and bank deposits with potentially higher yields, while also offering a liquid option that is highly desired. These MMFs, similar to government MMFs, are transparent to investors, in particular providing key information on net asset flows and portfolio holdings. Lastly, prime and tax-exempt MMFs are large purchasers of commercial paper and municipal securities respectively, which are important sources of funding for many corporations and municipal governments. With respect to tax-exempt MMFs, further restrictions on these funds unnecessarily may limit municipal government sources of capital for infrastructure and other needs." Finally, ABA adds, "The reforms outlined in the PWG Report span from potential changes to the SEC's existing regulatory framework to novel measures that are either within the SEC's authority or that of other policy makers. Many of the novel reforms would likely impose significant costs on the administration of prime and tax-exempt municipal funds or make them so unattractive to investors that these funds may no longer be viable. Therefore, we urge the SEC to consider the following amendments to the existing rules before taking more far-reaching and costly measures that may eliminate the availability of these funds."

The Financial Times published the piece, "Jack Ma's Ant shrinks money market fund as Beijing cracks down." They explain, "Ant Group's money market fund has shrunk to a more than four-year low as users shifted their cash in the face of China's crackdown on Jack Ma's payments group. Funds invested in Ant's flagship Yu'e Bao fund fell 18 percent in the first three months of the year to Rmb972bn ($150bn) as the group pushed users to switch to other providers' funds, according to data released on Thursday by its Tianhong Asset Management subsidiary. The money-market fund, once the world's largest, acts as the main repository for leftover cash stored by hundreds of millions of users of Ant's Alipay payments app." The FT adds, "Ant was ordered to 'actively reduce' Yu'e Bao's size as part of a restructuring deal struck with Chinese authorities last week. Regulators have long been concerned about Yu'e Bao's immense size, fearing a spate of redemptions could cause systemic financial risks. Li Huang, an analyst at Fitch Ratings, said the fall marked the largest percentage decline in Yu'e Bao's history, adding: 'We expect [its] size to further decline in the coming quarters, but maybe at a slower pace.'"

The ICI's latest weekly "Money Market Fund Assets" report shows MMFs increasing in the latest week, following `two weeks of decreases in a row. Money fund assets are up $173 billion, or 4.0%, year-to-date in 2021. Inst MMFs are up $228 billion (8.2%), while Retail MMFs are down $55 billion (-3.6%). Over the past 52 weeks, money fund assets have decreased by $182 billion, or -4.8%, with Retail MMFs falling by $77 billion (-5.4%) and Inst MMFs falling by $104 billion (-4.4%). ICI's "Assets" release says, "Total money market fund assets increased by $15.74 billion to $4.47 trillion for the week ended Wednesday, April 21.... Among taxable money market funds, government funds increased by $18.27 billion and prime funds decreased by $1.97 billion. Tax-exempt money market funds decreased by $563 million." ICI's stats show Institutional MMFs increasing $23.5 billion and Retail MMFs decreasing $7.8 billion. Total Government MMF assets, including Treasury funds, were $3.871 trillion (86.6% of all money funds), while Total Prime MMFs were $501.7 billion (11.2%). Tax Exempt MMFs totaled $97.5 billion (2.2%). (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 our asset series.) It explains, "Assets of retail money market funds decreased by $7.79 billion to $1.47 trillion. Among retail funds, government money market fund assets decreased by $5.30 billion to $1.14 trillion, prime money market fund assets decreased by $1.86 billion to $246.14 billion, and tax-exempt fund assets decreased by $628 million to $86.44 billion." Retail assets account for just over a third of total assets, or 32.9%, and Government Retail assets make up 77.4% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $23.53 billion to $3.00 trillion. Among institutional funds, government money market fund assets increased by $23.58 billion to $2.73 trillion, prime money market fund assets decreased by $118 million to $255.57 billion, and tax-exempt fund assets increased by $65 million to $11.02 billion." Institutional assets accounted for 67.1% of all MMF assets, with Government Institutional assets making up 91.1% of all Institutional MMF totals.

We continue to read through and excerpt from the 46 comment letters to the SEC in response to their "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." Below, we quote from BlackRock's letter, written by Thomas Callahan and Kate Fulton. They tell us, "The disruption to the markets in March of 2020 as a result of COVID-19 highlighted weaknesses in money market funds and the surrounding short-term market ecosystem. We believe this affords regulators and market participants the opportunity to revisit and improve the resilience of MMFs and the short-term markets. As noted in our recent ViewPoint 'Lessons from COVID-19: U.S. Short-Term Money Markets,' we recommend that policymakers look holistically at short-term markets to identify areas for improvement rather than look at MMFs in isolation. We outline three areas for improvement in commercial paper market structure, banks' role as intermediaries, and MMFs." BlackRock explains, "First, in the current commercial paper ('CP') market structure, market participants must frequently ask the bank from whom they purchased the CP to bid that paper back in the secondary market when they want to sell it. Typically, banks are unwilling to bid CP from issuers where they are not a named dealer on the issuer's program. This 'single source of liquidity' model failed during the COVID-19 Crisis and will fail again in the next liquidity crisis if fundamental changes to the CP market structure are not implemented, especially in light of current bank regulations. We recommend that the SEC convene a group of banks, issuers, MMFs and other market participants to study potential CP market reforms. Ideas we recommend for consideration include: (i) standardization in the CP market and (ii) an all-to-all platform in primary and secondary trading to deepen the pool of liquidity providers.... We recommend policymakers provide guidance on what provisions of the banking regulations might be relaxed in a future market liquidity crisis to provide additional liquidity to the market.... In order to incentivize banks to bid CP in times of market stress, we recommend the highest rated CP be treated as a high-quality liquid asset ('HQLA') for purposes of a bank's liquidity coverage ratio ('LCR')." The comment also states, "[W]e recommend a detailed review of MMFs to identify possible improvements to these products. We note that government MMFs performed well and we do not recommend any further reforms of these funds. Given the recent experience with the potential for triggering the implementation of liquidity fees and redemption gates creating uncertainty among investors in non-government MMFs, we recommend decoupling the potential imposition of liquidity fees and redemption gates from the 30% weekly liquid asset ('WLA') threshold. In addition, ... we recommend that the SEC provide clear guidance on whether a non-government MMF can waiver or modify the 30% WLA requirement during periods of market stress and provide parameters for such waiver or modification. Additionally, to further enhance the resiliency of Prime MMFs, we recommend adjusting the portfolio requirements of these MMFs, prohibiting the purchase of CP that does not have 'strong capacity for repayment' and eliminating the 5% illiquid bucket. Separately, mutual fund boards should have the ability to implement liquidity fees and redemption gates at any time that they deem it to be in the best interests of a MMF. Finally, we note that improvements made in bank regulation and CP market structure would be beneficial to all purchasers of CP generally, including MMFs." Callahan and Fulton add, "With the context of our overall views on how short-term markets can be strengthened laid out above, we categorize the President's Working Group's proposed reforms to MMFs into three categories: those that BlackRock supports, those that might be beneficial for investors and MMFs but require additional analysis, and those that would make Prime and Municipal MMFs unattractive to investors, and expensive or operationally difficult to implement. We note that the third category is likely to lead to the end of these non-government MMFs and recommend considering an outright ban on these products rather than pursuing complex implementation plans if these reforms are considered." (See the full letter for more details.)

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 16, 2021) includes Holdings information from 65 money funds (up 16 funds from two weeks ago), which represent $2.022 trillion (up from $1.605 trillion) of the $4.888 trillion (41.4%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.129 trillion (up from $837.6 billion two weeks ago), or 55.8%, Repurchase Agreements (Repo) totaling $468.4 billion (up from $391.9 billion two weeks ago), or 23.2% and Government Agency securities totaling $234.7 billion (up from $196.8 billion), or 11.6%. Commercial Paper (CP) totaled $64.0 billion (up from $63.3 billion), or 3.2%. Certificates of Deposit (CDs) totaled $50.1 billion (up from $48.6 billion), or 2.5%. The Other category accounted for $56.9 billion or 2.9%, while VRDNs accounted for $19.1 billion, or 0.9%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.129 trillion (55.8% of total holdings), Federal Home Loan Bank with $122.1B (6.0%), BNP Paribas with $55.9B (2.8%), RBC with $51.3B (2.5%), Federal Farm Credit Bank with $44.1B (2.2%), Fixed Income Clearing Corp with $41.5B (2.0%), Federal National Mortgage Association with $41.1B (2.0%), JP Morgan with $34.9B (1.7%), Mitsubishi UFJ Financial Group Inc with $28.1B (1.4%) and Federal Home Loan Mortgage Corp with $25.2B (1.2%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($210.8 billion), Goldman Sachs FS Govt ($181.8B), Wells Fargo Govt MM($134.7B), Fidelity Inv MM: Govt Port ($130.8B), Morgan Stanley Inst Liq Govt ($116.7B), JP Morgan 100% US Treas MMkt ($113.4B), Dreyfus Govt Cash Mgmt ($100.3B), Goldman Sachs FS Treas Instruments ($98.3B), First American Govt Oblg ($96.2B) and State Street Inst US Govt ($87.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Citi Securities Services writes on "Money Market Fund Reform, The Other Shoe Drops." Author Sean Tuffy tells us, "Following the Securities and Exchange Commission's (SEC) review of its money market fund regulations last month, the European Securities and Markets Authority (ESMA) released its own consultation on potential reforms to the EU's money market fund regulation. After the volatility last March and April, many regulators around the globe are looking to address the liquidity issues that were experienced. ESMA acknowledges that actions taken by the US Federal Reserve to help backstop the US money market fund industry also helped to quell issues with European domiciled funds. Even though European governments did not have to take direct action, ESMA thinks it's prudent to review the regulations." He continues, "In an encouraging sign of internationalism, many of the ESMA's proposals mirror what the SEC is reviewing; including the idea to decouple regulatory thresholds from suspensions or gates to limit liquidity stress. ESMA has also suggested to extend swing pricing, a mechanism that allows managers to adjust the price of a fund to mitigate the impact of large shareholder activity on other investors, to money market funds. While additional liquidity tools will likely be welcomed by the industry, given how some money market funds operate it may not be as useful of a solution. As expected, ESMA may look to loosen the rules that prohibit fund sponsors from providing support to money market funds. The concern is that this prohibition may be overly restrictive and that sponsor support may be a better outcome for investors." Citi's Tuffy adds, "Similar to the US, the core issue is whether constant NAV funds are still appropriate or should all money market funds prices be floating, similar to other open-ended mutual funds. This subject has come up in previous money market fund reform discussions in the past, but regulators have never pulled the trigger. However, in light of the fact that money market funds have run into difficulty twice in nearly a decade, there may be a greater willingness by regulators to call for structural reform. If this happens, it may have major implications across the market that could reshape short-term debt and upend some firms' business models." (See our March 30 News, "ESMA Posts Consultation Report on Potential Reform of European MMFs.")

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. (For more, see our April 13 News, "April MF Portfolio Holdings: T-Bills, Repo Skyrocket; Agencies, TDs Dip.") Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in March, prime money market funds held 30.8 percent of their portfolios in daily liquid assets and 45.9 percent in weekly liquid assets, while government money market funds held 77.1 percent of their portfolios in daily liquid assets and 87.2 percent in weekly liquid assets." Prime DLA was up from 30.3% in February, and Prime WLA decreased from 46.9%. Govt MMFs' DLA increased from 75.5% in February and Govt WLA increased from 86.1% from the previous month. ICI explains, "At the end of March, prime funds had a weighted average maturity (WAM) of 45 days and a weighted average life (WAL) of 62 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 44 days and a WAL of 93 days." Prime WAMs were down two days from the previous month, WALs were also down two days from the previous month. Govt WAMs were down three days while WALs were down five days from February. Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $198.97 billion in February to $193.85 billion in March. Government money market funds' holdings attributable to the Americas rose from $3,256.90 billion in February to $3,490.51 billion in March." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $193.8 billion, or 38.1%; Asia and Pacific at $93.5 billion, or 18.4%; Europe at $213.6 billion, or 42.0%; and, Other (including Supranational) at $7.5 billion, or 1.5%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.491 trillion, or 88.5%; Asia and Pacific at $133.4 billion, or 3.4%; Europe at $303.1 billion, 7.7%, and Other (Including Supranational) at $18.9 billion, or 0.5%."

The ICI's latest weekly "Money Market Fund Assets" report shows MMFs plunging in the latest week, marking their `2nd decrease in a row. Money fund assets are still up $157 billion, or 3.7%, year-to-date in 2021 though. Inst MMFs are up $205 billion (7.4%), while Retail MMFs are down $48 billion (-3.1%). Over the past 52 weeks, money fund assets have decreased by $68 billion, or -1.5%, with Retail MMFs falling by $65 billion (-4.2%) and Inst MMFs falling by $3 billion (-0.1%). ICI's "Assets" release says, "Total money market fund assets decreased by $30.04 billion to $4.45 trillion for the week ended Wednesday, April 14.... Among taxable money market funds, government funds decreased by $20.15 billion and prime funds decreased by $8.48 billion. Tax-exempt money market funds decreased by $1.42 billion." ICI's stats show Institutional MMFs decreasing $20.9 billion and Retail MMFs decreasing $9.2 billion. Total Government MMF assets, including Treasury funds, were $3.853 trillion (86.5% of all money funds), while Total Prime MMFs were $503.7 billion (11.3%). Tax Exempt MMFs totaled $98.0 billion (2.2%). (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 our asset series.) It explains, "Assets of retail money market funds decreased by $9.19 billion to $1.48 trillion. Among retail funds, government money market fund assets decreased by $6.02 billion to $1.14 trillion, prime money market fund assets decreased by $2.17 billion to $248.00 billion, and tax-exempt fund assets decreased by $1.00 billion to $87.07 billion." Retail assets account for just over a third of total assets, or 33.2%, and Government Retail assets make up 77.3% of all Retail MMFs. ICI adds, "Assets of institutional money market funds decreased by $20.86 billion to $2.98 trillion. Among institutional funds, government money market fund assets decreased by $14.14 billion to $2.71 trillion, prime money market fund assets decreased by $6.31 billion to $255.69 billion, and tax-exempt fund assets decreased by $416 million to $10.95 billion." Institutional assets accounted for 66.8% of all MMF assets, with Government Institutional assets making up 91.0% of all Institutional MMF totals.

Today, we quote from Fidelity's response letter to the SEC's "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." Cynthia Lo Bessette writes, "Fidelity Investments appreciates the opportunity to provide comments to the Securities and Exchange Commission on potential reform measures for money market funds, as noted in the report entitled Overview of Recent Events and Potential Reform Options for Money Market Funds issued by the President's Working Group on Financial Markets in December 2020. Fidelity was encouraged by the PWG's efforts to analyze the events of March 2020 as a means of informing potential modifications to the regulation and structure of money market funds. A thorough understanding of these events is an essential element in designing regulatory measures if those measures are to achieve the Report's three stated goals of addressing structural vulnerabilities that contributed to stress in the short-term funding markets, improving the resilience of short-term funding markets and reducing the likelihood of government intervention in the future. In addition, a thorough understanding of the events of March 2020 also requires an analysis of the similarities and differences between those events and the events of the financial crisis in 2008 as well as an understanding of how the SEC's prior amendments to Rule 2a-7 impacted money market funds and their investors in 2020. Adopting reform measures without a full appreciation of these matters would be ill-conceived and could significantly harm the short-term funding markets, which in turn, would negatively impact the financial system more broadly." The letter explains, "Fidelity has long served as a leading provider of money market funds and has extensive experience managing funds in both normal and stressed market conditions. Fidelity first began managing and offering money market funds in 1974.... Fidelity remains the largest provider of money market funds with approximately $897 billion in assets under management as of April 1, 2021, representing approximately 18 percent of the U.S. money market fund industry. Fidelity liquidated its two publicly offered institutional prime funds in August 2020 in response to our experience with rapid, significant investor redemptions from these funds during periods of market stress, as well as evolving institutional investor preferences (as evidenced by the decline in institutional prime fund assets since 2016). We believe we can better meet institutional investor needs with other products and we continue to offer a broad array of money market funds across all other categories." Fidelity tells us, "Based on our history of managing and distributing a broad array of money market funds held by millions of fund investors, we believe we are uniquely qualified to provide insights into the events of March 2020 and to offer views on the various reform measures described in the PWG Report. While we view the PWG Report as a productive first step in considering potential reform measures, we encourage the SEC to now narrow the range of options under consideration by eliminating those options that have no nexus to the events of 2020 and therefore would not achieve any of the goals for reform stated in the PWG Report. The details of any measures that the SEC wishes to pursue further remain to be considered and, as such, we anticipate having more viewpoints to offer once more of these details are made public." The "Executive Summary" explains, "In the remainder of our letter, Fidelity discusses the following matters in detail, which we believe the SEC should consider in undertaking any further reform of the money market fund industry. They tell the SEC: "Any Reforms Must Preserve and Protect the Availability of Money Market Funds. Money market funds provide significant benefits to investors, the short-term funding markets and the broader economy. The ongoing dialog regarding potential reform measures must account for these benefits as well as the significant changes to the industry and to the regulation of money market funds by the SEC through its prior 2010 and 2014 reforms. Furthermore, government funds, which now represent a significant majority of the industry, should be excluded entirely from further rounds of reform in light of their proven track record as a stable, attractive investment in calm financial markets and as a safe haven in times of market uncertainty.... Any Reforms Must Be Narrowly Tailored to Address Liquidity Pressures in Institutional Prime Funds." Fidelity summarizes, "Measures that Could Successfully Address March 2020 Events: Through this lens, Fidelity believes the following reform measures, if properly calibrated, could address the issues faced in March 2020 and warrant further consideration by the SEC: Removal of Weekly Liquid Asset Thresholds for the Imposition of Fees and Gates.... Higher Percentages of Weekly Liquid Assets.... [and] Countercyclical Weekly Liquid Asset Requirements." They also list, "Measures that are Unworkable and/or have No Applicability to Events of March 2020: Fidelity strongly opposes the following reform options either because the measures are unworkable or would not have been effective in preventing the stresses that occurred in March 2020 (or both): Reform of Conditions for Imposing Redemption Gates and Floating NAVs.... Liquidity Exchange Bank Membership.... Capital Buffers and Requirements Governing Sponsor Support.... Minimum Balance at Risk.... [and] Swing Pricing."

J.P. Morgan Asset Management is just one of the many money fund managers sending in comment letters ahead of the SEC's April 12 deadline for its "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." In their letter on, "Potential Money Market Fund Reform Measures in President's Working Group Report (File No. S7-01-21)" CEO John Donohue writes, "J.P. Morgan Asset Management is pleased to respond to the Securities and Exchange Commission's request for comment on potential money market fund reform measures set forth in the December 2020 Report of the President's Working Group on Financial Markets. JPMAM is one of the largest managers of MMFs, with over $710B in assets under management globally. In the US, we manage over $460B in MMFs, across government and treasury MMFs (~$360B), institutional prime MMFs (~$77B), retail prime MMFs (~$11B), and tax-exempt MMFs (~$12B). Like many other MMFs, JPMAM's institutional prime and, to a lesser extent, tax-exempt funds saw meaningful redemptions in March 2020 as a result of the financial market's reactions to the coronavirus pandemic and government efforts to combat it. We are therefore supportive of the SEC's efforts to consider potential policy measures to improve the resilience of MMFs and short-term funding markets in the United States. We have considered each of the options set forth in the PWG Report, as well as additional ideas. To aid in our evaluation of policy options, we also conducted an informal survey of our largest clients to understand their considerations for managing their MMF holdings during the March volatility." The letter continues, "We believe that a number of incremental changes to Rule 2a-7 under the Investment Company Act of 1940, building on the SEC's prior reforms to MMFs in 2010 and 2014, can substantially enhance the resilience of MMFs while preserving the important role they play as intermediators of short-term borrowers and lenders. Conversely, we are concerned that some of the more far-reaching options under consideration could make prime and tax-exempt MMFs undesirable to investors and/or not cost-effective for sponsors to offer, which could have knock-on impacts to the financial markets globally. Below we provide a perspective on the importance of MMFs to the US markets; review the impacts of previous MMF reforms; describe JPMAM's experiences during March 2020; summarize feedback received from our clients; and offer observations on other areas of the short-term markets that bear examination. We then suggest incremental changes to Rule 2a-7 to enhance the resilience of prime and tax-exempt MMFs. Our recommendations include: Remove the tie between a MMF's weekly liquid assets (WLA) and the obligation for a board to consider imposing a fee or gate; Impose corrective requirements when MMFs fall below 30 percent WLA, to incentivize MMFs to maintain at least 30 percent WLA in the ordinary course while making it easier for them to utilize the WLA buffer when market conditions dictate; and Require MMFs to develop detailed policies and procedures that identify the circumstances under which a board should implement redemption fees (i.e., a 'playbook'). Finally, we review the other options set forth in the PWG Report and explain why we do not support them." JPMAM adds, "As an investment option, prime MMFs serve as an alternative to bank deposits for cash investors who value the same-day liquidity, diversification, and returns these funds offer. Banks frequently position MMFs with deposit customers as a means to help manage their balance sheets more effectively. Providing an alternative to deposits is likely to be even more important following the expiration, on March 31, 2021, of temporary changes to the Federal Reserve's supplementary leverage ratio rule (SLR) made during the crisis. The temporary relief had made it easier for banks to absorb substantial deposit growth driven by unprecedented monetary and fiscal expansion. With its expiration, banks may need to turn away customer deposits, or retain earnings or issue securities to raise additional capital. Prime MMFs will play an important role in absorbing and redirecting these assets. If these assets migrated solely to Government MMFs, the modestly negative interest rates seen today in the markets for repurchase agreements and treasuries would become more pervasive, which would necessitate further Fed action to keep short-term markets liquid and rates in the desired band (and not negative)."

Federal Reserve Chair Jerome Powell mentioned money market funds during his appearance on the TV show "60 Minutes" Sunday. He comments, "Most parts of the financial system made it through quite a stress test last year, when we lost 25 percent of GDP and 30 million jobs in the space of a couple of months. Now, some parts of the financial system had to be bailed out again, places like money market funds and things like that, where we had to step in again and provide liquidity.... There's a structural issue and we know this, and it really is time to address it decisively. And that just is sometimes there arises a situation where people want to take their money out, and it's difficult for money market funds to turn their assets into cash quickly enough. So, what's had to happen twice is the Fed came in and became a source of liquidity for money market funds." Powell added, "After the Global Financial Crisis when it happened the first time we did some reforms, those reforms worked a little bit, but they didn't really do the job because once again this time we had to step in to provide liquidity on behalf of the Government to bail out these private businesses. And when something has happened twice it really is time to fix it. Every private business ought to have the ability to deal with the range of plausible things that might happen to it and that's true of money market funds as it is for other businesses." Lastly, he added, "There are many ideas that are out there and they're all under discussion, by the way internationally as well. What it boils down to, is that money market funds are going to need to be resilient enough so that if they have a liquidity shock like this they can handle it."

Federal Reserve Bank of New York Executive Vice President Lorie Logan spoke Thursday at the Annual Primary Dealer Meeting on "Desk Operations: The New Normal." In a section on "Money Markets: The New Normal," she explained, "Many of the extraordinary measures taken to address dysfunction in dollar funding markets associated with the pandemic have also gradually wound down. The Desk's remaining term repo operations were phased out in February, the frequency of some central bank swap line operations was reduced last summer, and the lending authority of the 13(3) funding facilities related to money markets has expired. Nonetheless, the FOMC's ongoing asset purchases continue to lift bank reserves to new highs, and an environment of elevated reserves is likely to be the new normal for an extended period. Fortunately, the Federal Reserve's ample reserves framework is well-suited for managing short-term interest rates in environments associated with a wide range of reserve levels.... Most recently, the growth in reserves has contributed to a decline in overnight rates relative to interest on excess reserves (IOER). The effective federal funds rate and other overnight unsecured rates have softened modestly, while we have observed more pronounced downward pressure on overnight repo rates. The large size of secured market investors, such as government money market funds (MMFs) and government sponsored enterprises, combined with recent reductions in the investments available for these investors, such as Treasury bills, have put particular downward pressure on repo and bill rates." Logan continued, "In this environment, the overnight reverse repo (ON RRP) facility is likely to become an increasingly important element of our operating framework. The ON RRP facility helps place a floor on overnight rates by offering a broad range of money market investors an alternative risk-free investment option. The availability of this facility is especially important because nonbanks represent a substantial proportion of the U.S. financial system and money markets, but do not have access to interest-bearing reserves at the Federal Reserve. Additionally, the facility can alleviate downward pressure on money market rates associated with reserve growth by broadening the liabilities that support balance sheet expansion. The ON RRP has historically been an effective floor for the federal funds rate and has also supported other short-term interest rates, and we expect it will continue to do so in the future." She told the virtual event, "As a measure of prudent planning, the Desk recently conducted a review of key design features of the ON RRP to ensure that the facility supports effective policy implementation. Notably, assets under management at government MMFs -- a major group of money market investors -- have increased significantly and become more concentrated at the largest funds since the facility's $30 billion per-counterparty limit was set in 2014. In light of these changes, the FOMC recently increased the per-counterparty limit on ON RRP usage to $80 billion which restores the capacity of the facility relative to the assets under management at our MMF counterparties to roughly the level that existed when the $30 billion limit was established. Staff also reviewed access to the facility and concluded that the existing counterparty types are still representative of the universe of repo market investors. However, the review also presented an opportunity to consider potential adjustments in line with the New York Fed's broader efforts to ensure that our counterparty policies promote a fair and competitive marketplace.... Expanding counterparty eligibility can reduce barriers to entry and foster inclusivity by potentially making our operations accessible to smaller firms. A more vibrant and diverse marketplace could, in turn, strengthen the effectiveness of monetary policy implementation tools. In this regard, we expect in coming months to reduce the size and activity thresholds for ON RRP counterparty eligibility, which will help achieve these goals." Logan added, "This is part of the Federal Reserve's ongoing commitment to support diversity, inclusion, and opportunity, following the expanded counterparty access for certain 13(3) facilities and agency CMBS operations. Relaxing eligibility criteria helps bring a diverse set of firms by size, business model, and ownership into our counterparty base, and we look forward to leveraging these new business relationships to also broaden our market intelligence efforts. As a final note on money markets, in addition to ensuring that the ON RRP's terms continue to support effective policy implementation, the Federal Reserve may consider adjusting administered rates if undue downward pressure on overnight rates emerges, as noted in the minutes of the March FOMC meeting released yesterday. The Federal Reserve has adjusted administered rates within the target range on numerous occasions in recent years as conditions in overnight markets have changed. Such adjustments are purely technical steps to support effective policy implementation and to maintain the federal funds rate well within the target range."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report Thursday, which shows MMFs decreasing in the latest week, following last week's surge. The week following quarter-end and including the long Holiday weekend marks just the 2nd decrease in the last 9 weeks. Money fund assets are up $187 billion, or 4.4%, year-to-date in 2021. Inst MMFs are up $226 billion (8.1%), while Retail MMFs are down $38 billion (-2.5%). Over the past 52 weeks, money fund assets have increased by $11 billion, or 0.3%, with Retail MMFs falling by $51 billion (-3.5%) and Inst MMFs rising by $62 billion (2.6%). We review the latest asset totals below. ICI's "Assets" release says, "Total money market fund assets decreased by $12.64 billion to $4.48 trillion for the week ended Wednesday, April 7.... Among taxable money market funds, government funds decreased by $13.81 billion and prime funds increased by $1.04 billion. Tax-exempt money market funds increased by $126 million." ICI's stats show Institutional MMFs decreasing $7.6 billion and Retail MMFs decreasing $5.1 billion. Total Government MMF assets, including Treasury funds, were $3.873 trillion (86.4% of all money funds), while Total Prime MMFs were $512.2 billion (11.4%). Tax Exempt MMFs totaled $99.4 billion (2.2%). (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 our asset series.) It explains, "Assets of retail money market funds decreased by $5.09 billion to $1.49 trillion. Among retail funds, government money market fund assets decreased by $3.10 billion to $1.15 trillion, prime money market fund assets decreased by $1.80 billion to $250.17 billion, and tax-exempt fund assets decreased by $194 million to $88.07 billion." Retail assets account for just over a third of total assets, or 33.2%, and Government Retail assets make up 77.3% of all Retail MMFs. ICI adds, "Assets of institutional money market funds decreased by $7.56 billion to $3.00 trillion. Among institutional funds, government money market fund assets decreased by $10.71 billion to $2.72 trillion, prime money market fund assets increased by $2.84 billion to $261.99 billion, and tax-exempt fund assets increased by $319 million to $11.37 billion." Institutional assets accounted for 66.8% of all MMF assets, with Government Institutional assets making up 90.9% of all Institutional MMF totals.

A press release entitled, "Vanguard Launches Ultra-Short Bond ETF," tells us, "Vanguard today introduced its first actively managed bond ETF, managed by its in-house fixed income team. Vanguard Ultra-Short Bond ETF (VUSB) offers a low-cost, diversified option for investors seeking income and limited price volatility. The ETF, which is listed on the Chicago Board Options Exchange (Cboe), has an expense ratio of 0.10%, compared with the average expense ratio for ultra-short-term bond ETFs of 0.22%." Kaitlyn Caughlin, Head of Vanguard Portfolio Review Department, comments, "Vanguard Ultra-Short Bond ETF offers the features of an ETF structure for investors seeking an option for anticipated cash needs in the range of 6 to 18 months.... An ultra-short strategy bridges the gap between money market funds offering a stable share price and short-term bond funds, which are meant for longer investment time horizons." The release continues, "Vanguard Ultra-Short Bond ETF offers a similar strategy to that of the $17.5 billion actively managed Vanguard Ultra-Short-Term Bond Fund, which debuted in 2015. Both the fund and the new ETF invest in diversified portfolios consisting of high-quality and, to a lesser extent, medium-quality fixed income securities, including investment-grade credit and government bonds. The ETF provides investors and advisors the flexibility to trade at intraday market prices and invest by buying one share. Vanguard adds, "Like the existing Ultra-Short-Term Bond Fund, the new ETF is co-managed by Samuel C. Martinez, CFA, Arvind Narayanan, CFA, and Daniel Shaykevich."

Please join us for Crane Data's next webinar, "ESG & Social Money Fund Update," which will take place April 22 (Thursday) at 2:00pm Eastern. (Register here for this free event.) For this webinar, Crane Data's Peter Crane and Morgan Stanley Investment Management's Scott Wachs will review recent developments in the ESG and Social money market fund space. We'll cover the history, growth and various types of entrants in the space, including ESG Prime MMFs, Social or Impact Govt MMFs and private labelled share classes, and Wachs will review Morgan Stanley's move into this growing market. The session will last 45 minutes and include a brief update on other major money fund issues. Crane will also give a brief overview of the CraneData.com website and preview a new version of Crane Data's Money Fund Wisdom database query system and product suite. Crane Data recently hosted its Bond Fund Symposium event (online), and pushed back the dates for our next live event, Money Fund Symposium, to Sept. 21-23, 2021 (in Philadelphia). So we've scheduled some webinars over the next several months to keep conference-goers busy. Mark your calendars for another webinar on "Handicapping Money Fund Reforms," which we'll be hosting May 20 (Thurs.) at 2:00pm EDT, and our "Asian Money Fund Symposium," which is scheduled for June 17 (Thurs.) at 10:00am EDT. (Note: Attendees and Crane Data subscribers can access the Powerpoints, recordings and conference materials at the bottom of our "Content" page and see the recent BFS materials via our Bond Fund Symposium 2021 Download Center.)

Bankrate writes about the "Best cash management accounts in April 2021." The piece tells us, "Cash management accounts can often be overlooked as a way to deliver value. If you're on the hunt for a great robo-advisor or online broker, don't forget the extra tangible benefits a good cash management account can provide. As fees decline, brokers and robo-advisors are competing increasingly on feature-rich services to differentiate themselves -- and that means value for you! Many top cash management accounts (CMAs) offer a ton of features and benefits. Some of the most popular or desirable features include: A competitive annual percentage yield (APY); Fee-free ATMs; A checking account; Debit card; No monthly fee; No overdraft fees; Early paycheck direct deposit; 'Round-up' investing; [and] A portfolio line of credit." BankRate explains, "The distinction between a brokerage account and a traditional bank account continues to collapse. Increasingly there are more and more financial institutions that do it all. So in many cases you could actually use the cash management account as a primary bank account even if you don't take advantage of the related investing features at all. And that's a reason to check out brokers and robo-advisors to see how they compete against a traditional bank and whether it might make sense to move at least some of your business there." Bankrate lists the best cash management accounts for the upcoming month as: Wealthfront, Interactive Brokers and Fidelity. The article concludes, "While you might be looking for a traditional bank account or even a popular fintech app, don't overlook the benefits of using a broker or robo-advisor for your cash management account. You often won't have to use the investing features, but they'll be there as your financial life grows."

A new comment letter has been posted to the SEC's "Comments on Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report" page. This one, "The Case For Prime Money Market Mutual Fund Liquidity Insurance," was written by Jonathan Hartley (not the FHLB's Jonathan Hartley), a master's student at Harvard's Kennedy School and Visiting Fellow at the Foundation For Research on Equal Opportunity. He writes, "A year after the COVID-19 market meltdown, the first major debate on financial regulation under the Biden administration is shaping up to be about prime-money-market mutual funds. While banks held up well during the pandemic (demonstrating the success of Dodd-Frank capital rules), prime-money-market mutual funds (which invest in short-term government bills and commercial paper) experienced massive redemptions in March 2020. The withdrawals mirrored those during the 2008 financial crisis, despite U.S. money-fund reforms that went into effect in 2016. As with the bank runs of the Great Depression, money-market funds tend to see major redemptions when their net asset values (NAV) 'break the buck' (falling below $1) and investors race to pull their money to avoid taking a hit. In fact, there is a growing consensus that not only did the previous money-market-fund reforms implemented in 2016 fail to prevent runs but they may have made the money-market runs worse by requiring fund companies to impose gates and fees on investors when a money fund's assets decline by 30 percent. The reforms also attempted to get investors more comfortable with small losses by creating a 'floating NAV' (extending NAV quotes to four decimal places instead of two to allow investors to see small fluctuations in returns), but that seems to have had no effect on preventing runs. Now, prime-money funds (which act very much like bank-deposit accounts for institutional cash) face the possibility of being banned altogether." The letter adds, "Of the reforms under consideration, money-fund liquidity insurance is the simplest path, with operational and regulatory ease of allowing prime money funds to function largely the same way they do today but simply requiring them to pay small insurance premiums into an insurance fund. Some may argue that the insurance premiums would make prime money funds less viable. It would be essential to find the happy medium that's sufficiently small not to be disruptive while still paying for potential liquidity insurance needs during times of financial stress. Others might also argue that FDIC-like insurance might create moral hazard, that is, To what degree are you incentivizing money-market funds to invest in riskier securities by insuring losses? I would argue that if there are any moral-hazard risks, they already exist in the sense that the Fed money-market fund-liquidity programs of 2008 and 2020 are already providing de facto insurance. Despite the growth of administrative bloat in Washington over the past hundred years, the FDIC has been one of the most effective regulatory agencies, preventing bank runs that were all too common before the Banking Act of 1933. Likewise, a money-fund insurance program could foster more financial stability by preventing money-fund runs (which seem to have become a decadal event) while preserving an effective vehicle to provide short-term lending that supports economic growth." (This comment also appeared as "Treat Money-Market Funds Like Banks" in the National Review recently.)

A Prospectus Supplement filing for Transamerica Government Money Market tells us, "Effective at the close of business on March 31, 2021, Transamerica Government Money Market will be closed to most new investors. The following investors may continue to purchase Fund shares after the close date: existing Fund investors, asset allocation funds and other investment products in which the Fund is currently an underlying investment option, retirement plans in which the Fund is a plan option, and any plan that is or becomes a part of a multiple plan exchange recordkeeping platform that includes the Fund as a plan option. The Fund will remain closed until further notice. The Fund reserves the right to modify the foregoing terms of the closure at any time and to accept or reject any investment for any reason." It's unclear whether this indicates that a liquidation is pending or whether it's a temporary measure due to extremely low interested rates.