News Archives: August, 2020

Last week, we hosted our fourth webinar and first true virtual event, "Crane's Money Fund Webinar: Mini Fund Symposium," a 3-hour series of sessions including segments on "`The State of the Money Fund Industry," "Strategists Speak: Treasury, Fed & Repo;" "Regulatory & ESG Money Funds Update;" and, "Major Money Fund Issues 2020." Today, we quote from this last session, which featured BNY Mellon/Dreyfus' Tracy Hopkins, Goldman Sachs Asset Management's Andrew Lontai and J.P. Morgan Asset Management's John Tobin. Watch for more coverage in coming days, and thanks again to our Mini Fund Symposium attendees, speakers and sponsors! (The full recording is available here and materials are available via our "Webinar Download Center.")

When asked about ESG vs. Social MMFs, Hopkins comments, "What we did, we call it an 'Impact' fund. It's really a subset of the ESG sector as a whole. When we took a look at ESG [in] the money fund space, I think it's a different kind of way of looking at things. [O]bviously, [in the] short duration product the vast majority of what we do is really heavily concentrated in the financial sector and the government sector. Instead of converting a Prime fund to an ESG specific mandate, we [decided to] convert one of our Government funds, the Dreyfus Government Securities Cash Management Fund."

She continues, "Where we changed the strategy a little bit is to direct the aggregate value of our buys themselves to minority owned brokerage firms. Being part of Bank of New York Mellon and Dreyfus, our firm does put a lot of emphasis on diversity and inclusion, and it's always been an important part of our organization. So, we felt that this is a good way to go.... Given the fact that so many assets from our large customers, and we're mostly institutional, are really in that Government and Treasury space, we thought there was some value add there."

Tobin tells us, "Socially responsible investing [has] mostly been associated with exclusions or negative screening.... We think of ESG as an additional set of data points, and we basically incorporate those data points into our investment process. The idea being that it helps us make more informed decisions, and at the end of the day, you get better risk adjusted returns.... To Tracy's point, it's difficult to specifically tilt money market funds to ESG. Right? We're predominantly financial services and we've taken a different kind of approach from an integration standpoint.... Academy does have share classes within our funds and that's expanding. Academy is both a military and a minority-owned firm. So, they have dedicated share classes that sit within our products and then they distribute those products. So, for some clients that want to basically invest via them, we make that available to them."

He adds, "We actually incorporate ESG, the metrics of that to our fundamental scores in the issuers we buy. And why I think it's an important and different is that that fundamental score drives how much of an issuer we can put into a portfolio, and what the tenor is of that purchase. So, it's stick and carrot. In other words, if an issuer does what they're supposed to do or is well graded in ESG, it improves their fundamental score.... That's how we are playing it, more holistically."

Lontai responds, "The environmental section of ESG is very hard to do on the front end. The offering we have ... is the Financial Square Federal Instrument Fund, and much like the Dreyfus fund, it seeks to do business with minority, women and veteran-owned brokers. We use the Federal Home Loan Bank's definition, so we are using those brokers to do business with. And again, here the idea is to have an impact with those brokerage firms to make sure that they are fairly representative, and to make sure that they are generating revenue so they can compete in other areas outside of just the money funds."

He also says, "In terms of screening, we're much further along, as I think most of the market is, in Europe than we are in the U.S. Our European Prime Fund, Euro Reserves, has been using a screening process for about a year now. So much to what John was talking about, we've incorporated ESG, various metrics and various levels, not only the environmental impact, but how women and minorities are represented on their boards, in their management, what type of business sectors they're in. And that is incorporated in the credit process for our Euro fund. And as John mentioned, it helps enhance what we're able to do with the various credits there."

When asked about exiting Prime, Lontai answers, "Goldman is definitely sticking with Prime funds. We view front end credit as something that definitely offers value to clients. But much like after 2008, what that offering is going to look like is going to be probably much different than it was at the beginning of the year. We've already seen ... Prime funds change. You're seeing much higher levels of liquidity. You're seeing much larger investments in Treasuries.... There's likely going to be regulation somewhere down the line. So, what a Prime fund looks like a year from now, two years from now, is definitely going to be a little different. We're not 100% sure what it's going to look like, but regardless, we think it offers value. Goldman is going to have some sort of front end credit offering to hopefully meet our clients' needs."

Hopkins responds, "I kind of agree that we're going to expect probably some level of reform to come down the path. But at this juncture, we also are of the mindset that Prime has an important place in the money market space. Customers, especially those who go into a low yield environment, [are] looking for whatever yield that they can get. And Prime offers some diversification. It offers a higher yield than what we're going to see in Government and Treasury funds. So, at this juncture, we're going to stick with it.... I think that as we kind of look at regulatory reform somewhere down the line, there may be some changes.... But I think prime is still a valuable tool and that it is going to keep people out of fee waivers for a little bit longer."

Tobin adds, "One of the reasons this question keeps coming up [is] we saw some key individuals kind of walk away from the space. But I think if you really do an examination of their specific business model, you can get to a point where from a strategic standpoint, it makes sense.... I don't think it's necessarily a sign of the future. But again, regulatory reform is most likely coming and that's going to dictate a lot of these answers in the future, particularly [for] the marginal players [outside] the top 15. Maybe they rethink things depending on what regulation looks like."

When asked about cash levels and flows, Hopkins tells us, "We're still in this really scary environment, in the sense that Covid has not gone away. So [we] would anticipate that cash levels will still stay elevated.... But I think over time once the market maybe improves, there's a vaccination, people are getting more comfortable, the economy is on somewhat of a better footing, ... eventually you'll start to see some of these balances over time flow out and get reallocated.... But there will be some fluctuations. [In the] third and fourth quarter of the year, I think you'll see money flows kind of buildup and stay a little bit elevated. Then, probably over time, you'll start to see some of these flows kind of go out and get reallocate in the market. So, we're positive on where flows are going to be. We just need a little bit more yield in them."

When asked where Goldman's flows are coming from, Lontai answers, "I think most like most people, it was coming from large institutions that were looking for a war chest of cash, if you will, to stockpile cash. It really started in March when you saw a lot of corporations begin to draw down on their credit revolvers just as a way to generate liquidity. They didn't need it and they needed a place to put it. So, it ended up in various forms of money funds and Government funds. And then we've really seen it continue through most of the summer, as we've seen corporations really begin to issue in record levels into the corporate market."

He continues, "Much like the revolvers, a lot of these corporations really don't need the cash. They just want to have liquidity on hand should something arise. Until uncertainty dissipates, we're going to see corporations sitting on a lot of cash, more cash than they have historically. And that's going to end up in some place where they feel very safe, that they're not going to lose any of the principal. That's going to be Government funds for the most part.... I would say the other big inflow source was kind of investors de-risking in March.... That's keeping some money on the sidelines in cash as well."

Finally, Tobin says, "We also saw fiscal stimulus money coming in. So, we knew we were getting inflows, but the degree, and I guess the speed was slightly off-putting. A lot of money came in quickly. I mean, at the end of the day, it was great just from the standpoint, if you think about where yields were at that point and we saw a good chunk of that would be around, that allowed us to put duration into the portfolios, which is kind of helping today. We won a lot of new clients. I think a lot of these clients came into large sums of money very quickly and in a little bit of a conversation, and we were [the recipients of] that money."

Mark your calendars for our future online events: "Crane's Bond Fund Webinar: Ultra-Shorts & Alt-Cash" on Sept. 24 from 1-2pmET, where Crane Data's Peter Crane and a panel of ultra-short bond fund managers will give a brief update on the space; "Crane's Money Fund Symposium Online" on Oct. 27 from 1-4:30pmET, which will feature another afternoon of money fund discussions; and, "European Money Fund Symposium Online" on Nov. 19 from 10am-12pmET.

Vanguard Group, the second largest manager of money market mutual funds with $482.3 billion, announced that it is converting its $125.3 billion Vanguard Prime Money Market Fund into a Government MMF, the third major exit from the Prime space since the coronavirus shutdown froze the commercial paper market in March and the first Prime Retail fund to convert since Money Market Fund Reforms went into effect in 2016. Their release, "Vanguard Announces Changes to Money Market Fund Lineup," tells us, "Vanguard today announced the following changes to its taxable money market fund lineup: Vanguard Prime Money Market Fund will be reorganized into a government money market fund and renamed Vanguard Cash Reserves Federal Money Market Fund.... Vanguard Treasury Money Market Fund has reopened to new investors." (Note: Thanks to those who attended our recent "Money Fund Webinar: Mini Fund Symposium" and to our excellent speakers and generous sponsors! The recording is available here and materials are available (to Crane subscribers) on our "Webinar Download Center." To register for our next event, "Crane's Bond Fund Webinar: Ultra-Shorts & Alt-Cash," which is Sept. 24 at 1pmET, click here.)

The release explains, "Having observed and navigated two market crises in the past 12 years, Vanguard believes it's better to seek to provide clients with a higher yield through lower expenses on a secure government portfolio than incurring risk in the prime market. The fund will enhance its credit quality and liquidity levels by investing almost exclusively in U.S. government securities, cash, and repurchase agreements that are collateralized solely by U.S. government securities or cash. Given the current low-interest rate market environment and tight credit spreads, Vanguard has already increased the fund's exposure to government securities, while commensurately decreasing credit risk by letting non-government holdings, such as commercial paper, mature."

CIO Greg Davis comments, "Vanguard investors prioritize capital preservation for their money market investments, and we believe that the rewards of even the most conservatively managed prime funds are no longer worth the risk. We are committed to structuring and managing our money market funds prudently while preserving their safety and liquidity, and are confident these changes will best position the fund to continue to meet the expectations of our clients, while still providing a competitive yield over the long term."

The release adds, "Vanguard also announced the reopening of its $38.9 billion Treasury Money Market Fund. Vanguard closed the fund in April 2020 to protect existing shareholders following a spike in demand for government money market funds during the first-quarter. Vanguard sought to preserve the fund's yield by preventing excessive purchases of low-yielding government securities over a short time period. Vanguard expects that new cash flow will no longer have the same dilutive effect and has reopened the fund to new investors. There will be no changes to the $196.4 billion Federal Money Market Fund, which will continue to operate as a government money market fund that meets the needs of a broad range of investors, while continuing to serve as a sweep vehicle for retail brokerage clients."

The Prospectus Supplement for Vanguard Prime Money Market Fund explains, "The board of trustees of Vanguard Prime Money Market Fund has approved changes to the Fund's investment strategy and name, and a change in the Fund's designation to a 'government' money market fund. These changes will be effective on or about September 29, 2020. The Fund is currently designated as a 'retail' money market fund. The Fund invests primarily in high-quality, short-term money market instruments, including certificates of deposit, banker's acceptances, commercial paper, Eurodollar and Yankee obligations, and other money market securities, including securities issued by the U.S. government or its agencies and instrumentalities. The Fund invests more than 25% of its assets in the financial services industry."

It continues, "The Board has determined that it is in the best interests of the Fund and its shareholders to change the Fund's designation to a 'government' money market fund. Pursuant to Rule 2a-7 under the Investment Company Act of 1940, a government money market fund is required to invest at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities and/or cash.... Accordingly, effective on or about September 29, 2020, the Fund will invest at least 99.5% of its total assets in government securities and the Fund's name will change to Vanguard Cash Reserves Federal Money Market Fund."

See also our June 22 News, "Fidelity to Liquidate Prime Instit Money Funds; Cites Investor Behavior;" our May 20, 2020 News, "Northern Liquidating Prime Obligs; NY Fed on PDCF; Weekly Port Holds;" and, our Feb. 2, 2015 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt." (For more coverage, see: CNBC's "Vanguard shifting prime money market fund to safer U.S.-backed investments".)

In other news, the Investment Company Institute released its monthly "Trends in Mutual Fund Investing" and its "Month-End Portfolio Holdings of Taxable Money Funds" for July 2020 late yesterday. The former report shows that money fund assets decreased by $55.4 billion to $4.579 trillion in July, after decreasing $133.5 billion in June and increasing $31.8 billion in May and $399.4 billion in April. For the 12 months through July 31, 2020, money fund assets have increased by a breathtaking $1.230 trillion, or 39.6%.

ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds increased by $635.73 billion, or 3.0 percent, to $22.05 trillion in July, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI. Bond funds had an inflow of $69.28 billion in July, compared with an inflow of $66.88 billion in June.... Money market funds had an outflow of $55.36 billion in July, compared with an inflow of $133.78 billion in June. In July funds offered primarily to institutions had an outflow of $35.74 billion and funds offered primarily to individuals had an outflow of $19.62 billion."

ICI's latest statistics show that both Taxable MMFs and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $47.3 billion in July to $4.458 trillion. Tax-Exempt MMFs decreased $7.9 billion to $121.8 billion. Taxable MMF assets increased year-over-year by $1.314 trillion (41.8%), while Tax-Exempt funds fell by $14.0 billion over the past year (-10.3%). Bond fund assets increased by $152.4 billion in July (3.2%) to $4.870 trillion; they've risen by $374.7 billion (8.3%) over the past year.

Money funds represent 20.8% of all mutual fund assets (down 0.8% from the previous month), while bond funds account for 22.1%, according to ICI. The total number of money market funds was 357, down one from the month prior and down from 368 a year ago. Taxable money funds numbered 277 funds, and tax-exempt money funds numbered 80 funds.

ICI's "Month-End Portfolio Holdings" confirms a jump in Repo and a drop in Treasuries and Agencies last month. Treasury holdings in Taxable money funds remain in first place among composition segments since surpassing Repo in April. Treasury holdings decreased by $70.3 billion, or -3.0%, to $2.278 trillion, or 51.1% of holdings. Treasury securities have increased by $1.528 trillion, or 203.4%, over the past 12 months. (See our August 12 News, "August MF Portfolio Holdings: Treasury Bender Ends; Repo, TDs Jump.")

Repurchase Agreements were in second place among composition segments; they increased by $46.0 billion, or 5.1%, to $954.7 billion, or 21.4% of holdings. Repo holdings have dropped $252.4 billion, or -20.9%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $39.6 billion, or -4.8%, to $786.4 trillion, or 17.6% of holdings. Agency holdings have risen by $106.7 billion, or 15.7%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased by $347 million, or 0.2%, to $218.0 billion (4.9% of assets). CDs held by money funds shrunk by $41.5 billion, or -16.0%, over 12 months. Commercial Paper remained in fifth place, down $13.9 million, or -6.5%, to $199.1 billion (4.5% of assets). CP has decreased by $33.0 billion, or -14.2%, over one year. Other holdings increased to $36.4 billion (0.8% of assets), while Notes (including Corporate and Bank) were down to $6.6 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 43.2 million to 39.314 million, while the Number of Funds was down one at 277. Over the past 12 months, the number of accounts rose by 3.637 million and the number of funds decreased by 10. The Average Maturity of Portfolios was 43 days, unchanged from June. Over the past 12 months, WAMs of Taxable money have increased by 13.

This month, Bond Fund Intelligence interviews Brad Camden, Director of Fixed Income Strategy at Northern Trust Asset Management. He tells us about the history of NTAM in the fixed-income space, talks about the current market environment, and discusses a number of other bond fund issues. Our discussion follows. (Note: The following is reprinted from the August issue of our Bond Fund Intelligence, which was published on Aug. 14. Contact us at info@cranedata.com to request the full issue or to subscribe. Note too that we published our latest Bond Fund Portfolio Holdings last Friday, Aug. 21. Let us know if you'd like to see our most recent "cut". Finally, mark your calendars for Crane's Bond Fund Webinar: Ultra-Shorts & Alt-Cash, which will be Sept. 24, 2020 from 1-2pm ET.) (See too the press release and filing on Vanguard exiting the Prime MMF space. Watch for more on this tomorrow.)

BFI: Give us a little background. Camden: In the fixed income space, Northern Trust Asset Management has been managing a mix of sector specific and multi-asset class portfolios for over 40 years. In the mid-'90s, Northern launched the Northern Funds mutual fund family.... The mutual fund complex has been around for over 25 years and has performed well through various economic, business, and monetary cycles.

In 2011, NTAM launched FlexShares, an ETF suite of products [which] initially [focused on] the TIPs market but over time evolved into the ultra-short space, the mortgage market and ultimately into the credit markets.... Beyond mutual funds and ETFs, we offer strategies across the yield curve and up and down the quality spectrum in other formats such as SMAs and collective funds.

I joined Northern Trust Asset Management in 2002, [and] in 2004 I found my home in fixed income. Initially I started working on the high yield desk ... until a spot opened up on the securitized team. I spent time there honing my skills, [and] after a few years, I moved over to the credit team. I [then] moved into more direct portfolio management oversight roles in our Core and Core Plus products and some of our credit products, ultimately managing the investment management team.

Since 2018, I've been responsible for the long-duration fixed income team. Specifically, this includes anything outside of cash such as ultra-short, active, passive, and multifactor strategies. It's been a great experience and a wonderful journey here. I'm very grateful to be a part of an outstanding team and thankful for the opportunities that I've had to manage a diverse mix of portfolios while working with a wide range of clientele.

BFI: What are your major priorities? Camden: My major priorities to start 2020 were to build upon the strong investment performance of 2019, further expand and develop our team, continue to develop multifactor and ESG solutions, and serve our clients. However, after the Covid-19 shock, most of my time has been spent working with my team on understanding how the pandemic will alter economic growth, inflation, and monetary policy. We’re also analyzing how the credit markets will be impacted.... I believe we've done an outstanding job at evolving our views and communicating with our clients to offer them guidance. This is a testament to our strong forward-looking investment process.

Right now, my major priority is making sure that our clients' objectives are met, without taking undue risk to achieve them. One of the things that we always talk about here at Northern is making sure that we're paid for the risk taken. So [I'm working on] managing the team, staying abreast of the macro economic environment, changes in credit fundamentals, and staying in tune with clients.

It's been a challenge the past few months due to the uncertainty in the marketplace, particularly because there's been a disconnect between fundamental data and the technical. The engagement from central banks has been unprecedented and has had a significant impact on fixed income returns. [The Fed's] foray into the corporate bond market has been interesting. The challenge is staying ahead of the news flow -- the health crisis, economic outlooks and politics, and incorporating this information correctly into our investment process.

BFI: What funds are you focusing on? Camden: The two that are of most interest to our clientele are Ultra-Short and High Yield Fixed Income. With cash yielding basically zero, an investor can extend duration to roughly 0.5 year to 1.0 year and pick up between 50-60 basis points to earn a premium over cash without taking significant duration or credit risk. As a result of this incremental yield, clients who don't have immediate cash needs have moved into the strategy resulting in an uptick in flows.

For example, our taxable Ultra-Short mutual fund, NUSFX, just went over $3 billion for the first time, and we're very proud of this accomplishment. We've also seen significant interest in our ETF Ultra-Short product, RAVI.... We expect these products to continue to gain traction because we anticipate that the Fed will remain at zero-bound for the next five-years. Therefore, investors will be forced to move out of cash to get some incremental return.

High yield has also generated a lot of interest this year. It is our biggest overweight in our multi-asset class portfolios; we have an 11% allocation to it in our model portfolio. Over the next year, we anticipate high yield generating a return of roughly 5.0%, which, in our view, will outpace both the investment grade and government bond markets, and most of the equity markets. Historically, the high yield market has offered attractive risk adjusted returns and we expect this to be the case going forward.

We have multiple High Yield fund offerings. Our largest is the actively managed mutual fund, NHFIX. It currently yields close to, on a gross basis, 7.0%. So we're out-yielding the high yield market by north of 100 basis points without taking significant credit risk relative to the market. In this fund, we focus on taking compensated risks. We don't take significant issuer specific bets and we don't take significant subsector bets. In fact, we try to maintain sector neutrality and find value moving up and down the quality spectrum and within issuers by finding opportunities in different parts of the capital structure. By using this approach across 300-400 issuers, we have been able to generate stable, consistent returns.

BFI: Are there concerns over credit? Camden: Absolutely, we've been paying close attention to credit fundamentals and the sectors most directly impacted by the virus. We've been working diligently to avoid downgrades and defaults while at the same time trying to find value.... We understand that fundamental deterioration won't be uniform and that much of the negative performance impact is being offset by strong technicals -- strong inflows from investors and from the Fed. It has been a unique environment -- credit markets are challenging, liquidity has been uneven, the new issue market has been historically busy, and it's becoming more difficult to find value.

We're always cognizant of where we are investing. Initially, as the Fed entered the market, we were buying higher quality sectors and issuers -- agency mortgages, high quality defensive credit issuers such as issuers in the utility space, technology.... Now that those spreads have tightened significantly ... we've been rotating into other sectors, some of which were directly impacted by the pandemic. These include transportation, consumer cyclicals; even energy.

Overall, we are not taking significant issuer specific bets given the uncertainty on both the path of the virus and business models going forward. However, we are moving up and down the quality spectrum.... It's very difficult to find yield right now, but through our investment process, [we] are able to identify issuers where we feel that we’re paid for the risk of investing in them.

BFI: How about mutual funds vs. ETFs? Camden: We're seeing interest in both types of wrappers. ETFs, over the last couple of years, have grown much more quickly.... The benefits of ETFs are many, such as transparency, liquidity, and tax efficiency, but ... the product is still new. If ETFs continue to perform well, especially in volatile market environments like we've had, I expect them to continue to gain investor acceptance and to continue to grow. There is also value in mutual funds, including NAV stability. Different investors have different needs and there are benefits to both types of products.

BFI: Talk about your investors. Camden: We have a broad investor base. We work with public and corporate pension funds, foundations, endowments, and other institutional clients like insurance companies. We've also seen some significant growth in the intermediary space recently [and] continue to work with Northern's wealth management business.... The investor base runs the gamut and as you can imagine, with such a diverse investor base, we are always busy.

Unfortunately, we're officially cancelling this year's Money Fund Symposium, which had been scheduled for October 26-28, 2020 at The Hyatt Regency Minneapolis. We'd been hoping for business travel to resume this summer, but alas we ran out of runway. We're in the process of scheduling our next big show for 2021 (tentatively June 23-25, 2021 in Philadelphia), but we'll let you know once we have an official date and location. We will refund or credit any registration or sponsor fees (watch for an e-mail with options), and we hope we're able to resume our physical conference schedule as we get into 2021. In the meantime, Crane Data continues to ramp up its webinar and virtual event offerings. On Wednesday, August 26, we'll be hosting Crane's Money Fund Webinar: Mini Fund Symposium from 1-4pm ET. Please join us! (Register here: https://register.gotowebinar.com/register/1205347726948255245. If you can't make it, we'll have the recorded sessions, materials and coverage available on www.cranedata.com later this week.)

Today's Mini Fund Symposium features Crane Data's Peter Crane hosting a 3-hour series of sessions involving money market mutual funds and money market securities. Segments will include: "The State of the Money Fund Industry" (1-1:30pm); "Strategists Speak: Treasury, Fed & Repo" (1:30-2:15), with BofA's Mark Cabana and Barclays' Joe Abate; "Regulatory & ESG Money Funds Update" (2:30-3pm) with Dechert's Stephen Cohen; and, "Major Money Fund Issues 2020" (3-3:45pm), with BNY Mellon/Dreyfus' Tracy Hopkins, Goldman Sachs Asset Management's Andrew Lontai and J.P. Morgan Asset Management's John Tobin. A virtual "cocktail party" will follow (3:45-4:30).

Also, mark your calendars for our future online events: "Crane's Bond Fund Webinar: Ultra-Shorts & Alt-Cash" on Sept. 24 from 1-2pmET, where Crane Data's Peter Crane and a panel of ultra-short bond fund managers will give a brief update on the space; "Crane's Money Fund Symposium Online" on Oct. 27 from 1-4:30pmET, which will feature another afternoon of money fund discussions; and, "European Money Fund Symposium Online" on Nov. 19 from 10am-12pmET. (More details to follow in coming days.)

As a reminder too, we'd already cancelled our European Money Fund Symposium, which had been scheduled for Nov. 19-20, 2020, in Paris, France. We'll hold our next European MFS on October 21-22, 2021 in Paris. Also, mark your calendars for our next Money Fund University, scheduled for Jan. 21-22, 2021 in Pittsburgh, Pa., and our next Bond Fund Symposium, scheduled for March 25-26, 2021, in Newport Beach, Calif. Crane Data Subscribers or Attendees may access past conference and webinar materials at the bottom of our "Content" page or see links to our latest events from the "Conferences" menu option. Let us know if you'd like more information about any of our shows, and we hope to see you out on the road again in 2021!

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of August 21) includes Holdings information from 85 money funds (up 8 from a week ago), which represent $2.477 trillion (up from $2.415 trillion) of the $4.879 trillion (50.8%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website. For our latest monthly Holdings, see our August 12 News, "August MF Portfolio Holdings: Treasury Bender Ends; Repo, TDs Jump.")

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.273 trillion (down from $1.309 trillion a week ago), or 51.4%, Repurchase Agreements (Repo) totaling $564.5 billion (up from $545.6 billion a week ago), or 22.8% and Government Agency securities totaling $361.5 billion (up from $350.3 billion), or 14.6%. Commercial Paper (CP) totaled $92.4 billion (up from $65.7 billion), or 3.7%, and Certificates of Deposit (CDs) totaled $87.3 billion (up from $75.3 billion), or 3.5%. The Other category accounted for $60.8 billion or 2.5%, while VRDNs accounted for $36.9 billion, or 1.5%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.273 trillion (51.4% of total holdings), Federal Home Loan Bank with $206.8B (8.3%), Fixed Income Clearing Corp with $71.4B (2.9%), BNP Paribas with $70.9B (2.9%), Federal Farm Credit Bank with $63.2B (2.5%), Federal National Mortgage Association with $53.5B (2.2%), RBC with $49.4B (2.0%), Credit Agricole with $36.8B (1.5%), Federal Home Loan Mortgage Co. with $35.6B (1.4%) and JP Morgan with $34.9B (1.4%).

The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($254.4B), JP Morgan US Govt MM ($180.2B), Fidelity Inv MM: Govt Port ($160.3B), Wells Fargo Govt MM ($147.0B), Federated Hermes Govt Obl ($136.0B), JP Morgan 100% US Treas MMkt ($112.8B), Goldman Sachs FS Treas Instruments ($91.8B), Morgan Stanley Inst Liq Govt ($88.6B), JP Morgan Prime MM ($86.8B) and Dreyfus Govt cash Mgmt ($86.4B). (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.)

Finally, a press release entitled, "Trovata, ICD Launch Integrated Corporate Treasury Workflow with Bandwidth, Inc," and subtitled, "Unlocks Data and Powers Decision-Making for Cash Forecasting, Short-Term Investing," explains, "Trovata, an emerging enterprise fintech automating cash reporting and forecasting with its multi-bank API data aggregation platform, and ICD, corporate treasury's trusted independent portal provider of money market funds and other short-term investments, announced today that they have launched an integrated workflow for corporate cash forecasting and investing. Bandwidth Inc., a software company focused on communications for the enterprise, is the first corporation to use the integrated solution."

Bandwidth Treasurer Scott Taylor comments, "This new workflow makes our jobs faster, easier and smarter. We're thrilled with the integration between Trovata and ICD, which allows us to get out from under the time-consuming task of piecing together investment balances and global cash reports. We're able to put money to work, and do it with confidence.... This automation will become even more advantageous as Bandwidth continues to grow."

The release continues, "The integration between Trovata's cash automation platform and ICD Portal establishes a straight-through process for the free flow of data across platforms. Trovata's API platform is pre-integrated so it aggregates, normalizes and delivers bank balances and transactions in real time to automate cash reporting, cash flow analysis, and forecasting, with no implementation. With richer and faster intel, treasury enters ICD Portal to invest its excess cash with greater confidence and precision. Through ICD Portal, teams access and research over 300 funds, analyze underlying credit and bank exposures, and execute trades across 30 fund families using a single ticket. Investment data then flows back into Trovata to automatically update forecasts."

Trovata Founder and CEO Brett Turner tells us, "Speed and automation are becoming a requirement to proactively manage liquidity and risk in today's environment.... Treasurers and CFOs can't afford to get caught flat footed these days with how fast things can change, and the pandemic has been a devastating wake-up call for all of us that digital transformation in finance and treasury is paramount."

Finally, ICD CEO Tory Hazard adds, "Our common clients are the big winners in this integration effort. The beauty of the workflow between ICD Portal and Trovata's API platform is that clients don't have to do anything to gain these efficiencies -- it's turnkey."

A new Wall Street Journal article, "Money Funds Waive Charges to Keep Yields From Falling Below Zero," contains a Crane Data graph of money fund yields over the past 15 years. It tells us, "Many investment firms are waiving their charges on money funds to keep the yields that investors earn from dropping below zero. Money-management giant BlackRock Inc. is waiving costs typically borne by customers for certain money-market funds to prop up investor yields, said people familiar with the matter. Fidelity Investments, Federated Hermes Inc. and J.P. Morgan Asset Management are also ceding some fees to stave off negative yields. The moves are the latest sign of how a roughly $5 trillion piece of the financial system is bracing for new pressure as interest rates plummet. Fee waivers will hit the revenues of firms that shoulder the costs."

The piece explains, "Today, the income offered by those [money market] funds is evaporating as rates plummet. The Federal Reserve cut its short-term benchmark rate to between zero and 0.25% to calm markets in March and pledged to keep rates near zero for the near future. Three-month Treasury yields were 0.0928% as of Aug. 21, from 1.546% at the end of last year. As U.S. money funds are forced to invest new cash into lower-yielding securities, their own yields are plunging."

The Journal's Dawn Lim writes, "Seven-day net yields for the average money fund slid to 0.05% in July from 1.31% at the end of 2019, according to research firm Crane Data. The average money fund is yielding a wisp today compared with the 2.11% seven-day yields at their prior high in April last year."

She tells us, "Among large players, Fidelity is waiving fees on most of its money funds. BlackRock had warned Wall Street analysts this year it might have to waive fees as soon as August or September to prop up money-fund yields. For now, any costs shifted from money-fund investors to avoid negative yields are being absorbed by distributors and not the firm, a person familiar with the matter said."

The WSJ continues, "Moody's Investors Service said that the cost of the average U.S. money fund fell 12% between February and June to about 21 cents for every $10,000 invested. As investors poured into safe-haven assets during an economic slump, a rise in money-fund assets offset the effect of lower fee rates and added to revenues. Moody's analysts expect the industry to give up some of those gains later in the year as yields shrink."

It quotes, "Deborah Cunningham, Federated Hermes' chief investment officer for global liquidity markets, said falling yields could squeeze smaller players. This would drive more concentration of an industry where the largest already dominate. The top 25 money-fund players control more than 90% of assets in the U.S. Last year, Federated Hermes absorbed assets of money funds of another Pittsburgh institution, PNC Capital Advisors. Ms. Cunningham thinks the firm could do more such deals. 'The opportunity is likely to present itself,' she said."

The Journal story adds, "Asset managers will stave off losses as long as investors keep piling into cash funds, or if more lucrative products offset falling revenues from their money funds. The Fed's moves to keep interest rates near zero created fee pressures, but the Fed also rescued the industry from the brink earlier this year."

Finally, they write, "Today, about two-thirds of U.S. money funds are waiving costs for investors to keep yields from going below zero, according to Crane Data's estimate. Funds focused on the lowest-yielding government securities and those with high distribution fees have been first in line to see fees waived, investment professionals say."

In related news, money market fund yields continue to bottom out just above zero, as our flagship Crane 100 fell one basis point in the last week at 0.05%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over two-thirds of all money funds and over a third of MMF assets are now sitting on the zero yield floor, though some continue to show some yield.

According to our Money Fund Intelligence Daily, as of Friday, 8/21, 569 funds (out of 854 total) yield 0.00% or 0.01% with assets of $1.849 trillion, or 37.7% of the total. There are 195 funds yielding between 0.02% and 0.10%, totaling $2.248 trillion, or 45.9% of assets; 84 funds yielded between 0.11% and 0.25% with $717.8 billion, or 14.6% of assets; 6 funds yielded between 0.26% and 0.50% with $88.3 billion in assets, or 1.8%. No funds yield over funds yield over 0.50%.

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 675), shows a 7-day yield of 0.04%, unchanged in the week through Friday, 8/21. The Crane Money Fund Average is down 43 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.08% in the latest week and Government Inst MFs were flat at 0.03%. Treasury Inst MFs were down a basis point at 0.02%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.05% (unchanged), Tax-exempt MF 7-day yields were also flat at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)

Our Crane Brokerage Sweep Index, which hit the zero floor four and a half months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of August 21, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 18 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets dropped by $66.4 billion in July to $5.038 trillion, the second decrease in a row (and the third over the past 25 months). (Month-to-date in August through 8/20, assets have decreased by $25.0 billion according to our MFI Daily.) The SEC shows that Prime MMFs decreased by $16.4 billion in July to $1.146 trillion, while Govt & Treasury funds fell by $42.6 billion to $3.763 trillion. Tax Exempt funds decreased $7.4 billion to $129.2 billion. Yields were down again for Taxable funds in July, while Tax Exempt yields inched higher. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

July's overall asset decrease follows a decline of $127.3 billion in June, and increases of $31.0 billion May, $461.6 billion in April and $704.8 billion in March. This followed an increase of $17.3 billion in February, a decrease of $4.3 billion in January, and increases of $37.2 billion in December and $45.6 billion in November. Over the 12 months through 7/31/20, total MMF assets have increased by an incredible $1.347 trillion, or 36.5%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these in its collections.)

The SEC's stats show that of the $5.038 trillion in assets, $1.146 trillion was in Prime funds, up $16.4 billion in July. This follows an increase $21.3 billion in June, $50.6 billion in May and $105.2 billion in April, decreases of $124.5 billion in March and $13.9 billion in February, increases of $28.1 billion in January, a decrease of $26.5 billion in December and increase of $20.2 billion in November. Prime funds represented 22.7% of total assets at the end of July. They've increased by $104.8 billion, or 10.1%, over the past 12 months.

Government & Treasury funds totaled $3.763 trillion, or 74.7% of assets. They fell $42.6 billion in July after plummeting $145.1 billion in June after falling $18.6 billion in May, skyrocketing $347.3 billion in April and $838.3 billion in March, and increasing $32.0 billion in February. They fell $31.4 billion in January, but rose $64.7 billion in December and $24.2 billion in November. Govt & Treas MMFs are up a staggering $1.254 trillion over 12 months, or 48.8%. Tax Exempt Funds decreased $7.4 billion to $129.2 billion, or 2.7% of all assets. The number of money funds was 359 in July, the same number as the previous month, and down 11 funds from a year earlier.

Yields for Taxable MMFs were down across the board in July. Steady declines over the past 16 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on July 31 was 0.27%, down 6 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.31%, down 9 basis points. Gross yields were 0.23% for Government Funds, down 3 bps from last month. Gross yields for Treasury Funds were down 2 bps at 0.24%. Gross Yields for Muni Institutional MMFs were up 2 bps to 0.23% in July. Gross Yields for Muni Retail funds were unchanged at 0.33% in July.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.19%, down 7 bps from the previous month and down 2.17% since 7/31/19. The Average Net Yield for Prime Retail Funds was 0.09%, down 10 bps from the previous month and down 2.12% since 7/31/19. Net yields were 0.06% for Government Funds, down 1 bp from last month. Net yields for Treasury Funds decreased 1 basis point to 0.06%. Net Yields for Muni Institutional MMFs inched up from 0.09% in June to 0.11%. Net Yields for Muni Retail funds was unchanged at 0.10% in July. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in July. The average Weighted Average Life, or WAL, was 62.5 days (up 4.9 days from last month) for Prime Institutional funds, and 67.8 days for Prime Retail funds (up 5.8 days). Government fund WALs averaged 101.7 days (down 1.2 days) while Treasury fund WALs averaged 96.9 days (down 0.2 days). Muni Institutional fund WALs were 16.8 days (down 0.9 days), and Muni Retail MMF WALs averaged 33.4 days (up 0.5 days).

The Weighted Average Maturity, or WAM, was 42.4 days (up 2.0 days from the previous month) for Prime Institutional funds, 48.3 days (up 2.2 days from the previous month) for Prime Retail funds, 41.2 days (down 0.1 days) for Government funds, and 46.0 days (up 0.2 days) for Treasury funds. Muni Inst WAMs were down 1.2 days to 16.0 days, while Muni Retail WAMs increased 0.5 days to 31.2 days.

Total Daily Liquid Assets for Prime Institutional funds were 49.6% in July (down 0.7% from the previous month), and DLA for Prime Retail funds was 41.7% (down 1.9% from previous month) as a percent of total assets. The average DLA was 61.8% for Govt MMFs and 96.5% for Treasury MMFs. Total Weekly Liquid Assets was 61.0% (down 1.6% from the previous month) for Prime Institutional MMFs, and 51.4% (down 0.2% from the previous month) for Prime Retail funds. Average WLA was 77.8% for Govt MMFs and 99.5% for Treasury MMFs.

In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for July 2020," the largest entries included: Canada with $121.9 billion, Japan with $98.7 billion, France with $87.5 billion, the U.S. with $72.9B, Germany with $45.4B, the U.K. with $43.3B, the Netherlands with $33.9B, Aust/NZ with $22.6B and Switzerland with $17.3B. The biggest gainers among the "Prime MMF Holdings by Country" were: Germany (up $9.6 billion), the Netherlands (up $3.7B), Japan ($2.9B) and France (up $2.7B). The biggest decreases were: Canada (down $18.9B), the US (down $6.8B), Aust/NZ (down $4.0B), the UK (down $2.0B) and Switzerland (down $1.6B).

The SEC's "Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $99.5B (down $5.7B from last month), the Eurozone subset had $175.1 156.9B (up $18.2B). The Americas had $195.4 billion (down $25.4B), while Asia Pacific had $138.9B (up $2.7B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.150 trillion in Prime MMF Portfolios as of July 31, $513.4B (44.6%) was in Government & Treasury securities (direct and repo) (down from $534.0B), $257.3B (22.4%) was in CDs and Time Deposits (up from $252.7B), $163.8B (14.2%) was in Financial Company CP (down from $174.0B), $156.3B (13.6%) was held in Non-Financial CP and Other securities (up from $149.0B), and $59.4B (5.2%) was in ABCP (down from $62.6B).

The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $168.3 billion, Canada with $129.4 billion, France with $189.1 billion, the U.K. with $76.7 billion, Germany with $27.5 billion, Japan with $118.6 billion and Other with $44.1 billion. All MMF Repo with the Federal Reserve fell by $0.8 billion in July to $0.2 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 8.2%, Prime Retail MMFs with 6.7%, Muni Inst MMFs with 2.7%, Muni Retail MMFs 7.0%, Govt MMFs with 16.5% and Treasury MMFs with 15.0%.

As we mentioned yesterday, the Association for Financial Professionals' webinar, "2020 AFP Liquidity Survey: Maintaining Course in Uncharted Waters," featured updates from AFP's Tom Hunt, Crane Data's Pete Crane, Invesco's Laurie Brignac and Marsh & McLennan's Ferdinand Jahnel, and discussed the 2020 AFP Liquidity Survey." Below, we quote from Brignac comments during the event. (See yesterday's News, "Crane Discusses Cash Buildup, Drawdown, Waivers, ESG on AFP Webinar," our June 23 News, "AFP's 2020 Liquidity Survey Shows Safety, Bank Relationships Still Key," and our June 29 News, "More 2020 AFP Liquidity Survey: Ratings, Yield Important; ESG Not Yet.")

Brignac says, "We're going to be celebrating our 40th anniversary later this year, and I've been at Invesco for 28 of that and I thought, oh, my goodness, 40 years in this industry and we've experienced, unfortunately, multiple once in a lifetime events. You keep thinking you've seen it all, and then here it comes again. Obviously, the team has done a great job in terms of laying out what happened in March.... The markets are getting faster and faster; the volatility is increasing.... Obviously, we've never seen what happens when the entire world effectively shuts down. This is definitely unprecedented times, hopefully this is a once in a lifetime event that we won't see again. But I think it was also so much in terms of how quickly everything had to shut down back in March."

She continues, "[In March], there was the big upswing ... into the government money market funds, and ... a lot of focus on the prime money market funds. But when you look in comparison to how much smaller they are than the government money market funds, and when people were exiting the prime funds in March, you know, there's a little blip there. It felt a lot worse than obviously it looks like on the screen. But I think it kind of goes back to just how sensitive and how technical the markets are. So that's the other thing that I tell clients, it is so supply demand driven at this given point in time."

Brignac comments, "One of the things that we saw in March when all this money went into the government money market funds, there were just not enough Treasuries around, eligible treasuries, for the funds to buy. That's why we actually saw negative yields in T-bills and the short-dated securities back in March.... And I think that took everyone by surprise. Again, it was that velocity component."

She tells us, "Everybody was trying to buy Treasuries and there just wasn't enough to go around. The Treasury was terrific. We were on the phone with them, we were on the phone with the Fed and saying, you guys have to start issuing cash management bills. And they did within like a day, day and a half. Just adding that supply back in the market for all this demand, normalized the front end, at least on Govie side."

Brignac states, "We know the Fed is not a fan of a negative interest rate policy. We don't think that they're going to adopt a negative interest rate policy. But also, they are looking at this graph and saying at some point in time, all of this money is going to start to go out. And how does it go out versus the amount of supply that is available for purchase in the market?"

She adds, "The commercial paper market is still about a trillion dollars, which is good. We've seen CP supply dwindle a little bit.... Corporates are issu[ing] out long, taking advantage of low interest rates [and] Treasury is going to be doing the same thing. They want to issue out longer. They want to take advantage of lower yield out in the market and not rely on Treasury bills for a big percentage of their issue. So, we do know that this is going to start to unwind. It's just how does it unwind and how quickly does it unwind? And to make sure it's done in a way that's orderly, not to inadvertently have negative yields on the front end. So that's something else that we do talk to our clients about, something that we're keeping our eye on."

Brignac asks, "What is different this time than what we saw in '08? Obviously, this is a humanitarian event. It was a global shutdown. This was not a sector specific crisis. So, from our perspective, which was good, the Fed had a playbook. They kind of knew how to do this. They started rolling out a lot of their programs. And as you can see, the Fed was a lot faster in coming to the market in terms of getting right down to the zero bound. And again, you talk about the velocity, how quickly the markets were moving.... So that was a really good thing that we needed them to do."

She also comments, "In terms of just how the Federal government has come to the table, they have been very vocal in terms of, we're going to do everything that we can. The Fed has more tools in their tool box that they can implement. They made a lot of announcements in March, they've been implementing, tweaking and changing programs ever since then.... Obviously there's more in terms of what the Federal government can do in terms of potentially another fiscal package. But again, it's like there's things that we can do to support the markets and support the economy. But also, one thing that we're just keeping our eye on is, again, how does this unwind? What does it look like when things start to improve and everybody kind of adjusts to the new normal?"

Brignac says, "I would also highlight ... the credit issues. How are we looking at that? As we know, this was not a credit event, it was a liquidity event. But we also know liquidity events over time can turn into credit events. So, from our perspective, we've seen the Fed come in and they've effectively anesthetized the market. You know, we've seen risks really get mispriced in the market as a lot of demand is chasing too few supply, too little supply."

Finally, she tells the AFP webinar, "So, it's something that we are just really paying very close attention to. We think that they’ve done a great job in terms of coming in, doing what they need to do in terms of supporting the market. But we also are starting to see levels get down, clearing levels are just very tight, very expensive. So, you know, the risk appetite is absolutely gone. You kind of have to respect the trend. But at the same time, especially when you're dealing in finance and the liquidity space, we're being very careful in terms of where we're sending our money to work."

Earlier this week, the Association for Financial Professionals hosted a webinar entitled, "2020 AFP Liquidity Survey: Maintaining Course in Uncharted Waters" which featured AFP's Tom Hunt, Crane Data's Pete Crane, Invesco's Laurie Brignac and Marsh & McLennan's Ferdinand Jahnel. The webinar was a companion to the 2020 AFP Liquidity Survey." Below, we quote some of Crane's comments from the event. (Watch for more excerpts from other panelists in coming days, and see our June 23 News "AFP's 2020 Liquidity Survey Shows Safety, Bank Relationships Still Key," and our June 29 News, "More 2020 AFP Liquidity Survey: Ratings, Yield Important; ESG Not Yet.")

Crane comments, "This year, everything changed on a dime. It was in March, when all of a sudden the realization of the coronavirus dawned on everyone. Never have we seen anything like this, where ... everyone from the largest governments and corporations in the world to the smallest individuals were faced with the problem of maybe needing two month's worth, or two year's worth, of cash. You saw this mad scramble that was unprecedented with a trillion plus dollars, about $1.2 trillion, going into money market funds in March and April, and $1.4 trillion into bank deposits. The cash buildup was just dramatic."

He continues, "You saw it then stabilize in May, and then in June, you started seeing money fund balances start coming down. Bank deposits have not, they're still growing.... I'm going to talk a little bit about assets here, and then I'll just hit yields and some current issues. But you see on the chart here with `cash, basically money funds and deposits, breaking $16 trillion. You see the super spike up."

Crane says about, "The drawdown of cash, what's really wreaking havoc on models are the tax dates. I know in July, I paid a quarterly tax bill [that] was two bills in one. So, July had this monster tax payment ... and I assume for a lot of businesses and other things. You had deferred taxes from April suddenly hit in July. Then September is pretty close here. September 15th and 30th are always seasonally weak for money funds. You get tax payments, end of quarter and stuff. When this all happened in March, you had that quarterly tax payments, quarter end, sort of start the whole thing. So, I would expect we're going to be week into September. But then in the fourth quarter money funds normally see assets go on a tear. October, November and December are three of the four strongest months of the year for inflows. Whether that was robbed and moved into earlier in the year, is unclear. So seasonal effects may have been shifted and changed."

He tells the AFP webinar, "Basically, what we saw in March/April was, I won't call it a run, but a brisk walk away from prime funds. About $150 billion left.... We've more than recovered that and then the giant trillion went into government funds. On top of that, you can see the overall assets spike.... If you look at ICI or iMoneyNet's numbers, they're saying it's $4.6 trillion; if look at Crane Data or the SEC's numbers, they're just under $5 trillion, $4.9 trillion, because we count some funds that they don't. Going forward, as I said, you're going to see a little bit of a dip, but I would expect asset levels to remain strong. What's really going to eventually put the pressure on money fund assets and perhaps on bank deposits, too, is the spend down. But what people underappreciate is just how big a factor on cash 'stopping spending' is -- that corporations and individuals have frozen their spending. What that's doing is allowing big chunks of cash to build up, and the government payments, of course, are distorting things and inflating the numbers."

Crane states, "Now, the big issue is zero yields in general -- money funds on average are now at 0.06%. Institutional funds, you can still get a yield in the teens, but everything is being crushed onto zero. Luckily, the huge amount of T-bills being issued is keeping rates positive and above negative.... Fee waivers are a big deal on the retail side, where money funds are basically having to cut their expenses by a percentage, or even in half in some cases, to keep yields staying above zero. Right now, two thirds of the funds out there are yielding 0.00 percent to 0.01 percent, and one third of the assets. This is a simple average of asset weight, the big dollars are, of course, in lower expense funds. The institutional assets have lower expenses so, they're not in that waiver boat nearly as much or if at all, as the retail funds."

He explains, "What you are seeing is this cascade. Eventually, you saw it in 2009 through 2015.... Investors don't mind 0.25%, they don't mind 0.5%, but when you hit zero they move. And so, you're seeing assets move from government funds out. You're seeing prime funds still gain assets. You're seeing ultra short bond funds and anything with yield starting to gain assets. And so that gradual migration is occurring. But the vast majority of the assets are stubbornly dug in at zero."

Crane also comments on Federated's Social MMF launch, "Social and ESG had been a budding and growing segment, until the coronavirus hit and sort of flipped things on its head. A mere oddity of the timing and events that these ESG funds have been prime funds in the main. Credit and Prime sort of took a blow and may see future regulations.... But government funds that are trading through minority-, women-owned or veteran-owned brokerages and various guises are out there. You have Federated launching one, Goldman's got one, Dreyfus has one. And then on ESG front, you have BlackRock and State Street, DWS and Morgan Stanley with offerings out there. So, there are still definitional issues, there are operational and volume issues, they are still relatively small. But it's certainly an area where things are growing rapidly."

He also says regarding "credit issues," "The government support has artificially supported and inflated everything. Nothing has blown up, and bankruptcies have been mercifully few, but they're coming. You can't have this ugly a downturn in the economy without some collateral damage and some carnage. And the government can only support it for so long, and the trillions of dollars they're throwing out there, I'm just in disbelief that the markets don't seem to care about those numbers. But credit issues and blow ups are going be something to watch out for. Then [regarding] future regulations, a lot depends on the election. I doubt we're going to see radical change or change anytime soon. But that is something people are talking about, too. Finally, consolidation I will throw out there too."

As another reminder, we'll be hosting our own event, "Crane's Money Fund Webinar: Mini Fund Symposium" on August 26, 2020, 1-4pm ET. Crane Data's Peter Crane will host a 3-hour series of sessions involving money market mutual funds and money market securities. Segments will include: "The State of the Money Fund Industry;" "Strategists Speak: Treasury, Fed & Repo," with BofA's Mark Cabana and Barclays' Joe Abate; "Regulatory & ESG Update" with Dechert's Stephen Cohen; and, "Major Issues in Money Funds," with BNY Mellon/Dreyfus' Tracy Hopkins and J.P. Morgan Asset Management's John Tobin. A virtual "cocktail party" will follow.

Finally, in other news, BlackRock liquidated its FFI Treasury Money Fund (MLTXX) this week. Its filing tells us, "On May 12, 2020, the Board of Trustees of Funds For Institutions Series, on behalf of the Fund, approved a proposal to liquidate and terminate the Fund subject to a Plan of Liquidation and Termination. The Plan of Liquidation and Termination will be presented to the shareholders of the Fund and must be approved by the requisite number of shares of the Fund before a liquidation and termination of the Fund can occur."

They add, "A special meeting of shareholders of the Fund to consider the Plan of Liquidation and Termination is expected to be held on August 7, 2020. The record date for the special meeting is June 11, 2020. If approved by shareholders of the Fund, the liquidation date for the Fund is expected to be on or around August 11, 2020. Effective June 1, 2020, BlackRock Advisors, LLC will waive or reimburse all operating expenses of the Fund, including all management fees, administration fees and miscellaneous other expenses (excluding dividend expense, interest expense and acquired fund fees and expenses), as applicable."

Last week, the Board of Federated Hermes Government Obligations Tax-Managed Fund voted to convert it into a "Social" or "Impact" money market fund, we learned from mutual fund news source ignites and from a Prospectus Supplement filing. The ignites article, "$7.5B Federated Hermes Fund Adds Diversity Target for Trading," explains, "The $7.5 billion Federated Hermes Government Obligations Tax-Managed Fund will 'generally seek' to direct trades to women-, minority- and veteran-owned broker-dealers starting on Oct. 1.... The change applies to all three of the fund's share classes. Several other government money funds have also adopted similar trading policies in recent years." Federated's fund will become the third "social" money fund, joining Goldman Sachs and Dreyfus in offering funds that attempt to drive trading business through minority brokerages; it also joins a number of ESG money market funds focused on environmental investment screens.

Federated Hermes' Prospectus Supplement tells us, "On August 14, 2020, the Board of Trustees of Federated Hermes Money Market Obligations Trust, on behalf of its series, Federated Hermes Government Obligations Tax-Managed Fund, approved and authorized an adjustment to the Fund's brokerage allocation methodology, as described. Accordingly, effective October 1, 2020, please add the following disclosure to the Prospectus at the end of the section entitled 'Additional Information Regarding the Security Selection Process:' The Adviser will generally seek to place purchase orders for the Fund's portfolio transactions with women-, minority- and veteran-owned broker-dealers, subject to the Adviser's duty to seek best execution for the Fund's orders.'"

The filing adds, "In addition, effective October 1, 2020, please add the following disclosure to the Statement of Additional Information at the end of the first paragraph under the section entitled 'Brokerage Transactions and Investment Allocation:' 'The Adviser will generally seek to place purchase orders for the Fund's portfolio transactions with women-, minority- and veteran-owned broker-dealers, subject to the Adviser's duty to seek best execution for the Fund's orders.'"

The ignites article continues, "The Goldman Sachs Financial Square Federal Instruments Fund, for example, in December 2018 said it would aim to direct trades to brokerages that are certified by the Federal Home Loan Banks as being owned by women, minorities and disabled veterans. There are 19 brokerages currently on that list, according to the website for the 11 government-sponsored banks. After making the change, the fund's assets doubled to $1.3 billion in July 2019, The Wall Street Journal reported. Apple and JetBlue invested in the fund, the article noted. The fund has continued to grow, and reached $3.3 billion as of July 31, according to its fact sheet."

It also tells us, "JPMorgan Asset Management in May 2019 launched a new share class for two money market funds that is sold only through Academy Securities, a brokerage with strong ties to veterans, Ignites reported. Academy Securities is on the Federal Home Loan Banks' list of diverse and inclusive brokerages. The JPMorgan Prime Money Market Fund's Academy share class represents about 1% of the fund's $84.7 billion in assets as of Aug. 14, according to fund materials. Meanwhile, the Academy share class of the JPMorgan Government Money Market Fund has grown to $2.1 billion. The fund had $185.6 billion in assets as of Aug. 14. More recently, Northern Trust's asset management division recently said it will channel at least 10% of its overall trading volume to minority-owned brokerages."

Ignites quotes our Peter Crane, "Institutional investors are increasingly interested in money funds that weigh environmental, social and governance factors.... Some institutional investors are also adopting similar brokerage policies."

They also write, "Illinois state law, for instance, requires that the Treasurer's Office 'promote and encourage' the use of businesses owned by or under the control of minorities, women, veterans and persons with disabilities, according to a January report. 'Tapping diverse-owned broker-dealers is one of the quickest and best ways to ensure participation [of minority persons, women, qualified veterans and persons with disabilities],' the report notes with respect to two internally managed investment pools. Those two investment pools directed about $45 billion in trades to such brokerages in fiscal year 2019, up from $603 million in fiscal year 2014, the report states."

The ignites update comments, "Federated Investors bought a majority stake in ESG specialist Hermes Investment Management in 2018, and early this year the two firms rebranded as Federated Hermes. About a year ago, the firm disclosed that it had begun integrating ESG factors into the credit analysis for all of its money funds. And several weeks ago, the firm added ESG-related disclosures to several equity and bond funds that aren't explicitly labeled as sustainable funds, Ignites reported. A Federated Hermes spokesperson declined to comment on the new brokerage allocation policy for its Government Obligations Tax-Managed Fund."

A separate ignites new brief, "Northern Trust Sets Diversity Target for Trading," tells us, "Northern Trust's asset management division pledges to channel at least 10% of its trading volume to minority-owned brokerages. The firm now has an 'explicit target' for volume transacted through firms owned or led by ethnic minorities, disabled people and women, president Shundrawn Thomas told FTfm." He comments, "We said that we were going to commit to transacting at least 10% of our trading volume with these minority firms."

The Northern piece adds, "The firm has operated a minority brokerage program for years as well as a program fostering engagement with minority- and women-owned investment managers. 'I am surprised that relatively few of the entities which we work with actually explicitly ask to engage with women-led or ethnically diverse firms,' Thomas said. The investment manager outreach program boasts more than 70 companies, and about a quarter are included in portfolios run by Northern Trust on behalf of clients, Thomas said."

A look at the current Social MMF lineup (largest share class listed) shows a total of $16.1 billion (as of 7/31), including the new Federated fund. These funds (will) include: Federated Hermes Govt Ob Tax-Mg IS (GOTXX, $7.5B), Dreyfus Govt Sec Cash Instit (DIPXX, $5.3B) and Goldman Sachs FS Fed Instr Inst (FIRXX, $3.4B). The list of ESG funds (which we consider separate from Social) totals $6.9B and includes: BlackRock LEAF Direct (LEDXX, $1.2B), DWS ESG Liquidity Inst (ESGXX, $424M), Morgan Stanley Inst Liq ESG MMP I (MPUXX, $4.4B), State Street ESG Liq Res Prem (ELRXX, $683M) and UBS Select ESG Prime Inst Fund (SGIXX, $195M). (Pending: HSBC ESG Prime MMF.) Thus, the total of ESG and Social MMFs is $23.0B. Note: Federated Hermes, Goldman and JPMorgan also have ESG screens across their fund complexes at the analyst level.

For more, see these Crane Data News articles: Federated's Cunningham: Social at Fore of ESG (8/11/20), HSBC Files to Launch ESG Prime Money Market Fund; Proprietary Scoring (2/19/20); Fitch Ratings, ICD Host Webinars on ESG Money Funds, Cash Investing (2/6/20), Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP (1/24/20), Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/5/19), BNP Insticash Adds ESG Overlay (11/29/19), Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19), Goldman Adds ESG Screen (11/14/19), Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG (11/6/19), UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19) and SSGA Goes Live with ESG Money Market Fund (7/3/19).

While we haven't quite reached the record low yields of 0.02% see during much of 2014, money market fund yields continue to inch towards zero. Our flagship Crane 100 inched down another basis point in the latest week to 0.06%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Just under two-thirds of all money funds and just over a third of MMF assets have since landed on the zero yield floor, though many continue to show some yield.

According to our Money Fund Intelligence Daily, as of Friday, 8/14, 562 funds (out of 855 total) yield 0.00% or 0.01% with assets of $1.782 trillion, or 36.3% of the total $4.912 trillion. There are 193 funds yielding between 0.02% and 0.10%, totaling $2.297 trillion, or 46.8% of assets; 90 funds yielded between 0.11% and 0.25% with $739.1 billion, or 15.0% of assets; 10 funds yielded between 0.26% and 0.50% with $94.2 billion in assets, or 1.9%. No funds yield over 0.50%.

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 671), shows a 7-day yield of 0.04%, unchanged in the week through Friday, 8/14. The Crane Money Fund Average is down 43 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.09% in the latest week and Government Inst MFs were flat at 0.04%. Treasury Inst MFs were also unchanged at 0.03%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.05% (unchanged), Tax-exempt MF 7-day yields were down a basis point at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)

Our Crane Brokerage Sweep Index, which hit the zero floor four months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of August 14, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 17 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).

In other news, ICI released its latest monthly "Money Market Fund Holdings" summary yesterday, 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 August 12 News, "August MF Portfolio Holdings: Treasury Bender Ends; Repo, TDs Jump.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in July, prime money market funds held 40.2 percent of their portfolios in daily liquid assets and 50.4 percent in weekly liquid assets, while government money market funds held 74.2 percent of their portfolios in daily liquid assets and 84.0 percent in weekly liquid assets." Prime DLA increased from 40.3% in June, and Prime WLA increased from 50.2%. Govt MMFs' DLA decreased from 74.6% in June and Govt WLA increased from 83.6% from the previous month.

ICI explains, "At the end of July, prime funds had a weighted average maturity (WAM) of 47 days and a weighted average life (WAL) of 68 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 43 days and a WAL of 101 days." Prime WAMs were up two days from the previous month and WALs were up four days from the previous month. Govt WAMs and WALs were both unchanged in the previous month.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $430.17 billion in June to $414.44 billion in July. Government money market funds' holdings attributable to the Americas declined from $3,400.40 billion in June to $3,273.06 billion in July." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $414.4 billion, or 54.5%; Asia and Pacific at $108.4 billion, or 14.3%; Europe at $229.2 billion, or 30.1%; and, Other (including Supranational) at $8.5 billion, or 1.1%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.273 trillion, or 88.0%; Asia and Pacific at $112.0 billion, or 3.0%; Europe at $232.7 billion, 8.7%, and Other (Including Supranational) at $10.2 billion, or 0.3%."

Finally, J.P. Morgan Securities' latest "Short-Term Fixed Income" update says, "MMFs dialed back their T-bills" in their latest weekly. They explain, "As expected, flows out of taxable MMFs continued in July driven in large part by the mid-month tax date. Based on data from iMoneyNet, month-over-month, government and prime MMF AUMs decreased by $40bn and $6bn, respectively. Since their local peak earlier this year, government MMF balances are down about $230bn. Still, there continues a substantial amount of cash in this sector, with AUM totaling over $3.6tn. More notably, even with the slight decline in balances recently, prime MMF AUMs have recovered most of their loss in March and currently register about $750bn."

The segment continues, "For the first time since March, holdings of T-bills fell in both government and prime MMFs, declining by $10bn and $22bn, respectively.... This does not come as a surprise given that the yield gap between T-bills and repo narrowed substantially in July, providing little pickup to go into longer duration T-bills.... At the same time, we suspect that with the tax season behind us, prime funds felt more comfortable extending their portfolio and investing in more credit, as evidenced by the elevated exposure to FRNs.... FRNs tend to have longer dated maturities, are predominately issued by banks, and as a result have higher yields. Continued investments in FRNs should boost the yields of prime MMFs."

It adds, "Agency holdings in government MMFs also decreased in July, driven by declines in discos (down $57bn). We suspect this was more supply driven as advances at FHLBs have fallen significantly post-March when funding conditions normalized. As a result, this limited FHLBs' need to borrow to fund advances. Indeed, our Agency strategists note that FHLB advances fell by $249bn in 2Q20, more than fully reversing the sharp rise in 1Q20. Given banks are now flushed with deposits and home price appreciation is expected to be flat to down over the coming year, we see risk to lower net disco issuance over the remainder of the year, and wouldn't be surprised if the trend of lower disco holdings continues (see Agencies)."

JPM adds, "Somewhat surprisingly, for another month, we found another uptick in GSE SOFR-based FRNs in prime money funds (+$15bn). To be clear, this dynamic is not widespread and is only found across a handful of accounts. We suspect investors see this asset class as an alternative to T-bills, and saw better relative value earlier in July (e.g., 6m GSE SOFR FRNs were yielding as much as 5bp above 6m T-bills). That said, the spread differential has collapsed more recently, and given the recent cheapening in T-bills, we suspect we won't see as much of an increase in GSE FRNs next month."

Crane Data's MFI International shows that assets in European or "offshore" money market mutual just keep growing, hitting a record $1.056 trillion in August after breaking above $1.0 trillion for the first time ever three months ago. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, have increased by $12.0 billion over the last 30 days; they're up by $179.3 billion (20.5%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are up $7.5 billion over the last 30 days and up $69.7 billion YTD to $564.2 billion. Euro funds are up E38.0 billion over the past month, and YTD they're up E34.5 billion to E133.2 billion. GBP money funds have fallen by L3.5 billion over 30 days, but are up by L37.7 billion YTD to L224.9B. U.S. Dollar (USD) money funds (192) account for over half (53.4%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 14.0% and Pound Sterling (GBP) funds (122) total 30.2%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.

Offshore USD MMFs yield 0.11% (7-Day) on average (as of 8/13/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.57% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.06%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's August MFII Portfolio Holdings, with data as of 7/31/20, show that European-domiciled US Dollar MMFs, on average, consist of 23.8% in Commercial Paper (CP), 15.6% in Certificates of Deposit (CDs), 16.6% in Repo, 31.2% in Treasury securities, 11.2% in Other securities (primarily Time Deposits) and 1.6% in Government Agency securities. USD funds have on average 32.9% of their portfolios maturing Overnight, 7.2% maturing in 2-7 Days, 13.0% maturing in 8-30 Days, 15.1% maturing in 31-60 Days, 12.7% maturing in 61-90 Days, 14.7% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.2%), France (12.2%), Japan (8.4%), Canada (7.7%), the United Kingdom (5.0%), Germany (4.6%), the Netherlands (4.3%), Sweden (3.3%), Switzerland (2.2%), Norway (2.1%), Australia (1.9%), Belgium (1.4%), China (1.3%) and Singapore (1.1%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $198.5 billion (30.5% of total assets), Fixed Income Clearing Co with $22.8B (3.5%), Credit Agricole with $19.2B (2.9%), Barclays PLC with $17.4B (2.7%), BNP Paribas with $15.9B (2.4%), Sumitomo Mitsui Banking Corp with $15.8B (2.4%), Mizuho Corporate Bank Ltd with $14.0B (2.1%), Mitsubishi UFJ Financial Group Inc with $13.2B (2.0%), Toronto-Dominion Bank with $12.0B (1.8%) and RBC with $11.7B (1.8%).

Euro MMFs tracked by Crane Data contain, on average 37.3% in CP, 16.2% in CDs, 24.1% in Other (primarily Time Deposits), 16.3% in Repo, 5.1% in Treasuries and 1.0% in Agency securities. EUR funds have on average 33.2% of their portfolios maturing Overnight, 9.3% maturing in 2-7 Days, 11.1% maturing in 8-30 Days, 15.6% maturing in 31-60 Days, 11.3% maturing in 61-90 Days, 17.2% maturing in 91-180 Days and 2.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.4%), the U.S. (11.3%), Japan (10.7%), Germany (7.8%), Sweden (6.4%), Canada (4.6%), Belgium (4.5%), the U.K. (4.1%), the Netherlands (4.0%), Switzerland (3.7%), Austria (2.7%), China (2.0%) and Abu Dhabi (1.4%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E7.7B (6.1%), BNP Paribas with E7.6B (6.0%), BPCE SA with E5.9B (4.6%), Republic of France with E5.1B (4.0%), Citi with E5.0B (3.9%), Societe Generale with E4.3B (3.4%), Mizuho Corporate Bank Ltd with E4.2B (3.3%), JP Morgan with E3.8B (3.0%), Svenska Handelsbanken with E3.7B (2.9%) and DZ bank AG with E3.6B (2.9%).

The GBP funds tracked by MFI International contain, on average (as of 7/31/20): 31.1% in CDs, 19.3% in CP, 25.4% in Other (Time Deposits), 17.9% in Repo, 5.5% in Treasury and 0.8% in Agency. Sterling funds have on average 36.2% of their portfolios maturing Overnight, 9.2% maturing in 2-7 Days, 12.9% maturing in 8-30 Days, 11.5% maturing in 31-60 Days, 10.1% maturing in 61-90 Days, 14.7% maturing in 91-180 Days and 5.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (20.0%), the U.K. (19.6%), Japan (15.1%), Canada (9.8%), the U.S. (5.1%), the Netherlands (4.6%), Germany (4.5%), Australia (3.5%), Sweden (3.5%), Abu Dhabi (2.9%) and China (2.1%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L28.0B (11.4%), Mizuho Corporate Bank Ltd with L11.9B (4.8%), BNP Paribas with L11.9B (4.8%), Sumitomo Mitsui Banking Corp with L9.3B (3.8%), Credit Agricole with L9.3B (3.8%), BPCE SA with L8.1B (3.3%), RBC with L8.0B (3.3%), Agence Central de Organismes de Securite Sociale with L7.6B (3.1%), Mitsubishi UFJ Financial Group Inc with L7.4B (3.0%) and First Abu Dhabi Bank with L7.1B (2.9%).

The August issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Big Inflows Continue; Bond ETFs Poised to Break $1 Trillion," which examines the continued near-record bond fund inflows, and "Northern's Camden Ranges Ultra Short to High Yield," which interviews NTAM's Brad Camden. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields continued to plummet and returns jumped again in July. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

Our Big Inflows piece reads, "Bond funds and bond ETFs continue to see near-record inflows, which we predict will drive total bond ETF assets over the $1 trillion mark for the first time ever this month. ICI shows bond ETFs at $933 billion on June 30, and their weekly flow data shows inflows of $25.0 billion in July (plus NAV increases of about $14.0 billion). Thus, bond ETFs were likely over $970 billion as of July 31, and assets are likely already over $1.0 trillion as inflows and market gains continue in August."

It continues, "ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $27.33 billion for the week, compared to estimated inflows of $18.50 billion during the previous week [and inflows of $23.1 billion the week before that]. Taxable bond funds saw estimated inflows of $23.92 billion, and municipal bond funds had estimated inflows of $3.41 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen record inflows of $106.7 billion."

Our Northern profile says, "This month, Bond Fund Intelligence interviews Brad Camden, Director of Fixed Income Strategy at Northern Trust A.M. He tells us about the history of NTAM in the fixed-income space, talks about the current market environment, and discusses a number of other bond fund issues. Our discussion follows."

BFI says, "Give us a little background." Camden tells us, "In the fixed income space, Northern Trust Asset Management has been managing a mix of sector specific and multi-asset class portfolios for over 40 years. In the mid-'90s, Northern launched the Northern Funds mutual fund family.... The mutual fund complex has been around for over 25 years and has performed well through various economic, business, and monetary cycles."

He continues, "In 2011, NTAM launched FlexShares, an ETF suite of products [which] initially [focused on] the TIPs market but over time evolved into the ultra-short space, the mortgage market and ultimately into the credit markets.... Beyond mutual funds and ETFs, we offer strategies across the yield curve and up and down the quality spectrum in other formats such as SMAs and collective funds."

Camden explains, "I joined Northern Trust Asset Management in 2002, [and] in 2004 I found my home in fixed income. Initially I started working on the high yield desk ... until a spot opened up on the securitized team. I spent time there honing my skills, [and] after a few years, I moved over to the credit team. I [then] moved into more direct portfolio management oversight roles in our Core and Core Plus products and some of our credit products, ultimately managing the investment management team. Since 2018, I've been responsible for the long-duration fixed income team. Specifically, this includes anything outside of cash such as ultra-short, active, passive, and multifactor strategies."

Our Bond Fund News includes the brief, "Yields Move Yet Lower, Returns Jump," which explains, "Bond fund yields fell once again and returns kept surging in July. Our BFI Total Index returned 1.64% over 1-month and 4.87% over 12 months. The BFI 100 gained 1.65% in July and rose 6.16% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.24% over 1-mo and 1.93% over 1-yr; Ultra-Shorts averaged 0.49% in July and 1.76% over 12 mos. Short-Term returned 0.76% and 3.60%, and Intm-Term rose 1.58% last month and 7.97% over 1-year. BFI's Long-Term Index returned 2.51% in July and 11.58% for 1-year. Our High Yield Index rose 3.52% last month but is up just 1.50% over 1-year."

In another News brief, we quote Mornginstar's piece, "How Risky Is Risky in World-Bond Funds?" They write, "Global-bond fund managers routinely disclose fund-level credit-quality, sector, region, and country exposure breakdowns on their websites, but it can be extremely difficult to deduce where a strategy is taking its credit risk. It can also be hard to discern how far afield it is from the commonly used Bloomberg Barclays Global Aggregate Bond Index. Earlier this summer we rolled out a new Fixed Income Exposure Analysis, or FIEA, component for Morningstar Direct and Morningstar Office users to help investors make sense of their individual portfolios and thereby make better comparisons across funds."

A third News update covers the CNBC article, "People are yield-searching." It tells us, "The hunt for yield is on in full force. As investors clamor for income in an era of historically low interest rates, one part of the ETF market is reaping the benefits: bond funds. 'More money has gone into bond funds than any other asset class in ETFs,' Harry Whitton, head of ETF sales and trading at Old Mission, told CNBC's 'ETF Edge'.... If you go back all the way, back to when the pandemic started, bonds have really been the king.'"

BFI also features a sidebar that covers the WSJ piece, "Vanguard Challenges Bond Behemoths With Active Funds." It discusses "the company's rapid growth in short-term and ultra-short bond funds. They explain, 'Vanguard Group, the titan of low-cost index funds, is coming after a fast-growing pocket of the money-management industry: actively managed bond funds. The firm's investment dollars in such funds pushed past the half-trillion mark for the first time in June, a potential problem for competitors such as BlackRock Inc., Fidelity Investments, Pimco and Western Asset Management Co., which have long dominated bond investing."

Finally, a brief entitled, "JPMAM McNerny's Podcast," explains, "J.P Morgan Asset Management launched a series of 'Audio Commentaries,' one of which features Managed Reserve Portfolio Manager James McNerny. He says, 'In front end flows, we saw over $1 trillion make its way into U.S. money market funds in March and April. With the Fed keeping overnight rates at the near-zero bound, that means there is a lot of money now on the sidelines earning yields very close to zero. Because of that, and the confidence returned to the ultra-short and short-term credit markets, we've seen investors returning to the ultra-short space, willing to move modestly out the curve in search of yield.'"

Last month, J.P Morgan Asset Management launched a series of "Audio Commentaries" focused on "Hear[ing] from Global Liquidity Portfolio Managers about Quarterly Topics of Interest." The initial set of updates feature segments from money fund portfolio managers Kyongsoo Noh, Adam Ackermann, Robert Motroni and James McNerny discussing global liquidity, the Fed, floating NAVs and Managed Reserves (JPM's conservative ultra-short strategies), respectively. We briefly review these, as well as a new Podcast from Moody's Investors Service, below. (Note: JPMorgan AM's John Tobin will speak at our upcoming "Crane's Money Fund Webinar: Mini Fund Symposium," which will be held August 26, 2020, 1-4pm EDT.)

On the first podcast, JPM's K-Noh says, "We do expect generic government money market funds to have near zero net yields by late this summer. We also expect generic prime money market funds yields to decline as a result of ZIRP, but we believe that there will be a positive spread of about 10-15 bps between generic prime and generic govie yields when govie yields hit their floor.... The Fed is buying corporate bonds and shares of ETFs that contain corporate bonds in order to narrow spreads and promote liquidity in the corporate debt markets.... These purchases are driving up prices of high quality front end credit products, which are precisely the kinds of investments that many short term fixed income investors focus on."

On the second recording, Ackermann states, "The Federal Reserve has acknowledged that its measures were effective in calming stress in the funding markets and rebuilding reserves to more robust levels that ensure healthy functioning of US capital markets. This should be important to and comforting for any market participant. Second, in an environment where liquidity levels are elevated due to an abundant amount of cash in the financial system and rates are close to zero, investors are keenly focused on the income they earn on their most precious commodity – their cash. We expect that the adjustments by the Federal Reserve to its repo program will result in marginally higher rates across USD Short-Term Fixed Income complex."

Motroni tells us in his segment, "Since the inception of Floating NAVs or FNAVs, movements have generally been incremental and slow. Over time, we've seen the FNAVs of institutional prime funds deviate a few bps on either side of a dollar, but we ultimately view the natural state of Institutional Prime funds FNAVs to reside +/- 1 bp on either side of 1.0000 given the short duration profile and general low price volatility of the underlying assets. [But] over the last few months, due to increased market volatility related to COVID-19 and Fed related moves, the industry has seen peak to trough movements exceeding almost 30bps in some funds."

He adds, "General market volatility did lead to some short-term relative volatility in the FNAVs of prime money market funds. However, FNAVs quickly returned to pre-shutdown levels. Overtime, as higher legacy positions roll off of portfolios and are reinvested closer to market levels, we anticipate Fund FNAVs to return to their natural state of a bp on either side of a dollar, thus continuing to realize one of their main objectives of principal stability."

Finally, Managed Reserves' McNerny says, "In front end flows, we saw over $1 trillion make its way into U.S. money market funds in March and April. With the Fed keeping overnight rates at the near-zero bound, that means there is a lot of money now on the sidelines earning yields very close to zero. Because of that, and the confidence returned to the ultra-short and short-term credit markets, we've seen investors returning to the ultra-short space, willing to move modestly out the curve in search of yield. In April and May, we saw over $10B in retail inflows into U.S. ultra-short funds, and we anticipate that number to be higher when the final quarterly metrics are announced. We also expect that trend to continue given our low-for-long outlook on rates, lending further technical support to risk asset valuations in the ultra-short space."

In related news, a press release entitled, "J.P. Morgan Asset Management and Hazeltree Partner" tells us, "J.P. Morgan Asset Management and Hazeltree, the leading provider of cloud-based treasury solutions for investment managers, have partnered to deliver a unique and integrated cash and liquidity management platform to private equity, private credit, real estate and infrastructure funds."

It continues, "J.P. Morgan Asset Management clients are now able to access Hazeltree's technology to effortlessly manage multi-bank relationships across their entire fund structures and seamlessly access J.P. Morgan's liquidity products. This enables private fund managers to quickly onboard their complex legal entities onto J.P. Morgan's liquidity platform and operationally facilitates the increased transactions workload across various counterparties in an efficient and highly controlled manner."

JPMAM's release tells us, "This partnership provides clients with unlimited transparency into all cash and liquidity accounts, across all banking relationships, enabling fund managers to easily track and forecast cash balances. Additionally, clients can easily configure robotic automation to calculate excess, investable cash, and recommend cash investment decisions based on user-defined parameters and constraints."

John Donohue, CEO of Asset Management Americas and Head of Global Liquidity for JPMAM, comments, "Managing liquidity has never been more challenging or imperative. That is why we are dedicated to offering the best digital solutions for our clients. By partnering with Hazeltree we are able to provide clients with secure, immediate access to a suite of investment products with full transparency across their global portfolio."

Sameer Shalaby, President and CEO of Hazeltree, adds, "“Many firms still rely on spreadsheets and office tools to manage cash across their large number of legal entities and a multitude of banking relationships. Our integrated platform not only centralizes all cash and liquidity holdings interactions with consistent controls and workflows, but the opportunity exists to easily invest excess cash at a variety of cash products with J.P. Morgan." The release adds, "The newly integrated offering is now available to J.P. Morgan Asset Management and Hazeltree clients."

Another press release explains, "Moody's launches 'Focus on Finance' podcast series; first episode discusses cyber risk, US prime money market funds." It explains, "Moody's Investors Service has launched 'Moody's Talks - Focus on Finance,' a new podcast series looking at the drivers of credit trends in the banking, asset management and insurance industries."

Moody's tells us, "The podcast will feature contributions from Moody's analysts globally, who will share their insights into the economic, tech and social forces that are shaping the creditworthiness of financial institutions. They will be discussing short-term market events as well as bigger structural trends. Banks and other financial institutions around the world are racing to adapt their business models as the coronavirus pandemic affects their businesses. While much of the impact will be short term, our analysts are identifying the long-lasting structural changes of this experience that will be paramount in shaping the future of finance."

They explain, "In the first episode of 'Focus on Finance,' funds and asset management analyst Steve Tu explains why institutional prime money market funds could fade away over time, and banking analyst Alessandro Roccati takes a deep dive into the increasing cyber threat that banks and other financial institutions face.... Listen to the first episode here: www.moodys.com/FinancePodcastEp1." (See also our August 6 Link of the Day, "Moody's Hits Prime Money Funds.")

Crane Data released its August Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of July 31, 2020, shows an increase in Repo and big drops in Treasuries and Government Agency Debt last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $83.1 billion to $4.879 trillion last month, after decreasing $159.1 billion in June, increasing $31.6 billion in May, increasing a staggering $529.4 billion in April and $725.6 billion in March (and $5.0 billion in February). Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Treasury securities decreased by $79.9 billion (-3.1%) to $2.464 trillion, or 50.5% of holdings, after increasing $60.8 billion in June, $355.9 billion in May and $795.7 billion in April. Repurchase Agreements (repo) increased by $40.0 billion (4.2%) to $986.7 billion, or 20.2% of holdings, after decreasing $124.3 billion in June, $216.7 billion in May and $238.4 billion in April. Government Agency Debt decreased by $45.1 billion (-5.1%) to $834.1 billion, or 17.1% of holdings, after decreasing $65.2 billion in June, $99.8 billion in May and increasing $6.9 billion in April. Repo, Treasuries and Agencies totaled $4.285 trillion, representing a massive 87.8% of all taxable holdings.

Money funds' holdings of CP and CDs fell in July, while Other (mainly Time Deposits) and VDRNs saw asset increases. Commercial Paper (CP) decreased $10.7 billion (-3.7%) to $276.1 billion, or 5.7% of holdings, after decreasing $6.5 billion in June, increasing $5.2 billion in May and decreasing $11.9 billion in April. Certificates of Deposit (CDs) fell by $12.3 billion (-5.9%) to $195.8 billion, or 4.0% of taxable assets, after decreasing $9.1 billion in June, $7.4 billion in May and increasing $12.6 billion in April. Other holdings, primarily Time Deposits, increased $22.3 billion (28.6%) to $100.3 billion, or 2.1% of holdings, after decreasing by $13.7 billion in June, $5.7 billion in May and $5.7 billion in April. VRDNs increased to $22.0 billion, or 0.5% of assets, from $19.4 billion the previous month. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)

Prime money fund assets tracked by Crane Data increased $20.0 billion to $1.134 trillion, or 23.2% of taxable money funds' $4.879 trillion total. Among Prime money funds, CDs represent 17.3% (down from 18.0% a month ago), while Commercial Paper accounted for 24.3% (down from 24.8%). The CP totals are comprised of: Financial Company CP, which makes up 13.6% of total holdings, Asset-Backed CP, which accounts for 5.8%, and Non-Financial Company CP, which makes up 4.9%. Prime funds also hold 8.1% in US Govt Agency Debt, 28.1% in US Treasury Debt, 3.3% in US Treasury Repo, 0.6% in Other Instruments, 5.3% in Non-Negotiable Time Deposits, 4.2% in Other Repo, 4.7% in US Government Agency Repo and 1.1% in VRDNs.

Government money fund portfolios totaled $2.503 trillion (51.3% of all MMF assets), down $55.0 billion from $2.558 trillion in June, while Treasury money fund assets totaled another $1.243 trillion (25.5%), down from $1.251 trillion the prior month. Government money fund portfolios were made up of 29.6% US Govt Agency Debt, 12.5% US Government Agency Repo, 44.6% US Treasury debt, 12.8% in US Treasury Repo, 0.2% in VRDNs and 0.2% in Investment Company. Treasury money funds were comprised of 82.8% US Treasury Debt and 17.1% in US Treasury Repo. Government and Treasury funds combined now total $3.746 trillion, or 76.8% of all taxable money fund assets.

European-affiliated holdings (including repo) rose by $77.6 billion in July to $624.5 billion; their share of holdings rose to 12.8% from last month's 11.0%. Eurozone-affiliated holdings rose to $424.3 billion from last month's $353.5 billion; they account for 8.7% of overall taxable money fund holdings. Asia & Pacific related holdings decreased $3.1 billion to $269.4 billion (5.5% of the total). Americas related holdings fell $157 billion to $3.979 trillion and now represent 81.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $48.9 billion, or 9.4%, to $570.7 billion, or 11.7% of assets); US Government Agency Repurchase Agreements (down $8.0 billion, or -2.1%, to $368.1 billion, or 7.5% of total holdings), and Other Repurchase Agreements (down $0.8 billion, or -1.7%, from last month to $47.9 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $9.4 billion to $154.2 billion, or 3.2% of assets), Asset Backed Commercial Paper (down $3.6 billion to $66.1 billion, or 1.4%), and Non-Financial Company Commercial Paper (up $2.3 billion to $55.7 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of July 31, 2020, include: the US Treasury ($2,464.4 billion, or 50.5%), Federal Home Loan Bank ($510.3B, 10.5%), Federal National Mortgage Association ($121.5B, 2.5%), BNP Paribas ($118.1B, 2.4%), Fixed Income Clearing Co ($105.7B, 2.2%), Federal Farm Credit Bank ($101.3B, 2.1%), RBC ($101.2B, 2.1%), Federal Home Loan Mortgage Co ($95.4B, 2.0%), JP Morgan ($87.9B, 1.8%), Credit Agricole ($72.2B, 1.5%), Mitsubishi UFJ Financial Group Inc ($63.8B, 1.3%), Barclays ($58.6B, 1.2%), Citi ($53.3B, 1.1%), Sumitomo Mitsui Banking Co ($47.1B, 1.0%), Toronto-Dominion Bank ($41.8B, 0.9%), Societe Generale ($41.4B, 0.8%), Bank of Montreal ($41.1B, 0.8%), Bank of America ($33.4B, 0.7%), Mizuho Corporate Bank Ltd ($32.4B, 0.7%) and Canadian Imperial Bank of Commerce ($32.0B, 0.7%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: BNP Paribas ($108.7B, 11.0%), Fixed Income Clearing Co ($105.5B, 10.7%), JP Morgan ($77.8B, 7.9%), RBC ($74.0B, 7.5%), Credit Agricole ($53.7B, 5.4%), Citi ($45.4B, 4.6%), Mitsubishi UFJ Financial Group ($43.3B, 4.4%), Barclays ($40.9B, 4.1%), Societe Generale ($32.3B, 3.3%) and Bank of America ($30.5B, 3.1%). Fed Repo positions among MMFs on 7/31/20 still include only Franklin US Govt Money Market Fund ($0.2B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($27.8B, 5.7%), RBC ($27.2B, 5.6%), Mizuho Corporate Bank Ltd ($21.5B, 4.4%), Mitsubishi UFJ Financial Group ($20.5B, 4.2%), Sumitomo Mitsui Banking Co ($19.4B, 4.0%), Credit Agricole ($18.5B, 3.8%), Barclays ($17.7B, 3.6%), Sumitomo Mitsui Trust Bank ($17.6B, 3.6%), Canadian Imperial Bank of Commerce ($16.2B, 3.3%) and Bank of Montreal ($13.8B, 2.8%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Co ($15.9B, 8.1%), Mitsubishi UFJ Financial Group Inc ($15.5B, 7.9%), Bank of Montreal ($12.6B, 6.4%), Toronto-Dominion Bank ($11.7B, 6.0%), Sumitomo Mitsui Trust Bank ($11.6B, 5.9%), Mizuho Corporate Bank Ltd ($11.3B, 5.8%), Bank of Nova Scotia ($7.9B, 4.0%), Natixis ($7.7B, 3.9%), Svenska Handelsbanken ($7.5B, 3.8%) and Landesbank Baden-Wurttemberg ($7.4B, 3.8%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($17.3B, 7.3%), Toronto-Dominion Bank ($15.1B, 6.4%), JP Morgan ($10.1B, 4.3%), Societe Generale ($8.2B, 3.5%), Caisse des Depots et Consignations ($7.6B, 3.2%), NRW.Bank ($7.5B, 3.2%), Canadian Imperial Bank of Commerce ($7.4B, 3.1%), FMS Wertmanagement ($7.2B, 3.1%), Credit Suisse ($6.9B, 2.9%) and BNP Paribas ($6.5B, 2.7%).

The largest increases among Issuers include: Credit Agricole (up $28.7B to $72.2B), BNP Paribas (up $11.3B to $118.1B), Societe Generale (up $7.6B to $41.4B), Mizuho Corporate Bank Ltd (up $7.3B to $32.4B), Barclays PLC (up $6.9B to $58.6B), Credit Suisse (up $6.0B to $25.0B), Deutsche Bank AG (up $4.9B to $18.6B), Landesbank Baden-Wurttemberg (up $2.7B to $10.6B), DNB ASA (up $2.5B to $12.4B) and Lloyds Banking Group (up $2.4B to $11.0B).

The largest decreases among Issuers of money market securities (including Repo) in July were shown by: the US Treasury (down $79.9B to $2,464.4B), Federal Home Loan Bank (down $32.0B to $510.3B), Federal Home Loan Mortgage Corp (down $8.3B to $95.4B), RBC (down $8.0B to $101.2B), Bank of Nova Scotia (down $6.8B to $27.7B), Sumitomo Mitsui Banking Corp (down $6.1B to $47.1B), Fixed Income Clearing Corp (down $5.6B to $105.7B), Bank of America (down $3.7B to $33.4B), Federal National Mortgage Association (down $3.5B to $121.5B) and HSBC (down $3.4B to $27.5B).

The United States remained the largest segment of country-affiliations; it represents 76.2% of holdings, or $3.720 trillion. France (5.9%, $285.8B) was number two, and Canada (5.3%, $258.5B) was third. Japan (4.6%, $223.9B) occupied fourth place. The United Kingdom (2.5%, $120.3B) remained in fifth place. Germany (1.5%, $72.8B) was in sixth place, followed by The Netherlands (1.2%, $56.7B), Switzerland (0.7%, $35.7B), Australia (0.6%, $29.3B) and Sweden (0.6%, $29.2B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of July 31, 2020, Taxable money funds held 29.3% (up from 28.7%) of their assets in securities maturing Overnight, and another 11.0% maturing in 2-7 days (up from 9.2% last month). Thus, 40.3% in total matures in 1-7 days. Another 14.6% matures in 8-30 days, while 16.4% matures in 31-60 days. Note that over three-quarters, or 71.3% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 12.2% of taxable securities, while 13.9% matures in 91-180 days, and just 2.7% matures beyond 181 days.

Federated Hermes hosted a webinar late last week entitled, "ESG integration: A difference maker in the pandemic" where CIO for Global Liquidity Debbie Cunningham discusses the latest in ESG investing, negative yields and fee waivers, among other things. She comments, "Historically, through the credit process in our liquidity group, governance has been our biggest ESG sort of qualitative concern, mainly because of the large exposure that we have to the banking sector. Stewardship, however, during the pandemic and the social unrest has changed that focus a bit.... Engagement on some of these high impact risk events is really now core to this active management program that we have through EOS and incorporated again in the liquidity group through our credit analysis factor. So social factors, data governance, human capital, those have come to the forefront over the course of the year-to-date timeframe."

Cunningham explains, "We've also been noting, for clients specifically, a lot of positive ESG stories that have involved from many of our issuers that we invest in. Some examples of a few of those would be: a large consumer beverage company that distributes products through plastics, which has heretofore been a negative, in fact uses those plastics to manufacturer face shields for the healthcare sector during the first and second quarters of the year. Several auto companies have reconfigured their manufacturing lines away from making automobiles and turned to making respirators. Again, for the benefit of the social factors that we're considering."

She continues, "And certainly when you look again at that large exposure in banks and in our government products, in the housing GSEs, the fact that they've been adjusting forbearance and other types of processes to allow people to stay in their homes, and to stay current on their credit, has been immensely helpful to the overall economy through these very difficult times."

On Treasury supply, Cunningham comments, "Second half Treasury funding needs are greater than $2 trillion, and that's not with anything that's brand new. In the month of April alone, they issued a trillion dollars of net new bill supply. They had a huge pace in the month of May, though it's a little more gradual in the month of June. But it's continuing.... This has reduced the chance ... that Treasury securities will trade [in] negative territory like they did a few days in late March.... So the large amount of Treasury issuance is ... quite beneficial not only for those who are the ultimate recipients of it, but for those of us who are investing in the short-term cash markets as well.... Treasury issuance will remain robust, which really should help keep a floor again under short term rates."

Discussing negative rates, she says, "We think it's highly unlikely that would ever occur. A couple different reasons.... The Fed has told us that. Chair Powell has said on numerous occasions, and in press conferences where at least a dozen times he's referenced the fact that they have lots of other options.... On the operational side of things, the Treasury doesn't have the capability right now of issuing negative rates at auction. So that's a pretty big deterrent to doing it. There would likely be a big lead up to that happening should they choose to ever go down that path.... Another reason is ... it's been undertaken in other areas of the world [and] it hasn't really helped from an economic stimulus standpoint."

Cunningham also talks about bank deposits, saying, "[Among] the largest, most high-quality traditional U.S. banks in the country, [a huge amount is] in non-interest-bearing deposits. So nothing is being earned on ... probably the vast majority of banks deposits. When you see attractive teaser rates in the marketplace, these are likely potentially for lower quality issuers.... It doesn't matter where market interest rates are, you're not going to earn anything in those deposits."

She adds, "These points that I just noted do seem to have been taken into consideration by investors in the liquidity market on a year-to-date basis. [T]he growth rate in money market funds on a year-to-date basis, which has been 28%, has exceeded the growth rate in bank deposits, which has been 16%. So, clients do seem to have differentiated in their, what I'll call a flight to quality decision and, maintained asset growth at a higher level on a percentage basis in the money market fund products in the industry."

Finally, during the Q&A, Cunningham was asked whether fee waivers would hit Prime Institutional MMFs. She responds, "Our expectation would be, no, they shouldn't. We should maintain enough of the spread from a market issuance standpoint [because of] what we're able to purchase in the Prime funds versus, you know, Treasury and Government securities.... On the Government side, I'm going to couch it a little bit because it's very dependent on market metrics, and supply and demand are key variables to keeping interest rates a little bit higher and high enough for us.... The Fed and Treasury have been helpful by having a large amount of supply that they needed, a lot of that coming in the front end."

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Tuesday, and we'll be writing our normal monthly update on the July 31 data for Wednesday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of July 31, 2020, includes holdings information from 1,076 money funds (down 2 from last month), representing assets of a record $5.060 trillion (down $93 billion). We review the new N-MFP data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.483 trillion (down from a record $2.566 trillion), or a shocking 49.1% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $992.1 billion (up from $952.8 billion), or 19.6% of all assets, and Government Agency securities totaled $850.0 billion (down from $896.0 billion), or 16.8%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.325 trillion, or a stunning 85.5% of all holdings.

Commercial paper (CP) totals $285.7 billion (down from $297.0 billion), or 5.6%, and Certificates of Deposit (CDs) total $196.4 billion (down from $208.9 billion), 3.9%. The Other category (primarily Time Deposits) totals $149.7 billion (up from $125.5 billion), or 3.0%, and VRDNs account for $103.1 billion (down from $107.7 billion last month), or 2.0%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $163.8 billion, or 3.2%, in Financial Company Commercial Paper; $58.6 billion or 1.2%, in Asset Backed Commercial Paper; and, $63.3 billion, or 1.3%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($582.8B, or 11.5%), U.S. Govt Agency Repo ($361.4B, or 7.1%) and Other Repo ($47.8B, or 0.9%).

The N-MFP Holdings summary for the 221 Prime Money Market Funds shows: Treasury holdings of $326.2 billion (down from $349.9 billion), or 28.4%; CP holdings of $280.0 billion (down from $290.8 billion), or 24.3%; CD holdings of $196.4 billion (down from $208.9 billion), or 17.1%; Repo holdings of $142.5 billion (down from $155.4 billion), or 12.4%; Other (primarily Time Deposits) holdings of $98.3 billion (up from $77.1 billion), or 8.5%; Government Agency holdings of $92.4 billion (up from $77.7 billion), or 8.0% and VRDN holdings of $14.3 billion (up from $12.5 billion), or 1.2%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $163.8 billion (down from $174.0 billion), or 14.2%, in Financial Company Commercial Paper; $58.6 billion (down from $61.9 billion), or 5.1%, in Asset Backed Commercial Paper; and $57.5 billion (up from $55.0 billion), or 5.0%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($40.4 billion, or 3.5%), U.S. Govt Agency Repo ($54.3 billion, or 4.7%), and Other Repo ($47.8 billion, or 4.2%).

Crane Data's latest Money Fund Market Share rankings show assets were down for most of the largest U.S. money fund complexes in July. Money market fund assets decreased $44.2 billion, or -0.9%, last month to $4.988 trillion. Assets have fallen by $163.7 billion, or -3.2%, over the past 3 months, but they've increased by $1.284 trillion, or 34.7%, over the past 12 months through July 31, 2020. The only increases among the 25 largest managers last month were seen by SSGA, Goldman Sachs, Wells Fargo, HSBC and Western, which grew assets by $16.5 billion, $12.7B, $5.0B, $1.3B and $1.2B, respectively. The largest declines in assets in July were seen by Fidelity, Vanguard, JP Morgan, Schwab and Morgan Stanley, which decreased by $25.1 billion, $16.1B, $14.3B, $9.1B and $8.7B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in July.

Over the past year through July 31, 2020, Goldman Sachs (up $196.1B, or 89.4%), Fidelity (up $174.9B, or 23.6%), JP Morgan (up $118.7B, or 35.9%), Vanguard (up $104.1B, or 27.5%), BlackRock (up $102.8B, or 33.2%), Federated Hermes (up $93.3B, or 33.0%) and Wells Fargo (up $85.5B, or 69.8%) were the largest gainers. These complexes were followed by Morgan Stanley (up $79.3B, or 65.6%), SSGA (up $74.1B, or 71.2%), Northern (up $68.6B, or 56.6%) and Dreyfus/BNY Mellon (up $47.1B, or 29.8%). Wells Fargo, Northern, SSGA, Dreyfus and Western had the largest money fund asset increases over the past 3 months, rising by $12.7B, $8.8B, $4.5B, $4.1B and $4.0B, respectively. The largest decliners over 3 months included: Fidelity (down $46.2B, or -4.8%), JP Morgan (down $45.8B, or -9.2%), Morgan Stanley (down $24.4B, or -10.9%), Federated Hermes (down $21.8B, or -5.5%) and BlackRock (down $21.0B, or -4.8%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $917.0 billion, or 18.4% of all assets. Fidelity was down $25.1 billion in July, down $46.2 billion over 3 mos., but up $174.9B over 12 months. Vanguard ranked second with $482.3 billion, or 9.7% market share (down $16.1B, up $1.8B and up $118.7B for the past 1-month, 3-mos. and 12-mos., respectively). JP Morgan was third with $449.5 billion, or 9.0% market share (down $14.3B, down $45.8B and up $118.7B). Goldman Sachs ranked fourth with $415.4 billion, or 8.3% of assets (up $12.7B, up $785M and up $196.1B for the past 1-month, 3-mos. and 12-mos.), while BlackRock took fifth place with $412.3 billion, or 8.3% of assets (down $1.2B, down $21.0B and up $102.8B).

Federated Hermes was in sixth place with $376.4 billion, or 7.5% of assets (down $3.4 billion, down $21.8B and up $93.3B), while Wells Fargo was in seventh place with $208.0 billion, or 4.2% (up $5.0B, up $12.7B and up $85.5B). Dreyfus ($205.5B, or 4.1%) was in eighth place (up $303M, up $4.1B and up $47.1B), followed by Morgan Stanley ($200.1B, or 4.0%, down $8.7B, down $24.4B and up $79.3B). Schwab was in 10th place ($200.0B, or 4.0%; down $9.1B, down $14.8B and up $20.9B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($189.9B, or 3.8%), SSGA ($178.3B, or 3.6%), American Funds ($157.6B, or 3.2%), First American ($91.7B, or 1.8%), UBS ($78.0B, or 1.6%), Invesco ($76.6B, or 1.5%), T Rowe Price ($39.5B, or 0.8%), HSBC ($37.5B, or 0.8%), Western ($35.6B, or 0.7%) and DWS ($27.8B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers appear as Fidelity, JP Morgan, BlackRock, Goldman Sachs, Vanguard, Federated Hermes, Morgan Stanley, Dreyfus/BNY Mellon, Northern and Wells Fargo. JP Morgan moves ahead of Vanguard, BlackRock moves ahead of Goldman Sachs and Vanguard, Morgan Stanley moves ahead of Dreyfus, and Northern moves ahead of Wells Fargo. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($927.3 billion), J.P. Morgan ($678.6B), BlackRock ($605.1B), Goldman Sachs ($556.2B) and Vanguard ($492.3B). Federated Hermes ($388.0B) was sixth, Morgan Stanley ($246.8B) was in seventh, followed by Dreyfus/BNY Mellon ($226.0B), Northern ($217.5B) and Wells Fargo ($209.0B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/31/20, shows that yields dropped in July for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 751), fell 2 basis points to 0.05% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 2 bps to 0.06%. The MFA's Gross 7-Day Yield was down 2 bps to 0.28%, while the Gross 30-Day Yield fell 2 bps 0.29%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.08% (down 4 bps) and an average 30-Day Yield that decreased by 3 bps to 0.09%. The Crane 100 shows a Gross 7-Day Yield of 0.27% (down 4 bps), and a Gross 30-Day Yield of 0.29% (down 3 bps). Our Prime Institutional MF Index (7-day) yielded 0.11% (down by 7 bps) as of July 31, while the Crane Govt Inst Index was 0.05% (down 1 basis point) and the Treasury Inst Index was 0.04% (down 1 bps). Thus, the spread between Prime funds and Treasury funds is 7 basis points, while the spread between Prime funds and Govt funds is 6 basis point. The Crane Prime Retail Index yielded 0.06% (down 4 bps), while the Govt Retail Index was 0.02% (unchanged) and the Treasury Retail Index was 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yield dropped in July to 0.04% (unchanged).

Gross 7-Day Yields for these indexes in July were: Prime Inst 0.35% (down 7 bps), Govt Inst 0.24% (down 1 basis point), Treasury Inst 0.24% (down 1 bps), Prime Retail 0.41% (down 4 bps), Govt Retail 0.23% (flat) and Treasury Retail 0.26% (unch. from the previous month). The Crane Tax Exempt Index was flat at 0.29%. The Crane 100 MF Index returned on average 0.01% over 1-month, 0.02% over 3-months, 0.32% YTD, 0.99% over the past 1-year, 1.33% over 3-years (annualized), 0.87 % over 5-years, and 0.46% over 10-years.

The total number of funds, including taxable and tax-exempt, was unchanged at 934. There are currently 751 taxable funds, unchanged from the previous month, and 183 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Summer Asset Swoon Ending But Totals Back Below $5 Trillion," which focuses on recent declines in money market fund assets; "PM Perspectives: Walczak, Hill & Yi Discuss MMFs," which excerpts from our latest webinar; and, "Bank Regulators Getting Jump on Future Reg Changes," which discusses the potential for future reforms. We've also updated our Money Fund Wisdom database with July 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship on Tuesday, August 11, and our August Bond Fund Intelligence is scheduled to go out Friday, August 14.

MFI's "Summer Swoon" article says, "Money fund assets declined by $44.2 billion in July to $4.991 trillion, after falling $127.9 billion in June. Prime MMFs saw their first drop since March (down $18.9 billion to $1.122 trillion), while Govt MMFs showed their third monthly drop in a row (down $18.9 billion to $3.738 trillion last month). MMFs fell below $5.0 trillion for the first time since late April according to our MFI XLS data series. They'd increased by a huge $1.192 trillion during the March through May period."

It continues, "Prime money fund assets fell by $123.9 billion in March, dropping below the $1.0 trillion level to $957.7 billion, but they rebounded by $104.7 billion in April, $53.2 billion in May and $25.6 billion in June, prior to this month's decline."

Our "Profile" reads, "We recently hosted 'Crane's Money Fund Webinar: Portfolio Manager Perspectives,' which featured Federated Hermes' Sue Hill, Northern Trust Asset Management's Peter Yi and UBS Asset Management's David Walczak. The three senior PMs discussed money market supply, asset flows, yields and the outlook for Prime money market funds, among other things. We quote some of the highlights of the webinar below. (Click here to access the recording and here for our Webinar page, and register for our next event, 'Crane's Money Fund Webinar: Mini Fund Symposium,' which will be August 26, 2020, 1-4pm EDT.)

Hill says, "We all know that in March there were enormous inflows of assets ... into government money market funds. We know the massive Fed actions across the board to support the market, support functioning, market liquidity. We know there's been massive fiscal support as a result to address the impact of the coronavirus and the shutdown."

She continues, "Government funds absorbed the inflows relatively well. Initially in March, through issuance on the agency side, Federal Home Loan banks in particular [supported the] growth. As we flipped the calendar into April and May, [we saw] substantial issuance, at a pace never seen before, of Treasury bills, through regular Treasury bill issuance and cash management bills. So we got through that time period reasonably well. That issuance by Treasury removes that threat of negative rates in the secondary market that we saw in late March and into early April."

The "Reg Changes" article tells readers, "As the money markets continue to stabilize and yields slowly grind down to zero, many, especially bank regulators, have begun discussing potential reforms to money funds, again. We think it will be some time before anything happens, and a lot depends on the elections, but the early conversations bear watching."

The piece continues, "The Centre for Economic Policy Research (VoxEU.org) published a brief from Federal Reserve economists entitled, "Runs on prime money funds during the COVID-19 crisis." The piece explains, "Liquidity restrictions on investors, like the redemption gates and liquidity fees introduced in the 2016 money market fund (MMF) reform, are meant to improve financial stability during a crisis. However, by comparing the latest outflow episode due to COVID-19 to those in 2008 and 2011, this column finds evidence that these liquidity restrictions might have exacerbated the run on prime MMFs in this episode."

The latest MFI also includes the News brief, "Dreyfus Liquidation General NJ MF," which says, "A Prospectus Supplement filing for Dreyfus's General New Jersey Money Market Fund tells us, 'The Board of Directors of General New Jersey Municipal Money Market Fund, Inc. has approved the liquidation of the Fund, effective on or about Sept. 11, 2020.' The fund had filed a Form N-CR after hitting a shadow price of 0.9975 a share in March. Also, Schwab filed a 'Form N-1A' for new 'Ultra Share' classes of its Schwab Govt Money Fund, Schwab Treasury Obligations MF and Schwab U.S. Treasury MF."

A second News piece titled, "SEC Statistics: Assets Fall Back to $5.1 Trillion in June, Yields Down," says, "The Securities and Exchange Commission's latest monthly 'Money Market Fund Statistics' summary shows that total money fund assets dropped by $127.3 billion in June to $5.104 trillion, just the 2nd decrease in the past 24 months. The SEC shows that Prime MMFs increased $21.3 billion in June to $1.162 trillion, while Govt & Treasury funds plummeted $145.1 billion to $3.806 trillion. Tax Exempt funds decreased by $3.5 billion to $136.6 billion. Yields were down across the board in June, except for a slight increase in Tax Exempt Institutional yields.

Our July MFI XLS, with July 31 data, shows total assets decreased by $44.2 billion in July to $4.991 trillion, after decreasing $113.0 billion in June, increasing $31.6 billion in May, jumping $417.9 billion in April and skyrocketing $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell 2 bps to 0.05% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 3 bps to 0.08%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down at 0.28% while the Crane 100 fell to 0.27%. Charged Expenses averaged 0.23% (unchanged from last month) and 0.20% (down 3 bps and 1 basis point from the previous month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 39 (down 1 day) and 42 days (down a day) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Western Asset hosted a, "Liquidity Strategy Update: Mid-Year Review and Economic Outlook" earlier this week, which featured Head of Liquidity Portfolio Management Kevin Kennedy, and also announced the completion of its merger with Franklin Templeton. The webinar discussed, "the impact of the COVID-19 crisis on liquidity markets, including the Federal Reserve's policy response, [the] market outlook for liquidity investors ... and ... conditions ahead." We excerpt from Western's update below. (See also our Feb. 20 News, "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations.")

Kennedy says, "I'll try to give the portfolio manager perspective, which is acknowledging the harsh realities of the rate remaining close to zero for quite a long period of time. On U.S. short term rates ... obviously, it's generally a trend toward significant rate declines toward zero.... The Fed was viewed as moving aggressively, quickly, proactively, and, it was viewed by markets in general that they made the right move at the right time.... There was a strong demand to remain liquid, to move towards the most liquid of securities, to build up cash, to make sure you had access to it should you need it quickly. And what that resulted in was a huge shift out of Prime funds, out of less liquid instruments, into Treasury securities, and out of equities to a certain extent. During that point it became impossible for banks, for industrials, CP issuers to raise funds. Really, in order to raise funds during that time it was probably necessary to pay as much as two percent, you know, when you had a Fed funds rate that was close to zero."

He continues, "The Fed stepped in very quickly with a number of programs; probably the most important of which when it came down to reopening the short-term markets and rebuilding liquidity was the Money Market Liquidity Facility. [The MMLF] on a nonrecourse basis provides financing for dealers to finance commercial paper and CDs with the Fed. That ... had a quick, direct impact on money markets. That’s when we started to see a steady decline in LIBOR, in fact, a fairly rapid decline. And that was in conjunction with a number of the other Fed programs."

The Western veteran explains, "One of the most incredible increases in supply ... that I think we've ever seen, was the dramatic increase in Treasury bill supply, which began at the end of March. We may remember, those who keep an eye on the short-term markets and the bill market, that there was a period of time towards the end of the first quarter, really prior to the time when Treasury bill issuance jumped higher, right before then bills did go briefly negative for a period of time.... Towards the end of March both were trading as low as negative 10 to 20 basis points."

He tells us, "[To] overseas investors, certainly with ... a largely negative rate environment in many areas of the globe, the U.S. still represented value, if only because there was a positive yield, … excellent liquidity characteristics, and money market funds themselves.... There was certainly a building demand ... from investors of money markets, certainly on the Treasury and government side.... Their fears were relieved somewhat as the Fed acted strongly, [but] they still maintain very high levels of balances in Treasury and government funds.... You did start to see a bit of a decline as investors started to venture into other short-term alternatives, or back into equity markets, or corporates, or other risk sectors. But still, to date Treasury and Government funds are still are much larger than they were prior to the onset of the crisis."

Kennedy also comments, "As time has gone on, we've noticed a significant flattening in yield curves in general. Certainly, the U.S. Treasury yield curve has flattened significantly. And that [has] helped the bill market maintain its attractiveness.... Those who were generally Treasury investors in that one-to-three-year area ... looked to take less duration risk since they really weren't getting paid.... They could get close to the same return in the Treasury bill market. Industrial grade issuers ... those spreads have come in sharply since the height of the crisis. And, we really don't see that changing very much going forward, especially since the Fed has announced extensions of their liquidity programs and extension of their swap lines through the end of 2020."

He states, "One of the positives when it comes down to being comfortable that yields won't drift too close ... to zero, is that there will continue to be an increase in Treasury issuance going forward.... It will keep a floor under funding rates going forward. So I think we will see overnight rates perhaps remain fairly steady, provide a bit of a floor for what Treasury bills yield and therefore a bit of a floor for where money market instruments are trading."

Kennedy adds, "As a portfolio manager of a Prime fund, I'm certainly looking to take advantage of whatever yield curve steepness there is. We might be a bit more selective from a credit perspective on banks and industrial issues further out curve, some that might be a little bit more impacted by some disappointments on the economic side or with concerns that there might be some sort of a delay in an eventual answer to Covid.... But until we see a flatter curve, we’ll take advantage of what is available on the yield curve by investing in some solid global money center banks – out in the six to twelve-month range."

He tells the webinar, "With Treasury and Government funds, it's a tougher story. Yields on Treasury bills from one-month to 12-months are anywhere from 9 to 11 basis points -- so not much to work with from a yield curve perspective. And the same can be said as far as Government agencies, which trade pretty much on top of Treasuries. So, they're a little bit more challenging, a little bit more dependent on money market technicals and where overnight rates are trading. Thankfully, we will have some steady increase in supply over the second half the year, which, might provide a very modest uplift in Treasury bill yields."

When asked about ultra-shorts during a Q&A, Kennedy says, "What we're doing in our portfolios now outside money funds is taking advantage of short duration investment grade credit one to five-year part of the curve, trying to take advantage of any issuance that does take place. Certainly, the opportunity in the front end of the curve is not what it had been. There has been strong demand for high quality investment grade credit in the front end by those types of investors who are generally in short duration or in money funds, and certainly are conscious of the fact that credit quality still remains quite solid in general in the U.S."

He explains, "So, spreads have come in quite a bit here.... You're looking at an all-in yield of under 50 basis points for a solid liquid credit. But that is where you begin to think about relative value and perhaps look at money markets from time to time. But in general, that's the expensive side of what's out there. If you're looking at financial sector … I think you have to do your homework. That's where we rely quite a bit on our credit team. But, yeah, we are certainly looking for opportunities in that one to five-year space, whether it be fixed or floating. And, certainly there would be no home runs from where we are now."

Finally, Western wrote recently to clients, saying, "We are pleased to inform you that on Friday, July 31st, Franklin Templeton successfully completed its acquisition of Legg Mason and officially welcomed Western Asset to the Franklin Templeton family. It is important to reinforce that while our parent company has changed, your relationship team, your investment team, the Western Asset leadership team and our investment philosophy and process remain unchanged. Western Asset’s organizational and investment autonomy will be preserved by Franklin Templeton. We are also thrilled to be gaining access to a new and expansive distribution platform and greater product development resources to benefit our clients."

The Federal Reserve Bank of New York recently published a "Liberty Street Economics blog entitled, "The Federal Reserve's Large-Scale Repo Program." It explains, "The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve's actions to address those disruptions."

The NY Fed piece continues, "As described in this Staff Report, the repo market serves in part to transfer liquidity from cash investors to cash borrowers, with securities dealers acting as intermediaries. In addition, dealers typically finance a substantial portion of their securities inventory through repo. A number of investors, the largest of which are money market mutual funds (MMFs), lend cash to dealers. Other major cash lenders include commercial banks and the government-sponsored enterprises."

It tells us, "Across all segments and collateral types, the repo market is nearly $4.0 trillion in size, with more than $1.0 trillion in overnight Treasury repo alone. The repo market is important given its size and scale as well as its role in providing funding for Treasury debt and other securities. Additionally, the Secured Overnight Financing Rate (SOFR), a broad measure of overnight Treasury repo rates, is the Alternative Reference Rates Committee's preferred alternative to USD LIBOR (the London interbank offered rate)."

The blog explains, "We focus here on the general collateral repo market, in which funding is provided against a broad set of acceptable high-quality collateral, rather than a specific asset. Repo against particular, specified assets is referred to as 'specific-issue' or 'specials' trading. While general collateral repo is typically aimed at borrowing cash against a portfolio of securities, specials trading is associated with obtaining securities."

It also says, "The U.S. repo market suffered severe strains in the second half of March, due in part to the heightened uncertainty related to the coronavirus pandemic, which affected financial markets broadly, and in part to some factors specific to the repo market, such as the increase in dealer inventories and the unwind of Treasury cash-futures basis trades. The Federal Reserve responded by increasing the frequency, offering sizes, and terms of its repo operations and by purchasing a large quantity of Treasury and agency securities in the secondary market, reducing pressures on dealer balance sheets. These operations appear to have been successful in restoring functioning in these important financing markets."

In other news, J.P. Morgan's "June 2020 Taxable money market fund holdings update" explains, "Taxable MMFs saw net outflows in June, with $125bn exiting the fund complex month over month, likely due to tax payments.... Government funds saw outflows of $138bn while prime funds received a net inflow of $13bn, recouping more of their AUM losses from earlier this year.... Dealer repo ex-FICC decreased $97bn month over month, while exposure to FICC sponsored repo decreased $25bn to $111bn in June.... RRP usage was minimal at just $1bn. Given a 5-10bp disparity between bill yields and repo, most MMFs found relative value by investing in bills rather than repo."

It continues, "Government MMFs pared down agencies exposure as well.... For yet another month, bills were the asset of choice for both Gov/Agy and Tsy funds in terms of AUM allocation. Adding in prime funds' holdings, MMFs now comprise 42% of the T-bill market -- near the record high we saw last month.... While the bulk of current bill holdings are concentrated in the very frontend of the curve ... new purchases were focused on the longer end of the bills curve.... The flows into prime funds (+$19bn) in May seem to have mostly found their way into Treasuries and Agencies instead of credit."

The update tells us, "On the benchmark reform front, government MMF Agency FRN holdings continued to be concentrated in SOFR FRNs. We estimate that at month-end these funds held $324bn of SOFR FRNs versus $186bn of non-SOFR floaters.... On the prime side, we have noticed a considerable uptick (+$20bn m/m) in agency SOFR floaters as well.... Much like the pivot prime funds made towards T-bills and away from CP/CD, we suspect this was driven by similar relative value considerations as credit spreads are rapidly tightening. And unlike credit SOFR-based FRNs, the GSE SOFR FRN market is massive and more liquid. On margin, when faced with low yields on bank credit, some managers now see agency SOFR FRNs as a safe and liquid alternative."

It adds, "In June, prime funds continued to de-risk, turning away from credit products and continuing to buy Treasuries.... Bank CP/CD/TD exposures decreased $20bn.... At the individual issuer level, changes were largely idiosyncratic.... Month over month, the weighted average maturity of bank CP/CD held by prime MMFs decreased 3 days to 53 days, while the weighted average life was flat at 83 days.... Swiss banks had the longest WAL at 141 days, followed by Australian banks at 100 days."

Finally, 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 July 31) includes Holdings information from 60 money funds (down 26 from a week ago), which represent $2.017 trillion (down from $2.475 trillion) of the $4.963 trillion (40.6%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website. For our latest monthly Holdings, see our July 13 News, "July MF Portfolio Holdings: Repo Plunges, Treasuries Break $2.5 Trillion.")

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.123 trillion (down from $1.326 trillion a week ago), or 55.7%, Repurchase Agreements (Repo) totaling $411.7 billion (down from $500.3 billion a week ago), or 20.4% and Government Agency securities totaling $299.8 billion (down from $381.5 billion), or 14.9%. Certificates of Deposit (CDs) totaled $67.6 billion (down from $86.3 billion), or 3.4%, and Commercial Paper (CP) totaled $58.2 billion (down from $89.8 billion), or 2.9%. VRDNs accounted for $29.6 billion, or 1.5%, while the Other category accounted for $26.3 billion or 1.3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.123 trillion (55.7% of total holdings), Federal Home Loan Bank with $167.2B (8.3%), BNP Paribas with $58.3B (2.9%), Federal Farm Credit Bank with $53.9B (2.7%), Fixed Income Clearing Co with $48.5B (2.4%), Federal National Mortgage Association with $45.2B (2.2%), RBC with $37.6B (1.9%), Federal Home Loan Mortgage Co with $31.5B (1.6%), Mitsubishi UFJ Financial Group Inc with $26.7B (1.3%) and Credit Agricole with $25.7B (1.3%).

The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($255.8B), JP Morgan US Govt MM ($186.5B), Fidelity Inv MM: Govt Port ($166.1B), Wells Fargo Govt MM ($142.7B), JP Morgan 100% US Treas MMkt ($114.1B), Goldman Sachs FS Treas Instruments ($93.1B), Morgan Stanley Inst Liq Govt ($89.2B), Dreyfus Govt Cash Mgmt ($88.2B), State Street Inst US Govt ($83.4B) and JP Morgan Prime MM ($83.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

Last week, Euromoney hosted a webinar entitled, "Managing the 24-hour money market," which featured Calastone's Edward Lopez and SSGA's Will Goldthwait. The session, sponsored by Calastone, covered, "The importance of robust, accountable and informed technology in underpinning the money market," and touched on negative yields, European money fund issues and managing cash in the time of Covid. Lopez comments, "We've seen a lot more need for automation. From the Calastone perspective, our core business is automating the mutual fund flow. But what we've seen recently is more of a focus around the specific vertical for institutional money funds. So, while there had been a little bit of automation in that part of the mutual fund space, what we've seen is there has been a drive to automate the trading, reporting and the settlement side of things.... What's come about with Covid and working from home is now you've got Treasury teams and maybe many of you on the call ... working remotely. And while you might have had a manual process that worked well when you were all sitting on the same floor, or in the same office, now that everyone's working from home ... you could start to see [some] risk.... So we've seen ... a lot more requests to automate some of those processes where we've seen a lot of manual activity in the past."

Goldthwait tells us, "I think that my biggest takeaway from the portfolio management side of things has just been the enormous stress test that essentially, we saw.... We saw a live market dynamic that was putting enormous stress on money market funds, and they came through it. There were certainly some tense periods during the latter half of March. I think the best news for clients that are using money market funds is all of this information is publicly available. Clients now have sort of a data set that they can reference to look at money market funds in an incredibly strained environment, and see how they performed, and what the strains were on yields, on NAVs, on shareholder activity. They can use that to make informed decisions going forward on how they want to incorporate money market funds into their cash management process."

He explains, "Being one shareholder in a money market fund, you know you're with many others, and you know that everyone else is watching. So that's certainly one thing that we hear from clients, the fact that they know if they're in a money market fund there's many people just like them. And they're also curious, what one or other corporate treasurers in my particular sector are doing. So we do speak a lot about that. The other sort of layer of oversight we have is the rating agencies. And they're in with oversight, with daily reports that come in and allow them to monitor those money market funds. So that's another layer."

Goldthwait adds, "The amount of public data now that's available on funds due to reform, you know, European domiciled funds, U.S. domiciled funds, is really remarkable. And I think that was a really helpful piece, and has been a helpful piece, during this first half of the year. A client can get more comfortable with exactly what securities are in these funds? Where are the exposures? And then what are the risk metrics? What are the durations? What's the liquidity look like in these funds? And so that's been another comforting thing for clients."

Lopez says, "I mentioned that in a survey that we've done, APAC was looking for automation around settlements.... But other regions around the world, it was getting the reporting and analytics and looking through insights into funds, etc. Getting all of that wealth of information that's out there that you mentioned Will, and just putting it into a format that could be easily consumed by their analytic systems or their TMS (treasury management system). You can absolutely see that folks are comfortable with the investment from a security perspective, but just ensuring that the proper reporting and analytics is something [else]."

Goldthwait comments, "The other thing that we've seen is the flows have been very, very different from 2008. That's a question that we immediately got, starting literally at the end of February, the beginning of March, is 'Uh oh, do we have a 2008 scenario again?' And I think the flows ... in the U.S. of almost $1.1 trillion coming into money market funds were very, very different than what happened in 2008. In 2008, we saw a fund 'break the buck,' and we saw a significant amount of money flow out. I think the shift out of credit strategies in the U.S. and into government strategies in the U.S. has been dramatic. And now, we've got almost three quarters of the AUM held in government money market funds, which has been very helpful in the U.S. and Europe."

He states, "It's a little bit different in euros and sterling ... the majority is held in credit funds and that worked out well in those markets. Clients were satisfied with that exposure. They were comfortable with the credit risk. We didn't see the outflows that we saw in some Prime funds. But even with the outflows in Prime funds, I think overall it was a liquidity crisis, it wasn't a credit crisis. And our head of research continues to stand by the fact that these banks, given all of the reform that went on [the bank] side, still have plenty of capital and liquidity to withstand even the most harsh of economic downturns. So, we still feel comfortable about that from a credit standpoint."

Lopez also says, "We are seeing some of the, particularly in the offshore, some folks that are closing down there LVNAV and then ... focusing all the effort on the government and the CNAV. I'm wondering if that's similar in the States with the Primes?" Goldthwait responds, "Yeah, we've seen two large fund companies in the states decide they are going to exit the Institutional Prime space." (See Calastone's brief, "Automation in MMFs is Now a Must-Have Say Treasurers.")

Goldthwait then comments, "As much as the conversation sometimes does turn towards yield, this move to make sure that you've got all of that liquidity is very interesting. And we had a poll question recently where we asked our clients what would happen if a money market fund yield went negative like it is in Europe right now. Interestingly enough, a majority of folks answered, 'It is what it is.' You know, it's my cash. And even if it's yielding negative, I can pull it out at any time, and that's just the cost of owning cash. I think that's a really important thing because when we were talking with clients in the early days of the ECB implementing a negative policy rate, there were a lot of folks that were trying to reach for yield."

He continues, "I don't have any concerns [about negative yields] in the U.S. The Fed has been very, very clear that their policy rate will not go negative. And so, I think for that to change, you'd need years of a shift in both governors and policy makers as well as sort of market dynamic. For sterling, I think there might be a little bit more risk there.... But again, I think it comes back to sort of recognizing the cost of cash, and just making sure that you maintain that focus on capital preservation and liquidity, and sort of then put yield over here."

Goldthwait adds, "The other thing that I think is interesting to think about is, when you do go negative, there's a big push pull between what the capital markets will provide you in money market funds and then what bank deposits can provide. And we know that there's banks out there that understand relationship as far as the whole picture, and ultimately can choose to set their deposit rate anywhere they want. Money market funds are a market rate of return, we are only going to be able to provide what the market can provide us. And so, in a way, that's comforting. Owners of money market funds know that it will always be a market rate, versus a deposit. But at the same time, it's hard for me to compete when a bank wants deposits. They can set their rates anywhere to get those deposits."

He comments, "From a U.S. standpoint, my personal view is that there's going to be some discussion around revising the regulations. But ultimately, I don't think there will be any changes. In fact, I think the variable NAV on the institutional side, as well as the liquidity buffers [and] transparency all worked out really well. I think the fact that the clients were able to see exactly what was going on. I think those that wanted to leave Institutional Prime funds … in a way, [NAV] was a penalty for leaving."

Finally, Goldthwait tells us, "In Europe there is a scheduled review in 2022; that was actually planned for five years after the announcement of the set of rules that went into effect in 2018. So, we know that's coming up. Two years will be here, honestly, before we know it. So, you can be sure that there's going to be a lot of discussion around that. I think the real question will be the analytics around the LVNAVs and whether that structure for accounting will survive. I think it's probably a little too soon to make judgment on that. But I do think that that will be the key focus. Is, LVNAV really serving its purpose or was it causing greater angst?"

Federated Hermes, the 6th largest manager of money market funds, reported Q2'20 earnings late last week and held an earnings call on Friday. (See the earnings call transcript here from Seeking Alpha.) The company's earnings release explains, "Money market assets were a record $457.6 billion at June 30, 2020, up $124.5 billion or 37% from $333.1 billion at June 30, 2019 and up $6.3 billion or 1% from $451.3 billion at March 31, 2020. Money market fund assets were $344.8 billion at June 30, 2020, up $113.5 billion or 49% from $231.3 billion at June 30, 2019 and up $8.7 billion or 3% from $336.1 billion at March 31, 2020."

It continues, "Revenue increased $39.2 million or 12% primarily due to higher average money market assets, an increase in revenue from alternative/private markets primarily due to the revenue of a previously nonconsolidated entity being recorded in operating revenue beginning March 2020 and higher performance fees. These increases in revenue were partially offset by voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield related fee waivers) and a decrease in revenue due to lower average equity assets.... During Q2 2020, Federated Hermes derived 55% of its revenue from long-term assets (34% from equity assets, 12% from fixed income assets and 9% from alternative/private markets and multi-asset), 44% from money market assets and 1% from sources other than managed assets."

Federated's release adds, "Operating expenses increased $26.9 million or 11% primarily due to increased incentive compensation and increased distribution expenses associated with higher average money market fund assets. The distribution expenses include a reduction resulting from voluntary yield–related fee waivers. During the three and six months ended June 30, 2020, voluntary yield-related fee waivers totaled $20.0 million and $20.4 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $18.0 million and $18.3 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $2.0 million and $2.1 million for the three and six months ended June 30, 2020, respectively."

During Q2 earnings call, Federated President & CEO Chris Donahue tells us, "Moving to money markets, assets increased about $6 billion in the second quarter to a record high of $458 billion with growth in money market funds of about $8.7 billion, partially offset by seasonal declines in separate account assets of $2.4 billion. Money market assets reached a high of $483 billion in late May in advance of tax payments, usage of CARE funds and other uses of cash. Our money market share including the sub advised funds at quarter end was 8.1% down fractionally from 8.8% at the end of the first quarter. Now taking a look at recent asset totals and movements; managed assets were approximately $629 billion, including $452 billion in money markets, $80 billion in equities, $75 billion in fixed income, $18 billion in alternative and $4 billion in multi-assets. The money market mutual fund assets were $339 billion."

CFO Tom Donahue comments, "Total revenue for the quarter was up slightly from the prior quarter, due mainly to a higher money market assets generating $30.5 million in additional revenue ... and higher performance fees of $5.4 million, partially offset primarily by money fund minimum yield waivers of $19.6 million.... The decrease in distribution expense compared to the prior quarter was due the impact of minimum yield waivers which reduced distribution expense by $17.6 million, partially offset by an increase of $10.5 million primarily from higher money market fund assets.... The impact of money fund yield-related fee waivers on operating income in Q2 was about $2 million. Based on recent assets and expected yields, the impact of these waivers on operating income in Q3 could increase to about $4 million. Of course multiple factors impact waiver levels and we expect these factors and their impact to vary."

During the Q&A, Money Market CIO Deborah Cunningham says, "As for the Fed moves, they absolutely were extremely helpful during the quarter by changing their repo rates and procedures from a timing perspective that really influenced where overnight rates are and for our government products that can have upwards of greater than 50% in that type of market. It was extremely helpful. So what basically we saw was an increase in the repo rates that we were using on an overnight basis in those funds by let's say seven, eight basis points somewhere in that neighborhood and they have generally kind of leveled off.... So for example, they just as opposed to being down in the one to two to three basis point camp where they spend a good part of the beginning of the quarter and the end of the first quarter. So we have 10% in overnight and an extra nine basis points in repo."

When asked about waivers going forward, Tom Donahue answers, "We mentioned $4 million which would be up from our estimate of $2 million in the third quarter, and we stay very close with Debbie and her team on their forecasts. As I've said before, that's what we use when we project out one quarter. If you were to ask Debbie what's she going to say for the rest of the year and she will say well, the rates will be similar to the third quarter, but probably a little bit lower and that would make our waivers be a little bit higher. But we only like to talk about one quarter."

Regarding bank deposit rates vs. money funds, Chris Donahue says, "Overall, we always like to 'repeat the sounding joy' of the fact that the clients are in there for daily liquidity apart and the yield is a secondary consideration. And this is a cash management service as much as it is an investment. Therefore, [in the] overall long-term, big picture, we are looking at higher highs and higher lows on our charts as the ebb and flow of money market activities change.... And this has been true since we got into this business in the mid-70s."

Cunningham adds, "If you look at most bank deposit rates, they're at a basis point. So there [the lowest] on the totem pole from an earnings perspective. If you look at the gross yields on our money market funds for the government sector, it's about 25 basis points. Gross yields on our prime funds are currently about 37 basis points, so about 12 basis points over [this]. If you look at the growth rate of assets on a year-to-date basis for bank deposits versus money market funds ... bank deposits have grown by a little over 12% [YTD vs. money] market funds in total [at] about 17%. So again, although the numbers on a base -- average or base level are different, the growth rates has been higher in money market products. And I do believe that [is] given very, very, very low rates that are available on bank deposits."

One analyst asks about revenue sharing and fee waivers, and Tom Donahue tells him, "We ... put in a lot of effort, the last time in the low cycle to meet with everybody and work through the sharing arrangement and pro-rata thought process. We were very successful the last time around, and we're still getting asked by our partners for increased participation that they get versus us. But on terms of the waiver sharing, we have not seen any, any issue with our structure and sharing arrangements."

Finally, another analyst asks, "Can provide any color on institutional ... money markets ... shifting into short duration strategies just to get a little bit more income?" Donahue responds, "`It is very, very difficult [to track] and we don't usually make a speech about how many moved from money markets into other products. As you know from history, we deal with most of these clients on an anonymous basis and so we can't exactly track the cash flow."