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Fidelity Investments recently published a brief entitled, "Understanding Liquidity in Money Market Mutual Funds," which tells us, "For a money market mutual fund, 'liquidity' refers to the extent to which the fund's holdings can be quickly converted to cash. Liquidity is a particularly important attribute of a money market mutual fund, as it measures the fund's ability to meet near-term shareholder redemptions. The SEC defines 'liquid assets' in Rule 2a-7. This rule defines the categories of daily liquid assets and weekly liquid assets by identifying specific types of fund holdings that can be readily converted to cash within one or five business days, respectively." They explain, "In addition to these general requirements, the SEC rules impose specific minimum requirements on the amounts of daily and weekly liquid assets a money market mutual fund must hold, as well as specific remedies for restoring liquidity in cases where these minimum levels are breached. In particular, whenever a fund's daily liquid assets account for less than 10 percent of its total assets, the fund is prohibited from acquiring any new asset other than a daily liquid asset. Similarly, if a fund's weekly liquid assets make up less than 30 percent of its total assets, the fund cannot acquire any new asset other than a weekly liquid asset. These conditional restrictions on fund management are designed to help rebuild a fund's daily and weekly liquidity levels whenever these levels become too low.... The SEC's rules permit some money market mutual funds to limit redemptions under certain conditions. Specifically, if a fund's weekly liquid assets were to fall below 30%, the board of directors of a prime (general purpose) fund or a municipal fund may either charge a liquidity fee of up to 2% on shareholder redemptions or impose a halt on all shareholder redemptions (known as a 'gate') for no longer than 10 days. Additionally, if weekly liquid assets were to fall below 10%, a prime or municipal fund must impose a liquidity fee of 1%, unless the fund's board determines that such a fee is not in the fund's best interests." (Note: Crane Data publishes the DLA and WLA numbers in our MFI Daily product.) Fidelity writes, "The SEC's intent in imposing a fee is to transfer the costs of liquidating fund securities from the shareholders who remain in the fund to those who leave the fund during periods when liquidity is scarce. In April 2016, each money market mutual fund began disclosing daily on its website the daily and weekly liquid assets as a percentage of the fund's total assets as well as net shareholder flows from the previous business day. The imposition or removal of a liquidity fee, as well as a discussion of the board's analysis in determining whether or not to impose a fee, must be disclosed promptly and publicly by a money market mutual fund.... At Fidelity, we determine the appropriate margin of safety for each money market mutual fund by conducting a quantitative analysis of such factors as historical shareholder redemption patterns, shareholder composition and concentration, and overall financial market conditions." Finally, they add, "Our experience in managing money market mutual funds has taught us that readily available liquidity is a primary goal of our shareholders. We therefore consider the management of liquidity a critical priority in our investment process, and we dedicate a significant proportion of our time and resources to ensure that we understand, monitor, and mitigate liquidity risks appropriately within our funds."

Recently, the Association for Financial Professionals' posted a video on the "Impact of the Fed's MMF Liquidity Facility." The intro explains, "In this special interview, Tom Hunt, CTP, AFP's Director of Treasury Services, discusses the Federal Reserve's new Money Market Mutual Fund Liquidity Facility with Peter Crane, President of Crane Data. This interview is part of a new a series that focuses on how treasury and finance professionals manage the upheaval caused by the coronavirus pandemic. For further insights, visit AFP's Coronavirus Resource Center." In related news, James Kaitz, President and CEO of the AFP sent a letter to Secretary of Treasury Steve Mnuchin and Federal Reserve Chair Jerome Powell requesting that the Commercial Paper Funding Facility (CPFF) and the Money Market Mutual Fund Liquidity Facility (MMLF) expand eligibility to include Tier 2 CP. Kaitz says of the $90 billion market, "We believe that these expansions will help alleviate constrained credit access for these Tier 2 issuers.... The market for Tier 2 CP is largely frozen at present, with rates at two to three times their historical average -- if an issuer can even find any investors. As the Tier 2 CP market is diminished or completely frozen, these high-quality Tier 2 issuers will draw on their credit lines as an alternative source of liquidity. This change will put increased pressure on banks to find funding. As a result, banks are already limiting new loans and dramatically increasing rates above revolver pricing for any new loans.... Similarly, expanding the eligible collateral under the MMLF to include Tier 2 CP will help to restore demand and normalize rates on this high-quality paper."

A message sent by Fidelity tells investors, "This is a notification that effective close of business on March 31, 2020, Fidelity Treasury Only Money Market Fund, FIMM Treasury Only Portfolio and FIMM Treasury Portfolio will be closed to new investors (soft close). See below for further information. Please be advised that these funds should be automatically updated on all applicable ... files. Please update your systems and applications accordingly." The funds include: FIMM Treasury Only Portfolio: Class I (FSIXX), Class II (FOXXX), Class III (FOIXX), Class IV (FOPXX), Institutional Class (FRSXX) and Select Class (FTYXX); Treasury Only Money Market (FDLXX), FIMM Treasury Portfolio: Class I (FISXX), Class II (FCEXX), Class III (FCSXX), Class IV (FTVXX), Institutional Class (FRBXX) and Select Class (FTUXX). We'll be watching for other funds to limit the massive inflows to delay the dawn of negative yields in coming days. For more, see these Crane Data News articles: More on Ultra-Low Treasury Rates, Fee Waivers and Negative Yields (1/7/09), Flurry of Fund Filings on Treasury Funds Closings, Waivers, Insurance (1/14/09), MarketWatch Writes Treasury Money-Market Funds Shutting The Door (1/27/09), Vanguard Merges Treasury Money Funds, Closes Federal Money Market (6/3/09) and Schwab Q and A on Closing of U.S. Treasury Money Fund to Sweeps (10/6/11).

A press release entitled, "So Far, Funds Are Maintaining Stable Net Asset Values Amid Increased Redemptions And Liquidity Pressures" explains, "S&P Global Ratings provides fund ratings on stable and floating NAV money market funds (MMFs), including prime institutional MMFs and local government investment pools (LGIPs) based on our Principal Stability Fund Rating (PSFR) Methodology. An S&P Global Ratings PSFR, also known as a "money market fund rating," is a forward-looking opinion about a fixed-income fund's capacity to maintain stable principal (net asset value [NAV]) and to limit exposure to principal losses due to credit risk." The release continues, "The current market volatility, largely propelled by the global COVID-19 outbreak, has accelerated redemptions from prime institutional MMFs above normal redemption patterns, causing potential liquidity concerns and adding strain to these fund managers' ability to maintain regulatory thresholds. The subsequent impact from MMFs meeting increasing redemption activity and seeking to raise cash by selling assets in a stressed market has led to some NAVs falling 10 basis points (bps) to 15 bps below par. From our surveillance of fund NAVs as of March 20, 2020, these MMFs have maintained NAVs of at least 0.9975, the lowest deviation point for a 'AAAm' rating. If NAVs fall below 0.9985, our criteria then require daily portfolio pricing and stress testing. Furthermore, if NAVs fall below 0.9975, we would likely place the fund ratings on CreditWatch with negative implications, and our criteria would allow a maximum five-business-day cure period to restore the NAV to at least 0.9975. During the cure period, we would take into consideration a fund sponsor's plan to support the pressured NAV." It adds, "S&P Global Ratings recognizes U.S.-domiciled registered 2a-7 fund sponsors and, to a lesser extent, LGIPs, have access to a set of tools that can be deployed to maintain a respective fund's NAV. Examples of these tools include Federal Reserve created backstops, such as the new Money Market Mutual Fund Liquidity Facility (MMLF), as well as parental capital support, credit support agreements, letters of credit, and reserve and escrow accounts. In the case of EU-domiciled MMFs, EU MMF regulations prohibit external support, directly and indirectly, thereby serving to restrict an MMF's available tool usage that would result in guaranteeing the liquidity of the MMF or stabilizing the NAV." Lastly, S&P writes, "While we are aware that some fund sponsors have begun to use these tools to support the NAVs of their fund, our PSFR methodology does not include a fund sponsor's willingness or ability to support the fund's NAV as an explicit rating factor. Rather, a fund's ability to sustain its NAV above the 'AAAm' PSFR NAV minimum deviation of 0.9975 and to limit exposure to principal losses due to credit risk are key factors we monitor. So far, we have not taken any rating actions on PSFRs, and we are closely monitoring development under an enhanced, often daily, surveillance."

Money market mutual fund assets smashed their previous record on record inflows in the past week, according to the ICI's latest weekly "Money Market Fund Assets" report. It explains, "Total money market fund assets increased by $285.70 billion to $4.22 trillion for the week ended Wednesday, March 25, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $344.89 billion and prime funds decreased by $53.71 billion. Tax-exempt money market funds decreased by $5.47 billion." ICI's weekly series shows Institutional MMFs rising $242.2 billion and Retail MMFs increasing $43.5 billion. Total Government MMF assets, including Treasury funds, were $3.439 trillion (81.5% of all money funds), while Total Prime MMFs were $659.0 billion (15.6%). Tax Exempt MMFs totaled $123.7 billion, 2.9%. Money fund assets are up $304 billion, or 8.4%, year-to-date in 2020, and they've increased for 7 weeks in a row and in 11 out of the last 13 weeks. Over the past 52 weeks, ICI's money fund asset series has increased by $871 billion, or 28.4%, with Retail MMFs rising by $261 billion (21.6%) and Inst MMFs rising by $610 billion (32.8%). ICI explains, "Assets of retail money market funds increased by $43.54 billion to $1.51 trillion. Among retail funds, government money market fund assets increased by $71.28 billion to $963.36 billion, prime money market fund assets decreased by $22.91 billion to $435.67 billion, and tax-exempt fund assets decreased by $4.82 billion to $112.39 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 63.7% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $242.16 billion to $2.71 trillion. Among institutional funds, government money market fund assets increased by $273.61 billion to $2.48 trillion, prime money market fund assets decreased by $30.79 billion to $223.34 billion, and tax-exempt fund assets decreased by $651 million to $11.32 billion." Institutional assets accounted for 64.2% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals. Crane Data's separate Money Fund Intelligence Daily asset series shows MMFs up $510.6 billion to a record $4.476 trillion month-to-date in March through 3/25. (We'll publish our 3/26 asset totals at 8am Friday, 3/27.) Prime MMF assets have fallen by $152.3 billion MTD to $942.9 billion, while Government MMFs (including Treasury MMFs) have skyrocketed by an incredible $673.0 billion to $3.404 trillion. Tax Exempt MMFs have fallen by $10.1 billion to a mere $129.6 billion. (See also, the Financial Times' "Investors spooked by outbreak seek safety in money market funds".)

Online money market trading "portal" ICD hosted a webinar on "Money Market Funds in Times of Uncertainty" featuring Invesco CIO & Head of Global Liquidity Laurie Brignac. She comments, "Only about two weeks ago ... you really started to see things seize up.... The magnitude of change day to day in terms of equity and Treasury markets were just mind boggling and the balance sheets of the dealers started to fill up, so we knew the markets were going to start seizing.... As a money fund manager, you're holding extremely high-quality assets and you can't get a bid on 1-month commercial paper? And so that's when cooler heads have to prevail. The Fed had to come in with massive intervention including facilities to help the funding markets.... The good news is [with] some of these facilities that they're rolling out, we're not talking about buying distressed assets like we were in 2008." When asked about regulations, Brignac adds, "When Lehman happened, as an industry, the Prime money market funds were much larger. We had a lot more commercial paper. Now we're smaller. We own more CDs. We own more floating rate securities. This is important in terms of how quickly the market is reacting to the liquidity facilities now versus 2008." She also comments, "I think it's important to note that the two money market funds that sold securities back to their sponsors, I think that was 100 percent a timing issue because the Money Market Liquidity Facility had not been announced and/or wasn't up and running.... We shouldn't really see any more announcements like that.... I do want to just highlight again, what we're seeing in the markets is 100 percent a liquidity issue. There are no credit concerns here.... It's not like money market funds weren't doing what they're supposed to do, or that there were any rogue advisors." Brignac explains, "I think that the money fund reforms have done a lot of good. I think transparency was probably the best thing, because I'm sure those of you that were around in '08 remember there was a lot of scratching of heads over what exposures people had, and really what was the status of their investments. Now, it's just so incredibly transparent, you know what you own.... I think the discussion around the fees and gates ... just because you go below 30 percent weekly liquidity does not mean you're going to have an automatic gate. As a matter of fact, with markets functioning with high quality assets, and if you can provide liquidity, why wouldn't you continue to provide liquidity? I think where gates are important is when there's a wholesale run on a product or if you have a credit issue. I think that's when those would make sense. I don't know any adviser out there that, even getting below 30 percent ... would really actively put on a gate unless there was some other issue involved."

Reuters posted the article, "Money fund turmoil spotlights New Jersey portfolio's 'shadow price'." They write, "A New Jersey municipal money-market fund run by BNY Mellon Corp is still paying investors $1.00 a share, even though the mark-to-market price of the fund recently dropped to $0.9968 per share, analysts said on Tuesday. It is not unusual for money-market fund prices to fluctuate from their $1-per-share stable net asset value (NAV). But the $51 million General New Jersey Municipal Money Market Fund is the only money fund, as of Tuesday, that had to disclose a material decline in its market value NAV, according to disclosures with the U.S. Securities and Exchange Commission (SEC)." (A separate disclosure shows that BNY Mellon "topped off" the tiny fund's NAV with a mere $89,000 contribution, so the NAV is now back at $1.0000.) The article quotes, "Coronavirus-led turmoil in debt markets is putting extra downward pressure on money fund mark-to-market values, or shadow prices, said Pete Crane, president of money fund research firm Crane Data LLC." It adds, "After the 2007-2009 financial crisis, the SEC put in rules that require funds to disclose a relatively big downward move in shadow price. It serves as a pre-notification that a fund is potentially heading in the direction of breaking the buck, even though it has not. The disclosure is triggered if a shadow price falls below $0.9975 a share." The article emphasizes, "The shadow price NAV of the General New Jersey Municipal Money Market Fund, for example, deviated enough from its $1.00 stable NAV that it required BNY Mellon on Monday to file a material event disclosure with the SEC. The fund's shadow NAV fell as low as $0.9968 per share on Friday. The market NAV has since recovered to $0.9987. But the fund was never breaking the buck, Crane and other analysts in the industry said." Reuters adds, "As long as a money fund's per-share shadow price remains in the range of $0.9950 to $1.1050, the fund can price its portfolio at a stable $1 NAV."

Please note that due to the coronavirus pandemic and widespread corporate travel bans, Crane Data has moved the dates for its "big show" Money Fund Symposium from June to August. Crane's Money Fund Symposium is now scheduled for August 24-26, 2020, at the Hyatt Regency Minneapolis. (It had been scheduled for June 24-26.) We'll continue to watch events carefully in coming weeks, and we'll be prepared to move again (perhaps to Nov. 18-20), to cancel, and/or to webcast if the pandemic persists. In the meantime, our planning goes on. The latest agenda is available and registrations are still being taken at: www.moneyfundsymposium.com. (Registrations for the June show will be transferred to the new August dates, and June hotel reservations will be cancelled if you've already made plans.) We've also set the dates and location for our next European Money Fund Symposium, which is scheduled for Sept. 17-18, 2020, in Paris, France. But we'll be watching travel restrictions to Europe closely in coming months (and may have to shift or cancel this too). (We'll give full refunds or credits for any events that are cancelled or that registered attendees can't make it to.) Let us know if you'd like more details on any of our events, and we hope to see you in Minneapolis later this summer! Finally, mark your calendars for next year's Money Fund University, which will be Jan. 21-22, 2021, in Pittsburgh, Pa, and our next Bond Fund Symposium, which is scheduled for March 25-26, 2021 in Newport Beach, Calif. Watch for details in coming months, and let us know if you're interested in sponsoring or speaking, and contact us if you have any feedback or questions. Attendees to MFU and Crane Data subscribers may access the latest recordings, Powerpoints and binder materials here: https://cranedata.com/publications/mfuniversity-2020.

An AFP article entitled, "Echoing 2008, Fed Takes Action to Shore Up MMFs," explains, "In the wake of the coronavirus crisis, both the Federal Reserve Board and the Department of the Treasury have taken steps to shore up money market funds. The actions come after a recent strain on prime funds has investors panicking. These actions by the Fed and the Treasury are largely due to prime funds seeing major outflows this week, losing more than 10% of their total portfolio assets." They write, "Prime funds are already a shadow of their former selves; the implementation of a floating net asset value (NAV) in 2016 caused many investors to exit prime funds entirely. Some have come back in the past few years, though this latest shakeup may keep investment in prime funds depressed for years to come." AFP quotes our Peter Crane, "We've seen noticeable outflows from prime money market funds, which are the credit or general-purpose type that buy commercial paper.... Over the past week, we've seen $85 billion come out of prime. They're still just above $1 trillion in size, so as a percentage basis, it's not life-threatening. But those steady outflows, coupled with the freezing of the commercial paper markets, are starting to threaten money funds from multiple angles." It continues, "Crane added that had the Fed and Treasury not stepped in, eventually, the outflows would have triggered gates and fees on some funds and may have even forced some funds to 'break the buck' like the Reserve Primary Fund did in 2008. 'As we saw in 2008, the Fed and now the Treasury thought a better scenario was to support the market before a full-scale run develops,' he said." The article adds, "There have been 'massive flows' into government funds this week, Crane explained, but he doesn't expect that to continue. Government funds have their own issues, such as yields that are pinned close to zero and could even go negative in certain cases." Finally, the article concludes, "For treasury professionals having flashbacks to 2008, Crane pointed out that the market has changed substantially since then; first of all, it's a smaller overall issue because the markets for both commercial paper and prime funds are half the size that they were in 2008. Second, the investment portfolios are drastically different than they were back then." Crane adds, "Almost every investor in prime money funds also has a government fund and uses government funds for their transactional functions, payroll, etc.... So prime is sort of the second-tier of liquidity or even third-tier liquidity on top of that. And while the gates and fees have never been triggered and never been tested, if a gate did come up, it presumably wouldn't be critical for any of those big investors because they've already got a big pool in a more liquid government fund."

The Wall Street Journal writes "Treasury Department Asks Congress to Let It Backstop Money Markets," which recaps Wednesday's news about a pending Treasury Money Market Fund Guarantee program. The piece says, "The Trump administration is asking Congress for authority to develop guarantee programs for the $4 trillion money-market mutual-fund industry, as part of its broader effort to calm turmoil sparked by the novel coronavirus epidemic. The effort would require Congress to suspend restrictions on the Exchange Stabilization Fund, according to a memo viewed by The Wall Street Journal. Its use to backstop money funds during the 2008 crisis contributed to a popular uproar over Wall Street bailouts and prompted Congress to forbid such guarantees in the future." It continues, "The Investment Company Institute, the trade group representing mutual funds, said in a statement that it hadn't sought the proposal but supports it. 'This authority, even if it is not utilized, should be available to address market dislocations and protect investors,' said Paul Schott Stevens, the group's president and CEO.... The landscape of money funds has changed dramatically since the 2008 crisis, with more money now parked in stable options that mostly hold short-term Treasury debt and other government securities. Funds that invest in riskier, short-dated commercial paper hold about $1 trillion in assets, according to Crane Data LLC, publisher of Money Fund Intelligence." The Journal adds, "'Any government backstop would have to consider whether to guarantee funds that buy commercial debt, known as prime funds, which are allowed to freeze redemptions or impose fees on withdrawals,' said Peter Crane, president of Crane Data. Prime funds are a source of lending to corporate America, but they can stop buying debt and even sell assets when investors speed up withdrawals. Investors pulled about $66 billion from those funds in the past week, Crane Data show, while money has flowed into funds that hold government debt." They quote our Crane, "Prime institutional funds could withstand a few more days of this type of pounding without serious repercussions but if it got worse, you are going to start to see things get into the danger zone."

Ratings agency Moody's Investors Service published a brief entitled, "Money Market Funds – Global: Outlook changed to negative from stable because of unprecedented market volatility," which tells us, "Unprecedented market volatility and economic uncertainty amid the coronavirus pandemic is fueling a flight to safety among investors. This flight to safety has led to elevated redemptions from US prime institutional market funds and large inflows into US government and Treasury money market funds (MMFs). The liquidity and net asset values (NAVs) of rated US government MMFs and European MMFs remain resilient to these market shocks, but we are changing our outlook on the global money market fund industry to negative from stable to reflect the considerable stress on US prime funds' liquidity and NAV from coronavirus related market dislocation." They explain, "Over the last few days, the US prime institutional money market fund segment has lost more than 10% of total portfolio assets. This sharp rise in daily outflow rates has reduced funds' liquidity levels and placed downward pressure on funds' NAVs. Leading into this period of market disruption, prime funds' weekly liquidity levels had been comfortably in excess of Rule 2a-7's 30% weekly liquidity requirement; however, elevated outflows have meaningfully reduced these cushions. Despite the pressures on fund liquidity levels, US institutional prime money market fund duration and credit profiles remain solid. Funds' average weighted average maturities remain relatively short at 34 days and credit quality remains strong. Additionally, the US Treasury is reported to be considering asking Congress to temporarily suspend restrictions on its Exchange Stabilization Fund so that it can work on a potential guarantee program for the US money market mutual fund industry as part of a broader fiscal stimulus package, which should shore up investor confidence in the prime money market fund sector." Finally, Moody's comments, "The risk of funds' imposing liquidity fees or gates has risen over the last week and will remain elevated based on our expectation that stress in money markets is likely to persist. We are monitoring funds' weekly liquidity levels and mark-to-market NAVs on a daily basis to assess the relative risk of liquidity events within our prime money market fund universe. The Fed has put into effect a number of large operations in the last several days to improve liquidity and alleviate stress in the short-term market. Yesterday, the Fed reestablished the Commercial Paper Funding Facility, first established in 2008 during the global financial crisis. This version of the facility has some differences from the 2008 version, notably the terms of eligibility and pricing, which may affect utilization rates and effectiveness. Nonetheless, the facility, together with the Fed's other actions, are positive for the commercial paper market."

Crane Data also published its latest Weekly Money Fund Portfolio Holdings statistics, which track a shifting subset of our monthly Portfolio Holdings collection, yesterday. The most recent cut (with data as of Mar. 13) includes Holdings information from 78 money funds (up 26 from two weeks ago), which represent $1.859 trillion (up from $1.225 trillion) of the $3.835 trillion (31.9%) 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.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $654.8 billion (up from $461.6 billion two weeks ago), or 35.2%, Treasury totaling $609.3 billion (up from $332.7 billion two weeks ago), or 32.8% and Government Agency securities totaling $354.2 billion (up from $237.2 billion), or 19.1%. Certificates of Deposit (CDs) totaled $92.1 billion (up from $80.1 billion), or 5.0%, and Commercial Paper (CP) totaled $78.7 billion (up from $62.7 billion), or 4.2%. A total of $38.6 billion or 2.1%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $31.1 billion, or 1.7%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $609.3 billion (32.8% of total holdings), Federal Home Loan Bank with $239.7B (12.9%), Fixed Income Clearing Co with $110.4B (5.9%), BNP Paribas with $70.9B (3.8%), Federal Farm Credit Bank with $57.6B (3.1%), RBC with $54.3B (2.9%), Federal Home Loan Mortgage Corp with $37.8B (2.0%), JP Morgan with $36.7B (2.0%), Mitsubishi UFJ Financial Group Inc with $32.8B (1.8%) and Credit Agricole with $32.7B (1.8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($147.1B), Fidelity Inv MM: Govt Port ($145.5B), BlackRock Lq FedFund ($127.8B), Goldman Sachs FS Govt ($118.2B), Wells Fargo Govt MM ($93.2B), BlackRock Lq T-Fund ($82.1B), Goldman Sachs FS Treas Instruments ($76.8B), JP Morgan 100% US Treas MMkt ($76.7B), Fidelity Inv MM: MM Port ($75.8B) and Morgan Stanley Inst Liq Govt ($71.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

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