JPMorgan on Offshore USD MMFs
J.P. Morgan Securities published a brief titled, "A Closer Look Into Offshore USD MMFs," in their latest "Short-Term Outlook." They tell us, "While we often focus on onshore MMFs given their colossal size ($7.3tn), we would be remiss not to talk about offshore USD MMFs which also play a significant role in the money markets. Over the past three years, much like their onshore counterparts, offshore USD MMFs have grown significantly in AUM, increasing by $257bn to $796bn and $53bn YTD. However, unlike their onshore counterparts, much of the AUMs reside in prime MMFs (LVNAVs and VNAVs) as opposed to government MMFs (CNAVs). As a result, a substantial portion of their holdings (61%) are credit-based products (CP/CDs) vs. rates (39%)." JPM explains, "Even so, the amount of cash allocated to rates products such as T-bills and repos is not insignificant. In June, combined T-bill and repo holdings among offshore government and prime funds totaled $240bn, not too far off from its peak (~$260bn) in late 2024.... Of that amount, $163bn were in repo and $77bn in T-bills as offshore MMFs reduced their T-bill exposure during the first half of the year. As T-bill paydowns persisted, offshore MMFs decreased their bill holdings by $44bn over 1H25 and by $71bn from their local peak in November of last year. As a result, offshore MMFs rotated into repo. During the first half of the year, offshore MMFs increased their repo exposure by $35bn, with over half of this increase driven by dealer repo." The brief adds, "Overall, we see offshore MMFs as another player that can provide incremental demand to the T-bill market. A closer look at offshore USD MMF holdings demonstrates that there is an additional layer of capacity to take down the incoming T-bill supply, which we expect will reach about ~$300bn in August, before declining in September. Not to mention, offshore MMFs AUMs have been growing at a steady pace, and seasonal factors often contribute to a sharp increase in offshore AUMs in the second half of the year. Indeed, YTD, AUMs have already surpassed the average inflows observed over the past few years, and we expect this growth trajectory to continue. Tack on the availability of other T-bill buyers out there, and we continue to think there is capacity to take on the additional T-bill supply without large ramifications to the repo market." (Note: Crane Data will be hosting its event on offshore MMFs, European Money Fund Symposium, Sept. 22-23 in Dublin. Let us know too if you'd like to see a copy or our Money Fund Intelligence International product, which tracks the offshore USD MMF market, as well as MMFs in EUR, GBP and other currencies.)
