J.P. Morgan writes in a recent "Short-Term Fixed Income," "Nothing to see here, move along." The piece tells us, "For the funding markets, [last] week's increase in the fed funds target range should keep taxable money fund AUMs well supported, particularly among more rate-sensitive investors (i.e. mainly retail investors). More broadly, we do not expect a sharp step-up in overall AUMs solely in response to Wednesday's Fed hike, or our baseline assumption of an additional hike in December. That said, the policy backdrop reinforces a modest upward bias for MMF balances. In other words, the additional hike itself is unlikely to drive meaningful incremental inflows, but should help maintain the yield support that has kept cash anchored in the complex." (Note: For those of you attending our European Money Fund Symposium this week, Sept. 24-25, welcome to Paris!)
It continues, "The bigger near-term driver for AUMs is likely to remain seasonal. We estimate fourth quarter inflows of about 3% of total MMF AUMs, implying about $275bn of a additional inflows from current AUMs of approximately $8.2tn, which should broadly support the funding markets.... As of August month-end, taxable onshore MMFs allocated just over $2.6tn of their portfolios to repo -- about $1.7tn to Treasury repo and nearly $1.0tn to agency repo -- providing a meaningful source of cash to the repo markets."
They tell us, "Alongside the Fed meeting, short-term investors were also focused on Tuesday's corporate tax date, which -- consistent with our expectations -- proved to be a non-event for funding markets. SOFR rose 2bp to 3.64% on the spot date, still 1bp below IORB, and then fell 2bp to 3.62% on Wednesday as conditions quickly reverted to pre–tax-date levels. For context, this year's move looks more in line with 2024 dynamics and notably smaller than last year, when reserves transitioned from ample to scarce back into ample territory and SOFR briefly printed above the top of the fed funds corridor."
The update adds, "From a flows perspective, MMFs saw $92bn of outflows in the week leading into the spot date -- roughly a 1% peak-to-trough decline in AUMs, which is typical for the period.... Meanwhile, reserves fell by $115bn to $2.92tn as of the 9/17/26 H.4.1 release. Looking ahead, we expect more than $55bn of T-bill paydowns over the next two weeks, alongside the upcoming GSE period, to help keep repo levels soft through month-end. Into the start of next quarter, repo could firm modestly from the soft levels seen this month as T-bill issuance begins to pick back up, but we continue to expect funding conditions to remain broadly contained. In that context, the October SOFR/FF (SERFFV6) looks fairly valued at current market pricing of-1.25bp."
They also write, "The summer of T-bills is finally behind us, and MMFs had no difficulty absorbing the nearly $260bn of net issuance to private investors in August. Across both onshore and offshore government funds, MMFs increased T-bill exposure by 9% ($218bn) month-over-month, taking their total T-bill holdings to $2.67tn, and absorbing about 84% of the net issuance. Alongside the T-bill take-down was accompanied by a rotation out of repo, as government MMFs reduced their allocation to repo by $76bn to $2.4tn.... As a result of this move, onshore MMFs' T-bill holdings rose to 33% of total portfolios -- the highest share since year-end 2025 -- while repo fell to 34%, the lowest since year-end 2024."
JPM comments, "The rotation into bills and out of repo was notable and, at the margin, coincided with a modest firming in repo from July to August. SOFR printed about 1bp above IORB on a handful of days in August, whereas in July it was largely flat to below IORB for most of the month outside of month-end and the first day following June quarter-end.... However, relatively speaking, funding conditions remained contained in August despite the heavy bill issuance calendar, supported by inflows into government funds, which rose by $129bn over the month, alongside steady dealer intermediation capacity."
They state, "We think MMFs' rotation into bills could partially reverse in September as we move into a period of negative net T-bill supply. With less bill issuance for MMFs to absorb, the marginal impulse should be supportive for funding, and we expect repo levels to remain contained through month-end. With quarter-end approaching, we expect dealer repo exposure to pull back and FICC-cleared repo to increase, as dealers lean more toward sponsored repo to manage their balance sheets.... By our estimates, MMF AUMs could rise by roughly $275bn on seasonality, taking total assets towards $8.5tn and providing a supportive backdrop for funding conditions."
In other news, a press release titled, "U.S. Treasury Central Clearing Survey: Broad Industry Readiness for Cash Clearing, Industry Moving Towards Execution but Work Remains Ahead of Repo Deadline," tells us, "SIFMA, BNY, Broadridge, and The Depository Trust & Clearing Corporation (DTCC), in collaboration with The ValueExchange, today released key findings from the 'U.S. Treasury Central Clearing Pulse Survey,' which draws upon key insights and feedback from 340 experts worldwide. The survey, conducted in June 2026 by The ValueExchange, was designed to provide insight into industry preparedness for the December 31, 2026 cash implementation deadline and the June 30, 2027 deadline for eligible Treasury repo transactions."
It says, "The survey suggests the industry is positioned well for the cash implementation but there remains considerable work to do as the industry prepares for the repo deadline. Survey respondents include buy-side (45%) and sell-side (46%) firms, custodians and CCAs in the U.S., Europe, and Asia. A similar survey was conducted in 2025."
The release states, "The main findings capture an industry moving firmly from preparation into execution, while also highlighting where readiness, cost and implementation challenges remain: 86% of respondents are at least somewhat confident of meeting the overall mandate. Within that 86%, 44% of firms are 'very confident' of meeting the deadline, with 13% 'not confident' for cash and 16% for repo."
It continues, "87% of buy-side firms and 84% of sell-side firms are in execution mode for repo trades. More than half of respondents now have funded repo-clearing projects underway (up from 38% in 2025). Of those programs that are delayed, 88% cite legal/contract negotiation as the cause, and 44% now call contract negotiation 'very challenging.' 45% of firms say they still need more regulatory clarity to progress their readiness. 67% of respondents are seeing delays caused by technology integration issues; and, 50% expect ongoing costs to rise."
Steve Byron, Managing Director and Head of Technology, Operations, and Business Continuity at SIFMA, comments, "The survey shows broad industry readiness for the cash go-live date in December, while also demonstrating that significant hurdles remain for us to navigate between now and the June repo deadline. As firms move into the final stretch before the cash implementation deadline, the operational and documentation work underway across the industry is substantial, and getting it right matters given the central role U.S. Treasuries play in the global financial system."
He says, "SIFMA remains committed to supporting our members through this transition, including through the standardized documentation and implementation guides we've made available to market participants. With the December 31 deadline now just months away, we look forward to continuing to work alongside the industry to ensure a smooth and successful transition in this critical market."
DTCC's Laura Klimpel adds, "FICC has remained committed to helping firms prepare for the impacts of the U.S. Treasury clearing mandate for several years, providing new access models, insightful calculator tools, and on-going education to promote readiness. We are pleased to see that many firms are progressing towards readiness but recognize that more work remains, especially as it relates to the repo implementation. With much of the industry coalescing around FICC's offerings in the lead-up to the cash and repo deadlines, our focus remains on working closely with our clients to address open items and to ensure a smooth transition to central clearing."
