SIFMA's latest "Research Quarterly" for 2Q2010, in a 2-page section on "Funding and Money Market Instruments," shows that outstanding money market instruments continued to decline in the latest quarter while repos remained flat.

The publication says, "The average daily amount of total outstanding repurchase (repo) and reverse repo agreement contracts was $4.51 trillion through the first half of this year, roughly unchanged from the average daily outstanding in the same year-ago period. Daily average outstanding repo transactions totaled $2.55 trillion year-to-date, down 4.2 percent from the $2.66 trillion recorded in the same year-ago period, while reverse repo agreements aver-aged $1.96 trillion, up 4.9 percent from the $1.87 trillion daily average outstanding during the same year-ago period."

SIFMA writes, "The Federal Reserve Bank of New York (FRBNY) began testing tri-party reverse repos in late 2009 in preparation for their potential use to drain extraordi-nary reserves from the U.S. banking system when it may be deemed necessary. These repo data represent financing activities of the 18 primary dealers reporting to the FRBNY and includes repos/reverse repos using U.S. government, federal agency, agency mortgage-backed, and corporate securities as collateral. FRBNY also published their final recommendations in the second quarter for reforming the current tri-party repo infrastructure."

The report continues, "Money market rates overall rose through the second quarter, and spreads widened. 3-month LIBOR rates rose to 53.4 basis points (bps) at the end of the second quarter from 29.2 bps at the end of 1Q'10. The overnight indexed swaps (OIS) rate, a commonly used measure of liquidity and stress, was unchanged quarter over quarter (20 bps at the end of 2Q'10), although it rose up to 25 bps intra-quarter. The 3-month Treasury bill yield also picked up slightly, rising to 18 bps as of June 30 from 16 bps at end-March."

Research Quarterly explains, "The LIBOR-OIS 3-month spread, an important indica-tor of liquidity and marketplace lending risk, jumped significantly to 33.2 bps at end-2Q'10 from 8.9 bps at the end of 1Q'10. The spread between the 3-month T-bill and LIBOR rate, or the TED spread, is another measure for liquidity and credit risk in the marketplace, and more specifically reflects how likely banks may default on loans. The spread also rose to 35.4 bps at the end of 2Q'10 from 13.2 bps at the end of the first quarter, an indicator of worsening (or assumption for worsening) credit conditions as sovereign debt concerns and a slowing recovery may have dragged on market confidence."

Finally, SIFMA says, "The outstanding volume of total money market instruments (MMI), including commercial paper (CP) and large time deposits, totaled over $2.9 trillion as of the end of 2Q'10, 5.1 percent below the $3.08 trillion as of the end of 1Q'10 and 13.5 percent below year-ago volumes. CP outstanding totaled approximately $1.04 trillion at the end of the second quarter, down 4.4 percent from end-1Q'10's $1.09 trillion recorded and an over 15 percent decline from the outstanding volume for the same year-ago period. Financial CP outstanding declined 9.2 percent to $514 billion at the end of 2Q'10 from $566.2 billion at end-1Q'10. Non-financial CP outstanding rose for the second consecutive quarter to $115.6 billion at quarter end from $108.7 billion at end-1Q'10."

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