The Federal Reserve Bank of New York issued a "Statement to Revise Terms of Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise" yesterday, and its release summarized, "The terms of the daily, fixed-rate overnight reverse repo operational exercise have been revised, effective Wednesday, January 15, 2013. The timing of the operations will move an hour and half later in the day, to 12:45–1:15pm (Eastern Time)." This marks the seventh time the Fed has changed the terms of its demo program, which attracted a stunning $139.2 billion from money funds in the month ended Dec. 31, 2013, according to our most recent Money Fund Portfolio Holdings collection (see yesterday's "News"). The Fed has increased the rate several times (and decreased it once; it's now 3 bps), it has raised the limit funds may invest a couple of times (now $3B), and now has expanded the time window for the program.

The Fed's latest Statement explains, "As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (Committee). RRPs are a tool that can be used for managing money market interest rates, and are expected to provide the Federal Reserve with greater control over short-term rates."

It continues, "The Desk continues to enhance operational readiness and increase its understanding of the impact of RRPs through technical exercises. As per the September 20, 2013, Statement Regarding Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise, the Committee instructed the Desk to further examine how a potential overnight, fixed-rate full-allotment RRP facility might work and how it might affect short-term interest rates."

The NY Fed continues, "In further support of this goal, the Desk will be changing the timing of these operations, effective Wednesday, January 15. The operation time will move one and a half hours later, to 12:45-1:15 pm (Eastern Time). All other terms of the operations remain the same."

Finally, the NY Fed adds, "Like earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future. The results of these operations will be posted on the public website of the New York Fed, together with the results for other temporary open market operations. The outstanding amounts of RRPs are reported as a factor absorbing reserves in Table 1 in the Federal Reserve's H.4.1 statistical release, their remaining maturity is reported in table 2 of that release, and they are reported as liability items in Tables 8 and 9 of that release."

Crane Data's MF Portfolio Holdings collection shows 74 money funds reporting holdings of the Fed's repos, with 14 of the 20 largest money funds buying major slices and 17 funds maxing out the $3 billion limit. The 10 largest fund portfolios (and portfolio asset totals) with Fed repo holdings include: Fidelity Cash Reserves ($119.0B), JP Morgan Prime MM ($116.1B), Western Asset Inst Lq Res ($79.6B), Fidelity Inst MM MMkt ($71.2B), BlackRock Lq TempFund ($57.0B), JP Morgan US Govt ($55.5B), Federated Prm Oblg ($42.9B), Wells Fargo Adv Hrtg ($40.4B), Prudential Core Taxable MMkt ($40.1B), and Schwab Cash Reserves ($39.4B). Each of these bought $3 billion, except Fidelity Cash ($2.95B), Wells Adv ($1.45B), and Pru Core ($700M). Large funds not participating included Vanguard Prime, BlackRock Cash Inst, some Dreyfus funds and some 100% Treasury funds.

J.P. Morgan Securities most recent "Prime money market fund holdings update: December 2013" comments, "The total allotment of the year-end FARRP across MMF counterparties totaled more than $155bn across 82 of the 94 eligible counterparties for an average of about $1.9bn per counterparty. 25 of the 82 funds that we counted were allotted the maximum per counterparty amount of $3bn while 38 of the funds took in between $1bn and $2.95bn.... 19 funds took in between $50mn to $1bn. Prime MMFs that participated accounted for about $85bn of the total, which represented about 7% of year-end assets for those funds. Government MMFs that participated accounted for $72bn, which represented a more significant 13% of year-end assets."

It adds, "The large usage of FARRP by MMFs was not surprising given the typical tight supply conditions going into year-end as banks and dealers manage their balance sheets, while cash investment needs typically increase. But the confluence of bank balance sheet management and reduced dealer financing needs into this past year-end combined to keep supply tighter than usual. Repo outstanding alone declined by about $370bn in a span of about 1 month heading into year-end (between 11/27/13 and 1/1/14), about $240bn of which were Treasury collateral. The average year-end decline in total repo outstanding from 2009 to 2012 was about $280bn and about $150bn for Treasury collateral only. Such a large decline in supply forced MMFs and other liquidity investors to seek alternatives, mainly the FARRP."

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