The Federal Reserve's latest Z.1 "Financial Accounts of the United States" statistical release (formerly the "Flow of Funds") for the Fourth Quarter of 2013 was published late last week, and the four tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, and that "Time and savings deposits" has just surpassed "Security repurchase agreements" as the largest investment segment. Table L.206 shows the Household sector with $1.100 trillion, or 41.1% of the $2.678 trillion held in Money Market Mutual Fund Shares as of Q4 2013. Household shares increased by $40 billion in the 4th quarter, but they fell by $10 billion during 2013. Household sector money fund assets remain well below their record level of $1.582 trillion at yearend 2008.
Funding corporations, which includes securities lenders, remained the second largest investor segment with $501 billion, or 18.7% of money fund shares. They decreased by $13 billion in the latest quarter and fell by $89 billion in 2013. (Funding corporations held over $1.025 trillion in money funds at the end of 2008.) Nonfinancial corporate businesses were the third largest investor segment, according to the Fed's data series, with $455 billion, or 17.0% of the total. Business assets in money funds were flat, rising by $1 billion in the quarter and by just $2 billion in 2013.
The Rest of the world category moved up to the fourth largest segment (up $5 billion in Q4) in market share among investor segments with 6.0%, or $161 billion, while Private pension funds, which held $149 billion (5.6%), moved up to 5th place. State and local governments held 4.2% of money fund assets ($142 billion), Nonfinancial noncorporate businesses held $81 billion (3.0%), State and local government retirement held $43 billion (1.6%), Life insurance companies held $24 billion (0.9%), and Property-casualty insurance held $23 billion (0.8%), according to the Fed's Z.1 breakout.
The Flow of Funds Table L.120 shows `Money Market Mutual Fund Assets largely invested in Time and savings deposits ($495 billion, or 18.5%), Security repurchase agreements ($493 billion, or 18.4%), and Treasury securities ($488 billion, or 18.2%). Money funds also hold large positions in Agency and GSE backed securities ($361 billion, or 13.5%), Open market paper (we assume this is CP, $352 billion, or 13.1%), and Municipal securities ($308 billion, or 11.5%). The remainder is invested in Corporate and foreign bonds ($102 billion, or 3.8%), `Foreign deposits ($34, or 1.3%), Miscellaneous assets ($32 billion, or 1.2%), and Checkable deposits and currency ($13 billion, or 0.5%).
During 2013, Time and savings deposits (up $60 billion), Treasury securities (up $30 billion), Agency securities (up $18 billion), and Open market paper (CP, up $11 billion) showed increases, while Security repos (down $52 billion), Municipal securities (down $28 billion), and Foreign deposits (down $10 billion) showed declines. (We're not aware of a detailed definition of the Fed's various categories, so aren't sure in some cases how to map some of these figures against other data sets.)
In other news, Wells Fargo Advantage Funds published its latest "Overview, strategy, and outlook" last week. It says in its "Government sector update," "Years of quantitative easing and the attendant expansion of the Federal Reserve's (Fed's) balance sheet, coupled with myriad regulatory changes that have sparked demand for high-quality assets while driving supply lower, have gradually reshaped the U.S. government money markets. There now appears to be a wall of cash that seems sufficient to block any moves higher in yield that one might have expected, absent these influences. Activity to date in 2014 has tested the resilience of the wall several times."
Wells explains, "The repurchase agreement (repo) market has usually responded to increases in collateral supply by moving yields higher, but that effect has recently been largely absent.... The very modest uptick in repo levels that has occurred is more likely a result of the Fed increasing the rate on its reverse repo (RRP) facility from 3 bps to 5 bps during the last half of the month."
Finally, they add, "Also apparent ... is the degree to which repo levels are clinging to the Fed's RRP facility rate. It seems like a dream environment for the Fed -- the RRP facility rate is setting a floor, albeit a slightly porous one, while the wall of cash is setting a ceiling, conveniently at just about the same rate as the floor. Now that's optimal control! Based on only a few months of experience in 2014, and with the Fed RRP facility still officially in test mode, it's perhaps too early to reach the conclusion that the government money markets have permanently changed. However, it's easy to imagine this becoming the norm, as the Fed's great big balance sheet isn't shrinking anytime soon."
