The Investment Company Institute released its latest "Money Market Fund Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of August 31, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets table shows Prime Money Market Funds' Daily liquid assets at 26.1% as of August 31, 2014, up from 23.2% on July 31. "Daily liquid assets" were made up of: "All securities maturing within 1 day," which totaled 21.9% (vs. 19.0% last month) and "Other treasury securities," which added 4.2% (same as last month). Prime funds' Weekly liquid assets totaled 39.2% (vs. 37.9% last month), which was made up of "All securities maturing within 5 days" (32.4% vs. 31.6% in July), Other treasury securities (4.1% vs. 4.2% in July), and Other agency securities (2.7% vs. 2.1% a month ago). (Note: For earlier Portfolio Holdings coverage, see Crane Data's Sept. 11 News, "Sept. MF Holdings Show Jump in Time Deposits, Fed Repo; CDs Flat". Also, see the Irish Examiner's "Ireland set to oppose EU plans on cash buffers for funds", which discusses regulations in Europe ahead of our European Money Fund Symposium which starts Monday in London.)
ICI's Holdings update says that Government Money Market Funds' Daily liquid assets total 60.6% as of August 31 vs 59.1% in July. All securities maturing within 1 day totaled 29.0% vs. 25.4% last month, while Other treasury securities added 31.7% (vs. 33.7% in July). Weekly liquid assets totaled 80.6% (vs. 79.8%), which was comprised of All securities maturing within 5 days (41.2% vs. 37.4%), Other treasury securities (29.5% vs. 31.7%), and Other agency securities (9.9% vs. 10.7%).
ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 42.0% in the Americas (vs. 41.6% last month), 19.6% in Asia Pacific (vs. 19.9%), 38.1% in Europe (vs. 38.2%), and 0.2% in Other and Supranational (same as last month). Government Money Market Funds held 83.9% in the Americas (vs. 83.1% last month), 1.0% in Asia Pacific (vs. 1.0%), 15.4% in Europe (vs. 15.9%), and 0.1% in Supranational (vs. 0.1%).
The table, "Prime and Government Money Market Funds' WAMs and WALs shows Prime MMFs WAMs at 45 days as of August 31 vs. 44 days in July. WALs was at 77 days, down from 78 last month. Government MMFs' WAMs decreased to 44 days, down from 45 last month, while WALs dropped to 73 days from 74 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for August covers funds holding 94 percent of taxable money market fund assets." Note: ICI doesn't publish individual fund holdings.
Meanwhile, JP Morgan Securities U.S. Fixed Income Strategy also released its August "Prime Money Market Fund Holdings Update" late last week. JP Morgan Strategist Alex Roever and his team said Prime MMF sector allocations in August changed very little from July. "Prime MMFs slightly increased their bank holdings as well as US Agency holdings. On margin, they also added some positions of non-financial corporates and foreign SSAs. As of month-end, prime MMF holdings of US Treasuries stood at $61bn, the lowest amount we have on record since we began collecting monthly data. This is to be expected given the substantial decline in bill outstandings we have seen over the past couple of years, not to mention the relative unattractiveness of bill yields versus Fed RRP, both of which are eligible to be included in their liquidity buckets."
Further, "Total bank exposures in prime MMFs increased by $10bn in August, a small uptick relative to July which grew by $85bn following quarter-end. Time deposit holdings increased $33bn month-over-month, driven largely from time deposits issued by Swedish banks (+$16bn) as well as US banks (+$10bn). However, the gains were offset by decreases in repo of $10bn, CP/CDs of $9bn and other securities of $6bn. By jurisdiction, prime MMFs increased their exposures to Canadian banks by the largest amount. In spite of how rich they trade relative to other credits, even in longer maturities, balances of Canadian banks continue to be ranked among the highest in prime MMFs. Conversely, holdings of Chinese banks remained small, at a modest $5bn, in spite the nearly 20bp pickup in yield available over other credits in similar maturities."
Also, they said Fed RRP allotment at the end of August increased $7bn month-over-month. "As of August month-end, MMFs allotted $138bn to the Fed RRP, representing about 80% of total RRP usage. Government institutional MMFs continue to be the primary users of the facility, accounting for roughly 69% of total MMF Fed RRP usage. Meanwhile, prime institutional MMFs represented about 27%. However, by count, there were 31 prime MMFs that participated in the facility versus 24 government funds. As a percentage of AuMs, government MMFs continued to allot a greater portion of their portfolios to the Fed RRP facility than prime MMFs. In fact, there are some government MMFs that consistently allocate over 50% of their assets at month-end. Meanwhile, with the exception of quarter-ends, prime MMFs on average allocate less than 10% of their portfolios to the Fed RRP facility. As the pool of government supply continues to shrink, government MMF's reliance on the Fed RRP facility is likely going to increase."
With the increased usage of Fed's RRP, prime MMF holdings of dealer GC repo remained low, they added. "Prime MMFs held $148bn of dealer repo as of August month-end, $25bn less than what they held at year-end and $165bn less than their peak in November 2012. As a percentage of AUM, repo holdings remained at a subdued level of 10.4%, coming close to its lowest at 10.2% in April 2011 when the new FDIC insurance fee assessment rate went into effect. In all likelihood, prime MMF holdings of dealer repo holdings will continue to decline as banks adjust to further regulations that impact the securities financing markets. In particular, the impending release of the final net stable funding ratio rule, the capital rule on short-term wholesale funding as well as the imposition of minimum haircuts on securities financing transactions will continue to exert pressure on the repo market to shrink."
Also, MMFs held $18.83bn in Treasury floaters at the end of August, they wrote. "The pace at which MMFs have been adding Treasury floaters have slowed dramatically this past month, adding only $0.66bn in August versus a monthly average of $2.75bn previously, most likely a reflection of how rich Treasury FRNs have become. Indeed ... the discount margins of Treasury FRNs have rallied significantly this summer and are now trading at their tightest levels ever. Still, in spite of this pricing, demand for Treasury FRNs across market participants remained strong as the bid-to-cover ratio for the most recent auction was 4.38, above the prior bid-to-cover ratio of 4.09."
Finally, JPM writes, "Looking ahead, overall supply constraints later this month should continue to keep MMF's usage of Fed RRP elevated. Indeed, as our Treasury strategists noted, T-bill supply are expected to fall by about $90bn over the coming weeks as Treasury receives their seasonal corporate tax receipts. Tack on the expected shrinkage in dealer repo as banks continue to grapple with leverage ratios at quarter-ends, it's possible that we could see another record usage of Fed RRP from eligible MMFs at the end of September. This supply and demand imbalance could very well push money market rates such as bills, discos, and cash repo through the Fed's RRP rate, in the days leading up to quarter-end, if not already. However, ON GCF repo rates should remain elevated as dealers seek to trade in the GCF inter-dealer repo market versus the tri-party repo market with cash lenders given the netting benefit available with GCF repos."
