Fitch Ratings published a new report Tuesday on RRP, "Treasury Money Funds Prove Reliant on Fed's Reverse Repos." It says, "As the Federal Reserve's reverse repo program continues to see record demand from money market funds, treasury funds in particular are proving to be the most reliant on the facility, according to Fitch Ratings. On Sept. 30, 102 counterparties bid a record of $407 billion at the program. However, only $300 billion was accepted because of the program's cap, leaving 21 bids unfulfilled, and the remainder with a yield of 0%. Eligible treasury money funds allocated an average of 39% of their assets to the RRP at the end of the quarter, far outpacing eligible government and prime funds, which allocated 19% and 10% on average, respectively, according to data from Crane Data. Earlier this quarter, one treasury fund invested 66% of its cash in the RRP, the highest allocation to the program ever by a single fund. Constrained by a limited supply of eligible investments, money funds have consistently been the largest participants in the RRP, comprising over 95% of its total investment on Sept. 30. To comply with recent regulatory changes, banks have reduced their short-term wholesale borrowing -- a primary source of money fund investment -- particularly at quarter ends. Shortages of treasury securities and bank paper, including repos backed by treasury collateral, have led to high RRP allocations among money funds, particularly treasury funds. The shortage of supply has the largest impact on treasury money funds because of their limited investment universe. Unlike prime funds, which can invest in an array of short-term instruments, treasury funds are restricted to treasury securities and in some cases repos backed by treasury collateral. These dynamics are clear when looking at money fund portfolio allocations to the RRP at quarter-end, as three eligible treasury funds allocated more than 50% of their assets to the RRP, and eight treasury funds invested between 26%-50% of their cash in the facility. On the other hand, only one prime money fund invested more than 25% of its portfolio in the RRP. Clck here for more information.

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