JP Morgan Securities' "Prime MMF Holdings Update for June commented recently on the surprising fact that issuers continue to provide short-term paper. They say, "It is notable that banks have so far been willing to meet the shift in demand from prime MMF with shorter dated supply. We think differences in regulatory implementation across different countries plays a role in this. The Basel III LCR and NSFR are designed to discourage banks' use of short term borrowing, yet these have not proven a uniform hindrance to new issuance in recent months. Two aspects of the regulatory environment may be at work. First, on a global basis the Basel LCR and NSFR are not scheduled to be in full effect until 2019 and 2018, respectively. However, individual countries are phasing in the rules at varying paces, and these implementation variations are the second aspect that may explain why supply in 30d and less remains robust. With international banks playing by different sets of rules, many Yankee banks continue to be able to issue sizable amounts of debt maturing inside of 30 days. However, there are limits to this, as the cliff-like drop off in time deposits at quarter-ends demonstrates. The time deposit cliff is itself a function of differences in regulatory implementation." JPM's update adds, "We expect this maturity shortening trend to persist, and for prime WAMs to drift lower. Managing around a Fed lift off will be a major factor driving WAMs -- using the last tightening cycle as a reference, in the 3 months leading up to the first rate hike, prime fund WAMs fell by 10 days from 52 to 42 days. MMF reform related outflows should also play a role in the months to come as cash begins to move out of the prime complex."

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