The Federal Reserve released its latest quarterly Z.1 "Financial Accounts of the United States for the Second Quarter, 2015" statistical survey (formerly the "Flow of Funds") last week. The four tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, though this segment declined below the $1 trillion level in the Second Quarter for the first time in a decade. Only State and Local Governments, Nonfinancial Noncorporate Businesses, and State and Local Government Retirement Funds gained slightly. Table L.206 shows the Household sector with $985.4 billion -- or 38.2% of the $2.580 trillion held in Money Market Mutual Fund Shares (down 1.1%) as of Q2 2015. Household shares decreased by $19.4 billion in the 2nd quarter (after dropping $71.2 billion in Q1), and these assets remain well below their record level of $1.581 trillion at year-end 2008.
Nonfinancial corporate businesses were the second largest investor segment, according to the Fed's data series, with $546.3 billion, or 21.2% of the total. Nonfinancial corporate business assets in money funds decreased $2.2 billion in the quarter after falling $13.7 billion in Q1. Funding corporations, which includes securities lending cash, remained the third largest investor segment with $442.0 billion, or 17.1% of money fund shares. They decreased by $8.6 billion in the latest quarter after jumping $2.7 billion in Q1. Funding corporations held over $906 billion in money funds at the end of 2008.
State and local governments held 6.7% of money fund assets ($173.7 billion) -- up $500 million for the quarter. Private pension funds, which held $137.0 billion (5.3%), remained in 5th place. The Rest of the world category was the sixth largest segment in market share among investor segments with 4.2%, or $108.8 billion, while Nonfinancial noncorporate businesses held $89.4 billion (3.5%), State and local government retirement held $54.4 billion (2.1%), Life insurance companies held $24.7 billion (1.0%), and Property-casualty insurance held $18.0 billion (0.7%), according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Fund Assets" largely invested in Credit market instruments ($1.393 trillion, or 54.0%), which includes: Open market paper ($336.5 billion, or 13.1%; we assume this is CP), Treasury securities ($398.1 billion, or 15.4%), Agency and GSE backed securities ($333.9 billion, or 12.9%), Municipal securities ($257.7 billion, or 10.0%), and Corporate and foreign bonds ($67.2 billion, or 2.6%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($635.1 billion, or 24.6%) and Time and savings deposits ($509.9 billion, or 19.8%). Money funds also hold minor positions in Foreign deposits ($22.1 billion, or 0.9%) and Miscellaneous assets ($15.8 billion, or 0.6%). Checkable deposits and currency ($3.2 billion, 0.1%).
During Q1, only Agency and GSE-Backed Securities (up $10.5 billion), Security Repurchase Agreements (up $9.2 billion), and Checkable Deposits and Currency (up $13.0 billion) showed increases. Time and Savings Deposit (down $2.2 billion), Open Market Paper (down $5.3 billion), Treasury Securities (down $36.4 billion), Municipal Securities (up $15.8 billion), Corporate and foreign bonds (down $300 million), Misc. Assets (down $900 million), and Foreign Deposits (down $2.3 billion) all showed declines.
J.P. Morgan Securities commented on the Z1 report in their last weekly, "Short-Term Market Outlook and Strategy," writing, "Fed funds and repo have historically been two very opaque markets. While they are still not very transparent in the sense of fully knowing their market compositions and transactions, regulators have sought over the years to shed more light into the area. In particular, this year's Financial Accounts of the US report, otherwise known as the Fed's Z.1, for the first time distinguishes Fed funds and repo balances separately according to type of counterparty. As a result, we are able to observe how the Fed funds and repo markets have evolved over the years and how their market compositions have changed."
They write, "Shrinkage in the dealer repo market has been acute. While the pullback in repo balances has been widespread across various types of counterparties, broker/dealers have been hit the hardest. Since 1Q12, dealer repo balances are down a significant $628bn or 30% as dealers scaled back their balance sheets. While the Fed has been able to offset some of this shrinkage, increasing their repo balances by $462bn during this time period, their growth has been limited given the aggregate cap the Fed places on its RRP facility."
Finally, JPM adds, "On the repo investment side, we've seen MMFs and mutual funds take on a greater allocation to repo, increasing their repo balances by $137bn and $143bn respectively. This is to be expected given the scarcity of assets in money markets.... Given changes in both the lending and borrowing sides of the repo market, the repo relationship among MMFs, the Fed, and dealers has evolved. Each quarter, they are increasingly placing more repo with the Fed given the pullback in bank/dealer repo. While this could be interpreted as a negative from a policy perspective, it's also worth noting that MMFs currently provide only 13% of repo funding to banks and broker/dealers. Said another way, banks and dealers have substantially curtailed their repo exposure to MMFs. This compares to 18% in early 2012 and likely even more pre-crisis."
