The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of Oct. 31, 2015) yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. Earlier this week, JP Morgan Securities' also released its latest "Prime Money Market Fund Holdings Update," which reviews trends and also discusses the re-categorization of Prime to Government MMFs. We excerpt from these below. (See our Nov. 12 News, "Nov. Portfolio Holdings: Time Deps, Agencies Jump; Repos Plummet.")
ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 27.7% as of October 31, up from 24.2% on September 30. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 24.0% (vs. 20.9% last month) and "Other treasury securities," which added 3.6% (up from 3.3% last month). Prime funds' Weekly liquid assets totaled 41.3% (vs. 40.8% last month), which was made up of "All securities maturing within 5 days" (34.8% vs. 34.7% in September), Other treasury securities (3.6% vs. 3.3% in September), and Other agency securities (2.9% vs. 2.9% a month ago).
The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 62.3% as of October 31 vs. 59.1% in September. All securities maturing within 1 day totaled 29.1% vs. 26.5% last month. Other treasury securities added 33.3% (vs. 32.7% in September). Weekly liquid assets totaled 78.6% (vs. 82.1%), which was comprised of All securities maturing within 5 days (38.9% vs. 40.7%), Other treasury securities (32.6% vs. 32.6%), and Other agency securities (7.1% vs. 8.7%).
ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 45.2% in the Americas (vs. 54.4% last month), 18.3% in Asia Pacific (vs. 18.1%), 36.4% in Europe (vs. 27.1%), and 0.2% in Other and Supranational (vs. 0.4% last month). Government Money Market Funds held 84.2% in the Americas (vs. 93.0% last month), 0.8% in Asia Pacific (vs. 0.6%), 15.0% in Europe (vs. 6.4%), and 0.0% in Supranational (vs. 0.1%).
The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 35 days as of October 31, up from a low of 32 days last month. WALs were at 69 days, up from 67 days last month. Government MMFs' WAMs was at 40 days, up from 38 last month, while WALs was at 89 days, up from 83 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 June covers funds holding 94 percent of taxable money market fund assets." Note: ICI publishes aggregates but doesn't publish individual fund holdings.
In separate coverage of the latest Portfolio Holdings data, JP Morgan Securities' Short Duration Strategy team writes, "Money market fund flows were mostly flat during October, and have been virtually unchanged year-to-date. Total prime fund AuM now registers $1,442bn, while government fund AuM totals $1,014bn. Despite no reform-related investor outflows YTD, a current theme has been for complexes to convert selected prime funds to government status. Currently, $214bn is scheduled for conversion, with most conversions to occur before the end of this year."
They explain, "It is interesting to note is that these funds are still categorized as "prime", up until their respective conversion dates. Obviously, when a given fund's category switches from "prime" to "government" on its final conversion date, there will be a large decrease in prime AuM and concurrent increase in government fund AuM. An alternative shadow measure can be used when taking into consideration the current asset allocations of converting funds. Currently, about 60% of converting prime fund assets is invested in government product. That said, using this shadow measure AuM could actually be considered to be $1,317bn for prime funds and $1,140bn for government funds."
JPM's update continues, "Average maturities began to level off after briefly rebounding following the September FOMC meeting. In order to participate in a potential rate increase, MMFs shortened maturities to record low levels in the months leading up to the September meeting. With the Fed's inaction to raise rates, fund managers began to briefly redeploy cash out on the curve. With the Fed now likely to move in December, WAMs have leveled off, and we expect them to creep back in over the course of the next month."
They add, "On balance, prime holdings of banks increased by $129bn. Conversely, with more dealer supply available in the market, prime funds scaled back on RRP usage month-over-month by $139bn. Money market funds accounted for $175bn or 77% of total Fed RRP usage at October month-end. Prime MMFs represented $74bn in usage, while government funds took down $101bn."
Finally, JPM's piece tells us, "Earlier this month, BlackRock announced its plans to acquire Bank of America Capital's entire cash management business sometime before the end of 1H16.... This acquisition comes as one of the largest ever in the money market fund space, and goes to show the continuing industry trend of consolidation as both small and large funds weigh the increasing costs of doing business. Looking forward, further consolidation may occur.... It is unclear just how much of an impact this will have on market structure, but may cause less diversification of demand, and could diminish pricing power for smaller funds."
In other news, the Federal Reserve Bank of New York released a "Statement Regarding Term Reverse Repurchase Agreements," which says, "The Desk plans to offer $300 billion in term RRPs that cross the year-end date. These operations will be conducted in addition to the authorized overnight RRPs, which remain subject to a separate overall size limit authorized by the FOMC. A tentative schedule of the term operations spanning the year-end follows below. This schedule will be updated on or around December 17 with additional information, including the amounts offered and the maximum offering rates."
Barclays money market strategist Joseph Abate writes in his latest "US Money Markets," on future RRP supply, "Adding to the extra front-end supply, we expect the Fed to offer a sizeable ($200bn) term RRP program spanning year-end as it has done every quarter-end since last year. Most of the demand for the term RRP comes from money market funds looking to replace the private sector repo they have been pushed out of by window-dressing dealers on quarter-ends. Clearly, the Fed could decide to dispense with the term RRP this year -- especially if it begins lift-off with a large (and possibly, unlimited) overnight RRP program as we expect it might. We expect that the Fed will announce any details regarding a potential term RRP with the rate announcement on December 17. Recall that the Fed plans on releasing two statements at lift-off: one that will cover the macroeconomic rationale for increasing rates and a second one that will outline all of the parameters behind its tools. Since year-end market thinness is transitory, it isn't a sufficient impediment to the Fed's lift-off plans."
