FAF's Plotnik on Quarter-Ends
U.S. Bancorp Asset Management's First American Funds writes "The Dynamics of Quarter-End Investing for Money Market Funds," written by Director of Money Market Fund Management Jeffrey Plotnik, explains, "If you are a frequent investor in money market funds, you may have noticed that making large deposits over quarter-end periods can sometimes be a challenge. That challenge is a result of decreased supply from broker/dealers and issuers of overnight investment products, combined with increased demand from money market fund managers and short-term investors for those same investments. Those dynamics are the result of an increasingly stringent regulatory environment for many of the industry's issuers. Quarter ends are a key financial reporting date for banks, broker/dealers and issuers of overnight investment products. Reported financial statements represent an overview of a company's financial health at quarter end. Firms manage their balance sheets to enhance certain capital/leverage ratios and other key financial metrics that the regulators and the general public analyze to determine their financial strength. Ultimately, the exercise of quarter-end balance sheet management will limit the short-term investment options that money market fund managers utilize on a day-to-day basis. The quarter ends that are significant for money market fund investing are the last business days of March, June, September and December, with June and December being the most challenging." The piece adds, "Since December 17, 2015, daily supply challenges for money fund managers have been largely muted, due to a significant increase in the Fed's daily RRP operations. Working in tandem with an increase in the Interest Rate on Excess Reserves and the Fed Funds Rate, the Fed significantly increased the amount of overnight repo available to eligible counterparties through its RRP to equal the value of the Treasuries held in the System Open Market Account (SOMA). It is estimated this will equate to roughly $2 trillion of daily repo availability through the RRP. This removes much of the pressure of reinvesting maturities on quarter end, thereby leaving large unknown or late day cash flows as the fund manager's main concern."
