JPM: Bond Deals Driving Inflows
J.P. Morgan Securities' latest "Short Duration Strategy Weekly," comments, "[P]erhaps the most notable thing this week was the cheapening in October Treasury bills, reflecting investors' growing concerns about the debt ceiling and the potential for a technical default. Indeed, Treasury bills maturing in early- to mid-October backed up 2bp to 7bp over the past week, significantly underperforming surrounding maturities.... Interestingly, this cheapening occurred in spite of assurances from Congressional leadership this week.... That being said, Fitch also commented this week that "brinkmanship over the debt limit could ultimately have rating consequences, as failure to raise it would jeopardize the Treasury's ability to meet debt service and other obligations.... Away from Treasury bills, recent flows into MMFs have been particularly strong over the past few weeks. Since the end of June, taxable MMF balances have increased $79bn, driven predominately by inflows into government MMFs. As we discussed last week, it's not uncommon for MMFs to see inflows in the second half of the year.... That said, the recent surge has been notable relative to this time in prior years and could be driven in part by some very large corporate bond deals that took place this summer: AT&T $22.5bn on 7/27/17, BAT $17.3bn on 8/8/17, Amazon $16bn on 8/15/17. After large bond deals, corporations have been known to temporarily park their bond proceeds in MMFs." (Note: Crane Data's Money Fund Intelligence Daily showed large outflows at the end of last week, so the surge in money fund assets may indeed be inflated by temporary factors.)
