The U.K.-based publication Treasury Today features the article "A New Way for Treasurers to Find Yield," which discusses the use of direct repo for treasurers as a way to add yield. Banks are "finding it more expensive to accept short-term cash," which in turn means that "banks are passing these costs on to treasurers in the form of reduced yields," says the piece. It quotes Robert O'Riordan of Insight Investment in the UK, "[This] is affecting deposits held directly with the banks, and investments in prime money market funds (MMFs), which predominantly have bank counterparties." Regulation in June of this year "is set to increase liquidity requirement and reduce the maturity of profiles of prime MMFs." The European Union sets this regulation and currently regulates these Prime MMFs. O'Riordan states that "this will apply further downward pressure to the yields they generate." Because of this, "prime MMFs will no longer offer treasurers a constant NAV in all market conditions, which they desire." The article states, "MMFs are now designated differently because of regulation, which has created "new criteria" for CNAV funds, and has led to the institution of a "new low volatility NAV (LVNAV) fund type." It tell us, "The Holy Grail for treasurers is for their cash investments to be backed by government securities, to have daily access to their cash and for the yield they receive to be comparable to a prime MMF. 'A few years ago, this dream was unachievable given the limited amount of cash investment choices,' notes O’Riordan. 'But this is now very much a reality due to the opening up of the non-bank repo market.'" Finally, Treasury Today explains, "However, [O'Riordan] believes that it is increasingly possible for treasurers to transact repo directly with cash borrowers, 'thus avoiding the large spread typically imposed by banks'. In this model, non-bank counterparties offer gilts as collateral for the cash they borrow, giving treasurers the highest form of security, with a yield enhancement over what they would receive if they went directly to a bank. In addition, it gives treasurers the ability to diversify their cash away from bank risk."

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