Citi Research's latest "Short Duration Strategy" features an update entitled, "SIFMA/VRDNs – What will be the magnitude of the seasonal increase?" Authors Vikram Rai and Jack Muller tell us, "Tax-exempt MMFs witness outflows around tax season as investors tend to sell their near-cash alternatives in order to pay their tax bill. When tax-exempt MMFs witness redemptions, it causes a supply-demand imbalance in the short term tax-exempt space. This is because tax-exempt MMFs form a very large portion of the demand base (58%) for short term tax-exempt paper, and MMF outflows disturb the fragile supply-demand balance for this section of the market. As a result, SIFMA resets at a higher clearing rate to bring the market back into equilibrium."
They explain, "In the past, crossover investors such as prime funds used to step in quickly to buy VRDNs during periods of cheapening and help provide some sort of a cap on SIFMA resets. However, prime funds have lost 50% of their assets under management since year-end 2015 ... due to money fund reform, and since their AUM has diminished, so has their demand. As a result, the short term tax-exempt sector is extremely reliant on demand from tax-exempt money funds, and a gap in demand is reflected in higher dealer inventories of VRDNs."
The Citi brief says, "Over the last three weeks, tax-exempt money funds have witnessed about $3 billion in redemptions, but dealer inventory has not built up significantly. Thus, we do not believe that SIFMA will reset much higher this week (March 6th, 2019) and could even richen slightly."
It adds, "Tax-exempt MMFs face a unique problem – that of diminishing investible paper. VRDN outstandings, currently at $140 billion, have been shrinking.... The same is true for TOB outstandings, and the size of this market is currently about $44 billion ($23.7 billion in customer TOBs and $17.7 billion in proprietary TOB), thus down 78% from its peak of $200 billion in 2007. VRDNs and TOBs account for 78% of the short term tax-exempt market. On the other hand, demand for this category of paper from the traditional tax-exempt base can be quite sticky. This was the main reason why the SIFMA index was stuck in low single digits for a very long time in the past i.e. supply was low while demand was somewhat constant.... While we had hoped that VRDN net supply would increase last year1, the increase was far below our expectations."
In other news, a press release entitled, "Refinitiv and StoneCastle to Provide FDIC-Insured Cash Solutions to Institutions, Advisors, and Other Financial Intermediaries," announces a "strategic agreement" between Refinitiv (formerly a part of Thomson Reuters) and StoneCastle Cash Management to "provide StoneCastle's FDIC-insured cash solutions to Retinitiv's clearing and self-clearing broker-dealer clients."
The release relates that "Refinitiv, one of the world's largest providers of financial markets data and infrastructure, and StoneCastle Cash Management LLC, a leading FDIC-insured cash provider, today jointly announced they have signed a strategic partnership agreement to fully integrate StoneCastle's insured cash programs on the Refinitiv BETA platform. The integration enables financial intermediaries and wealth advisers utilizing the BETA platform to seamlessly connect their end-clients with comprehensive cash solutions that address their short-term transactional cash (sweep) and longer-term strategic cash needs."
Refinitiv Tim Rutka explains, "Cash has made a resurgence over the past year and we are committed to ensuring that our BETA clients have access to the most relevant solutions for investor cash.... As we continually look to find new ways to create or provide additional value for our clients, having full integration with StoneCastle's insured cash programs underscores our commitment and aligns to our strategy of expanding our BETA platform ecosystem with best-of-breed partner solutions."
Dan Farrell, CEO of StoneCastle Cash Management, states, "We have worked closely with Refinitiv on four major implementations and conversions over the past 18 months to establish FDIC-insured programs for our valued clients. We are thrilled to take this strategic relationship to the next level with such an impressive and respected firm that is ubiquitous in the industry."
The release notes, "With StoneCastle's InterLINK Insured Deposits sweep program and its FICA® For Advisors position-traded products, both integrated on the BETA platform, Refinitiv clients have a glide path that seamlessly connects investors to these cash solutions. FICA For Advisors made headlines in October 2018 when it was added to the RIA and institutional custody platforms at U.S. Bank.... The partnership allows Refinitiv clients to continue optimizing cash sweep balances while providing a powerful tool to attract non-sweep, held-away cash balances. With StoneCastle's 800+ active banks in its deposit network, Refinitiv clients will be able to support current and new assets while maximizing client and shareholder value."
"Our business model has always been to connect institutional and retail investors to banks through innovative deposit and cash-management solutions," adds Eric Lansky, president of StoneCastle Cash Management. "Our relationship with Refinitiv significantly widens this audience and allows us to meet growing demand quickly and more efficiently."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Friday, March 1, includes Holdings information from 59 money funds (down from 60 on Feb. 22), representing $1.173 trillion, compared to $1.108 trillion on Feb. 22. That represents 38.1% of the $3.082 trillion in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Feb. 12 News, "Feb. MF Portfolio Holdings: Repo, CD, CP, TD Jump; Treasuries Drop.")
Our latest Weekly MFPH Composition summary shows Government assets again dominated the holdings list with Repurchase Agreements (Repo) totaling $452.5 billion (rising from $406.3 billion on Feb. 22), or 38.6% of holdings, Treasury debt totaling $375.4 billion (down from $390.4 billion), or 32.0%, and Government Agency securities totaling $206.5 billion (up from $181.2 billion), or 17.6%. Commercial Paper (CP) totaled $53.5 billion (up from $49.8 billion), or 4.6%, and Certificates of Deposit (CDs) totaled $47.0 billion (down from $47.4 billion), or 4.0%. A total of $20.8 billion or 1.8% was listed in the Other category (primarily Time Deposits) and VRDNs accounted for $17.5 billion, or 1.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $375.4 billion (32.0% of total holdings), Federal Home Loan Bank with $145.7B (12.4%), BNP Paribas with $57.1B (4.9%), RBC with $48.0B (4.1%), Federal Farm Credit Bank with $42.9B (3.7%), JP Morgan with $28.4B (2.4%), Credit Agricole with $26.1B (2.2%), HSBC with $24.8B (2.1%), Fixed Income Clearing Co. with $24.1B (2.1%), and Societe Generale with $21.2B (1.8%).
The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($112.2 billion), Goldman Sachs FS Govt ($101.8B), BlackRock Lq FedFund ($87.8B), Wells Fargo Govt MMkt ($78.6B), BlackRock Lq T-Fund ($65.2B), Goldman Sachs FS Trs Instruments ($58.7B), Morgan Stanley Inst Liq Govt ($56.4B), Dreyfus Govt Cash Mgmt ($55.0B), Fidelity Inv MM: MMkt Port ($51.9B), and State Street Inst US Govt ($45.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
