Wells Fargo Securities' "Daily Short Stuff" wrote earlier this week about "FICC Sponsored Repo Rises in February." They explain, "Last week Crane released its monthly holdings data and the results showed, once again, that the FICC repo facility has increased by another $7 billion, from just over $95 billion to more than $102 billion. The increase is not the largest historical month-end balance for the FICC sponsored-repo program. That honor belongs to December month-end when the FICC program reached $138 billion. Year-over-year growth in FICC-sponsored repo has been nothing short of astounding."
Author Garret Sloan explains, "The jump in FICC-sponsored repo usage from year-end 2017 to year-end 2018 was approximately $104 billion, and there is little to suggest that this number cannot get much larger as the Treasury seeks to finance an additional $1 trillion deficit in each of the coming two years. At year-end there were 16 funds from 7 funds families utilizing the sponsored repo program. At year-end December 2018 the number grew to 55 funds from 17 fund families."
He continues, "Under S&P's Principal Stability Fund Ratings Criteria, a fund may face FICC (an A-1+ counterparty) for up to 50 percent of its overnight bucket based on counterparty diversification limits as long as the repo is backed by general collateral. In other words, the growth potential for the FICC-sponsored repo program could be multiples times its current size. Moody's Ratings Methodology is more lenient for short-term 'traditional' collateral in that it allows full look-through and does not restrict counterparty concentration if the underlying collateral falls within certain asset categories."
The Wells brief adds, "We point out the growth of FICC-sponsored repo as significant, as it will provide an outlet for the growth of dealer Treasury securities holdings and provide avenues of liquidity that are often unavailable during certain calendar periods. For instance, the significant jump in month-end and quarter-end bilateral and triparty repo rates is largely a function of the loss of direct funding access for certain counterparties on reporting dates, either for dealers themselves or third-party clients, with the rest of the market moving in sympathy. Were we to see further counterparties accessing FICC-sponsored repo, it would likely squeeze the spread between GC and triparty repo markets by lifting triparty rates and depressing GC."
In other news, Federated Investors' Susan Hill asks, "Just how patient will the Fed be?" She writes, "On the face of it, Wednesday's Federal Open Market Committee (FOMC) meeting might seem destined to be bland. A 'patient' Federal Reserve likely will be on full display, and no one expects a rate hike."
Hill tells us, "But the accompanying release of the Fed's latest Summary of Economic Projections ('dot plot') should hold intrigue for market participants. We anticipate it will reflect the downward shift of the path of tightening that policymakers have emphasized over the last few months. The press conference will be scrutinized for a more nuanced take by Chair Jerome Powell."
She adds, "The end of the taper will have implications for the Treasury and agency mortgage-backed markets depending on how the Fed chooses to alter the amount it reinvests. Tied into this plan likely will be a stated intention to decrease excess bank reserves to the trillion dollar mark, but we don't expect specifics about that at Wednesday's meeting." (Note: Hill will speak on a "Government Bond Market & Fund Discussion" at next week's Bond Fund Symposium, which is March 25-26 in Philadelphia.)
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 15, includes Holdings information from 68 money funds (up from 59), representing $1.237 trillion, compared to $1.173 trillion on March 1. That represents 38.4% of the $3.225 trillion in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our March 12 News, "March Money Fund Portfolio Holdings: Treasuries Rebound; CP, CDs Up.")
Our latest Weekly MFPH Composition summary shows Government assets again dominated the holdings list with Repurchase Agreements (Repo) totaling $470.2 billion (rising from $452.5 billion on March 1), or 38.0% of holdings, Treasury debt totaling $412.9 billion (up from $375.4 billion), or 33.4%, and Government Agency securities totaling $209.8 billion (up from $206.5 billion), or 17.0%. Commercial Paper (CP) totaled $59.1 billion (up from $53.5 billion), or 4.8%, and Certificates of Deposit (CDs) totaled $49.1 billion (up from $47.0 billion), or 4.0%. A total of $19.8 billion, or 1.6%, was listed in the Other category (primarily Time Deposits) and VRDNs accounted for $16.5 billion, or 1.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $412.9 billion (33.4% of total holdings), Federal Home Loan Bank with $147.1B (11.9%), BNP Paribas with $51.0B (4.1%), RBC with $50.8B (4.1%), Federal Farm Credit Bank with $44.3B (3.6%), JP Morgan with $27.4B (2.2%), Credit Agricole with $25.0B (2.0%), HSBC with $24.6B (2.0%), Wells Fargo with $23.6B (1.9%) and Mitsubishi UFJ Financial Group Inc. with $23.2B (1.9%). (Fixed Income Clearing Co. was 11th with $22.6B, or 1.8%.)
The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($115.3 billion), Goldman Sachs FS Govt ($99.2B), BlackRock Lq FedFund ($97.6B), Wells Fargo Govt MMkt ($75.8B), BlackRock Lq T-Fund ($65.5B), Morgan Stanley Inst Liq Govt ($58.5B), Dreyfus Govt Cash Mgmt ($55.3B), Fidelity Inv MM: MMkt Port ($54.2B), Goldman Sachs FS Trs Instruments ($53.7B) and State Street Inst US Govt ($46.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
