Fidelity Quarterly MM Commentary
Fidelity Investment's latest "Quarterly Money Market Commentary" discusses the recent Fed cut and talks briefly about money funds. Authors Kerry Pope and Chris Lewis write, "Amid mounting economic uncertainty, money market funds continue to see strong inflows, with total assets under management of more than $3.2 trillion as of July 31.... Assets have grown by $201.6 billion year to date. On the retail side, assets have risen as investors continue to see value in money market fund yields compared to rates on bank deposits. On the institutional side, increased mergers and acquisitions (M&A) activity and the repatriation of cash are driving asset growth." They add, "Repurchase agreements (repos) sponsored by the Fixed Income Clearing Corporation (FICC) have grown significantly as banks have sought more balance sheet-friendly repo funding. The FICC is a registered clearinghouse for repos, a type of short-term borrowing that allows banks and broker-dealers to fund their government securities more efficiently by netting their borrowing and lending in the repo conducted on the FICC platform. FICC-sponsored repos have more than doubled in the first half of 2019. The program's strong growth has created new efficiencies for money market funds and broker-dealers who invest in and fund government securities through repos." The commentary continues, "Many money market portfolios (including those of Fidelity) have been incorporating SOFR-linked securities into their portfolios, with a total of $153 billion in SOFR-based securities issued as of the end of July. Since SOFR is based on an overnight repo rate, it has shown some volatility at quarter- and year-end, when many banks and broker-dealers scale back their activity in the repo market.... However, New York Fed president and CEO John Williams in a speech recently suggested that institutions not delay converting to SOFR just because it is an overnight rate. Significant progress has been made in the transition, he said, although institutions must reconsider LIBOR-linked products and review fallback language carefully." The piece concludes, "Investment firms like Fidelity with deep resources and research capabilities are well-positioned to navigate changing interest rate environments, through a full market cycle. Fidelity has the breadth and expertise to identify risks and opportunities amid shifting market and regulatory dynamics to provide the stability and insight that investors are seeking."
