A press release entitled, "State Street Provides Clients Record Access to Cleared Repo Financing," tells us, "State Street Corporation (STT), today announced that it has sponsored a record $140 billion in repo investment volumes as a result of its partnership with the Fixed Income Clearing Corporation (FICC). In 2005, State Street partnered with FICC to launch its Sponsoring/Sponsored Member Repo Program, whereby a bank netting member of the clearing house could sponsor eligible US mutual funds to clear their repos with FICC." We quote from the release, and review the latest Portfolio Holdings updated from JP Morgan and ICI too, below.
It explains, "With the evolution of the FICC program, and specifically the rule changes in 2017 and 2019 permitting additional sponsoring and sponsored member client types, FICC's aggregate cleared repo and reverse repo volumes have risen substantially. As a designated Systemically Important Financial Market Utility (SIFMU), FICC is required to maintain prescribed risk management standards and is subject to heightened regulatory oversight, factors that play a critical role in participants' assessment of their counterparty risk. US money market funds have been particularly active buy-side participants recently; corporations, hedge funds, insurance companies, and state and local governments are taking notice."
State Street Head of Funding and Collateral Transformation Gino Timperio comments, "The growth in sponsored member repo through FICC has been transformational in the actively managed cash marketplace, providing cash investors and cash borrowers critical and stable liquidity.... I believe we're in the early stages of a sustained growth trajectory, from which our clients and the overall market will continue to benefit."
UBS Asset Management's Head of Liquidity Investments, Rob Sabatino tells us, "UBS was an early adopter of Sponsored Repo [with State Street]. The growth of sponsored repo volumes within FICC highlights demand from both cash investors and borrowers for a highly efficient, centrally cleared solution and I anticipate the next wave of growth will be from corporations, local government investment pools, and offshore entities managing US dollars."
The release adds, "State Street continues to work closely with the FICC and other central clearing counterparties to expand the eligibility of cleared collateral options, jurisdictions and tenors, to further support clients' liquidity and financing needs."
Crane Data shows that money fund holdings of FICC repo have grown to a record $217.5 billion (as of 7/31) according to our latest Money Fund Portfolio Holdings data series. This is up from $111.7 billion on April 30 and $95.1 billion as of January 31. Bank of New York Mellon and JP Morgan Chase Bank are also large participants in FICC repo program.
J.P. Morgan Securities' newest "US Short Duration Update also discusses FICC repo. It says, "The latest taxable MMF holdings data show FICC sponsored repo with MMFs stood at $218bn as of the end of July, an increase of $7bn month over month and $173bn year over year. At current levels, this reaches another record high, surpassing the previous peak of $211bn at the end of 2Q. FICC is now the largest individual repo counterparty with MMFs and has also broken the record in terms of the largest dealer repo counterparty ever, as sponsored repo has gained significant traction among the MMF community. Indeed, not only are there more fund families that engage in sponsored repo (from 9 in July 2018 to 21 in July 2019), but the average dollar volume of sponsored repo engaged per fund family has also increased (from $5bn in July 2018 to $10bn in July 2019)."
They explain, "As of now, we believe there are three sponsoring banks that are providing collateral to MMFs. Fund holdings data do not always disclose the sponsor with which the MMF is engaged. Based on the holdings data that do report the sponsor and DTCC's disclosures of the relationship between sponsoring and sponsored members, we estimate BNY comprises the largest share of the sponsored repo market with MMFs, followed by STT, and then JPM.... It's worth noting that MMFs can have multiple sponsors, as a way to source additional collateral and access different rates. Indeed, with respect to the latter, based on fund holdings and what the reports have identified as their sponsors, we find that while some sponsors offer rates similar to tri-party, others offer sponsored repo at a spread above it."
JPM's update also says, "Looking ahead, we suspect sponsored repo balances with MMFs will continue to grow as we head into year-end, particularly as MMFs remain in demand in the face of an inverted yield curve, volatility in the equity markets, and seasonality. As cash balances in MMFs continue to grow, the yield advantage of sponsored repo relative to treasury bills, discount notes, and other credit instruments should encourage funds to favor the former.... A standing repo facility would help address some of those liquidity issues, though it still remains unclear whether the Fed could get it up and running by year-end. Given some of the challenges around how the standing repo facility should be structured, the Fed may have to pursue other alternatives."
Finally, ICI released its monthly "Money Market Fund Holdings" summary yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For our initial review of July 31 Holdings, see our August 12 News, "July Money Fund Portfolio Holdings: Repo Up Again, Agencies Rebound")
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in July, prime money market funds held 26.7 percent of their portfolios in daily liquid assets and 42.0 percent in weekly liquid assets, while government money market funds held 60.3 percent of their portfolios in daily liquid assets and 79.4 percent in weekly liquid assets." Prime DLA increased from 25.8% in June, and Prime WLA decreased from 42.1% the previous month. Govt MMFs' DLA increased from 59.5% in June and Govt WLA increased from 77.8% from the previous month.
ICI explains, "At the end of July, prime funds had a weighted average maturity (WAM) of 35 days and a weighted average life (WAL) of 68 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 29 days and a WAL of 95 days." Prime WAMs stayed the same as the previous month, and WALs decreased by one day. Govt WAMs and WALs were the same as their June levels.
Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas rose from $300.86 billion in June to $305.31 billion in July. Government money market funds' holdings attributable to the Americas declined from $1,955.37 billion in June to $1,945.33 billion in July."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $305.3 billion, or 43.7%; Asia and Pacific at $136.7 billion, or 19.6%; Europe at $250.1 billion, or 35.8%; and, Other (including Supranational) at $6.16 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.945 trillion, or 79.1%; Asia and Pacific at $121.6 billion, or 4.9%; Europe at $385.7 billion, or 15.7%, and Other (Including Supranational) at $8.0 billion, or 0.3%."
