Bloomberg published, "Drowning in Cash, Money Markets Seek Another Life Raft From Fed." Authors Alexandra Harris and Benjamin Purvis write, "More and more, investors are wondering whether the Federal Reserve will tweak its monetary policy toolkit to help out money markets that are starting to drown in a sea of cash. The Fed's existing facilities have helped alleviate the impact of the growing dollar glut in short-term funding markets that's outstripping the supply of investable securities and weighing down front-end rates. But officials can only continue to do so if money-market funds, which help funnel more than $4 trillion of cash investments into short-term instruments, are functioning properly. Now, some are now wondering how long the Fed can stem the effects of the growing cash pile if it doesn't adjust some of the auxiliary rates it uses to help steer markets -- including the zero yield it offers through its reverse repurchase agreement operations." (Reminder: Register for our "Asian Money Fund Symposium" webinar, which is Thursday, June 17 from 10:00am-12:00pm Eastern.)
The piece quotes Teresa Ho of JPMorgan, "There comes a point where zero becomes too much.... Zero is great when you're in a crisis, but when it comes to the weight of zero basis points, it's quite heavy for the front end." They quote our Peter Crane, "If the situation is expected to persist, you would expect that smaller players might try and get out.... Or if all yields are below 5 basis points or even negative, that would force everyone out of the business. It's a matter of when."
Bloomberg writes, "But as that facility and other instruments that yield next to nothing become bigger portions of portfolios, money-market funds may begin to feel the pinch. Taking administrative and other costs into account, some funds could begin to produce losses, which might prompt them to stop accepting new cash from investors or even close entirely. That, in turn, risks pushing even more money directly into Treasury, repo and fed funds markets -- because only certain institutions have access to Fed facilities like the RRP -- potentially dragging rates below the central bank's 0% floor."
They add, "With the Fed's floor at risk of cracking, some observers have suggested that the central bank may need to raise its so-called administered rates: those it offers on the reverse repo facility, and its interest rate on excess reserves. By edging those up, it can provide some breathing room for money-market funds and reduce risks to the system. Such a change could take place at the Federal Open Market Committee meeting on Tuesday and Wednesday, although there's debate around the likelihood and wisdom of such a move." (See also the FT piece, "Fed urged to aid money market funds as negative rates loom.")
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our June 10 News, "June MF Portfolio Holdings: Repo Skyrockets Led by RRP; T-Bills Plunge.")
Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in May, prime money market funds held 32.9 percent of their portfolios in daily liquid assets and 47.7 percent in weekly liquid assets, while government money market funds held 80.4 percent of their portfolios in daily liquid assets and 89.0 percent in weekly liquid assets." Prime DLA was up from 29.9% in April, and Prime WLA increased from 45.5%. Govt MMFs' DLA increased from 79.2% in April and Govt WLA increased from 88.8% from the previous month.
ICI explains, "At the end of May, prime funds had a weighted average maturity (WAM) of 45 days and a weighted average life (WAL) of 62 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 37 days and a WAL of 84 days." Prime WAMs were down one day from the previous month, while WALs were up one day from the previous month. Govt WAMs were down five days while WALs were down six days from April.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $173.00 billion in April to $172.90 billion in May. Government money market funds' holdings attributable to the Americas rose from $3,470.72 billion in April to $3,555.35 billion in May."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $172.9 billion, or 35.4%; Asia and Pacific at $92.5 billion, or 18.9%; Europe at $217.6 billion, or 44.5%; and, Other (including Supranational) at $6.1 billion, or 1.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.555 trillion, or 88.4%; Asia and Pacific at $138.6 billion, or 3.4%; Europe at $310.7 billion, 7.7%, and Other (Including Supranational) at $15.6 billion, or 0.4%."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 28, 2021) includes Holdings information from 70 money funds (up 24 funds from two weeks ago), which represent $2.411 trillion (up from $1.680 trillion) of the $4.947 trillion (48.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.241 trillion (up from $804.2 billion two weeks ago), or 51.5%, Repurchase Agreements (Repo) totaling $763.1 billion (up from $525.9 billion two weeks ago), or 31.7% and Government Agency securities totaling $206.0 billion (up from $182.2 billion), or 8.5%. Commercial Paper (CP) totaled $65.8 billion (up from $56.6 billion), or 2.7%. Certificates of Deposit (CDs) totaled $49.2 billion (up from $46.7 billion), or 2.0%. The Other category accounted for $59.9 billion or 2.5%, while VRDNs accounted for $26.2 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.242 trillion (51.5% of total holdings), Federal Reserve Bank of New York with $258.7B (10.7%), Federal Home Loan Bank with $100.1B (4.2%), BNP Paribas with $59.0B (2.4%), Fixed Income Clearing Corp with $54.2B (2.2%), RBC with $47.0B (1.9%), Federal Farm Credit Bank with $42.8B (1.8%), JP Morgan with $39.4B (1.6%), Federal National Mortgage Association with $38.1B (1.6%) Mitsubishi UFJ Financial Group Inc with $29.2B (1.2%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($226.3 billion), Goldman Sachs FS Govt ($205.6B), Wells Fargo Govt MM ($160.7B), Morgan Stanley Inst Liq Govt ($135.8B), Fidelity Inv MM: Govt Port ($129.5B), BlackRock Lq T-Fund ($127.7B), Dreyfus Govt Cash Mgmt ($113.6B), BlackRock Lq Treas Tr ($112.9B), JPMorgan 100% US Treas MMkt ($112.4B) and, Goldman Sachs FS Treas Instruments ($106.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
