A press release entitled, "BNY Mellon Launches White Labeling Service for LiquidityDirect Platform" explains, "BNY Mellon announced ... the launch of LiquidityDirect's new White Labeling service offering, providing financial institutions a liquidity management solution for their end clients. Financial institutions seeking to include short-term investments in their suite of offerings can now leverage LiquidityDirect's technology and services to provide a seamless user experience through a single sign-on for their clients. LiquidityDirect supports almost $15 trillion in annual transaction flow for more than 6,000 of the world's largest institutional investors, offering a variety of innovative solutions to meet dynamic investment and risk criteria."
It tells us, "Morgan Stanley Investment Management will be the first financial institution to leverage BNY Mellon's new White Labeling service offering. The collaboration between BNY Mellon's robust platform combined with MSIM's extensive global client base is the first of its type and will set a new industry standard for delivering efficient cash management solutions to clients."
George Maganas, Head of Global Liquidity Services, BNY Mellon comments, "In launching our White Labeling offering, we are broadening access to the LiquidityDirect platform for financial institutions, enabling them to create an end-to-end, holistic user experience for their clients.... `This expansion is game-changing in the short-term liquidity space, and we are delighted to collaborate with MSIM in rolling-out this new service."
The release continues, "MSIM Global Liquidity Solutions, which has more than $353BN in assets under management, provides strategic cash management solutions, expertise, and resources to clients <b:>`_. As part of these capabilities, the team partners with treasury groups to help automate their cash management function, in addition to providing an efficient way to invest in money market funds through MSIM's money market investment portal. Beginning in 2016, Morgan Stanley has partnered with leading technology providers and custodians to help address clients' portal needs."
Fred McMullen, Co-Head of Global Liquidity, Morgan Stanley Investment Management, adds, "The strategic collaboration between BNY Mellon and Morgan Stanley Investment Management is designed to deliver a highly differentiated combination of technology, seamless connectivity, and dedicated client service to treasury groups globally.... This will allow us to increase the depth of our platform technology solutions and widen the reach of our offering to our client base."
In other news, the Financial Times writes, "Don't worry about money market funds." They comment, "Cash is cool again, and US money market funds are bigger than ever, hoovering up money from a banking system that has been slow to raise deposit rates. After flatlining in size around the $3tn mark since the financial crisis, US MMFs now control over $6tn-- and growing fast, according to the latest snapshot from the US Treasury's Office for Financial Research.
The piece continues, "Their allocations are also undergoing a big shift. After taking advantage of the Fed's reverse repurchase facility to position for higher rates, money market funds are now ditching the RRP in favour of funding US government-backed home lending.... The answer was to pump 40 per cent of their money into the Fed's RRP, with a one-day maturity that could take full advantage of Fed monetary tightening in real time. This agility allowed the MMFs to deliver an average return close to the Fed funds rate, using a US government-backed facility that was essentially risk-free."
It says, "Meanwhile, US bank deposit rates only captured a fraction of monetary tightening, an example of so-called deposit beta. Even today, with short-term rates currently above 5 percent, the average US savings account rate is just 0.45 per cent according to the Federal Deposit Insurance Corporation. Even one-year deposits offer only 1.36 per cent on average, a third of the yield available in MMF portfolios. This simple comparison helps explain the $1tn surge in MMF assets ... mirroring the $1tn decline in US bank deposits over the past 18 months. Cash is a legit non-awful asset class again. Just look at this swing in yields."
The update claims, "Today, the challenge for the MMFs is different. The Fed funds rate is 5.3 percent, and while there might be one more hike coming most analysts reckon we are at or near the peak in interest rates. Meanwhile, Treasury bills maturing in one year's time have a yield of 5.5 percent. That's triggered a big shift out of the RRP facility and back into bills. In the September 2023 data for the seven MMFs, the RRP allocation has fallen to 21 percent of total assets, or $297bn. The size of the RRP facility itself has shrunk from $2.3tn to $1.2tn, as the Fed unwinds its QE holdings."
It adds, "Meanwhile, holdings of treasury debt -- mostly T-bills -- increased by $142bn, pushing the percentage allocation up to 28 percent. But percentage-wise, the biggest increase has actually been into two other categories. About $146 billion went into Treasury repo, where the MMFs are making short-term collateralised loans to non-US banks such as HSBC or Société Générale. Then there's what we call US agency debt, which saw $134bn of inflows for the seven MMFs in this sample, accounting for 15 percent of investments as of September 2023."
Finally, they write, "As for commercial paper, this accounts for only 2.2 percent of investments in the seven-biggest-funds data set, concentrated in a single fund, JPMorgan's Prime MMF. Of this commercial paper, ABCP is only a tiny proportion. It's also worth noting here that most of the growth in MMFs has occurred in government debt-focused funds that specifically exclude commercial paper as an asset class. Some people have worried about the risks potentially posed by the latest surge in money market funds, but when you look closely at the data many of these fears look a little overstated.... Given that MMFs are currently offering a deposit beta of effectively one, the question is why it hasn't happened at an even greater scale. As the Dallas Fed concedes, there's still $17tn in low-earning US bank deposits -- of which $8tn are uninsured -- dwarfing the $6tn of MMF assets. That implies pretty clearly that the danger isn't quite as big as one might fear. There's no shortage of people looking for risks -- and MMFs have a record of proving an unexpected one -- but in this case the risks seem happy to remain out of sight."
