Invesco, which has recently begun running a new banner ad on www.cranedata.com touting its "long-term approach to short-term investing," also just posted a new Global Liquidity Commentary entitled, "Why So Low? Repo in the Driver's Seat. The brief, subtitled, "Repo in the driver's seat," says, "Low yields on repurchase agreements, or repos, throughout the month continued to put downward pressure on the yields of other short-term instruments and to drive further out the yield curve. Repo rates have remained low due to a sharp reduction in Treasury bill supply, an increase of cash in the front end of the yield curve and quantitative easing, which is removing collateral from the market."
Invesco explains, "Short-term yields still isolated from turbulence. Bond markets rallied in July on dovish comments by Federal Reserve Chairman Ben Bernanke that eased concerns about the immediacy of tapering. Shorter-term yields (under 1 year) have been less affected by tapering anxieties."
Finally, they add, "Ratings news: good and bad. Moody's revised their outlook for the US long-term sovereign debt from 'negative' to 'stable' citing deficit reduction efforts and an improving US economy. Earlier in the month, Fitch downgraded France's sovereign debt rating from 'AAA' to 'AA+' citing concerns regarding the country's debt burden."
Invesco's table on "Short-Term Interest Rates" shows Fed Funds Effective rising from 0.07 to 0.09 from the end of June (6/28) to the end of July (7/31) and Overnight Treasury Repo rising from 0.05 to 0.07. But 3-month Treasury bills fell to 0.02 from 0.05, and the Tax-Exempt Securities Industry and Financial Markets Association (SIFMA) Index fell to 0.05 from 0.06 in July.
Looking at market repo rates, the DTCC's GCF Repo Index hit record lows in July, averaging 0.053% for Treasury collateral, 0.062% for Agency collateral and 0.067% for MBS collateral. Rates have rebounded slightly month-to-date in August, so expect to see some relief from the record low gross yields in money funds for July.
As we wrote in our August 12 Crane Data News (Latest Portfolio Holdings Show Jump in Treasuries, CP, Repo Rebound), repos are no longer the largest holding segment of taxable money funds, though they remain a very close third behind CDs and Treasuries <b:>`_. Certificates of Deposit represent 20.4% of taxable money fund holdings, Treasury securities account for 20.1%, and Repo comprises 19.2%. Commercial Paper totals 17.2%, Government Agency securities total 14.6%, Other securities (which includes Time Deposits) total 6.5%, and VRDNs total 2.0%.
