The Investment Company Institute released its latest "Money Market Funding Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of June 30, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets table shows Prime Money Market Funds' Daily liquid assets at 24.2% as of June 30, up from 22.8% on May 31. "Daily liquid assets" were made up of: "All securities maturing within 1 day," which totaled 19.7% (vs. 18.7% last month) and "Other treasury securities," which added 4.5% (vs. 4.2% last month). Prime funds' Weekly liquid assets totaled 36.1% (vs. 36.6% last month), which was made up of "All securities maturing within 5 days" (30.0% vs. 31.5% in May), Other treasury securities (4.4% vs. 4.0% in May), and Other agency securities (1.7% vs. 1.1% a month ago).
Government Money Market Funds' Daily liquid assets total 62.8% in June vs. 62.3% in May. All securities maturing within 1 day totaled 27.8% vs. 27.3% last month. Other treasury securities added 35.0% (vs. 35.0% in May). Weekly liquid assets totaled 81.6% (vs. 79.9%), which was comprised of All securities maturing within 5 days (39.0% vs. 37.9%), Other treasury securities (32.5% vs. 32.9%), and Other agency securities (10.1% vs. 9.1%).
ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 47.9% in the Americas (vs. 40.6% last month), 20.0% in Asia Pacific (vs. 19.1%), 32.0% in Europe (vs. 40.0%), and 0.2% in Other and Supranational (vs. 0.3%). Government Money Market Funds held 89.9% in the Americas (vs. 84.6% last month), 0.5% in Asia Pacific (vs. 0.6%), 9.6% in Europe (vs. 14.8%), and 0.0% in Supranational (vs. 0.1%).
The table, "Prime and Government Money Market Funds' WAMs and WALs shows Prime MMFs WAMs and WALs remained the same from last month (at 45 and 80 days, respectively) and Government MMFs' WAMs shortened by one day to 42 days and their WALs remained the same at 71 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for May covers funds holding 94 percent of taxable money market fund assets." Note: ICI doesn't publish individual fund holdings.
ICI Senior Economist Chris Plantier added additional commentary in "ViewPoint" ntitled, "European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June". "European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years," writes Plantier.
Adds Plantier, "The June drop in the share of prime money market fund portfolios allocated to European counterparties was the largest decline since Form N-MFP data have been collected, topping even the tumultuous summer of 2011. The large monthly decline indicates that European banks can shrink their balance sheets quickly and/or have the ability to find other sources of funding quickly. We suspect it is a fair amount of the former. The increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via the Fed's overnight reverse-repo facility."
He also says, "The money market fund use of the Federal Reserve facility could increase further as major bank regulatory changes are implemented, and as the structural changes likely to be imposed on money market funds are phased in over the next few years. Under this facility, 93 money market funds have been designated by the Fed as eligible counterparties for its reverse-repo facility; each of these 93 funds can execute up to $10 billion in repo agreements. It is difficult to know exactly how large the Fed's overnight reverse-repo facility will be going forward, but we know that money market funds collectively are currently using less than one-third of their maximum $930 billion allotment (93 funds x $10 billion each). This facility will improve the Federal Reserve's ability to control short-term interest rates and will likely be an important safety value as Basel III and other regulatory changes are applied."
JP Morgan Securities' latest "Prime Money Market Funds Holdings Update" for June says, "Given upcoming leverage ratio disclosures, many banks significantly shrunk their balance sheets at the end of June, triggering a sharp spike in RRP usage among money funds. While this was only a temporary phenomenon (as banks returned to scaling their balance sheets post quarter-end), these acute spikes in RRP holdings are significant in that they highlight the ease to which funds can move en masse into the RRP facility. As bank regulations continue to be implemented, this pattern of increased RRP usage at quarter-ends could become a regular feature."
Money market funds saw a large surge in the use of the RRP program. The piece, by Alex Roever, Teresa Ho, and John Iborg, tells us, "Both prime and government MMFs saw record participation into the RRP facility, totaling $147bn and $148bn respectively. There were four prime MMFs and zero government MMFs that went in for the full $10bn allotment. Comparatively, there were three prime MMFs and two government MMFs that went in for the full $7bn allotment at March quarter-end. The surge in RRP was prompted by a sharp pullback in bank balance sheets at quarter-end. Due to the way leverage ratios are calculated by European bank regulators, European banks exhibited the greatest contraction in bank balance sheets."
They also note a reduction in exposures to Yankee banks. "The decline in Yankee bank holdings was primarily concentrated in time deposits. By jurisdiction, the decrease was driven by reductions in holdings of French banks (-$18bn), Swedish banks (-$17bn), Norwegian banks (-$14bn), and UK banks (-$13bn). Notably, prime MMFs’ holdings of Japanese banks were the only banking sector that materially increased month-over-month. As of June month-end, Japanese bank exposures increased by $12bn, mostly via growth in unsecured CDs."
Treasury floaters continued to increase in June. "At the end of June, MMFs held a total of $15.9bn in Treasury floaters, an increase of $2.46bn from May. The pace at which MMFs have added Treasury FRNs has slowed somewhat in the second quarter ($6.44bn) versus first quarter ($9.46bn). At current levels, MMFs hold about 19% of the $82bn currently outstanding, a decrease from 23% in March. This seems to suggest that non-MMF investors are participating in a greater portion of the market and finding this product relatively more attractive. Treasury MMFs continue to be the largest holders of Treasury FRNs with $10.5bn in their portfolios as of May month end, followed by prime MMFs with $4.1bn, and Government Agency MMFs with $1.3bn." Finally, they say, "forthcoming details about money fund reform and the Fed's exit strategy will dominate investors' focus the second half of this year."
