Fitch Ratings wrote recently on, "Local Government Investment Pools: 1Q19." The brief says, "Combined asset growth for the Fitch Local Government Investment Pool (LGIP) indices remained strong during 1Q19. The primary driver for the inflows was likely the seasonal nature of LGIP participants' tax collection schedule. Historically, asset flows into/out of LGIPs have followed a relatively consistent cyclical pattern, with heightened cash inflows during the first and fourth quarters of the year and slowdowns during the late summer/early fall months when tax collection revenues are limited." We quote from the Fitch update below, and we also review a recent article on repo and our latest Weekly Money Fund Portfolio Holdings.
The LGIP article continues, "According to Fitch's 2019 Outlook for U.S. Local Governments, revenues for those entities that rely heavily on sales and other economically sensitive taxes should see modest growth assuming the economy does not head into a recession. Additionally, entities that rely on property taxes should observe some revenue growth as home values are anticipated to increase in some areas; this may be muted in other areas due to paucity of new construction."
Fitch adds, "Net yields of LGIPs continued their upward trend, albeit at a slower pace than in previous periods. U.S. Treasury yields dropped during 1Q19 as markets absorbed the increasingly dovish tone from the Fed. Concerns for U.S. economic growth prospects weighed on the fixed income markets given the uncertainty surrounding the trade deal discussions with China and the lack of clarity with Brexit."
The brief concludes, "With the Federal Reserve expected to slow or reverse the trajectory of rates this year, LGIPs may seek to extend durations to sustain yields. Longer durations have a marginally negative effect on Fitch’s risk measures, although Fitch-rated LGIPs have cushions within existing ratings." Fitch's piece shows total assets in its Liquidity LGIP Index of $164.2 billion as of March 2019, up $9.1B in the quarter. (The average rated fund size is $10.3 billion with a WAM of 42 days and net yield of 2.01%.)
In other news, the Weekend Wall Street Journal featured the piece, "Supply Surge Sends Overnight Rates Above 10-Year Yields." It says, "The persistent supply of U.S. government debt flooding the bond market this year has done little to raise bond yields, except in the market for the shortest-term securities. The cost to borrow cash overnight has been elevated in part of the market for repurchase agreements -- or repos -- where lenders such as money-market funds make short-term loans to bond brokers, often using government debt as collateral. The overnight rate on Treasury repos was 2.47% Friday, compared with the 2.35% rate for interest on excess reserves, or IOER, or 2.048% for 10-year Treasury notes."
It continues, "That surplus of bonds in the overnight market has forced bondholders seeking cash to offer higher yields. 'It's been quite welcome,' said Deborah Cunningham, who oversees money-market funds at Federated Investors. She said she frequently holds about half of her assets in overnight repos."
The article adds, "Repo rates are expected to fall should the Fed cut interest rates as expected at its meeting later this month. Analysts and investors expect that they will continue to trade at yields that are higher than other rates set by the Fed."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of July 19) includes Holdings information from 81 money funds (up from 75 last week), representing $1.803 trillion (up from $1.619 trillion a week ago) of the $3.402 trillion (53.0%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $718.9 billion (up from $657.8 billion a week ago), or 39.9%, Treasury debt totaling $513.8 billion (up from $482.5 billion) or 28.5%, and Government Agency securities totaling $301.3 billion (up from $266.3 billion), or 16.7%. Commercial Paper (CP) totaled $90.7 billion (up from $73.8 billion), or 5.0%, and Certificates of Deposit (CDs) totaled $87.0 billion (up from $75.0 billion), or 4.8%. A total of $50.0 billion or 2.8%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $41.2 billion, or 2.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $513.8 billion (28.5% of total holdings), Federal Home Loan Bank with $210.2B (11.7%), Fixed Income Clearing Co with $116.7B (6.5%), BNP Paribas with $81.1 billion (4.5%), Federal Farm Credit Bank with $55.4B (3.1%), RBC with $55.0B (3.1%), JP Morgan with $40.1B (2.2%), Wells Fargo with $37.1B (2.1%), Credit Agricole with $34.1B (1.9%) and Barclays PLC with $32.9B (1.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt ($146.5B), Fidelity Inv MM: Govt Port ($114.7B), Goldman Sachs FS Govt ($105.0B), BlackRock Lq FedFund ($100.2B), Federated Govt Oblg ($83.4B), Wells Fargo Govt MMkt ($79.2B), BlackRock Lq T-Fund ($72.7B), JP Morgan 100% US Trs MMkt ($63.7B), Fidelity Inv MM: MMkt Port ($62.9B) and Morgan Stanley Inst Liq Govt ($57.7B). (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.)
