BlackRock Update Bullish on Prime
BlackRock published a "Cash Management Market Update" for September 2020 recently, which says, "Assets of money market funds (MMFs) across the industry declined about $91 billion for the month as of September 30. Flows within the taxable MMF categories were affected by the conversion of a large prime MMF to a government MMF. Specifically, assets of government MMFs rose about $61 billion during September, while prime MMF assets declined around $147 billion. Assets of municipal MMFs fell approximately $6 billion for the month as of September 30, likely driven by the low yields in the category. Dealer inventory of variable rate demand notes (VRDNs) was largely manageable in September and the Securities Industry and Financial Markets Association (SIFMA) Index of 7-day VRDNs stood at 0.11% as of September 30, up only slightly from the beginning of the month." The brief continues, "Despite some week-over-week flow volatility in September, the BlackRock government MMFs grew assets in the month of September. Rates on government securities remained pressed against their lows. Net new T-bill issuance decreased for the third month in a row, with yields on T-bills maturing within one-year trading inside of 0.09% at month end.... Sourcing investable supply of agency securities remains a challenge, so our exposures decreased. Instead, we seized an opportunity to add fixed and floating rate Treasury notes as an alternative. Our allocations to repurchase agreements moved slightly lower month-over-month as we feel cash management bills provide us with a better investment opportunity for the liquidity component of our funds." BlackRock adds, "Over the course of September, assets in BlackRock's prime MMFs declined slightly. However, given the extended forecast for low-interest rates, we believe investors will continue to seek the incremental yield prime funds may provide relative to government funds. Our strategic allocations in September were broadly consistent with August. In setting strategy, we maintain a bias towards high-quality issuers of commercial paper and U.S. dollar-denominated certificates of deposit when adding investments in three- to six-month tenors. We are building elevated liquidity buffers in our funds to mitigate against potential volatility associated with an upcoming U.S. presidential election, among other events. In an effort to achieve this, we have increased our exposure to short-dated U.S. Treasuries, U.S. agencies and other securities that mature within one week. To help preserve the yield of the funds, we still seek selective opportunities further out the curve in fixed and floating rate securities that we believe represent convincing relative value."
