Fed Minutes on Money Funds, Repo
Last week, the Federal Reserve released its "Minutes of the Federal Open Market Committee, Nov. 2–3, 2021," which made a few mentions of money market funds and repo. They write, "Turning to money market developments, the manager noted that the transition away from LIBOR (London Interbank Offered Rate) had gained momentum with a pick-up in the interdealer trading volume of Secured Overnight Financing Rate (SOFR) derivatives; that said, much remained to be done to complete the LIBOR transition. Market participants were attentive to some temporary downward pressure on the SOFR over the period. This softness appeared to be the result of technical factors and was observed primarily in centrally cleared repurchase agreement markets. The Federal Reserve's administered rates -- the interest on reserve balances rate and the overnight reverse repurchase agreement (ON RRP) rate -- continued to support effective interest rate control and, outside of month- and quarter-end, the federal funds rate remained stable over the period. Regarding the debt ceiling, the short-term resolution reached in October increased the debt limit by $480 billion. Market participants' estimates of the new date when the Treasury would exhaust its extraordinary measures and cash balance were wide-ranging but some estimates suggested the date might be as early as mid-December. Most market participants anticipated that a resolution to the debt ceiling would again be reached without a delayed payment on maturing Treasury securities although uncertainty about the debt ceiling resolution remained a source of concern in financial markets." The minutes add, "The staff provided an update on indicators related to the stability of the financial system. Vulnerabilities associated with funding risks remained at money funds and other mutual funds. In addition, funding risks were an emerging concern at entities issuing stablecoins, because they appeared to have structural maturity and liquidity transformation vulnerabilities similar to those for money funds but with considerably less transparency and an underdeveloped regulatory framework. The staff noted that the President's Working Group on Financial Markets was engaged in interagency work to address these risks."
