Viktoria Baklanova, Isaac Kuznits, Trevor Tatum
This study analyzes portfolio holdings data filed by money market funds (MMFs) on Form N-MFP to gain insights about these funds’ activity in the Treasury market. Since March 2020 the MMF industry, including both government and prime MMFs, increased investments in Treasury securities and Treasury repurchase agreements supporting Treasury auctions and repo market functioning. MMFs are also the main investors in the Federal Reserve’s reverse repo facility supporting monetary policy implementation.
MMFs are important investors in Treasury repos
MMFs are also important investors in the Treasury repo market. As of June 30, 2022, MMF investments in Treasury repos were close to $2,317 billion, of which $2,063 billion were allocated to the Federal Reserve’s reverse repo (RRP) facility. MMF investments accounted for over 70% of the Treasury repos settled on the triparty platform.
At present, MMFs conduct most of their Treasury repos with the Federal Reserve, which has replaced securities dealers as the main MMF repo counterparty since mid-2021. Before that, securities dealers had been the largest MMF repo counterparty. Dealer access to MMFs in the repo market facilitates settlement of the Treasury auctions and a range of dealers’ market making strategies, indirectly connecting MMFs to a broader set of activity in the financial system.
The full paper is available at https://www.sec.gov/files/mmfs-treasury-market-090122.pdf