Fitch: Repo Use Declines in Prime European Money Funds

From Crane Data:
Fitch Ratings published an update entitled, “Repo Use Declines in Prime European Money Funds,” which reviews holdings of repurchase agreements in “​offshore” money market funds denominated in US dollar, euro and pound sterling. It explains, “Repurchase agreement exposures in European ‘​AAAmmf’ rated prime money market funds (​MMFs) declined to 4% in September 2016 from 7% two years earlier. Fitch Ratings attributes this decline to a reduction in the availability of high-​quality collateral and regulation affecting banks’ ability and willingness to engage in short-​dated repo…. Temporary declines in money funds use of repo at month-​end, quarter-​end and year-​end are linked to reduced availability of high-​quality collateral at these times as banks use this collateral for other regulatory purposes.” We review Fitch’​s latest update, and also excerpt from updates on T-​bill supply from Citi and BofA and the latest monthly from Federated.
Fitch’​s summary tell us, “Around 65% of Fitch-​rated MMFs were undertaking repo transactions in September 2016, up from about 60% two years earlier, despite the decline in exposures. All MMFs are eligible to engage in repo transactions, and about 85% of rated fund complexes have set up the required legal documentation and counterparty relationships to do so…. Repo transactions in European MMFs are mainly used for portfolio liquidity management as they have short maturities, between overnight and seven days, or longer but with up to 48-​hour call options. UCITS funds in particular are required by regulation to limit repo investment maturities to seven days (​or callable within seven days).”

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