Fitch: U.S. Money Funds Increase Repo Holdings as Supply of Eligible Securities Dwindles

This is a big deal. Basel III means less available repo. What will cash investors put their money in?

August 04, 2011 11:46 AM Eastern Daylight Time

NEW YORK–(BUSINESS WIRE)–U.S. prime money market funds (MMFs) increased investment in repurchase agreements (repos) collateralized by nongovernment securities, according to Fitch Ratings. Fitch-rated prime MMFs allocated approximately 16% of their total assets to repos while decreasing holdings of time deposits (TDs).

Fitch attributes this development to three major factors: prolonged shortage of the supply of MMF-eligible securities exacerbated by increasing aversion to European exposures, the scarcity of U.S. government securities available as repo collateral, and an ultra-low interest rate environment.

Assets under management (AUM) of Fitch-rated MMFs increased to $560.4 billion during second quarter 2011 from $488.2 billion in March 2011. The portfolio composition of these MMFs remained relatively stable during the quarter, despite investor concerns over European bank exposure to Euro sovereign debt. As Fitch noted in previous reports, MMF exposure to European banks remains manageable, with U.S. MMFs decreasing their holdings of French and other Eurozone banks in June.

The implementation of MMF reforms in 2010 has already reduced the risk profile of U.S. MMFs, although Fitch notes that debate continues over the structure of the industry and its degree of systemic risk.

The full report, ‘U.S. Money Market Funds Sector Update,’ is available on the Fitch website, at ‘’.

Additional information is available at ‘’

Applicable Criteria and Related Research: U.S. Money Market Funds Sector Update: Q2 2011

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