Money market funds have had a rough go of it lately, but those investing in Treasuries still get some perks. For years, they’ve been able to earn interest on cash in overnight repurchase agreements with the safest counterparty on the planet.
Now they can purchase or lend collateral into pools for repurchase agreements, if sponsored by a dealer. They had $16bn of repo transactions outstanding with FICC at the end of September, up from nothing at the start of the year, according to the Office of Financial Research’s money market fund monitor.
Money-market funds aren’t yet involved in GCF repo — but other non-dealer institutions, such as corporations and sovereign wealth funds, were permitted to join those pools in late May. (GCF transactions are backed by high-quality securities, so dealers end up lending out Treasuries or agencies they have on hand at the end of the day, within an agreed-upon range of quality.)
The expansion of GCF repo access required dealers to voluntarily give up their privileged access to a safe source of returns on cash (or sometimes, collateral). That’s a tough sell, even after regulations made it more expensive for dealers to intermediate these transactions on behalf of their clients.
Money-market funds can now provide cash or securities in repo transactions, as long as they’re sponsored by a dealer (cough-rentier-cough). That expansion was made possible by a rule change from the Depository Trust & Clearing Corp earlier this year.
It’s not entirely clear that’s the only driving force behind the uptick in the OFR’s volume figures, however. Bank of New York Mellon became a sponsoring member of FICC in early June, and might’ve brought more money market fund clients along with it. Of course, this would still represent a small portion of the total tri-party repo market by volume. In all, there were about $1.6tn of outstanding repo transactions collateralized by Treasuries and agencies in September, according to data from the New York Fed.