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’US MMFs versus the Eurozone, Part 2
In the first installment of US money market funds versus the eurozone, the funds were seen fleeing the continent as quickly as possible, leaving all sorts of funding chaos in their wake.
In part two,
Implications of the US money market fund retreat
That chart is from the latest Fitch Ratings report of the biggest US prime money market funds.
Check out Tracy Alloway’s writeup and we’ve also chucked the report in the usual place.
But the short story is that these funds continue to pull back from French banks in large amounts but have gradually eased back into non-euro-plagued UK,
Behold the dangers of contaminated collateral [updated]
Yale University’s Gary Gorton and Guillermo Ordoñez have a new working paper out on the role of collateral in financial crises. This may not pass for exciting news in some places but FT Alphaville is not like other places. Gorton is renowned for his work on shadow banking and wrote an excellent short primer on the recent crisis.
Shortening MMF maturities, chart du jour
Via Fitch Rating’s latest report on US prime money market funds’ European bank exposure, and as reported by the FT on Friday:
It’s worth picking out the shortening trend in term funding. As Fitch notes:
European banks’ slow run on… themselves
There’s been a lot of focus on US money market withdrawals from European banks adding to the current market stress in Europe. But could this be a bit of a red herring?
Kash Mansori at the Street Light blog has pulled data from the ECB’s data warehouse,
Un petit funding problème, illustrated
A fortnight is a long time in short-term credit markets.
Reports of US money market funds pulling out of European banks in July abounded last month – and French banks appear to be particularly vulnerable due to their relatively high reliance on short-term funds and lower deposit ratios.
Peering into a US money market fund
There’s been a lot of talk about how the US money market mutual funds are pulling their money out of the eurozone. And generally chopping and changing the nature of their investments.
But how exactly do the mechanics of that work,
Un petit French funding problème
Rumours of funding problems at French banks have been rife this summer.
Without even getting into specific financial firms, you can see a potential issues.
French banks do have a relatively higher reliance on wholesale funding,
MMFs end exposure to Italian and Spanish banks
Worries about European banks’ US dollar funding have been growing lately, even though the latest Fed data show foreign banks still have huge piles of cash on an aggregate basis.
But that’s just one part of the funding story.
The Fed’s secret QE equivalent
Anyone catch this from the New York Fed on Friday? It’s hugely important:
Beginning Monday, August 15, the New York Fed intends to conduct another series of small-scale reverse repurchase (repo) transactions using all eligible collateral types.
Why money market fund actions will be key
Bank of America Merril Lynch’s Shyam Rajan is one of our favourite repo market experts. He’s been following every twist and turn in this unique post-Lehman crisis repo environment.
And his view regarding the downgrade is clear.
The debt ceiling and money market funds
Thursday’s New York Times article on Wall Street’s fallback plans for a technical US default and/or a downgrade of the US credit rating has generated a bit of buzz. Here’s the gist:
On Wall Street, Treasuries function like a currency,
Inter-bank, minus the bank
That the European Central Bank has stepped in to replace much of the eurosystem liquidity that used to be provided by the banks’ themselves is well-known. Did you know, however, that one measure of the ECB’s liquidity provision is now higher than in the depths of the 2008 financial crisis?
It’s the ECB’s so-called ‘recycling’ of bank deposits,
European money market funds are hemorrhaging
Here’s an interesting chart from Société Générale compiled using data from EPFR Global.
It shows recent flows in and out of European money-market funds.
As can be seen, they’re seemingly hemorrhaging once again:
When European interbank volatility is good for money funds
Where “good” = yield from a nice Eonia trade.
Quite frankly, this looks to us like picking up pennies in front of a steamroller.
But in a report on Friday, Moody’s pointed out an interesting money fund trade that takes advantage of current volatility in Eonia.
All hail the negative repo regime
The repo rate normally trades closely to money market rates. This is sometimes referred to as the general collateral rate. But sometimes a particular security is in demand for borrowing purposes. This is because there are many dealers who have gone short of that security.
Those flatlining money market funds
It’s hard times for money market funds.
With the repo market broken, and new post-crisis regulation, they’re left to cope as best they can with what’s essentially a broken business model in an environment of extremely low interest rates.
QEased credit – but maybe not for long
It’s money money everywhere and not that much to buy.
Citigroup credit strategist Matt King has a nice note out on Wednesday attempting to delve into the ‘cash on the sidelines’ notion — or the idea that there’s a wall of money just waiting to be invested.
Has the Fed’s exit strategy been Basel-ed?
A piece of the Fed’s exit strategy in tatters because of Basel III? Perish the thought.
Yet RBC Capital Market’s Mike Cloherty certainly seems to think so in a short note published late on Thursday.
The emigration of the money market funds
And we thought the Mediterranean was nice this time of year.
Research released by Fitch on Friday shows how the ten largest US MMFs have eroded their exposure to banks in peripheral Europe during the last few years.
A rash of MMF rating withdrawals at Moody’s
The latest money market funds to be stripped of their triple-A credit ratings by Moody’s belong to Goldman Sachs.
From a Friday statement:
Moody’s withdraws Aaa/MR1+ ratings of two Goldman Sachs money market feeder funds
London,
Maturity magic
We knew it was coming.
But innovations to escape newly-created liquidity rules for banks have come rather sooner than we thought.
From the Bank of England’s latest quarterly bulletin:
Some of the attraction of these instruments is likely to reflect recent regulatory developments.
Money market funds meet moral hazard
Cast your minds back to August 2007, when money market funds were experiencing their first major crisis. It was far less sexy than what was to follow in September 2008 — when Reserve Primary notoriously broke the buck and sent money markets into panic — but it was one of the earlier manifestations of the credit crunch.
Moody’s on ‘breaking the buck’ – and 208 near misses
Some 13 months and seven days ago, we were struck with a certain catastrophe.
Reserve Primary Fund — a money market mutual worth about $64.8bn in September 2008 — broke the buck. In other words, its net asset value fell below $1 a share — something which was never supposed to happen.
‘A lively debate followed,’ or, fun with Treasuries
Tip of the hat to Alea for this — an unusually interesting record of minutes for the latest meeting of the Treasury Borrowing Advisory Committee, released in tandem with the Quarterly Refunding Statement.
The perils of releasing the repo rate
FT Alphaville speculated this week about the degree to which collateralised gold loan rates are more indicative of real repo rates - and of collateralised borrowing costs overall – than general collateral repo rates.
Finreg, the FDIC and repo markets: a BarCap primer
BarCap produced another solid batch of commentary on the potential implications of US financial reform on Friday*, this time on the topic of repo and short-rate markets.
[For any interested, previous missives covered derivatives/central clearing and the resolution authority]
Here’s the I-want-to-leave-the-office version: