Daily Links Archives: March, 2014

Investment News writes "SEC money fund reform won't placate everyone". The article says, "Players in the $2.7 trillion money market fund industry are cautioning that even if the SEC moves ahead on its money market reform plan, not everyone will be satisfied. One big sticking point is a proposal that could leave in limbo the opaque accounts used by brokerage firms and retirement plans with retail clients.... The Securities and Exchange Commission this year is expected to act on reforms of money market mutual funds, with the possibility of imposing a proposal that requires fluctuating share prices, or net asset values, for institutional share classes. Industry representatives, however, expect the regulator to leave largely intact a legal regime that allows retail customers to rely on the consistent pricing of the products at $1 per share -- a hallmark of money market funds. At stake is the definition of what exactly qualifies as an institutional fund, including the status of an unknown number of accounts processed internally by firms such as broker-dealers, rather than fund companies, according to several observers of fund industry regulation. Many funds have a half dozen share classes in the gray area between institutional and retail, according to Peter G. Crane, founder of research firm Crane Data." IN quotes Crane, "Everything in between possibly could come under an intermediary that may be eligible for look-through treatment. The real question is going to be: How are those details written, and how liberal are they, and how easily could brokerages or intermediaries take advantage of those loopholes?"

Fidelity Investments writes in a "Market Perspective," "Money Markets: Economic Uncertainty, Fed Insights, and New Treasury Supply Report." Written by Nancy Prior, Michael Morin, and Kerry Pope, it says, "Concerns about the economy's health, insights into future Federal Reserve Board policy, and opportunities stemming from new Treasury supply influenced money market activity in February. The economy's true strength has become a focal point for both the Federal Reserve (Fed) and investors, after both January and February data came in weaker than expected. The heart of the discussion centers on whether the economy’s weaker showing was "frozenomics" (i.e., weather-related) or an indication that the economy is indeed slowing.... Fed members made it clear that they would closely monitor economic developments. January's Federal Open Market Committee (FOMC) meeting minutes and Fed Chair Yellen's testimony before Congress reiterated that while not preset, the current pace of tapering would continue unless significant changes occurred in the Fed's economic outlook.... Present policy calls for the Fed to reduce its combined purchases of longer-term U.S. Treasury and government agency mortgage-backed securities by $10 billion per meeting. A statement by Chair Yellen provided new insight with respect to forward guidance. She noted that qualitative factors would also be used in evaluating the labor market and economy, acknowledging that the unemployment rate did not seem to accurately reflect the overall health of the labor market. The January FOMC minutes enhanced forward guidance with a discussion that put two hawkish FOMC members on record as saying they thought the Fed should move off its zero-interest-rate policy as early as the middle of 2015.... The new supply reversed prior conditions in the Treasury bill market. Leading up to the debt-ceiling deadline, the Treasury dramatically cut the size of upcoming auctions to manage its remaining debt capacity. Conditions reversed when the debt ceiling was suspended.... Money market rates, including repurchase agreement (repo) rates rose higher, but the increase was short-lived. Despite the boost in supply, repo rates returned to lower levels within a few days, surprising many. Investors had expected that dealers would have a large supply of collateral from the month's Treasury issuance that would be funded using the repo market. However, the supply of collateral in that market was contained and the amount of available cash was sufficient to return rates back to the low- to mid-single-digits. The repo market has shrunk over the past several quarters, as a result of the onset of financial deleveraging, bank regulatory reform, and lighter demand from low rates.... Fidelity's money market funds took full advantage of the temporary sharp rise in yields that resulted from the heavier supply of Treasury bills and CMBs. Our portfolio managers increased Treasury bill holdings significantly in both general purpose and government funds across a range of maturities. The rise in Treasury yields drove other money market yields higher. We took that opportunity to continue buying three- to four-month Japanese bank offerings; five- to seven-month high-quality, domestic bank holdings; and 18-month U.S. government agency floating-rate notes. Going forward, we expect the economy's health to provide the overarching backdrop for the market's tone. Investors will keep a keen eye on economic data -- particularly related to the labor and housing markets, and consumer activity -- and try to glean insight from any further Fed comments."

Bloomberg clarified yesterday's WSJ article with its "SEC Said to Weigh Industry's Retail Exemption in Money-Fund Rule." It says, "Securities regulators are considering a change in how they exempt retail investors from proposed restrictions on money-market mutual funds after fund companies complained the original plan was too onerous, according to three people familiar with the matter. The new plan would allow retail funds that only have individuals as shareholders to keep their stable $1 share price, according to the people, who asked to not be named because the plan isn’t public.... About 10 percent to 20 percent of the $2.7 trillion industry lies in a gray area between retail and institutional users, according to Peter Crane, president of research firm Crane Data LLC in Westborough, Massachusetts. It's unclear how the industry's recommended definition of retail funds would affect the number of funds subject to a floating-share price. If adopted, regulators would have to find a way to get small businesses that sometimes use retail funds to switch to other products, or provide them with an exemption to continue using them." Bloomberg quotes Robert E. Plaze, a partner at Strook & Strook & Lavan LLP, "I don't think this approach would expand the retail exemption beyond what the SEC proposed. I think it's being pushed by the industry principally for operational simplicity."

The Wall Street Journal writes "SEC Set to Alter Stance on Money Funds". The article, which doesn't appear to contain anything new (retail money funds were exempted from the floating NAV in the SEC's June 2013 proposal), says, "U.S. securities regulators, under pressure from the asset-management industry, are preparing to exempt a majority of money-market mutual funds from a central plank of rules intended to curb risks in the $2.6 trillion market, according to people familiar with the agency's discussions. The Securities and Exchange Commission, poised to implement structural changes to money funds in coming months, is expected to broaden an exemption for mom-and-pop retail investors from requirements that certain money funds abandon their signature $1 share price and float in value like other mutual funds, these people said.... The revised approach would mark a victory for mutual-fund companies that have pressed the SEC to scale back provisions from a June proposal. It also would deal a blow to other regulators, including 12 regional Federal Reserve Bank presidents, who have argued for tougher rules requiring more funds, including those catering to retail investors, to float share prices.... If the SEC approves a final rule with those changes, as much as two-thirds of the industry could be exempt from the floating share-price requirements, according to Peter Crane, president of Crane Data, which tracks the industry."

BlackRock recently posted a letter "Re: Feedback on OFR Study on Asset Management and Financial Stability". Barbara Novick writes, "We are submitting this letter as an additional supplement to our November 1, 2013 letter. We have had discussions with a number of policy makers who are learning about asset management, and several of them have asked for explanations on the circumstances that cause a manager to cease doing business or a fund to close. Some policy makers are also seeking to understand the issues surrounding the winding up of both asset managers and funds. While it is difficult to generalize responses to these questions given the diverse set of firms in the asset management business, this letter responds to the questions that have been raised by policy makers as part of our continuing dialogue to enhance the understanding of asset management."

Money fund assets declined for the third week in a row. ICI's latest weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $31.38 billion to $2.646 trillion for the week ending Wednesday, March 19, the Investment Company Institute reported today. Taxable government funds decreased by $13.10 billion, taxable non-government funds decreased by $19.24 billion, and tax-exempt funds increased by $960 million. Assets of retail money market funds increased by $1.43 billion to $915.09 billion. Taxable government money market fund assets in the retail category increased by $450 million to $197.44 billion, taxable non-government money market fund assets increased by $490 million to $522.87 billion, and tax-exempt fund assets increased by $490 million to $194.77 billion. Assets of institutional money market funds decreased by $32.80 billion to $1.731 trillion. Among institutional funds, taxable government money market fund assets decreased by $13.55 billion to $725.27 billion, taxable non-government money market fund assets decreased by $19.73 billion to $928.73 billion, and tax-exempt fund assets increased by $470 million to $77.06 billion." Money fund assets have declined by $73 billion, or 2.7%, YTD, and they've declined in 8 out of 11 weeks so far in 2014.

The Federal Reserve's latest FOMC Statement says, "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation.... The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." The Fed's latest economic projections are now showing 1% as the most popular estimate of the Fed funds target for 2015.

Below, we excerpt from the SEC's Norm Champ, who spoke at this week's MFIMC. He says, "The recent Enforcement action against Ambassador Capital Management that you may have seen in the press stemmed from REO's ongoing analysis of money market fund data, in this case a review of the gross yield of funds as a marker of risk.... Money market mutual fund reform has been an important focus of the Division for some time, and it remains a key initiative for 2014. Last June, the Commission proposed additional money market mutual fund reforms, which were designed to address money market mutual funds' susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks while preserving, as much as possible, the benefits of money market funds. The Commission's proposal included two alternatives that could be adopted alone or in combination. Under the first alternative, prime institutional money market funds would be required to transact at a floating net asset value, not at a $1.00 stable share price. Government and retail money market funds would be permitted to maintain a $1.00 stable share price. Under the second alternative, money market funds would continue to transact at a stable share price, but would be able to use liquidity fees and redemption gates in times of stress. The staff is currently reviewing and analyzing the more than 1,400 letters that were submitted, with the intention of making a recommendation to the Commission. As Chair White has indicated, the rule is a critical priority for the Commission in the relatively near term of 2014."

Investment News writes "SEC will step up information gathering from mutual fund industry". They say, "The Securities and Exchange Commission is developing a rule proposal that would strengthen its ability to monitor risks associated with mutual funds. The rule would improve the data the agency receives from mutual funds, closed-end funds and exchange-traded funds, said Norm Champ, director of the SEC Division of Investment Management." IN quotes him at the "Investment Company Institute's Mutual Fund and Investment Management Conference in Orlando, Fla.," "`We are undertaking an initiative to develop a recommendation that would modernize and streamline the information that funds are reporting to the commission to give us more timely and useful information about fund operations and portfolio holdings." The piece adds, "By improving the quality and scope of the information that it collects about money market funds, the SEC was able to file a case in November against Ambassador Capital Management, which the commission charged with making false statements about the credit risk associated with funds in its portfolio. The SEC is seeking similar advances in overseeing the rest of the sector."

The National Law Review writes "SEC Issues FAQs on Financial Responsibility Rules". Written by Morgan Lewis, it says, "On March 6, the staff of the Securities and Exchange Commission (SEC) issued long-awaited guidance in the form of frequently asked questions (FAQs) on the financial responsibility rule amendments adopted on July 30, 2013. The FAQs provide guidance on (1) the effective dates of the Financial Responsibility Rules Amendments; (2) amendments to Rule 15c3-1 (the Net Capital Rule); (3) amendments to Rule 15c3-3 (the Customer Protection Rule), including (i) the allocation of customers' fully paid and excess margin securities to short positions, (ii) proprietary accounts of broker-dealers, (iii) the treatment of free credit balances outside a sweep program, (iv) certain sweep program questions, and (v) questions regarding the bulk transfer of customer accounts; and (4) amendments to Rule 17a-11.... Rule 15c3-3(j)(2)(ii) -- sweep programs -- establishes customer disclosure, notice, and affirmative consent requirements for programs where a customer's free credit balances in a securities account are "swept" into a money market mutual fund or an account at a bank whose deposits are insured by the Federal Deposit Insurance Corporation. The FAQs clarify the following: In the context of carrying agreements, where a carrying agreement is otherwise compliant with FINRA Rule 4311, the carrying firm may rely on a representation from the introducing broker that the customer has given the introducing broker the required "written" consent to include the customer's free credit balances in the carrying broker-dealer's sweep program under Rule 15c3-3(j)(2)(ii))(A). The requirement to provide notice to a customer, as part of the customer's quarterly statement of account, that the balance in the bank deposit account or shares of the money market mutual fund in which the customer has a beneficial interest can be liquidated on the customer's order and the proceeds returned to the securities account or remitted to the customer is not inconsistent with money market mutual fund documents that allow the fund a specified period of time to pay redemption proceeds or any applicable rules that would permit money market mutual funds to limit redemptions in certain circumstances."

ICI's latest "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $2.03 billion to $2.678 trillion for the week ending Wednesday, March 12, the Investment Company Institute reported today. Taxable government funds were unchanged for the week, taxable non-government funds decreased by $1.99 billion, and tax-exempt funds decreased by $40 million. Assets of retail money market funds decreased by $2.34 billion to $913.66 billion. Taxable government money market fund assets in the retail category decreased by $550 million to $196.99 billion, taxable non-government money market fund assets decreased by $1.39 billion to $522.38 billion, and tax-exempt fund assets decreased by $410 million to $194.29 billion. Assets of institutional money market funds increased by $310 million to $1.764 trillion. Among institutional funds, taxable government money market fund assets increased by $550 million to $738.82 billion, taxable non-government money market fund assets decreased by $600 million to $948.45 billion, and tax-exempt fund assets increased by $360 million to $76.59 billion." Year-to-date, money fund assets have decreased by $41 billion, or 1.5%.

An SEC filing to liquidate the $57 million AllianzGI Money Market Fund says, "Effective on or about April 24, 2014 (the "Liquidation Date"), AllianzGI Money Market Fund (the "Fund") will be liquidated and dissolved. Any shares of the Fund outstanding on the Liquidation Date will be automatically redeemed on the Liquidation Date. The proceeds of any such redemption will be equal to the net asset value of such shares after dividend distributions required to eliminate any Fund-level taxes are made and the expenses and liabilities of the Fund have been paid or otherwise provided for. Allianz Global Investors Distributors LLC, the Fund’s distributor (the "Distributor"), will waive contingent deferred sales charges applicable to redemptions beginning five (5) business days prior to the Liquidation Date, including such Liquidation Date."

After a long pause, another letter was recently posted on the SEC's "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF" website. Written by J. Charles Cardona, Jr., President, The Dreyfus Corporation, it says, "The Dreyfus Corporation ("Dreyfus") appreciates the opportunity to provide additional comments on the U.S. Securities and Exchange Commission's (the "Commission") June 2013 money market fund ("MMF") reform proposals (the "Proposals"). The comments in this letter are limited to the Proposals related to municipal money market funds ("Municipal MMFs") and supplement the comments we provided in our comprehensive comment letter in response to the Proposals filed with the Commission on September 17, 2013. Dreyfus supported the Commission's overall policy goals to lessen MMFs' sensitivity to excess redemption activity, increase MMFs' ability to manage through and mitigate potential contagion from high levels of redemptions, impose transparency and risk management overlays, and preserve, as much as possible, the utility of MMFs. We also welcomed the Commission's intent to tailor any proposed reforms to the types of funds that demonstrated stress during the financial crisis and to preserve the intrinsic value of MMFs by excluding U.S. Government money market funds ("Government MMFs") from the proposed mandates of a variable net asset value ("VNAV") and standby liquidity fees and gates structures (collectively, the "Structural Proposals") as well as providing a "retail exception" from the VNAV alternative that would allow for certain funds to maintain a constant net asset value ("CNAV"). Our letter emphasized three Proposals most concerning to us because we viewed each as likely to diminish, rather than preserve, the overall utility of MMFs for MMF investors. These Proposals were (a) the VNAV alternative; (b) the Commission's decision not to exclude Municipal MMFs from the Structural Proposals as the Commission proposed to exclude Government MMFs; and (c) eliminating amortized cost as a means for valuing certain portfolio securities owned by CNAV MMFs. With respect to Municipal MMFs, we commented that Municipal MMFs should be excluded from the Structural Proposals to the same extent as Government MMFs."

The Bank for International Settlements (BIS) published its latest "March 2014 Quarterly Review", which features a piece entitled, "Non-US banks' claims on the Federal Reserve." It summary says, "Non-US banks' affiliates in the United States took up about half of the claims on the Fed that it created to pay for its large-scale bond purchases. They did so largely through uninsured branches unaffected by a new FDIC charge on wholesale funding payable by US-chartered banks. Robert McCauley and Patrick McGuire (BIS) find that these branches raised dollars from their affiliates abroad in order to deposit these funds at the Fed. On a consolidated basis, non-US banks raised dollars by swapping other currencies for dollars and increasing dollar liabilities. At the same time, they continued to increase their dollar claims outside the United States." Later, the paper adds, "The Federal Reserve is experimenting with a new operational tool -- the reverse repo -- that could substantially reduce banks' $2.5 trillion (and rising) claims on the Fed, even as the Fed continues to hold its bond portfolio. In a reverse repo, the Fed borrows overnight from a cash-rich counterparty like a money market mutual fund against the security of a bond from the Fed's portfolio, which reached $4.1 trillion on 19 February 2014. From an aggregate perspective, these operations would necessarily drain banks' holdings of balances at the Fed, in particular those in addition to those needed to meet reserve requirements ("excess reserves"). For some banks, especially US branches of non-US banks, it would reduce any profit to be made by taking in wholesale funds at 10 basis points (or less) and holding reserves at the Fed at 25 basis points. In effect, the new operations disintermediate the banks that have done this low-risk trade."

The Wall Street Journal wrote Friday and again Saturday on new online Chinese "money market" funds. Its Saturday article, "China Online Funds Pressure Deposit Ceiling, Ex-PBOC Vice Governor," says, "Online money-market funds are putting pressure on the central bank's ceiling on bank deposit rates, but regulators welcome the development, a former vice governor of the People's Bank of China said Saturday. "Regulators are pleased by this development," Wu Xiaoling told reporters on the sidelines of the annual session of China's parliament. "Internet finance has given a big boost to the nation's financial reforms." China maintains a ceiling on interest rates paid on deposits at the nation's banks but it has vowed to make interest rates more market-based. Online money-market funds, which aren't subject to the limits, have been able to offer substantially higher returns, effectively helping regulators in their deregulation efforts, though raising concerns at the nation's banks. Chinese e-commerce giant Alibaba Group Holding Ltd. launched an online money-market fund called Yu'e Bao last June, and the fund had attracted more than 400 billion yuan ($65.4 billion) as of the mid-February. Savings accounts offer a minuscule interest rate of 0.35% a year while a one-year fixed deposit can pay 3.3%. Yu'e Bao and other similar products provided by tech companies are offering about 6% a year. Experts say online money-market funds have forced banks to offer similar products, but banks are lobbying regulators to clamp down on the money-market funds before they siphon off more of their deposits. These funds are investing in the interbank market and domestic bonds. Central bank Governor Zhou Xiaochuan said this week that regulators want to refine regulations covering online funds but have no intention of cracking down on these competitors to the nation's banks." The Journal's Friday piece, "For China's Online Money Funds, the Game Changes," showed Alibaba's Yu'e Bao fund among a list of the largest money market funds worldwide.

ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $4.08 billion to $2.680 trillion for the week ending Wednesday, March 5, the Investment Company Institute reported today. Taxable government funds decreased by $13.00 billion, taxable non-government funds increased by $7.85 billion, and tax-exempt funds increased by $1.07 billion. Assets of retail money market funds increased by $170 million to $916.00 billion. Taxable government money market fund assets in the retail category decreased by $660 million to $197.54 billion, taxable non-government money market fund assets increased by $330 million to $523.77 billion, and tax-exempt fund assets increased by $500 million to $194.69 billion.... Assets of institutional money market funds decreased by $4.25 billion to $1.764 trillion. Among institutional funds, taxable government money market fund assets decreased by $12.33 billion to $738.27 billion, taxable non-government money market fund assets increased by $7.52 billion to $949.05 billion, and tax-exempt fund assets increased by $570 million to $76.23 billion."

Asia Asset Management writes "HFT is poised to roll out first RQFII money market fund". It says, "HFT Investment Management (HK) (HFTHK), a joint venture between BNP Paribas Investment Partners and Haitong Securities, is set to launch the first RQFII [Renminbi Qualified Foreign Institutional Investor] money market fund in Hong Kong after receiving approval from the Securities & Futures Commission (SFC) to go ahead with it. Jelle Vervoorn, chief executive officer of HFTHK notes the fund will be the first of its kind to primarily invest in money market instruments issued in China, enabling investors' [outside of] China to enjoy Mainland yield levels for these products. Bruno Campenon, head of BNP Paribas Securities Services Hong Kong, says BNP Paribas is very focused on helping clients expand into RQFII products as an integrated part of its global fund distribution solution for asset managers." "With our global expertise across multiple markets and international fund centres worldwide, we now provide our fund manager clients with another new channel in the RQFII space to support their business strategy, meeting the unique operational and regulatory requirements of China's fund market," he explains. The piece adds, "Lawrence Au, head of Asia Pacific with BNP Paribas Securities Services, says he is aware of the fact that some European investors are looking to launch RQFII products in Singapore, from where they can benefit from the ASEAN Collective Investment Scheme (CIS) framework to distribute their products in Thailand and Malaysia. He expects the first RQFII fund to come on line in Singapore in the next few months."

A press release entitled, "ICD AutoPay Triggers Cisco's Largest Money Market Fund Trade To Date," tells us, "Institutional Cash Distributors (ICD) today announced that Cisco Systems, Inc., the worldwide leader in Internet Technology, used ICD AutoPay, to generate Cisco's largest ever Money Market Fund trade of $8 billion. ICD AutoPay, a breakthrough technological advancement for corporate treasury departments increases efficiency by automating wire requests from approved trade orders. This eliminates the need for cash managers to login to their bank to request wires to settle purchase transactions. ICD AutoPay's key differentiator is its patent-pending TrueMark EST (Encapsulated Security Token) technology that locks in approved cash channels and requires a SWIFT message with matching bank details before wire requests are forwarded to the client's bank. ICD AutoPay mitigates the risk of cybercriminals, rogue traders and/or human error of sending funds to unapproved destinations." Roger Biscay, Vice-President, Treasurer & Global Risk Management, Cisco Systems, comments, "We have been an ICD client for over ten years. I have always been impressed with ICD's ability to go to market with products that are ahead of the competition. AutoPay enables my team to seamlessly invest around the world in a safe and secure environment through one simple execution." ICD's Tom Newton adds, "Since our inception, we've been focused on providing superior products and services. Just as our risk management application, Transparency Plus revolutionized our clients' ability to drill down into a fund's portfolio holdings, ICD's AutoPay technology now revolutionizes how clients securely wire money to settle their investments."

Federated Investor's Debbie Cunningham writes "Hurry up and wait" in her latest "Money in Cash". She explains, "The nation's sluggish recovery created a waiting game for money markets in February. Mixed economic signals, continued brutal weather and cautious monetary policy kept rates in suspended animation, with all of us waiting for some definitive positive news to move them forward and up.... We are perhaps more focused on the Fed's daily maneuvers. The Fed recast its overnight reverse repo facility from a test to an exercise, in place at least through Jan. 2015. It raised the overnight rate from 3 basis points to 5 basis points, slowly creeping up to a little bit less abysmal. The Fed continues to establish its role as the market-rate setter. Counterparties and participants were allowed to use the program up to $5 billion a night, an increase of $2 billion. Another positive in terms of supply has been the Treasuries.... If all of this leads you to think you should see substantial change in at least the overnight to 3-month section of the yield curve, think again. There actually has been very little movement. The explanation for this is that rates would have probably been closer to zero had the Fed not been in the marketplace. The end of January saw a floating-rate Treasury note come to the market for the first time. The Treasury offered $15 billion of 2-year floating rate notes resetting weekly off 90-day bills at a spread of 4.5 basis points. We are eager to watch the market develop from the standpoint of both spread and liquidity."

Barclays Joseph Abate writes in his latest "US Weekly Money Market Update" says, "Collateral rates remain stubbornly low despite the pick-up in bill issuance and heavier fixed rate reverse repo program (FRFA) participation. These low rates probably reflect the contraction in dealers' Treasury inventories. Money market funds are doing an increasing amount of Treasury repo with the Fed. Yet, non-Fed Treasury repo balances are off 9% since the end of August. Dealers have simultaneously reduced their Treasury holdings by 10% from their mid-October peak. With less to finance, dealers have less need to compete with the Fed for money fund financing. We expect the Fed to steadily ratchet up the size of its reverse repo allotments. As dealer inventories appear to have stabilized in recent weeks, additional flows into the reverse repo facility could exert more upward pressure on repo rates."

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