OFR Short-term Funding Monitor - Market Digests
Transaction volume is an indicator of market liquidity. These charts present insights into volumes across various short-term funding markets.
Money market fund investment holdings of repos by counterparty type
Aggregate value of money market investment fund holdings of repos by counterparty typeSkip the Chart
Money market funds are a type of mutual fund used for cash management by institutional and retail investors. As a group, these funds are the largest cash lenders in short-term funding markets. Money market funds provide liquidity to the markets. This liquidity allows issuers of short-term debt securities, such as corporations and governments, to roll over their financing.
This chart shows the aggregate value of money market fund holdings of repurchase agreements (repo) by counterparty type. Participation in the Federal Reserve's reverse repurchase agreement (RRP) facility is shown as repos with the Federal Reserve. Investments in sponsored repos, with the counterparty as the Fixed Income Clearing Corporation (FICC), are shown as repos cleared by FICC. Repos with financial institutions (excluding FICC) are shown in aggregate as repos with either U.S. or foreign financial institutions. Investments in direct repos without a financial institution counterparty are reported in aggregate as repos with other counterparties.
A shift in the composition of money market funds' repo counterparties indicates a change in the structure of the repo market. The mirror-image volatility in the series for repos with foreign financial institutions and the series for repos with the Federal Reserve shows quarter-end dynamics in short-term funding markets. Foreign financial institutions reduce their use of repo funding at quarter-ends to improve their balance sheet ratios in regulatory filings, a practice called window dressing. The withdrawal of these foreign financial institutions from repo markets puts downward pressure on interest rates by reducing the number of eligible counterparties to which money market funds can lend. The Federal Reserve reduces this downward pressure by accepting repo investments from money market funds through its RRP facility, effectively putting a floor under interest rates in the repo market.
The notable increase in repos cleared by FICC since 2017 reflects the growth of sponsored repo. In sponsored repo, a FICC clearing member can sponsor other firms' access to the FICC DVP Service.
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