US money funds cut repos to lowest in three years-JPMorgan

NEW YORK (REUTERS) - US prime money market funds in February cut their holdings of repurchase agreements with banks and Wall Street dealers to the lowest in over three years, according to a J.P. Morgan Securities report released on Thursday.

Repurchase agreements are short-term loans money funds make to banks and dealers secured by Treasuries and other securities.

Banks and dealers use the cash to finance trades and daily operations with these general collateral (GC) repos.

While reducing their exposure to private repos, prime money funds raised their stakes in the Federal Reserve's reverse repurchase agreements by US$20 billion (S$25.2 billion) last month to US$100 billion, J.P. Morgan analysts said.

The US central bank has ramped up testing of its reverse repo program which it created to help achieve its interest rate target when it decides to move away from its current near-zero rate policy.

The dollar amount of GC repos were the lowest monthly level since J.P. Morgan began tracking the data.

"With the elevated usage of the Fed (reverse repos), we note that prime (money fund) holdings of dealer GC repo dropped to the lowest amount we have on record, dipping below the low reached in April 2011 due to the newly effective FDIC insurance fee assessment rate," J.P. Morgan analysts wrote in the report.

Bank and dealer repos represented 10.3 percent of the prime money funds' total assets, which was a hair above the 10.2 percent in April 2011, J.P. Morgan said.

Prime money funds had about US$1.098 trillion in assets at the end of February, down US$37 billion from January, according to J.P. Morgan.