The U.S. short-term financing markets and the $2.6 trillion money-fund industry are grappling with one of the most chaotic quarter-end stretches since the financial crisis.
Quarter-end is often a tumultuous period. Banks typically rein in collateral lending as they shore up balance sheets, driving up rates on repurchase agreements. When banks curb repo activity, money funds — the key cash providers in the transactions — need alternative places to invest. In the past few years, one option they've turned to is directing more money into the Federal Reserve's reverse repos, the tool the central bank uses to put a floor under its target for overnight rates.
But this quarter, the movements are out of the ordinary, partly because of the looming Oct. 14 deadline for the overhaul of rules governing money funds. Treasury repo rates have reached the highest since 2008. Meanwhile, the amount of money piling into the Fed's overnight reverse repos surpassed $270 billion, one of the highest levels since officials began testing the program in 2013.
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