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MONEY MARKETS-Which funds are gathering cash for redemptions?
September 30, 2011 / 4:30 PM / 6 years ago

MONEY MARKETS-Which funds are gathering cash for redemptions?

* Hedge funds may be expecting more cash outs - MF Global

* Redemptions from money funds not seen rising - Barclays

* Month-end squaring means closing trades, holding cash (Adds U.S information; changes headline, dateline; previous LONDON)

By Emily Flitter

NEW YORK, Sept 30 (Reuters) - Among the businesses engaged in month-end “window dressing,” which involves closing out trading positions and moving into cash, some investment funds may be preparing for clients to ask for their money back.

According to John Brady, a futures trader at MF Global Securities in Chicago, hedge funds are expecting the number of redemptions to rise in the fourth quarter.

“Funds of funds are sick and tired of getting chopped up in the market,” Brady said on Friday. “There are going to be a lot of redemptions next month from hedge funds, so they need to raise cash.”

Brady said he saw traders closing out bets that the front end of the Treasury yield curve would have very low volatility, which were paired with bets that the long end of the yield curve -- specifically, maturities between 10 years and 30 years -- would be very volatile.

“We got Operation Twist, so you want to book the profits now,” he said.

Barclays short-term rates strategist Joe Abate said the push for cash in the repurchase market did not seem to be coming from money market funds, another group of money managers that might reasonably be expected to be asked by their clients to return money next month.

“It’s really kind of balance sheet repositioning that goes on, where they shrink the size of the balance sheet,” he said of the month-end maneuvering. “Repo availability declines. With respect to money market funds, redemptions have been pretty mild, balances have been flat.”

Roseanne Briggen, an analyst at IFR Markets, a unit of Thomson Reuters in New York, reported heavy month-end activity, but said it was taking place amid relative market stability.

“While the action on repo desks is pretty chaotic as the clamor for cash is keeping traders busy, there is enough cash seeking collateral for quarter-end window dressing,” she wrote in a note to clients.

“That said, it won’t be surprising to see a blip higher in (repo general collateral rates) later in the session if someone gets caught short into the close.”

Meanwhile, interbank lending markets remained stressed as European leaders struggled to quell a financial crisis.

The benchmark three-month dollar London Interbank Offered Rate USD3MFSR= rose to 0.37433 percent on Friday from 0.37211 percent on Thursday.

The euro Libor-OIS, a measure of counterparty risk, rose 3 basis points on the day to 78 bps. At the beginning of July it stood near 14 bps.

The cost of borrowing euros for three months from the unsecured interbank market rose to 1.495 percent, according to the latest Libor fixings EUR3MFSR=.

The three-month euro/dollar cross-currency basis swap EURCBS3M=ICAP was last quoted at -110bps, only 5 bps off its most expensive levels since December 2008, seen earlier this month. (Additional reporting by William James in London; Editing by Dan Grebler)

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