NEW YORK, Dec 2 (Reuters) - Cash hoarding by banks, securities dealers and asset managers in the United States is in full swing with signs that the year-end ritual might be more intense than years past.
In the final weeks of every year, the demand for cash typically heightens as financial companies rush to assemble the money needed to bridge the period into the new year. This year, however, tighter bank regulations and heavy redemptions by investors from mutual and hedge funds have ratcheted up the urgency, analysts said.
Hedge fund manager Brevan Howard is shutting a second fund this year because of losses in commodities markets, while Pimco has suffered significant outflows since the abrupt exit of co-founder Bill Gross in October.
Some withdrawals from these funds might have headed into less risky counterparts.
Last week, money market mutual funds recorded a sixth straight week of inflows, bringing their assets to nearly $2.7 trillion, the highest since March, according to iMoneynet.
In anticipation of this surge in demand for cash-like products, the Treasury Department raised its one-month bill offering on Tuesday and the Federal Reserve will introduce term reverse repurchase agreements (RPP) next Monday.
Investors will choose among bank accounts and other ultra short-term products that earn some income even though most offer negligible interest because of the Fed’s near zero rate policy.
They will also consider investments they can easily move money in and out of in case of unexpected market volatility as most recently seen in mid-October.
“It’s more than just interest rates money fund managers are looking at right now. They are looking to be more proactive than recent years to manage their money at year-end. They are looking at investments with higher yields and/or longer maturities,” said Alex Roever, head of U.S. interest rate strategy at J.P. Morgan Securities in New York.
The Treasury on Monday surprised some traders when it decided to enlarge its weekly one-month bill offering instead selling cash management bills that mature in early January.
Tuesday’s $50 billion one-month T-bill sale fetched an interest rate of 0.03 percent, the lowest in five weeks with the strongest bidding in three weeks.
“We suspect that Treasury increased the size of this auction at the expense of small cuts to the six-month auction in order to make more securities with early January maturities available to investors looking to park cash over year-end,” Tom Simons, money market strategist at Jefferies & Co wrote in a note.
Meanwhile, the Fed said on Tuesday it awarded $402 billion in seven-day term deposits, a record amount, to 97 banks at an interest rate of 0.30 percent on Monday.
Next week, the central bank will begin the first of four test operations of longer-term RPPs, totaling $300 billion, in addition to its ongoing tests of overnight and weekend RPPs. (Reporting by Richard Leong)