Safer than safe...

Someone just pointed this out to me today. A structure designed to be safer than government bonds

JP Morgan EURO Govt. Liquidity Fund

A SICAV (ie ring fenced assets) which invests primarily in Repo’s on a diversified portfolio of European govt bonds.
Why is it safer than a sole investment in a govt bond? Basically because you need the Govt Bond AND the repo counterparty to go bust

How it works…
At inception your money is given to one of many Repo Cpty’s in exchange for Govt Bond collateral…
a]If a repo cpty goes bust, you keep their Govt bonds
b]If the Govt Bond goes bust, you give back the govt bonds in exchange for your cash back off the repo cpty

So one needs a Repo Cpty AND the Issuer of the Govt Bond underlying the repo to go belly up to lose a penny

The asset base of this fund has grown from a stable 2 bln for the first 6 months of this year to 12 bln since Sept!

In any case, I know its probably a bit extreme for someone to try and think of something thats safer than the actual govt bonds, but then again the fact that the assets on this vehicle increased by 6x in the last month is probably a good indication of how scared people have become!

or you could try survivalism

stock up on beans and bullits.

It’s still a derivative. You don’t hold the bonds. I presume JP Morgan do. So isn’t it only as safe as JP Morgan, rather than the bonds?

And JPM is the largest derivative holder in the world…

I wouldn’t think it’s a derivative, a SICAV is a regulated fund I think. And as Cypress says it’s ring-fenced, so it should be safe from a JPM collapse. At least that’s the theory.

Its a bankruptcy remote vehicle whose only assets are any cash, govt bonds or repos it holds, which equal its only liability , namely the cash it owes the investors
JP Morgan is just the manager here. JP Morgan can go bust and holders have recourse to liquidate the vehicle if they so wish and claim the assets within it. JP Morgan or any other JPM creditors have no rights to the assets

In any case, I posted this just because I thot it was interesting how far people are going to get an extra level of security above and beyond govt risk and how the funds invested have skyrocketed in the last month

However, I would never touch anything like this without fully reading the fund prospectus and making 100% sure I knew what the exact structure of the vehicle looked like and the exact investment criteria etc

The last thing one wants is to find out that some of the funds went into Turkish govt bonds or something like that.
There were obviously money mkt funds in the US that bought Lehman bonds just because the investment criteria were broad enough to consider an A rated bank safe when any sane person would have known they were not suitable for a money mkt product!