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US money market funds turn from Europe
19 February 2014
European funds’ AuM falls in Q4
money market funds
US money market funds (MMFs) reduced their exposure to European
financial institutions by 18% in December, while Euro and
Sterling MMFs reduced their exposures by 8% and 6%
respectively, according to Moody's Investors Service.
Due to year-end redemptions, European funds' combined AuM
dropped by 6.5% over Q4 and their maturity profiles shortened
significantly, by seven days on average.
Despite the prolonged period of low interest rates and
continuing uncertainty around regulation, US domiciled prime
MMFs' AuM increased 2.9% to $677bn at the end of December, from
$658bn at the end of September. In European and offshore
US-Dollar funds, combined AuM declined 4.6% to $219bn.
In US domiciled funds, aggregate exposure to European financial
institutions stood at approximately 25% of total investments or
$168bn at the end of December, down from 30% of total assets or
$205bn at the end of November.
Funds also reduced their maturity profiles and increased their
liquidity levels in anticipation of year-end redemptions.
Furthermore, the credit profiles of US prime MMFs improved in
Q4 with investments rated Aa3 and higher increasing by 2.8%.
Funds' resilience to market risk improved in Q4.
Euro MMFs experienced a sharp decrease in AuM (-6.5% or
-€4.3bn) to reach their lowest level in 12 months, mostly
due to year-end redemptions. In anticipation of such
redemptions, funds' maturity profiles shortened significantly
and overnight liquidity levels increased to nearly 32% of AuM.
Funds' aggregate exposure to European financial institutions
fell by €4.1bn to €23.5bn (38% of AuM) during Q4, due
to lack of suitably rated counterparties and banks' reluctance
to borrow at year-end due to balance sheet considerations.
Credit profiles of prime Euro MMFs stabilised in Q4, with the
bulk of the investments (46%) made in Aa-rated securities,
followed by exposure to A-rated instruments (41%). Investments
in Aaa-rated securities accounted for 13% of AuM.
Sterling MMFs continued to experience a decrease in AuMs in Q4,
with funds loosing £2.8bn to reach their lowest level in
2013 (£97.1bn). Aggregate exposure to European financial
institutions decreased by £5.4bn to £42.3bn to hit
the lowest level of the year. Credit profiles of funds slightly
improved, as investments in Aaa and Aa-rated securities
increased to 62% of AuM from 60.4%.
Overnight liquidity slightly deteriorated, due to the scarcity
of repurchase agreements at year-end. Time deposit
counterparties either reduced down capacity significantly or
refused to take any cash at year-end.