US domiciled money market funds’ (MMFs) assets under management (AUM) increased 4.3% to US$667 billion in the third quarter, despite the political uncertainty over the US debt ceiling resolution, says Moody’s Investors Service in a report.
Euro MMFs saw a modest 1.2% increase in AUM after reaching their lowest level in 12 months in June, while Sterling MMFs experienced a 1.9% drop in AUM.
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Euro MMFs’ exposure to European financial institutions remained stable, albeit with significant shifts in country allocation. US MMFs boosted their exposure to Swedish and French banks by 27% and 16% respectively, while investment in Swiss and Norwegian financial institutions dropped by 27%.
Sterling MMFs decreased their exposure to European financial institutions, but boosted their investment in Singapore-based banks by almost 69%.
The reports, ‘US-Dollar Prime Money Market Funds Q3 2013: Credit Profile and Liquidity Profiles Improve in Response to Debt Ceiling Impasse’, ‘Euro Prime Money Market Funds Q3 2013: Shortest Average Maturity Since July 2012 and Improved Market-Risk Profile’ and ‘Sterling Prime Money Market Funds Q3 2013: Market-Risk and Credit Profiles Improve’ are now available on www.moodys.com.
US-DOLLAR PRIME FUNDS: US domiciled MMFs AUM increased 4.3% despite political uncertainty; Exposure to Swedish and French banks on the rise
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By GlobalDataAfter rising uncertainty in Q3 2013, major disruption in the MMF sector was avoided following the agreement reached on the US debt ceiling limit on October 16.
The increase in cash in response to the debt ceiling impasse partly explains the material improvement of overnight liquidity in Q3, which, for US domiciled funds, increased to 36% on average (end-June: 33%).
Despite the prolonged period of low interest rates and uncertainty from the US debt ceiling impasse, US domiciled MMFs AUM increased 4.3% to US$667 billion at the end of September (end-June: US$640 billion). In European and offshore domiciled funds, combined AUM declined 1% to US$229 billion at the end of September (end-June: US$233 billion).
In US domiciled funds, aggregate exposure to European financial institutions stood at approximately 28% of total investments or US$186 billion at the end of September, US$176 billion up from the end of June when the accounted for 27% of total assets.
The composition of exposure to European institutions changed with increases to Swedish financial institutions (US$47 billion from US$37 billion) and French banks (US$50 billion from US$43 billion), while exposure to Swiss and Norwegian banks decreased (US$24 billion from US$33 billion).
Exposure to Australian financial institutions declined 11% to US$36 billion from US$40 billion in Q3 and down 21% year to date from US$46 billion. Japanese financial institutions increased 8% to US$78 billion from US$71 billion during the third quarter and exposure to US financial institutions decreased 5% to US$31 billion from US$33 billion in the same period.
Funds’ credit profiles improved in Q3. Investments rated Aa3 and higher increased by 2.3% in US domiciled funds and 6.8% in European and offshore domiciled funds. However, MMFs sensitivity to market risk slightly increased in Q3 due to the modest increase in longer dated securities, partially offsetting the improvement in the credit profiles.
PRIME EURO-DENOMINATED FUNDS: Modest increase in AUM; Exposure to European financial institutions remains stable; Market risk profiles improved
Euro MMFs have seen a modest increase in AUM by 1.2% to 66.9 billion after reaching their lowest level in 12 months in June.
While funds’ aggregate exposure to European financial institutions remained stable at 28.1 billion, significant shifts in country allocation were observed in Q3. These shifts have been prompted by long-term refinancing operation repayments (LTRO). Investments in French financial institutions increased by 14% to 9.4 billion whereas exposure to Swedish banks decreased by 20% to 5 billion.
Prime euro-denominated funds’ market-risk profiles improved in Q3. Funds reduced their maturity profiles and increased their liquidity levels in response to market uncertainty. However, funds’ credit profiles experienced a modest negative shift in rating distribution in Q3, partly due to increased exposures to asset-backed commercial paper.
Whilst exposure to Aaa and Aa1-rated securities decreased by 7.5%, investments in Aa2 and Aa3-rated securities increased by 9.3%.
Euro prime funds have decreased their weighted-average maturity (WAM) to the lowest level in 12 months at 39.2 days from 41.6 days on average.
The relatively small changes in the credit profiles coupled with the significant WAM decrease prompted an improvement of the funds’ sensitivity to market risk. Funds’ stressed net asset value at the end of Q3 was 0.9929 from 0.9923 at the beginning of the quarter.
STERLING PRIME FUNDS: Combined AUM decreased by 1.9%; Sharp decrease in exposure to Dutch and French financial institutions
Sterling MMFs have seen a decrease in combined AUM by 1.9% to GBP99.9 billion during Q3.
Exposure to European financial institutions decreased, both in absolute terms (-GBP3.8 billion to GBP47.9 billion) and relative terms, at 48% of combined funds’ AUM from 50.9% at the beginning of the quarter.
Exposure to Dutch and French financial institutions experienced the sharpest decrease by GBP1.5 billion (-18.3%) and GBP1.1 billion (-8.6%), respectively. On the other hand, investments in relatively highly rated Singapore-based banks increased significantly by GBP2.2 billion to GBP5.4 billion.
Funds’ credit, market-risk and maturity profiles improved in Q3, as funds’ reduced their maturity profiles and increased their liquidity levels. Credit profiles improved as investments in Aa-rated securities increased by 8.9% at the expense of exposures to A-rated instruments (-6.7%).
After reaching a peak in June, WAM reduced to 42.3 days, on average. The increased exposure to highly rated instruments, combined with a shorter duration, led to an improvement in the funds’ sensitivity to market risk. Stressed net asset value increased to 0.9925 on average from 0.9920 at the beginning of the quarter.
