US-dollar Prime money market funds (MMFs) have increased their total exposure to European financial institutions by 16% (USD 27 billion) in the first two months of Q3 2013, according to Moody’s Investors Service.
Most of this increase is due to higher exposures to Swedish and French banks, which rose by 40% and 22% respectively. Within Euro-denominated MMFs, exposure to European financial institutions remained stable, albeit with significant country shifts, while Sterling MMFs reduced their exposure to the euro area by 6.5% (GBP 3.2 billion).
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US-dollar Prime MMFs: AUMs increase by 6%; exposures to European financial institutions up 16%; WAM extended by 2 days
U.S. domiciled USD funds increased assets under management (AUMs) by 6% to USD 679 billion from USD 639 billion during the first two months of the third quarter.
"US money market funds have shown a much stronger appetite for investments in Europe in recent months. This reflects the subsiding concerns about Europe’s financial system", said Yaron Ernst, managing director of Moody’s Global Managed Investments Group.
Overnight liquidity has improved slightly to 33% for US-Dollar Prime MMFs; whereas offshore domiciled funds have seen stronger improvement, from 36% to 38% in the past two months.
The funds’ sensitivity to market risk has increased modestly in the first two months of the quarter, mainly due to the funds increased appetite for slightly longer-dated securities, having seen the weighted average maturity (WAM) on average extended by 2 days to 44 days. The average of Moody’s stressed net asset value measure of rated MMFs decreased to 0.9916 from 0.9919 at the beginning of the quarter.
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By GlobalDataEuro-denominated MMFs: Stabilized AUMs; Exposures to French financial institutions up 9%; WAM and Obligor diversification at their lowest level in 12 months.
Euro MMFs have seen a modest increase in AUMs by 0.9% to EUR66.7 billon in the first two months of the third quarter, after AUMs had reached their lowest level in 12 months in June this year.
While funds’ aggregate exposure to European financial institutions remained stable at EUR28.1 billion, there have been significant shifts in country allocation opposite to those observed in Q2. Investments in French financial institutions increased by 9% to EUR9 billion whereas exposure to Swedish banks decreased by 16% to EUR5.3 billion.
The credit profiles of euro-denominated MMFs experienced a modest deterioration with a shift to Aa2- and Aa3-rated investments (+9.7%) from Aaa- and Aa1-rated securities; partly due to decreased exposures to highly rated governments, agencies and repurchase agreements.
Given the flatness of the short end of the yield curve, prime funds have decreased their weighted-average maturity (WAM) by 1 day to 40.6 days on average, its lowest level in 12 months. This low WAM was also driven by the build-up of higher levels of overnight liquidity at 32.9% of AUM after the large outflows that occurred at the end of Q2.
Funds have reduced by 23% their exposure to long-dated securities with maturities above three months and reallocated their investments in securities maturing between one and three months (+40%).
