US MMFs Increase European Banking Exposure

US money market funds (MMFs) increased their total exposure to European financial institutions (FIs) by 11% in the first two months of Q413, with assets under management (AUM) increasing by 3% and the weighted-average maturity (WAM) shortened by one day, said Moody’s Investors Service. Over the same period euro and sterling MMFs reduced their investments in European FIs by 8% and 5% respectively.

The credit ratings agency (CRA) added that based on data for October and November 2013 the continuing increase within US-dollar prime MMFs to European FIs was driven by increased investment in British and French FIs, which rose by 33% and 11%, respectively. US MMFs have shown a much stronger appetite for investments in Europe in recent months, reflecting the receding concerns about Europe’s financial system.

Credit quality in the US MMF portfolios displayed modest deterioration as investment in Aaa-rated securities decreased to 18% from 20% during Q4. Overnight liquidity remained solid at 35%, whereas offshore domiciled funds have recorded an improvement, to 40% from 37% during the period.

The funds’ sensitivity to market risk slightly improved, as the WAM shortened (on average) by one day to 41 days. The average of Moody’s stressed net asset value (NAV) measure of rated MMFs remained stable at 0.9919.

US-domiciled funds increased AUM by 3% to US$689bn from US$667bn during the period.

For euro-denominated MMFs, exposure to European FIs was down 8%, while WAM extended by three days. Euro-denominated MMFs’ aggregate exposure to European FIs dropped by 8%, and fell to a 12-month low at €25.4bn. Investments in Dutch, German and French FIs recorded the sharpest fall – decreasing by €1.2on (down 23%); €1bn (down 33%) and €550m (down 6%), respectively.

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