European MMF Yields Move from Low to Negative

Yields on European money market funds (MMFs) declined during the first quarter of 2015 and some funds started to pass on negative yields to investors, reports Fitch Ratings.

In the latest edition of its
‘European MMF Quarterly’
, covering Q115, the credit ratings agency (CRA) predicts that the practice is likely to become more widespread, as the European Central Bank’s (ECB) recently-launched quantitative easing (QE) programme is likely to keep euro short-term yields very low for a prolonged period.

Sterling and US dollar (USD)-denominated MMFs, by contrast, had a modest uptick in yields over the same period.

By the end of Q215 Fitch plans to review the current ratings of banks currently on negative outlook, because of the likelihood of declining state support so that their long-term IDRs are likely, in future, to be based on their viability ratings.

Of this group of banks, MMFs are primarily exposed to ING Bank, Deutsche Bank, ABN Amro, Lloyds, Société Générale and Bank of America.

Fitch reports that money funds are adjusting their sector mix, reducing unsecured exposure to financial issuers in response to changing supply dynamics and the search for yield. Euro funds were able to find investment opportunities in non-financial corporates, while USD and sterling-denominated funds reallocated towards government agencies and secured financial exposure respectively.

The first quarter of 2015 also saw European constant net asset value (CNAV) funds attract new assets, including in euros, reaching total assets of €581bn. Fitch reports that asset flows have been more volatile at fund level over the past six months-particularly so in April for the first funds that turned negative. These funds were, nonetheless, able to service redemptions. Total European MMF assets stood at €952bn at the end of 2014.


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