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Risk aversion to Europe still high for US money market funds, says Fitch

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US prime money market funds (MMFs) continued to exhibit heightened risk aversion in November, according to Fitch Ratings in a new report.

MMFs reduced exposure to European banks by 4% on a dollar basis since month-end October, with declines in MMF exposure to French banks partially offset by increases in exposure to Dutch, Swiss, UK, and Nordic banks. Exposure to European banks currently represents 33.4% of total MMF holdings of USD645 billion within Fitch’s sample of the ten largest MMFs, a decrease from 34.9% of MMF assets held at the end of October and from 51.5% of fund assets at month-end May.

Fitch notes that an increasing proportion of MMF exposure to European banks is secured, with repos representing roughly 27% of total European bank exposure as of end-November, versus less than 10% at year-end 2009. Additionally, over the past few months, MMFs have increased Treasury and agency holdings, which represent roughly 19% of MMF assets as of end-November.

‘Money fund risk aversion continues, as illustrated by the historically low level of European bank exposure, greater use of secured lending through repos, and increased holdings of Treasurys and agencies,’ says Group Managing Director Robert Grossman.

 

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