In its European MMF Quarterly report, Fitch Ratings says, "Euro-denominated money market funds are moving closer to negative yields, on average, as declining short-term market rates have turned negative for most high quality money market issuers." We excerpt from their release below, and we also look at assets, yields and fund changes in Crane Data's latest Money Fund Intelligence International and our the latest MFI International Money Fund Portfolio Holdings data. (Note: Our MFI International products track USD, Euro and Sterling money funds domiciled in Dublin and Luxembourg. Crane Data will be releasing its latest "offshore" money fund holdings data later today.)
"Euro MMFs saw their yields fall to 3bp, on average, at the end of September," Fitch's report states. "As higher yielding assets mature, funds are reinvesting at lower, often negative rates, which is expected to push euro MMF yields into negative territory." Fitch adds, "Negative euro MMF yields or the resulting use of unit cancellations to maintain a stable fund asset value, in and of itself, would not be a negative rating factor. It remains however untested how investors may react."
Fitch comments, "In Q314, Euro MMFs increased their allocation to sovereigns, supranationals and government agencies (SSA) by more than 200bp to a two-year high of 12.4%. Portfolio weighted average maturities increased in euro MMFs. They remained relatively stable for sterling MMFs and declined in US dollar funds." The release adds, "Overnight and one-week portfolio liquidity levels remain high at 27% and 39% on average, stable over the quarter."
Euro money fund assets have increased of late, however. Since June 11, when the European Central Bank decision to cut the interest rate on the deposit facility to -0.10% became effective, assets of euro-denominated MMFs have increased by E13.3 billion to E91.5 billion (as of Nov. 12, 2014), according to the Crane EUR MMF Index. Since the ECB decreased the deposit rate even further to -0.20%, effective September 10, euro MMFs assets have jumped E3.8 billion.
However, there has been some fund consolidation. Going back to June 4, the date the ECB decided to approve the negative rate, Crane tracked 98 Euro MMFs; today, we track 91. Among the liquidated funds were several RBS Euro funds, which were acquired by Goldman Sachs. This month, Northern Trust liquidated its Euro MMF and launched a new Euro VNAV money market fund, the Euro Liquidity Fund (see our Nov. 6 "Link of the Day," "Northern's New Euro VNAV MMF").
As Bloomberg noted in September (see "`BlackRock Money-Market Fund Prepares for Negative Yields), BlackRock switched on a "Reverse Distribution Mechanism" for its ICS Europe Government Liquidity Fund. As we wrote in our Sept. 15 "Link of the Day", the move follows the ECB's decision to cut the deposit rate to -0.20%. Crane Data President Peter Crane was quoted in a Bloomberg as saying, "To most people, whether you have 100 shares at 99 cents or 99 shares at a dollar doesn't matter, but in money fund land, it raises the specter of breaking the buck -- anything that implies that you're losing money becomes a big deal.... They would much rather find a way to keep the value of the shares stable and yet to cover those negative yields."
BlackRock remains the largest manager of euro MMFs with E22.6 billion in assets under management as of November 12, according to Crane Data's MFII. JP Morgan is next with E15.3B, followed by Goldman Sachs with E15.2B. BNP Paribas Insticash is fourth with E10.3B, followed by Deutsche (E6.8B), HSBC (E4.3B), SSgA (E4.0B), Morgan Stanley (E3.6B), Amundi (E2.9B), Aviva (E1.4B), and Fidelity (E1.2B).
Our last MFII Portfolio Holdings report shows the 10 largest issuers of securities to Euro-denominated MMFs as: Republic of France (E6.3B, 6.3%), BNP Paribas (E6.0B, 6.5%), FMS Wertmanagement (E4.2B, 4.6%), Nordea Bank (E3.6B, 3.9%), Bank of Tokyo-Mitsubishi UFJ Ltd (E3.3B, 3.6%), Rabobank (E3.3B, 3.6%), Credit Mutuel (E3.1B, 3.4%), HSBC (E3.1B, 3.4%), Barclays PLC (E2.9B, 3.1%), and JP Morgan (E2.9B, 3.1%). Euro MMFs held 36% in CP, 32% in CDs, 17% in Other (primarily Time Deposits), 15% in Repo, 7% in Treasuries, and 3% in Agencies. About 30.2% came from France, 11.1% from Germany, 9.8% from Japan, 9.4% from Great Britain, 9.4% from the US, 6.9% from Sweden, 5.8% from The Netherlands, and 3.7% from Belgium.
In contrast, the 10 largest issuers for USD denominated European (or "offshore") money market funds include: US Treasury ($75 billion, 16.2%), Federal Reserve Bank of New York ($27.5B, 5.9%), Credit Agricole ($19B, 4.1%), Bank of Tokyo-Mitsubishi UFJ ($16.3B, 3.5%), BNP Paribas ($14.4B, 3.1%), Bank of Nova Scotia ($10.7B, 2.3%), Sumitomo Mitsui Banking Co., ($10.4B, 2.2%), JP Morgan ($8.9B, 1.9%), Natixis ($8.8B, 1.9%), and Nordea Bank ($8.8B, 1.9%). As of Sept. 30, European-domiciled USD money funds held an average of 27% in CDs, 24% in CP, 16% in Treasuries, 15% in Repo, 14% in Other, and 4% in Agencies. Roughly 35.1% of issuers were from the US, 12.5% from France, 10.3% from Japan, 9.1% from Canada, 6.4% from Sweden, 5.3% from Great Britain, 5.0% from The Netherland, and 4.8% from Australia.
Finally, in contrast, the 10 largest issuers to GBP-denominated MMFs are: Lloyds TSB Bank PLC (L6.3B, 6.1%), Rabobank (L4.4B, 4.2%), Nordea Bank (L3.8B, 3.7%), FMS Wertmanagement (L3.8B, 3.6%),Sumitomo Mitsui Banking Co (L3.7B, 3.6%), Barclays PLC (L3.7B, 3.6%), Standard Chartered Bank (L3.6B, 3.5%), HSBC (L3.6B, 3.5%), BNP Paribas (L3.4B, 3.3%), and the UK Treasury (L3.2B, 3.1%). GBP MMFs held an average of 34% in CP, 31% in Other, 21% in CDs, 9% in Repo, 3% in Treasuries, and 1% in Agencies. Approximately 21.0% of issuers were from Great Britain, 12.8% from France, 10.1% from Japan, 8.7% from Germany, 8.4% from The Netherlands, 6.0% from Singapore, 6.0% from Sweden, 5.3% from the US, and 5.0% from Australia.
