Deutsche Bank Strategist William Prophet released an update on October money market fund portfolio holdings late last week entitled, "You'll Miss Me When I'm Gone." He says, "The latest month-end holdings of large U.S. money funds show that many of the recent trends remain firmly in place. In particular; USD funding is continuing to disappear for European banks and what remains is getting shorter. This, combined with the fact that stricter industry regulation is on the way should encourage structurally higher short-term rates (and wider spreads)." We also quote from a story from Bloomberg's sampling of October holdings Bloomber holdings update. (Crane Data's Money Fund Wisdom subscribers should look for our November Money Fund Portfolio Holdings series (with 10/31/11 data) to be e-mailed Tuesday morning.)
DB's Prophet writes, "There are a lot of rather alarming trends within the latest month-end U.S. money market holdings data, but none more so than [a chart which] shows the change in the maturity profile of French bank CD's sitting on the balance sheet of the funds within our tracking universe. [It shows 80% of CDs maturing from 0-1 month vs. 17% in June.] [A] few months ago the vast majority of European bank CD's on money fund balance sheets had French names associated with them. But the numbers continued getting smaller through month-end October and at this point, unsecured U.S. money fund exposure to banks in France is practically down to nothing.
He explains, "[O]ne of the questions we typically get (and an issue that has generally not received much attention) is what the money funds are buying. In other words; every month we discuss how much this or that asset went down on U.S. money fund balance sheets, but rarely do we discuss what went up.... [Another chart] shows the percent holdings of select assets on all U.S. money fund balance sheets; that is, not just prime funds. So these trends could be reflecting a shift out of prime funds and into government funds for example. But anyway, notice how indeed the recent rise in Treasury & Agency security holdings has more or less completely offset the decline in CDs. And so the money fund industry has really been dialing down the risk."
Another article on holdings, "U.S. Prime Money-Market Funds Pull $8 Billion From Deutsche Bank," explains, "The biggest U.S. prime money-market funds cut their investments in Deutsche Bank AG by $8.1 billion in October, the largest drop among 35 of the largest banks in Europe, the U.S., Japan and Canada, Bloomberg analysis shows. The amount of Deutsche Bank short-term obligations held by the eight biggest U.S. funds eligible to purchase corporate debt, which included offerings from Fidelity Investments, JPMorgan Chase & Co. and BlackRock Inc., declined by 56 percent to $6.3 billion from Sept. 30 to Oct. 31, according to monthly portfolio updates compiled by Bloomberg and published in today's Bloomberg Risk newsletter."
The piece adds, "French banks saw their money-market funding decline 25 percent on the month to $16 billion. The drop followed a 44 percent decline in September. Over the last twelve months the eight big money funds have pulled 78 percent, or $61.3 billion, of their funding from French banks."
Finally, in other news, see the Crane Data's Peter Crane on Bloomberg TV Thursday. He discussed the safety of money funds, potential regulatory changes, European concerns and the history of "breaking the buck." Crane speaks with Lisa Murphy and Adam Johnson on Bloomberg Television's "Street Smart."
