Fitch Ratings published a report entitled, "U.S. Money Funds: Exposure to European Banks Continues Decline." The press release says, "U.S. taxable money market funds (MMFs) continued to shift their investments away from European banks toward the Federal Reserve's reverse repurchase (RRP) facilities during 2014, according to a new Fitch Ratings report. By year-end 2014, MMF exposure to the Fed's RRP facilities (both overnight and term) exceeded allocations to European banks for the first time. Increasing risk aversion in the second half of 2014, together with a continuing decline in demand for dollar funding among European banks, drove the shifts in MMF investments last year. MMF exposure to European bank CDs, time deposits and repo fell by 11.3% in 2014 to $319.2 billion as of Dec. 31. A drop in exposure to German banks primarily drove this change." Fitch also released a report, "Financials at Two-Year Low in European Money Fund." This release says, "European money market funds (MMFs) are reducing their exposure to financials, opportunistically reallocating towards non-financial corporates, sovereigns and government agencies, Fitch says in its latest quarterly publication on European MMFs. In 4Q14, money funds reduced their allocation to financials to a two-year low, as they adjusted to supply dynamics, seizing investment opportunities in corporate, sovereign and government agency assets. Financial exposures, both secured and unsecured, were reduced by 2% over 4Q14 and by 5% in 2014, to 73.6% on average. This was most pronounced for euro and sterling funds. Euro short-term issuance from corporates, such as Procter & Gamble, Unilever and Danaher, increased and was embraced by money funds. Sterling funds found opportunities in UK sovereign securities and government agencies.... Portfolio maturities have increased on average across European MMFs. The move was most notable for euro funds as the prospect of prolonged negative euro short-term rates led to increased portfolio weighted average maturities (WAM) to 44 days on average, which is 10 days longer than a year ago. The European Central Bank's quantitative easing programme could keep yields on euro MMFs ultra-low for a prolonged period of time, which could turn negative from their current average level of 0.1bp. Assets in constant net asset value (CNAV) funds denominated in euro nevertheless remained fairly stable in 4Q14, and even grew 22% over 2014 as low-risk, liquid alternatives are limited and MMF yields remain on average 17bp above the 7-day LIBID."

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