Fitch European MMF Quarterly
Fitch Ratings released "European MMF Quarterly – 1Q15," which is subtitled, "Yields Turn Negative in Euro MMFs; Rise in Sterling and US Dollar Funds." Fitch writes, "Euro MMF yields declined in 1Q15 and some funds started to pass on negative yields to investors. This practice is likely to become more widespread as the European Central Bank's quantitative easing program will likely keep euro short-term yields very low for a prolonged period. Sterling and US dollar denominated MMFs have had, in contrast, a modest yield uptick." Under the section, "Unsecured Financials at New Historical Lows," it says, "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 US dollar- and sterling-denominated funds reallocated towards government agencies and secured financial exposure, respectively.... European constant net asset value (CNAV) funds attracted new assets in 1Q15, including in euros, reaching total assets of EUR581bn. Asset flows have been more volatile at fund level over the past six months and particularly so in April for the first funds that turned negative. These funds were nonetheless able to service redemptions.... Maintaining high portfolio liquidity is particularly sensitive for euro funds in the current yield environment that may trigger large and sudden outflows." Under "Corporates Doubled in a Year," Fitch writes, "Collectively, corporate issuers continue to grow in euro funds, now at 14% on average, more than twice their level a year ago. This was at the expense of unsecured financials, which fell below 60% in the average portfolio asset mix for the first time. Yield and Supply Push Diversification: Overall issuer diversification expanded in 1Q15 with more than 150 issuers across rated funds at end-March compared with 120 a quarter earlier. Fund'’ search for yield and reduced bank supply are the key driving factors for this change. US Issuers Still Up: For the fourth quarter in a row, US exposure increased (up 6% yoy), driven by corporates and financials. It is now at the same level as UK issuers at 12%, behind France (32%) but above other core European countries. Lengthened Maturities: Portfolios' average weighted lives (WAL) lengthened in 1Q15, returning to November's high level of 59 days, as MMFs have increased longer-dated, higher-yielding assets.... Weighted average maturities (WAM) have been more stable, ending the quarter at 46 days. Increased Use of Repo: Repo exposure reached 6.1% at end 1Q15, which is the highest level seen in sterling-denominated MMFs since end-2012 highs of 8%." In other news, Seekingalpha.com posted commentary entitled, "Federated Investors Inc.: An Interest Rate Speculation Proxy." It says, "Due to the prevailing low interest rate environment, asset managers specializing in money market funds have not only seen outflows in assets under management (AUM), but have also been forced to waive fees in order for certain money market funds to maintain positive or zero net yields.... The implicit assumption of this article, which the reader should view with appropriate skepticism, is that, for the asset manager under consideration, a rise in short term interest rates will be a significant positive."
