Fitch on French Money Market Funds
Fitch Ratings published a brief entitled, "French Money Market Funds in the Spotlight: Structural Differences Highlighted," which comments, "French money market funds (MMFs) are all Variable Net Asset Value (VNAV), which makes France the largest market in Europe for VNAV funds; 85% of French funds are standard MMFs, thereby located at the riskier end of the MMF spectrum in Europe.... Managers of French MMFs tend to use a wider range of instruments than their European peers. For instance, interest rate swaps are used to adjust the maturity profile of the funds. Some French MMFs buy assets denominated in foreign currency and hedge the exposure with forwards, as yield enhancement strategy." The update explains, "There has been a shift in assets under management (AUM) from Short-term MMFs to Standard MMFs in France, since mid-2012 and the start of ECB's accommodative monetary policy. Standard MMFs AUM plateaued in 2017, following yields of Standard MMFs entering negative territory in summer 2016. Flow patterns show that French MMFs investors are typically more yield sensitive than other European investors." Finally, the piece adds, "Both short-term and standard French MMFs now generate negative yields, albeit still above benchmarks. French Standard MMFs have outperformed Short-term MMFs by a consistent margin over time, thanks to a combination of higher credit, market and liquidity risk. Higher liquidity levels expected on MMFs post-regulatory reform will increase pressure on yields and may contribute to make Standard MMFs less attractive.... The Autorite des Marches Financiers (AMF) defines all MMFs as cash & cash equivalent investments. This level of clarity in treatment is absent in other European jurisdictions. The AMF also allows some bond funds to be considered cash & cash equivalent, which may lead to flows out of Standard MMFs into these funds over time driven by yield differential.... French MMFs will be less affected than their peers by the changes in asset valuations and NAV calculations brought by MMF reform. The absence of constant net asset value (CNAV) funds in France makes the transition more straightforward."
