WSJ on Euro MMFs, Negative Yields
The Wall Street Journal briefly discusses Euro money market funds and negative rates in its article, "Flood of Cash Pushes Borrowing Costs to Unusual Lows in Europe." They tell us, "Italy's Enel SpA, one of Europe's biggest electricity producers, has short-term commercial paper that recently offered an annualized yield of minus 0.61%, according to FactSet: That is 0.11 percentage point lower than the ECB's deposit rate of minus 0.5%.... For the lender, in this case the money-market funds that buy commercial paper, the opposite is true. They get back less money." The Journal quotes SSGA's Kim Hochfeld, "It took a couple of years for clients to get their heads around the idea that they'd have to pay to leave money in a safe spot." It says, "State Street's EUR Liquidity LVNAV Fund -- worth €6.6 billion, equivalent to $7.9 billion -- yields minus 0.68% after fees, but that compares with total costs on large bank deposits of up to 1%, she added." The piece continues, "The stop-start style of social and economic life has also curtailed spending by consumers and businesses, leading to a buildup of savings. European money-market funds, often used as an alternative to bank deposits, have hit record levels of €1.4 trillion, according to ECB data. Companies and banks don't need the cash these funds have to offer. A rolling four-week average of weekly commercial-paper issuance is down almost 40% since the start of 2020, according to CMDportal, a bond- and money-market data aggregator." The WSJ explains, "Average rates have plunged in response, to about minus 0.55% during January, according to David Callahan, money-market fund manager at Lombard Odier Investment Managers. 'There is a lot of liquidity sloshing around and rates are very low,' said Mr. Callahan. For investors who put their money in commercial paper, 'it feels a bit like death by a thousand cuts,' he said." The piece adds, "Enel is one of Europe's larger commercial-paper issuers and has more than €2 billion outstanding in different maturities. It has a short-term credit rating of A2 and a normal credit rating of BBB-plus, near the lower end of investment grade. An Enel spokesperson said the company would keep using commercial-paper markets when it is the most efficient source of funding. Bas van Geffen, quantitative analyst at Rabobank, said this is a sign that banks in particular just have too much cash and are shifting it around to wherever they can minimize the losses from negative rates. 'It's a bit like passing on the hot potato,' he said." (Note: Let us know if you'd like to see a copy of our Money Fund Intelligence International, which tracks European and Euro MMFs.)
