MMFs narrow counterparty lists
0The European sovereign debt crisis has seen money market funds reduce the number of banks they hold in their portfolios to a core of 25-30. The number of financial counterparties held by Fitch-rated euro denominated European money market market funds fell to 81 at the end of December.
This reflects a fall from 92 in September 2010. Many of the 81 issuers represented small holdings for only one or two funds, with the core of 25-30 to which funds were significantly exposed. The funds had eliminated exposure to Spanish and Italian banks. Increased investment has been seen in Australian and Canadian banks as well as corporates, sovereigns and repo transactions. The number of non-financial issuers in the Fitch-rated funds rose to 15 from eight in September 2010.
Fitch said that such limited exposure to financials made it difficult for funds to reduce exposure to one of the holdings should concern about the bank’s strength arise. “Funding conditions for European banks have improved since the European Central Bank initiated its three year lending program [but] this has not led money market funds to reinvest in banks from countries that have been hardest hit by the crisis,” said the ratings agency.
