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US money market funds' AUM drops for second consecutive quarter

US-based money market funds' (MMF) assets under management (AUM) declined four per cent to USD628 billion in June from March, according to a report from Moody’s.

This represents the second consecutive quarterly decline as money market fund reform loomed.
 
Euro-denominated MMFs saw an 18.2 per cent rebound in AUM to EUR74 billion as a result of increased M&A activity, which resulted in cash being parked in funds until the official close of deals. Sterling MMFs' AUM remained stable at about GBP100 billion throughout the quarter.
 
The credit profiles of US prime MMFs improved, with investments rated Aa3 and higher increasing to 70 per cent in June from 67 per cent in March. Aggregate exposure to European financial institutions fell to 22 per cent of total investments in June from 24 per cent in March. This decline is likely due to the decrease in European banking borrowing following short-term wholesale funding regulations, says Moody’s.
 
Enhanced credit profiles decreased the sensitivity of US-domiciled MMFs to market risk, with the funds' average stress net asset value (NAV) rising to 0.9921 in June from 0.9916 in March.
 
The weighted average maturity (WAM) of prime funds stayed short at 40 days, compared with 41 days in the first quarter. Overnight liquidity remained at 30 per cent.
 
The credit profiles of euro MMFs improved, as investments in Aa3 or higher-rated securities increased to 64 per cent in June from 60 per cent in March. Investments in A2-rated securities decreased significantly to 11 per cent of AUM from 26 per cent, while investments in A1-rated instruments increased to 24 per cent from 13 per cent.
 
Following the European Central Bank's interest rate cut in June, the WAM of euro MMFs stayed high at 43.6 days on average, compared with 38.6 days in March. A significant increase in WAM led to a rise in funds' sensitivity to market risk. Stressed NAV fell to 0.9915 in June, the lowest level in 12 months, from 0.9927 in March.
 
Aggregate exposure to European financial institutions dropped in relative terms to 35 per cent of total invested assets as of the end of June, from 38 per cent at the end of the first quarter, but exposures increased in absolute terms by EUR2.5 billion. This increase is due to the 18.2 per cent rebound in AUM to EUR73.9 billion.
 
Sterling MMFs' exposure to market risk decreased, owing to credit improvement, with average NAV increasing four basis points to 0.9920.
 
The credit profiles of sterling MMFs stabilised, as investments in Aa3 or higher-rated securities improved slightly to 64 per cent in June from 62 per cent in March. Investments in A2-rated securities decreased materially to 14 per cent of AUM from 24 per cent, while investments in A1-rated instruments increased to 19 per cent from 13 per cent.
 
Exposure to European financial institutions decreased in relative terms to 43 per cent of total investments from 46 per cent, and in absolute terms to GBP43 billion from GBP46 billion, owing largely to a reduction of investments in UK and Swedish banks to 9.4 per cent from 11.1 per cent and to 7.4 per cent from 8.6 per cent respectively.
 
Funds' overnight liquidity slightly decreased to 28.1 per cent in June from 29.3 per cent in March, while exposure to relatively long-dated securities with maturities above three months increased to 28.5 per cent from 26.0 per cent. As a result, the WAM of sterling MMFs increased by 1.3 days to 44.6 days on average.
 
Moody's analysis is based on the portfolios of all Moody's-rated MMFs in Q2 2014. For the US dollar funds, the data covers 39 US prime MMFs and 26 European and offshore US dollar-denominated MMFs. For the euro-denominated MMFs and sterling-denominated MMFs, the data covers 21 funds in each sub-segment, domiciled in Europe.

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