NEW YORK--(BUSINESS WIRE)-- U.S. prime money market funds (MMFs) continued to increase their investments in Canadian and Japanese entities during the third quarter of 2012 (Q3'12), according to a new report by Fitch Ratings.
Fitch-rated MMFs have maintained a steady eurozone exposure of approximately 18.3% of their assets. In addition, the funds sought higher U.S. exposure mainly in the form of U.S. government securities and repurchase agreements.
Non-financial commercial paper (CP) outstandings are up by 17% this year, helped by strong demand for diversification from MMFs and other short-term investors. Total CP outstanding nevertheless has declined, mainly due to a 14% decline in asset-backed commercial paper (ABCP). In August 2012, Fitch-rated prime MMFs allocated 6.4% of their assets to ABCP and are expected to continue the declining trend.
Fitch highlights a pickup in MMF consolidation in 2012 and notes that even sizable MMF sponsors are not immune to the challenges of operating in a prolonged low-yield environment. Fitch expects to see more fund consolidation, as smaller fund complexes weigh the cost/benefits of their MMF platforms.
Lastly, Fitch notes that further MMF reform remains possible. In August 2012, SEC Chairman Mary Schapiro announced that the SEC will not release for public comments the much debated MMF reform proposals. Following this announcement, Treasury Secretary Timothy Geithner urged members of the Financial Stability Oversight Council to recommend that the SEC should still proceed with the MMF reform. On Oct. 9, 2012, the International Organization of Securities Commissions published recommendations for a common set of regulatory standards for MMFs.
The full report 'U.S. Money Market Funds Update: Third-Quarter Review and Outlook' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Money Market Funds: Third-Quarter Review and Outlook (MMFs Conservative on Credit; Extend Maturities)
Brian Bertsch, +1-212-908-0549
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Viktoria Baklanova, PhD CFA, +1-212-908-9162
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Greg Fayvilevich, +1-212-908-9151
Source: Fitch Ratings