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Treasurys largely offset decline in US money fund exposure to European banks, says Fitch

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The decline in US prime money market fund (MMF) exposure to European banks continued in October, as MMFs reduced their holdings by 9% on a dollar basis relative to the prior reporting period of month-end September, according to Fitch Ratings.

European bank exposure currently represents 34.9% of total holdings of $642 billion within Fitch’s sample of the ten largest prime U.S. MMFs, down from 37.7% of fund assets as of month-end September. The current exposure level is the lowest in percentage terms for European banks within Fitch’s historical time series.

‘Recent trends indicate that money funds are pursuing a range of strategies to mitigate Eurozone risks, including reducing exposure levels, shortening maturities, and increasing the share of collateralized transactions in the form of repos,’ says Robert Grossman, Group Managing Director, Fitch Ratings.

Holdings of US Treasurys increased by almost 30% since end-September, significantly offsetting the nine per cent decrease in exposure to European banks over this period, according to Fitch’s sample. Additionally, a larger proportion of exposure to European banks is in the form of repos, which represent roughly 25% of total European bank exposure (compared to less than 10% in 2009).

The maturity profile of MMF exposures to French banks continues to shorten, with more than half of exposure to French bank CDs now in the shortest-term bucket (seven days or fewer) and less than five per cent remaining in the longest-term bucket (more than 60 days).
 

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