US money market funds slash European bank exposure

US prime money market funds (MMFs) have continued to shed exposure to European banks throughout October, according to Fitch Ratings.

Between the end of September and the end of October, US money market funds (MMFs) slashed their exposure to European banks by 9% on a dollar basis, amid continuing fears over sovereign debt contagion.

Drawing on a sample of the ten largest MMFs in the US, Fitch found that exposure to European banks fell from 37.7% to 34.9% of total fund assets. This represents the lowest exposure level in 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 collateralised transactions in the form of repos,” says Robert Grossman, group managing director of Fitch Ratings.

MMFs are instead turning to US Treasuries, with holdings increasing by 30% over the same period, despite yields remaining at close to the all-time low of 1.8%.

Reports suggest that repos now consititute approximately 25% of total European exposure. This figure was closer to 10% in 2009.

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