U.S. money investors still wary after Greek vote

NEW YORK (Reuters) - U.S. investors remained cautious about buying European bank debt on Thursday, even after Greek lawmakers approved severe budget measures to secure fresh aid in an attempt to stave off a government default.

Money market managers seem in no rush to scoop up commercial paper, certificates of deposits and other short-term securities from European banks that remain vulnerable to losses from their investments in Greece, Spain and weaker members of the 17-nation euro zone block.

"We've had a moratorium on that this year, so I don't see that changing until conditions evolve much further in the periphery zone of Europe. I don't see that changing any time in the near term whatsoever," said David Glocke, senior portfolio manager at the Vanguard Group in Malvern, Pennsylvania.

The Vanguard Prime Money Market Fund is one of the largest U.S. money market funds, with $111 billion in assets at the end of May.

On Thursday, Greece approved detailed austerity bills needed for the release of 12 billion euros in bailout funds from the International Monetary Fund and the European Union. The passage fueled a rally in stocks and eased the strain in money markets.

But doubts persist whether a second bailout will buy enough time for Greece to fix its finances so it can avoid a debt restructuring or a default.

"While it is likely this can gets kicked down the road one more time, the larger issues will still not be solved," said Cliff Corso, president of Cutwater Asset Management in Armonk, New York, which oversees $41 billion in assets.

Greece has a sovereign debt pile of 340 billion euros ($480 billion) with 70 percent of it held abroad. French and German banks have the greatest exposure to the country's debt, at $53 billion and $34 billion, respectively.

U.S. prime money market funds currently have $764 billion invested in European bank securities, including $435 billion in euro zone bank debt, JPMorgan said in a report this week.

STICK WITH SAFETY

Most U.S. fund managers are content to stick to buying Treasury bills and other U.S. government-backed securities and entering into short-term repurchase agreements.

They prefer the safety of these investments, despite their near-zero returns over the higher yields on securities offered by European banks.

"There has been some stability in money markets over the past several days, but there are still some clouds that need to be cleared," said Peter Yi, director of money markets at Northern Trust in Chicago, which manages $65 billion in money market assets.

While investors remain averse to buying European bank debt, the banks are flush with cash and have access to emergency cash from central banks, analysts said.

A sign that European banks are not facing problems in U.S. money markets is the minuscule increase on the offered rates on their commercial paper and CPs, they said.

The offered rate on commercial paper from top French banks has held at 3 to 5 basis points above the three-month dollar London interbank offered rate this week. The rate is a couple of basis points higher than it was in the beginning of June.

Three-month short-term debt from German banks has been offered at three-month Libor, while that issued by Dutch banks has been offered at 10 basis points discount to Libor. These rates have barely budged in June.

'When looking at their tight offering levels, they really don't need to raise cash in U.S. money markets right now," Yi said.

With no urgency to raise short-term cash, European and other foreign banks have pared their issuance of U.S. commercial paper.

Commercial paper outstanding from overseas banks and financial companies, not adjusted for seasonal factors, fell $6.0 billion to $201.8 billion in the week ended June 29, Federal Reserve data showed on Thursday.

At the end of May, these short-term IOUs totaled $217.0 billion.

(Reporting by Richard Leong; Editing by Leslie Adler)