Oct 31 - Fitch Ratings says that European money market
funds (MMFs) have demonstrated a fast growing appetite since Q411 for assets
issued by supranationals and government agencies, notably highly-rated European
ones. The agency clarifies in this context those entities that would be
considered as quasi-sovereigns for the purpose of Fitch global MMF rating
Since October 2011, Fitch-rated European MMFs have increased their allocation to
assets issued by quasi-sovereigns, which reached a peak at 11% in April (vs.
less than 2% eight months ago). At end-September 2012, more than three quarters
of the funds were invested in such issuers. This trend notably benefited
highly-rated European government agencies, such as FMS Wertmanagement, Erste
Abwicklungsanstalt, Kreditanstalt f?r Wiederaufbau (KfW), Caisse d'Amortissement
de la Dette Sociale (CADES) or Unedic.
Fitch's Global Money Market Fund (MMF) rating criteria recognises the strong
liquidity and high credit quality of assets issued by highly-rated
supranationals and most government agencies or other public sector entities,
jointly referred to as quasi-sovereign entities. While in the US these are
clearly defined, their features are more opaque in other countries where their
legal status and the nature of their relationship with their sovereign parent,
vary from one country to another, and from one entity to another.
Not all public sector entities would be considered as quasi-sovereigns for the
purpose of Fitch MMF rating criteria. To identify those entities that qualify
for being considered as quasi-sovereign under Fitch MMF criteria, key factors
that are assessed include the level of integration within the sovereign
government bodies, the legal status and nature of the government guarantee, the
level of control from the sovereign, and the public and strategic nature of its
activities in a non-competitive sector.
Fitch applies specific criteria guidelines for highly-rated ('AA' category or
higher) quasi-sovereigns benefiting from strong market liquidity in various
areas. These include: available weekly portfolio liquidity, individual issuer
exposure, counterparty exposure arising from repurchase agreements (repo),
maturity of portfolio securities and Fitch's Portfolio Credit Factor (PCF).
As they issued more short-term debt in H211, non-US quasi-sovereigns have
partially filled a gap between MMFs' strong demand for high quality issuers
outside of the banking sector and the narrow market of strong short-term
sovereigns (or alike) in sterling and euro. In spite of the low yield they
deliver, Fitch believes that MMFs' appetite for such assets is far from being
satisfied, given market supply constraints. As such, MMFs could prove natural
buyers of short-term Eurobonds (or euro Treasury-Bills), should they be issued
Link to Fitch Ratings' Report: Non-US Quasi-Sovereigns in Money Market Funds