Dec 12 - Money market funds (MMFs) are adequately positioned to face challenging market
conditions and ongoing regulatory uncertainty in 2013, according to Fitch Ratings. The agency
expects MMFs to manage their portfolios conservatively with respect to credit, interest rate and
Fitch believes the MMF sector would benefit from the resolution of both the US and Japanese
fiscal cliff deadlines and the European sovereign debt crisis. Such resolution would lead to
credit market stabilisation in the financial sector.
The continued limited supply of high-quality short-term assets is one of the major
challenges for the MMF sector in 2013 especially those portfolios denominated in euro and
sterling. This has led MMFs to seek diversification from banking sectors within their
traditional, core markets to other geographies, in particular Asia and Latin America.
MMFs' preference for collateralised exposures has mainly been evident through increased
allocations to repurchase agreements. European MMFs exhibited a broader acceptance of
asset-backed commercial paper in 2012 in light of increased issuance. Fitch expects this trend
to continue in 2013 as MMFs add investments in repo-backed commercial paper.
To cope with the prolonged ultra-low interest rate environment, MMFs may selectively extend
maturities in high-quality issuers such as sovereign and government agencies. This will allow
MMFs to capture yield while continue to maintain a high degree of liquidity.
The MMF industry faces continued regulatory uncertainties in both the US and Europe. Reforms
could accelerate in both regions during H113.
The full '2013 Outlook: Global Money Market Funds' is available at www.fitchratings.com.
Link to Fitch Ratings' Report: 2013 Outlook: Global Money Market Funds