January 24, 2013 / 1:05 PM / in 5 years

TEXT-Fitch:Improved market sentiments prompt modest risk-taking by U.S. money funds

Jan 24 - U.S. prime money market funds (MMFs) showed a modest return to risk-taking during the fourth-quarter (Q4) of 2012, according to a Fitch Ratings report.

MMFs modestly increased their exposures to Eurozone banks in Q4, a trend that began during Q3. This includes French banks, which now account for 7.6% of the funds’ assets at the end of November 2012. By comparison, French banks accounted for just 2.6% of assets at YE-2012.

Fitch also observed a declining trend in repo counterparty concentration. This can be attributed in part to ongoing regulatory effort to decrease reliance on short-term funding by the largest financial institutions, to term out this type of funding and increase the quality of collateral.

Further evidence of an improved credit environment is the increase of prime MMFs’ weighted average life (WAL) by five days during Q4. Funds extended final maturities of portfolio holdings attempting to lock in high quality names. Average prime MMFs’ weighted average maturity (WAM) remained unchanged through Q4.

Fitch views voluntary daily market net asset value (NAV) disclosure initiated by a number of MMF complexes in mid-January 2013 as a positive transparency initiative. These disclosures will not affect how the funds transact with shareholders, nor will they change funds’ investment policies.

Although voluntary frequent market NAV disclosure has no rating implications, Fitch welcomes added transparency.

The full ‘U.S. MMFs: Fourth-Quarter Review and Outlook’ is available at ‘www.fitchratings.com’.

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