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Prime money market funds credit profiles weaken says Moody's - FTSE Global Markets
Wednesday 29th June 2016
NEWS TICKER: JUNE 29TH: This morning the story is about keeping calm even as the West European political landscape looks set to change forever. The aftershocks from the UK’s decision to leave the EU last week will continue for some time. This morning however the focus is on the UK Chancellor’s statement that was designed to calm the markets and set out a marker for the Leave camp in the ruling Conservative Party to keep him in a unity government if the divorce from the EU is to proceed unimpeded. Expect lots of posturing, but the reality is a deal will be wrought between prominent Remainers and Leavers, so that they can ‘sell’ to a clearly divided population that a reasonable outcome for the UK can be achieved. Expect also that many Leaver will now renege on many of the pledges and charges levelled against the EU, as they were plangently either not achievable or true. Politically, the fallout is far from over: Nicola Sturgeon, whose reputation has been enhanced by the referendum will now seek ways for Scotland to exit the Union; a clever move as firms looking to locate overseas to keep long term free access to Europe will now seriously consider Edinburgh and Glasgow as alternatives to Ireland or Luxembourg. There are areas of concern however: one is in Northern Ireland, where a call for a Border Poll by leader Martin McGuinness could reignite old political divisions and moves by many MPs in the Opposition Labour Party to oust the party’s leader Jeremy Corbin is distracting attention from the main question: how does the UK extricate itself from Europe with the most gain and least pain to all sides. While Leave campaigners and television commentators look to try to reassure the British public that they should not be worried by short term movements in sterling and the stock market. According to brokerage Clear Treasury: “Sterling this morning has drifted lower again since Friday’s close which saw the pound depreciate 9%. The worst may not be over for the pound either as the Brexit fallout is by no means over. We will likely see aftershocks in the market for the foreseeable future. The difficulty here will lie in anticipating these shocks, and for this reason it’s hard to justify many traders being able to justify holding or purchasing additional sterling. This is why we feel that the pound may not have reached its bottom just yet. Keep a close eye on economic data from the UK with GDP, market sentiment, retail figures etc all likely to be impacted going forward” – The world’s top central bankers meet in Brussels today for a three-day summit; no doubt Brexit is on the agenda and they will certainly be talking measures to calm the markets. On Tuesday, European leaders meet and following the inimitable Angela Merkel’s admonition to all Europeans to treat with the UK kindly and well will help defuse what could have been a rancorous meeting – St Louis Missouri-based Stifel Financial Corporation today announced that it has entered into a definitive agreement to sell Sterne Agee's legacy independent brokerage, clearing, and RIA businesses to INTL FCStone Inc. (NASDAQ: INTL). Following a financial restructuring of the combined businesses, consideration will approximate the tangible net asset value of the entities. The transaction is expected to close immediately after regulatory approval, which is anticipated in July. As part of the agreement, Stifel has agreed to sell: Sterne Agee Financial Services, Inc.; Sterne Agee Clearing, Inc.; Sterne Agee Leach, Inc.; Sterne Agee Asset Management; and Sterne Agee Investment Advisory Services. To support these businesses, INTL FCStone has agreed to hire substantially all of the Birmingham, Alabama-based support professionals. Ronald J. Kruszewski, chairman and CEO of Stifel, says, "Last year we successfully integrated the Private Client Group branches and institutional fixed income business from our Sterne Agee acquisition. We are pleased to have found an acquirer in INTL FCStone who is committed to these businesses and the professionals in the Birmingham community." -

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Prime money market funds credit profiles weaken says Moody's

Thursday, 09 May 2013
Prime money market funds credit profiles weaken says Moody's The credit profiles of euro-denominated, US prime, and sterling prime money market funds (MMFs) worsened slightly in the first quarter of 2013, says Moody's Investors Service in its quarterly MMF reports published today. According to the ratings agency  continued constraints on supply of high-quality short-term assets, and the prolonged period of low interest rates leading MMF portfolios to migrate to lower rated assets are behind the deterioration. Moody's quarterly MMF reports evaluate market trends and the evolution of MMFs' risk factors, including credit, liquidity and market risks, based on the aggregated data of Moody's rated MMFs. http://www.ftseglobalmarkets.com/

The credit profiles of euro-denominated, US prime, and sterling prime money market funds (MMFs) worsened slightly in the first quarter of 2013, says Moody's Investors Service in its quarterly MMF reports published today. According to the ratings agency  continued constraints on supply of high-quality short-term assets, and the prolonged period of low interest rates leading MMF portfolios to migrate to lower rated assets are behind the deterioration. Moody's quarterly MMF reports evaluate market trends and the evolution of MMFs' risk factors, including credit, liquidity and market risks, based on the aggregated data of Moody's rated MMFs.

Prime euro-denominated MMFs experienced further credit deterioration and maturity extensions in Q1, largely driven by the prolonged low rate environment and constraints on supply of high-quality assets. Their credit profiles saw a modest deterioration in Q1 2013, reflected by the decrease in investments in securities rated Aaa, Aa1 and Aa2, claims Moody's. Overnight liquidity decreased significantly to 30.5% of assets under management (AUM), after it peaked at 37.4% at end-2012, due to the continued pressures on funds' yields, and the resulting need for funds to invest their cash in higher- yielding instruments, it adds.

The low interest-rate environment and low yields across the sector prompted a decrease in euro MMFs AUM to 74.8bn. The increased exposure to relatively long-dated securities—combined with the modest credit profile deterioration—increased funds' sensitivity to market risk. As the credit pressures on European banks continue, funds' aggregate exposure to European financial institutions decreased 20% to €29bn at the end of March from €36bn at the beginning of the quarter. Exposure to UK financial institutions decreased significantly by 51%, followed by German (-27%) and French financial institutions (-10%).



Meanwhile, there has been  a modest credit deterioration, as 2.2% of investments in US domiciled funds and 3.8% in offshore domiciled funds moved from Aaa and Aa-rated securities to A-rated securities. Approximately 23% of investments in all Moody's-rated MMFs were rated Aaa, says Moody's. Overnight liquidity remained high, at around 39% of US domiciled fund assets and 34% in offshore domiciled funds on average.

In addition, the funds' sensitivity to market risk increased modestly in this quarter due to the increased exposure to slightly longer-dated securities combined with the modest deterioration in funds' credit profiles.

Combined AUM of U.S. domiciled funds declined 3.5% to $662bn, while the combined AUM of European and offshore domiciled funds increased 3% to $242bn.

Moody's says that prime sterling-denominated MMFs experienced further credit deterioration and maturity extensions in Q1, largely driven by the prolonged low rate environment. Funds' credit profiles saw a modest decline in credit quality, due to the credit degradation of the UK, as reflected by Moody's downgrade of UK government's bond rating in February by one notch to Aa1. Sterling MMFs' liquidity trend has been negative throughout Q1, due to fund managers' increased investment of cash and cash-like securities in their search for higher yield. This also led to increase the funds' WAM by 3.8 days throughout the quarter. Given the increased exposure to relatively long-dated securities, combined with the modest deterioration in the credit profile, funds' sensitivity to market risk increased.

Combined AUM increased by 2.5% to GBP114.8 billion during the quarter, despite the low interest-rate environment and low yields across the sector. While exposure to European financial institutions remained stable during the quarter at 49% or GBP56 billion, there have been significant country shifts. Exposure to Dutch and French financial institutions decreased by 5% and 4%, respectively, and exposures to UK and Swedish financial institutions increased by 19% and 6%, respectively.


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