NEW YORK: Investors are pulling cash from some US money market funds on worries about the funds' investments in European banks in case of a Greek sovereign default that they fear could roil the $2.7 trillion industry.
Despite signs of progress on a rescue for Greece, assets of non-Treasury money market funds which are perceived as riskier than funds that own only US government securities declined by $3.6 billion on Thursday, while assets of Treasury-only funds rose by $5.2 billion, according to Crane Data.
There were reports on Friday that banks and policymakers moved closer to an aid deal for Greece in advance of a parliamentary vote on drastic deficit reduction next week, but investors remained on edge.
Investors are scrambling for US Treasury bills, a move that pushed T-bill rates into negative territory this week, analysts said.
However, there is no evidence yet of strain in the financial system as seen during the 2007-2009 global credit crunch.
European banks are still raising short-term funds through sales of US commercial paper and certificates of deposits with a miniscule rise in borrowing costs.
"The market is just waiting," said Jim Lee, head of short-term markets and futures strategy at RBS Securities in Stamford, Connecticut.
"If there were a situation where there were a restructuring of Greek debt, then the contagion would start."
Corporate treasurers and money managers are withdrawing funds from institutional money market funds that invest in commercial paper and other debt issued by European banks.
They are putting some of the cash into bank accounts and less risky money funds that own only US government securities, analysts said.
Assets of institutional Treasury money market funds rose by $5.23 billion to $601.5 billion in the week ended Wednesday, while assets of non-Treasury money funds plunged by $16.62 billion to $1.069 trillion, the Investment Company Institute reported on Thursday.
Copyright Reuters, 2011
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