US money market funds' exposure to Europe could become a source of trouble if the eurozone sovereign debt crisis heats up again, though most recent signs are that tensions are easing for now.
US money market funds maintain sizeable exposures to European financial institutions, Fitch Ratings said in a report released on Tuesday. A debt crisis in a country such as Greece, Italy, Portugal or Spain could hurt European banks if any of those sovereigns were to default.
Fitch said an analysis of money market fund portfolio trends, based on a sample of the 10 largest money market funds representing 45 percent of the prime fund arena, found their exposure to European banks over the three months leading up to May 31 was stable at 50 percent of total assets.
Exposure to French, German, and UK banks was constant over the period at 30 percent of assets, Fitch said in the report. German bank exposure declined from 8.2 percent to 6.3 percent of money market fund assets. French bank exposure rose from 13.3 percent to 14.8 percent over the same period. UK bank exposure rose from 8.6 percent to 9.7 percent of money market fund assets.
However, money market funds' exposure to Italian and Spanish banks has decreased since peaking in 2009. Exposure to Italian banks dipped in the three-month period to 0.8 percent from 1.5 percent. Exposure to Spanish banks was steady at 0.2 percent of total assets. Benchmark three-month dollar London Interbank Offered Rates (Libor) on Tuesday fixed at 0.2455 percent, down slightly from 0.2465 percent on Monday and not far above the record low of 0.2450 percent reached last week.
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