US prime money funds lowered their holdings of euro zone bank securities in March after two months of increases, primarily due to quarter-end withdrawals, J.P. Morgan analysts said in a report released late Wednesday. These ultra short-term investments, which are seen as alternatives to bank accounts, reduced their euro zone bank holdings by $20 billion in March to $191 billion.
US prime money funds invest in on non-US government debt, as well as very short-term instruments as repurchase agreements (repos) and short-dated corporate debt. By contrast, government-only money funds invest only in US Treasuries and agency securities.
Despite a modest increase in eurozone securities in the early months of 2012, prime money funds are holding far fewer of them than a year ago. In March 2011, they held nearly $800 billion of euro zone bank debt, which was equivalent to half of their total assets. At the end of March this year, their euro zone holdings were $191 billion or 13.6 percent of their combined assets, according to J.P. Morgan.
In January and February, the prime money funds raised their holdings in euro zone bank securities by a total of $57 billion on improved sentiment after the European Central Bank injected more than 1 trillion euros in cheap loans into the banking system and a bailout for Greece so it could avert a chaotic default.
The drop in euro zone bank holdings in March was part of a larger $67 billion decrease in global bank exposure among prime money funds.