Money Market Funds Continued to Reduce Eurozone Holdings in November

Very nice piece as usual. Good job Chris.


Money Market Funds Continued to Reduce Eurozone Holdings in November

By Sean Collins and Chris Plantier

December 14, 2011

Over the last year, U.S. money market funds have significantly reduced their holdings of debt securities issued by banks and other businesses headquartered in the 17 countries that use the euro as their currency. That trend continued in November.


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3 thoughts on “Money Market Funds Continued to Reduce Eurozone Holdings in November

  1. So this seems to be one of the factors that led to the recent “dollar shortages” for european banks, mainly italian, spanish and french banks. However, I am surprised to see that US money market funds have held no debt from Portugal or Greece since May 2010, and almost no italian and spanish debt in May 2011, which means before the crisis to emphasize during the summer. You can argue that money market funds are required to invest in high quality short-term securities, thus it is not such a big deal those early moves. Fair enough, but let’s not forget that the debt issued by Lehman, high rated until the bank filed for bankruptcy, has caused panic and even some runs on the US money market funds.

    1. The debt for those countries you mention was almost entirely financed by local European banks. The problem with this is that as countries get downgraded banks that finance them will need to put aside more and more capital. Thus, at some point there is a limit to how much debt can be finance only by European banks. Then, we might see the ECB stepping in. Not that there is anything good about that.

  2. You are right, but there is something else what I want to point out. Exposure of US money market funds on eurozone debt means more than buying sovereign bonds, it means also buying securities like commercial papers. Therefore, as banks loaded their books with mess, they find it difficult to issue own debt and to raise liquidity from money market funds, leading to those dollar shortages. And I was surprised because it seems that the US money market funds anticipated the eurozone debt crisis much earlier than rating agencies. The ECB has already stepped in, as a liquidity provider for banks or simply as sovereign debt buyer in order to keep yields at “liveable” levels. But there is a lot of mess waiting to be swallowed by ECB’s bazookas. 🙂

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