BofA: Assets of EUR MMFs Highs
BofA Securities latest "European Rates Watch features a brief titled, "Assets of EUR MMFs at new highs." Rates Strategist Ronald Man, who will also be speaking at our upcoming European Money Fund Symposium (Sept. 19-20 in London), writes, "Assets of EUR MMFs in the euro area rose to record highs. Assets of short-term EUR MMFs, which follow similar rules as US SEC 2a-7 MMFs, exceeded €300bn since July 2024 and continued to rise.... Assets of French MMFs, mainly standard MMFs that can hold longer maturity assets than short-term EUR MMFs and are mostly denominated in euros, also recorded a record high of €421bn in 1Q 2024." Man says, "We believe the inflows in EUR MMFs over the past year reflect growing expectations of rate cuts by the ECB. Curve flattening associated with such expectations may have also reduced the attractiveness of longer-dated assets to investors vs parking cash at MMFs. Bank interest rates on new deposits have also fallen below yields of short-term EUR MMFs.... Short-term EUR MMFs reduced their WAM since July 2024 to 30 days.... The reduction in WAM may raise MMF demand for assets with shorter maturities, including CP and CD that collectively account for [about] 50% of short-term EUR MMF assets.... Newly issued CP and CD by Euribor panel banks at shorter maturities to meet this demand may feed into the Euribor fixings and keep the fixing curve steep." The update adds, "The reduction in WAM has also been achieved by increased allocation of MMF assets to repo, which tend to have among the shortest maturities. The share of short-term EUR MMF assets in repo rose to 15%, a decade high; while the share of TD declined.... The decline in short-dated EUR MMF WAM may keep the Euribor fixing curve steep and be a source of support for our 2y 3s6s widener recommendation. But we are also mindful of days with no or low eligible Euribor transactions, as it is possible that fixing risks to our recommendation may be exacerbated by the current phasing out by mid-November 2024 of level 3 contributions to Euribor submissions."
