David Sylvester, Head of Money Markets for Wells Capital Management, has released his team's latest commentary on developments in money markets. This month's commentary looks at money markets' declining exposure to European holdings and the transition to Japanese investments.
Much of the commentary regarding money markets during the last year has focused on credit developments in Europe, specifically in the eurozone, and even more specifically, on banks headquartered in the eurozone. Each month, various analysts track the exposure of prime money market funds (MMFs) to banks headquartered in Europe, as the offhand comments of obscure European central bankers take on the significance of, well, our own central bankers. As MMFs alternated between turning the risk switch on and off over the past year, European banks have reduced their reliance on short-term wholesale U.S. dollar funding. Instead they preferred to deleverage their balance sheets or, in many cases, rely on the secured credit facilities offered by the European Central Bank (ECB). It's pretty well known that, as a result of these developments, prime MMFs have generally reduced their exposure to European banks over the past year. But, where did it go?
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