Thu Feb 9, 2012 2:18pm EST
* Money funds add euro zone debt for 1st time since April
* Funds’ euro zone debt holding still 62 pct below peak
* French bank paper enjoys revival on fewer worries
NEW YORK, Feb 9 (Reuters) – U.S. prime money funds
increased their holdings of euro zone bank securities in January
for the first time since April 2011, suggesting reduced fears
about the euro zone debt crisis spiraling out of control, a bank
research report said on Thursday.
These ultra short-term funds, which are seen as alternatives
to bank savings accounts, added $27 billion in euro zone bank
paper last month, bringing their euro zone debt holdings to $181
billion, a J.P. Morgan report showed.
U.S. money funds had been a major source of cash for euro
zone banks prior to a flare-up of the region’s debt crisis last
spring. Their tiptoe back into the region is a sign that there
might be some stability in funding for euro zone banks, which
have relied heavily on the European Central Bank for funding.
“It’s not a big number, but we might have marked a turn
here,” said Alex Roever, short-term fixed income strategist at
J.P. Morgan Securities in New York, who headed the group that
published the report.
U.S. prime money funds can invest in securities besides U.S.
government debt. They had combined assets of $1.052 trillion at
the end of January, accounting for roughly 40 percent of the
money fund industry.
Fears about a messy Greek default, together with the heavy
debt loads of Italy and Spain, the euro zone’s third- and
fourth-biggest economies, caused a stampede out of euro zone
debt by U.S. money funds last year.
Their holdings of euro zone debt at the end of January was
$298 billion, or 62 percent, less than the peak seen last May.
“It’s a bit of a turning point, but it’s probably not going
to return to where it once was,” Roever said.
Still, Thursday’s news that Greek political leaders clinched
a long-stalled deal on reforms and austerity measures to secure
a second international bailout worth 130 billion euros ($170
billion) should support the notion that the crisis is contained
for now.
The latest Greek development could further support appetite
for French bank paper among U.S. money funds, which increased
their French bank debt positions by $23 billion to $55 billon at
the end of January. This was still $186 billion below the peak
seen in May 2011, according to Roever.
France has a bigger exposure to Greece than any other euro
zone nation. French banks had about $56 billion worth of Greek
debt at the end of June 2011, according to data from the Bank
for International Settlements.
January’s increase in French bank debt among money funds was
largely in very short-term securities in the form of repurchase
agreements secured mostly by U.S. government securities, Roever
said.
Money funds held $28 billion in repos with French banks, or
roughly half of their collective debt holdings.
In the meantime, money funds slightly pared their holdings
of bank paper from outside Europe in January. Those holdings
slipped $3 billion to $553 billion.
