More than half of Europe’s money market funds by assets have closed because securities they invest in pay negative returns after the European Central Bank cut interest rates, according to Standard & Poor’s.
Funds with assets totalling 79 billion euros ($96 billion) have closed, out of a pool of 133 billion euros rated by the New York-based firm, S&P said in a report.
Investor demand for haven assets sent yields on short-term government bonds from France, Germany, Austria and Belgium tumbling to all-time lows after the ECB cut its main refinancing rate a quarter-percentage point to 0.75 percent and its deposit rate to zero on July 5. JPMorgan Chase & Co., (JPM:US) the world’s biggest provider of money market funds, Goldman Sachs Group Inc. and BlackRock Inc. (BLK:US) either closed their European funds to new investment or restricted deposits.
“The rate cuts have hardened conditions for European money market funds, which have been coping with the prospect of near- zero or negative yields for most of 2012,” S&P analysts led by Andrew Paranthoiene wrote in the report published today. “European money market fund providers have taken practical steps to protect their funds from yield dilution.”
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