Money Funds Turn to European Bank Debt
One consequence of the financial crisis is that U.S. money-market funds have been buying more European bank debt.</br></br>The combination of U.S. banks issuing less debt and funds looking to diversify has seen European banks play a dominant role in U.S. money-market-fund portfolios. Even European debt fears haven't stemmed the appetite.</br></br>The percentage of foreign-bank obligations -- which largely are European and include Eurodollar certificates of deposit, Yankee dollar CDs and bankers' acceptances -- in prime money-market funds rose to 11.5% as of July from 9.8% a year earlier and 7.9% in July 2008, according to research firm iMoneyNet.</br></br>The research firm doesn't break out time deposits, such as fixed-term savings accounts and certificates of deposit, by geography. But one study at a Wall Street firm estimated most of those holdings are from European banks, and suggests European deposits are the single-biggest part of money-market funds' holdings.</br></br>Debbie Cunningham, head of money-markets funds at Federated Investors, said the financial crisis pushed funds overseas in two ways: The shock of Bear Stearns and Lehman Brothers Holdings going bust meant that fund managers saw greater imperative to diversify more to international holdings, while the recession -- and disappearing banks -- has shrunk the domestic commercial-paper-supply market as growth has stalled.