By Neelabh Chaturvedi
More euro-denominated money market funds may put temporary
restrictions on new investments and cut the fees they charge to
keep returns positive, ratings agency Fitch Ratings said
Wednesday.
While these actions will help protect existing investors from
potential negative yields, the high cost investors pay for
liquidity in the current environment could increase the demand for
products that have a longer investment horizon, Fitch Ratings said
in a report.
"We expect to see a pattern of temporary soft closures continue
across the sector. These tend to last until the current portfolio
has matured and is reinvested at prevailing rates, at which point
new investments no longer pose a risk of dilution for existing
investors," the ratings agency said.
J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS)
and BlackRock Inc. (BLK) have announced in recent days that they
are closing their European money-market funds to new investments as
secondary-market yields have dwindled.
Interbank lending rates in the euro zone, which are already at
record lows, are expected to plummet further as the impact of the
European Central Bank's cut in its deposit rate to zero starts to
filter down.
Most overnight bank deposits will soon pay between minus 15
basis points and plus five basis points and there is a risk of
money-market fund yields turning negative, Fitch said.
"In this environment, the decision by some funds to temporarily
close to new investments is a prudent one to protect existing
investors and will not have any direct impact on ratings," the
ratings agency said.
(Anusha Shrivastava in New York contributed to this article)
Write to Neelabh Chaturvedi at
neelabh.chaturvedi@dowjones.com