Euro-denominated money market funds face the same fate as U.S. funds in 2008, according to Fitch Ratings, with closures accelerating after the European Central Bank cut its deposit rate to zero.
Funds will temporarily close to new investors and fees will be reduced to maintain positive returns, Fitch said. Closures will last until portfolios mature, which is on average 45 days for most Fitch-rated euro money market funds and less than a month for 60 percent of funds.
JPMorgan Chase & Co., the world’s biggest provider of money-market funds, Goldman Sachs Group Inc. and BlackRock Inc. closed their European funds to new investments after the ECB’s rate cut on July 5. Goldman Sachs said the European money market is in “unchartered territory.”
“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,” Fitch analysts led by Alastair Sewell in London wrote in a report. “We expect to see a pattern of temporary soft closures continue across the sector.”
The deposit rate cut will push the euro overnight index average, or Eonia, to a record low, the analysts said. Eonia fell to 0.323 percent today, approaching the record low of 0.295 percent on June 3, 2010. Most overnight bank deposits will soon pay between minus 15 basis points and plus five basis points, the analysts said.