Moody’s Analytics - US-Dollar Prime Money by riteshbhansali

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									                                                                                                                                            MANAGED INVESTMENTS
MAY 15, 2012




SPECIAL COMMENT                                   US-Dollar Prime Money Market Funds:
                                                  Q1 2012 Trends
Table of Contents:                                    This Special Comment provides an overview of trends affecting the 76 Moody’s-rated
SUMMARY OPINION                            1          US and European prime MMFs denominated in US dollars and is one in a series of
GENERAL TRENDS                             2          three reports, which include Moody’s-rated prime MMFs denominated in Euro and in
  AUM Evolution                            2          Sterling. This report reviews the evolution of the key metrics underlying Moody’s rating
  Asset Class Trend                        2
                                                      methodology1: MMFs’ credit profile, liquidity profile and sensitivity to market risk. The
  Exposure to European Financial
  Institutions                             3          data covers 46 funds domiciled in the US and 30 funds domiciled in Europe, all of
ANALYSIS OF TRENDS                         4          which are constant net asset value (CNAV) funds.
  Credit Profile Trend                     4
  Asset Profile Trend                      4
  Overnight Liquidity Trend*               5      Summary Opinion1
  Market Risk: Stressed NAV* Trend         6
MOODY’S RELATED RESEARCH                   7
                                                  »     The credit profiles of prime rated US dollar-denominated money-market funds (MMFs)
                                                        deteriorated in Q1 2012. Credit pressures on financial institutions, which were reflected
Analyst Contacts:                                       in the rating review of 114 financial institutions initiated in February2 affected the
                                                        weighted average credit quality of rated MMFs, with about 10% of the investments
NEW YORK                  +1.212.553.1653               migrating to A1 from Aa3 or higher rated securities3.
Dan Serrao                +1.212.553.4352
                                                  »     In the context of the uncertainties in the euro area and other credit concern, prime
Associate Managing Director
dan.serrao@moodys.com                                   funds maintained a relatively short weighted-average maturity (WAM) of 36 days on
Henry Shilling           +1.212.553.1948                average, throughout Q1 2012. However, WAM started an upward trend, reaching 36
Senior Vice President                                   days in the end of March, from 32 days in the beginning of January.
henry.shilling@moodys.com
Seongnam Hwang       +1.212.553.1427
                                                  »     Overnight liquidity remained high, at around 37% on average. However, the liquidity
Associate Analyst                                       trend was negative, from 40% in the beginning of January to 37% in the end of March.
seongnam.hwang@moodys.com
                                                  »     Funds’ sensitivity to market risk increased: their stressed NAV moved to 0.9944 in the
PARIS                      +33.1.7070.22299             end of March from 0.9958 in the beginning of January on average.
Vanessa Robert              +33.1.5330.1023       »     Combined assets under management (AUM) level remained stable at $880 billion,
Vice President – Senior Credit Officer                  despite the low interest-rate environment and low yields across the sector.
vanessa.robert@moodys.com
Yaron Ernst               +33.1.5.30.1027
Managing Director – Managed Investments
yaron.ernst@moodys.com




1
    Please see “Moody’s Revised Money Market Fund Rating Methodology and Symbols”, published on 10 March 2011 and “Detailed Guidance on the Application of
    Moody’s Money Market Fund Rating Methodology”, published on 25 August 2011.
2
    Please see “Moody's Reviews Ratings for European Banks”, published on 15 February 2012 and “Moody's adjusts ratings of 9 European sovereigns to capture downside
    risks”, published on 13 February 2012.
3
    For modeling the credit profile of a portfolio, we usually adjust one notch downwards securities’ ratings that were placed on review for possible downgrade.
                                                                                                                                             MANAGED INVESTMENTS
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                    General Trends
                    AUM Evolution
                    CHART 1
                    Aggregate AUM evolution in Q1 2012
                                                   Top 10 Moody's-rated USD Prime Funds based on portfolio size          All other Moody's-rated USD Prime Funds

                                       1,200,000


                                       1,000,000


                                        800,000
                     in millions ($)




                                        600,000


                                        400,000


                                        200,000


                                               0
                                                                  Jan-12                                    Feb-12                                   Mar-12
                    Source: Moody’s




                    Asset Class Trend
                    CHART 2
                    Aggregate Asset Profile for the last three months
                                            CDs    Commerical Paper    Repos     Govt & Govt Agencies    Time Deposits    ABCP      Other

                     100%
                          90%
                          80%
                          70%
                          60%
                          50%
                          40%
                          30%
                          20%
                           10%
                                0%
                                                            Jan-12                                      Feb-12                                      Mar-12
                    Source: Moody’s




2    MAY 15, 2012                                                                               SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
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                    Exposure to European Financial Institutions
                    CHART 3
                    Aggregate Exposure to 5 European Financial Institutions
                                        Svenska Handelsbanken AB (Sweden)                                Rabobank Nederland (Netherlands)
                                        Westpac Banking Corporation (Australia)                          National Australia Bank Limited (Australia)
                                        BNP Paribas (France)                                             Aggregate Exposure to these 5 Financial Institutions (Right axis)

                                   30                                                                                                                             150

                                   25

                                   20                                                                                                                             100
                     Billions($)




                                                                                                                                                                           Billions($)
                                   15

                                   10                                                                                                                             50

                                    5

                                   -                                                                                                                               0




                                                                                             Feb-12
                                                             Jan-12




                                                                                                                                         Mar-12
                    Note: 5 European Financial Institutions are selected based on the largest exposure in January 2012
                    Source: Moody’s




                    CHART 4
                    Aggregate Exposure to European Financial Institutions (excluding repurchase agreements and
                    asset-back commercial paper) by Country
                                        Australia                                                        Sweden Financial Institutions
                                        United Kingdom Financial Institutions
                                        Other European Financial Institutions                            Total Exposure to all European Financial Institutions (Right axis)

                         40.0%                                                                                                                                         400




                                                                                                                                                                                         ($)
                                                                                                                                                                                         illi
                         30.0%                                                                                                                                         300



                          20.0%                                                                                                                                        200



                           10.0%                                                                                                                                       100



                               0.0%                                                                                                                                    0
                                                           Jan-12                           Feb-12                                       Mar-12
                    Note : Other European Financial Institutions is the aggregate percentage of less than 5% exposure
                    Source: Moody’s




3    MAY 15, 2012                                                                     SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
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                    Analysis of Trends

                    Credit Profile Trend
                    CHART 5
                    Aggregate Portfolio Credit Profile for the three months
                                      Aaa      Aa1     Aa2      Aa3   A1      A2       A3 & below
                      100%
                       90%
                       80%
                       70%
                       60%
                       50%
                       40%
                       30%
                       20%
                        10%
                         0%
                                                       Jan-12                                         Feb-12                                Mar-12
                    Source: Moody’s




                    Asset Profile Trend
                    WAM Trend
                    CHART 6
                    Aggregate Maturity profile with WAM trend for last three months
                                            0-7 days                       7-15 days                         15-30 days        30-90 days
                                            90-180 days                    180-397 days                      > 397 days        WAM (Right Axis)

                     100%                                                                                                                                    40
                      90%
                      80%
                                                                                                                                                             35
                      70%
                      60%
                      50%                                                                                                                                    30
                      40%
                      30%
                                                                                                                                                             25
                      20%
                      10%
                       0%                                                                                                                                    20
                                                     Jan-12                                         Feb-12                            Mar-12

                    Source: Moody’s




4    MAY 15, 2012                                                                           SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
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                    Obligor Concentration Trend*
                    CHART 7
                    Top 3 Obligor Concentration in Q1 2012
                      30%


                      25%


                      20%


                       15%


                      10%


                        5%


                        0%
                                                   Jan-12                                          Feb-12                                      Mar-12
                    * Obligor Concentration captures the degree of asset concentration in the MMF portfolio. It is measured by taking the top 3 asset exposures in the
                      portfolio as a percentage of AUM. We exclude several categories of assets with minimal risk such as Aaa- and high Aa-rated sovereigns,
                      supranational, and Government agency securities as well as traditional overnight repos collateralized by Aaa- and high Aa-rated sovereigns.
                    Note 1: The bars capture 50% of the number of Moody's-rated USD prime funds (the funds that are in the second and third quartiles).
                    The green part of the bar represents the second quartile, the orange part of the bar represents the third quartile.
                    The 'whiskers' denote the minimum and maximum values. The first and fourth quartiles are above and below these whiskers, respectively.
                    Note 2: The horizontal line in the bar indicates the median and the circle indicates the average value.
                    Source: Moody's




                    Overnight Liquidity Trend*
                    CHART 8
                    Liquidity Trend in Q1 2012
                     100%

                      90%

                      80%

                      70%

                      60%

                      50%

                      40%

                      30%

                      20%

                      10%
                                                   Jan-12                                          Feb-12                                     Mar-12
                    * We define liquidity as securities maturing overnight, cash, and Aaa- and high Aa-rated government securities maturing within 18 months as a
                      percentage of AUM.
                    Note 1: The bars capture 50% of the number of Moody's-rated USD prime funds (the funds that are in the second and third quartiles).
                    The green part of the bar represents the second quartile, the orange part of the bar represents the third quartile.
                    The 'whiskers' denote the minimum and maximum values. The first and fourth quartiles are above and below these whiskers, respectively.
                    Note 2: The horizontal line in the bar indicates the median and the circle indicates the average value.
                    Source: Moody's




5    MAY 15, 2012                                                                     SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
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                    Market Risk: Stressed NAV* Trend
                    CHART 9
                    Evolution of the Stressed NAV in Q1 2012
                     100.00%

                      99.90%

                      99.80%

                      99.70%

                      99.60%

                      99.50%

                      99.40%

                      99.30%

                      99.20%

                      99.10%
                                                     Jan-12                                          Feb-12                                           Mar-12

                    * NAV stress test is a measure of a fund’s relative sensitivity to a range of potential market stresses. Moody's measures NAV stress by applying a yield
                      curve shift of 100 bps, an additional credit spread shift of at least 100 bps for Aa2- or lower rated securities and a 50% redemption rate.
                    Note 1: The bars capture 50% of the number of Moody's-rated USD prime funds (the funds that are in the second and third quartiles).
                    The green part of the bar represents the second quartile, the orange part of the bar represents the third quartile.
                    The 'whiskers' denote the minimum and maximum values. The first and fourth quartiles are above and below these whiskers, respectively.
                    Note 2: The horizontal line in the bar indicates the median and the circle indicates the average value.
                    Source: Moody's




6    MAY 15, 2012                                                                       SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
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                    Moody’s Related Research

                    Rating Methodology:
                    »    Moody’s Revised Money Market Fund Rating Methodology and Symbols, March 2011 (131303)
                    Rating Implementation Guidance:
                    »    Detailed Guidance on the Application of Moody’s Money Market Fund Rating Methodology,
                         August 2011 (132916)
                    Industry Outlook:
                    »    Money Market Funds: 2012 Outlook and 2011 Review, March 2012 (140461)
                    Special Comments:
                    »    Money Market Funds: US-Dollar Prime Funds' Credit and Liquidity Profiles Remained Resilient
                         Throughout 2011, April 2012 (141446)
                    »    Money Market Funds: Euro Prime Funds Maintained Stable Credit and Liquidity Profiles
                         Throughout 2011, April 2012 (141517)
                    »    Money Market Funds: Sterling Prime Funds Reduced Sensitivity to Market Risk in 2011, April
                         2012 (141520)
                    »    Money Markets Funds Face Consequences of European Financial Stress, February 2012 (139516)
                    »    Money Market Funds Continue to Shrink Exposure to European Banks, December 2011
                         (137105)
                    »    Money Market Funds: Decline of Eligible Asset Raises Challenges, October 2011 (135408)
                    Website on Moodys.com:
                    »    www.moodys.com/managedinvestments
                    To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of
                    this report and that more recent reports may be available. All research may not be available to all clients.




7    MAY 15, 2012                                                             SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS
                                                                                                                           MANAGED INVESTMENTS
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                    Report Number: 142098



                    Author                                                                  Production Specialist
                    Seongnam Hwang                                                          Wendy Kroeker




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8    MAY 15, 2012                                                        SPECIAL COMMENT: US-DOLLAR PRIME MONEY MARKET FUNDS: Q1 2012 TRENDS

								
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