7
│
Money market sector risks
68
shows the TED spread and EUR-BUBILL EURIBOR spread over 2007-2012, which are major
indicators used by market participants to monitor the health of money markets. They show that
starting in July 2007, spreads rose steeply in relation to trends of the previous two quarters.
Figure 30: TED spread and EUR-BUBILL EURIBOR spread, 2007-2012
Source: Bloomberg
European money market funds experienced significant redemptions as a result. In particular,
enhanced MMFs lost €29 billion (or 20.8% of AuM) due to their relatively higher yield and higher
risk holdings. Other MMFs met redemptions in an orderly manner and a third group took actions
to avoid outflows along the lines of fund sponsors purchasing assets, temporary redemption
freezes and so on.
Following the collapse of Lehman Brothers in September 2008, short-term lending markets dried
up, as reflected in the widening of spreads in Figure 30. This led to a reallocation of
assets to short-
dated instruments and government interventions.
7.3.3
Significant events
These significant events for European money market funds from summer 2007 till early-2009 are
described in the timeline below (Table 15).
0
0.5
1
1.5
2
2.5
3
3.5
01
/2
00
7
04
/2
00
7
07
/2
00
7
10
/2
00
7
01
/2
00
8
04
/2
00
8
07
/2
00
8
10
/2
00
8
01
/2
00
9
04
/2
00
9
07
/2
00
9
10
/2
00
9
01
/2
01
0
04
/2
01
0
07
/2
01
0
10
/2
01
0
01
/2
01
1
04
/2
01
1
07
/2
01
1
10
/2
01
1
01
/2
01
2
TED Spread
0
0.5
1
1.5
2
2.5
3
3.5
01
/2
00
7
04
/2
00
7
07
/2
00
7
10
/2
00
7
01
/2
00
8
04
/2
00
8
07
/2
00
8
10
/2
00
8
01
/2
00
9
04
/2
00
9
07
/2
00
9
10
/2
00
9
01
/2
01
0
04
/2
01
0
07
/2
01
0
10
/2
01
0
01
/2
01
1
04
/2
01
1
07
/2
01
1
10
/2
01
1
01
/2
01
2
EUR BUBILL EURIBOR spread
7
│
Money market sector risks
69
Table 15: Significant events – European MMFs
Date
Event
June – July 2007
Subprime MBS problems start to become evident. Some hedge funds report huge loses.
Bear Sterns closes down two funds.
09/07/2007
In one week, S&P, Moody’s, Fitch and Dominion initiate reviews and/or downgrades
distressed subprime transactions amounting to a total value of more than $138 billion.
23/07/2007
AXA Investment Management reports that two of its money market funds – World U.S
Libor Plus Fund and Investment Managers Fixed Income Investment Strategies U.S.
Libor Plus Fund fell by around 13 percent between July 18 and July 19. Following the
continued drop in value amounting to 21 %, AXA bails out clients in its AXA US Libor Plus
Strategy and Investment Managers Fixed Income Strategies U.S. Libor Plus Fund by
guaranteeing NAV by purchasing underlying assets.
27/07/2007
French asset manager ODDO dissolves its Cash Titrisation, Cash Arbitrages and Court
Terme Dynamique funds.
03/08/2007
Germany’s Union Investment closes its ABS-funds following a 10% run-off during the
past month.
HSBC Investments Germany suspends redemption in its Trinkaus ABS-fund.
06/08/2007
Trading activity in certain US securitized instruments evaporates completely.
Frankfurt Trust closes Frankfurt fond ABS Plus.
Sal Oppenheim freezes redemptions in its two ABS funds.
WestLB Mellon Asset Management suspends redemptions in its Compass Fund: ABS
Fund.
09/08/2007
To avoid a sharp increase in short-term lending rates and
maintain liquidity, the
European Central Bank injects EUR 94.8bn into European money markets followed by
an additional EUR 61bn the next day. On Monday 13 August, a further EUR 47.7bn is
provided.
13/08/2007
NAV and redemptions are suspended for three funds managed by BNP Paribas: Parvest
Dynamic ABS, BNP Paribas ABS EURIBOR and BNP Paribas ABS EONIA.
13/08/2007
DWS restricts redemptions to below par value for investors in its ABS fund.
23/08/2007
ECB announces a supplementary liquidity-providing longer-term refinancing
operation
to support the functioning of the euro money market.
BNP Paribas announces plans to re-establish NAV for it BNAP Paribas ABS EURIBOR and
BNP Paribas EONIA funds using a combination of mark-to-model techniques.
29/08/2007
BNP Paribas reopens its BNP Paribas ABS EURIBOR and
BNP Paribas ABS EONIA funds
for redemptions. Two days later, the NAV calculations are resumed for Parvest Dynamic
ABS, which also is opened for redemptions.
01/11/2007
Credit Suisse transfers US$6 billion of remaining money market fund assets onto its
balance sheet to meet redemption claims.
09/09/2008
Lehman Brothers loses half its market capitalization. Six days later the bank
is declared
bankrupt. The Euribor-Eonia spread rises by 39 basis points.
September 2008
ECB announces several facilities to support European money markets.
19/09/2008
Lehman Brothers Liquidity Funds PLC suspends all dealings the three sub-funds the Euro
Liquidity Fund, the Sterling Liquidity Fund and the US Dollar Liquidity Fund.
US Treasury launches Temporary Guarantee Program for Money Market Funds.
13/10/2008
German Bundesbank announces special liquidity assistance to MMFs and near MMFs
against collateral.
14/10/2008
The Luxembourg government and central bank grants liquidity assistance to MMFs
against collateral.
