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Moody's: EU money market fund rules improve credit quality

The credit quality of prime constant net asset value funds that converted to low-volatility net asset value funds moderately improved, thanks to the European Union's new rules for Europe's €1.3 trillion money market funds industry.

Introduced in 2018, the rules were aimed at improving transparency and resilience and gave existing funds until Jan. 21, 2019, to convert. A two-month extension was granted for euro constant net asset value, or CNAV, funds.

Low-volatility net asset value funds carry new minimum liquidity and stress testing requirements, which is a credit positive, said Marina Cremonese, vice president and senior analyst at Moody's. "But converted funds' portfolio characteristics haven't changed much."

Euro-denominated CNAV funds that changed to the new framework reported a 7% rise in assets under management from June 2018 to June 2019, higher than 6% and 1% growth rates for sterling- and dollar-denominated funds, respectively.

"Redemption patterns and frequency did not change post-reform, indicating continuity in investor behavior," Moody's said.