US money market funds have begun moving back into European bank paper, a sign that central bank efforts to backstop key institutions are improving risk appetite, says the FT. This past week, money market funds bought French bank paper with maturities as long as one month, as well as small amounts of Spanish bank paper, the newspaper says. The funds also bought longer-dated UK, Dutch and Scandinavian bank paper, up to six-month maturities. Notes issued by US banks with foreign parents rose $6bn to $152bn and foreign domiciled bank notes outstanding rose nearly $3bn to $133bn, according to figures from the Federal Reserve.  Last year, money market funds were sellers of many European banks’ short-term commercial paper as worries grew about the repercussions of a possible European sovereign default. That was a critical factor in market anxiety, as the highly rated funds’ $2.7tn in liquid assets are a key source of dollar funding.

This entry was posted by Kate Mackenzie on Monday, January 23rd, 2012 at 2:08 and is featured in The 6am Cut London (23 Jan 2012) . Tagged with European banks, Money market funds. Edit this entry.