U.S. money market fundsters, take heed. Something ails the money market fund industry across the Atlantic.

Ambrose Evans-Pritchard of the U.K.'s Telegraph reports that the 500-billion-euro (about $632 billion) European money fund industry faces the specter of potential ratings downgrades (below AAA) by Standard & Poor's, thanks to persistently low interest rates. And downgraded money funds will be less appealing to those looking for what the paper calls "ultra-safe depositories of corporate cash."

The European Central Bank has cut its deposit rate to negative 0.2 percent. And that makes earning a positive, without taking on more risk or sacrificing their essential liquidity, tricky for money funds.

The Telegraph points to BlackRock's ICS Euro Government Liquidity Fund as activating a "reverse distribution mechanism" so that it can pay investors fewer shares than they bought. And the paper reports that "some funds have already begun to signal that they may not be able to repay investors' money in full." Yet Susan Hindle of the Institutional Money Market Funds Association (IMMFA) contrasts the current situation with the September 2008 circumstances under which the Reserve Primary Fund broke the buck.

"It is a yield issue, not a credit issue," Hindle told the Telegraph.

So how could this go viral and turn into this industry's Ebola? Marc Ostwald of ADM Investor Services worries that companies could take all the cash they're sitting on and put it into longer-term debt, six months or more, in an effort to find yield. And if corporate treasuries stop seeing money funds as the place to park their cash, well … 

Edited by: Neil Anderson, Managing Editor


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