Offshore dollar money fund assets post big drop in week: iMoneynet

August 16, 2016 2:00 PM EDT

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NEW YORK (Reuters) - Overseas dollar-denominated money market funds posted their biggest drop in assets for 2016 last week, led by a steep fall in prime fund assets, the Offshore Money Fund Report said on Tuesday.

Total offshore dollar fund assets tumbled $16.19 billion in the week ended on Friday to $384.40 billion, their lowest since the week of June 17, according to the report published by iMoneynet.

Assets of dollar prime funds, which can invest in bank debt, fell by $16.00 billion to $276.41 billion, while those of dollar funds, which invest solely in Treasury bills and other government-related securities, slipped by $189.9 million to $107.99 billion.

Dollar money funds overseas may be losing their allure as the greenback has weakened on reduced expectations that the Federal Reserve may raise interest rates by the year-end.

On Tuesday, the dollar touched its lowest levels against the euro, yen and Swiss franc since June 24, the day after Britain's vote to leave the European Union, known as Brexit.

The decline in overseas prime dollar fund assets since July has coincided with the drop with their domestic counterparts.

Some U.S. prime money market funds have changed over to hold only government bonds, which are exempt from rules from the U.S. Securities and Exchange Commission that will take effect in less than two months. As a result, they have been reducing their holdings of commercial paper and other short-term debt from banks.

This final phase of money fund reform is intended to safeguard a sector that was rattled by the collapse of Lehman Brothers during the global credit crunch in September 2008.

Overseas dollar money funds are not subject to the upcoming SEC rules.

Total euro-pegged money fund assets rose by 2.42 billion euros to 83.03 billion euros last week, while assets in sterling-denominated funds jumped 6.31 billion pounds to 171.52 billion pounds, according to the Offshore Money Fund Report.

Euro fund yields averaged -0.41 percent, unchanged from the prior week, while the average yield on sterling funds fell to 0.32 percent from 0.38 percent.

The average yield on offshore dollar funds rose to 0.36 percent from 0.35 percent.

UK interest rates fell to record lows after the Bank of England on Aug. 4 embarked on more stimuli to cushion the British economy from repercussions of Brexit.

(Reporting by Richard Leong; Editing by Lisa Von Ahn)



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