European non-government short-term money market funds (MMFs) account for a limited share of European commercial paper (ECP) issued by non-financial corporates, according to the first iteration of Fitch Ratings' ECP monitor. The monitor details ECP holdings by Fitch-rated European short-term non-government MMFs and complements Fitch's US CP monitor report. Fitch will publish the monitor quarterly.

Fitch-rated European short-term non-government MMFs had combined ECP holdings of €88bn at end-April 2020 (13% of total assets). €75bn was in ECP issued by financial institutions and €12bn issued by non-financial corporates, with the remainder issued by regional governments. Fitch estimates that European short-term non-government MMFs, in aggregate, owned around €96bn of financial ECP and €15bn of corporate ECP as of 30 April 2020, based on the total assets under management of all European short-term (non-government) MMFs, according to iMoneyNet.

Outstanding securities

The European short-term market had around €1,370bn of securities outstanding at end-March 2020, according to ECB data. However, public data availability on total ECP outstanding is limited, particularly in currencies other than euros. Banque de France data indicated outstanding negotiable ECP - known as NEU CP - of €253bn. However, this data relates primarily to euro-denominated issues and only to issuance in France - a major ECP market.

Fitch obtained ECP market size estimates from two short-term market dealers, whose data was based on datasets from Dealogic and CMD Portal. The average amount of ECP outstanding across these two data points was US$529bn as of end-June 2020. However, estimates ranged by US$118bn. These data sets suggested ECP issued by financial institutions represented an average of US$145bn (range of US$46bn) and by non-financial corporates represented US$77bn (range of US$22bn). Conversely, BlackRock recently reported total non-financial corporate ECP outstanding of €134bn as of end-June 2020.

Central bank support missing the mark

Across all data sets, it is evident that short-term non-government MMFs have limited holdings of ECP issued by non-financial corporates. This is consistent with short-term non-government MMFs' primary focus on securities issued by financial institutions and deposits with these entities. Fitch therefore believes that facilities launched recently by central banks to support non-financial corporate ECP did not provide material direct support to short-term non-government MMFs, although there were probably secondary, indirect effects as a result of improved market liquidity and reduced risk aversion.

When the COVID-19 pandemic first emerged as a threat, CTMfile covered some of the central bank measures to support commercial paper markets. Even at the time, however, these moves were questioned for not going far enough. For example, the Association for Financial Professionals (AFP) urged the Federal Reserve to expand its Commercial Paper Funding Facility (CPFF) to include Tier 2 issuers.