Europe's €500bn money funds risk AAA downgrade (as ECB Policy 'breaks the buck')

It is no longer clear whether the funds can safely eke out a positive return as the ECB's negative rates spread through the financial system. The EONIA overnight rate is currently -0.017pc. Even three-month Euribor is just 0.08pc. ... "We believe investors are being fleeced," said one industry insider. "They don't yet seem to have understood that their capital is being eroded and that they are likely to incur losses if they want to redeem their shares. Of course it is breaking the buck." It is a very rare occurrence for a money market fund to fall below par. It was a major shock to confidence when the Reserve Primary Fund in the US announced in September 2008 that it had "broken the buck" due to exposure to Lehman Brothers. The picture in Europe is entirely different. "It is a yield issue, not a credit issue," said Susan Hindle from the Institutional Money Market Funds Association (IMMFA). Yet it is a problem nevertheless, the first clear evidence that negative rates can be double-edged.