Challenging environment for Euro money market investors

Euro Money market funds are likely to be severely hurt as regulation and rating agencies force them to focus on the very front end of the money market curves and limit their exposure to issuer/asset classes.

So, to some extent, they are being forced to continue investing in euro-denominated assets at negative yields. An alternative for investors could be to diversify into US rates, still in positive territory.

It a very challenging environment for investors, especially those focusing on the euro money markets, whose resilience to negative rates has not fully tested yet. 

Indeed until the beginning of this year, with the liquidity surplus not big enough to fuel significant downward pressure on the Eonia fixing and with high uncertainty of the size of the ECB's QE, investors were able to manage the negative rates environment and get some positive yields thanks to the increase in duration/credit risks.
 
Barclays notes in a report on Monday:

• This year we would expect it to be much tougher as the opportunities to invest at positive yields/rates are much more limited, as also peripheral t-bills are likely to move gradually into negative territory. 
  
  
• It is hard to predict how much yields/rates could go negative in the current context. The ECB's depo facility rate represents a floor for Eonia and Euribor rates, but not for GC rates and bills/short-term bonds yield, as supply/demand imbalances exacerbated by the ECB's QE-induced displacement would create potentially unlimited room for reaching vs. Eonia.