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European 'AAAm' Money Market Fund Trends (First Quarter 2024)

Index table: March 2024 figures
Index name 7-day net yield (%) 30-day net yield (%) WAM (R) (Days) Total net assets (Bil.) Credit quality (%) (A-1+/A-1)
S&P Global Ratings ‘AAAm’ euro MMFs 3.86 3.86 34 198.049 60/40
S&P Global Ratings ‘AAAm’ sterling MMFs 5.16 5.16 44 222.411 64/36
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 5.28 5.28 41 609.462 75/25
MMF--Money market fund.

'AAAm' Money Market Fund Indicators

S&P Global Ratings' 'AAAm' money market fund (MMF) indicators are metrics of Europe-domiciled funds that seek to maintain principal value and limit exposure to principal losses due to credit risk, as defined in our principal stability fund ratings criteria. These MMF indicators provide a benchmarking tool of the 'A-1+' credit quality, portfolio composition, maturity distribution, net asset movements, and yields of MMFs with a 'AAAm' principal stability fund rating (PSFR).

The MMF indicators demonstrate the investment practices of funds conforming to S&P Global Ratings' PSFR criteria. An individual fund's metrics below those of our 'AAAm' MMF indicators may indicate a more conservative approach to investment, while risk metrics well above the average may signal a more aggressive approach, albeit undertaken within the constraints of a 'AAAm' PSFR.

Market Comment

Europe-domiciled MMFs rated by S&P Global Ratings reached another all-time high in terms of assets under management (AUM) as of March 31, 2024, totalling €1.15 trillion. In the 12 months to March 2024, net assets in euro and U.S. dollar-denominated funds have increased 55% (see chart 3) and 13% (see chart 7), respectively, while sterling-denominated fell 4% over the period (see chart 5). Since the U.K.'s mini-budget crisis and the recorded asset highs of £266 billion in October 2022, sterling-denominated fund assets have fallen 16% but have operated within a +/-5% range of monthly totals over the past 12 months (see chart 5).

On the macroeconomic front, the broad consensus is that central banks will start cutting rates in the summer, but cuts will be somewhat measured this year, keeping policy rates higher than initial market expectations at the start of 2024. Euro-area inflation is falling but price stability is still some way off. We expect inflation will only return to the European Central Bank's (ECB's) 2% target in mid-2025. This means that the ECB has less scope than before to continue cutting rates after 2024. We expect the ECB deposit rate will decline to 2.5% by the end of 2025.

For the U.K., we expect low growth and high inflation will gradually ease this year. Consequently, borrowing costs, which will remain elevated as the Bank of England (BoE) seeks to reduce inflationary pressures. With slower price rises on track, we expect the BoE will reduce interest rates from August 2024. Financing conditions have already eased and lower interest rates will encourage a gradual acceleration in corporate and housing investments. For further information, see "“Credit Conditions Europe Q2 2024: Credit Heals, Defense Shields," March 27, 2024.

According to our economists, the U.S. economy is on track for 2.5% growth, with support from a sturdy labor market. They also forecast that the Fed won't cut its policy rate until July and expect sharper rate cuts in 2025. For further information, see "Credit Conditions North America Q2 2024: Soft Landing, Lurking Risks," March 27, 2024, and "Economic Outlook U.S. Q2 2024: Heading For An Encore," March 26, 2024

Since interest rate cuts are on the horizon in 2024, in the first quarter we have seen seven-day net yields fall, with sterling and U.S. dollar-denominated funds both dropping by seven basis points (bps) to 5.16% and 5.28%, respectively. Seven-day net yields for euro-denominated funds rose five bps over the first quarter but have since fallen seven bps from their January 2024 peak to finish the quarter at 3.86%.

We have commented in the past that as interest rates decrease, we are likely to see an extension of weighted-average maturities (WAM) profiles. Sterling-denominated funds have had the largest WAM extension during the quarter with an average extension of 10-days, finishing the quarter at 44 days. Correspondingly, euro and U.S. dollar funds each extended one day during the first quarter.

Notably, though, in the 12 months to March 2024, euro funds have extended 15 days, sterling funds 12 days, and U.S. dollar funds 21 days (see chart 1).

We consider credit quality to be a key factor in the stability of net asset value (NAV) and view the price of higher-rated assets as more stable than investments with lower ratings. All three currencies show a consistent trend of average 'A-1+' portfolio credit quality during the first quarter increasing to 60% from 58% (see chart 2). Average 'A-1+' credit quality in U.S. dollar funds was flat at 75% in the fourth quarter of 2023, while average 'A-1+' credit quality of sterling MMFs decreased slightly to 64% from 65%. Consistent with our expectations, 'A-1+' credit quality in Europe-domiciled MMFs has been maintained above the minimum 50% minimum metric for 'AAAm' rated funds.

Table 1

'AAAm' principal stability funds seven-day net yield (%)
Index June 2023 September 2023 December 2023 March 2024
S&P Global Ratings 'AAAm' euro MMFs 3.41 3.64 3.81 3.86
S&P Global Ratings 'AAAm' sterling MMFs 4.41 4.96 5.23 5.16
S&P Global Ratings 'AAAm' U.S. dollar MMFs 5.12 5.32 5.35 5.28
MMF--Money market fund.

Table 2

'AAAm' principal stability funds weighted-average maturity (Days)
Index June 2023 September 2023 December 2023 March 2024
S&P Global Ratings ‘AAAm’ euro MMFs 27 32 33 34
S&P Global Ratings ‘AAAm’ sterling MMFs 33 34 34 44
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 26 30 40 41
MMF--Money market fund.

Table 3

AAAm' principal stability funds 'A-1+' credit quality (%)
Index June 2023 September 2023 December 2023 March 2024
S&P Global Ratings ‘AAAm’ euro MMFs 59 58 60 60
S&P Global Ratings ‘AAAm’ sterling MMFs 64 65 64 64
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 74 75 75 75
MMF--Money market fund.

Chart 1

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Chart 2

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Chart 3

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Chart 4

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Chart 5

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Chart 6

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Chart 7

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Chart 8

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Top 10 Europe-Domiciled 'AAAm' MMFs--Euro, Sterling, And U.S. Dollar--By Assets--Key Statistics

Table 4

'AAAm' Euro principal stability funds
Rating Fund name Net assets (Mil. €) Portfolio maturity (Days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+ A-1
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 54,692 43 65 59 38.06
AAAm JPMorgan Liquidity Funds - EUR Liquidity LVNAV Fund 24,080 36 48 64 34.86
AAAm BNP Paribas InstiCash EUR 1D LVNAV 23,435 46 83 62 39.74
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 21,358 13 66 58 34.55
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 21,256 36 40 56 33.38
AAAm MS Liquidity Funds - Euro Liquidity Fund 15,065 48 65 58 34.72
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 10,468 40 66 59 39.10
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 7,523 34 55 62 38.57
AAAm Fidelity Institutional Liquidity Fund PLC - The Euro Fund 3,974 39 58 56 20.50
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 3,905 40 64 66 37.58
WAM (R)--Weighted-average maturity to reset. WAM (F)--Weighted-average maturity to final.

Table 5

'AAAm' Sterling principal stability funds
Rating Fund name Net assets (Mil. £) Portfolio maturity (Days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+ A-1
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 39,848 50 61 69 44
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 34,132 50 72 59 37
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 20,129 43 55 73 34
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 19,712 49 75 55 47
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 15,145 42 60 56 37
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,919 40 56 73 29
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 12,846 48 49 59 40
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 12,191 47 63 59 39
AAAm Northern Trust Global Funds PLC - The Sterling Fund 8,112 39 62 61 39
AAAm Federated Hermes Short-Term Sterling Prime Fund 6,996 54 74 55 36
WAM (R)--Weighted-average maturity to reset. WAM (F)--Weighted-average maturity to final.

Table 6

'AAAm' USD principal stability funds (EU-domiciled)
Rating Fund name Net assets (Mil. $) Portfolio maturity (Days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+ A-1
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 123,870 50 62 64 38.13
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 61,997 49 62 68 2.61
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 59,106 46 82 99
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 58,115 44 56 98 33.46
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 46,686 50 72 57 38.02
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 45,581 52 64 63 34.05
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 35,328 54 81 74 29.21
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 27,637 41 70 61 0.59
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 25,059 42 59 100
AAAm Northern Trust Global Funds PLC - The US Dollar Fund 18,615 37 64 57 44.84
WAM (R)--Weighted-average maturity to reset. WAM (F)--Weighted-average maturity to final.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Andrew Paranthoiene, London + 44 20 7176 8416;
andrew.paranthoiene@spglobal.com
Secondary Contact:Michael Mango, London +44 2071760485;
michael.mango1@spglobal.com

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