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U.S. Domestic 'AAAm' Money Market Fund Trends (First-Quarter 2024)

(Editor's Note: For insights on rated local government investment pools, see "'AAAm' Local Government Investment Pool Trends", published April 29, 2024.)

'AAAm' Money Market Fund Indicators

S&P Global Ratings' 'AAAm' MMF indicators are metrics of U.S. domestic managed 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 'AAAm' principal stability rated funds.

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

Mixed Growth in Money Market Fund Assets

Flows into rated MMFs were net positive for the first quarter. A small decline (-0.3%) for government MMFs was offset by the 6% growth for prime MMFs. The decline in government MMF assets was the first in more than 12 months. In our view, while interest rates remain high, the small dip in government MMF assets is likely temporary. It's not uncommon for seasonal swings to occur around the long, Good Friday holiday weekend and the April 15 tax date.

Rated government and prime MMFs ended the quarter at $3.3 trillion and $279 billion, respectively.

Chart 1


Yields for rated MMFs peaked and began trending in the opposite direction from prior quarters. Markets have begun pricing in potential rate cuts by the Federal Reserve later this year, driving yields lower. First quarter-end yields ranged from 4.3% to 5.5% for rated government funds and 5.2% to 5.6% for prime funds.

Table 1

AAAm' principal stability funds seven-day net yield (%)
Index Jun-23 Sep-23 Dec-23 Mar-24
S&P Global Ratings 'AAAm' government MMFs 4.73 5.2 5.22 5.17
S&P Global Ratings 'AAAm' prime MMFs 4.76 5.4 5.43 5.36
MMF--Money market fund.

Chart 2


Chart 3


The markets are convinced that the Federal Reserve is finished hiking interest rates. Similar to its previous policy meeting, the Federal Reserve held rates at the 5.25%-5.50% range in March. Recent economic indicators demonstrate that the economy is remaining stronger than predicted, leading to greater ambiguity on the timing of rate cuts. S&P Global Ratings economists think an initial rate cut in July is more likely than one in June and still expect 75 basis points (bps) of rate cuts in 2024. (see "Economic Outlook: U.S. Q2 2024: Heading For An Encore," March 26, 2024).

Credit In Context: Exposures In Money Markets Funds

Managers of rated government funds continued to shift exposure from repurchase agreements (repo) into Treasury bills, given relative value and supply. Average Treasury bill exposure increased to 36% from 32% over the quarter, whereas average weightings in repo decreased to 40% from 44%. Net Treasury bill issuance began declining during the quarter, and the U.S. Treasury Department has indicated that it will reduce the bill supply. Consequently, there may be movement back into repo and possibly increased usage of the Fed's Reverse Repo Program (RRP). For rated government funds with agency exposure, the level of agency holdings was stable, but exposure became biased towards fixed rate securities.

Chart 4


Chart 5


Asset allocations in rated prime funds were generally stable quarter over quarter. Managers purchased additional Treasury bills, bringing average exposure to approximately 4%. Weightings in certificates of deposits (CDs) and bank deposits decreased moderately, and like government funds, there was a slight preference for fixed rate exposure.

Chart 6


Chart 7


Effective 'A-1+' credit quality increased slightly in rated government MMFs and more noticeably in rated prime MMFs. Higher effective 'A-1+' credit quality exposure in prime MMFs was primarily driven by managers shortening the maturity profiles of their funds.

Table 2

'AAAm' principal stability funds 'A-1+' credit quality (%)
Index Jun-23 Sep-23 Dec-23 Mar-24
S&P Global Ratings 'AAAm' government MMFs 97 96 96 97
S&P Global Ratings 'AAAm' prime MMFs 64 62 62 66
MMF--Money market fund.

Chart 8


MMF Managers Reverse Course On Extending Portfolios

Managers of rated government and prime MMFs shifted gears with respect to maturity profiles. During the quarter, average weighted average maturities (WAMs) for government funds increased to as high as 42 days in February, but soon after decreased by quarter-end. Prime fund average WAMs decreased throughout the quarter, by nine days overall. Through our engagement, managers cited various reasons for shortening portfolios, like expecting delayed rate cuts and preparing for new 2a-7 MMF regulations. Specifically, prime fund managers increased short-dated exposures to meet the 25% (daily) and 50% (weekly) liquidity requirements, which became effective in April 2024. Additionally, a number of prime funds are avoiding maturities after the October timeframe, as fund sponsors work through adapting to the remaining new rules, especially the logistics of the mandatory liquidity fee, and subsequently which liquidity products to offer investors.

Table 3

AAAm' principal stability funds weighted average maturity (in days)
Index Jun-23 Sep-23 Dec-23 Mar-24
S&P Global Ratings 'AAAm' government MMFs 23 25 38 40
S&P Global Ratings 'AAAm' prime MMFs 30 32 40 31
MMF--Money market funds.

Chart 9


Stability In Money Market Funds

The distribution of NAV per share for rated MMFs narrowed quarter over quarter as a result of some funds moving downward. At quarter-end, the range for rated fund NAVs was 0.9993-1.0010.

Chart 10


Top 10 'AAAm' US Dollar--By Assets--Key Statistics

Table 4

S&P Global 'AAAm' US Dollar principal stability funds-- government
S&P Global PSFR Fund name Net assets (mil. $) Portfolio maturity (days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan U.S. Government Money Market Fund 259,585 43 95 100
AAAm Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund 217,876 37 120 89
AAAm Fidelity Investments Money Market Government Portfolio 200,198 34 80 96
AAAm JPMorgan 100% U.S. Treasury Securities Money Market Fund 187,246 47 84 100
AAAm Federated Hermes Government Obligations Fund 156,317 40 93 92
AAAm BlackRock Liquidity Funds FedFund 148,379 42 86 92
AAAm State Street Institutional U.S. Government Money Market Portfolio 143,718 50 87 100
AAAm Morgan Stanley Institutional Liquidity Funds - Government Portfolio 138,649 48 101 97
AAAm Dreyfus Government Cash Management 118,829 48 104 91
AAAm BlackRock Liquidity Funds Treasury Trust Fund 111,043 47 85 100

Table 5

S&P Global 'AAAm' US Dollar principal stability funds – prime
S&P Global PSFR Fund name Net assets Portfolio maturity (days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan Prime Money Market Fund 82,080 38 52 61
AAAm Federated Hermes Prime Cash Obligations Fund 72,738 40 73 64
AAAm Federated Hermes Institutional Prime Obligations 20,759 38 55 67
AAAm Morgan Stanley Institutional Liquidity Funds - Prime Portfolio 16,696 48 61 71
AAAm State Street Money Market Portfolio 15,954 32 58 66
AAAm BlackRock Liquidity Funds TempCash 15,215 43 64 69
AAAm Western Asset Institutional Liquid Reserves 10,327 42 75 66
AAAm Invesco Premier Portfolio 6,676 30 66 72
AAAm Dreyfus Cash Management 6,328 10 10 91
AAAm BlackRock Liquidity Funds TempFund 5,738 41 64 52

This report does not constitute a rating action.

Primary Credit Analyst:Marissa Zuccaro, Englewood + 1 (303) 721 4762;
Secondary Contact:Michael Masih, New York + 1 (212) 438 1642;

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