(Editor's Note: For insights on rated local government investment pools, see "'AAAm' Local Government Investment Pool Trends," published July 31, 2024.)
Key Takeaways
- Rated money market fund (MMF) assets rose from the previous quarter, reaching $3.6 trillion between government and prime funds.
- Managers again shortened the maturity profiles of rated government and prime MMFs.
- Fund sponsors announced the closure of certain prime funds.
'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.
Money Market Funds Gain Assets
Flows into rated MMFs were net positive for another consecutive quarter. Rated government MMFs picked up 1% of inflows, and prime MMF assets were flat. While rates remain elevated, asset growth in government MMFs may persist from institutional investors placing excess cash. We see less certainty for flows for rated prime funds, but think they will likely experience declines as the new SEC 2a-7 rules are implemented, with a number of fund sponsors electing to reduce or eliminate their offerings of prime MMFs via conversions to government strategies and fund closures. Since the final rules were announced in 2023, the mandatory liquidity fee rule has posed the highest hurdle for fund sponsors. Outside of the operational challenges of calculating and applying a liquidity fee, investor appetite was another consideration for closing certain prime funds.
Chart 1
Seven-day net yields were stable for rated government MMFs and decreased slightly for rated prime MMFs over the quarter, as anticipated rate cuts priced in by markets became more realistic. The Federal Reserve has held rates at current levels over the last seven Federal Open Market Committee meetings, waiting for stronger indications of waning inflation. S&P Global Ratings economists expect further inflation cooling to support an initial rate cut in December by the Fed (see "Economic Outlook U.S. Q3 2024: Milder Growth Ahead," June 24, 2024).
Table 1
| 'AAAm' principal stability funds seven-day net yield (%) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 5.20 | 5.22 | 5.17 | 5.17 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 5.40 | 5.43 | 5.36 | 5.30 | ||||||
| MMF--Money market fund. | ||||||||||
Chart 2
Chart 3
Credit In Context: Exposures In Money Market Funds
Government portfolio composition
Repurchase agreements (repo) were more heavily used in rated government MMFs during the quarter. Average repo exposure increased to 43% from 40%. Based on Securities Industry and Financial Markets Assn. (SIFMA) data, Treasury bill issuance was net negative for the second quarter of 2024. With reduced Treasury bill supply, managers of rated government MMFs moved mainly into repo and partially into Treasury floaters. Managers utilized the Fed's Reverse Repo Program (RRP) as needed, particularly at quarter-end, but often achieved better rates with other non-RRP repo counterparties.
Chart 4
Chart 5
Prime MMF portfolio composition
Treasury bill exposure was also lower in rated prime MMFs quarter over quarter. With more asset classes available to prime funds, managers moved into commercial paper, bank deposits, and corporate bonds rather than repo. Exposure to certificates of deposits (CDs) decreased slightly, but managers still demonstrated a preference for fixed-rate exposure.
Chart 6
Chart 7
Effective 'A-1+' credit quality decreased minimally in rated government MMFs and increased in rated prime MMFs. We expect the upward trend in prime MMFs to persist in the next few months since managers have taken conservative measures in preparation for possible or already announced prime fund closures before the new 2a-7 mandatory liquidity fee goes into effect in October.
Table 2
| 'AAAm' principal stability funds 'A-1+' credit quality (%) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 96 | 96 | 97 | 96 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 62 | 62 | 66 | 68 | ||||||
| MMF--Money market fund. | ||||||||||
Chart 8
MMF Managers Shorten Portfolios
Managers of rated government and prime MMFs continued to pull back on extending maturity profiles. Average weighted average maturities (WAMs) decreased by three days and seven days for rated government and prime funds, respectively, by quarter-end. Positioning was driven by various factors including delayed rate cuts by the Fed and higher repo exposure, which managers typically buy overnight. The sharp WAM decline in prime funds since the beginning of the year also reflects those managers avoiding maturities around October.
Table 3
| 'AAAm' principal stability funds weighted average maturity (in days) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 25 | 38 | 40 | 37 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 32 | 40 | 31 | 24 | ||||||
| MMF--Money market funds. | ||||||||||
Chart 9
Stability In Money Market Funds
The distribution of net asset values (NAVs) per share for rated MMFs was generally stable, with a few funds moving downward. At quarter-end, the range for rated fund NAVs was 0.9994-1.0010.
Chart 10
Top 10 U.S. Domiciled 'AAAm' Government And Prime MMFs--By Assets--Key Statistics
Table 4
| S&P Global Ratings 'AAAm' U.S. 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 | 254,731 | 43 | 89 | 92 |
| AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 235,271 | 31 | 112 | 89 |
| AAAm | Fidelity Investments Money Market Government Portfolio | 194,677 | 29 | 80 | 95 |
| AAAm | JPMorgan 100% U.S. Treasury Securities Money Market Fund | 192,051 | 46 | 77 | 100 |
| AAAm | Federated Hermes Government Obligations Fund | 163,212 | 36 | 88 | 91 |
| AAAm | BlackRock Liquidity Funds FedFund | 148,852 | 39 | 95 | 88 |
| AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 147,353 | 42 | 85 | 97 |
| AAAm | State Street Institutional U.S. Government Money Market Portfolio | 135,855 | 48 | 85 | 100 |
| AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 120,707 | 44 | 79 | 100 |
| AAAm | Dreyfus Government Cash Management | 116,741 | 43 | 102 | 91 |
Table 5
| S&P Global Ratings 'AAAm' U.S. dollar principal stability funds--prime | |||||
|---|---|---|---|---|---|
| S&P Global PSFR | Fund name | Net assets (mil. $) | Portfolio maturity (days) | Portfolio credit quality (%) | |
| WAM (R) | WAM (F) | 'A-1+' | |||
| AAAm | JPMorgan Prime Money Market Fund | 83,514 | 37 | 48 | 61 |
| AAAm | Federated Hermes Prime Cash Obligations Fund | 77,026 | 38 | 69 | 64 |
| AAAm | Federated Hermes Institutional Prime Obligations | 17,443 | 34 | 47 | 74 |
| AAAm | BlackRock Liquidity Funds TempCash | 17,111 | 24 | 37 | 75 |
| AAAm | State Street Money Market Portfolio | 16,278 | 14 | 28 | 70 |
| AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 15,191 | 46 | 57 | 75 |
| AAAm | Western Asset Institutional Liquid Reserves | 10,252 | 37 | 71 | 66 |
| AAAm | Invesco Premier Portfolio | 7,213 | 32 | 68 | 66 |
| AAAm | Dreyfus Cash Management | 5,984 | 1 | 1 | 97 |
| AAAm | BlackRock Liquidity Funds TempFund | 5,534 | 16 | 29 | 78 |
This report does not constitute a rating action.
| Primary Credit Analyst: | Marissa Zuccaro, Englewood + 1 (303) 721 4762; marissa.zuccaro@spglobal.com |
| Secondary Contact: | Michael Masih, New York + 1 (212) 438 1642; michael.masih@spglobal.com |
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