(Editor's Note: For insights on rated local government investment pools, see " 'AAAm' Local Government Investment Pool Trends," published Nov. 4, 2024.)
Key Takeaways
- Rated money market funds (MMFs) sustained asset growth momentum in the third quarter.
- Managers kept the maturity profiles of rated government and prime MMFs short.
- The number of rated prime funds decreased prior to changes to rule 2a-7 being implemented.
'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 (PSFR) 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 PSFR criteria. An individual fund's metrics below 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' PSFR constraints.
Money Market Fund Flows Continue
Rated MMF assets grew 7% over the quarter, with flows primarily into rated government funds. However, total assets in rated prime MMFs decreased roughly 5% from the prior quarter. This unique decline was mainly a function of fund sponsors consolidating or eliminating their institutional prime offerings. Among the sponsors S&P Global Ratings covers, 10 prime MMFs were liquidated or merged into an existing government strategy. With adjustments to consider only the remaining rated prime funds quarter over quarter, assets increased 2%. Prime fund closures were one of the driving factors of flows into rated government funds. Additionally, MMFs, whether government or prime, continued to provide a higher yield than other liquidity options, such as stand-alone treasury bills and bank deposits, to house short-term cash. We do not expect further material effects from the latest 2a-7 SEC reforms by the Securities and Exchange Commission now that they are in effect.
Chart 1
Seven-day net yields decreased for rated government and prime MMFs following the start of the Federal Reserve (Fed)'s interest-rate-cutting cycle. Market participants had mixed opinions on whether the first cut would be 25 basis points (bps) or 50 bps. Ultimately, the Fed voted on a 50-bps cut in September, while S&P Global Ratings economists expect further 25-bps increments and the terminal rate to settle at 3.00%-3.25% by year-end 2025 (see "Economic Research: Global Economic Outlook Q4 2024: So Far, So Smooth--Can It Last?," published Sept. 26, 2024, on RatingsDirect). Seven-day net yields for rated government and prime MMFs dropped 33 bps and 34 bps, respectively.
Table 1
| 'AAAm' principal stability funds seven-day net yield (%) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Dec-24 | Mar-24 | Jun-24 | Sep-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 5.22 | 5.17 | 5.17 | 4.84 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 5.43 | 5.36 | 5.30 | 4.96 | ||||||
| MMF--Money market fund. | ||||||||||
Chart 2
Chart 3
Credit In Context: Exposures In Money Market Funds
Government portfolio composition
Average repurchase agreement (repo) exposure in rated government MMFs decreased slightly over the quarter, to 41% from 43%. Usage of the Fed's reverse repo program (RRP) remained muted relative to prior quarters, with a minor uptick for quarter-end liquidity. Managers opted to purchase more treasury bills, given higher supply, and U.S. agency notes. They also added to their floating-rate exposure, especially agency floaters, citing relative value in this part of the market.
Chart 4
Chart 5
Prime MMF portfolio composition
Exposure to treasury bills and certificates of deposits (CDs) in rated prime MMFs decreased. Managers re-allocated to commercial paper and asset-backed commercial paper. Corporate bond exposure also increased to the highest level so far in 2024, at just over 4% on average.
Chart 6
Chart 7
There was an uptick in effective 'A-1+' credit quality in rated prime funds, due to positions rolling into overnight securities for fund closures. However, effective 'A-1+' credit quality was extremely stable in rated government and prime MMFs quarter over quarter.
Table 2
| 'AAAm' principal stability funds 'A-1+' credit quality (%) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Dec-24 | Mar-24 | Jun-24 | Sep-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 96 | 97 | 96 | 96 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 62 | 66 | 68 | 67 | ||||||
| MMF--Money market fund. | ||||||||||
Chart 8
MMF Managers Stay Short
Managers of rated government and prime MMFs kept maturity profiles short, citing more value on shorter parts of the yield curve. Average weighted-average maturities (WAMs) decreased by roughly five days versus the second quarter for rated government funds. Rated prime fund WAMs saw an upward spike early in the quarter due to certain funds closing and rolling into overnight securities. After these closures, prime fund WAMs normalized. We anticipate overall maturity profiles will begin to increase based on the Fed rate path and dependent on yield curve normalization.
Table 3
| 'AAAm' principal stability funds weighted average maturity (in days) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Index | Dec-24 | Mar-24 | Jun-24 | Sep-24 | ||||||
| S&P Global Ratings 'AAAm' government MMFs | 38 | 40 | 37 | 32 | ||||||
| S&P Global Ratings 'AAAm' prime MMFs | 40 | 31 | 24 | 31 | ||||||
| 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 most of the movement being on the upside. At quarter-end, the range for rated fund NAVs was 0.9995-1.0011.
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 | 265,877 | 31 | 95 | 91 |
| AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 242,012 | 38 | 105 | 82 |
| AAAm | Fidelity Investments Money Market Government Portfolio | 233,523 | 21 | 77 | 95 |
| AAAm | JPMorgan 100% U.S. Treasury Securities Money Market Fund | 206,818 | 42 | 81 | 100 |
| AAAm | State Street Institutional U.S. Government Money Market Portfolio | 180,528 | 34 | 77 | 94 |
| AAAm | Federated Hermes Government Obligations Fund | 172,165 | 28 | 92 | 92 |
| AAAm | BlackRock Liquidity Funds FedFund | 171,530 | 30 | 81 | 98 |
| AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 144,302 | 41 | 101 | 98 |
| AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 132,194 | 38 | 79 | 100 |
| AAAm | Dreyfus Government Cash Management | 132,145 | 22 | 78 | 92 |
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 | 86,725 | 32 | 45 | 66 |
| AAAm | Federated Hermes Prime Cash Obligations Fund | 82,335 | 29 | 61 | 67 |
| AAAm | BlackRock Liquidity Funds TempCash | 20,680 | 35 | 50 | 60 |
| AAAm | Federated Hermes Institutional Prime Obligations | 16,874 | 28 | 56 | 68 |
| AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 14,622 | 36 | 43 | 76 |
| AAAm | State Street Money Market Portfolio | 12,102 | 19 | 33 | 80 |
| AAAm | Invesco Premier Portfolio | 7,895 | 21 | 67 | 73 |
| AAAm | Western Asset Institutional Liquid Reserves | 7,842 | 22 | 64 | 61 |
| AAAm | Western Asset Institutional Cash Reserves Ltd. | 5,597 | 37 | 68 | 63 |
| AAAm | Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio | 2,418 | 43 | 55 | 75 |
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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