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

Index data as of Sept. 30, 2024
Index Seven-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 3.48 3.42 33 €230.8 61/39
S&P Global Ratings 'AAAm' sterling MMFs 4.91 4.93 40 £237.0 65/35
S&P Global Ratings 'AAAm' U.S. dollar MMFs 4.92 5.13 35 $657.1 73/27
MMF--Money market fund. WAM (R)--Weighted average maturity to reset. Source: S&P Global Ratings.

'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

Rated Europe-domiciled MMFs reported all-time highs as of Sept. 30, 2024, with assets under management (AUM) of €231 billion for euro-denominated funds and $657 billion for U.S. dollar-denominated funds. These are the highest AUM levels for these currencies we have recorded since 2006. Sterling-denominated funds recorded 2024 highs, with £237 billion in AUM, even though this is 10% below their record AUM level in October 2022.

Net assets in all three currencies increased over the 12 months ended Sept. 30, 2024, with euro-denominated funds up 61.3% (see chart 3), sterling-denominated funds up 14.7% (see chart 5), and U.S. dollar-denominated funds up 13.1% (see chart 7).

Since yield curves for money market maturities are inverted across all three currencies, short-dated and high-credit-quality MMFs that offer returns close to or above the respective central bank base rate remain attractive to investors. Yet this appeal may reduce as central banks cut interest rates in the third quarter. Notably, the Federal Reserve surprised the market by lowering interest rates by 50 basis points (bps). This led to a decline in U.S. dollar-denominated funds' average seven-day net yield by 34 bps (see table 1). The European Central Bank also decreased its deposit rate by 25 bps to 3.5% in early September, following a similar move in June. The Bank of England cut interest rates to 5% on Aug. 1, 2024--the first interest rate cut in over four years--with seven-day net yields declining by 17 bps in the third quarter.

The weighted average maturity (WAM) of MMFs declined by an average of five days in the third quarter. Euro-denominated funds' WAMs reduced to 33 days, from 40 days in June 2024, while the WAMs of sterling- and U.S. dollar-denominated funds decreased to 40 and 35 days, respectively, from 44 and 41 days in June 2024. Given the inverted yield curve and tight spreads, extending duration profiles does not generate any perceived value to the rate of return.

From a credit quality perspective, the French election in early July constituted a significant market event because French banks typically account for 20%-25% of euro-, U.S. dollar-, and sterling-denominated MMFs' exposure. Uncertainties about the election outcome led to a temporary reduction in some French bank investment tenors. We consider credit quality is a key factor in the stability of a fund's net asset value. For 'AAAm' rated euro-, U.S dollar-, and sterling-denominated funds, the credit quality of 'A-1+' rated portfolios remained consistent between the second and third quarter.

Macroeconomically, most large economies have expanded year to date, while inflation continued to soften in the third quarter. Upgrades outnumbered downgrades in the case of corporates, financial institutions, and sovereigns. Macro developments continue differ across the largest economies.

  • The U.S. continues to outperform, with GDP growth exceeding potential growth, despite relatively high policy and market rates.
  • Labor markets remain strong. Unemployment rates are close to multi-decade lows, despite a recent increase in some countries, most notably in the U.S. The softening of the U.S. labor market over the past few months represented a return to the pre-pandemic trend.
  • The eurozone economy responded in a more typical fashion to higher rates. A slow recovery has replaced the recession in the manufacturing sector, which was centered in Germany.

Table 1

'AAAm' principal stability funds--Seven-day net yield (%)
Index December 2023 March 2024 June 2024 September 2024
S&P Global Ratings 'AAAm' euro MMFs 3.81 3.86 3.66 3.48
S&P Global Ratings 'AAAm' sterling MMFs 5.23 5.16 5.12 4.91
S&P Global Ratings 'AAAm' U.S. dollar MMFs 5.35 5.28 5.26 4.92
MMF--Money market fund. Source: S&P Global Ratings.

Table 2

'AAAm' principal stability funds--Weighted average maturity (days)
Index December 2023 March 2024 June 2024 September 2024
S&P Global Ratings 'AAAm' euro MMFs 33 34 40 33
S&P Global Ratings 'AAAm' sterling MMFs 34 44 44 40
S&P Global Ratings 'AAAm' U.S. dollar MMFs 40 41 41 35
MMF--Money market fund. Source: S&P Global Ratings.

Table 3

'AAAm' principal stability funds--'A-1+' credit quality (%)
Index December 2023 March 2024 June 2024 September 2024
S&P Global Ratings 'AAAm' euro MMFs 60 60 63 61
S&P Global Ratings 'AAAm' sterling MMFs 64 64 66 65
S&P Global Ratings 'AAAm' U.S. dollar MMFs 75 75 74 73
MMF--Money market fund. Source: S&P Global Ratings.

Chart 1

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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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Table 4

'AAAm' EUR principal stability funds
Rating Fund Net assets (mil. €) --Portfolio maturity (days)-- 'A-1+' portfolio credit quality (%)
WAM (R) WAM (F)
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 65,889 41 69 58
AAAm BNP Paribas InstiCash EUR 1D LVNAV 29,022 39 76 65
AAAm JPMorgan Liquidity Funds - EUR Liquidity LVNAV Fund 25,802 42 60 64
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 23,612 19 69 60
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 23,177 33 44 55
AAAm MS Liquidity Funds - Euro Liquidity Fund 16,660 36 42 62
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 13,352 33 46 60
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 8,306 30 52 65
AAAm Fidelity Institutional Liquidity Fund PLC - The Euro Fund 5,933 44 56 53
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 3,929 47 70 70
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final. Source: S&P Global Ratings.

Table 5

'AAAm' GBP principal stability funds
Rating Fund Net assets (mil. £) --Portfolio maturity (days)-- 'A-1+' portfolio credit quality (%)
WAM (R) WAM (F)
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 39,711 51 85 69
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 33,808 49 82 59
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 23,229 36 51 76
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 20,737 46 74 54
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 16,968 42 66 55
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,134 43 68 71
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 14,010 37 46 63
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 13,493 33 68 65
AAAm Northern Trust Global Funds PLC - The Sterling Fund 10,111 46 64 66
AAAm Federated Hermes Short-Term Sterling Prime Fund 7,792 51 78 54
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final. Source: S&P Global Ratings.

Table 6

'AAAm' USD principal stability funds (EU-domiciled)
Rating Fund Net assets (mil. $) --Portfolio maturity (days)-- 'A-1+' portfolio credit quality (%)
WAM (R) WAM (F)
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 117,530 54 75 59
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 82,081 43 72 63
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 60,701 48 63 97
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 60,664 36 51 98
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 45,996 46 69 62
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 45,362 45 60 62
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 40,626 47 69 74
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 30,998 30 80 61
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 28,052 31 46 100
AAAm Northern Trust Global Funds PLC - The US Dollar Fund 23,244 33 60 62
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final. Source: S&P Global Ratings.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Celia Bouakicha, London +44 2071766741;
celia.bouakicha@spglobal.com
Secondary Contact:Andrew Paranthoiene, London + 44 20 7176 8416;
andrew.paranthoiene@spglobal.com

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