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European 'AAAm' Money Market Fund Trends (Fourth-Quarter 2021)

Index Data
Index name 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 (0.76) (0.72) 42 € 126.80 64/36
S&P Global Ratings ‘AAAm’ sterling MMFs 0.02 0.02 45 £238.30 61/39
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 0.03 0.03 39 $506.1 76/24
WAM (R)--Weighted average maturity to reset.

 

Market Comment

European-domiciled MMFs rated by S&P Global Ratings closed out 2021 strong, as all three currencies had inflows in the fourth quarter. Euro MMFs saw the largest quarter-on-quarter growth, rising 18%, followed by an 8% increase in pounds sterling, and a 3% increase in U.S. dollar MMFs. Over the year, euro-denominated MMFs increased 1% from December 2020 to €126.8 billion, the highest level since July 2012, which ominously was the month the European Central Bank lowered its deposit rate to 0.00%. Net assets for U.S dollar MMFs also saw year-over-year growth of 4.7% to $506.1 billion, whereas sterling declined 5.3% to £238.3 billion since peaking at £252 billion in December 2020.

While seven-day net yield averages have remained relatively flat throughout 2021, the fourth quarter displayed mixed results across the three currencies. U.S. MMFs remained consistent, averaging a 0.03% yield, while euro MMFs trended lower, to -0.76%. The seven-day net yield average for 'AAAm' sterling principal stability funds increased to 0.02% in December, the first time in a positive yield environment for S&P Global-rated funds since September 2020. The increase in sterling seven-day yield averages can be attributed to rising market rates leading into the Bank of England's (BOE's) decision to increase the bank rate by 15 basis points to 0.25% after the Monetary Policy Committee meeting on Dec. 15, 2021, with an increasing likelihood of more sterling rate rises throughout 2022.

Table 1

'AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index December 2020 March 2021 June 2021 September 2021 December 2021
S&P Global Ratings ‘AAAm’ euro MMFs (0.61) (0.65) (0.64) (0.65) (0.76)
S&P Global Ratings ‘AAAm’ sterling MMFs (0.01) (0.01) 0.00 0.00 0.02
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 0.03 0.03 0.03 0.02 0.03

In the fourth quarter, weighted-average maturities (WAMs) declined across the rated euro, sterling, and U.S dollar MMFs. The U.S Federal Reserve (Fed) is expected to raise interest rates multiple times in 2022 to combat high inflation, following the announcement in November 2021 that it would taper its bond buying program. With additional rate hikes on the horizon, WAMs are likely to continue their downward trend as fund managers look to take advantage of the potential lift-off throughout 2022.

Table 2

'AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index December 2020 March 2021 June 2021 September 2021 December 2021
S&P Global Ratings ‘AAAm’ euro MMFs 46 45 45 45 42
S&P Global Ratings ‘AAAm’ sterling MMFs 45 48 46 48 45
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 43 43 42 42 39

The share of 'A-1+' credit quality in rated MMFs increased slightly in the fourth quarter for U.S. dollar and euro MMFs, at 76% and 64% respectively, while slightly lower for sterling MMFs, averaging 61%. Euro and sterling MMFs continue to contain a larger proportion of credit securities, such as bonds, certificates of deposits, commercial paper, and floating-rate notes. Credit allocation (non-government) accounts for over 64% in sterling and euro MMFs, as opposed to just over 41% in U.S. dollar MMFs, which explains the higher credit quality of U.S. dollar MMFs. Throughout the year, 'A-1+' credit quality has remained consistent, and MMFs in all three currencies are still well above the minimum 50% required for a 'AAAm' principal stability fund rating.

Table 3

'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index December 2020 March 2021 June 2021 September 2021 December 2021
S&P Global Ratings ‘AAAm’ euro MMFs 67 64 66 63 64
S&P Global Ratings ‘AAAm’ sterling MMFs 64 62 65 63 61
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 76 74 73 75 76

Since the well-documented market turmoil of March 2020, S&P Global-rated Europe-domiciled MMFs have all seen significant rises in net asset levels with:

  • euro-denominated funds up 46%,
  • sterling-denominated funds up 10%, and
  • U.S. dollar-denominated funds up 22%.

This demonstrates the continued investor demand for cash management products, such as investing in rated money market funds despite the unprecedented low interest rates across the three currencies. With multiple rate hikes on the horizon for both the Fed and BOE, and given their high credit quality investments, diversification, and liquidity, MMFs should remain an important short-term investment vehicle for investors to place their cash. In the past 12 months, we affirmed all our 'AAAm' ratings on MMFs.

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

Table 4

'AAAm' Euro Principal Stability Funds
--Portfolio maturity (days)--
Rating Fund Name Net assets (mil. €) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 41,207 36 36 62
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 16,061 29 29 65
AAAm BNP Paribas Insticash EUR 1D Short Term VNAV 13,925 46 70 60
AAAm MS Liquidity Funds - Euro Liquidity Fund 11,362 48 48 65
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 10,224 54 55 67
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 8,664 48 63 65
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 6,437 43 43 61
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 5,259 47 47 61
AAAm Insight Liquidity Funds PLC - ILF EUR Cash Fund 4,700 42 51 80
AAAm Northern Trust Global Funds PLC - The Euro Liquidity Fund 2,166 42 45 62
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

Table 5

'AAAm' Sterling Principal Stability Funds
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. £) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 41,984 45 51 56
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 38,282 49 56 63
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 26,476 48 56 66
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 25,739 49 77 53
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 19,173 52 54 63
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,861 47 71 71
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 12,278 39 39 60
AAAm Northern Trust Global Funds PLC - The Sterling Fund 9,562 48 54 61
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Sterling Fund 8,847 60 78 61
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 8,551 45 68 64
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

Table 6

'AAAm' U.S. Dollar Principal Stability Funds (EU-Domiciled)
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. $) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 107,077 44 56 57
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 60,311 44 57 66
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 55,713 49 49 93
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 53,158 46 63 98
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 33,617 39 57 70
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 29,351 46 49 98
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 17,393 33 66 68
AAAm BNY Mellon Liquidity Funds, PLC - BNY Mellon U.S. Treasury Fund 17,137 51 53 95
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 17,060 36 54 64
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 16,267 43 45 100
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

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, Centennial 1-303-721-4181;
michael.mango1@spglobal.com

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