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' principal stability funds--government | 0.02 | 0.01 | 36 | 3,112.6 | 97/3 | |||||||
S&P Global Ratings 'AAAm' principal stability funds--prime | 0.04 | 0.04 | 41 | 365.2 | 64/36 | |||||||
WAM (R)--Weighted average maturity to reset. |
'AAAm' Money Market Fund Indicators
The S&P Global Ratings 'AAAm' money market fund (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 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 constraints of a 'AAAm' principal stability fund rating.
Market Comment
The year ended on a generally positive note for rated U.S. MMFs in 2021. Government fund net assets continued to grow during the fourth quarter, ending at $3.11 trillion. Assets in government funds increased 21% for the year. Prime funds struggled to grow assets in the fourth quarter and experienced net outflows for the year, settling at $365 billion. The minimal spread between prime funds and government funds certainly was a contributing factor. The high probability that the Federal Reserve will hike rates multiples times in 2022 may shift some assets back into prime. However, there will be further challenges down the road with the looming prospect of potential regulatory reforms, as at the end of 2021 the SEC officially voted on proposed amendments to rule 2a-7 of the Investment Company Act of 1940, under which MMFs are registered. The proposals include increasing the minimum daily and weekly liquidity requirements to 25% and 50%, respectively, removing the requirement for MMFs to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds, and requiring certain MMFs to implement swing pricing so redeeming investors bear the liquidity costs of their redemptions. There may be adjustments based on feedback from industry participants during the 60-day comment period.
The asset composition of government funds shifted heavily toward repo. Repo exposure ended the quarter at its highest level for the year with support from the Fed's Reverse Repurchase Program. Fund managers' use of repo was driven by the lack of Treasury bill and agency note supply, which was exacerbated by the significant inflows into government funds. Consequently, usage of the Fed's reverse repo facility hit all-time highs during the second half of 2021.
Prime funds experienced only marginal changes in asset composition over the quarter. Early in the year, managers of prime funds began reducing Treasury exposure, reflecting a partial return to pre-pandemic strategies and the declining Treasury bill supply. Fund managers subsequently allocated more cash into repo, bank deposits, and municipal variable rate securities.
Fund yields remained suppressed over 2021, primarily due to the Fed's tight monetary policy and banks being inundated with deposits. This prompted fund managers to implement fee waivers for extended periods, but with the increasing likelihood of interest rate rises in 2022, we will likely see a slow reduction in fee waivers. At the close of the year, the seven-day and 30-day net yields for government funds were 0.02% and 0.01%, respectively, while the seven-day and 30-day net yield for prime funds were both 0.04%.
Table 1
'AAAm' Principal Stability Funds Seven-Day Net Yield (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | 20-Dec | 21-Mar | 21-Jun | 21-Sep | 21-Dec | |||||||
S&P Global Ratings 'AAAm' government MMFs | 0.02 | 0.02 | 0.01 | 0.01 | 0.02 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 0.02 | 0.02 | 0.01 | 0.04 | 0.04 | |||||||
MMF--Money market fund. |
Managers continued to keep their funds short-dated, driven by their liquidity targets and the lack of incentive to extend until possible Fed rate hikes. Government fund managers modestly extended the weighted average maturity (WAM) by just one day compared to the previous quarter while prime funds reduced WAM by two days.
With the end of LIBOR on the horizon for overnight, one-month, three-month, six-month, and 12-month USD rates by June 2023, alternative rates may be of greater focus in 2022, especially when the market is seeking credit sensitive or term-focused rates. In 2021, there was some early enthusiasm for alternatives other than the Secured Overnight Financing Rate (SOFR), but that has faded in recent months. For example, the Bloomberg Short Term Bank Yield Index (BSBY) was introduced but didn't see as much activity as some had hoped. In general, there has been lower usage of floating-rate securities, as managers gravitated toward fixed instruments. With rates expected to rise, purchases of floaters may increase and possibly reveal a preferred benchmark in a post-LIBOR world.
Table 2
'AAAm' Principal Stability Funds Weighted Average Maturity (In Days) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | 20-Dec | 21-Mar | 21-Jun | 21-Sep | 21-Dec | |||||||
S&P Global Ratings 'AAAm' government MMFs | 43 | 42 | 37 | 35 | 36 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 44 | 46 | 46 | 43 | 41 | |||||||
MMF--Money market funds. |
Effective 'A-1+' credit quality remains very strong for U.S. rated MMFs. Government funds maintained heavy weighting in effective 'A-1+' exposure, at 97%. Prime funds decreased effective 'A-1+' exposure very slightly to 64% during the quarter. For the year overall, we observed prime funds move effective 'A-1+' exposure to pre-pandemic levels. Several government funds continued to hold small positions in 'A-2' overnight collateralized repo.
Table 3
'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | 20-Dec | 21-Mar | 21-Jun | 21-Sep | 21-Dec | |||||||
S&P Global Ratings 'AAAm' government MMFs | 95 | 96 | 97 | 97 | 97 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 68 | 65 | 66 | 65 | 64 | |||||||
MMF--Money market fund. |
Net asset values (NAV per share) for rated funds stayed in a 24 basis point range, between 0.9995 and1.0019 per share.
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Top 10 U.S.-Domiciled 'AAAm' MMFs--Government And Prime--By Assets--Key Statistics
Table 4
S&P Global 'AAAm' USD Principal Stability Funds–Government | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
Rating | Fund Name | Net assets (mil. $) | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan U.S. Government Money Market Fund | 258,928 | 31 | 44 | 91 | |||||||
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 223,778 | 9 | 71 | 90 | |||||||
AAAm | BlackRock Liquidity Funds FedFund | 180,808 | 31 | 70 | 92 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 155,630 | 14 | 25 | 98 | |||||||
AAAm | Federated Government Obligations Fund | 142,241 | 36 | 93 | 97 | |||||||
AAAm | Allspring Government Money Market Fund | 139,858 | 42 | 99 | 99 | |||||||
AAAm | Fidelity Investments Money Market Government Portfolio | 132,736 | 38 | 81 | 98 | |||||||
AAAm | Dreyfus Government Cash Management | 132,460 | 25 | 81 | 100 | |||||||
AAAm | BlackRock Liquidity Funds T-Fund | 129,499 | 29 | 68 | 95 | |||||||
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 114,302 | 51 | 85 | 100 | |||||||
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
Table 5
S&P Global 'AAAm' USD Principal Stability Funds--Prime | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
Rating | Fund name | Net assets (mil. $) | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan Prime Money Market Fund | 69,854 | 46 | 60 | 58 | |||||||
AAAm | Florida PRIME | 20,306 | 51 | 71 | 59 | |||||||
AAAm | Federated Prime Cash Obligations Fund | 18,016 | 45 | 64 | 57 | |||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 14,960 | 50 | 70 | 64 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 14,731 | 27 | 71 | 62 | |||||||
AAAm | State Street Money Market Portfolio | 12,935 | 36 | 54 | 59 | |||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 12,432 | 34 | 61 | 76 | |||||||
AAAm | Federated Institutional Prime Obligations | 12,236 | 46 | 61 | 57 | |||||||
AAAm | Texas Cooperative Liquid Assets Securities System | 12,107 | 46 | 70 | 60 | |||||||
AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 10,879 | 46 | 73 | 64 | |||||||
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
This report does not constitute a rating action.
Primary Credit Analysts: | Joseph Zimbalist, New York; joseph.zimbalist@spglobal.com |
Marissa Zuccaro, Centennial + 1 (303) 721 4762; marissa.zuccaro@spglobal.com | |
Secondary Contact: | Andrew Paranthoiene, London + 44 20 7176 8416; andrew.paranthoiene@spglobal.com |
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