articles Ratings /ratings/en/research/articles/220125-u-s-domestic-aaam-money-market-fund-trends-fourth-quarter-2021-12251809 content esgSubNav
In This List
COMMENTS

U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2021)

COMMENTS

Navigating Regulatory Changes: Assessing New Regulations On Brazil's Financial Sector

Global Banks Outlook 2025

COMMENTS

Sustainability Insights: Five Takeaways From The IIF Annual Membership Meetings

COMMENTS

Credit FAQ: How Are North American Banks Using Significant Risk Transfers?


U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2021)

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.

 

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.

Chart 1

image

Chart 2

image

Chart 3

image

Chart 4

image

Chart 5

image

Chart 6

image

Chart 7

image

Chart 8

image

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

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.


 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in