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 | 1.10 | 0.82 | 27 | 2,860.3 | 98/2 |
S&P Global Ratings 'AAAm' principal stability funds--prime | 1.27 | 0.98 | 24 | 366.4 | 67/33 |
'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 PSFR 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' PSFR.
Market Comment
Growth in rated U.S. government and prime money market funds (MMFs) varied during the second quarter of 2022. Assets under management (AUM) in government funds declined steadily, resulting in a 4% drop overall. In line with our previous expectations, the decrease stemmed from outflows and, to a smaller extent, market depreciation. Prime fund net assets experienced a slight uptick compared with the previous quarter. A majority of the growth continued to be in local government investment pools.
Federal Reserve policy and key inflation data remained a key focus for fund managers, and these factors are affecting managers' outlook on rates. S&P Global economists revised up their expectation for the fed funds rate and now forecast it will reach 3.50%-3.75% by mid-2023 (see "Economic Outlook U.S. Q3 2022: The Summer Of Our Discontent," June 27, 2022). As the situation evolves, recession signals haven't disappeared. The yield curve inverted multiple times toward the end of the second quarter, based on two-year and 10-year notes.
Given the pace at which the Fed is raising rates, government and prime funds are realizing consistent yield growth. During the second quarter, the seven-day and 30-day net yields for government funds grew to 1.10% and 0.82%, respectively. The seven-day and 30-day net yields for prime funds jumped to 1.27% and 0.98%, respectively. Simultaneously, the spread between government and prime funds continued to widen, to approximately 16 basis points.
Table 1
'AAm' Principal Stability Funds Seven-Day Net Yield (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-21 | Sep-21 | Dec-21 | Mar-22 | Jun-22 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 0.01 | 0.01 | 0.02 | 0.15 | 1.10 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 0.01 | 0.04 | 0.04 | 0.26 | 1.27 | |||||||
MMF--Money market fund. |
Repo exposure in government funds ballooned to levels even higher than the first quarter, in part owing to persistently lower Treasury bill supply. During the quarter, the Fed's reverse repurchase program exceeded $2 trillion. Usage of agency and Treasury floating-rate notes in rated government funds was unchanged, with exposure relatively stagnant quarter over quarter.
The composition of prime funds was consistent overall with the previous quarter. The minor changes in portfolio exposures showed a slight bias for repo over bank deposits. Managers also added small amounts to their corporate bond exposure. There was modest growth in floating-rate exposure across corporate bonds, commercial paper, and deposits.
Managers of government and prime strategies were unwavering in their preference for staying short. Although predictions of rate hikes in upcoming months vary, the consensus suggested by funds' maturity profiles is to remain conservative until the Fed inches closer to the end of its tightening cycle. Weighted average maturities declined by five days for government funds and by three days for prime funds.
Table 2
'AAAm' Principal Stability Funds Weighted Average Maturity (In Days) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-21 | Sep-21 | Dec-21 | Mar-22 | Jun-22 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 37 | 35 | 36 | 32 | 27 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 46 | 43 | 41 | 31 | 24 | |||||||
MMF--Money market funds. |
Effective 'A-1+' credit quality in government funds was stable quarter over quarter. Effective 'A-1+' credit quality in prime funds increased to 67% from 64%.
Table 3
'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-21 | Sep-21 | Dec-21 | Mar-22 | Jun-22 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 97 | 97 | 97 | 98 | 98 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 66 | 65 | 64 | 64 | 67 | |||||||
MMF--Money market fund. |
With rates rising faster than many previous instances of Fed tightening, we've observed greater widening of the distribution of net asset values (NAV) per share for funds. A few rated funds dipped to 0.9985 or below toward the end of the quarter but all remained within our metrics for 'AAAm' PSFRs during the period. The funds most affected by price volatility related to the Fed's rate policy were government strategies via their exposure to longer-dated Treasury notes. (For more, see "Rapidly Rising Rates Are Putting Some Money Market Funds At Risk," July 22, 2022.)
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Top 10 U.S.-Domiciled 'AAAm' MMFs--Government And Prime--By Assets--Key Statistics
Table 4
S&P Global Ratings 'AAAm' U.S. Dollar Principal Stability Funds--Government | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
PSFR | Fund name | Net assets (mil. $) | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan U.S. Government Money Market Fund | 259,939 | 44 | 102 | 97 | |||||||
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 215,458 | 13 | 99 | 98 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 179,506 | 16 | 62 | 95 | |||||||
AAAm | BlackRock Liquidity Funds FedFund | 170,607 | 37 | 69 | 92 | |||||||
AAAm | Federated Government Obligations Fund | 137,780 | 16 | 68 | 97 | |||||||
AAAm | Fidelity Investments Money Market Government Portfolio | 119,889 | 22 | 49 | 100 | |||||||
AAAm | Dreyfus Government Cash Management | 117,976 | 15 | 67 | 94 | |||||||
AAAm | BlackRock Liquidity Funds T-Fund | 115,924 | 32 | 62 | 95 | |||||||
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 111,684 | 51 | 84 | 100 | |||||||
AAAm | Allspring Government Money Market Fund | 105,681 | 33 | 103 | 96 | |||||||
PSFR--Principal stability fund rating. WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
Table 5
S&P Global Ratings 'AAAm' U.S. Dollar Principal Stability Fund--Prime | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
PSFR | Fund name | Net assets (mil. $) | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan Prime Money Market Fund | 55,330 | 22 | 55 | 57 | |||||||
AAAm | Federated Prime Cash Obligations Fund | 19,860 | 21 | 54 | 69 | |||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 18,701 | 33 | 69 | 73 | |||||||
AAAm | Florida PRIME | 18,700 | 28 | 71 | 55 | |||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 17,500 | 32 | 54 | 72 | |||||||
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 15,987 | 32 | 71 | 60 | |||||||
AAAm | Federated Institutional Prime Obligations | 14,089 | 23 | 65 | 67 | |||||||
AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 13,422 | 33 | 78 | 62 | |||||||
AAAm | State Street Money Market Portfolio | 12,304 | 17 | 62 | 53 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 12,172 | 12 | 54 | 72 | |||||||
PSFR--Principal stability fund rating. WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
This report does not constitute a rating action.
Primary Credit Analysts: | Marissa Zuccaro, Centennial + 1 (303) 721 4762; marissa.zuccaro@spglobal.com |
Joseph Zimbalist, New York +1 8045231867; joseph.zimbalist@spglobal.com | |
Secondary Contact: | Andrew Paranthoiene, London + 44 20 7176 8416; andrew.paranthoiene@spglobal.com |
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