Index | 7-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 - prime | 2.64 | 2.25 | 19 | 2,853.80 | 98/2 | |||||||
S&P Global Ratings 'AAAm' principal stability funds – government | 2.75 | 2.37 | 19 | 382.70 | 70/30 | |||||||
WAM R--Weighted average maturity to reset |
Market Comment
Growth in rated U.S. government and prime money market funds (MMFs) were mixed during the third quarter of 2022. Assets under management (AUM) in government fund strategies saw a de-minimis decline, resulting in a 0.23% quarter-over-quarter decrease. While prime fund net assets had a modest increase from the previous quarter of 4.46%, this, driven by an increase in prime institutional funds, make money funds more compelling than other asset classes in a rising rate environment.
Federal Reserve policy and key inflation data continue to be a key focus for fund managers. S&P Global economists revised their expectations upward for the Fed funds rate, which is now forecast to reach 4.00%-4.25% by early-2023. (see "Economic Outlook U.S. Q4 2022: Teeter Totter," Sept. 26, 2022). As the U.S. economy transitions through 2022 and into 2023, fund managers will keep close watch on U.S. GDP figures to help monitor the risks of recession and whether or not the Fed can navigate a soft landing.
Over the past six months the Fed raised the federal funds rate target range from 0.25%–0.50% to 3.00%–3.25%, an increase of 275 basis points (bps). September's rate hike of 75 bps was the third straight supersized rate hike by the Fed. This is one of the fastest policy adjustments since the early 1980s. Government and prime funds are benefiting from higher-yielding assets. During the third quarter, the seven-day and 30-day net yields for government funds grew to 2.64% and 2.25%, respectively. The seven-day and 30-day net yield for prime funds jumped to 2.75% and 2.378%, respectively. The spread between government and prime funds continued to be in a range of 10bps–15 bps.
Table 1
'AAAm' Principal Stability Funds Seven-Day Net Yield (%) | |||||
---|---|---|---|---|---|
Index | Sept-21 | Dec-21 | Mar-22 | Jun-22 | Sep-22 |
S&P Global Ratings 'AAAm' prime MMFs | 0.01 | 0.02 | 0.15 | 1.10 | 2.64 |
S&P Global Ratings 'AAAm' government MMFs | 0.04 | 0.04 | 0.26 | 1.27 | 2.75 |
Repo exposure in government funds continues to see a greater allocation by fund managers. During the quarter, the Fed's reverse repurchase facility exceeded the prior quarter month end at $2.4 trillion. Government funds also had a modest increase in agency and Treasury floaters, while Treasury bills had lower allocation in the funds, primarily because of lower supply.
Generally, the composition of prime funds was consistent with the previous quarter. There was slightly greater allocation to repo, offset with a lower allocation to certificates of deposits and bank deposits. Managers also added modestly to their corporate bond exposure.
Managers of government and prime strategies continue to remain short. Although predictions on where the terminal rate will end up and the exact level of rate hikes vary, the funds' maturity profiles remain conservative until they are convinced that the Fed is closer to the end of its tightening cycle. Weighted average maturities moved downward by eight days for government funds and five days for prime funds.
Table 2
'AAAm' Principal Stability Funds Weighted Average Maturity (In Days) | |||||
---|---|---|---|---|---|
Index | Sep-21 | Dec-21 | Mar-22 | Jun-22 | Sep-22 |
S&P Global Ratings 'AAAm' prime MMFs | 35 | 36 | 32 | 27 | 19 |
S&P Global Ratings 'AAAm' government MMFs | 43 | 41 | 31 | 24 | 19 |
Table 3
'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%) | |||||
---|---|---|---|---|---|
Index | Sep-21 | Dec-21 | Mar-22 | Jun-22 | Sep-22 |
S&P Global Ratings 'AAAm' prime MMFs | 97 | 97 | 98 | 98 | 98 |
S&P Global Ratings 'AAAm' government MMFs | 65 | 64 | 64 | 67 | 70 |
Despite the rapid rise in rates by the Fed's tightening by 150 bps during the quarter, the distribution of net asset values (NAV per share) for funds has been narrower, with only one rated fund pricing below 0.9985. As a result, we increased our surveillance to daily for this fund. It has remained within all of our metrics for 'AAAm' principal stability fund ratings (PSFRs) during the observed period. Funds appear to be mitigating the price volatility by remaining shorter in duration and higher in credit quality.
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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) | |||||
Rating | Fund name | Net assets (Mil. $) | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) |
AAAm | JPMorgan U.S. Government Money Market Fund | 232,058 | 18 | 71 | 97 |
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 227,864 | 10 | 77 | 98 |
AAAm | BlackRock Liquidity Funds FedFund | 154,606 | 20 | 44 | 90 |
AAAm | Federated Government Obligations Fund | 142,722 | 13 | 73 | 98 |
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 142,057 | 11 | 63 | 92 |
AAAm | Fidelity Investments Money Market Government Portfolio | 118,126 | 14 | 53 | 99 |
AAAm | State Street Institutional U.S. Government Money Market Portfolio | 116,651 | 16 | 55 | 99 |
AAAm | Dreyfus Government Cash Management | 112,528 | 8 | 63 | 93 |
AAAm | Allspring Government Money Market Fund | 108,901 | 15 | 64 | 95 |
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 103,851 | 43 | 75 | 100 |
Table 5
S&P Global Ratings 'AAAm' U.S. Dollar Prinicpal Stability Fund--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 | 55,811 | 11 | 53 | 64 |
AAAm | Federated Prime Cash Obligations Fund | 23,950 | 13 | 71 | 70 |
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 18,705 | 29 | 55 | 77 |
AAAm | Florida PRIME | 17,584 | 20 | 71 | 61 |
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 15,827 | 31 | 82 | 61 |
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 15,719 | 23 | 56 | 82 |
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 15,141 | 11 | 38 | 62 |
AAAm | Federated Institutional Prime Obligations | 14,328 | 15 | 75 | 70 |
AAAm | Western Asset Insitutional Liquid Reserves | 13,622 | 15 | 37 | 87 |
AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 13,006 | 27 | 84 | 66 |
This report does not constitute a rating action.
Primary Credit Analysts: | Joseph Zimbalist, New York +1 8045231867; 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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