'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 first quarter of 2023 was highly eventful for MMFs. In light of the pockets of stress in the U.S. banking sector, many investors sought to diversify their liquidity and subsequently moved assets into MMFs. Rated government MMF assets increased 8%, reaching $3.1 trillion, a high point since S&P Global has been rating MMFs. Prime MMF assets increased 10%, ending the first quarter at $460 billion. As the dust settles following the banking sector upheaval, we estimate that a portion of these inflows may move back to banks, however we expect some degree of stickiness to these MMF assets given the lag of bank deposit rates.
Yields saw sustained growth throughout the first quarter. The seven-day and 30-day net yields for government funds increased to 4.42% and 4.30%, respectively, while the seven-day and 30-day net yield for prime funds reached 4.58% and 4.46%, respectively. This trend may continue as the Federal Reserve (Fed) seeks to achieve its policy goals, but we anticipate the rapid interest rate trajectory to slow with the expected peaking of rates.
The Fed has already slowed the pace of rate hikes by only raising the federal funds rate 25 basis points (bps) in February and March, rather than the 50 bps to 75 bps we commonly saw last year. The federal funds rate is now 4.75%-5.00%, and S&P Global economists still expect it to peak at 5.00%-5.15% in May 2023 (see "Economic Outlook U.S. Q2 2023: Still Resilient, Downside Risks Rise," March 27, 2023). Market participants are eager for greater clarity on the timing of a potential recession and Fed rate cuts, with some predicting cuts as early as this year while S&P Global economists expect the first rate cut in mid-2024.
Table 1
'AAAm' principal stability funds seven-day net yield (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Mar. 2022 | Jun. 2022 | Sep. 2022 | Dec. 2022 | Mar. 2023 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 0.15 | 1.1 | 2.64 | 3.88 | 4.42 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 0.26 | 1.27 | 2.75 | 4.12 | 4.58 | |||||||
MMF--Money market fund. |
The Fed's reverse repo program (RRP) remained a popular tool for government funds both because of the relatively high offering rate and inflows into MMFs. However, repo exposure in government funds decreased quarter over quarter for the first time in more than a year. The decline coincided with an increase in agency exposure after Federal Home Loan Bank (FHLB) issuance spiked in response to banks seeking additional funding in March. Average agency exposure in government funds increased to 12% from 8% over the quarter. Allocation to Treasury bills increased minimally while average exposure to Treasury notes decreased to below 2%. Persistent limited bill supply and lingering concerns over the U.S. debt ceiling were at least partial factors.
Prime fund managers deployed recent inflows into overnight repo, including the Fed's RRP. The choice to use repo may reflect these managers intentionally reinforcing liquidity given the uncertain longevity of recent inflows. Prime funds also purchased commercial deposits and participated in the higher FHLB issuance, buying small amounts of agency bonds. Weightings in bank deposits, corporate bonds, and asset-backed commercial paper were lower.
Managers of government and prime strategies generally maintained short maturity profiles relative to historical records but extended them slightly during the quarter, citing opportunities further along the short end of the curve. Weighted average maturities (WAMs) for government funds increased by one day. On the prime side, WAMs increased by four days. Signs that the Fed is slowing rate hikes and possibly pausing altogether in the near future may encourage managers to further extend maturities.
Table 2
'AAAm' principal stability funds weighted average maturity (in days) | ||||||||||||
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Index | Mar. 2022 | Jun. 2022 | Sep. 2022 | Dec. 2022 | Mar. 2023 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 32 | 27 | 19 | 15 | 16 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 31 | 24 | 19 | 22 | 26 | |||||||
MMF--Money market funds. |
Effective 'A-1+' credit quality was stable for government and prime funds over the quarter, reflecting an emphasis on the high underlying credit quality of investments to aid principal stability.
Table 3
'AAAm' principal stability funds 'A-1+' credit quality (%) | ||||||||||||
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Index | Mar. 2022 | Jun. 2022 | Sep. 2022 | Dec. 2022 | Mar. 2023 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 98 | 98 | 98 | 97 | 97 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 64 | 67 | 70 | 66 | 67 | |||||||
MMF--Money market fund. |
The distribution of net asset values (NAV per share) for funds continued to narrow, with several funds' NAVs migrating above 0.9995. At quarter-end, nearly all fund NAVs were above 0.9995.
Despite their generally majority holdings in banking entities, we observed no significant negative knock-on effects from concerns over the banking sector in rated MMFs, and all rated funds remained within our metrics for 'AAAm' PSFRs. At this time, S&P Global bank analysts view the overall banking sector as resilient, especially considering the Fed's robust tools, including the new bank term funding program (see "The Fed’s Plan for U.S. Banks Should Reduce Contagion Risk," March 13, 2023). Looking ahead, attention will remain on banking sector health and highly anticipated U.S. MMF reforms, which are yet to be finalized.
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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 | ||||||||||||
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--Portfolio maturity (days)-- | ||||||||||||
PSFR | Fund name | Net assets | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 266,792 | 21 | 94 | 97 | |||||||
AAAm | JPMorgan U.S. Government Money Market Fund | 226,545 | 10 | 59 | 92 | |||||||
AAAm | Fidelity Investments Money Market Government Portfolio | 159,771 | 7 | 55 | 99 | |||||||
AAAm | Federated Government Obligations Fund | 149,975 | 21 | 84 | 96 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 146,194 | 16 | 64 | 95 | |||||||
AAAm | BlackRock Liquidity Funds FedFund | 136,543 | 22 | 39 | 99 | |||||||
AAAm | Dreyfus Government Cash Management | 128,259 | 10 | 65 | 95 | |||||||
AAAm | JPMorgan 100% U.S. Treasury Securities Money Market Fund | 118,542 | 38 | 69 | 100 | |||||||
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 102,299 | 28 | 62 | 100 | |||||||
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Treasury Instruments Fund | 94,831 | 41 | 100 | 100 | |||||||
PSFR--Prime stability fund rating. WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
Table 5
S&P Global 'AAAm' USD principal stability funds--prime | ||||||||||||
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--Portfolio maturity (days)-- | ||||||||||||
PSFR | Fund name | Net assets | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan Prime Money Market Fund | 67,826 | 22 | 50 | 64 | |||||||
AAAm | Federated Prime Cash Obligations Fund | 43,344 | 20 | 67 | 65 | |||||||
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 22,905 | 35 | 67 | 62 | |||||||
AAAm | Florida PRIME | 22,436 | 23 | 79 | 61 | |||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 21,841 | 37 | 66 | 62 | |||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 19,201 | 38 | 88 | 82 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 17,113 | 20 | 36 | 75 | |||||||
AAAm | Western Asset Institutional Liquid Reserves | 16,023 | 26 | 70 | 53 | |||||||
AAAm | Federated Institutional Prime Obligations | 15,022 | 21 | 66 | 62 | |||||||
AAAm | State Street Money Market Portfolio | 12,989 | 12 | 42 | 71 | |||||||
PSFR--Prime 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 Analyst: | Marissa Zuccaro, Englewood + 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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