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European 'AAAm' Money Market Fund Trends (Second-Quarter 2023)

Index Data
Index Name 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' euro MMFs 3.41 3.18 27 €140.2 59/41
S&P Global Ratings 'AAAm' sterling MMFs 4.41 4.23 33 £217.6 64/36
S&P Global Ratings 'AAAm' U.S. dollar MMFs 5.12 5.06 26 $537.7 74/26
WAM (R)--Weighted average maturity to reset.

 

Market Comment

In the second quarter of 2023, there was renewed demand for rated European-domiciled MMFs denominated in euros, with net assets increasing 9.8% to €140.2 billion.   Net assets for sterling-denominated MMFs declined by 6.3% to £217.6 billion, which followed a fall of 8.6% in the first quarter. Asset declines across sterling MMFs can perhaps be partly attributed to redeployment of funds to other asset classes following the October 2022 peak after the U.K. released its mini-budget in September 2022. U.S. dollar-denominated funds saw a modest outflow of 0.55% during the quarter to $537.7 billion. We note that U.S.-dollar MMFs ended the first quarter of 2023 with the largest month-end total since we began tracking quarterly risk metrics. When comparing the second quarter of 2023 to this time last year, net assets across all three currencies are up, with euros 37.8% higher, sterling 3.8%, and U.S. dollar MMFs up 10.5%.

MMFs seven-day net yields continued to benefit from central bank policy, as yields strengthened in all three currencies in during the quarter.  In the second quarter of 2023, the European Central Bank (ECB) and the Bank of England (BOE) each raised rates at their policy meetings. The U.S. Federal Reserve (the Fed) raised rates for a 10th consecutive time in May, before committee members voted to pause the campaign of monetary tightening at their June meeting. Seven-day net yields in euro MMFs averaged 3.4%, in sterling MMFs 4.4%, and in U.S.-dollar MMFs 5.1%. As yields stand in this interest rate environment, MMFs are an attractive asset class for investors that are not only looking for returns, but also liquidity and stability.

Weighted average maturities (WAM) for euro-denominated funds lengthened for funds in all three currencies.   Euro MMFs saw the biggest jump in WAM, as maturities moved to 27 days at the end of June from 19 days in March. The WAM of sterling funds saw only a slight increase, to 33 days from 32 days, while the WAM extension was more pronounced in U.S.-dollar MMFs, increasing to 26 days as of June 30, 2023, from 20 in the first quarter. The increase in WAM across the three currencies may indicate that portfolio managers are finding value farther out on the yield curve, since markets are expecting central banks' policy tightening to pause at the end of this year.

Average 'A-1+' asset quality declined across all three currencies during the quarter, albeit staying well above the 50% minimum for a 'AAAm' PSFR.   The share of 'A-1+' credit quality assets in euro MMFs reduced to 59% from 69% as of June 30, 2023. For sterling MMFs, 'A-1+' credit quality averaged 64%, 4% lower than the March number, and for U.S.-dollar MMFs, the proportion went to 74% from 79%. We consider credit quality to play a key role in the stability of the net asset value (NAV) and view higher-rated assets as reflecting higher price stability. MMFs' use of a high-credit-quality approach, diversified issuer base, and goal of providing daily liquidity to investors are playing an important role in the investment universe. Each week, we analyze surveillance data, including credit metrics on asset levels, NAV per share, portfolio credit quality, and diversification, duration, and redemption patterns.

Table 1

AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index September 2022 December 2022 March 2023 June 2023
S&P Global Ratings 'AAAm' euro MMFs 0.53 1.59 2.82 3.41
S&P Global Ratings 'AAAm' sterling MMFs 1.80 3.00 3.82 4.41
S&P Global Ratings 'AAAm' U.S. dollar MMFs 2.82 4.23 4.72 5.12

Table 2

AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index September 2022 December 2022 March 2023 June 2023
S&P Global Ratings 'AAAm' euro MMFs 26 21 19 27
S&P Global Ratings 'AAAm' sterling MMFs 27 24 32 33
S&P Global Ratings 'AAAm' U.S. dollar MMFs 18 18 20 26

Table 3

AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index September 2022 December 2022 March 2023 June 2023
S&P Global Ratings 'AAAm' euro MMFs 61 58 69 59
S&P Global Ratings 'AAAm' sterling MMFs 72 62 68 64
S&P Global Ratings 'AAAm' U.S. dollar MMFs 75 71 79 74

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Top 10 Europe-Domiciled 'AAAm' MMFs--Euro, Sterling, And U.S. Dollar--By Assets--Key Statistics

Table 4

'AAAm' Euro Principal Stability Funds
Rating Fund name Net assets (mil. €) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 45,719 35 53 54
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 20,103 17 27 61
AAAm BNP Paribas Insticash EUR 1D 19,575 49 80 58
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 13,011 9 54 54
AAAm MS Liquidity Funds - Euro Liquidity Fund 11,177 18 36 65
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 8,882 25 33 57
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 5,952 30 49 59
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 3,833 29 29 71
AAAm Insight Liquidity Funds PLC - ILF EUR Liquidity Fund 3,190 31 31 82
AAAm Northern Trust Global Funds PLC - The Euro Liquidity Fund 2,502 22 35 59
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

Table 5

'AAAm' Sterling Principal Stability Funds
Rating Fund name Net assets (mil. £) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 38,508 37 66 68
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 30,624 34 64 58
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 23,524 39 49 68
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 17,908 39 74 51
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 15,381 53 55 66
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 14,394 31 36 66
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,302 26 62 67
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 11,821 21 44 62
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Sterling Fund 7,804 50 80 65
AAAm Northern Trust Global Funds PLC - The Sterling Fund 7,340 33 50 59
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

Table 6

'AAAm' U.S. Dollar Principal Stability Funds (EU-Domiciled)
Rating Fund name Net assets (mil. $) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 106,034 33 59 61
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 62,332 11 29 96
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 60,190 7 13 93
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 51,933 33 62 66
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 38,855 50 71 71
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 35,190 34 62 64
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 34,945 35 74 67
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 22,302 26 70 55
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 19,965 13 23 100
AAAm BNY Mellon Liquidity Funds, PLC - BNY Mellon U.S. Treasury Fund 13,673 10 10 95
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

This report does not constitute a rating action.

Primary Credit Analyst:Michael Mango, London + 44 (0) 207 176 0485;
michael.mango1@spglobal.com
Secondary Contact:Andrew Paranthoiene, London +44 20 7176 8416;
andrew.paranthoiene@spglobal.com

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