'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 an 'AAAm' principal stability fund rating.
Market Comment
MMFs continued to attract inflows in the second quarter of 2023, while stress in the U.S. banking sector carried over from the first quarter, although abated. Growth was slower relative to the first quarter for both rated government and prime funds, in part due to seasonal withdrawals related to corporate tax payments in June. Rated government MMF assets increased 3% quarter-over-quarter, hitting nearly $3.2 trillion. Prime MMF assets increased 5%, ending the quarter at $485 billion.
Yields climbed higher, advancing MMFs as a desirable place for investors to park cash. The seven-day and 30-day net yields for government funds increased to 4.78% and 4.76%, respectively. The seven-day net yield for prime funds surpassed the 400 basis point (bps) range, reaching 5.01%, and the 30-day net yield rose to 4.99%.
As we expected, the Federal Reserve is slowing rate hikes due to current economic data. The Fed raised the federal funds rate 25 bps in May, bringing it to 5.00%-5.25%, and held it steady in June. However, economic resilience has spurred uncertainty about the level of additional rate hikes and the probability of a recession.
S&P Global economists forecast no remaining rate hikes in the current cycle, followed by cuts in mid-2024. Additionally, they revised their baseline forecast to a shallower and more protracted slowdown in the U.S. rather than a recession. (see "Economic Research: Strong U.S. Jobs Report Makes A Rate Hike All But Certain In July," July 13, 2023, and "Economic Outlook U.S. Q3 2023: A Sticky Slowdown Means Higher For Longer," June 26, 2023).
Table 1
'AAAm' principal stability funds seven-day net yield (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-22 | Sep-22 | Dec-22 | Mar-23 | Jun-23 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 1.1 | 2.64 | 3.88 | 4.42 | 4.78 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 1.27 | 2.75 | 4.12 | 4.58 | 5.01 | |||||||
MMF--Money market fund. |
Post the U.S. debt ceiling resolution in late May, MMF managers, especially on the government side, welcomed a spike in Treasury bill issuance. Rated government MMFs increased their average Treasury bill exposure to 20% from 15% this quarter versus the first quarter. With the pickup in Treasury bills, repurchase agreements (repo) weighting continued to decline in the second quarter to 58% from 60%. The Fed's reverse repo program (RRP) remained a sizable portion of government funds' repo holdings, but exposure to the RRP overall fell. Additionally, purchases of agency debt decreased due to the recent Treasury issuance and lower supply in the agency space.
Prime fund managers also bought additional Treasury bills. Although Treasury bill exposure for prime funds remained minimal, their exposure doubled quarter-over-quarter. Exposure to commercial paper (CP) grew, as managers sought to capitalize on the steepness of the CP curve. Purchases of certificates of deposit also saw an uptick. Consequently, weightings in repo, corporate bonds, and asset-backed commercial paper were lower.
Contrary to the extremely short bias at the beginning of the year, the maturity profiles of government and prime MMFs lengthened during the second quarter. Weighted average maturities (WAMs) increased by seven days for government funds and five days for prime funds. We think additional extending is likely once the terminal rate peaks, but managers may extend more cautiously in the near future given that the current rate hiking cycle may be pushed out longer considering recent economic data.
Table 2
'AAAm' principal stability funds weighted average maturity (in days) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-22 | Sep-22 | Dec-22 | Mar-23 | Jun-23 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 27.0 | 19.0 | 15.0 | 16.0 | 23.0 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 24.0 | 19.0 | 22.0 | 26.0 | 31.0 | |||||||
MMF--Money market funds. |
Effective 'A-1+' credit quality remained unchanged for government funds during the second quarter. Prime funds experienced a slight downward migration of effective 'A-1+' credit quality, coinciding with greater opportunities to invest out the yield curve.
Table 3
'AAAm' principal stability funds 'A-1+' credit quality (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-22 | Sep-22 | Dec-22 | Mar-23 | Jun-23 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 98.0 | 98.0 | 97.0 | 97.0 | 97.0 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 67.0 | 70.0 | 66.0 | 67.0 | 64.0 | |||||||
MMF--Money market fund. |
The distribution of net asset values (NAV per share) for funds widened slightly, with a few funds moving lower. At quarter-end, all fund NAVs were above $0.9992.
Shortly after the end of the second quarter, the SEC released final rules on its third set of reforms for institutional MMFs since 2010. The new reforms included increasing daily and weekly liquidity requirements to 25% and 50%, respectively, and removing the link between gates and fees to weekly liquidity.
The SEC opted for mandatory liquidity fees when a fund experiences daily net redemptions that exceed 5% of net assets, rather than swing pricing. The impacts of such reforms on the industry are yet to be realized. Fund sponsors and investors alike will take time to digest the reforms, and MMFs will have 12 months from when the rules are sent to the federal register to comply with the requirements.
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Top 10 U.S. Domiciled 'AAAm' MMFs (Government And Prime) By Assets--Key Statistics
Table 4
S&P Global Ratings 'AAAm' US$ principal stability funds--government | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--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 | 266,706 | 31 | 87 | 95 | |||||||
AAAm | JPMorgan U.S. Government Money Market Fund | 257,431 | 25 | 57 | 92 | |||||||
AAAm | Fidelity Investments Money Market Government Portfolio | 178,211 | 21 | 58 | 98 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 162,746 | 18 | 71 | 93 | |||||||
AAAm | BlackRock Liquidity Funds FedFund | 150,889 | 21 | 57 | 92 | |||||||
AAAm | Federated Government Obligations Fund | 142,531 | 26 | 84 | 100 | |||||||
AAAm | JPMorgan 100% U.S. Treasury Securities Money Market Fund | 130,570 | 42 | 75 | 100 | |||||||
AAAm | Dreyfus Government Cash Management | 120,138 | 24 | 60 | 94 | |||||||
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 110,630 | 38 | 83 | 100 | |||||||
AAAm | State Street Institutional U.S. Government Money Market Portfolio | 104,684 | 22 | 48 | 98 | |||||||
PSFR--Principal stability fund rating. |
Table 5
S&P Global 'AAAm' US$ principal stability funds--prime | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
PSFR | Fund name | Net assets | WAM (R) | WAM (F) | Portfolio credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan Prime Money Market Fund | 78,645 | 27 | 54 | 59 | |||||||
AAAm | Federated Prime Cash Obligations Fund | 50,312 | 40 | 72 | 63 | |||||||
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 22,463 | 45 | 80 | 57 | |||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 22,048 | 37 | 62 | 62 | |||||||
AAAm | Florida PRIME | 21,785 | 33 | 80 | 59 | |||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 19,045 | 41 | 98 | 83 | |||||||
AAAm | Federated Institutional Prime Obligations | 17,345 | 39 | 74 | 62 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 17,080 | 32 | 72 | 72 | |||||||
AAAm | California Asset Management Trust/Cash Reserve Portfolio | 14,798 | 27 | 60 | 50 | |||||||
AAAm | State Street Money Market Portfolio | 14,778 | 15 | 39 | 70 | |||||||
PSFR--Principal stability fund rating. |
This report does not constitute a rating action.
Primary Credit Analyst: | Marissa Zuccaro, Englewood + 1 (303) 721 4762; marissa.zuccaro@spglobal.com |
Secondary Contacts: | Michael Masih, New York + 1 (212) 438 1642; michael.masih@spglobal.com |
Andrew Paranthoiene, London + 44 20 7176 8416; andrew.paranthoiene@spglobal.com |
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