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European 'AAAm' Money Market Fund Trends (Fourth 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 3.81 3.88 33 € 200.0 60/40
S&P Global Ratings 'AAAm' sterling MMFs 5.23 5.22 34 £219.5 64/36
S&P Global Ratings 'AAAm' U.S. dollar MMFs 5.35 5.35 40 $612.0 75/25
WAM (R)--Weighted average maturity to reset.

 

Market Comment

Europe-domiciled MMFs rated by S&P Global Ratings reached an all-time high in terms of assets under management (AUM) as of Dec. 31, 2023, totalling €1.01 trillion (about $1.11 trillion). Net assets in euro and U.S. dollar-denominated funds had also peaked as of year-end 2023. Euro MMF assets reached €200 billion, up 40% in the fourth quarter and up 51% from the end of 2022. One fund added €25.1 billion of AUM to this index during the quarter. Yet even without the inclusion of this fund, assets would have still increased significantly. Net assets in U.S. dollar MMFs totalled $611.9 billion in December, up 5.3% from the third quarter and 20.0% year over year. Although sterling-denominated assets were down 13.9% versus the figure on Dec. 31, 2022, AUM was up 6.2% from the third quarter at £219.5 billion.

The interest rate hiking cycle appears to have come to an end, as committee members of the European Central Bank (ECB), Bank of England (BOE), and the U.S. Federal Reserve (the Fed) all voted to hold rates during their monetary policy meetings in the fourth quarter. Despite this, MMF yields continued to rise during that quarter. Seven-day yields on euro MMFs averaged 3.81%, in sterling MMFs 5.23%, and in U.S. dollar-denominated funds 5.35%.

Since interest rate cuts are on the horizon in 2024, it will be interesting to see whether more investors will place their cash in MMFs rather than bank deposits. In anticipation of such a trend, portfolio managers typically extend portfolio credit and duration attributes to lock in higher yields. Investors may see MMFs as an alternative option for additional yield, while still getting the liquidity, diversification, and safety of principal of managed MMFs.

Weighted-average maturities (WAM) increased in euro and U.S. dollar-denominated funds, while that for sterling funds remained the same at 34 days. The WAM for U.S. dollar funds lengthened more significantly, to 40 days from 30, while for euro-denominated funds the increase was modest, to 33 days from 32 days in the third quarter. With the rate hiking cycle currently paused, and cuts expected through 2024, we could see different duration strategies being implemented this year instead of the central bank's meeting-to-meeting approach we observed in 2023.

We consider credit quality to be a key factor in the stability of net asset value (NAV) and view the price of higher-rated assets as more stable than investments with lower ratings. Euro-denominated MMFs saw average 'A-1+' credit quality increase to 60% from 58%. Average 'A-1+' credit quality in U.S. dollar funds was flat at 75% in the fourth quarter of 2023, while average 'A-1+' credit quality of sterling MMFs decreased slightly to 64% from 65%. As of year-end 2023, 'A-1+' credit quality in Europe-domiciled MMFs was well above the 50% minimum requirement for 'AAAm' rated funds.

Each week, we analyze the surveillance data, including credit metrics on asset levels, NAV per share, credit quality, diversification, duration, and redemption patterns. All the Europe-domiciled funds continue to meet our criteria metrics and we affirmed our 'AAAm' ratings during 2023.

Table 1

'AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index March 2023 June 2023 September 2023 December 2023
S&P Global Ratings 'AAAm' euro MMFs 2.82 3.41 3.64 3.81
S&P Global Ratings 'AAAm' sterling MMFs 3.82 4.41 4.96 5.23
S&P Global Ratings 'AAAm' U.S. dollar MMFs 4.72 5.12 5.32 5.35

Table 2

'AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index March 2023 June 2023 September 2023 December 2023
S&P Global Ratings 'AAAm' euro MMFs 19 27 32 33
S&P Global Ratings 'AAAm' sterling MMFs 32 33 34 34
S&P Global Ratings 'AAAm' U.S. dollar MMFs 20 26 30 40

Table 3

'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index March 2023 June 2023 September 2023 December 2023
S&P Global Ratings 'AAAm' euro MMFs 69 59 58 60
S&P Global Ratings 'AAAm' sterling MMFs 68 64 65 64
S&P Global Ratings 'AAAm' U.S. dollar MMFs 79 74 75 75

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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 58,980 26 54 59
AAAm JPMorgan Liquidity Funds - EUR Liquidity LVNAV Fund 25,223 31 52 66
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 25,059 26 28 58
AAAm BNP Paribas Insticash EUR 1D 21,627 55 82 55
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 17,809 20 63 58
AAAm MS Liquidity Funds - Euro Liquidity Fund 14,681 37 61 56
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 11,039 39 66 58
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 6,845 36 53 58
AAAm Fidelity Institutional Liquidity Fund PLC - The Euro Fund 3,283 43 60 64
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 3,268 41 63 62
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 38,580 37 55 64
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 36,971 33 59 64
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 20,914 32 46 75
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 16,979 35 60 51
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,140 35 56 64
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 13,206 36 60 64
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 12,753 28 30 63
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 11,669 25 42 59
AAAm Northern Trust Global Funds PLC - The Sterling Fund 8,296 29 49 62
AAAm Federated Hermes Short-Term Sterling Prime Fund 7,305 49 75 56
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. $) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 121,890 49 62 64
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 70,757 40 48 71
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 63,263 58 75 100
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 61,637 49 60 98
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 44,950 49 59 65
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 42,887 55 80 59
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 37,225 54 62 70
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 28,499 46 67 59
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 24,697 33 56 100
AAAm Northern Trust Global Funds PLC - The US Dollar Fund 14,221 35 58 53
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 2071760485;
michael.mango1@spglobal.com
Secondary Contact:Andrew Paranthoiene, London +44 20 7176 8416;
andrew.paranthoiene@spglobal.com

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