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European 'AAAm' Money Market Fund Trends (Fourth Quarter 2024)

Index data
Index name Seven-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 2.95 3.07 36 €263.0 62/38
S&P Global Ratings 'AAAm' sterling MMFs 4.67 4.67 44 £239.1 64/36
S&P Global Ratings 'AAAm' U.S. dollar MMFs 4.43 4.53 40 $680.9 71/29
MMF--Money market fund. WAM (R)--Weighted average maturity to reset. Source: S&P Global Ratings.

'AAAm' Money Market Fund Indicators

S&P Global Ratings' 'AAAm' money market fund (MMF) indicators are metrics of Europe-domiciled 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 criteria. These MMF indicators provide a benchmarking tool of the 'A-1+' credit quality, portfolio composition, maturity distribution, net asset movements, and yields of MMFs with a 'AAAm' principal stability fund rating (PSFR).

The MMF indicators demonstrate the investment practices of funds conforming to S&P Global Ratings' PSFR criteria. An individual fund's metrics below those of our 'AAAm' MMF indicators may indicate a more conservative approach to investment, while risk metrics well above the average may signal a more aggressive approach, albeit undertaken within the constraints of a 'AAAm' PSFR.

Market Comment

Europe-domiciled MMFs concluded 2024 on a strong note, with significant asset growth. By December 2024, euro-denominated funds reached a record €262 billion, while U.S. dollar-denominated funds hit $680 billion. Sterling-denominated funds ended the year at £239 billion, just below the November peak of £243 billion. Over the past year, net assets increased across all three currencies: euro funds rose 31%, sterling funds 9%, and U.S. dollar funds 11%.

In fourth-quarter 2024, the European Central Bank (ECB) and the U.S. Federal Reserve each implemented two interest rate cuts. The ECB's deposit rate settled at 3.00%, while the effective federal funds rate target range is now 4.25%-4.50%. The Bank of England (BoE) reduced its rate to 4.75%, from 5.00%, with the next decision scheduled for Feb. 6, 2025. Following these cuts, seven-day yields fell by 53 basis points (bps) for euro MMFs, 24 bps for sterling MMFs, and 49 bps for U.S. dollar MMFs (see table 1). The decline in seven-day net yields prompted U.S. dollar MMFs to extend their weighted average maturity (WAM) profiles during the fourth quarter, while euro and sterling MMFs remained stable (see table 2 and chart 1). However, any WAM extension must be considered against ongoing geopolitical and economic uncertainties.

Table 1

'AAAm' principal stability funds--Seven-day net yield (%)
Index March 2024 Jun. 2024 Sep. 2024 Dec. 2024
S&P Global Ratings 'AAAm' euro MMFs 3.86 3.66 3.48 2.95
S&P Global Ratings 'AAAm' sterling MMFs 5.16 5.12 4.91 4.67
S&P Global Ratings 'AAAm' U.S. dollar MMFs 5.28 5.26 4.92 4.43
MMF--Money market fund. Source: S&P Global Ratings.

Table 2

'AAAm' principal stability funds--Weighted average maturity (in days)
Index March 2024 June 2024 September 2024 December 2024
S&P Global Ratings 'AAAm' euro MMFs 34 40 33 32
S&P Global Ratings 'AAAm' sterling MMFs 44 44 40 39
S&P Global Ratings 'AAAm' U.S. dollar MMFs 41 41 35 41
MMF--Money market fund. Source: S&P Global Ratings.

From a credit quality perspective, U.S. dollar MMFs continued to hold a higher percentage of 'A-1+' securities in 2024, compared with their euro and sterling counterparts (see table 3 and chart 2). We believe credit quality is crucial for a fund's net asset value (NAV) stability. Given the financial sector exposure in rated MMFs, we anticipate relative stability in bank ratings for 2025, with stable outlooks on about 80% of global banking groups. Positive rating movements are likely to stem from country-specific and bank-specific factors, rather than macroeconomic tailwinds.

Table 3

'AAAm' principal stability funds--'A-1+' credit quality (%)
Index March 2024 June 2024 September 2024 December 2024
S&P Global Ratings 'AAAm' euro MMFs 60 63 61 62
S&P Global Ratings 'AAAm' sterling MMFs 64 66 65 64
S&P Global Ratings 'AAAm' U.S. dollar MMFs 75 74 73 7
MMF--Money market fund. Source: S&P Global Ratings.

The macro-credit outlook would appear more favorable if the geopolitical situation was less uncertain. Rating actions and outlooks in Europe have largely normalized after the COVID-19 pandemic and the energy crisis. Inflation is nearing target levels and the rate cycle is shifting. Disinflation will enable central banks to gradually ease monetary policy, with the ECB deposit rate projected to reach 2.5% by third-quarter 2025 and the BoE base rate at 3.0% by January 2026. Notably, the outlook for European banks remains stable, supported by solid fundamentals. While declining net interest margins due to lower interest rates may pose challenges, increases in lending, fee-earning activities, and stable credit costs should help mitigate these effects.

Chart 1

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Top 10 Europe-Domiciled 'AAAm' Euro, Sterling, And U.S. Dollar MMFs 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 88,381 32 57 64
AAAm BNP Paribas InstiCash EUR 1D LVNAV 32,236 41 77 64
AAAm JPMorgan Liquidity Funds--EUR Liquidity LVNAV Fund 26,277 37 57 63
AAAm HSBC Global Liquidity Funds PLC--HSBC Euro Liquidity Fund 23,997 30 78 59
AAAm Goldman Sachs Funds, plc--Goldman Sachs Euro Liquid Reserves Fund 21,896 41 58 55
AAAm MS Liquidity Funds--Euro Liquidity Fund 18,018 34 58 57
AAAm DWS Deutsche Global Liquidity Series PLC--Deutsche Managed Euro Fund 16,692 28 49 55
AAAm State Street Liquidity plc--State Street EUR Liquidity LVNAV Fund 7,846 32 60 61
AAAm Fidelity Institutional Liquidity Fund PLC--The Euro Fund 6,618 36 61 55
AAAm Institutional Cash Series plc--BlackRock ICS Euro Government Liquidity Fund 4,322 15 15 100
WAM (F)--Weighted average maturity to final. WAM (R)--Weighted average maturity to reset. Source: S&P Global Ratings.

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 43,709 34 60 64
AAAm LGIM Liquidity Funds PLC--LGIM Sterling Liquidity Fund 33,525 38 71 65
AAAm Insight Liquidity Funds PLC--ILF GBP Liquidity Fund 21,695 33 55 77
AAAm Aviva Investors Liquidity Funds PLC--Aviva Investors Sterling Liquidity Fund 21,426 48 77 50
AAAm Aberdeen Standard Liquidity Fund (Lux)--Sterling Fund 17,233 42 83 58
AAAm JPMorgan Liquidity Funds--GBP Liquidity LVNAV Fund 15,661 41 66 69
AAAm Goldman Sachs Funds, plc--Goldman Sachs Sterling Liquid Reserves Fund 13,683 48 58 59
AAAm HSBC Global Liquidity Funds PLC--HSBC Sterling Liquidity Fund 13,426 32 61 64
AAAm Northern Trust Global Funds PLC--The Sterling Fund 9,941 36 63 62
AAAm Institutional Cash Series plc--BlackRock ICS Sterling Government Liquidity Fund 7,007 30 30 100
WAM (F)--Weighted average maturity to final. WAM (R)--Weighted average maturity to reset. Source: S&P Global Ratings.

Table 6

'AAAm' U.S. dollar principal stability funds (EU-domiciled)
Rating Fund name Net assets (mil. $) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) 'A-1+'
AAAm JPMorgan Liquidity Funds--USD Liquidity LVNAV Fund 88,056 50 71 55
AAAm Institutional Cash Series plc--BlackRock ICS US Dollar Liquidity Fund 63,860 42 71 61
AAAm JPMorgan Liquidity Funds--USD Treasury CNAV Fund 62,340 51 61 99
AAAm Goldman Sachs Funds, plc--Goldman Sachs US$ Treasury Liquid Reserves Fund 51,708 53 74 97
AAAm MS Liquidity Funds--US Dollar Liquidity Fund 50,063 54 88 59
AAAm HSBC Global Liquidity Funds PLC--HSBC US Dollar Liquidity Fund 41,455 48 70 57
AAAm Goldman Sachs Funds, plc--Goldman Sachs US$ Liquid Reserves Fund 28,426 48 69 66
AAAm State Street Liquidity plc--State Street USD Liquidity LVNAV Fund 24,801 39 76 59
AAAm Institutional Cash Series plc--BlackRock ICS US Treasury Fund 22,392 42 53 100
AAAm Northern Trust Global Funds PLC--The US Dollar Fund 17,785 34 62 61
WAM (F)--Weighted average maturity to final. WAM (R)--Weighted average maturity to reset. Source: S&P Global Ratings.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Andrew Paranthoiene, London + 44 20 7176 8416;
andrew.paranthoiene@spglobal.com
Secondary Contact:Celia Bouakicha, London +44 7815 018880;
celia.bouakicha@spglobal.com

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