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European 'AAAm' Money Market Fund Trends (Third-Quarter 2021)

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U.S. Domestic 'AAAm' Money Market Fund Trends (Third-Quarter 2021)

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European 'AAAm' Money Market Fund Trends (Second-Quarter 2021)

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U.S. Domestic 'AAAm' Money Market Fund Trends (Second-Quarter 2021)

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Local Government Investment Pools (LGIPs) Maintain Conservative Practices As Markets Recover From The Pandemic


European 'AAAm' Money Market Fund Trends (Third-Quarter 2021)

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 principal stability funds (0.65) (0.65) 45 €107.1 63/37
S&P Global Ratings ‘AAAm’ sterling principal stability funds 0 0 48 £220.0 63/37
S&P Global Ratings ‘AAAm’ U.S. dollar principal stability funds 0.02 0.02 42 $492.4 75/25
WAM (R)--Weighted average maturity to reset.

 

Market Comment

In the third quarter of 2021, net assets for rated European-domiciled MMFs denominated in euro and U.S. dollar were range-bound, rising 1.3% to €107 billion for euro MMFs, and falling lower by 1.9% to $492 billion for U.S. dollar MMFs, quarter on quarter. Net assets for sterling MMFs continued their decline since peaking at £252 billion in December 2020, falling 1.1% to £220 billion in the third quarter. While net assets for sterling MMFs are now approaching February 2020, pre-pandemic levels of £212 billion, the net assets for U.S. dollar and euro MMFs remain above their February 2020, pre-pandemic levels of $440 billion and €85 billion, respectively. Thus, cash in the sterling market is being re-deployed at a slightly faster pace than in the euro or offshore U.S. dollar market.

Third quarter seven-day net yield averages have remained flat since they hit the lower bound in the first quarter of 2021, yielding -0.65% for euro, 0.00% for sterling, and 0.02% for U.S. dollar MMFs. In September, the Bank of England and the Federal Reserve began sending more hawkish signals, leaving the market to price in sooner-than-expected policy tightening and sending longer yields higher. Nevertheless, with interest rates set to remain at ultra-low levels at least until next year, and the short end of the curve being almost flat, the pressure to avoid net negative fund yields remains high.

Table 1

'AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index September 2020 December 2020 March 2021 June 2021 September 2021
S&P Global Ratings ‘AAAm’ euro MMFs (0.56) (0.61) (0.65) (0.64) (0.65)
S&P Global Ratings ‘AAAm’ sterling MMFs 0.01 (0.01) (0.01) 0.00 0.00
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 0.07 0.03 0.03 0.03 0.02

In the third quarter, weighted average maturities (WAMs) were stable for euro MMFs at 45 days and U.S. dollar MMFs at 42 days, while those for sterling MMFs were extended by two days to 48 days. While the WAMs for euro MMFs remain steady, those for sterling MMFs have been trending higher since the end of last year, when there was a potential risk of negative rates. With no such risk present this year and the economy on its path to recovery, fund managers in the sterling market have been comfortably investing in longer-dated assets, which has increased the WAMs. WAMs for U.S. dollar MMFs have been trending lower than during the last two quarters, which may be explained in part by the higher volatility in rates associated with the early conversations of tapering and delayed resolution of the U.S. debt ceiling issue.

Table 2

'AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index September 2020 December 2020 March 2021 June 2021 September 2021
S&P Global Ratings ‘AAAm’ euro MMFs 46 46 45 45 45
S&P Global Ratings ‘AAAm’ sterling MMFs 42 45 48 46 48
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 41 43 43 42 42

The average level of 'A-1+' credit quality of the rated U.S. dollar MMFs remained steady in the third quarter of 2021 at 75%, yet trended slightly lower for Euro and sterling MMFs, averaging 63%, which is still at a level higher than the minimum 50% required for AAAm-rated MMFs. With ultra-low interest rates and benign markets, WAMs have extended beyond pre-pandemic levels, and there has been a greater proportion invested in credit securities, such as bonds, certificates of deposits, commercial paper, and floating rate notes. They account for close to 60% in euro and sterling MMFs, whereas this is trending at less than 50% in U.S. dollar MMFs, which explains the higher credit quality for U.S. dollar MMFs.

Table 3

'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index September 2020 December 2020 March 2021 June 2021 September 2021
S&P Global Ratings ‘AAAm’ euro MMFs 72 67 64 66 63
S&P Global Ratings ‘AAAm’ sterling MMFs 68 64 62 65 63
S&P Global Ratings ‘AAAm’ U.S. dollar MMFs 81 76 74 73 75

The third quarter incurred persistent inflation pressures and increased rhetoric for tighter monetary conditions, starting with the initial discussions of easing central bank asset purchases. Despite this backdrop, our rated MMFs have maintained or lengthened their WAMs and are not positioned for any rate hike soon. In fact, our rated MMF sponsors are planning their year-end strategies during which time liquidity condition can be challenging, which means for some, lengthening their maturities during the quarter to ensure sufficient liquidity over the year-end period. In the past 12 months, all MMFs we rate had their 'AAAm' ratings affirmed. Going forward, we trust that our weekly surveillance and regular interactions with MMF fund managers will continue the affirmative ratings trend.

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

Table 4

'AAAm' Euro Principal Stability Funds
--Portfolio maturity (days)--
Rating Fund Name Net assets (mil. €) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 35,685 49 49 55
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 14,142 30 30 74
AAAm BNP Paribas Insticash EUR 1D Short Term VNAV 11,881 47 74 66
AAAm MS Liquidity Funds - Euro Liquidity Fund 9,757 45 46 68
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 7,564 55 55 57
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 7,024 49 64 72
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 6,072 38 38 62
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 3,873 49 50 62
AAAm Amundi Money Market Fund - Short Term (EUR) 3,155 41 43 73
AAAm Northern Trust Global Funds PLC - The Euro Liquidity Fund 2,327 45 47 63
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

Table 5

'AAAm' Sterling Principal Stability Funds
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. £) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 37,896 47 56 61
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 35,082 54 59 60
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 24,476 55 65 53
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 23,661 47 50 62
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 19,941 57 63 65
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 13,454 37 37 75
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 11,754 52 71 70
AAAm Northern Trust Global Funds PLC - The Sterling Fund 9,325 54 65 56
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Sterling Fund 8,739 54 76 72
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 7,750 53 67 61
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

Table 6

'AAAm' U.S. Dollar Principal Stability Funds (EU-Domiciled)
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. $) WAM (R) WAM (F) Portfolio credit quality (% A-1+)
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 109,519 45 64 56
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 57,983 50 66 62
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 52,107 44 44 95
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 50,295 56 78 98
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 31,892 47 64 73
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 29,756 35 35 81
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 17,683 32 47 62
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 16,833 32 35 100
AAAm BNY Mellon Liquidity Funds, PLC - BNY Mellon U.S. Treasury Fund 16,369 52 56 100
AAAm MS Liquidity Funds - US Dollar Treasury Liquidity Fund 15,661 50 52 95
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity to final.

This report does not constitute a rating action.

Primary Credit Analysts:Emelyne Uchiyama, London + 44 20 7176 8414;
emelyne.uchiyama@spglobal.com
Andrew Paranthoiene, London 44-20-7176-8416;
andrew.paranthoiene@spglobal.com
Secondary Contact:Michael Mango, Centennial 1-303-721-4181;
michael.mango1@spglobal.com

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