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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 (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


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

Index 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' principal stability funds--prime 0.01 0.04 43 373 65/35
S&P Global Ratings 'AAAm' principal stability funds--government 0.01 0.01 35 2,935.8 97/3
WAM (R)--Weighted average maturity to reset.

 

Market Comment

The third quarter of 2021 for rated U.S. MMFs continued to see a slow bleed out of prime funds, while government funds maintained a near record level of net assets. Prime fund net assets were down to $373 billion or 18% compared to the previous year, just above March 2020 lows of $362 billion. Government fund assets were up to $2,935 billion or 12% over the previous year, around $300 billion higher compared to the market dislocation period of March 2020.

There continues to be a massive imbalance of supply and demand, and that will likely continue in the near to medium term. The spread difference between prime funds and government funds is only a few basis points (bps).

Across both fund types, yields are flat compared to last quarter. However, there continues to be pressure on yields, driven by the shrinking pool of low-risk assets, debt ceiling noise, the prospect of regulatory reform and continued scrutiny on prime funds. There was some relief through the third quarter following the tweaks to the reverse repurchase agreement (repo) facility in late June by the Federal Reserve.

In terms of portfolio composition, the purchases of Treasury bills in government MMFs saw its lowest allocation going to back to March 2020, as supply diminished following the Department of the Treasury's efforts to reduce its cash balances. Also, agency issuance has been somewhat limited in recent months, which further reduced exposure to very low levels. This has been offset by fund managers increasing their allocation into repos, with most of being overnight. There was also a modest increase to seven-day liquidity due to the increase in overnight positions.

Similar to last quarter, the Federal Reserve's repo program saw a spike in activity. Prime fund managers increased their allocation to repos and slightly reduced their exposure to commercial paper (CP) and asset-backed commercial paper (ABCP) during the quarter, which is reflected in the small increase in overnight and seven-day liquidity within prime funds. Compared to the previous year, there was an increase in time deposits, CP, and ABCP, with a decrease in exposure to sovereigns, supranationals, and agencies (SSA).

Like government funds, supply constraints in the short-term funding markets may have reduced the option to invest in certain asset classes. Yields remained low throughout the quarter. Seven-day and 30-day net yields for government funds were 0.01%, unchanged from the previous quarter and down two basis points (bps) from the previous year. The seven-day net yield for prime funds was 0.01% and the 30-day net yield was 0.04%, unchanged from the last quarter and down 12 bps and 10 bps form the last year, respectively. Fund managers extended their use of fee waivers, which have been a widespread and crucial tool for attracting continued inflows into MMFs.

Table 1

'AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
S&P Global Ratings 'AAAm' prime MMFs 0.13 0.02 0.02 0.01 0.01
S&P Global Ratings 'AAAm' government MMFs 0.03 0.02 0.02 0.01 0.01
MMF--Money market fund.

Managers shortened the weighted average maturity (WAM) of government funds to 35 days, two days shorter than the previous quarter. This is being driven by the lack of supply in the market and managers favoring short-dated assets like repos to help manage their liquidity. With the flat yield curve, there is very little incentive to extend portfolio WAMs within the prime space, which can be seen modestly shrining by three days to 43 days.

In addition, fund managers are keeping their WAMs relatively short, as the market is expecting updates from the Federal Reserve about future quantitative tightening and adjustments to the repo facility.

Among purchases of floating-rate securities, we observed a very limited use of Bloomberg Short Term Bank Yield Index (BSBY) floaters in some rated funds. Most fund managers are no longer adding LIBOR floaters and are letting their exposure roll off by year-end. Managers have been more active in Secured Overnight Financing Rate (SOFR) and Fed fund floaters, but now they are seeing more value in fixed paper.

Table 2

'AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
S&P Global Ratings 'AAAm' prime MMFs 44 44 46 46 43
S&P Global Ratings 'AAAm' government MMFs 42 43 42 37 35
MMF--Money market funds.

Government funds maintained heavy weighting in effective 'A-1+' exposure, at 97%. Prime funds also held steady, keeping effective 'A-1+' exposure around 65%. Several government funds continue to hold small positions in 'A-2' overnight repo.

Table 3

'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
S&P Global Ratings 'AAAm' prime MMFs 68 68 65 66 65
S&P Global Ratings 'AAAm' government MMFs 97 95 96 97 97
MMF--Money market fund.

In terms of net asset values (NAV per share) for rated funds, they stayed in a 23 bp range, between 0.9996 and1.0019 per share.

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Top 10 U.S.-Domiciled 'AAAm' MMFs--Government And Prime--By Assets--Key Statistics

Table 4

'AAAm' USD Principal Stability Funds--Government
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. $) WAM (R) WAM (F) Credit quality 'A-1+' (%)
AAAm JPMorgan U.S. Government Money Market Fund 238,511 35 52 100
AAAm Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund 222,109 39 99 88
AAAm BlackRock Liquidity Funds FedFund 175,205 18 74 90
AAAm Morgan Stanley Institutional Liquidity Funds - Government Portfolio 158,507 20 33 99
AAAm Wells Fargo Government Money Market Fund 142,586 31 91 92
AAAm Federated Government Obligations Fund 132,096 29 85 99
AAAm Fidelity Investments Money Market Government Portfolio 127,994 31 78 97
AAAm BlackRock Liquidity Funds T-Fund 120,289 18 75 98
AAAm Dreyfus Government Cash Management 117,401 17 89 100
AAAm BlackRock Liquidity Funds Treasury Trust Fund 101,817 48 91 100
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final.

Table 5

'AAAm' USD Principal Stability Funds--Prime
--Portfolio maturity (days)--
Rating Fund name Net assets (mil. $) WAM (R) WAM (F) Credit quality 'A-1+' (%)
AAAm JPMorgan Prime Money Market Fund 76,801 41 65 62
AAAm Federated Prime Cash Obligations Fund 18,198 47 56 55
AAAm State Treasury Asset Reserve of Ohio (STAR OHIO) 18,073 41 57 69
AAAm Morgan Stanley Institutional Liquidity Funds - Prime Portfolio 16,866 25 37 71
AAAm Florida PRIME 15,455 49 64 67
AAAm State Street Money Market Portfolio 13,860 40 55 61
AAAm Federated Institutional Prime Obligations 13,528 53 59 51
AAAm Connecticut State Treasurer's Short-Term Investment Fund 12,326 41 64 84
AAAm Texas Cooperative Liquid Assets Securities System 12,270 53 88 59
AAAm Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) 11,771 57 89 60
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final.

This report does not constitute a rating action.

Primary Credit Analysts:Joseph Zimbalist, New York;
joseph.zimbalist@spglobal.com
Marissa Zuccaro, Centennial + 1 (303) 721 4762;
marissa.zuccaro@spglobal.com
Secondary Contact:Andrew Paranthoiene, London + 44 20 7176 8416;
andrew.paranthoiene@spglobal.com

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